Legacy Research Group

In August 1971, President Nixon took the U.S. dollar off gold.

To stop a run on U.S. gold, he said the country would no longer honor its promise to redeem dollars for gold.

Since then, Washington can digitally “print” as many dollars as it wants.

You may think this is ancient history. But we’re still living with the fallout from the “Nixon Shock.”

Why did Nixon’s decision pave the way for bitcoin? And what does it have to do with today’s rising inflation?

It’s all in your Weekly Pulse video update at the top of the page.

Regards,

Chris Lowe
Editor, The Daily Cut and Legacy Inner Circle

Transcript

Tom Beal: What does a decision made 50 years ago by President Nixon have to do with you growing and protecting your wealth today?

My name is Tom Beal, host of The Weekly Pulse, where we break down the biggest wealth growth story of the week. I’m here today with the editor of Legacy Inner Circle, Chris Lowe.

Chris, how do we kick off today’s conversation?

Chris Lowe: So, Tom, we usually talk here on The Weekly Pulse about a big market story shaping the week. And today, I thought we’d do something a bit different and talk about a very big market story that happened almost to the day 50 years ago.

Now, I’m talking about what’s become known as the “Nixon Shock.” And that’s when, on August 15, 1971, President Nixon announced to the nation that he was ending the gold standard.

Is that something that was on your radar this week Tom?

Tom: I had heard about it. But it’s good to rehear about it. Because when I heard about it, I was like, “Man, it’s been 50 years since we went from gold-backed currency to fiat currency.” And that’s a big deal. So I’m excited to learn more and discuss this today.

Chris: Tom, it’s exactly what you say. We went from a gold standard to a fiat standard. Essentially, what Nixon did was to end the promise that the U.S. had made its allies in 1944 at the end of World War II in Bretton Woods, New Hampshire, to convert every $35 that the government spent into an ounce of gold.

And when Nixon did the Nixon Shock and ended that convertibility, it actually ended a system of gold-backed money that had been in place on and off since the 1870s.

And in its place, as you say, we have this fiat money system. Fiat means decree in Latin. And fiat money is just a term for a currency a government issues that isn’t backed by anything other than the decree of the government to say, “This is the currency.”

Why are we talking about this today? Obviously, we want to talk about trends that are happening now, and not 50 years ago. And there are two reasons, Tom.

Number one, it’s very important to understand in terms of the inflation story that we’ve been tracking here at The Weekly Pulse.

And number two, it highlights many of the ways in which bitcoin and other cryptocurrencies are better alternatives to the currencies that governments issue and often inflate the value of those currencies.

Tom: I was born in 1972, shortly after that happened 50 years ago.

I remember, as a youngster, coming across dollars that were silver certificates. My grandparents showed me the dollar and said, “This is a silver certificate. You could take this to the bank, and they would give you that amount in silver if you demanded it.”

Obviously, we’ve shifted from that 50 years to now, having this fiat with how many trillions printed just in the last 18 months… Unheard of trillions of dollars printed out of thin air.

Now, as you mentioned, there are alternatives that are ways to prevent hyperinflation, ways to prevent losing it all – if it goes off the rails.

Chris: That’s right, Tom. Look, inflation is really just too much money creating too few goods and services.

So, if the government creates a lot of money, and there isn’t a lot more goods and services to buy with that money, you’re going to get inflation.

That’s why we had a gold standard. Gold was like an anchor to the dollar. And it basically stopped governments from being able to just create as much money as they wanted without limit.

That’s important right now, Tom. We’ve talked about it before on these Weekly Pulse videos.

But we just got news recently that inflation is running at above 5% over the past 12 months. That’s about the biggest leap in inflation in 31 years.

I know it’s something that our readers think about a lot. And it really can be tied back to what happened in 1971. Because that was the big bang, if you like, of this inflationary type of money system.

Now where does bitcoin come into all of this? Bitcoin is something, as you know, we’re very fond of at Legacy Research.

Teeka Tiwari, who’s our best known crypto expert, recommended bitcoin in April 2016, when it was trading at $428. It reached above $64,000.

This has been a hugely profitable ride for Teeka’s readers. But we don’t just like bitcoin because it’s electronic cash that you can move around the world at a relatively low cost.

There are other very important reasons why we like bitcoin at Legacy.

And one of them I wanted to highlight today is that, like gold, bitcoin is a kind of an anti-fiat currency.

Now what do I mean by anti-fiat? Well, first, governments don’t control the supply of bitcoin. So they can’t inflate away its value.

