The Origins of Modern Finance Part 3 (of a 3 Part Series)

The American Century

 The Rockefeller group of international oil companies and its associated banks emerged from the Second World War in a position of enormously increased power.  At the apex of this power stood the 5 Rockefeller brothers. Because the New York Federal Reserve Bank had accumulated the bulk of the world’s official gold reserves during the war (due to many countries war spending, which had to paid in gold), and because the dollar emerged from the ravages of war as the world’s strongest currency, backed by the world’s strongest economy, few could argue with what amounted to a postwar US dollar standard. Gold was priced at $35 an ounce, and was linked to the dollar; in other words a “gold-dollar”. And all other currencies were linked, not to gold, but to the US dollar.

 The US, under Rockefeller control, called the shots for a new economic order in the world.

The Rockefeller Brothers Fund spent $250,000 funding a special study group to map out the post-war world, to their benefit. Every issue and piece of land was taken into account. The study spanned 4 years, from 1939 to 1943. A plan to control and dominate the world by the 5 Rockefeller brothers was put into place. And at wars end, all of these plans began to take shape. America was in charge and Britain had no choice but to position itself as a junior partner.

 Several new entities came into being. These were the IMF, the World Bank, and the UN, all dominated by the Rockefeller family, and all based either in Washington or New York. In the financial sphere, all the world’s currencies would be linked to the dollar, while the dollar was linked to gold. American oil and banking interests emerged from the war in an enormously powerful position. The bulk of the world’s gold once again ended up in New York and the Federal Reserve Bank of New York. It was some 90% of the world’s gold, worth some $33 billion. At a price of $35 per ounce, this worked out to nearly 34,000 tons of gold!

 Due to the ravages of war, the world’s economic and trading systems were shattered. America was the exception.  Its land mass was not destroyed. Its infrastructure was intact and modernized. Rockefeller-controlled American oil companies did not hesitate to take advantage of this opportunity in supplying oil to the rest of the world at inflated prices, thereby reaping massive profits.  The car industry had become the single largest component of American industry.  Then, there were other uses for oil and its derivatives – such as plastics, fertilizers, chemicals, pharmaceuticals, and agriculture. In short, oil had become the single most important commodity. Both the American oil and banking giants were tied to the Rockefeller family.

 A scarcely-noted consequence of the global market grab by the US oil companies was the parallel rise of the New York banking groups tied to the oil companies.  As US oil companies became an ever larger component of the international oil supply during and after World War 2, the New York banks benefited from the capital inflows of the world oil trade.

 During the 1950s, a wave a bank mergers increased the political and financial influence of these banks. The net effect of this postwar cartelization of US financial power had enormous consequences for the world, since then. It overshadowed all other policy influences in US and international policy. American business was increasingly reshaped along the lines of British “informal empire”, with finance, raw materials, and control of the international terms of trade, rather than the traditional American foundation of technological and industrial progress.

 The British Empire is Cut Down to Size

 Remember that Britain and America were at each other’s throats. The American victory, in terms of military power, economic strength, and the dominance of the dollar, London had no choice but to “play – ball” with New York. From 1940 till July 1945, the US funded military supplies to Britain. This came to around $4 billion. In September 1945, President Truman stopped all further supplies to Britain, and demanded that Britain pay the US the sum owed, plus interest; or no new supplies would be delivered to Britain. Britain signed and paid.

 Furthermore, the UN itself was a Rockefeller family project. They bought and donated the land. Nelson Rockefeller’s architects designed and built it, and the bankers for the UN are — Chase Manhattan Bank-a Rockefeller bank. Its head was always a Rockefeller agent. In order to grab control of Europe’s colonial holdings, American pressure was exerted on London and Other European capitals to grant independence to these countries. By 1949, the British Empire (the biggest obstacle to Rockefeller control of the world) was disintegrating in every region as demands for colonial independence were made (urged on by Washington) against the oppressive mother country. The British Empire was in the throes of the largest upheaval of any empire in history. American pressure also was applied to France, Italy and Portugal. Britain’s economy was finished, and she was utterly dependent for support from the US.

 From 1945 till the present day, the US has been the dominant power. Its power rests on three pillars: – OIL, MILITARY FORCE, and the DOLLAR. And New York would use all three pillars in tandem to achieve its geopolitical aims. It has used its military fist to gain control over oil flows in order to ensure global dollar domination. Whenever Wall Street finds the dollar under threat, it unsheathes these two weapons to eliminate the threat. Furthermore, it will use its military and financial muscle to eliminate any and all competitors in its grab to control oil resources, and oil transportation corridors.

