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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 central banking system through 12 regional private banks owned by participating commercial banks.

1920–1929 Oct 1929

The Federal Reserve Board reduced reserve requirements thereby facilitating an easy credit policy. Stock market crash that led to long-term economic depression. But as Milton Friedman said: “Depression … would have been over in 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 & Apr 1933

A 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 on demand for the dollar, and gold would no longer be considered valid legal tender for debts in private and public contracts. The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold, only to be fixed again at a significantly 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 monetary policy.’ 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 up to $3 billion in greenbacks, reduce the gold content of the dollar by as much as 50 percent, or accept $100 million dollars in silver at a price not to exceed fifty cents per ounce in payment of World War I debts owed by European nations.’

Jun 16, 1933 Jan 30, 1934

The Banking Act of 1933 (sometimes referred to as the Glass–Steagall Act) The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it was stored 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 credit management.

Jan 1939 Jul 1-22, 1944,

National Economy and The Banking System of the United States - This document (presented on the floor of Congress) comments on the causal
circumstances that brought about the depressions of 1921, 1929-32, and 1937.

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 International Monetary Fund (IMF) and World Bank. Participants agreed to adopt a monetary policy maintaining an exchange rate of their currency within a fixed value in terms of gold.

1951 Feb 13, 1962

The Federal Reserve System is granted full autonomy and independence from the Department of Treasury. Federal Open Market Committee authorize the Federal Reserve Bank of New York to participate in, and set guidelines for, open market transactions in foreign currencies.

Mar 17, 1968 Nov 5, 1968 Oct 17, 1969.

Two-tiered pricing system for gold established. A market price ran parallel to that set by the US Government. Republican nominee, former Vice President Richard Nixon won the1968 United States presidential election. On nominating Dr Arthur Burns for Chairman of the Board of Governors of the Federal Reserve, President Nixon stated ‘Dr. Burns has 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 was running for re-election in 1972.

early 1970 Feb. 1, 1970. early 1970s

CPI 6% per year Dr Burns began his term as Chairman of the Board of Governors of the Federal Reserve. The costs of the Vietnam War and increased domestic spending (facilitated by increased credit creation) accelerated inflation.

1 New River Media Interview- Milton Friedman, 2000. The First Measured Century. PBS. 2 3 David D Web, Oklahoma Historical Society, 4 Senate 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. 5 6 Forty-Ninth Annual Report of the Board of Governors of the Federal Reserve System - Covering operations for 1962 7 New River Media Interview- Milton Friedman, 2000. The First Measured Century. PBS. 8 Wikipedia Also used for some of the other entries for 1970-1973

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Naked Monetarists & Pear-shaped Economies

1970 End 1970 May 1971

Foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%. US Foreign Reserves down to $15,200m.

Inflation-wary West Germany was the first member country to unilaterally leave the Bretton Woods system - unwilling to devalue the 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 $191 million in gold, further depleting the gold reserves of the U.S.

Aug 5, 1971, Aug 9, 1971,

Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against “foreign price-gougers.” As the dollar dropped in value against European currencies, Switzerland unilaterally withdrew the Swiss franc from the Bretton Woods system

Aug 15, 1971

To preserve the remaining US gold reserves President Nixon ended dollar’s conversion to gold. He also imposed wage and price 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 a realignment of currencies and a new set of pegged exchange rates. The dollar was devalued in terms of gold, while other currencies were appreciated in terms of the dollar. On the whole, the dollar was devalued by nearly 10% in relation to the other in the Group of Ten currencies (United Kingdom, Canada, France, West Germany, Italy, the Netherlands, Belgium, Sweden, and Japan).

End 1971 1972

US Foreign Reserves down to $14,800m. 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 as ending American involvement in Vietnam and establishing relations with China.

FY 1972 Feb 1973

Balance-of-Payments deficit $5,260m & Trade deficit $6420m - The second in Nixon’s Presidency. 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 1973

US began implementing Milton Friedman’s proposal for a ‘free floating’ exchange rate system. This isolated America’s money supply and preserved the remaining US international currency reserves. This also meant that international trade could no

America isolates its money supply

longer add to US international currency reserves, and therefore not add to the nation’s money supply. Growth in the US economy 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 ‘spend tomorrow’s earnings today’ to buy more than their country has produced.
1976 Trade Deficit & 1977 Balance of Payments Deficit (Current Account Deficits).

Fig 4 is indicative of this distortion of the market - See

May 1973 18 Oct 1973 End 1973 Aug 9, 1974, 1974 Apr 1975 End 1975 1976 End 1976

US Average GDP growth suggest recession on way (see figure 1 below) OPEC oil embargo began because of America’s active support for Israel in the Yom Kippur war. Market average price for gold $97.39

Richard Nixon resigns in the face of almost certain impeachment. Trade deficit $5,510m Annual CPI rate over 12%. Market average price for gold $154.

