by James Gibb StuartProsperity, January 2002

In the aftermath of 9-11, an American friend of mine said to me, "It seems we have become the 21st century’s most hated nation, and we owe it to ourselves, as much as anyone else — if not to forgive — at least to understand."

So how can Prosperity contribute to this understanding? Perhaps by retracing history! Particularly financial history!

And for the purposes of this exercise we need only go back some thirty years to 1971, when President Nixon closed "the gold window".

Until 1971, all debts could be demanded in gold. Gold was 35 dollars an ounce, and it was understood in international trade that you could take payment in securities — for example US Treasury Bonds — but you could also demand payment in gold.

Anybody could demand payment in gold. For example, a Third World country trading with the USA could demand payment in American gold. In closing the gold window, however, Nixon wiped out the ability to demand gold in payment for a debt.

Gold may not have been perfect, but at least it meant that there was a certain discipline to international trade. It was internationally recognised that trading balances were related to a nation’s reserves of gold.

For example, if a poor nation sold something to the USA, then it could receive the appropriate amount in gold, if it so demanded. This would build the poor nation’s gold reserves to the extent that the USA lost its gold reserves. There would be a balance.

Furthermore, when your gold reserves were falling, the value of your currency was falling, and you became less credit worthy in the eyes of your trading partners.

However, the US Government, faced with rising international debts, which were far more than it could pay in gold, had also been relying upon the "gold exchange system" inaugurated in 1922.

This system meant that any nation which owed another nation, could pay in securities, rather than gold.

When the gold window was closed in 1971, economists were slow to realise just what kind of a weapon had been delivered up to America’s bankers and speculators.

America the brave and bountiful was now free to run up trading deficits which in a few short years would make her the biggest debtor in history.

This was because the USA was now free to pay all its debts in US Treasury Bonds, which are simply "promises to pay". In issuing them as payment, the USA, quite literally, got something for nothing. Hard goods for paper.

Without gold, the US dollar has now become the world’s reserve currency — meaning that it is the dollar which is used as the standard, the base, against which you equate all others. It is the dollar, rather than gold, which is now the "discipline".

Gold conferred a certain discipline. After all, the supply of it was determined by thefinite extraction of precious metal through the mining houses of Russia, Africa and Australasia.

Now, however, the international "discipline" is determined by the issue of paper securities from the US Treasury, which is, of course, infinite.

After 1971, other things became readily possible. The now burgeoning US finance establishment conspired with the producer nations to treble the price of crude oil. The deal demanded that the payments made to the Arab nations would be deposited in US banks.

That meant that the US finance powers retained control of the money in the US banks. The American banks soon found themselves so awash with Arab "petrodollars" demanding interest, that they had to take energetic steps to find the money to pay the interest.

They choose to find the interest by lending to the Third World. Indeed, it is around about the early seventies, after the gold standard had been removed, that lending to the Third World really took off.

The cash hungry, resource-rich states of the Third World, were pronounced as being "ripe for development".

So these nations got the loans, their poverty-stricken populations got the debt, and the American bankers got the interest, which they would happily extract for ever more, or until those fragile Third World economies collapsed under the burden.

It was a formula for limitless exploitation. The US banks now had a claim upon the natural wealth of the planet, and could exploit it to their own profit and advantage.

They could also lay claim to the coveted produce of all other nations, since they had established the right to pay for them in paper securities — and they had limitless supplies of paper.

Today, the poor of the globe’s forgotten regions perish — or dwell in misery — because, having given of their sweat and their substance, they are rewarded with American paper — and you can’t indefinitely go on eating paper.

The Third World people have become the debt-slaves of the US banks, which became geo-politically powerful after the gold standard was dropped, and the Arab petrodollars flowed in.

The ideologues who flew the hijacked aeroplanes into the World Trade buildings may, or may not, have been briefed on the above hypothesis, but they went about their suicidal endeavours with a deep sense of grievance, and a conviction that they were striking a blow at the instrument of their oppression.

The American people are not an unkindly people. In times past they have been feted for their generosity. But they need to understand the grievous injustices which are being perpetrated in their name.

Broadly, the US needs to be brought back to earth. If you have something to buy then you need something to sell. You should exchange to the same value.

Today the US gets something for nothing. Real assets are being exchanged for American paper money. America is growing wealthy on the paper money it creates out of nothing, and some day the bubble might burst.

In the meantime, the debt-slaves are getting restless.

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Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.