It’s really strange to think about, Tom. But basically, once Congress votes through new budgets, it essentially is creating new money.

It instructs the Fed to go and credit accounts with dollars that didn’t exist before. It’s all a pretty crazy system when you put it under the control of politicians.

Bitcoin is very different. The supply of bitcoin, as I said, is governed by code. That code controls when new bitcoin are issued. And this actually happens on a schedule that tapers off over time.

So, as you have governments inflating the supply of their currencies, bitcoin is tapering off over time, because of the way it’s built into the code.

And that’s something that Teeka has drawn a lot of attention to. It’s known as the halving. Essentially, every four years, roughly, the supply of bitcoin halves.

That’s one of the reasons why it’s anti-fiat. It does exactly the opposite to a fiat currency, like the dollar.

The second reason I call it an anti-fiat is that central banks have no role in bitcoin. That’s why, when we talk about bitcoin being decentralized, it’s important.

It doesn’t require a central bank or commercial banks to keep track of who owes what to whom. That’s done across this decentralized ledger system. That’s fundamental to bitcoin. So it basically prevents inflation.

And it also prevents central banks doing things to erode the value of your savings, like negative interest rates.

I’m recording this from Ireland, where I’m from. I’m in Dublin, at my home. There are not very many people in the Legacy offices right now. So a lot of us are working from home.

And in Ireland, there’s a negative 5% interest rate. My folks are pensioners. They’re both retired. They’re actually getting a minus 0.5% rate on some of the cash in their pension accounts.

So, this is a real thing – not for Americans at the moment, but certainly for Europeans. And, again, bitcoin is immune to that.

That’s why I wanted to put the Nixon Shock on the radar today. It’s because Nixon actually created the need for something like bitcoin when he took the dollar off gold.

Because the dollar had those types of properties that bitcoin has. But it no longer does post-1971.

Gold served the need for a more secure kind of money from 1971 through to about 2009, when bitcoin was created.

But bitcoin has now joined the fray, Tom. And as we get more inflation and people start to realize the way the fiat system works… the way governments can create money at will… the way they can also impose things like negative interest rates and gin up inflation… a lot more people are going to be choosing bitcoin.

So, it’s important to keep in mind the kind of money system we live in today, and how bitcoin actually fixes a lot of the problems that were created in 1971.

Tom: Chris, you mentioned the halving, where bitcoin is released on a pre-programmed format.

There comes a time when it’s fully all out there. It’s capped at 21 million, period. There’s no more. There’s not going to be 20 million or 21 million plus 5 million more. It’s done at 21 million.

So, in essence, that makes it the only true resource that you can’t get any more of. That’s kind of a unique perspective as well.

Chris: That’s another really good point, Tom. It’s something that Nick Giambruno, an analyst at Casey Research, talks about quite a lot.

He points out that if you even have gold, new gold is mined at a rate of about 2% a year, relative to what’s already existing above ground.

Now, if the gold price shoots though the roof, you’re going to get a lot more people investing in mines, going out and looking for gold.

And you’re likely to have more gold mined as those prices go up and the profits go up for miners.

As you say, bitcoin doesn’t work like that. It’s the only asset out there that has this fixed money supply, the fixed rate of how much new bitcoins are ever going to be.

It doesn’t matter what the price of bitcoin is, you can’t go out and mine more. So that’s a very good point. It’s one of the only assets in the world where you know absolutely everything about how that supply side is going to function.

So all you need to think about is demand. If demand goes up for bitcoin, bitcoin’s price is going to go up.

And you can’t say that for other assets, even stocks, where corporations can issue more stock. Bitcoin is a hard asset, as Nick says. It’s hard to produce more of. And that makes it a great long-term inflation hedge.

Tom: Our goal here at The Weekly Pulse is to bring you insights, to put on your radar things that can help you grow and protect your wealth, go and protect your assets.

And Chris Lowe has the unique perspective to look into all the model portfolios within the Legacy Research Group. So Chris, thank you for bringing this to our attention and reminding us of how and where bitcoin is, and how and where it will go.

For the people who aren’t yet in, take a closer look. See how what you just heard may be a fit for you in some upcoming moves that you make.

And if you’re already in it, have some peace in knowing about the supply and demand side of bitcoin. Just give it time and watch how that works in your favor.

So, Chris, thank you, as always, for bringing this to our attention here at The Weekly Pulse. We appreciate you and all that you do for us.

Chris: Thanks, Tom.

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