 Since this is an article on the origins of modern finance, we would be remiss in not educating you that finance on its own cannot be discussed without the issue of oil. All three factors are intertwined, and clarity on the subject of finance alone dictates this.

 Since 1945, there have been many challengers to this Anglo-American power network. With New York taking the lead, and London acting as the junior partner, all would-be challengers were destroyed, and many times their countries suffered the consequences. We will now discuss some of these challengers, in order to better understand the world of finance in our decade. To understand the present, it is wise to know the past, and how we got here. We now track the series of events that have led to the near-collapse of the financial system as we know it.

 By the end of the 1950s, the world began to look promising for the first time in more than three decades. World trade in manufactured goods exceeded that of primary goods – food and raw materials. Europe began to stabilize and grow.

 Within the US, Wall Street had not upgraded its factories, while Europe and Japan had built brand new plants, with a higher level of efficiency. With higher interest rates and profits (15% against 5%) to be earned abroad, Wall Street began to turn its back on US industry.

 In late 1957, the US underwent the first phase of a deep recession, a recession which was saved by the “Vietnam Option”. New York viewed the entire world as their domain in the 1950s, not the narrow confines of the US.  Saudi Arabia was “more strategic than Texas”. In this regard, in 1945, the father of the Rockefeller boys parceled out the world to his sons: – John D 3rd was given Asia, Lawrence got Europe, Nelson got Latin America, and David got Africa. Wall Street turned away from investment in rebuilding US cities, and from educating a more skilled labor force. Instead their dollars flowed out of the US to grab up “on the cheap” industrial companies in other countries.

 By the late 1950s, more funds began to flow out of the US than was coming in. US banks kept their dollars in Europe rather than repatriate the profits to invest in American development. When the Bretton Woods Agreement was signed in 1944, the gold-dollar ratio was at $35 per ounce. This ratio was not altered in 25 years, despite a world war and the dramatic postwar developments in the world economy.

 As long as the US remained the only strong economy in the world, these flaws could be ignored. But, by the beginning of the 1960s, as Europe bean to grow at faster rates than the US, it was becoming clear something had to change in the fixed gold-dollar ratio. Yet, Washington refused to play by the very rules it had imposed on its allies in 1944. Within the US, inflation was creeping up, and the average man in the street did not notice. Due to over-valued dollar (gold was still at $35 instead of $50-$70, the inflation within the American economy was shifted to the rest of the world.

 If a given national economy produces the same value of goods under the same technological basis over a period of 10 years, and prints double the amount of money for the same volume of goods as at the beginning of the decade, the “consumer” notices the effect as a significant price inflation. He pays $2 for a loaf of bread, which costs him only $1 in 1950. But when this effect is spread around the entire world economy by virtue of the dominant position of the dollar, the inflated reality could be masked for a bit longer. The results, however, were every bit as destructive.

Nixon Pulls the Plug

 In the early 1960s, the US exercised the Vietnam Option. As this was not a popular war, Washington preferred to borrow money to finance this war, rather than raising taxes which would lead to increasing anger among the voters. The war pushed its external spending up greatly. By 1967, the US external liability had increased to $36 billion, while her gold reserves shrank to $12 billion. By 1967 the US entered into another recession. Speculative money began to dump the dollar in record amounts. This resulted in increasingly unstable short-term currency speculation. In May 1971, the US recorded its first monthly trade deficit. That triggered an international panic sell off US dollars. The situation was becoming desperate. US gold reserves represented less than 25% of her liabilities.

 In 1961, Washington requested its allies in Europe and Japan not to cash in their surplus dollars for gold – as per the Bretton Woods Agreement of 1945- , but rather to invest these dollars in US Treasury Bonds, and earn interest. The net effect was that European central banks thereby “financed” the huge US deficits of the 1960s. In this France refused to play along with Wall Street. De Gaulle’s France was targeted for financial warfare by New York. The world’s first Color Revolution took place in Paris in May 1968– the so-called student riot.

 June 1971 was a breaking point for the British. The British economy was in trouble, again. And London wanted to cash in its surplus dollars for gold. So, on Friday, August 12, 1971, a senior Bank of England delegation visited Nixon in the White House, with a document, demanding that the US pay them the sum of $3 billion, which it owed to Britain. Britain wanted payment in gold. The White House listened, incredulously, and told them to return on Monday. David Rockefeller’s team, headed by Paul Volcker prepared a response.

