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Some
readers may ask themselves, “What has gold to do with protecting jobs?
Gold hoarders are certainly not creating jobs, and hoarding more gold will
not help at all.”
Gold
has everything to do with the loss of jobs in the US, and gold has everything
to do with recovering jobs for the US economy.
Let
me go back to the 60's. During those years, the US and the world were on a
Gold-and-Dollar Standard.
Back
in the 60's, countries were very careful about maintaining a constant
monetary balance between their exports and their imports. They all wanted to
be in a situation where they would export more than they imported, so that
they would have increasing balances of gold or dollars in their Treasuries.
To
state this more correctly, they all wanted to export more than they imported,
except the United States.
The
US didn't care very much about maintaining a balance between exports and
imports, because the US was able to pay for its deficit in trade (more
imports than exports) by simply sending more dollars overseas.
Many
economists warned about this trend, which was accompanied by a constant loss
of gold during those years; some countries, notably France, refused to
hold more and more dollars. The French asked for their gold – at $35
dollars an ounce – and this caused great disgust in Washington, D.C.
and New York.
Nothing
was done to stop the trend. In 1971, Henry Hazlitt, a good conservative
economist, warned that the dollar would have to be devalued – that it
would be necessary to raise the number of dollars which would be needed to
obtain an ounce of gold – some months before the dam broke and the US
was faced with the need to devalue, because the US stock of gold had become
much too small.
What
Mr. Hazlitt never imagined, was that instead of devaluing – which was
the advice of economist Paul Samuelson, Nobel Prize winner, published the
week before August 15, 1971 – Nixon followed the advice of Milton
Friedman and simply “closed the gold window”. The US would
henceforth not deliver any gold, at any price, to any foreign Central Bank
who might wish to invoke the right to redeem its dollars for gold, according
to the Bretton Woods Agreement of 1944.
Since
that date, all world trade – or the better part of it – is
carried on in dollars which are nothing more than fiat money. Since the rest
of the world's currencies were tied to gold through the dollar, all the
currencies of the world also became fiat money – fictitious money,
backed by nothing. That includes the Euro, of course.
What
happened after that fateful date has overturned all order and harmony in
economic relationships between the nations of the world.
Countries
around the world began to accumulate more and more dollars as credit
expansion in the US went forward, implacably. Central Banks had to accumulate
these dollars in their Reserves, whether they wanted to or not. (Not having
sufficient dollars would force other countries to devalue and destroy
savings. The US cannot run out of dollars, it manufactures them.)
With
no loss of gold to restrain the US and force it to stop expanding credit, US
imports surged and exports waned. The monetary difference was
“paid” in dollars.
Free
trade was extolled by the US; every country that wanted to be in the good
graces of the US had to bow to “free trade”.
Free
trade is a good thing – but not for a country that is providing the
world's fiat money. This “free trade” was called
“globalization”, meaning that the US could, and did, buy
everything it wanted in the world, in any amount, at any time, by simply
paying dollars for it.
There
was no restraint to US credit expansion. It was a lovely time to be young and
an American.
However,
free trade means you buy where it's cheapest, and the cheapest place to buy,
in recent decades, was China , South East Asia and
India ; the oil required to fuel the US economy was cheap and bought with
dollars which it cost nothing to produce.
Thousands
upon thousands of products and floods of oil came across the oceans to the
US, and also to Europe, which began to pay in Euros for some of its imports:
Euros which also cost nothing to produce.
US
manufacturers, facing this competition from Asia, decided to move their
factories to Asia instead of waiting for certain bankruptcy by competing
against much lower-cost production.
That
was how the US was de-industrialized.
It
happened because gold was eliminated as a limit on credit expansion and money
creation.
Had
Nixon not gone off gold in 1971, China would have taken generations to create
its industrial base. It would have been necessary for China to accumulate
capital slowly, because its exports to the US would have been limited by the
need for the US to pay up with gold for the amount by which Chinese exports
exceeded its imports from the US.
The
Chinese would have had to buy as much from the US, as they sold to
the US; and since they were so terribly poor, there was not much they could
have bought from the US.
Their
growth would have been slower, but they would not now be facing over 20
million unemployed, as their markets dry up.
The
US would never have allowed China to drain US gold from the Treasury
by selling more to the US, than the US sold to China. But since payment was
in fiat dollars and not in gold, the destructive effect of huge
Chinese imports was not considered important by policy makers. And so, the US
sailed into unemployment and had a great time doing it. Only now, that the
party is over, are the grim facts visible: no jobs! Manufacturing is
decimated.
The
fiat dollar – unanchored to gold – was the greatest strategic
gift that the US could have made to China. Now, they have a huge industrial
base and the US has Oh, so little!
The
damage is done. How to recover the industrial base of the US
? Not by slogans such as “ Buy
American ”, nor by protectionism.
What
is required is to recover economic balance between the nations of the world
so that they all can balance their exports with their imports. This is not
done by protectionism, a false remedy to joblessness.
The
world needs to return to gold as the international means of payment. All
imbalances must be paid, monthly, in gold. No fiat money
“payment” allowed!
If
a nation does not have gold to export, it must do without or manufacture what
it needs, itself: there you have the clue to restoring jobs in the US and in
Europe. This is not “nationalism”, it is simply good economics.
The
US has to limit its imports drastically, not by protectionism and tariffs,
but by returning to the Gold Standard. Jobs will mushroom in the US
beyond what anyone can dream as soon as its market must buy locally or not
buy at all, for thousands upon thousands of articles. A return to gold,
will achieve that aim very quickly, to be sure.
The
Gold Standard is the friend and protector of the worker and of the investor, as well as the basis for harmonious relations between the nations of
the world.
And by the way, the current financial
disaster in the US is directly attributable to Nixon's decision to
“close the gold window”, because a monetary system based on gold
is an obstacle to the criminal credit expansion perpetrated by the bankers.
Gold based money puts shackles on bankers, forcing them to be careful. A fiat
money system enables financial criminality – it's as effective
in restraining criminality in finance as tying up a dog with a string of
sausages.
Hugo Salinas Price
President, Mexican Civic Association Pro Silver
www.plata.com.mx/plata/
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