RedMarx

A Forum
It is currently Sun Jun 25, 2017 3:58 pm

All times are UTC - 6 hours [ DST ]



Welcome


Post new topic Reply to topic  [ 3 posts ] 
Author Message
 Post subject: America's suspension of dollar convertibility
PostPosted: Fri Jun 17, 2016 4:24 pm 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 420
Has thanked: 26 time
Have thanks: 31 time
The reason for the US decision in 1971 to stop converting dollars into gold often is stated to be, that the West-European (+Japan) states, due to their post-war economic development, had run a balance of payments surplus with the US, out-competing the US, and were converting their dollars into gold.

Such is the textbook story, found also eg in Varoufakis's last book; And the Weak Suffer What They Must?: Europe's Crisis and America's Economic Future.

I think this story is false empirically, and probably relies on some bad economic trade theory (that Varoufakis, channeling Keynes, uses to explain the EU crisis as internal trade imbalance between surplus-Germany and deficit-periphery).

a chart of the evolution of Western-European gold hoards: Image

- Western-European countries could start to convert dollars into gold only around 1958 iirc. But notice that Germany already in 1957 had the biggest increase in its gold reserves.

a chart that shows evolution of total gold hoards in central banks (highlighting the Western European and US components):
Image

Total European central bank's gold reserves around 1965 increased by 5000 tons even above the level of available US gold reserves. Hence they bought that part on the market, not from converting their dollars at the Treasury.

Via the gold pool (1960-68) private individuals could buy gold at a fixed price. The US lost gold in this way, but so did the other Western-European members of the pool, to private demand. By the way, the dollars required to do this were not necessarily held in hands of Europeans or European private banks. It seems the largest bank in the so called Euro-dollar market at the time was the First National City Bank of New York, which by the way had a license to trade in gold abroad. Americans themselves thus could have had a role in the early 1968 speculation on the gold market that lead to the closure of the pool.

But what about De Gaulle? By 1968 France was in a crisis, and had to sell gold to the US (notice the little rise in US gold reserves then). Thereafter, in 1971, they asked for conversion into gold of some dollars, but only in order to repay an IMF loan.

The rumor about Britain asking to withdraw huge amount of gold in August 1971 was used as an the immediate excuse by Treasury Secretary John Connally to justify the suspension of convertibility. But there is no basis for this rumor.

I think this whole textbook story is based on some wrong theory of "balance of payments", Triffin dilemma etc. Even after the suspension of convertibility, they are still just upheld also for non-convertible dollar. And what is understood by US balance of payment deficit? A decline of US power? But US investments abroad were strong, I think taking over European companies in Europe itself.


Report this post
Top
 Profile  
 
 
 Post subject: Re: America's suspension of dollar convertibility
PostPosted: Thu Nov 03, 2016 6:04 pm 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 420
Has thanked: 26 time
Have thanks: 31 time
Another error in the textbook story is that the suspension came as a result from the supposed ability of commercial banks to create money, ie expansion of US credit money:

http://nationalinterest.org/feature/who ... dard-12435

(this conservative piece also blames welfare spending:)

Quote:
The government could borrow to fund ever increasing deficits, secure in the knowledge that their servants at the Federal Reserve, freed by LBJ from the weight of any necessary gold reserve to back their Federal Reserve notes, would simply create the money out of thin air and buy the debt obligations not absorbed by the credit market (the definition of quantitative easing). Moreover, banks, as a result of substantially reduced reserve requirements, courtesy of the Federal Reserve, could easily create even more money simply by making new loans. For the first time in human history, it appeared that there actually was a “free lunch” (as well as free dinners, free healthcare, free education, free …).
...
With money no longer having to be earned, it simply appeared ex nihilo on the computer screens of the Federal Reserve, and lending—to governments, to businesses, to consumers—exploded. Total U.S. credit, which was $1 trillion in 1964 (when the GDP was $3.8 Trillion in chained 2009 dollars), is nearly $60 trillion today (with a GDP of $16.25 Trillion in chained 2009 dollars).


Of course the commercial banks cannot create US dollars ex nihilo.

We should also just check the facts, whether the Fed balance sheet in the late 1960s actually expanded that significantly. Probably not. Probably most US government debt was absorbed by the credit market; that would in fact mean there was no expansion of the currency quantity. And if the US debt was bought by foreigners that would not pose a danger for convertibility – the US debt itself was not convertible into gold, only the actual dollars were convertible.

Actually the only way the Fed could have been causing problems, was in case it would massively discount foreign debt.


Report this post
Top
 Profile  
 
 Post subject: Re: America's suspension of dollar convertibility
PostPosted: Fri May 05, 2017 5:14 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 420
Has thanked: 26 time
Have thanks: 31 time
https://www.youtube.com/watch?v=EAd1e7JLk5M

David Harvey and Leo Panitch
Beyond Impossible Reform and Improbable Revolution (2015)

i found no transcript of it (not very enlightening anyway)

they discuss (and disagree on) the 1971 end of the "gold standard" from min. 24 to 32.

Panitch fully buys into the "Friedmanite" assumption (that state spending is or should be impossible under a gold standard), he thinks the Fed in the 1960s caused the money supply to expand. In fact Panitch (notoriously) accepts the wage-push theory of inflation.


Report this post
Top
 Profile  
 
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 3 posts ] 

All times are UTC - 6 hours [ DST ]


Who is online

Users browsing this forum: No registered users and 1 guest


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
Donate Now
Donate Now



Hosted by © 2017 FreeForums.org | Create a free forum | Powered by phpBB
About FreeForums | Legal | Advertise Here | Investors | Contact FreeForums.org
Report Violation

Design By Poker Bandits  

suspicion-preferred