 On that fateful Monday, August 15, 1971, Nixon announced a move that rocked the world: formal suspension of the dollar convertibility into gold, effectively putting the world into a direct dollar standard, with no gold backing. The British were furious! As long as gold was part of the international system, then London was still in the game. Without this, Britain was in danger of becoming a 3rd-rate power. A senior Wall Street operative told a friend how, in the future, this would work for Wall Street, and said : “ We pulled off the biggest rip-off in history!. We’ve run rings around the British Empire!”

 Foreign holders of gold could no longer redeem their paper for US gold. New York set a series of events into motion which would rock the world as never before. The suspension of gold redemption, and the resulting “floating exchange rates” of the early 1970s, solved nothing. It only bought time.

 Wall Street won, and its rationale was that the power of its financial domain must be untouched, even at the expense of economic production and prosperity. New York followed the same policy as London did a century earlier, but after August 1971, US foreign policy fell under another Rockefeller agent, Henry Kissinger. His mandate was to control, not develop, economies throughout the world. World trade was simply another arena of speculation on which direction various currencies would speculate.

 Massive capital flows again left the dollar for Europe and Japan. In 1972, the dollar fell 40% against major currencies.

 The design behind the August 1971 dollar strategy did not emerge until October 1973, and even then, few people, outside a handful of insiders grasped the connection.

 Now, one may ask what all of this has got to do with finance, and its modern-day operations? Very simple. Here, we are showing methodologies, or the “modus operandi”, of how these power brokers think, plan and act. Consider it as a template. Once we understand the “tic-tac-toe” of geopolitics, it makes explaining the future articles easier, and shorter.

Oil & the October 1973 War

 The 1970s saw a dramatic shift in world oil, as demand caught up with supply. As a result the world was rapidly becoming more dependent on the Middle East. Production capacity had caught up with demand. Not only in oil, but also in every other industry, a 99.5 % utilization rate would be considered dangerous. At that time, world oil demand was 50 million barrels per day, and spare capacity was at .5%.  Politics was adding to the danger. The Middle East became the “center of gravity”, with Saudi Arabia being “ground zero”.

 In response to nationalist tendencies in the Middle East in the late 1950s, examples of Nasser in Egypt and Mossadeq in Iran, New York  very subtlety went about to generate conditions in 1959 to a degree that pushed the oil producing nations to form OPEC in 1960. This reduced the pressures on nationalization.  The CIA had helped Nasser gain power in Egypt, as he was anti-British. The Anglo-French oil consortium controlled the Suez Canal, and New York desired the removal of Rothschild control over this vital oil artery. This was accomplished in the 1956 Suez War.

 After the 1967 war in the Middle East, the next two phases went into action. The first was to replace current leaders with pro-American leaders in the region. The first was the coming to power in Libya of Ghaddafi, in 1969, who gave the British oil companies a very hard time. The second was in Iraq, in 1968, when the CIA put Saddam Hussein into power.  Both these leaders nationalized the oil industry, with the Rothschild oil companies bearing the greater part of losses – these were BP, Shell and Total.

 The third phase was activated in the period between 1970 and 1972. An oil spill off the coast of California resulted in a ban on offshore oil drilling. The pipeline carrying oil from Iraq through to the Mediterranean was blown up. All of these created a shortage on the oil markets, along with political uncertainty in regards to Iraq and Libya.

 The Arab Angle

The backdrop to the oil shortage and rising prices was an unstable Middle East. The Arabs were feeling frustrated with the West in regards to Israel. Anwar Sadat became the new president of Egypt after Nasser’s death in 1970. The first in line to greet Sadat at Nasser’s funeral was none other than David Rockefeller. With Egypt pouring over 20% of its GNP into the military, it could not hope to break out of the cycle of conflict with Israel, and still modernize and develop its economy.

 Sadat concluded that Israel would have little incentive to negotiate as long as Israel sat on the eastern Banks of the Suez Canal. Sadat would not negotiate from a position of weakness and humiliation. He would have to do something. By the end of 1972, Sadat decided he would have to go to war.

