MAY 29, 2018
The sweater is lost when the first thread begins to unravel. The only question is how long the complete unraveling will take. Pulitzer Prize-winning journalist Walter Lippmann understood the enormity of Roosevelt’s decision to step away from the gold standard almost a century ago:
The mechanics at work were complex and that any change in the value of the dollar would have to be supported by other policies, including fairly massive open-market operations undertaken by the Federal Reserve.
When the US dollar was taken off the gold standard, its fate was sealed. Reducing the ratio by which the dollar’s value was pegged to gold was a fatal cut, and the leakage has been relentless ever since.
Gold always wins. Every proxy, substitute, or replica ever designed by man, in every incarnation, has failed. The clock is always ticking, and gold has all the time in the world.
On January 16, 1933, the Gold Bill was introduced in Congress. The New York Times reported that its “enactment will permit the President to take all powers of currency issue from the Federal Reserve Board, and lodge them exclusively in the government.”
The article explained that the proposed regime would be a modified “bullion standard,” where international trade would be settled in gold. However, private parties would not be allowed to own, buy or sell the metal: “There is nothing in the plan to set up a free or open gold market, and, while the President in his message spoke sympathetically of the increased use of silver … he did not promise any, further pro-silver legislation soon.”
The bill gave the president authority to fix a new official value for the dollar between 50 percent and 60 percent of the original par of $20.67 per ounce of gold. Further, in the future the president could change the value of the currency at his will within that 10 percent window or band.
Toward the end of the long article, the reporter pointed out that a key purpose of this legislation was to remove one of the main criticisms of the administration’s gold policy: “that it was uncertain and no one knew what the new value of the dollar was to be.”
On January 30, 1934, and after a heated debate in both chambers of Congress, the Gold Reserve Act of 1934 was signed into law. The next day the president set the new official price of gold at $35 an ounce. The Treasury announced that it was willing to buy and sell any amount of metal at that price, internationally. U.S. residents, however, were still not allowed to hold gold.