-->HOW THE FIAT MONEY IS BEING DEFENDED

PART III

Copyright 2003 J. N. Tlaga

In Part II, we have found that Charles de Gaulle was not in the position to restore the gold standard, and that was so not because the return to gold was no longer possible, but because the means available to the French President were inadequate for the task at hand.

It would therefore stand to reason that other leaders, who were in the position to defeat the fiat currency regime and reinstall commodity money, would have to receive far greater attention of the quiet gentlemen from London than President de Gaulle ever received. If it was worth the trouble to arrange for 1968 cretin"revolution" in France against President de Gaulle even though he could only make laud protests and empty demonstrations, obviously it had to be worth the trouble to remove someone like President Nixon who was in the position to close the whole fiat circus down.

In Part II we have also disclosed - what the"free press" and the"Nobel Prize economists" had failed to disclose in the past 33 years - that Richard Nixon had been successfully deceived to approve a $15 billion increase in money supply (then equal to 150 percent of all US gold reserves in Fort Knox) to provide financing for gargantuan shorting of US dollar by the Bretton Woods insiders (multinational corporations, Eurobanks, etc) on the false pretense of stimulating the economy for the election year.

President Nixon's announcement on August 15, 1971, closing the gold window at US Treasury, was not received as a surprise at the Carlton Club, for it was quite deliberately caused by Lord Cromer (the stage name of UK Ambassador Baring), however, the 10-percent surcharge on all imports was a surprise, a dangerous surprise. If it was ever carried beyond its announced purpose (to persuade the trade partners of America to realign their currencies vis-à-vis US dollar) into its logical application of enforcing permanent revaluation of US dollar at purchasing power parity level (Gold Standard Index), the London bankers would not only have to earn the Eurodollars they were using on a cheap to buy the world, but their entire design of controlling the world via dollar denominated imports of last resort would collapse.

The fact that President Nixon could do it, and that he could not be relied upon to toe the London line (notwithstanding his past membership in Council on Foreign Relations), was only one reason why he had to be neutralized. The other, far more important reason was his close association with John Bowden Connally, former Governor of Texas, who was wounded in President Kennedy's limousine in Dallas. There was something about Connally that kept Nixon in awe. In 1969,"...he was named a member of President Nixon's foreign-intelligence advisory board and assumed a favored position among Nixon's advisors (it was said that If Connally is not for a matter, the President won't do it')." When in December 1970, Secretary of the Treasury David M. Kennedy submitted his resignation (he had lifetime experience at the Fed, and the moment he heard about Herbert Stein's design - see Part II about it - he did not want it to happen on his watch), it was Connally to whom President Nixon turned for taking over. But in London the opinions run in quite the opposite way. In"Edward Heath: A Biography", John Campbell quotes the British Prime Minister's gratuitous comment about Connally:"I knew they killed the wrong man in Dallas". When Vice President Spiro Agnew resigned, President Nixon"passed word that he would name Connally to fill the vacancy. This would have put Connally in a strong position to run for president in 1976. Nixon and Connally had privately mused about starting a new Whig-type party in the tradition of Henry Clay and Daniel Webster. But Democrats and Republicans alike in the Senate erupted in a"firestorm of protest." www.tsha.utexas.edu/handbook/online/articles/view/CC/fcosf.html

What was to become the Watergate affair was decided upon as the best method of neutralizing the sitting President not because the second presidential assassination within the time span of eight years was out of the question, but because the assassination would undermine the underlying purpose.

And the underlying purpose was to eradicate all vestiges of gold from international settlements and switch to floating fiat money, pure and simple; to erase Bretton Woods gold exchange standard rather than to update it.

But Nixon Administration's policy - under influence of the new Secretary of the Treasury, John Connally - aimed in exactly opposite direction. Connally understood very well that America's wealth was being drained via undervalued European and Japanese currencies, and was determined to fight as long as necessary to restore US dollar's purchasing power parity exchange against currencies of America's"allies". Connally thought of them as real enemies, for, unlike the Soviet Union, they were in the position to destroy America with their structurally undervalued currencies. Closing the Treasury's"gold window" and imposition of 10% surcharge on imports were plainly the temporary measures, whose purpose was to serve as bargaining chips to force the adjustment of rates of exchange to the level of purchasing power parity. Most people don't realize how complex and downright tricky Connally's objective was.

Consumer Price Index for August 1971, in terms of July 1914 as 1.00, was 4.08. Thus inflation adjusted mint price of gold (Gold Standard Index) was $84.33.

