So long as confidence remained in currencies the value of the Dollar remained solid. The belief that, somehow, this restrained the issue of money also remained inexplicably strong. Government was then in a position to control the recovery and direct funds to where government felt they would be best put to use.ĭespite the proliferation of Dollars in the system, confidence in it remained high as it remained linked to gold.

The second phase of the confiscation of gold was to place gold under the control of government out of the hands of private holders, as storm clouds gathered over Europe. As you can see on these Dollar notes where gold was an integral part of the money system then. We stress that this was not a gold event, but a money event –gold being money at the time. It brought a tsunami of liquidity to the banking system that saw deposits leave the banks and flow into industry again. In an instant, the money supply of the US was increased by 75% in 1935 when the Gold Price was raised from $20 per ounce to $35 per ounce. One gets the wrong perspective if you look at the Gold Price as having been subsequently raised as opposed to the reality that it was the US Dollar that was devalued. The monetary system at that time was based on the gold standard, a system that set the Gold Price at a fixed level against the Dollar and other currencies across the developed world. Ben Bernanke has aptly demonstrated by his Quantitative Easing, a reduction in the money supply shrinks economic activity significantly and breeds deflation.Īfter four years of such shrinkage, it was realized in 1933 that a huge increase in the money supply was needed to invigorate the US economy and make assets preferable to cash. There were two distinct phases to the process that began in 1933.įirstly, the US monetary and banking system contributed to a large extent to the depression. By raising the Gold Price, US authorities also expanded the money supply.įROM until the end of 1974, US citizens could no longer hold gold as a protection against paper money, which also lost its gold backing at the same time, writes Julian Phillips of.

Us government gold coins