St. Patrick’s Day and the Greenback

From Gary Alexander:

St. Patrick’s Day is an important historical date in the long-term battle between Greenbacks and Gold:

On March 17, 1862, the U.S. Treasury abandoned the gold standard by sanctioning the first two issues of Greenbacks, which were not tied to any promise of redemption in gold. As the nation entered its second year of a suddenly-long and costly Civil War, governments of both North and South found it necessary to replace their scarce gold with cheap paper money. By war’s end, the Union printed $450 million in greenbacks. The natural result was runaway inflation by war’s end.

On March 17, 1968, during another costly war, the link between gold and greenbacks was once again severed. In early 1968, LBJ’s “guns and butter” policies led to a hemorrhage of U.S. gold at $35 per ounce. On Sunday, March 17, the seven nations of the London Gold Pool agreed on a two-tiered gold price. This was the first step toward an abandonment of gold and the free-floating of currencies in the 1970s, leading to a long and costly bout of inflation that lasted until 1982.

On Monday, March 17, 2008, the day after Bear Stearns collapsed, gold closed above $1,000 per ounce for the first time. The London gold price fix was $1,011.25, while the New York nearby futures contract closed at $1,000.40. Silver closed at $20.92, its highest level since 1980. The U.S. Dollar Index, which had fallen sharply since 2001, reached an intra-day record low of 70.69 in late March, and a record low close of 71.56 on April 3, ending a seven-year dollar bear market.

In the seven years since the U.S. Dollar Index hit its all-time low, the dollar is up over 40%. The gains were slow at first, with a couple of head fakes along the way, but the dollar’s rise since last July has been meteoric – the kind of rise that often ends in a sharp reversal at some unpredictable moment.

Posted by on March 18th, 2015 at 3:53 pm


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