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US Monetary Time-Line 1913 - 2013

US Monetary Time-Line 1913 - 2013

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Published by John Griffiths
A brief chronology of significant events pertaining United States monetary policy and administration. Especially notiable are events of the 1970's and the systemic distortions in the American economy to which they gave birth. It is a time trail to the crisis now unfolding.
A brief chronology of significant events pertaining United States monetary policy and administration. Especially notiable are events of the 1970's and the systemic distortions in the American economy to which they gave birth. It is a time trail to the crisis now unfolding.

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Published by: John Griffiths on Sep 04, 2012
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 Relates to
Naked Monetarists & Pear-shaped Economies
US Monetary Time-Line 1913 2013
“The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;’
- Article I, section 8 of the Constitution of the United States 
Dec 23, 1913
President Woodrow Wilson signed the
Federal Reserve Act of 1913
(or Owen-Glass Act) - creating the Federal Reserve centralbanking system through 12 regional private banks owned by participating commercial banks.
1920–1929 The Federal Reserve Board reduced reserve requirements thereby facilitating an easy credit policy.
Oct 1929 Stock market crash that led to long-term economic depression. But as Milton Friedman said: “Depression would have been overin 1931... the
Federal Reserve
followed a policy which led to …widespread bank failures, and …a reduction in the quantity of money… by a third.”
 Mar & Apr1933A series of laws and executive orders, the government suspended the gold standard for US$. Anyone holding significant amounts of gold coinage was mandated to exchange it for the existing fixed price of US dollars, after which the US would no longer pay gold ondemand for the dollar, and gold would no longer be considered valid legal tender for debts in private and public contracts.
Thedollar was allowed to float freely
on foreign exchange markets with no guaranteed price in gold, only to be fixed again at asignificantly lower level a year later with the passage of the Gold Reserve Act.
 May 12, 1933 Thomas Amendment (Title III) to the Agricultural Adjustment Act ‘granted the president broad discretionary powers over monetarypolicy.’ He
(probably on Federal Reserve advice
) could ‘authorize the open market committee of the Federal Reserve to purchase up to$3 billion of federal obligations. If open market operations prove insufficient, ‘the president could have the U.S. Treasury issue upto $3 billion in greenbacks, reduce the gold content of the dollar by as much as 50 percent, or accept $100 million dollars in silver ata price not to exceed fifty cents per ounce in payment of World War I debts owed by European nations.’
Jun 16, 1933
The Banking Act of 1933
(sometimes referred to as the Glass–Steagall Act)
 Jan 30, 1934 The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it wasstored in United States Bullion Depository at Fort Knox and other locations. The act also changed the nominal price of gold from$20.67 per troy ounce to $35 - This remained in place until 1972.
Aug. 19, 1935 The Banking Act of 1935 - strengthened the powers of the Federal Reserve Board of Governors in the area of creditmanagement
.Jan 1939 National Economy and The Banking System of the United States
This document (presented on the floor of Congress) comments on the causalcircumstances that brought about the depressions of 1921, 1929-32, and 1937.
 Jul 1-22, 1944,
World War II was still in progress when 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in
Bretton Woods
, New Hampshire, for the United Nations Monetary and Financial Conference. Attendees created the InternationalMonetary Fund (IMF) and World Bank.
Participants agreed to adopt a monetary policy maintaining an exchange rate of theircurrency within a fixed value in terms of gold.1951 The Federal Reserve System is granted full autonomy and independence from the Department of Treasury.