 By April 1973, these plans were finalized. The only people who knew the specifics of these war plans outside the few within the high commands of Syria and Egypt was King Faisal of Saudi Arabia. And, of course, Kissinger and his boss, David Rockefeller. And this meant that oil would be central to the coming conflict. Control of the flow of resources has been of strategic concern throughout history. Asserting pricing and currency control over the oil was the main game plan.

 In 1973, all the pieces on the chessboard were being aligned to fit into the Rockefeller game plan. New York decided to launch a colossal assault against industrial growth in the world, in order to tilt the balance of power to the advantage of Wall Street financial interests. In order to do this, they determined to use their most-prized weapon – control of the world’s oil flows. Never in history had such a small circle of interests controlled so much of the world’s destiny. Their scheme was utterly outrageous, and that was to their advantage.

 May 1973 – Bilderberg Meeting

The Bilderberg Group is a private policy-making group, founded in 1954 by David Rockefeller. This is a common policy body for the Rockefeller and Rothschilds  “Networks of Power “. The annual Bilderberg meetings gathered top elites from the US and Europe for secret meetings and policy discussions. Consensus was then shaped in subsequent press comments and media coverage, but never with reference to the secret Bilderberg talks themselves.

In May 1973, with the dramatic fall of the dollar still fresh, a group of 84 of the world’s top political and financial insiders met at a secluded island in Sweden belonging to the Wallenberg family. This family was in the Rothschild orbit, and controlled Sweden in the same way that the Oppenheimer family controlled South Africa. The gathering was told of an imminent conflict in the Middle East, which would result in the price of oil going up by 400%. The purpose of the meeting was not to stop the war, but, rather to plan and manage this coming flood of dollars, a process Kissinger called “recycling the petro-dollar flows”.

 The Arab oil-exporting countries would see their oil income jump by 400%, and their economies could not absorb this cash, thus, this surplus cash would be deposited in select banks belonging to the 2 families.

 On September 28, David Rockefeller paid a visit to Sadat in Egypt. He had visited Sadat several times in the preceding 3 years. The message from David to Sadat was that it was now “time to heat the temperature up in the region”. There could be no clearer signal for GO. A week later, on 6 October, 1973, Egypt and Syria launched the October War against Israel.

 The entire constellation of events surrounding the outbreak of the October War, and its aftermath was secretly orchestrated from New York, using the powerful and secret intelligence channels established by Kissinger. The Rockefellers scripted the war and its aftermath along the precise lines of the Bilderberg meetings 5 months earlier. The Rothschilds knew all along, and they instructed Golda Meir, the Israeli prime minister, that at no stage must she pre-empt by attacking first.

 In response to the American resupply of arms to a hysterical n beleaguered Israel, on 16th October, OPEC met in Vienna and raised the price of oil by 70% to $5.11 a barrel. That same day, the Arab oil producers instituted an oil embargo against the Western supporters of Israel. A day later, they instituted a production cutback.

 Significantly, the oil crises and the October War hit just as Nixon was becoming involved in the “Watergate Scandal”, leaving Kissinger as de facto president of US policy during this crises. The Watergate scandal was engineered by Nelson Rockefeller, so that he could gain the White House through the back door.

 Following a meeting in January 1974, yet a second price increase of more than 100% was added, bringing the price of oil to %11.65 per barrel. The Rockefeller plan achieved its target of a 400% increase in the price of oil, some 8 months after Bilderberg meeting in Sweden. This was done on the surprising demand by the Shah of Iran, who had been secretly told to do so by Kissinger.

 Zaki Yamani was Saudi Arabia’s Oil Minister from 1962-1986. He gave an interview to the British Observer paper on January 14th, 2001, at the Royal Institute of International Affairs. The following is a quote from the interview with Yamani. At one point he makes an extraordinary claim:-

I am 100% sure that the Americans  were behind the increase in the price of oil. The oil companies were in real trouble at that time, they had borrowed a lot of money developing the North Sea and Alaskan oil ventures and they needed a high price to save them.”

 He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view of no increase in the oil price, to advocating higher prices.

“King Faisal sent me to see the Shah of Iran, who said: “Why are you against the increase in the oil price? That is what they want! Ask Henry Kissinger – he is the one who wants a higher price. “

Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where British and American officials were determined to orchestrate a 400% increase in the oil price.

 In 1971, Nixon closed the gold-dollar convertibility. The dollar fell on world markets. Then came the 1973 October War, and a 400% increase in oil prices. The next step was to make official that all future oil sales would be priced in dollars. Pressure was put on Saudi Arabia to agree to this. Resistance came in the form of the finance and foreign ministers of Saudi Arabia. On one December afternoon, both of these officials were killed by the CIA, one in Washington, and the other in New York (see the full story of this in the article “The Saudi-US Nexus”).

