Re: RE: gas

["Ian Murray" <seamus2001@xxxxxxxx>]

> David Shemano wrote:
>
> > Why does any government inflate the money supply?  Debasing the
> > currency is
> > a favorite hobby for governments going back to the Romans and
beyond.  Why
> > would the good old USA be any different?  Once Nixon severed the
link to
> > gold in 1971, the money supply was at the complete mercy of the
limited
> > wisdom of fallible human beings, and we got the monetary chaos we
have
> > experienced for the past 30 years.
>
> Why did Nixon go off the gold standard?
>
> Mark Jones
==================

"With the US balance-of -payments deficits pumping a growing amount of
excess dollars into international circulation, it was only a question
of time before banks outside the US began to accept dollar-denominated
deposits and loans. Starting in the late 1950's, this so called
Eurodollar market emerged as a global private banking network beyond
the reach of national governments. Transnational banks and their
corporate customers used this parallel credit system not least to
circumvent domestic regulations. During 1968-69, in response to rising
interest rates and a severe credit shortage at home, US banks borrowed
heavily from the Eurodollar market through their foreign subsidiaries.
Thus reduced foreign dollar holdings and thereby alleviated the dollar
glut temporarily. But when US credit conditions eased, the repayments
of these loans combined with additional dollar outflows in response to
higher interest rates abroad. As a result, short term US capital flows
shifted dramatically from a positive inflow 5.8 billion average for
68-69 to a negative 6.5 billion in 1970.

"Such massive capital outflows set the stage for a major dollar crisis
in 1971. Dollars accumulating in the Euromarket could easily be
switched in and out of currencies and countries. That unregulated and
globally integrated banking system thus became the perfect conduit for
currency speculation. Pressure on the dollar continued to mount
throughout 1970 and early 1971 in response to rising interest rates in
Europe as well as steadily worsening US inflation and BOP figures. The
Nixon administration faced this situation with a policy of benign
neglect, thereby forcing foreign central banks to absorb most ot the
dollar sales by private holders and speculators. Their dollar
purchases, having the same effect as open-market purchases, expanded
domestic bank reserves and money creation. In this way US inflation
was effectively 'exported' to the rest of the world. Efforts by
foreign central banks to counteract this involuntary monetary
expansion proved futile, since the investment, since the interest
rates increased thereby only attracted further dollar outflows and
sales.

"This gradually building dollar crisis reached an explosive peak in
August 1971 amid news of the first US trade deficit since 1893 and
publication of a report by the highly respected Reuss subcommittee of
the Congressional Joint Economic Committee which recommended a
devaluation of the dollar. Faced with conversion demands by France and
a British request to reactivate the Fed's swap lines, the Nixon
administration finally severed the dollar's link with gold on August
15....Nixon's convertibility suspension transformed the inevitable
dollar devaluation from a sign of weakness into a show of American
power and shifted the blame for domestic unemployment to the Japanese
and Europeans."

[From Robert Guttmann's "How Credit Money Shapes the Economy" 141-142]