America's Money Machine

The Chute
fluctuating in value against each other and against basic forms ofwealth,
their course dictated by bureaucracies dominated by an equally confusing
mixture ofpersonal, political and economic interests. An important commodity
of that trade was petroleum, the principal sources of which were
in the Middle East and Africa under control of peoples newly released
from European colonial rule, and somewhat testy about their prerogatives.
Seizing control of the producing properties they now began to
dictate world prices for petroleum, functioning through the Organization
ofPetroleum Exporting Countries-OPEC-which they dominated. The
renewal of war between Israel and its neighbors in October, 1973, together
with the gradual weakening of the dollar in the exchanges, gave
them further opportunity; prices were multiplied four times, and the
trade balance in their favor mounted into the billions. How to settle these
balances in continually depreciating currencies now became a concern to
the world's monetary authorities. Fortunately, hugely ambitious development
programs provided objects in which to spend some ofthese billions,
and other billions were allowed to accumulate in paper currency accounts
abroad.
But not for long. As the universal settler of balances, gold now came
again into play. The "barbarous relic" acquired new interest. Gold that
sold at the end of 1974 at $195 an ounce by 1979 sold at more than $350
an ounce, with the end not yet in sight.
Like Canute bidding the waves recede, however, authorities persisted
in the fiction. In 1976 the International Monetary Fund, largely at the
instigation ofthe U. S. announced that some 50 million ounces ofits 103
million Ounce reserve would be disposed of- one-half to the member
countries and one-half offered on the market. A little later, in 1978, the
U. S. Treasury announced a program of gold sales on the ground that
gold was no longer needed in the monetary system. (The program was
discontinued in 1979 after less than 16 million ounces were offered.)
Shrewder money managers, however, were not misled. In 1967 the
government of South Africa, suspecting a market for a good gold piece,
began coinage of the one-ounce gold Krugerrand, and the issue became
so popular that by 1979 some 49 countries were issuing gold coinsthough
continuing to maintain their shaky paper notes as the legal standard
of payments.