By Patrick Barron*
The seeds of sound-money destruction were sown at the 1944 Bretton Woods Conference, which established that US dollars could be held as central bank reserves and were redeemable for gold by the US Treasury at thirty-five dollars an ounce. This was the so-called gold exchange standard, but only foreign central banks and some multinational organizations, such as the International Monetary Fund (IMF), enjoyed this right of redemption. The system depended upon the solemn promise by the US that it would refrain from issuing unbacked dollars. The watershed event that ushered in a new malignant, pure fiat money era occurred on August 15, 1971, when the US abandoned the gold exchange standard in order to stop the drain on the US gold stock.
American money printing had begun in earnest in the previous decade in order to finance Lyndon Johnson’s “guns and butter” policy. The Fed monetized government debt to fund LBJ’s Great Society welfare programs while the government fought a war in Southeast Asia at the same time. Dollar claims in the form of government bills and bonds built up at central banks around the world. At the recommendation of French economic advisor Jacque Rueff, a free market economist and gold standard proponent, French president Charles de Gaulle ordered the Bank of France to redeem 80 percent of its US dollar holdings for gold, per the solemn promise made at Bretton Woods. Thus began a run on the US Treasury’s gold reserves that culminated in President Nixon taking the dishonorable action of abandoning the gold exchange standard. This set the course of unfettered fiat money expansion that has led the world to the precipice of monetary destruction.
This end to the Bretton Woods system—itself already deeply flawed—ushered in the age of competing fiat currencies worldwide. We are now headed toward the chaotic destruction of this system as well.
The Scenario for a Worldwide Currency Collapse
Alasdair Macleod has written exhaustively of the inevitable destructive result of money printing that now has entered hyperinflation in America. Macleod defines hyperinflation not as prices out of control (yet) but as the scenario whereby government spending can be financed only through ever-increasing issues of fiat money. Skyrocketing price inflation, the traditional definition of hyperinflation, follows inevitably from previous acts of excessive and increasing money printing that first reveal their destructive nature in stock market, real estate, and commodity bubbles before emerging as out-of-control consumer price inflation that devastates society, as seen in Weimar Germany in 1923, and more recently in Argentina, Venezuela, Zimbabwe, and elsewhere. The horror stops only when society abandons the hyperinflated money and adopts a new or different currency.
In reality is it is far more difficult to halt hyperinflation events than is supposed. For example, in 1923, Weimar Germany tied its new currency to the dollar, which was still on the gold standard. It was thought this could bring the crisis to an end. But years of economic decline and depression followed. The damage had already been done. As a result, German civil society had been destroyed and its citizens traumatized to the extent that within ten years full-blown totalitarian dictatorship was seen as the only viable solution to internal civil disorder.
Today there is no gold standard currency in the world to which the US and the West could link their hyperinflated currencies. The most likely outcome will be a return to a gold-backed dollar, but only after American civil society has been forever altered for the worse and the American people traumatized as were the Germans during the 1920s.
Could a Revived Deutsche Mark Save Us?
But there is an option still available to the West—a voluntary abandonment of Keynesian economics and other schools of thought that embrace money printing as a solution to economic problems—and the linking of the US dollar to its still substantial gold reserves. But what development could move the US toward strengthening its currency voluntarily? Germany!
Germany is the fourth-largest economy in the world and probably the soundest financially. Germany’s federal government regularly runs budget surpluses, a phenomenon last seen briefly in the US in the 1990s and before that in the Eisenhower presidency of the 1950s. Germany does not rely upon borrowing, much less money printing (called…