On August 15, 1971, then-President Richard Nixon had no choice.
He had to give a speech on a brewing crisis. He called it “The Challenge of Peace.” Its objective was to sell the American people a lie.
On that day, Nixon devalued the savings and earning power of every American. It’s the day he broke the dollar’s tie to gold.
It only took 18 minutes. It was a masterpiece. Almost no one noticed what was happening.
During the speech, Nixon talked about soldiers in Vietnam unable to find work after returning home from “success” during the war.
Then, he talked about inflation. The Consumer Price Index (CPI) rose 6% per year for the five years prior. Nixon promised to break that trend. He promised the average American they could get by.
About halfway through, he finally got to his real reason for speaking. He said, “Let me lay to rest the bugaboo of what is called devaluation.”
He knew what was about to happen to the average American’s wealth. He just didn’t want anyone else to figure it out.
So Nixon blamed the problem on a group of “international money speculators.”
He told his audience they were responsible for raising prices on everyday goods. They kept veterans from finding work. But it was all a lie.
The truth was, the U.S. bungled its incredible power as the world’s go-to currency. The gold in Fort Knox gave it that power. But the government abused that position by running persistent budget deficits.
In 1945, the U.S. had 60% of the world’s official gold reserves. By the time of Nixon’s speech, that gold hoard was 63% smaller.
Foreign countries had been buying gold. Nixon didn’t have a choice if the U.S. wanted to keep running deficits relative to other nations. So he had to cut the dollar’s tie to gold.
Luckily for Nixon, most people don’t understand how currencies work.
They also didn’t know how Wall Street pressured Washington to cut gold’s last links to the dollar. (I wrote about this in my book All the Presidents’ Bankers, based on my extensive research at the Nixon Presidential Library. I’ll share an excerpt in these pages soon…)
That’s how Nixon was able to get away with saying “evil speculators” relentlessly attacked the dollar. Even though Wall Street was speculating as well.
But the truth is U.S. deficit spending hit a level so extreme that foreign governments lost confidence in the dollar. So they rushed to grab as much U.S. gold as they could instead.
The value of the U.S. dollar fell hard. The chart below shows what this looked like at the time…
The impact was brutal. Inflation ran rampant over the next decade. At its height, inflation would hit 14.5% in 1980. That was compounded by oil price spikes.
Today, we’re seeing similar events play out. Inflation spiked last year. It hit a rate of 9.1%, the highest level in 41 years. As I write, it’s running at 3.7%, higher than the Federal Reserve’s 2% target rate.
The slowdown in the rate of inflation in the money supply is mainly due to the Fed’s relentless rate hike campaign.
Since last year, it has raised its benchmark federal funds rate from 0.25% to 5.5%. (The fed funds rate is the rate at which banks can borrow from the Fed.)
It’s the fastest pace of rate hikes in history.
However, this policy has created some unintended consequences. For instance, we’ve seen several bank failures so far this year – the most notable being Silicon Valley Bank (SVB).
As the turmoil spreads throughout the financial system, the Fed will have to create more and more money. In fact, it already created more than $300 billion in the blink of an eye to help SVB and other banks.
The good news is, there are steps you can take to protect and grow your wealth in this new era, in which the Fed will create more money from thin air.
See, the greatest wealth transfers usually happen during periods of turmoil. That’s why the next decade may end up being the greatest wealth transfer in American history.
Get it wrong and you might destroy your wealth. Get it right and you’ll not only survive, but you’ll thrive.
And there’s a lot at stake. That’s why, today, it’s more important than ever to find ways to combat the Fed.
The Biggest Threat to the Dollar Is the Fed
When the dollar was tied to gold, the average American had to work about 800 hours to afford a new Ford pickup. Since then, the time it takes has more than doubled.
In other words, what used to take about 20 weeks to pay for now takes almost a year to afford. And the number of hours it takes to afford the average house has soared, too.
In San Diego, for example, homeowners work 77 hours every month to put a roof over their heads. In Miami, it’s even more expensive, at 109 hours.
Ironically, the Federal Housing Administration recently approved 40-year mortgages. Meanwhile, Americans have never worked more hours than they do today to service their debt.
So you can see why the Nixon administration’s decision was such a disaster. The price of everything is spiraling out of control!
But that abrupt decision didn’t just cause the dollar to plummet. Cutting the dollar loose from gold also had another important effect… It turned the U.S. dollar into a “fiat” currency. Meaning that it’s backed by nothing.
This move essentially unleashed the Federal Reserve to throttle up the printing press and accelerate the expansion of the money supply. And today, it’s a huge problem.
You’ll know what I mean if you’re feeling the pinch like a lot of Americans are. In Los Angeles, where I live, almost half of households are struggling. And across the country, it’s a similar story:
The U.S. Census Bureau’s Household Pulse Survey showed that almost 40% of American adults are struggling to make ends meet each month. That’s almost 90 million people. It’s up from 26.7% in 2021.
Almost three-quarters, or 72%, of middle-class families say their earnings are falling behind the cost of living. And 74% said they are unable to save for the future. Both numbers are up from a year ago, according to a report by Primerica.
And a survey by Quicken showed that two in five Americans with credit cards are more dependent on their cards than ever before. That survey also showed that 39% of Americans are living paycheck to paycheck.
You don’t have to be a historian or a mathematician to understand what’s going on. It’s simple supply and demand. The more of something that exists in the world, the less it’s worth.
That’s exactly what is happening to the U.S. dollar. Over the past few years, the government has been debasing our currency at breakneck speed. In 2020 alone, the Fed grew its balance sheet by 72%.
Today, the balance sheet stands at $8 trillion. That’s up from $4 trillion in January 2020. And if history is any guide, we can expect the Fed to print more money down the line – especially with the U.S. banking sector in turmoil.
But, armed with this information, you can take steps to protect and grow your wealth as the Fed continues to devalue the dollar.
The Fed can’t create gold out of thin air. And that makes gold a great hedge in times of economic uncertainty.
Editor, Inside Wall Street with Nomi Prins
P.S. We’re just beginning to see the full consequences of the Fed’s actions. That’s why owning physical gold is just the first step…
This summer, the Fed started laying the foundation for a total overhaul of our financial system. I call it the “Closing Dollar Window.” In short, it’s a scheme to enact enormous change to our money – in a way we haven’t seen since 1971.
These changes will cut deep into the savings of millions of Americans. The good news is, I’ve found a little-known way to prepare for the uncertainty that’s coming – and potentially even make as much as 50x as this historic shift unfolds.
I recently published a video report with my findings. To learn more, watch it for free right here.