Abstract
President John F. Kennedy once observed that the US balance-of-payments problem was the second most worrisome issue he had to deal with; the first was avoiding a nuclear war. His concern was that the US Government might have to increase the US dollar price of gold, which would be costly internationally because it would break the commitment that the US gold parity of $35 was fixed forever and costly domestically because it would be interpreted as an indicator of profligate government spending policies. Yet when President Richard Nixon closed the US Treasury’s gold window in August 1971 and suspended gold sales and then agreed to increase the US parity to $38 several months later and then to $42 about a year later, the international response was mild and the adverse domestic political fallout was trivial.
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