Unnoticed Revolution Money

The global economic crisis that began in 2007, actually rose of August 1971, was canceled when the gold standard. And this is the first serious crisis ...

... A new era - the era of monetary systems based on trust.

August 15 marked the 40th anniversary of the abolition of the gold standard. This withdrawal took place under the laws of the detective genre and has been a revolution not seen and appreciated by anyone, even theoretical economists. The nature of money has changed forever. Previously, they were backed by gold, now - just a fleeting thing, as the credibility of the governments that issued them. This was the long-term consequences, and ultimately it gave birth to 1971 2007-D - a modern epic of the world economic crisis.

As General de Gaulle defeated America

In 1965, General Charles de Gaulle, President of the French Republic, arrived in the United States and a meeting with U.S. President Lyndon Johnson announced that he intends to exchange the 1.5 billion paper dollars for gold at the official exchange rate of $ 35 per ounce. Johnson reported that the French ship, laden with dollars in New York harbor and the airport with the same cargo on board the aircraft landed at the French. Johnson promised the French president in serious trouble. De Gaulle announced in response to the evacuation of French territory of NATO headquarters, 29 military bases in NATO and the U.S. and the withdrawal of 33 thousand military alliance.

It was eventually done both.

France for 2 consecutive years managed to buy out the U.S. for more than 3 tons of gold in exchange for dollars. On the other hand, de Gaulle was hard won presidential elections in 1965 in the second round. And February 21, 1966 France withdrew from NATO's military organization.
And in 1968 in Paris, are cropping up massive natural disturbances, de Gaulle himself said that France was on the verge of civil war. And some people still believe that the unrest was provoked by the CIA. Whatever it was, they eventually led to the resignation of de Gaulle in 1969.

What happened to the dollar and gold?

De Gaulle said to be very impressed by one anecdote, told him former finance minister in the government of Clemenceau. At auction for paintings by Raphael offers Arab oil and Russian - gold, and gets a pack of American bills and buys it for 10 thousand dollars. In response to the puzzling question of de Gaulle, the minister he explains that the Americans bought the painting for just $ 3, because cost per 100-dollar bill is 3 cents. De Gaulle clearly and completely believed in the gold and only gold. In 1960, shortly after he became president, he announced the move in France to the gold standard in international trade. True, in fact, Nitscheon did not, and France has accumulated more than $ 5 billion of trade surplus. And in 1965, de Gaulle finally decided that the papers he did not need.

And then there was the so-called Bretton Woods system in which all currencies are exchanged for dollars and dollars - in gold. It was adopted in 1944 and was a necessary measure: the Allies had no gold and the U.S. had accumulated 70% of world gold reserves (excluding the USSR). Therefore, the creation of a monetary system was quite logical.

Why the U.S. has accumulated gold? Two sources. This was primarily the result of the "great gold robbery" of 1933. President Franklin D. Roosevelt, speaking from his inaugural speech on March 5, announced a new anti-crisis measures. Among other things, all U.S. citizens should have to hand over the gold to the state, free circulation of gold and banned for possession of them was appointed a prison term of 10 years. The state buys the citizens of gold at the old price, $ 20.67 per troy ounce, and immediately proclaimed that the new price of an ounce of gold $ 35, almost 70% more (though, to buy gold at that price in State still no one could). The second source of the gold reserve gold was at war in Europe in exchange for food and weapons.

The dollar is the de facto world currency, and the Bretton Woods system just cemented that fact. However, it was laid built mine, which exploded was only a matter of time.

Realized it was only in the early 60s. It was then that Professor Robert Triffin formulated his famous paradox: in order to ensure that central banks need dollars for the formation of the national foreign exchange reserves, it is necessary to constantly observed in the U.S. balance of payments deficit (other than U.S. dollars will transfer to other countries?). But the balance of payments deficit undermines confidence in the dollar and reduces its value as a reserve asset.