Feb 13, 1962 Federal Open Market Committee authorize the Federal Reserve Bank of New York to participate in, and set guidelines for, openmarket transactions in foreign currencies
 Mar 17, 1968 Two-tiered pricing system for gold established. A market price ran parallel to that set by the US Government.Nov 5, 1968 Republican nominee, former Vice President Richard Nixon won the1968 United States presidential election.Oct 17, 1969. On nominating Dr Arthur Burns for Chairman of the Board of Governors of the Federal Reserve, President Nixon stated ‘Dr. Burnshas been known for many years as a strong and effective leader in the fight against both inflation and recession
’. Dr Burns’nomination was conditional on him ensuring that American voters had easy access to credit when Richard Nixon wasrunning for re-election in 1972
 early 1970 CPI 6% per yearFeb. 1, 1970. Dr Burns began his term as Chairman of the Board of Governors of the Federal Reserve.
early 1970sThe costs of the Vietnam War and increased domestic spending
(facilitated by increased credit creation)
accelerated inflation.
8 1New River Media Interview- Milton Friedman, 2000. The First Measured Century. PBS. http://www.pbs.org/fmc/interviews/friedman.htm2http://en.wikipedia.org/wiki/Gold_Reserve_Act3David D Web, Oklahoma Historical Society, http://digital.library.okstate.edu/encyclopedia/entries/T/TH007.html4Senate document (United States. Congress. Senate) ; 76th Congress, no. 23. Book vi, 108 pages incl. tables. 23 cm. Robert Latham Owen, Published: Washington, U. S. Govt. print. off., 1939.
5http://en.wikipedia.org/wiki/Bretton_Woods_system6Forty-Ninth Annual Report of the Board of Governors of the Federal Reserve System - Covering operations for 19627New River Media Interview- Milton Friedman, 2000. The First Measured Century. PBS. http://www.pbs.org/fmc/interviews/friedman.htm8Wikipedia http://en.wikipedia.org/wiki/Nixon_Shock Also used for some of the other entries for 1970-1973
 Relates to
Naked Monetarists & Pear-shaped Economies
1970 Foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%.End 1970
US Foreign Reserves
down to $
 May 1971 Inflation-wary West Germany was the first member country to unilaterally leave the Bretton Woods system - unwilling to devaluethe Deutsche Mark in order to prop up the dollar. In the following three months, West Germany’s move strengthened its economy.Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.FY 1971
Balance-of-Payments deficit $980m and Trade deficit $2,270m
- The first in Nixon’s Presidency
Due to the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America’s“promise to pay” – that is, the redemption of their dollars for gold.Jul 1971 Switzerland redeemed $50 million of paper for gold.
France, in particular, repeatedly made aggressive demands, & acquired $191million in gold, further depleting the gold reserves of the U.S.Aug 5, 1971, Congress released a report recommending devaluation of the dollar, in an effort to
the dollar against “foreign price-gougers
 Aug 9, 1971, As the dollar dropped in value against European currencies, Switzerland unilaterally withdrew the Swiss franc from the BrettonWoods systemAug 15, 1971
To preserve the remaining US gold reserves President Nixon ended dollar’s conversion to gold.
He also
imposed wage andprice control in order to stop inflation
Dec. 17 and 18,1971,Representatives of the Group of Ten, led by US, met at the Smithsonian Institution in Washington, D.C., and agreed on arealignment of currencies and a new set of pegged exchange rates. The dollar was devalued in terms of gold, while other currencieswere appreciated in terms of the dollar. On the whole, the
dollar was devalued by nearly 10%
in relation to the other in the Groupof Ten currencies
United Kingdom, Canada, France, West Germany, Italy, the Netherlands, Belgium, Sweden, and Japan).
 End 1971
US Foreign Reserves down to $14,800m
1972 Foreign currencies began abandoning the devalued peg against the dollar. US Government gold price $38.Market average price $58.42.Nov 7, 1972
President Nixon re-elected in a landslide victory emphasizing a good economy;
and his successes in foreign affairs, such asending American involvement in Vietnam and establishing relations with China.FY 1972
Balance-of-Payments deficit $5,260m & Trade deficit $6420m - The second in Nixon’s Presidency.