US Average GDP growth suggest recession fading into stagnation. (See Milton Freidman comment Fig 1) Market average price for gold $160.86 Trade deficit $9490m – The beginning of a continuous run of trade deficits until the present economic crisis. CPI under 7% per year. Market average price for gold $124.74

9 Values 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, 30 2011. Other variations are likely to reflect central bank currency speculative efforts to achieve certain administrative objectives. 10 Balance of payment and Trade deficit data derived from the World bank in current collars 11 12 Impact of the Floating Exchange Rate System on Debt refers. 13 The 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 cause imports 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! 14 Market average price for gold are historical rates per

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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 BoP deficits until the present economic crisis.

See Fig 2.

Trade deficit $31,100m Market average price for gold $147. 84.

End 1977 Mar 8, 1978

Annual CPI 6.7%.

Dr Burns retired as Chairman of the Federal Reserve Board of Governors. During his term annual rate of CPI averaged approximately 9%.

1978 1979

Balance-of-payments deficit $15,747m Federal funds rate averaged 11.2%.

Trade deficit $33,927m

Indicative of reduced debt that economic recession /stagnation encourages: Aug. 6, 1979 Mar 31, 1980

Balance of Trade deficit dropped to $27,568m.

Mr. Paul A. Volcker, jr. began his term as Chairman of the Board of Governors of the Federal Reserve. Depository 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 and other financial institutions in the United States. This legislation is frequently referred to as "deregulation," and it is often blamed for the failure of over 500 savings and loan associations between 1980 and 1988 - Among other things, deregulation of the banking industry removed constraints on credit creation by banks. As well as making things even better for banks, it freed up 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 and Balance of Payments then becoming evident – The descent into debt regained momentum.
18 17

The term ‘Rust Belt’ came into use in the 1980’s to describe the results of Federal Reserve policy initiatives on US manufacturing industries in the north eastern United States. 1981 Oct 15, 1982 1983

Inflation peaked at 13.5%, and Federal Funds rate peak of 20% in June 1981 Garn–St. Germain Depository Institutions Act, (see Mar 31, 1980 entry above) Inflation lowered to 3.2% but US public debt accelerated –see Fig 3 Trade deficit $67,095m Balance-of-payments deficit $44,222m

Market average price for gold $424.00

Oct 19, 1987 1990-1 1991

Stock market crash. Recession - As indicated by downturn in GDP growth beginning 1990 to end 1991. Indicative of reduced debt that economic recession/stagnation encourages: Improvement in Trade deficit $26,900m Last Balance-of-Payments surplus $2,851m

1993 2003 2007-2008 2008 - 2012 Nov 2008

Trade deficit $64,400m Trade deficit $504,100m Financial Crisis

Balance-of-Payments deficit $84,783m Balance-of-Payments deficit $519,090m Trade deficits $713,100m and $709,700m

Market average price for gold $359.77 Market average price for gold $363.38

Financial crisis escalates into an economic crisis. Federal Reserve began its first round of buying financial assets from commercial banks to inject money into the economy – Known as Quantitative Easing (QE)
(See entry Dec 31, 2011 below)

Market average price for gold $871.56 Market average price for gold $1224.53
(See entry Dec 31, 2011 below)
24 25

FY 2010 Nov 2010, 2011

Trade deficit $494,737m


Federal Reserve announced a second round of quantitative easing, or "QE2" Trade deficit $559,880m

Balance-of-Payments deficit $473,441m

Market average price for gold $1571.52

Gross Federal debt $14,800,000m
Tuesday, Dec 6 2011

Public Debt $8,500,000m

President Barack Obama's speech at Osawatomie, Kansas drew 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 - Is a paper which presents models that explain ‘how current account deficits are caused when additional money is created which
finances national expenditure in excess of national income (production).’

16 17 18 Trade 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 20 21 Indicative 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 1980 entry as another example of this. See 1991 entry and footnote. 22 Period covered Jan – Dec 2010. US Bureau of Statistics, Economics Report Bureau of Economic Analysis, August 9, 23 Period covered Jan – Dec 2011. US Bureau of Statistics, Economics Report Bureau of Economic Analysis, August 9, 2012 24 World Bank data 25 $14,800,000 million equals $14.8 trillion and $8,5 00,000 million equals $8.5 trillion

Growth of Debt and Loss of Income in America refers
US well into recession before the Gulf War (2 Aug 1990 – 28 Feb 1991) started and its effect on oil prices.

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Naked Monetarists & Pear-shaped Economies

Dec 30, 2011 Dec 31, 2011

U.S. Treasury international reserve assets officially given as totaling $146,665m


JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs were the five largest banks in the United States. Their assets were equal to 56 percent of the U.S. economy, compared with 43 percent five years earlier.

Entries Mar 1973; Mar 31, 1980; Nov 2008; Nov 2010 above; and Fig. 4 below refer.

Sep 13 2012

Federal Reserve announced a 3rd round of "QE3" equal more than 60% of the US economy.


