How the US Defaulted on Its Debt Obligation When Nixon Closed the Gold Window
This is this misconception that there has never been a US debt default. However, in 1971, President Nixon enacted a series of actions that forever delivered the value of the US dollar to gold. Since then, we have seen a precipitous decline in the value of the US dollar. Here, we will take a look at the effects of the “Nixon Shock,” what it means to you and how it can affect your future.
What is the Nixon Shock?
The Nixon Shock describes a series of events that President Nixon enacted in 1971 to help spur economic growth in the United States. One of the first acts President Nixon enacted was to end the Britten Woods Agreement. Under this agreement, US dollars were able to be converted into gold. When the agreement was ended, the price of gold began to skyrocket as the value of the US dollar fell. This lead to “stagflation” which lead to a rise in commodity prices with stagnating wages.
How does this affect you?
When the Britten Wood Agreement ended, the United States effectively defaulted on its debt in terms of gold value. Today, all US dollars are fiat which means that they are not tied to any concrete asset. People simply accept the “full faith and credit” of the United States in which to value the dollar. This is fine as long as the United States practices responsible fiscal spending.
However, we have seen that spending in the United States is out of control.
Over the past 40 years, the US Congress has hit the debt ceiling dozes of times. In many cases, this has lead to a partial shutdown of the United States government. While the United States has not defaulted on any bond payments, it may only be a matter of time before the United States experiences a bond default.
What does this mean for the future?
Right now, the current debt level of the United States of over 28 trillion dollars. Much of that debt growth has happened in the past decade. That means that there is an increasing chance that the United States will be unable to pay its obligations (debt payments, benefits payments, salaries to government employees, salaries to US servicemen and women).
If that happens, then we could see a collapse in the value of the US dollar. This is why it is important for just about every person to not have all of their wealth tied up in US dollars.
Preparing for another possible US debt default
There are a number of ways that you can protect yourself from a US debt default. A way you may protect yourself is to diversify some of your assets into physical precious metals including silver and gold. By allocating anywhere from 5% to 20% of your assets in a mix of physical gold and silver, you can ensure that you preserve your buying power no matter what happens to the US economy.
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