 By March 1975, this new oil-price mechanism was a done deal.

The GOLD-DOLLAR had now been replaced by the PETRO-DOLLAR!. The only limit was how many dollars the rest of the world would be willing to accept on the full faith and credit of the US Government. The ensuing results were rapid inflation.

 The OPEC embargo triggered the public into panic purchases of petrol, calls for rationing, and the worst economic crisis since the 1930s.

 The bulk of OPEC’s dollar revenues were deposited with the leading banks in London and New York, the very banks which dealt in dollars and the international oil trade. This Petro-dollar arrangement proved very valuable for the dollar, and the Rockefeller-tied oil and banking giants. The world was forced to buy immense amounts of dollars continuously to purchase oil. One consequence of this was the emergence of these few banks and oil companies (such as Exxon, Mobil, Chevron, Texaco), in New York, as giants of world industry. These banks and oil companies so overwhelmed the scale of ordinary companies that their power and influence seemed invincible.

 Third World countries were forced to divert precious funds from industrial, agricultural and social development into simply paying for their massive oil import bills, which, of course, had to be paid in dollars. It was a double blow for these countries, as exports of their raw materials and commodities declined greatly due to the recession in the industrialized world.

The Aftermath

Despite the economic and financial shocks which ensued from this Oil Shock, by late 1975, certain parts of the world began to resume industrial development. For the Third World, the oil shock spelled an end to development and a reversal of hopes for a better life that had emerged during the 1960s.  In this period, four new policies were put in motion.

 The first was financial;- The introduction of LIBOR (or the London Interbank Overnight Rate ), which is an interest-rate benchmark, in pricing international loans. LIBOR was a fluctuating rate. All loans used LIBOR as a base rate. What this meant for international borrowers was that long-term development projects had to be shelved as both the foreign exchange and LIBOR rates were not stable. The final costs of the projects became uncertain.

 The second was political: – In 1976, David Rockefeller placed Jimmy Carter in the White House, as their new manager in America. It was an effort by New York to soften the image of America in the world, as many nations were angry at the brutal and thuggish methods of Henry Kissinger. The public profile of Carter’s presidency was “human rights” for the Third World – “negotiation – not confrontation”. Carter’s human rights would soon become a bludgeon to justify unprecedented American intervention into the internal affairs of targeted Third World nations. The strategy failed miserably.

The third was population reduction in the Third World. It is Kissinger’s belief that by controlling food, one can control people, and controlling money- one can control governments, while controlling oil one can control nations and their destinies.  In April 1974, Kissinger issued a National Security Study Memorandum 200 (NSSM 200), on the subject of “Implications of Worldwide Population Growth for US Security and Overseas Interests”. This memo urged that populations in specific developing countries that contain key strategic resources necessary to the US economy posed potential US “national security threats”.

The study warned that under pressure from an expanding domestic population, countries with needed raw materials will demand better prices and more favorable terms of trade for their exports to the US. This memo identified a target list of 13 countries, singled out as strategic targets, for Wall Street’s efforts at population control, and the looting of its raw material wealth. The 3 countries were Brazil, Mexico, Colombia, Nigeria, Ethiopia, Egypt, Turkey, Thailand, Indonesia, Bangladesh, Pakistan and the Philippines.  The reader is invited to reflect upon the tragic history of those unfortunate 13 since Kissinger drew up the list in 1974.

 Thus, the strategic economic interests of the US as embodied in NSSM 200, is the key to understanding their paranoid obsession with reducing human population, even to the extent of using biological warfare in various forms; such as vaccinations for sterilization, and lab-engineered viruses such as AIDS, SARS, Ebola,, and many others. The AIDS virus was perfected in late 1972, field tested in New York and San Francisco in 1973, and proved to be successful, that a year later, gave Kissinger the proof and confidence to unleash this terror on the Third World, through NSSM 200.

The most dangerous was the fourth policy. In 1972, David’s eldest brother, John D Rockefeller the 3rd, wrote and published a book called “The Second American Revolution”. It acted as a blueprint for the next two decades for policy-planners in America. In 1975, the elite policy-making think tank of the Rockefeller family, the New York-based Council on Foreign Relations (CFR), drafted a series of policies blueprinted- taken from this book – for the 1980s.  Its theme was a policy of “controlled-disintegration” of the world economy. What was disintegrating was the entire fabric of industrial and agricultural development, from the 1st World to the 3rd World.

