Nixon closed one window and opened another - Jim Duffy comment

Richard Nixon will be remembered for many reasons.

Richard Nixon (right), pictured bidding farewell to White House staff, has had a massive influence on how we live today, says Duffy. Picture: AFP FILES.

As President of the United States, he was mired in Vietnam. Throw in a bit of scandal, spying and dishonesty, and it all ended up with that very visual defining moment where he entered a big green helicopter outside the White House. He turns to the cameras and throws up his arms with big V salutes.

Then he vanished from public life. I guess that is as much as I knew about Nixon until now. But his influence on how we live today has been massive. On 15 August, 1971, Nixon announced to the world that the United States was closing the gold window in a move that became known as the “Nixon Shock”.

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In short, he decoupled the US dollar from gold. Doesn’t seem that significant, simply untethering the cord linking currencies to gold. But that one action, almost five decades ago, now many would argue has led to today’s perpetual money-printing. President Nixon in effect created fiat currencies and borrowing to support them – like never before.

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In the month when US Benchmark Treasury yields could go below zero amid huge stimulus packages, all of this borrowing to support economies stemmed from the Nixon Shock. This week, Raoul Pal, the former head of hedge fund sales at Goldman Sachs, said yields on ten-year treasuries were still “heading to sub zero” despite, and as a consequence of, quantitative easing (QE). QE in fact is here to stay, maybe for decades.

The US and Europe cannot live without it anymore. We are QE addicts. But this has presented an opportunity elsewhere. While big governments print more money to keep the whole fiat economy alive, but on permanent dialysis, the value of that cash is deteriorating.

So, investors are looking for other ways to make a buck and maintain yields. Enter Bitcoin. The once-reviled cryptocurrency that was despised by central banks, bankers and big institutions is now being considered a “hedge” and a place where profits could be made over the next decade. Bitcoin as a digital “asset” – and this is up for debate – is now edging its way into the parlance of even the most seasoned, battle-hardened investors who would not have even sniffed at it two years ago.

Earth-shattering

Paul Tudor Jones, an American billionaire hedge fund owner, is on record as saying he has 1 to 2 per cent of his assets in Bitcoin. Tudor Jones has said Wall Street could be witnessing the historic “birthing of a store of value” in the cryptocurrency Bitcoin. In financial terms, this is an earth-shattering statement, from someone considered one of the best macroeconomics traders ever. This guy knows how to make money. Now he has Bitcoin in his portfolio and on his radar.

As QE increases and both the US and EU know only too well that a big recession is looming, there will be downward pressure on dividends. Add to this unemployment and people spending less in shops, bars and restaurants, and we have a perfect storm forming that means central banks will have to shoulder the burden. Interest rate cuts are not working any more and the only way to boost the economy is by printing and lending cash to governments. In essence, devaluing that cash.

But Bitcoin cannot be printed. A limited supply is burned into its composition, so no government or bank can tamper with it. It will have 21 million “coins” and that is it. These are accounted for on a public ledger called the blockchain. And it is this system that has institutional investors fired up and ready to add it to their portfolios.

But this will come with risk. Bitcoin, despite being 11 years old, is in its infancy as a currency, asset or investment vehicle. It is volatile, having crashed 80 per cent three times since its birthing. But, if we average out its growth, it sits at an annualised 150 per cent per annum.

Speculative, risky, but now it would appear acceptable to have in big portfolios. For many Bitcoin maximalists, 2020 onward will be Bitcoin’s decade. But looking back at Nixon’s actions, it never ceases to amaze me how one person’s decisions can change the direction of travel of the whole world is so many ways. Some 50 years later, a new “gold” or currency “reserve” is emerging.

Jim Duffy MBE, Create Special

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