- If nothing else; this should stimulate growth of the five largest banks’ assets to
est. FY 2012

(See entry Dec 31, 2011 above.)

Trade deficit $590,000m?


Mar 2013

40th anniversary of dependence on economic growth thru debt & the consequent erosion of economic power
– Only a few will have reason to celebrate.


Dec 23, 2013

‘A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation, therefore, and all our activities are in the hands of a few men .., We have come to be one of the worst ruled, one of

the most completely controlled and dominated Governments in the civilised world — no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of small groups of dominant men’ 31

Woodrow Wilson, 1916 in retrospect of the Federal Reserve Act of 1913

Fig 1 - The Recession of 1973–75 in the USA can be described as a U-shaped recession, because of its prolonged period of weak growth &contraction.
Percent Change From Preceding Period in Real Gross Domestic Product (annualized; seasonally adjusted); Source:US Bureau of Economic Analysis Average GDP growth 1947–2009 also see


Fig 1 above - President Richard Nixon caused the United States to adopt Milton Friedman’s floating exchange rate system in March 1973, having encouraged America’s major trading partners to follow suit. Continuing constraints on bank lending (Banks having not yet been deregulated), and the elimination of the ability to accumulate foreign reserves as national savings through international trade, stymied the US (and its trading partners) capacity for economic expansion. A worldwide recession ensued that was to last some two years. The recession is often attributed to the OPEC oil embargo which began on 18 October 1973 in response to America’s active support for Israel in the Yom Kippur war. The embargo lasted for 5 months and was undoubtedly the source of major difficulties and costs. However, it was blamed for economic difficulties that persisted long after.

Milton Friedman recognized that those persistent difficulties had to be policy related and already in place before the oil embargo began. As he could not consider that the problem might have any connection to him, Friedman attributed it to Richard Nixon’s 15 August 1971 decision: “…in my opinion, the wage and price controls …....was a major
26 $146,665m equals $146.665 billion. Treasury gold reserves of 261.499 million troy ounces continues to be valued at Feb1973 rate of $42.2222 per troy ounce. Note 3 of US Treasury monthly statement refers. Those same reserves would be worth $410,950.9m at the 2011 market average price rate of gold of $1571.52. Regardless still inadequate in relation to the US debt burden 27 Big Banks: Now Even Too Bigger to Fail By David J. Lynch on April 19, 2012 Bloomberg Businessweek Politics & Policy Also Wipedia. 28 29 30 31

On the Psychology of Economic Incompetence - refers
Based on January to June figures for 2012. US Bureau of Statistics, Economics Report Bureau of Economic Analysis, August 9, 2012

Economic Power and Military Power -
National Economy and The Banking System of the United States, p100, ‘A few quotations of notable leaders’. Book vi, 108 pages incl. tables. 23 cm. Robert Latham Owen, Published: Washington, U. S. Govt. print. off. 1939. Senate document

(United States. Congress. Senate) ; 76th Congress, no. 23.

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Naked Monetarists & Pear-shaped Economies

reason why we had both inflation and stagnation during the rest of the 1970s.”


As can be seen in

Fig 1, the recession itself was gaining momentum by May 1973, five months before the oil embargo, and it was largely over by April 1975. Unfortunately, as Milton Friedman indicated, symptoms associated with the recession continued to plague the American economy for many more years – This was because the underlying (systemic) cause remained in place that has continued to take its toll on the American economy.

Fig 2 – Debt to GDP ratios across country groups 1880-2009 - IMF Working Paper WP/10/245 ‘A historical public debt database’

Fig 2 above - The IMF chart shows that the turning point where debt to GDP starts to rise for G-20 countries is 1973, the year that the US floated its exchange rate. It reveals a noticeably persistent upward trend in debt levels of advanced G20 countries subsequent to 1973. Page 11 of the paper states that "by 1960 . . . the advanced G-20 economy average debt ratio declined to 50 percent of GDP. . .. Average advanced G-20 economy debt ratios trended down further through the early 1970s; however, debt began to accumulate starting in the mid -1970s, with the end of the Bretton Woods system of exchange rates and two oil price shocks. This upward trend continued until the current global financial crisis.”

Fig 3 - US Gross Public Debt 1970 to 2011


32 New River Media Interview- Milton Friedman, 2000. The First Measured Century. PBS. 33

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Naked Monetarists & Pear-shaped Economies

Richard Nixon with Milton Friedman (left) &
Fig 4 - US Fiscal Deficit, Current Account (Balance of Payments) Deficit,

Arthur Burns of the Federal Reserve in 1968.
(photo: Associated Press)

and Bank Lending- per Buoyant Economies

America is long overdue for a variable exchange rate system that excludes the market distortions inherent in the present system and benefits all Americans.

John Griffiths
Originated 25 August and updated 30 September 2012

Many thanks to those who have suggested corrections and inclusions and other wise encouraged this effort.

Contact: Gestiefeltbote at


A chronology of foxes and hens

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