From Bretton Woods to World Inflation
27. The Coming Monetary Collapse
Collapse1
March 23, 1969
The international monetary system set up at Bretton Woods In 1944 is on the verge of breaking down.
It could still be saved by heroic measures, especially if these were taken in the United States. They would include an immediate slash in projected government expenditures, an immediate balancing of the budget, and a halt in any further increase in the stock of money.
But in the present political and ideological atmosphere, these measures are in the highest degree unlikely.
Parallel measures are even more unlikely in Britain or in France. The Labor government in Britain will never give up its socialistic obsessions. Charles de Gaulle is caught in a chronic dilemma of either yielding to untenable wage demands or having his country paralyzed by strikes.
And nearly every other country, in varying degree, now operates on the fixed assumption that at least some inflation, some constant increase in its stock of paper money, is necessary to prevent an economic slowdown or setback.
In this situation, with a constantly increasing amount of irredeemable paper currency, an increasing distrust of that currency, and a diminishing stock of American holdings of gold, it seems likely that one of these days the United States will be openly forced to refuse to pay out any more of its gold at $35 an ounce even to foreign central banks.
We have been getting ever closer to that point. Our Treasury gold stock fell from $22.8 billion at the end of 1957 to $12.4 billion at the end of 1967 and then to $10,367 billion in the week ended June 12, 1968. It has remained at exactly that figure, week after week, since then.
This would simply not be possible, with confidence in the dollar as shaky as it is today (with $13.7 billion American short-term liabilities to foreign banks alone, not to speak of $20.1 billion more such liabilities to other foreigners), if gold were in fact being freely paid out on demand to foreign central banks wanting it and legally entitled to demand it.
It is true that at least up to the end of January a little less than $500 million additional gold was in our exchange stabilization fund, but even the changes in this figure since last March, when the two-price system for gold was adopted, have been practically negligible.
The time must come when even the thin fiction of maintaining the convertibility of the dollar into gold at $35 an ounce will end.
It is most likely to end in the midst of some run or crisis in the foreign exchange market. If it does, and even token gold-convertibility ends, the consequences for the United States and the world will be grave. Currencies would begin fluctuating wildly in terms of each other, and there would be no fixed yardstick or benchmark against which to measure the depreciation of any of them.
It is devoutly to be hoped, therefore, that the moment our government does openly cease to keep the dollar convertible into gold at $35 an ounce, it will at least simultaneously repeal all prohibitions on the buying, selling, or holding of gold by its own citizens. This would not only enable private individuals to protect themselves against further depreciation of paper dollars, but it would lead to gold becoming once more a de facto international medium of exchange, and it would greatly mitigate the harm done until a new international gold standard could be officially established.
The complete and acknowledged suspension of gold convertibility is the grim outlook we face if our Treasury officials and monetary managers complacently continue to inflate while pretending that nothing very serious is happening to the dollar.
2Reprinted by permission of the Los Angeles Times Syndicate.
