That crisis — and it was a dollar crisis — did not come from a vacuum, nor was it solely the result of Nixon’s policies.  It was reality’s repudiation of America’s Great Progressive Triumphs, the Great Society and, yes, the Vietnam War.  Americans were supposed to bear the burdens of everyone, be they living within these borders or elsewhere, and the burden was too great to bear.

That “barbarous relic” — gold

The 1971 crisis has largely been forgotten, or has been spun into something unrecognizable.  Most modern Progressives portray it as a proper and right repudiation of what John Maynard Keynes called “that barbarous relic,” gold.  No longer would the U.S. Government and the Federal Reserve System be bound by archaic and unjust rules being applied to the amount of new money the system could create.

Likewise, Milton Friedman also claimed this to be a triumphant moment because the dollar and other fiat currencies would be free to “float” on world markets instead of being tied to gold or the fixed exchange rate system that had been in use since the end of World War II.  According to Freidman, this was a “free market solution” to the nation’s monetary problems.

I recently heard a speech by David Stockman, who was President Ronald Reagan’s budget director 30 years ago, in which he decried the abandonment of the post-World War II Bretton Woods monetary agreements.  While I agree that the entire event 40 years ago was bad, the U.S. Government did not discard the standards on a whim.  No, the pressure on the dollar was building, as U.S. authorities believed that as long as the dollar was the king of currencies, the Fed could inflate it at will and everyone else simply would continue to accept it at face value.

August 15, 1971, changed all of that.  The official devaluation of the dollar was little more than an acknowledgement that U.S. politicians were funding their schemes with printed money.  At the time, it was a criminal offense for individual Americans to own gold as a hedge against inflation (a legacy of the sainted regime of FDR), so Americans had few options where they could turn. Foreign governments, however, recognized what was happening and headed for the gold window until Nixon officially closed it. At that point, the dollar was dirt.

People who were in college and beyond back then might remember the stagnant and fearful decade of the 1970s, which ultimately ended in double-digit inflation and high unemployment.  President Jimmy Carter, while continuing the irresponsible policies of printing money, at least had the foresight to set into motion the end of the smothering regulatory structures that bound telecommunications, transportation, and finance and Americans ultimately would have a reprieve during the 1980s and 90s before squandering all of the gains.

Four decades later, we now face an even greater currency crisis, but the policymakers in Washington — Democrat and Republican — are as delusional as the Germans living in Hitler’s bunker at the end of World War II.  They believed they could win the war even as the Red Army was taking control of the streets above their heads.

President Obama and Fed Chairman Ben Bernanke, mainstream journalists, along with “economists” such as Paul Krugman and Joseph Stiglitz (and the editorial page of The New York Times), still labor under the illusion that because the dollar still masquerades as the world’s main “reserve” currency, that they can create an endless supply that will not result in a currency crisis.  It is hard to fathom the arrogance, conceit, and outright foolishness that accompany this thinking, but the tragedy is that the victims of such arrogance will not be the ones responsible for the crisis, but ordinary Americans who are going to find that their dollars are going to purchase much less than they could have imagined.

For all of the talk about recession — and this one seems to be bottomless — the real problem looming ahead is the inevitable currency crisis, which will dwarf whatever problems we have now.  Because unemployment is so high and because job prospects are becoming increasingly scarce, it is easy to see the main issue as “creating jobs,” something that Krugman has been claiming from his perch at the NYT.

However, the “solutions” that Progressive elites such as Krugman have been advocating — more money creation and higher taxes — are going to place more pressure on the dollar, which is crumbling under current pressures.  The end game will be a situation in which Americans might have more money in their pockets, but foreigners won’t accept it, and those inexpensive foreign goods no longer will be available, even as our own employment prospects continue to fall.  In the 1920s, the Argentine peso was convertible and had almost a one-to-one relationship with what then was the Almighty Dollar.  Both were convertible in gold and both were trusted in the international markets. The mighty peso crumbled into oblivion and unless our own monetary authorities reverse their policies, the dollar will follow the same lead.

My fear is that the authorities will do what authorities always do during a currency crisis: turn even more brutal against individuals seeking to hedge against the destruction of their own monetary holdings.

Instead of admitting their errors and seeking ways to put the U.S. fiscal house in order, the authorities will install capital controls, confiscatory taxes, price controls, prohibitions against purchases of gold and silver, and go on a general rampage against anyone who dissents.

It is going to get ugly, very ugly. There is a way out of this mess, but doing the right thing will necessitate short-term pain, and no politician — save Ron Paul — is willing to do what has to be done. Instead of choosing more freedom, politicians are going to put down the hammer on the rest of us.