 The aim here was that many countries would become financially weak, thus in no position to negotiate better deals with creditor banks in New York and London. They would be forced to adopt policies that resulted in “privatization and deregulation, and allowing easier access to western capital into their countries. In this manner, the best and choicest resources and companies would be taken over, “on the cheap”, and by US and British banks and companies.

 Now, as we have seen many Third World countries suffered huge trading deficits – due to higher oil import bills and lower exports receipts, they were forced to go cap-in hand to the banks in New York and London, for dollar loans, to bridge this gap. These banks stepped into the breach to lend the “petro-dollars” to these countries, but only to “balance” the accounts, and not to finance development.

Since at least the beginning of the 1970’s Washington has deployed similar tactics of economic blackmail and destabilization to force what has become a global domination not of US manufactured goods, but rather of the dollar as world reserve currency. For almost five decades, since August 15, 1971, Washington and Wall Street have used their dominant position to force inflated paper dollars on the world, cause financial bubbles and subsequently debt buildup to impossible levels, then collapse.

The most essential point to understand about the so-called Trump “trade wars” is that they are not at all about trade or correcting trade or currency imbalances with America’s export partners. That world was largely left behind in 1971 by Nixon and the advisers.

The US economy since 1971 has been turned into a financial revenue source, in effect turning the United States from a nation primarily producing industrial goods to one in which the sole aim of all investment is to make money from money. Companies such as General Motors which at the end of the 1960’s was the largest maker of cars and trucks in the world, the heart of the American economy, got lured into speculation using its GMAC auto loan financial arm to make bets in the world economic casino, bets which went badly wrong when the US real estate bubble burst in March 2007 and GM was nationalized while the Wall Street mega banks were bailed out by taxpayers and the Fed.

The process took place over decades. By 2000, Wall Street banks and investment funds essentially dominated the entirety of the US economy. Manufacturing jobs had been pushed offshore, “outsourced,” by pressure from those same Wall Street banks that since the 1980’s had driven corporations to focus only on the value of their stock shares and not on the soundness of their products. Leveraged Buyouts, Shareholder Value became bywords. Corporate heads perished if Wall Street banks did not approve their financial profit returns. What that has left today is a United States that is primarily a services economy, a debt-bloated consumer economy and no longer a great industrial leader. The so-called upper 1% of US oligarchs are demanding similar tribute from the rest of the world to sustain the unsustainable. The Trump trade and economic war is a desperation ploy to try to repeat half a century later what worked in the 1970’s.

‘Second American Revolution’

The economically destructive transformation in America’s once great industrial economy had its roots in the transformations of the 1970’s. The post 1930’s domination of Keynesian economics which argued that deficit spending by the state could mitigate the negative effects of recessions or depressions, gave way to what John D. Rockefeller III in a book titled The Second American Revolution, argued should be a regime of deregulation, privatization of state enterprises such as electric utilities, water systems and highways! At the same time the free market ideologues around University of Chicago economist Milton Friedman, were promoted by Wall Street and the US financial establishment around Rockefeller. Friedman became the guru of free market economics, advising both Ronald Reagan and Margaret Thatcher during the 1980’s. His free market dogma became entrenched at the International Monetary Fund and was used to argue economic shock therapy and deregulation across Latin America and in the former communist economies of the Soviet Union and Eastern Europe.

The key event as regards today’s Washington tariff and economic warfare goes back to the events around the August 15, 1971 decision by President Nixon to unilaterally decouple gold from the US dollar.

Nixon’s Trade War Game

The decision by president Nixon in August 1971, to decouple the dollar from redemption into US gold, was only a crucial part of what became a far larger transformation, one which created the gigantic global debt overhang today of an estimated 233 trillion dollars. Much of that debt is denominated in dollars and held by central banks such as China or Japan or the EU states.

Well before summer of 1971 the US Administration had given the green light to Congress to pass punitive de facto trade restrictions on its major trade partners, Japan and the European allies of the European Economic Community (EEC), most especially Germany and France. Towards the end of the 1960’s the economies of Japan and the EEC had significantly emerged from the destruction of the war with an economy rebuilt on the then-state-of-the-art industrial technology. American steel mills and car factories by comparison were products of the wartime and immediate postwar investments. German and French exports were in demand not only in the USA.