If President Nixon would have simply raised the official price of gold from $35.00 to its true value of $84.33, US dollar's overvaluation would be terminated instantly, because US dollar would be devalued 58.5 percent thereby, and all other currencies would correspondingly be revalued upward by the astonishing 141%. But this could not be done for two reasons:

(A) How do you tell Germans to raise the prices of their exports to US from 100 marks to 241 marks, while imports from US are being profitably sold in Germany for... 41.5 marks? That would be their economic miracle in reverse. Although John Connally was openly crusading for ending Marshall Plan mentality, it was clear it had to be done gradually.

(B) How do you tell everybody in the world, including your own people, to pay $84 to get $84-worth of oil, when they are accustomed to paying only $35 to get $84-worth of oil? In order to leave the ongoing rip-off of oil and other natural resources around the world undisturbed, the Nixon Administration insisted on realignment of exchange rates by way of revaluing upward other currencies against dollar, rather than devaluing dollar by way of raising the price of gold.

(It is rather difficult to find this kind of considerations openly aired in the"free press" or in the proceedings of Nobel winning schools of economics, is it not?)

To make things even more complex, Nixon Administration was not the leading actor; it was only reacting to the moves of the City of London and its subsidiary, the Wall Street. By the time of Nixon's August 15th [1971] speech, because of massive shorting of US dollar, all Europe was already either on floating exchange regime, or on two-tier currency system: trade dollars were still exchanged at pegged IMF rates while financial dollars floated. Japan was the only holdout for two weeks more. For those who did not know what was happening, it was a time of chaos (in Japan often characterized as Typhoon Connally).

Compromise is usually praised as the best of both worlds, but all too often it is the worst of both worlds. The compromise, struck during Nixon-Pompidou meeting in the Azores, was of the second kind. Nixon agreed to devalue US dollar by raising the price of gold from $35 to $38, and Pompidou agreed not to insist on reopening of the"gold window". On that basis the Group of Ten met in the Smithsonian Institution in Washington on December 17, 1971, and agreed to restore the fixed rates regime:

Dollar was officially devalued by 7.89% against gold (the price was increased from $35 to $38), Germany revalued mark upward by 13.57%, Japan revalued yen upward by 16.9%, and other countries made their own adjustments in the official par value of their currencies. The intervention points were set wider apart at 2.25% on each side, i.e., the allowed margin of fluctuation was 4.5%, and"gold window" was to remain shut in the foreseeable future. Canada opted to stay out and to maintain her floating exchange rates.

With net revaluation of German Mark of 18.9% and of Japanese Yen of 21.2%, Smithsonian realignment represented significant progress, but very wide gaps between true and official exchange values still remained.

On June 12, 1972, John Connally, interrupted his crusade for foreign exchange parity and quit Treasury to lead"Democrats for Nixon" in order to deliver Texas to Nixon in November elections. George Pratt Shultz, replaced him as Secretary of the Treasury. With Paul Volcker already in place as the Undersecretary for Monetary Affairs, the Treasury thus became the fief of the City of London.

On June 17, 1972, five men were charged with breaking into Democratic headquarters at the Watergate Hotel in Washington, and clearly embarrassed former Attorney General John N. Mitchell, now head of the Committee to Re-elect the President, had to admit that one of the arrested men was James W. McCord, Jr, the Committee's security coordinator.

And on June 23, 1972, in the wake of a well executed"attack" on pound sterling that lasted all week and"required" dumping nearly as many dollars as could not be exchanged for gold in August 1971, the Bank of England floated the pound.

In rather disquieting analogy to floating pound in 1931, interest rates were not used in pound's defense. To misinform millions of Jacks and Jennies the press reports created a picture of epic struggles against sinister"speculators" in the course of which two and a half billion dollars were thrown overboard to the sharks just to save the pound. In reality, it was a staged circus to supply the City of London banks with reserve dollars at good price, before the pound was devalued under float, and the acquired dollars were later used in renewed"attack on dollar", i.e., shorting it before triggering its second devaluation and ultimate destruction of the fixed rates of exchange.

To execute this plan with impunity, it was necessary not so much to assassinate President Nixon as to render him unthinking or absentminded. Watergate tapes show how complete Nixon's distraction was. On June 23, already sinking into Watergate quagmire, Nixon, when told about floating of the pound, replies:"I don't care about it. Nothing we can do about it.", in response to numerical projections of the pound devaluation he replies:"Yeah. OK. Fine.", and when told about possible speculation against lira he exclaims"...I don't give a [expletive deleted] about the lira". By the time the final offensive against fixed exchange rates culminated in the second (10%) devaluation of US dollar (by way of raising the price of gold from $38 to $42.22) and floating of all currencies on March 19, 1973, President Nixon had the second scandal of his administration on hand, which would lead to Vice President Spiro Agnew resignation. He was incapable to collect his thoughts and reassert his control when Treasury Secretary George Shultz and Undersecretary Paul Volcker were installing floating exchange system with total impunity.



August 25, 2003

J.N.Tlaga