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Wednesday, April 22, 2015

Exactly What Did Nixon Say About Dollar Convertability to Gold?

Sunday, August 15th of 1971 President Nixon made a startling announcement.  The President said "I have directed secretary Connally to suspend temporarily the convertability of the dollar into gold or other reserves assets..."  In other words then-President Nixon severed the conversion of US dollars to gold and unilaterally ended the Bretton Woods agreement.

But now, 43 years later, it may be a good time to review his full statement because he went on say a bit more.  Full statement, "I have directed secretary Connally to suspend temporarily the convertability of the dollar into gold or other reserves assets EXCEPT IN AMOUNTS AND CONDITIONS DETERMINED TO BE IN THE INTERESTS OF MONETARY STABILITY AND IN THE BEST INTERESTS OF THE UNITED STATES."

Under what conditions and in what amounts would the US continue to allow the conversion of dollars to gold?  What interests would the US or monetary stability have with the US continuing to allow the dollars conversion to gold?  Why would the president go out of his way on national television to parse his words?  And yet, he did. 

That second portion of the statement was not for domestic consumption.  That caveat was intended for a select few nations that America required to maintain the dollars place as the global reserve. 

What was the message?  America would pick and choose who would be allowed the privilege of transferring dollars for gold.  The likes of France would no longer be allowed to sweep up the excess dollars being pumped into the globe and pass them back to the US taking advantage of the discrepancy of the price of gold versus the real market value of gold.

Why Does This Matter???

The then-presidents statement was in response to the US gold reserves having fallen nearly 60% in less than a decade (20k+ tons down to 8,133.5 tons by 1971).  The US gold standard and the Bretton Woods agreement were abandoned to save what gold the US had left.

However, Nixon nearly simultaneously arranged the petro-dollar agreement that all Saudi and, subsequently, all OPEC oil (regardless the buying nation) must be paid for in US dollars and that all importing nations would need significant reserves of US dollars to facilitate this purchasing.  The US pledged military and regime support for those OPEC “allies” that honored the petro- dollar agreement.  This arrangement allowed a conduit to export the massive dollar creation (US budget and trade deficits) globally without the potential hyperinflation in the US (that would typically result from diluting a currency) or the loss of the dollars purchasing power internationally.

Although doomed from the day it was agreed upon, the petro-dollar system carried on.  The US did it's part providing military aid, sustaining non-democratic and often downright despotic kings and monarchs who need only accept nothing but dollars for their oil to maintain America's good graces.  All but a select few OPEC members maintained the petro-dollar arrangement...however, those who suggested they were interested in payment in gold or some non-dollar arrangement found themselves on the outside looking in...and typically literally looking down the barrel of a gun.  It is certainly conceivable key OPEC nations passed some portion of their dollar surplus back to the US for conversion to gold as OPEC did not significantly recycle the excess dollars into Treasury's.

And as time went on Asian tigers took advantage of cheap labor and weak currencies to run massive trade driven dollar surpluses.  But two in particular, Japan and China, recycled huge trade surplus driven excess dollars into US Treasury's.  From '00 til July '11, China recycled almost 50% of its excess dollars into Treasury's.  China's holdings rose from $60 billion in '00 to $1,315 billion by July of '11, a 2,250% increase!  From January '08 'til July '11, China purchased an astronomical $823 billion.  However, since July of '11, despite running record trade surpluses, China has sold <-$91> billion in US Treasury debt.

Whatever could have drawn China to buy so many Treasury's for 3.5 years and then suddenly to stop in July '11...and reverse all engines over the next 3.5 years, selling on record dollar surpluses?  My guess is that as the financial crisis set in, the US determined to run whatever deficit spending was necessary to maintain the system.  And in order to maintain low rates on all that newly created debt, a very big buyer was necessary alongside the Fed.  But to incent the biggest buyer...the US utilized Nixon's caveat and determined an amount and the conditions for opening a backdoor conversion of dollars into gold.  

Over a 42 month period, China purchased nearly a trillion dollars in Treasury debt at ever lower yields but my best guess is their real payment wasn't paper yielding next to nothing but that they were really converting fiat into gold...but in July of 2011 when the US made clear in the debt ceiling debate that the US never intended to repay the debt or cease deficit spending...either China opted out or the US knew it was on a path to run out of gold.  Either way, since  July '11, interest rates around the world have collapsed on central bank demand, precious metal prices collapse on record demand, real estate and stocks soaring into record territory.  The fix was in and likely involved collusion among all parties to ensure all parties got what they wanted. 

The following chart represents the actual data but adds one dashed line...US theoretical gold holdings.

