Atomic Bombs and Gold: 75 Years of America’s Waning Power
This year marks the 75th anniversary of two pillars of U.S. power — the gold-backed dollar and atomic weapons.
But it’s been awhile since I’ve talked about U.S. military readiness, let alone the state of our nuclear arsenal.
These topics are more intertwined than you might expect. They tell us how we got here as a nation… and offer insight into where we’re going next.
Let’s dig in, and think it through…
It’s easy to overlook history when you are overwhelmed by the present. And the present certainly is overwhelming.
We have COVID, lockdowns, business closures and bankruptcies, unemployment, breakdowns in schooling, economic problems from sea to sea (and across the seas, too), the rise of China and much more…
When you watch the (so-called) “news” on television, you see statues falling while large cities host massive protests and riots. American politics are gridlocked and bitter to the point of poisonous. Government spending is out of control.
How you live your life has also likely changed over the past four months.
You’re probably not working the way you used to, assuming you’re working at all.
Your social life is different, too. Maybe you’ve watched weddings and funerals on Facebook.
You can’t go to a movie theater or baseball park, and you have to wear one of those annoying masks when you go out…
So yes, things are changing dramatically. We’re watching history being made, while other history melts away.
But that’s exactly why it’s useful to go back to 1945…
As July turns to August, we’re in the midst of a string of “75th anniversaries” for events that changed the world.
It’s not overstating the case to say that what happened in 1945 made the U.S. the power it has been for the lifetime of everyone who reads this.
But the macro-situation is changing dramatically. That former world is coming to an end. Something new is evolving. And it will affect you in countless ways.
Here are some dates to consider…
July 16, 1945… Near Alamogordo, New Mexico. The first atomic bomb in history was detonated. It was called the Trinity Test.1
Trinity was proof-of-concept that atomic weapons could work. This all came out of the immense labors of tens of thousands of people on the Manhattan Project.2
August. 6, 1945… Hiroshima, Japan. This was the first time an atomic bomb — named “Little Boy” — was used as a weapon.3
August 9, 1945… Nagasaki, Japan. A second atomic bomb — named “Fat Man” — was used as a weapon.4
The conventional history is that the U.S. atomic bombings of Hiroshima and Nagasaki convinced Japan to seek peace.5
Indeed, on August 15, 1945 Japan announced its intent to surrender. The formalities occurred on September 2, 1945.6
Japan’s Foreign Minister Shigemitsu signs the instrument of surrender as U.S. General MacArthur looks on. U.S. National Archives.
But that is just a bare bones outline of history.
Those three atom bombs did more than just “end the war.” They shaped the world for the next 75 years.
Indeed, three atom bombs shaped the world… along with 18,000 metric tons (tonnes) of gold.
Yes… Back to gold.
Just over a year ago, I wrote about the 1944 conference at Bretton Woods, New Hampshire.
That conference hammered out the final details of what became known as the Bretton Woods Agreement (BWA), creating a new, global financial system backed by gold.
Of course, World War II was still raging at the time. Italy had surrendered, but not Germany which still fought on.
Whatever would happen on the battlefields, at Bretton Woods the U.S. and its foreign counterparties in New Hampshire were looking ahead.
In Europe, the U.S., Britain and related forces had just landed in France in June — D-Day — and were beginning to move east.
Meanwhile, the Soviet Red Army was smashing west, annihilating entire German armies.
In other words, by summer 1944 it was clear the Allies would prevail. And there was a world to rebuild.
In essence, BWA placed that “world to rebuild” on a modified gold standard. Or at least a “modified U.S. gold standard.”
At the time, the U.S. gold reserves totaled about 18,000 tonnes. Here’s a long-term chart.
U.S. Gold Reserves from 24hGold.com
Much of that U.S. gold came into “reserve” status in the 1930s, after President Roosevelt called in gold from U.S. holders.
The U.S. also accumulated more gold during World War II as payment for arms and supplies shipped to Britain, the Soviet Union and other nations.
So by 1944, U.S. gold holdings far exceeded those of any other nation.
