When I was a boy, I remember watching Richard Nixon on August 15, 1971 announce a complete “freeze” on “all wages and prices.” In today’s terms that’s what I’d call an attack on the free market.
At first, his price freeze sounded quite generous for consumers. You’d not see the price of your gas or milk creep up. Sounded like a win-win. At the time, 75% of Americans, including my mother, thought price controls were a wonderful idea. She changed her mind only a few weeks later.
During his speech that August night, Nixon severed ties between gold and the dollar. The gold standard ended. No longer would dollars need to be backed by gold.
Well, the results have been disastrous ever since then as price levels skyrocketed.
Oh, and as for his price freeze, my mother discovered her favorite brands stopped showing up in stores. Farmers stopped processing crops in the field. Manufacturers laid off workers and cut output.
Venezuela tried a similar price freeze for a decade. The results were no different than the US. For a decade, imagine shortages of food and medicine for you and your family. That’s what happened in Venezuela.
Today, here in the United States, you and I still feel the effects of Nixon’s fateful announcement. The Federal Reserve now controls the money supply in place of an objective gold standard. They print as much money as they want at any time.
The Fed’s policymaking decisions are made in periodic meetings of its “Open Market Committee.” The committee consists of 12 members – the seven members of the Fed’s Board of Governors; the president of the Federal Reserve Bank of New York; and four of the other 11 other Reserve Bank presidents.
In other words, the monetary policy of the US – the world’s largest economy – is effectively controlled by 12 people.
Before, the value of the dollar was determined in terms of gold. Anyone who had dollars could exchange for gold and vice versa. The US dollar wasn’t “legal tender” as it is today – if you didn’t want to accept dollars as payment for your goods or services, you didn’t have to. You could demand payment in gold, silver, or even accept payment in private currencies issued by many of the country’s banks.
There was competition for money. Competition makes a free market work. The Fed has abolished this competition, turning the money supply into a monopoly.
Look at this chart:
Source: Oregon State University
Before the Fed came into existence on December 13, 1913, price levels stayed steady since colonial times. Every minor price jump eventually came back down.
However, since the Fed got their paws on the money supply in 1913, we’ve seen a dramatic rise in prices.
They claim their “monetary policy objective” mission, according to the Federal Reserve Act, is to:
… promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
All good things for you and I. But, that’s not what we’ve seen.
Look at 2007, when the Fed turned into a backstop for …read more
Source:: Gold Silver Worlds
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