This is exactly what happened has been particularly active in the late 50's and 60's. The price of gold on the open market (outside the U.S., of course) began to grow. In 1960 it reached $ 40 per troy ounce. And it became clear that it is necessary to take some action. Then went to the U.S. on a simple way - to sell gold on the market to bring down the price on it. In 1961, central banks from nine countries established the London gold pool, which started the massive intervention of gold on the open market.

But de Gaulle (probably remembering anecdote) understand in whose interests these interventions, and soon decided to withdraw from the gold pool (why spend your gold to support the dollar?), And announced a policy of dedollarization France, calling it his "economic Austerlitz" . De Gaulle's actions were pebblesohm, which tore the avalanche.

The next was the German Chancellor, author of "German economic miracle" and a staunch monetarist Ludwig Erhard. Publicly condemned de Gaulle for the "treachery", he quietly showed the U.S. to exchange dollars for gold amount, much more than France. Behind them stretched the central banks of Canada and Japan. The British, who could not support a currency attack on the dollar, did simpler - devalued the pound sterling. But it caused a high demand for gold in London by private investors. Implicit in the Bretton Woods agreement bomb exploded.

U.S. is 60 years hard-pressed on gold prices, gold tried interventions and policy measures to contain exchange dollars for gold. U.S. gold reserves declined during the years 1949-1971 more than half - from 20 to 8000 tons. Case is still complicated by the fact that in 1933 people donate to the Treasury of gold in coins. And for the rigidity of coins (gold - a very soft metal) they mingled with 10% copper. And much of the gold reserves after the U.S. meltdown would be, respectively, have a sample of 0.9. And for the exchange of gold had to give the breakdown of .999. And, according to some sources, the gold of such a sample in 1971 just ended. However, no one knows this for sure: Fort Knox (Storage USA's gold reserves), no one ever seriously with checking was allowed.

There was a simple way for the U.S. - the dollar devaluation or, equivalently, increasing the price of gold. It is suggested that many famous economists, Keynesians, such as Paul Samuelson. In principle, it was anticipated step. But there was a completely unexpected to the world. President Richard Nixon listened to the "father of monetarism," Milton Friedman and simply abolished exchange dollars for gold.

August 15, 1971, U.S. President Richard Nixon, nicknamed the "dodger Dick," said the "gold window" is closed. With these words he indicated actually defaulted America and the unilateral U.S. withdrawal from the Bretton Woods agreements.

U.S. President in his speech, then asked, "Now tell me who benefits from these crises?" And he answered his own rhetorical question: "Do not work, not an investor, not a true producer of wealth. Win, international currency speculators." Funny demagoguery: it formally to exchange dollars for gold in the treasury of the United States could only other state and any private individuals or investors. So what General de Gaulle, no doubt, be called the first of a new era currency speculator who made a successful attack against the U.S. dollar.

The victory was a Pyrrhic one of de Gaulle. He lost his job. A place of gold in the world monetary system took a dollar. Just a dollar. Without the gold content.

Monetary systemsma, based on trust

Economic theory is quite easy survived this quite a revolutionary change, almost without noticing it. Especially ensure that the abolition of dollars in gold occurred 40 years earlier - in 1933.

The final suspension of the gold standard in terms of traditional economic theory looks as if people suddenly began to fly against the laws of gravity (though at first low and close).

Money has always been the gold (silver, etc.), have always been kind of a commodity of equal value in exchange, and suddenly nothing - worthless piece of paper or electronic record in the accounts. Now they are available only through trust, responsibility of governments, which produce them.

Release too much - you will receive inflation and devaluation. It is this last 40 years, is the only limit money creation.

But the revolution of money has remained virtually unnoticed economics. Why? Because, at first glance, it almost did not matter in economic life. Dramatically changed the point. Outwardly, nothing had changed. U.S. citizens still could not own gold (until the end of the 70s). All currencies are exchanged at each other, as before. Yes, it is now impossible to drive vehicles in the U.S. for the gold, that's all. It's even easier.