Further reading on China's potential gold holdings can be found here...
But that wasn't the end of the now we wait to find out how much gold China has, how they plan to take advantage of all shiny stuff, and what it all means for us.


  1. The foundation of this article is solid. Nixon obviously knew gold might need to flow somewhere. Perhaps a little to the house of Saud, in return for opec selling oil for dollars only? At 300 tons per year that would be the deal of the century. A twenty year deal would be worth 6,000 tons and take us neatly into a gulf war in the 1991.

    Anyway, it is the flow of gold that is important. Nixon is remembered as the president who publicly ended the outflow of US gold but he did mention possible private exceptions. Provided gold flowed to the right people then these people would tolerate the dollar? May be the flow to Saudi ended in 1981 or 1991 or 2001 or 2011. Perhaps another flow to China ended in 2011.

    I appreciate that Chris has pointed these things out. Gold does appear to no longer matter but gold is gold and perhaps other cultures do still value it immensely. I believe Nixon was a crook and a twister, the gold that flowed is not forced to have come from the US govt. He just needed to assure some folks that gold would flow.

    NB I suggested 300 tons per year to the Saudi royal family as that is what they got as a royalty to allow US interests (Aramco) to drill for oil in Saudi Arabia in the fifties. I feel that Nixon's speech indicated that this gold was still flowing and that it would continue to flow. The speech was well written and it said very clearly to the Saudi Royalty, the deal is still the deal.

    I realise that my narrative is speculation. I only give it to arouse curiosity and stimulate thought. Two points I would like explained, why has the US never sought to replace a single ounce of the 12,000 tons it 'lost'. Why it's special friend, the UK, never bought any either.

    I will end with two quotes.

    J P Morgan said that only gold is money.
    Ben Bernanke said that gold isn't money.
    (One was the richest banker in U.S. history, the other a Princeton academic.)
    We all know what Nixon said but what about exactly did he mean?

    Thanks Chris for another interesting article.

  2. I would like to share my thoughts on the future. The problem is the US has a massive military and sees any threat to the dollar reserve status as a threat to national security. So, threats to the dollar are met with force. Lots of force. Ask Gadaffi and Saddam.

    In 2011 China stopped buying U.S. treasuries. Something changed. Something big. China stopped supporting the dolllar. The U.S. have been unable to get them to buy again. Loss of reserve status is now smoothly underway. China suggest a more multi polar world. No major country is opposing this.

    This is the biggest story in 100 years and doesn't get much of a mention.

    So dollars, gold and oil.
    Dollars are still dollars but the world is managing to move away from them, cautiously.
    Gold may or may not be money.
    Oil powers the world.

    For Americans a gradual loss of dollar reserve status means a gradual loss in their standard of living. Many Americans will already have felt this. At some point, perhaps dramatically, the power of US finance will diminish and the US will start manufacturing again. The working man may hear the sound of silver jingling in his pockets, again. Or a Jack boot on his throat. That is for Americans to decide.

    Make no mistake, Nixon bought you forty years of greatness. Now greatness will require much more effort. I have no faith in the U.S. government. I have a great deal of faith and respect for Americans. Your government needs you to be soft, lazy and unthinking. Don't be. Work hard for your family and local community. Acquire actual wealth you can touch and see. Electronic numbers in various accounts are easily deleted. For example, In the Nixon speech he also added a 10% surcharge on all imports. An instant hit to the value of your dollar when buying foreign goods. He did that without blinking or apologising. Things can change dramatically in just one five minute announcement.

  3. Hi Chris,

    Nixon basically said, gold is money but we are no longer prepared to swap it for dollars. (Unless we to have to.)

    When or if the need arises for this temporary measure to be lifted, what would be the dollar value of gold? The U.S. government would want a high valuation, it's creditors a low valuation. The U.S. govt can simply repudiate all the debt or start WWIII. So, I expect a fairly high figure. $90,000 per ounce pays off all $18 trillion dollars of debt and leaves a third of the gold stash.

    However, governments of the world gain a great deal of control over their people when paper currencies are used rather than gold. So, it is more likely we get a gold portion in the SDR basket of currencies. Perhaps 12 ounces per million dollar SDR? Opec accepting SDR's for oil and Saudi demanding the physical gold not just a paper SDR promise. China would accept SDR's too, providing they get the physical gold.

    The IMF produce SDR's. They would rather not include gold but may have to if China suggests that they will produce an equivalent with gold. China is positioning itself for this in 2020 but could do it sooner. The trigger is probably U.S. government debt levels.

    Which is best, selling oil for dollars or selling oil for a currency selection and gold?

