By Keith Weiner
We will take another break from capital destruction, to treat a topic which has come up this week. On March 11, we said:
“…central bankers do not think about gold.
Granted, they once did. In the 1960’s, there was the now-infamous London Gold Pool to keep the price of gold at $35. This is endlessly cited as evidence of current central bank price suppression, without bothering to mention that until 1971 the official US policy was to maintain the dollar to gold exchange rate of $35 to the ounce. …
But today? We see no sign that central bankers care about the price of gold.”
This turned out to be very controversial. Some conspiracy theorists cited Deputy Secretary of State Thomas O. Enders in 1974. The State Department records the minutes of a meeting with Secretary of State Henry Kissinger. Here is an excerpt:
“Henry Wallich, the international affairs man, this morning indicated he would probably adopt the traditional position that we should be for phasing gold out of the international monetary system…”
Changing the Dollar
This meeting can only be understood in context. So let’s review three key changes to the dollar that led up to it. The dollar had long been redeemable in gold. However, in 1933 President Roosevelt was desperate to stop the run on the banks (and to push interest rates down). He ended gold redeemability to Americans in 1933 (and criminalized the possession of gold).
When the soon-to-be-victorious Allied Powers met in 1944 at Bretton Woods, they agreed to an insane postwar monetary system, in which the national currencies would be pegged to the US dollar which would be redeemable in gold at a fixed exchange rate. This system contained the seeds of its own destruction as Robert Triffin said in the 1960’s. However, the Allied economies were in ruins (not to mention the Axis)—so who was in a position to say no?