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In the wake of the Great Depression the US government made it illegal to own gold (jewelry notwithstanding). At this time, US$1 was convertible to 1/20th of an
by cletus 6y ago
In the wake of the Great Depression the US government made it illegal to own gold (jewelry notwithstanding). At this time, US$1 was convertible to 1/20th of an ounce of gold. People sold their gold back to the government.
In the 1930s the US government had spiraling debt so how did it solve this problem? Simple. It simply made US$1 worth 1/35th of an ounce of gold instead.
What this amounted to was a devaluation of US government debt in real terms but not in nominal terms.
Post-WWI Germany had to pay war reparations denominated in deutschmarks. About 10 years later Germany got into a situation of hyperinflation. This essentially wiped out any outstanding reparations.
So if you wonder what the end result of all this is, it's probably that: an effective devaluation of bonds rather than a sovereign default, which is unlikely in any system where the debt is denominated in the currency you can literally print.
Interestingly this would also devalue the US government's entitlement obligations (eg Social Security) too.
- selimthegrim 6y agoHow come you never hear the last bit from the MMT crowd
- bryanlarsen 6y agoIt's a core central thesis of MMT. Government spending should be constrained by the inflation it causes rather than the debt or deficit.
- burrows 6y agoAlternatively, “The government ought debase the currency right up until people start to notice.”
- harryh 6y agoFor the record, inflation is currently negative in the US.
- marcrosoft 6y agoThey have said inflation has been in check for a long while. Going to the grocery store and looking at prices shows otherwise. I’m not sure what they are measuring.
- harryh 6y agoThey're literally measuring prices at grocery stores, as well as a basket of other goods and services. https://www.bls.gov/cpi/questions-and-answers.htm https://www.bls.gov/cpi/questions-and-answers.htm
- bald 6y ago> deutschmarks reichmarks
- marcrosoft 6y agoMaking something illegal causes it to be more expensive. Look at cocaine and marijuana (minus taxes). This is not a fair comparison. The U.S. gov. practically confiscated gold at way below market prices and instilled fear to those who held it. Fortunately gold is a global market that can’t be manipulated long term.
- the_why_of_y 6y ago> Post-WWI Germany had to pay war reparations denominated in deutschmarks. About 10 years later Germany got into a situation of hyperinflation. This essentially wiped out any outstanding reparations. The reparations were the cause of the hyperinflation, as they were required to be paid not in German currency, so they printed lots of currency to exchange for the required hard currencies on the markets, at ever-increasing rates. Of course this did nothing to wipe out outstanding reparations. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...