Saturday, August 15th, was the 44th anniversary of one of the most cynical acts of one of the most cynical presidents in United States history, and a day that should live in infamy. On August 15, 1971, President Nixon unilaterally ended the gold standard for the United States, and much of the world, by canceling the direct convertibility of the United States dollar to gold.
Since the United States abandoned the gold standard, the world has suffered from 12 financial crises, beginning with the Oil Shock in 1973 and culminating in the crisis of 2008 and 2009. Now we face debt crises in Europe and Puerto Rico, and the growing U.S. federal deficit. Conversely, between the establishment of the Bretton Woods system in 1947 and 1967, there was only one currency crisis, and that involved the British pound. No major bank failures occurred during those two decades, no Wall Street meltdowns or bailouts. Nixon thought that we were invincible, but this was a false promise. We are not and have not ever been invincible.
During the time leading up to the Great Depression, many politicians discounted any possibility of financial collapse in the United States. Most people understandably believed them, because they were the experts, after all. We must remember that even experts – highly educated economists – can be wrong… or completely useless. We must do our own homework when weighing public statements, particularly if you’re managing your own portfolio. The media doesn’t matter – only the fundamentals matter.
A few weeks ago, Challenger, Gray and Christmas released their report on monthly job cuts for July in the United States. There were 105,696 job cuts, the highest number since 2011. That’s 136% higher than the number for June, which was 44,842. This is a fact that should stick out for Americans, both in and out of the workforce. These numbers paired with the headlines don’t tell the whole story about the workforce and America’s unemployment problems. Most of the jobs created are either part time or minimum wage – more and more Americans have given up on re-entering then workforce… not exactly the optimistic scenario we’ve been sold.
Nixon famously visited China during his time as president. A few weeks ago, we watched China seem to take a page out of his playbook, devaluing their currency, the yuan, and causing a shockwave to ripple through world. The Premiere has made many of the same promises to his people as Nixon did 44 years ago, saying that the intent is to reinvigorate Chinese exports and shore up employment by making goods cheaper in foreign markets. This will, of course, increase pressure on U.S. companies, particularly the multinationals that have been deriving a large amount of profit from doing business in China. This is ultimately a currency war – one that we’ve been discussing for over three years. So far, China has devalued the yuan by about 3 percent. While China has not made their plans or actions known, many analysts believe that they’re looking at a target of 10 percent before all is said and done.
Thanks to Nixon, the devastation of the world’s monetary system left us vulnerable for central bank manipulation without a chance of achieving the goals he claimed to be trying to attain. Benefits of China’s devaluation of the yuan are unlikely. It’s more likely to cause turmoil in global markets and less likely that there will be any lasting benefits for its people and businesses and.As our own markets a probable increase in interest rate from the Federal Reserve, it’s important for investors to stay aware of global impacts, as well as keep a skeptical eye on the news from home.The appearance of prosperity means nothing if the fundamentals don’t support the optimism.
About the Author
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com