    China will force gold back into the financial system when they feel the time is right. The IMF will produce the SDR with physical gold or China will. As always, the price of gold will vary. The weight of gold in the SDR or equivalent will be fixed.

    Thus, U.S. debt can be paid off with gold SDR's of equal dollar price with 2/3 of US gold. Global financial collapse avoided for 200 billion dollars of U.S. government gold. (66% of it.)

    The gold price need not be effected.

    That is how I would suggest 'containing' the US government if I was asked by another government. Or how I would like to prevent WWIII, at least for my lifetime.

    The U.S. government plays this ace when it is forced too. It buys it time and prevents a dollar collapse. Anyway, that is what I would suggest if the U.S. government asked. (After water boarding or hopefully before. 😉)



    1. David - I'm pretty sure you are smarter than I and really glad for your thoughts and comments. Cheers. CH

    2. you suggested the following:
      "Nixon nearly simultaneously arranged the petro-dollar agreement "
      However ,President Nixon ended gold convertibility on August 15, 1971 , on the other hand petrodollar system started some time in March 1974 ( 3 years gap) , So my question is:
      Do President Nixon has pre-knowledge of the coming of petrodollar system 3 years before it started ?

  4. "Theoretical" Gold Holdings should be called "Projected U$ Gold Reserves" because forensic accounting methods indicate the U$ is _out of Gold_!

    1. EXCELLENT Article, the above is all I can hope to add!

      If I could add something more, it would be this link that has a large wealth of information at the beginning, but is selling something at the end... But it explains the next crash _in detail_ with dates and some possible shelters. Just delete everything from "if I could add" if it is inappropriate![BP]&coffer=1&stitle=1

      Nice Blog, HamBone!

  5. you suggested the following:
    "Nixon nearly simultaneously arranged the petro-dollar agreement "
    However ,President Nixon ended gold convertibility on August 15, 1971 , on the other hand petrodollar system started some time in March 1974 ( 3 years gap) , So my question is:
    Do President Nixon has pre-knowledge of the coming of petrodollar system 3 years before it started ?

    1. Hey Susan - it seems plausible that when Nixon made his August '71 announcement that, with Kissinger's advice, the US may have had a plan (or at least a notion) to avoid the dollars demise. However, no way to prove this and no way to know if discussions with Saudi back channels had begun. Anyway, the US had an agreement with Saudi's by '73 and subsequently all OPEC members by '74.

      So, my "nearly simultaneously" was truly about 18-24 months from the end of dollar convertability to Saudi's exclusivity for dollar payments.

    2. you could be right Chris because according to IMF Brenton Woods agreement officially ended on March 1973 with price of gold at 42,22,after the collapse of the Smithsonian Agreement ( December 1971 March 1973)

      thank you
      sultan mohanna

    3. Hey Sultan...thanks and always really glad to see folks digging into the details and helping me see more possibilities or alternate realities.

  6. Peggy and Sterling Seagraves' revised edition of "Gold Warriors" had two additional chapters discussing how a secret slush fund of hundreds of tonnes of gold was used to affect world affairs.

    They discussed the huge cache of gold that Japan had accumulated and hidden in its three decades' march across Asia in the early part of the twentieth century.

    The Seagraves said the reason Truman wanted to keep this cache secret was that it would throw off negotiations for the treaty of Bretton Woods, then under way.

    In the Treaty of Bretton Woods, all gold transferred EXCEPT that from Macao, would have to be registered. Macao, at the time, was a territory of Portugal, which was also the purported transshipment point for the Nazi Black Eagle gold smuggled to Argentina after WWII.

    The Black Lily gold was deposited into hundreds of banks across the world, and a big part of the book is about law suits (the source of much documentation) against the banks who just stole it from the depositors.

    According to the Seagraves, this gold was used as a slush fund to finance coups and involvement in governance and elections in Asia and Europe, especially mentioning Japan, Greece, Italy. but I'm sure there is much more to that story. Also connected to this story is Project Hammer, the attempt to destabilize and take over the natural resources of the Soviet Union.

    David Guyatt also has written extensively on this.

    The people who own the banks are also the people who control the intelligence agencies and manipulate elections. There is a huge amount of information we don't have about the forces at play in global politics, and we should be cautious about attributing motivations and techniques. These people have long-term goals and deep tentacles into financial and governmental agencies.

    We still need to learn more about what actually happened. For instance, I read a reference to the Green Hill Treaty, which, if I recall, was like a secret codicil to the Treaty of Bretton Woods, put out a few months later, but I can find NO mention of it on the internet, and so I'm putting out the call here, if anyone has any information or references to it.


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