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So many modern problems can be traced to 1971. [1] That is the year that the US defaulted on our obligations under Bretton Woods effectively ending the system a

So many modern problems can be traced to 1971. [1] That is the year that the US defaulted on our obligations under Bretton Woods effectively ending the system and causing currencies to become completely fiat, enabling governments to effectively print unlimited funny money. This perverts capitalism so hard because you now end up with tens of trillions of dollars being dumped into the economy in horribly inefficient ways and so behaviors that make one likely to get some of this become far more economically relevant than just making the best product. Our current economic system is obviously completely unsustainable at this point and may well end up being one of the shortest lived economic experiments ever. That's particularly ironic because, as you alluded to, for most of everybody alive today this is just how it's always been! [1] - https://wtfhappenedin1971.com https://wtfhappenedin1971.com

mschuster91 2y ago
> So many modern problems can be traced to 1971. [1] That is the year that the US defaulted on our obligations under Bretton Woods effectively ending the system and causing currencies to become completely fiat, enabling governments to effectively print unlimited funny money. Correlation != causation. Yes, the end of Bretton-Woods certainly played its part, but there are other independent causes for most of the things that can be seen in the graphs - first and foremost, the oil crises of 1973 and later and the impact of the policies of Nixon, Reagan and Thatcher, as well as simple but massive technological progress that made the economical shifts (such as the decline in agriculture and industry as a share of the economy) possible in the first place. Automation and IT in general are the largest drivers of the latter - more efficient and powerful diesel engines made a lot of farm labor all but redundant, and IT enabled constructing and orchestrating ever larger and larger things, all the way from machines to global sized corporations, and the resulting efficiency gains of scale were mostly looted by the rich elites.
- ANewFormation 2y ago
  There is one straight forward causal mechanism - excessive money printing sends the monetary supply skyrocketing and directly drives inflation. It's not hard to deal with inflation for the wealthy. You will generally have substantial wealth invested in inflation resistant appreciating assets, businesses can pass the inflation on to the customer, and so on. But for labor it's a different story. Not only do you suffer far more from price increases with little in the way of offsetting assets, but inflation allows wages to 'secretly' grow stagnant or even decrease. What I mean is that since e.g. 2020, the CPI has increased by 18%. So if you're not earning at least 18% more, you're more earning less than you did in 2020. Without inflation this doesn't work. Workers' raises would actually increase their real earnings. It's not hard to see how this single issue causally drives much of what happened in 1971 (and beyond.) Notably the excessive money printing began somewhat before 1971 which is what caused the default that eventually happened in 71.
  - camgunz 2y ago
    Everyone agrees inflation is bad; what we don't yet really know is if it's worse than unemployment. The way the existing system works is if inflation starts to rise, the Fed raises the interest rate, hiring slows and people get fired, and this constricts the existing supply of money thus reducing inflation. But if you don't do that, and instead just put up with inflation, people get and keep jobs, so all you then have to do is make sure wage growth meets or exceeds inflation. Politically this ended up not working (no pun intended). People explain this by saying losing a job affects that person whereas inflation affects everybody, but personally I put it down to the right demagoguing inflation as the sign of an incompetent government (it turns out it was transitory and the result of supply shocks--maybe not a good reason to throw millions of people out of work). We'll never know the counterfactual, but the US managed this economic environment better than any of its peers, so honestly I don't know what a good faith criticism would even look like.
    - somenameforme 2y ago
      A term you definitely want to look up is "exporting inflation" which is largely why the US has thrived while others - well not so much. [1] This manifests in many ways, but I'll offer a simple example. The US remains the largest consumer economy in the world. So imagine you're Carland where your economy is mostly selling cars, and mostly to the US. And now imagine the US prints a bunch of money causing their currency to become worth less relative to yours. At a first level analysis this sounds great because now you get even more dollars per car! But in reality that's not what happens. Instead US customers can't afford your cars anymore and so turn elsewhere and your economy, which is dependent upon the US, would start to decline and possibly even crash. So the solution? You print money and intentionally weaken your own currency - helping to eliminate the relative US inflation! Now the US inflation has transformed into real growth (for Americans) and you've 'imported' their inflation, but can at least continue selling your cars. So your economy stumbles on for another day while the US economy only grows larger. But in contemporary times many of the factors that enable the US to export its inflation are gradually declining. And when you look at many of our economic indicators, without any particular 'superpowers', it's not so pretty. For instance our peers in debt:GDP ratio (4 worse, 4 better) are: Greece, Italy, Bahrain, Maldives, Laos, Cape Verde, France, and Bhutan. Not exactly the economic peers one wants. [1] - https://search.brave.com/search?q=exporting+inflation https://search.brave.com/search?q=exporting+inflation
kmeisthax 2y ago
The end of the Bretton-Woods agreement is not the root cause; that in and of itself is downstream of the US government prosecuting a bullshit war in Vietnam for the last decade and change. To be clear, this is not the US government "perverting capitalism", this is the capitalist class abandoning a fiscal constraint they found inconvenient in order to continue a pissing match against the existential threat of communism. There is no world in which capitalism stays under a "sound money" gold standard, stops fighting interventionist wars, and doesn't immediately either get cornered by the Soviet Union[0] or obliterated by an ascendant American left. With few exceptions, the government in the US acts on behalf of the capitalist class, not in opposition to it. There is no "pure" capitalism that would exist if the government just left free markets alone. Capitalists won't leave the free market alone. Capitalists will take ownership and control over the chokepoints of the economy, government or no[1], granting them their own sovereign territory they can levy taxes on. This is a state - a monopoly on the legitimate use of force - whose territory is not of a city or a nation but of a market niche. This system is sustainable in some ways and not in others. Yes, the market is distorted, which means it sucks for us, but the people who own the market-state don't actually feel that punishment. Which means they won't stop. Something has to actually force them to stop. [0] Analogous to how the PRC has cornered the modern neoliberal west today. [1] To be clear, nation-states are also culpable in this process, both through sins of omission (failing to enforce antitrust law) and sins of commission (creating legal monopolies that form new economic chokepoints to conquer)
- somenameforme 2y ago
  But Bretton Woods is indeed the root cause, because the entire system was a bit of a Trojan Horse (or at least turned into one). Why doesn't any random country just go print trillions of dollars, import what they can't locally produce, and boom - call themselves an advanced economy? It's because demand for their currency would plummet in other countries, and in their own country they'd do little but create runaway inflation and probably become the next Zimbabwe. But when the US did this it was very different because with Bretton Woods we had already established the USD as the global currency to be used in international trade and settlement everywhere. So countries were unable to move away from the dollar as fast as they could other currencies. And in the interim we started setting up the Petrodollar to prevent them from doing this - by making it impossible to buy the most in-demand commodity in anything other than USD - making fighting against the dollar futile. But one of Biden's many 'accomplishments' was pushing Saudi Arabia far away enough that they chose to not renew the 50 year Petrodollar agreement, which ended on June 9th 2024. This means now that the USD is completely and absolutely free floating with no backing, indirect or direct. And you can see this in which currency countries are holding as a reserve currency. [1] Just before Bretton Woods it was about 85% USD. It then plummeted (after the Bretton Woods default) and then bounced back to reach a peak of 72% in 2001. It's now down to 57% (Wiki table has not been updated with latest numbers) and continuing to steadily decrease. As soon as a viable alternative currency emerges, the USD will collapse - and this entire economic system alongside it. Trump's ideas aren't so much radical as he is simply saying the quiet parts (probably as a result of intelligence briefings) out loud. This entire thing is why he's threatened 100% tariffs if BRICS countries try to replace the dollar. Of course tariffs from what would be a collapsed economy have far less weight behind them than e.g. the lack of access to oil. So the interesting times we live in are certain to continue for the foreseeable future. [1] - https://en.wikipedia.org/wiki/Reserve_currency https://en.wikipedia.org/wiki/Reserve_currency
camgunz 2y ago
This comes up on HN all the time [0] and it's complete garbage. Japan has a fiat currency; how have they dodged inflation? Where are the successful non-fiat economies? If there's some kind of moral hazard with printing money, why is one of the Fed's 2 mandates to keep inflation at 2%? Why aren't they constantly printing money? Why isn't inflation 1000%? How long do we have to wait for this conspiracy theory to prove out? [0]: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=wtfhappedin1971&sort=byPopularity&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
- somenameforme 2y ago
  Japan is probably not the example you're after as it isn't the country many of us remember from back in the day when it was rivaling the US for economic dominance. Their economy has been in recession/stagnation for about 3 decades now. Their stock market is now finally above where it was in 1989, up 1.5%. [1] Though that will probably be short lived, especially as their population is now dying off fast enough that even places like Tokyo are declining in population! It's a great recipe for affordable housing, keeping inflation manageable, and much more. Probably not an advisable path to go down though! An example of a successful non-fiat economy would obviously be the US. Until 1971 we had various forms of backing to our currency. After 1971 we invented this abomination of a system which probably only lasted as long as it did thanks to the growth of digital technologies making infinite growth, to meet infinite debt, briefly sustainable, all be it only with rather dramatic consequences, particularly for the lower half of society. [1] - https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market
  - camgunz 2y ago
    The only real problem the Japanese economy has is their top-heavy population, which isn't a result of monetary policy. By your own metric of Japan's failure (stock market value), the US economy has excelled tremendously since 1971 (yes, even adjusting for inflation), so now I'm confused about what argument you're making. I also assume all the other points I made stand.

