The year was 1971 and the claims against dollar-based debt were pouring in from every country. The rumor was that the US did not really have the gold to pay. Foreign holders of US assets decided to test the promise, just in case.
Sure enough, Nixon panicked and shut the gold window, in effect defaulting on the terms of the deal, as did his predecessor FDR back in 1933. Nixon too was panicking over the draining of gold from the US Treasury. His intention was to protect the US dollar.
Briefly, the US attempted a fixed-rate regime without settlement but failed. Two years later, the US announced a new system, one that they claimed would be better than ever. Henceforth, the US would be backed by nothing but confidence. But all would be well, we were told. All countries in the world would be in the same position, paper vs paper. And there would be a big market for arbitrage between them. Lots of profit opportunities.
Indeed it was true. Today the global foreign exchange market has an average daily trading volume of up to $7.5 trillion, though it depends on the volatility. In any case, currency speculation is a huge industry that specializes in earning big bucks off small change.
This market was a new one: whereas money for the previous several hundred years had been rooted in something more fundamental, now it would forever float based on the credibility of governments and their promises to pay with paper..
Of this there has been no doubt since 1973: the US paper dollar is king of the world, the global reserve currency in which most all accounts between countries are settled. Since that time, the US economy has experienced dramatic inflation: dollar purchasing power in 1973 has been reduced to 13.5 cents. Debt (government, industry, and household) has exploded. The industrial distortions at home have been legion. The upheaval in household finance from inflation created he necessity of two incomes per household to keep up.
Yes, Nixon blew it! He hit the panic button when Johnson had spent too much on both guns and butter while looting the treasury for himself and his cronies. Now we have to clean up the mess, once again, from those trusting the experts in economics, Unfortunately, the experts always to seem to be court jesters or court economists that see the state as the be all end all of every situation. This time they will go down again when the paper float goes down for either the BTC or precious metals to take over. The evidence is all around us in the positions that the central banks all over the world are taking in gold. Fort Knox better be full or there will be hell to pay!!