Relativity theory of money

Officially, the birth date of the currency market in the modern sense - August 15, 1971. The countries agreed to shake their currencies within narrow limits with respect to each other, then the limits have increased, there were the concept of "monetary snake", then "monetary snake in the hallway," optimum currency areas, etc. Finally generally abandoned the idea of ​​mutual regulation of rates - exchange rates were free floating. True, Europe is through these difficult concepts moved yet to a single currency.

But the main thing is that now the currency fluctuate against each other - so as to evaluate - they fall together or grow? Directly is impossible: everything was relative. This kind of relativity theory of money. From knowing that the dollar was worth in 1971, 41 British pence, and now - 65, we can not draw any conclusions about the dollar rise or fall in general - only against the pound. After all, they, along with a pound and could fly up and down. Now, once you could not tell.

I have no money now no absolute measuring only relative - the exchange rates. And it's so insecure ...

Well, try to evaluate indirectly, what happened to the money in the last 40 years.

First of all, inflation. 1 dollar equals 5.57 in 1971 dollars of 2011. Money dropped 5.5 times? No. This is an estimate only of the consumer market. Since 70-ies, inflation has become a very unequalomerno distributed to different markets. Thus, in the 70s were soaring consumer prices under pressure of costs - energy prices. And the wildly growing gold, playing for the stagnation of the 60s at the time of the London Gold Pool. Over the decade, gold has increased by 20 times. In the 80's managed to rein in consumer inflation, but pulled the stock market, which are 70 years stood on the site. For 20 years, in 80-90s, it grew by 10 times. Then there was a collapse of the dotcom and stock market fell a few years. But in the 90 - zero abruptly pulled the real estate market. And nulevyeego actively supported the commodity futures market and other derivative securities.

Here are the results of the fortieth anniversary without a gold standard.

- Consumer prices rose in the U.S. by 5.5 times. By the way, for the previous 40 years (1931-1971), inflation was twice lower - 2.7 times.

- Stocks rose at the peak of 14 times, judging by the Dow-Jones. Even more fascinating growth in turnover of the stock market. By Dow Jones, he grew up at the peak of more than 500 times.

- Real estate: the median price of new homes in the U.S. at the peak (early 2006) has grown by 10 times. With sales growth in half.

- The market of derivatives has grown from zero to $ 680 trillion. annual turnover (that's 10 annual GDP of the world!). The prices of these securities staged a rally in this years zero for commodities - oil, metals, food. These prices were rising at times to 1.5-2 times a year.

- Finally, gold. Its price rose over 40 years by 50 times. Over the previous 38 years prior to 1971 the price of gold has not changed, even though in those years had the Great Depression, the most devastating world war, destruction, and postwar reconstruction boom.

Here is another indirect estimate. The amount of money in circulation in the United States has grown for four decades, 15 times during the growth of U.S. GDP in only three times - five times ahead. And it is only about monetary aggregate M2, only the Inter-turn. Data for M3, which include dollars, walking around the world for some time in the United States no longer published. And yet we must remember that with the advent of the internet speed calculations, and therefore the circulation of money has increased dramatically and effectively advance the money on the real product is much greater than 5 times ...

It is clear that although exchange rates were changed not so much from each other, it conceals the real fact of the rapid depreciation of money. Only a smaller part of this impairment was reflected in consumer price inflation, much more - to asset inflation.

If in 1933 you zanykali a $ 100 piece of paper, then in 1971 you would have received for it about $ 40. And if about the same amount of 100-gram gold bar (and do not put in prison) - we would have all the same $ 100. Not bad? But this is utter nonsense, compared with thosewhat happened then. Now you would have received, respectively, $ 6 or $ 5000. Feel the difference: not in 2.5, and nearly 1,000 times. Now it is clear that such a suspension of the gold standard?

Global changes caused by the abolition of the gold standard

Over the past 40 years many of the world economic and political issues have changed their content to the opposite, in many respects due to changes in the nature of money.

