by Daniel Carter
Politicians, economic “experts” and the talking heads in mainstream media will never tell you that monetary policy is the most important issue facing the United States. Whether you realize it or not, monetary policy has a direct and significant impact on all our lives. When the US abandoned the gold standard in the early 1970’s, it steered our economy toward a cliff that we are closer than ever to driving over.
Once the gold standard ended, the Nixon administration went to Saudi Arabia to strike up a deal that would give immense power to the US’s rent-seeking elites for many decades to come. This deal created what’s known as the Petrodollar system. In exchange for weapons and military support, the Saudis agreed to sell their oil exclusively in dollars. Eventually this deal spread to almost every other oil producing nation.
Because the US was able to create extremely high demand for their paper currency, they could print (or create digitally) a ton of it at will. The US’s clever negotiations helped it build the vast empire that we know today. However, it came at a great cost to ordinary US citizens. It has come at a great cost to people living in the Middle East as well because the US has had to overthrow their governments to keep the petrodollar system alive.
When the US floods the US and world economies with new money, it first goes through our banking system. Then, it flows to well-connected individuals, corporations and governments. Finally, it may flow down to some ordinary citizens. When people talk about “trickle-down” economics, they are not talking about this system. But they should be.
Massive money creation eventually leads to inflation, which eats away at the value of your dollars. The rent-seeking elites are much more equipped to handle this because they receive the newly created money first. Ordinary people, however, see their quality of life stagnate.
This is nowhere near the first time an empire has resorted to such methods. Almost every empire devalues its currency to fund the extravagancies of the elite. Then, when the currency is devalued to the point where it is almost worthless, the empire collapses. One of the oldest examples of this occurring was during the final stages of the Roman Empire.
Now, I’ll take you through a few charts that show how the end of the gold standard has damaged the US economy and put the empire closer to collapse.
First, let’s look at how the end of the gold standard impacted our national debt levels. Before the gold standard was ended, US national debt was well under $1 trillion. After almost five decades without a gold standard, the national debt is now over $20 trillion and is set to go a lot higher in the coming years.
Debt has exploded in large part due to the petrodollar deal. The Saudis, and other oil producing nations, take the large amount of dollars they receive from oil purchases and rake them into US Treasuries (debt). Because demand for US debt has been so high, the US kept issuing it. And, because the demand for dollars is so high, the US can keep printing to pay its interest payments. When the US loses this petrodollar system, which will probably occur in the first half of the century, they won’t be able to finance such extreme deficits and the empire will end.
Next, let’s look at what has happened to income inequality after the US went off the gold standard. As I mentioned before, when new money is created, it goes directly into the banking system. After that, it goes to the most well-connected individuals and institutions.
After the fat cats have had their fill, wealth trickles down to the rest of us. The gold standard is essential in keeping money creation restrained. Now, the restraints have been lifted and the elite are flooding the system with new cash that goes directly to them, while destroying our purchasing power.
Finally, let’s look at what happened to wages once the gold standard ended. Productivity and wages used to be tightly correlated, which made a lot of sense. The more workers produce, the higher their earnings should be.
When the creation of money becomes unrestrained, inflation becomes rampant. Inflation means that your dollars don’t buy as much as they used to. That is why real wages (I.e. nominal wages minus inflation) have decoupled from productivity and gone flat since the end of the gold standard.
These important economic issues go largely undiscussed in the mainstream media. When things like wealth inequality are discussed, it’s never done intelligently or honestly. Most of the discussion is focused on a convoluted tax system or insignificant regulation. If the US wants to keep its economic powerhouse, it must focus on creating a sound monetary system.
by Daniel Carter