By Kate Festler, Guest Columnist
At the end of World War II, our free, morally strong, wealthy nation became the envy of the world. Our soldiers sacrificed their lives and our people endured loss and hardship so that others could be free. Because our people lived by the golden rule, they became greatly respected by all.
One day there was a meeting of all the nations (It was said): “Great Nation you have sacrificed much to defend us, you are a mighty power in the world and all nations want to trade with you.”
The leaders of the Great Nation spoke and said, “We want to trade with you and keep our relations honest and transparent. We propose as a reserve currency for all, our U.S. dollar. We will back it by real gold.”
At this time, our money was made of precious metals and every nation agreed on $35 per ounce of real gold. Any nation that held U.S. dollars in reserve could exchange them at any bank, any time for real gold. To settle international accounts very little was needed, as long as imports and exports remained at near balance. Nations could not afford to differ between imports and exports because they could not afford to pay in gold.
Wealth was widely distributed among those who saved over time because of no inflation — no inflation because money was based on goods produced. As long as imports and exports by all nations were near balance, a just commerce prevailed.
A few corrupt leaders found a way to exploit the agreement, and the people were not paying attention. Their plan: print more dollars so we can import more than we export. After all, every nation will be happy to get dollars backed by gold. The extra printing of dollars began and the great nation could import more goods than it exports, and the people were none the wiser.
One day, one of the nations caught on to the dishonest scam and turned in all its dollars for real gold. Those who controlled the money said, “If other nations follow, we do not have enough gold to back all the dollars we have printed. If we increase the dollar amount per ounce of gold, our people will see how everything is much more expensive, and they will catch on to the scam. Our only choice is to refuse nations who demand their payment in gold. What can they do?
“We have military power in about every nation. They are not going to take us on. We will tell our people we have to go off the gold standard because gold is no longer a realistic way to value our money — even though under the gold standard, payments were made in real goods and services.”
In 1971, President Nixon was forced to close the gold standard. No longer could a U.S. dollar be redeemed for any form of real money. The United States Constitution, which authorized only Congress to coin money, was now officially dead.
Order and harmony among free trading nations began to unravel. There was no longer any fixed limit on the expansion of credit so global credit began to expand tremendously until it reached a practical limit, triggering the global financial crisis.
Kate Festler is a resident of Little Falls.