The result was that those economies began to accumulate relatively huge amounts of dollars in their central bank accounts, some $61 billion of dollar debts held abroad by 1971. Under the 1944 treaty obligations of the United States at any time the central banks could demand US gold from the Federal Reserve for those dollars. The Federal Reserve official gold stock had plunged from $25 billion to only $12 billion at the beginning of 1971, and the trend was snowballing as more central banks worried about the value of their inflated dollars. Washington and Wall Street were viewing the gold exchange clause of Bretton Woods as an albatross that could dramatically cut the global power of America.

Gold and dollars

The gold decoupling was preceded by essentially Washington blackmail using a new Congressional law imposing import quotas initially on textiles and shoes from Europe and elsewhere. The threat was made to extend the quotas to European cars and other products.

In 1970 US trade politics were in effect similar to those of the Trump Administration almost half a century later. In May 1970 US Treasury Secretary David Kennedy threatened that if US trade partners did not take steps to allow the US to raise exports, the Congress would take steps to restrict imports into the United States. “Is it not the surplus countries that have a special responsibility to take positive action towards their elimination?,” Kennedy asked, knowing well that a major reason for trade imbalances were the fact that US corporations were buying up European and Asian companies forcing a balance of payments surplus in those countries, and that US exports were no longer as competitive against European and Japanese products.

Washington used a policy of what the Europeans termed “benign neglect” to let private capital to flow freely into especially Germany, to disrupt currency relations among the EEC. German dollar surpluses soared. Rather than devalue the vastly inflated dollar, a move which could have boosted US exports and eased the crisis, Washington demanded that the EEC countries, above all Germany, revalue upward their currencies, making their exports uncompetitive at a vulnerable time. In the case of Japan, Washington demanded that they revalue the Yen by perhaps 20% or face a tariff restricting certain categories of Japanese exports to the United States.

Nixon Secretary of Commerce, Maurice Stans, set an aggressive line against Europe. He declared, “in many respects we have been Uncle Sucker to the rest of the world.”

US economist Michael Hudson characterized it: “The United States had thrown down the gauntlet to Europe and Asia: Either submit, or retaliate under conditions where the appropriate tactical maxim is ‘Don’t hit the leader unless you can kill him.’” Instead they cratered and obeyed. The US trade bill was a declaration that the USA and only the USA was exempt, as the dominant world power, from GATT or from any legal agreements it had with other partners.

At that point led by France, the EEC central banks–except for Germany where Washington put enormous pressure on Bundesbank President Karl Blessing–began to resume gold redemptions for their dollar surpluses. When German officials suggested already in 1966 that they were considering redeeming their rising dollar surpluses for US gold, Washington threatened the Bundesbank chief Karl Blessing to withdraw US troops from Germany, was Germany to no longer “support” the dollar.

To remove the threat of any further allied gold redemptions, on August 15, 1971 Richard Nixon, flanked by then Treasury Assistant Secretary Paul Volcker, a former executive of Rockefeller’s Chase Bank, announced the permanent closing of the Fed Gold Discount window. At the same time Nixon imposed a 10% import tariff on most US imports as a blackmail lever to force the EEC and Japan to accept unlimited dollars no longer backed by gold, dollars whose paper nominal value has inflated at a staggering rate. Even using the US government inflation measure what a US citizen could buy in 1970 for $385 in terms of food, clothing and other necessities, a person would need $2,529 today. That is a direct consequence of the Nixon gold decoupling.

In a stroke of the pen, Nixon and Wall Street had removed the threat of a gold cap on foreign dollar debts. The debts soared and Washington and Wall Street today have a dollarized world trade system where US Treasury sanctions are becoming commonplace as weapons of war to force friend and foe alike to join lock step behind Washington demands. Today a US President Trump tweets threats against Germany or China for being “currency manipulators” without basis in fact and demands NATO allies vastly increase their defense spending for the privilege of being under the military domination of the Pentagon. The style has changed in US economic blackmail since the 1970’s, but not the content.

 New York and the Rockefeller family had the world in its grip. All of these will serve as a backdrop to the origins of modern finance, and how international finance began to dominate all other sectors of the global economy. It was based on a flawed system, which would have devastating consequences in the coming decades.

Leave a Reply

Your email address will not be published. Required fields are marked *

Posts by Month