At the same time, the U.S. industrial landscape was undamaged by war. New factories were humming, powered by hydro-dams and thermal plants constructed in the 1930s, many of them as Depression-era government work programs.7
Across the rest of the world, much economic power was handicapped or even wrecked. Britain had been heavily bombed, and its economy was fully devoted to wartime production. Britain’s soon-to-be-former “empire” was coming unglued.
Most of Western Europe was still occupied by Germany. Cities and industries were under routine bombardment, and much of the continent’s productive capacity was being reduced and wrecked on a daily basis.
Between the air and ground wars, Europe was systematically destroyed from the Atlantic coast to the gates of Moscow.
Indeed, by 1944 the western Soviet Union was uniquely shattered. Every city, town, village, bridge, railway, mine, mill, factory, farm, power plant, water works, telephone exchange was touched by damage and destruction.
The nation was also on its way to losing 27 million dead.8
So the BWA was truly a case of the old saying about “golden rules.” Not “do onto others,” but “whoever has the gold makes the rules.”
And as you saw, the U.S. had the gold.
Under BWA, the U.S. agreed to back the dollar at a fixed measure of gold, pegged to $35 per ounce.
Other global currencies were then pegged to the U.S. dollar.
In other words, he global monetary system was set up to place the U.S. in the driver’s seat when fighting ended.
It only took a year. The European phase of war ended in May 1945, as I discussed on its anniversary.
The Asian phase closed out in August and September, as I discussed earlier.
As ink dried on the Japanese surrender papers, there was an entire world to reconstruct.
And much of that reconstruction was going to be based on gold-backed U.S. dollars.
Never before in all of human history was one nation as fortunate as the United States of America was in the years post-1945.
The U.S. dollar was the world’s controlling currency, backed by 18,000 tonnes of yellow metal in the vaults.
At home, U.S. industry was intact.
Abroad, U.S. diplomacy and influence held sway across every continent.
And across vast swaths of earth, U.S. military power reigned supreme, backed by atom bombs (carried by the venerable B-29 bomber) that could deliver immense destruction with a single strike.
This is what gold and military power can do for you… Gold and atom bombs backed the U.S. in 1945.
As an aside, it’s worth noting — and only a very few people knew back then — that the U.S. held but one more atom bomb in reserve as of August 1945. President Truman and his Chief of Staff Gen. George Marshall forbade any further nuclear attacks or demonstrations.
That is, the Manhattan Project only delivered four atomic “gadgets” by the time the war ended. These four devices used up all the nuclear material that the U.S. produced or otherwise acquired.
But the first three explosions were enough… They demonstrated a certain point. The U.S. had this unprecedented level of military power…
So, lots of gold and three atom bombs were enough to place the U.S. in a dominant position, controlling reconstruction and setting a global agenda for many decades to come.
But we can now return to the present…
The dollar has faded greatly since 1945, for lack of backing by gold and due to long-term fiscal craziness by U.S. politicians.
Both gold and monetary authority over the global economy has been squandered by a long series of supremely incompetent U.S. politicians and policymakers. There are many to blame, to be sure…
U.S. “atomic” power is handicapped, too. It’s as simple as the fact that numerous other nations have nuclear weapons.
The U.S. has long been locked into a military power paradigm in which nuclear weapons — despite their number and expense — are basically unusable, lest the calculus of escalation bring destruction on a global scale.
And then there’s the issue that the “real” U.S. economy – the one that generates energy and actually makes real things – is so badly hollowed out that even the country’s non-nuclear military power is problematic.
In short, the U.S. has too many commitments and too many military missions. The country has assigned too few people — and too few assets — to do too much. And the country has deindustrialized.
It’s strategic malpractice on a vast scale.
The main pillar of the current U.S. “dollar” system in the world economy goes back to 1945. Then, the U.S. economy was grounded on massive gold reserves, supporting a strong and productive domestic economy, all backed by the nation’s military power.
But the dollar, the U.S. military and the domestic economy have long been in decline.
And here it is, 2020… A time of COVID, a declining dollar (and rising gold prices), vicious politics, cultural upheaval and more.
Things are winding down for the U.S. And it’s scarily apparent that this is the year when 1945 comes to an end.
On that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Whiskey & Gunpowder
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8 I discussed this in a previous Whiskey article, here.