 Feb 1973 A second devaluation of the dollar (by 10%) was announced ($44/ounce). Bretton Woods currency exchange market closed.US Government gold price $42.2222 per troy ounce.
Mar 1973Americaisolatesitsmoneysupply US began implementingMilton Friedman’s proposal for a ‘free floating’ exchange rate system.
This isolated America’smoney supply and preserved the remaining US international currency reserves. This also meant that
international trade could nolonger add to US international currency reserves
, and therefore not add to the nation’s money supply.
Growth in the USeconomy could now only be achieved by bank credit creation.
Since then, for nearly four decades, this arrangement has been a boon for banks, and has allowed Americans to increasingly ‘spendtomorrow’s earnings today’ to buy more than their country has produced.
Fig 4 is indicative of this
distortion of the market
- See1976 Trade Deficit & 1977 Balance of Payments Deficit
(Current Account Deficits).
May 1973
US Average GDP growth suggest recession on way
(see figure 1 below)
18 Oct 1973
oil embargo began because of America’s active support for Israel in the Yom Kippur war.
End 1973
average price for gold $97.39
 Aug 9, 1974,
Nixon resigns in the face of almost certain impeachment.1974
Trade deficit
CPI rate over 12%.
Market average price for gold $154.
Apr 1975
US Average GDP growth suggest recession fading into stagnation.
See Milton Freidman comment Fig 1
End 1975 Market average price for gold $160.861976
Trade deficit $9490m –
The beginning of a continuous run of trade deficits until the present economic crisis
End 1976 CPI under 7% per year.
Market average price for gold $124.74
9Values for US Foreign and gold Reserves per World Bank data adjusted to 2010 US dollars. Here after significant variations in World Bank data for succeeding four decades tend to reflect market gold prices. For contrast see footnote at entry Dec, 302011. Other variations are likely to reflect central bank currency speculative efforts to achieve certain administrative objectives.10Balance of payment and Trade deficit data derived from the World bank in current collars11http://en.wikipedia.org/wiki/Bretton_Woods_system12Impact of the Floating Exchange Rate System on Debt http://www.buoyanteconomies.com/Impact%20of%20floating%20exchange%20rate%20Debt.htm refers.13The dependence on bank credit for the economy’s growth has not only causes demand to favour imports, supply skews to focus on exports. As exporters seek to convert their foreign earnings to US dollars they drive up the exchange rate and causeimports to be cheaper than equivalent goods produced by American industries. It is a major distortion of the market, but it is good for the banks!14Market average price for gold are historical rates per http://www.nma.org/pdf/gold/his_gold_prices.pdf.
 Relates to
Naked Monetarists & Pear-shaped Economies
Balance-of-Payments deficit $15,100m –With exception of 1980, 1981,
and 1991 it was beginning of a continuous run of BoPdeficits until the present economic crisis.
See Fig 2.
Trade deficit
$31,100mEnd 1977 Annual CPI 6.7%. Market average price for gold $147. 84.
Mar 8, 1978 Dr Burns retired as Chairman of the Federal Reserve Board of Governors. During his term annual rate of CPI averagedapproximately 9%.
deficit $15,747m
Trade deficit
$33,927m1979 Federal funds rate averaged 11.2%.
of reduced debt that economic
recession /stagnation encourages
Balance of Trade deficit dropped
to $27,568m.Aug. 6, 1979 Mr. Paul A. Volcker, jr. began his term as Chairman of the Board of Governors of the Federal Reserve.Mar 31, 1980Depository Institutions Deregulation and Monetary Control Act gave the Federal Reserve greater control over non-member banks.This legislation, and the Garn–St. Germain Depository Institutions Act that followed, diminished the distinctions between banks andother financial institutions in the United States. This legislation is frequently referred to as
and it is often blamedfor the failure of over 500 savings and loan associations between 1980 and 1988
- Among other things,
deregulation of thebanking industry removed constraints on credit creation by banks. As well as making things even better for banks, it freedup America’s capacity to buy more than it produces - That is, buy more imports that are cheaper than American products.
