On August 15th, 1971, President Nixon announced before the nation…
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets.
It’s easy to attack Nixon for ending the gold standard considering what’s happened to the middle class since…
But what choice did he really have?
He originally wanted to wait until after Election Day 1972 to take such a large political risk or as George Schultz would later describe as, “the biggest step in economic policy since the end of World War II” because as Nixon complained to his advisors ending the convertibility of the dollar had little political upside as it’d go over the head of the average voter while having a large potential downside since no one could be sure how far the dollar would fall.
But all his top advisors told him that if he didn’t close the international gold window ASAP then there’d likely be a run on the dollar.
In 1955, American gold exceeded official dollars abroad by over 160%, but by the summer of 1971 it was down to 25%. With reports coming in that the UK was looking to convert some of their dollars into gold, Richard Nixon boarded Marine One and with some of his top economic advisors flew to Camp David for the weekend in order to reach a decision.
Theoretically, Nixon had four options…
He could do nothing, but Richard Nixon wasn’t about to risk his reelection on the hope that foreign politicians and “international money-lenders” wouldn’t run on the dollar before then.
He could reduce the dollar supply by cutting spending and raising taxes, therefore, worsening an already stagnating economy that was experiencing 6.1% unemployment and 5.9% price inflation, but the Democratic House and Senate would’ve never voted for austerity.