Previously it was thought that inflation - it's definitely bad. It's funny that most of the inflation is now seen as a positive factor. This inflation of assets. Indeed, it's just great that increases the value of my home and shares that I own ... although it is only inflation.

Previously it was thought that capitalism can not live only on the basis of the capture of markets (which is why imperialism was considered by Marxists highest stage of capitalism). Now, developed countries give the markets, even give their own markets for products of developing countries that are actively expanding export based on undervalued their currencies.

Previously, the budget deficit was considered abnormal, and it was a common balance. The deficit was considered valid only during the war. Now the national debt in 60-100% of annual GDP - a common occurrence, but a balanced budget seems to some incident, an artifact. National debt is now limited only by the ability of the country to serve it (to pay interest and refinance).

Debts in the world today do not realize, and refinance. The largest domestic debt is no longer the poor, namely, in the richest countries - Japan, USA, Europe ... The crisis that began in 2007, has only led to further sharp rise of budget deficits and national debt. And debt crises (when it is not enough money for their services), such as in Greece.

I used to have a debt crisis of external debt of developing countries - a crisis from which no one could see the exit. Now, developing countries - the richest holders of international reserves. Debtors are now becoming just the developed countries, and in the currency in which they themselves and emit.

Earlier was growing differentiation of countries: rich countries become richer, the poor - poorer. Now, on the contrary, there is alignment: developing countries are growing their economies and increase the standard of living of its citizens is 2-3 times faster than the developed countries.

Previously, developing countries were mere pawns in a chess game between the two superpowers. Now it is the developing countries and the phenomena they generate (eg, terrorism) to explain the international politics of superpowers.

The list goes on, but it is clear that there were principledchanges in the functioning of the economic system, traditionally called capitalism. Changes, exchanging vectors of global development. And it happened just on the basis of all the changes being money. From an end in itself of the goods they have turned into something immaterial, in the ephemeral, not measured directly, they have turned into a pure trust in economic policy, their emitting.

As soon as money became a trust, the issuers of money needed this resource - the trust of its citizens and the rest of the world. And it changed everything.

And the word "trust" is used here in a broad sense, as the credibility of the state as a whole, not only in terms of predictability of exchange rates or inflation. When the central bank of any country starts to think that all it's only his politics, because that's what it emits the national currency, sharply increases the fragility of the whole economic system and economic problems at the slightest expectation of business and people can change in a matter of days.

As 1971 gave rise to 2007-th

With the abolition of the gold standard all the recipes and the theory of economic policy remain unchanged. True, the mainstream instead of Keynesian monetarism has become, which is very symbolic. But that's just one problem - the gold standard built-in controls now stopped working. The mechanism of restoring the balance after the boom was not clear - you can now move away from an equilibrium situation is much more than the gold standard. And most importantly, there is not any built-in controls, but the mood of the market that we have a much greater amplitude of economic fluctuations.

Why inflation of consumer goods and services went to the assets? It's easy. Mortgage (mortgage loan), and margin lending for stock futures and stock markets (with a huge shoulder when you need 1 to 5-7% of their own money) - these mechanisms are predetermined tremendous asset inflation in the modern economy. The integration of these markets as a result of financial engineering zero years (based on the conversion of mortgages into securities) determined the sharp jump in inflation of assets. And there is no constraint of the credit issue (the stock of gold or dollars) to be found. It goes on and on ... Stop it could only central bank U.S. - Fed. But he was in the euphoria of not having any constraints such as exchange dollars for gold and reserves of Fort Knox.

Actually increased from 2007 in 1971: the global economic crisis in a way made possible only after the abolition of the gold standard and is the first major crisis of a new era - the era of monetary systems based on trust.

It was the first since 1971yes were possible violent inflation of assets, the accumulation of huge national debts and imbalances in global trade. A financial engineering allowed the smooth local crises and to postpone the problem until they joined together in a crisis, which can not cope now 4 years old.