40 Years After the Gold Standard – The Consequences to the Economy

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40 Years After the Gold Standard - The Consequences to the EconomyYou may not remember that forty years ago the United States left the gold standard in favor of a fiat currency whose value is based on simply the faith in and credit of the U.S. government. This defiant move that shook the world monetary and financial systems resulted from a little known secret that you are probably unaware of, as are most other people.

In the paragraphs that follow, you will come to understand not only the dark secret that caused the U.S. to abandon the gold standard, but also the terrible consequences that have impacted the economy in the forty years that followed.

Why Did the U.S. Leave the Gold Standard?

The U.S. banking system hides a little known, even dirty, secret that forced the United States to abandon the gold standard back in 1971. The dollar was backed up by gold ounces valued at $35 in paper money until 1971. This helped to keep the value of the dollar incredibly stable, as gold and silver are the only consistent real forms of money that have always held their value over the long term, throughout all history.

The gold standard should have limited the number of paper dollars that existed to the amount of gold reserves in U.S. government vaults.

The secret is that banks and the Federal Reserve have the power to create more money out of thin air. This is called the fractional reserve banking system.

In 1971, banks and the Fed had conspired together to create many more dollars than the U.S. government could comfortably back up with the gold that they physically owned. That year, France and Great Britain called Uncle Sam’s bluff and demanded that the U.S. exchange its paper dollars for gold at the set rate of $35 per ounce.

The U.S. under President Nixon refused to relinquish all of its valuable gold for the oversupplied U.S. dollars that foreign governments held. So Richard Nixon did the only thing that he could do in this particular situation and abandoned the gold standard in order to protect and maintain the country’s true wealth, its still vast gold reserves.

What Have the Consequences Been Forty Years Later?

Thanks to President Nixon’s move, the United States can still claim to have the world’s largest gold reserves at more than eight thousand metric tons. Unfortunately for the national economy, there were terrible consequences that resulted from turning your money into worthless green paper.

Since that fateful day forty years ago when your dollars ceased to be exchangeable for gold and became only empty promises from an increasingly debt strapped government, you have seen a terrible and devastating decline in the standard of living for the vast majority of Americans. Read on to see how this single event created historic inflation, minimum wages and jobs that have actually declined against the higher cost of living, runaway housing and gasoline prices, lower personal savings rates, and a decline in the real purchasing power of your dollar in general.

Inflation Since 1971

The best way to measure the change in inflation is to look at a good inflation calculator. The U.S. inflation calculator tells you that an item that you purchased in 1971 for $100 would cost you $557.83 in 2011. That is a rate of inflation of 457.8% in forty years. That may not sound like much, but when you average it out over forty years, it gives you an average annual inflation rate of over eleven percent per year.

These numbers are based on the government’s official rates of inflation formulas too, and are not at all inflated to compensate for the tricks that the government has routinely employed to disguise real inflation rates in the U.S.

Minimum Wages Since 1971

Consider the minimum wage that acts as the basic standard of living floor for millions of Americans who count themselves lucky to have any job at all in the economy of today. In 1971, the minimum wage stood at $1.60 per hour. In 2011, it has risen to $7.25 per hour. That sounds like an impressive rise over forty years, as it has literally risen by 353% over the last forty years.

Inflation has risen almost thirty percent more than the minimum wages. In very real and painful terms, people who lived on minimum wages in 1971 have watched their present day minimum wage decline so steeply that they can not live on them anymore, even if they have two minimum wage earners in a family. Perhaps this helps to explain why one in five Americans requires food stamps from the government today in order to have enough food.

Job Salaries Since 1971

You might argue that the average income of Americans has risen far more dramatically than minimum wages over the last forty years since the country left the gold standard. The truth reveals a different picture. In 1971, the average annual income for American workers stood at $10,600. Today, this job’s salary pays $43,460 on average for men and $35,102 for women.

This means that the average salary for males has increased by only 310%, a number that is actually less than the change in the minimum wage since 1971. For women, the salaries have risen by around 230% in forty years. These numbers are abysmal when compared to the rise in inflation that is up over 457% in the same time frame.

Housing Costs Since 1971

The average cost of a new house in 1971 stood at $25,250. In August of 2011, it hovers around $212,400. Average home values have risen a dramatic 741% in forty years. This is fantastic if you own the same home that you purchased in 1971 or earlier. For people who are just in the market to buy one now, your salaries have risen an average of only 270% since 1971. This means that you will pay nearly three times as much for a house that you did in constant 1971 earnings and dollars.

Gasoline Prices Since 1971

Do you remember when gas cost only forty cents per gallon back in 1971? Forty years later, it averages at $3.62 per gallon. This is an increase of 805% in the price that you pay at the pump over forty years. Your average salary increase of 270% in the same time is not leaving you much money to fill your gas tank.

Personal Savings Rate Since 1971

The personal savings rate is a formula that you figure up when you subtract your expense from your income. The money that you have left and do not spend at the end of the month is counted as personal savings. In 1971, with the dollar solidly backed by gold still, you saved an average of 10% after expenses. In 2011, this amount sits at 5.2% for the average person. Thanks to the declining real value of your earnings, you are not able to save as much as you once did.

Purchasing Power of the Dollar Since 1971

The most obvious proof that when the U.S. departed from the gold standard, it destroyed the dollar and the economy are evident when you look at the price of gold since 1971. Gold has posted highs and lows over the decades, but it has always remained far higher than the 1971 price of gold at $35 when the U.S. still honored the gold standard.

In August 2011, gold is at more than $1,800 per ounce. To put this in terms that will make your blood run cold, your U.S. dollars have declined by over 98% against the yellow metal in those forty years since we turned our back on the most precious of metals.

In light of these many sad revelations about the economy since we left the gold standard in 1971, what would you rather own five years from today, $50,000 worth of paper bills backed by the full credit of the U.S. government, or $50,000 worth of gold that are valued in today’s dollar?

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