— Bill Anderson

When we think of the Terminator, “Ahnulhd,” comes to mind. When Schwarzenegger was elected governor of California, people called him the “Governator,” but even Ahnulhd, for all of the damage he has done, cannot match the Obama administration. For that matter, even George W. Bush, one of history’s most irresponsible U.S. presidents, seems responsible compared to Obama.

I knew that Obama had the potential to be destructive, but I did not think he actually would use his powers of office to ensure that the United States would become the Second Coming of Argentina. Unfortunately, the man seems to believe that he was elected to bring down the economy and burden Americans forever with high taxes, debt, and an insufferable bureaucracy.

By this time, the reader is wondering why I am so hot and bothered. Am I a Tea Party activist? No. Do I watch Fox News? No. Did I buy Sarah Palin’s book? No.

Then, why I do sound like the most hysterical of the Tea Partiers? I sound hysterical because I know what Obama is doing, and understand the results that await us. He ran on a platform that he was a miracle worker, and that he would “save” America, but the only people who will be saved are those who are politically-connected.

Let us first look at the spending this administration has been doing. Yes, Bush was irresponsible, and I have documented that fact many times, but Obama makes the guy look like a piker. Here is a president who is pushing budget deficits of two trillion dollars. That is astounding, and what is more astounding is the fact that economists like Paul Krugman believe that this profligacy poses no threat to our economy.

First, because tax revenues are dwindling, the only way that government can pay for its out-of-control spending is either through borrowing or directly printing money via the Federal Reserve System. The former piles on the debt, which each day becomes more and more unpayable, and the latter will lead to hyperinflation.

Second, despite what we might read from Krugman and his like-minded friends, government spending is not the precursor to prosperity. Instead, government spending, and especially the out-of-control spending promoted by Obama and his minions in Congress is killing what prosperity we might have left.

Keynesian “economists,” who pretty much control what is in college economics texts, claim that recessions occur because private spending suddenly (and inexplicably) goes into the tank. When that happens, government must “spend to the rescue.” It is a nice, clean, simple model and politicians, who love to be thought of as heroes, as opposed to the gang of criminals they often become, are ready to jump on the Keynesian bandwagon and spend, spend, spend.

To a Keynesian, all economic assets are homogeneous, and the economy is like a cake mix from a box in which you add the magic elixir of “spending.” Thus, it does not matter if we build bridges from here to China, roads to nowhere, and towers of Babel, just as long as we build something. This is silly on its face, and is like saying that the building of the Pyramids made all of Egypt wealthy.

What happens in a recession? As I have written on these pages before, a recession occurs not because people stop spending; indeed, people stop spending because of the recession. During a boom, structures of production become distorted, as resources are directed toward lines of production that are not sustainable (think housing bubble). The crisis occurs when it is clear that these investments lose value and face bankruptcy (think bailouts).

However, it is necessary for these misallocated assets to be liquidated or directed to more profitable lines of production because recovery will not occur until the assets and investments that can be profitable (and sustainable) are able to proceed unhindered by other malinvestments. Unfortunately, because the government bailed out a number of unprofitable firms and has tried to buoy asset values instead of letting their prices fall to their true market levels, we are not even at the bottom of the recession.

Furthermore, the Obama administration is ensuring that those lines of production that still are profitable and promising are going to face a hostile government, and I can assure you that many healthy companies are going to be destroyed because Obama cannot stand private prosperity. To make matters worse, the government is misallocating billions of dollars for “green” technologies that actually are destroying wealth.

What can be done? Not much, I’m afraid. Obama is catching his second wind and is determined to use the powers of the presidency to destroy what is left of our economy and replace it with the dead hand of bureaucracy. Even if Republicans do well in the November elections (and I am not sure they will do particularly well), Obama will just use the vast powers of the executive branch to further hamstring the economy through regulations and harassment.

Furthermore, both Republicans and Democrats want the disastrous wars in Afghanistan and Iraq to continue indefinitely. In other words, there really is no end in sight either for ending the conflicts or for inflicting harmful policies on the economy. Both are destructive, and there seems to be no consensus powerful enough to stop the madness. To paraphrase Sir Edward Grey, I am saying that the lamps are going out all over the United States of America, and I doubt we will see them lit again in our lifetimes.

Dr. William L. Anderson is an assistant professor of economics.  A native of Chattanooga, he received his bachelor’s degree in communications from the University of Tennessee, his master’s degree in economics from Clemson University and his Ph.D. in economics from Auburn University.

An accomplished writer, Anderson has written for national publications such as Reason Magazine.  He has served as a reporter and editorial writer on the staff of ETBJ for over 18 years.