See Mar 1973 entry above, & Fig 4 below)
Unfortunately, this reversed the brief improvement trend in US Trade deficits andBalance of Payments then becoming evident –
The descent into debt regained momentum
he term ‘
Rust Belt
’ came into use in the 1980’s to describe the results of Federal Reserve policy initiatives on US manufacturingindustries in the north eastern United States.
 1981Inflation peaked at 13.5%, and Federal Funds rate peak of 20% in June 1981Oct 15, 1982Garn–St. Germain Depository Institutions Act,
(see Mar 31, 1980 entry above)
Inflation lowered to 3.2% but
US public debt accelerated
–see Fig 3Market average price for gold $424.00 
Trade deficit
deficit $44,222mOct 19, 1987Stock market crash.1990-1
Recession -
As indicated by downturn in GDP growth beginning 1990 to end 1991.
of reduced debt that economic
recession/stagnation encourages:
in Trade
 1993Trade deficit $64,400m Balance-of-Payments deficit $84,783m
Market average price for gold $359.77
 2003Trade deficit $504,100m Balance-of-Payments deficit $519,090m
Market average price for gold $363.38
2007-2008Financial CrisisTrade deficits $713,100m and $709,700m2008 - 2012
Financial crisis escalates into an economic crisis.
Nov 2008
Federal Reserve began its first round of buying financial assets from commercial banks to inject money into the economy – Knownas Quantitative Easing (
(See entry Dec 31, 2011 below)
Market average price for gold $871.56 FY 2010 Trade deficit $494,737m
Market average price for gold $1224.53 Nov 2010,
Federal Reserve announced a second round of quantitative easing, or "
(See entry Dec 31, 2011 below)
 2011 Trade deficit $559,880m
Balance-of-Payments deficit $473,441m
Market average price for gold $1571.52 
Gross Federal debt $14,800,000m
Public Debt $8,500,000m
Tuesday, Dec 62011
President Barack Obama'
at Osawatomie, Kansasdrew attention to Wall Street and American banks’ culpability for much of the US economic woes. Though not stated, it would seem to implicate the Federal Reserve.
Formula for the Current Account Balance
at http://www.buoyanteconomies.com/CAD_Formula.htm - Is a paper which presents models that explain ‘how current account deficits are caused when additional money is created whichfinances national expenditure in excess of national income (production).’
16http://en.wikipedia.org/wiki/Arthur_F._Burns17http://en.wikipedia.org/wiki/Banking_in_the_United_States18Trade deficit figures dropped in 1979 to $27,568m, and 1980 to $25,533m before increasing; and Balance of Payments rose in 1980 to $2,127m and 1981 to $4,810m then descended again into deficit figures until a brief exception in 1991 of $2,051m. Per World bank data in current dollars. This improvement in Trade and BoP figures is indicative of the correlation of bank credit with buying imports, and recessionary trend, that is, a reluctance to enter into debt.19 
Growth of Debt and Loss of Income in America
http://www.buoyanteconomies.com/DebtIncome.htm refers20US well into recession before the Gulf War (2 Aug 1990 – 28 Feb 1991) started and its effect on oil prices.21Indicative of the recessionary trend is the reluctance of enter into debt. In recessionary times, the correlation of bank credit and buying imports causes this behaviour to be reflected as improved Trade and Balance of Payment outcomes. See 1980entry as another example of this. See 1991 entry and footnote.22Period covered Jan – Dec 2010. US Bureau of Statistics, Economics Report Bureau of Economic Analysis, August 9,23Period covered Jan – Dec 2011. US Bureau of Statistics, Economics Report Bureau of Economic Analysis, August 9, 201224World Bank data25http://www.usgovernmentdebt.us/. $14,800,000 million equals $14.8 trillion and $8,5 00,000 million equals $8.5 trillion

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