In 1971 US Treasury Secretary Connolly went to Rome and told the G-10 nations that the United States dollar is “our currency and your problem”.
Connolly intended his words to devalue the dollar, and it soon fell by around 20%. This made European nations with dollar holdings poorer than they had been before Connolly started talking.
And it came just after the Nixon Shock – where the US devalued the dollar and ended gold's role as the anchor of the global currency system.
Six continental European nations were at the G-10 meeting – Belgium, France, West Germany, Italy, and the Netherlands. And having just been cheated by Nixon, they were determined it would not happen again.
So quietly, secretly, and slowly, they began work on the euro:
A currency built to help Europe to escape the international dollar system and further currency devaluations.
The direct effects of the inflating dollar were hard for people to see, even as it destroyed the US manufacturing base and middle-class.
In 1971 the US National Debt was 3 billion dollars.
A tiny number compared to 28.8 trillion dollars – which is where US National Debt stands in late 2021. And it's rising exponentially.
Inflation is always hard to see, in the early stages especially. As English economist Maynard Keynes put it:
There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose …
But US dollar problems are finally showing up in one way that can't be ignored:
In the last few months officials have repeatedly said that rising prices are 'transitory' … A result of Covid-19, supply chain issues, and climate change.
Yesterday, Jerome Powell admitted the Federal Reserve had been wrong on inflation and suggested we all stop using the word 'transitory':
I think it’s probably a good time to retire that word and try to explain more clearly what we mean.
Back in 1971 Connally told Europe that the dollar was their problem. And Europe took action.
When the euro was launched, member nations were forced to buy gold in order to join. Few noticed.
And now European nations are quietly increasing their gold holdings, including Ireland, Germany, Hungary, Serbia and Poland.
We are getting closer to the day when we find out why.
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