mschuster91 2y ago

> So many modern problems can be traced to 1971. [1] That is the year that the US defaulted on our obligations under Bretton Woods effectively ending the system and causing currencies to become completely fiat, enabling governments to effectively print unlimited funny money. Correlation != causation. Yes, the end of Bretton-Woods certainly played its part, but there are other independent causes for most of the things that can be seen in the graphs - first and foremost, the oil crises of 1973 and later and the impact of the policies of Nixon, Reagan and Thatcher, as well as simple but massive technological progress that made the economical shifts (such as the decline in agriculture and industry as a share of the economy) possible in the first place. Automation and IT in general are the largest drivers of the latter - more efficient and powerful diesel engines made a lot of farm labor all but redundant, and IT enabled constructing and orchestrating ever larger and larger things, all the way from machines to global sized corporations, and the resulting efficiency gains of scale were mostly looted by the rich elites.

ANewFormation 2y ago
There is one straight forward causal mechanism - excessive money printing sends the monetary supply skyrocketing and directly drives inflation. It's not hard to deal with inflation for the wealthy. You will generally have substantial wealth invested in inflation resistant appreciating assets, businesses can pass the inflation on to the customer, and so on. But for labor it's a different story. Not only do you suffer far more from price increases with little in the way of offsetting assets, but inflation allows wages to 'secretly' grow stagnant or even decrease. What I mean is that since e.g. 2020, the CPI has increased by 18%. So if you're not earning at least 18% more, you're more earning less than you did in 2020. Without inflation this doesn't work. Workers' raises would actually increase their real earnings. It's not hard to see how this single issue causally drives much of what happened in 1971 (and beyond.) Notably the excessive money printing began somewhat before 1971 which is what caused the default that eventually happened in 71.
- camgunz 2y ago
  Everyone agrees inflation is bad; what we don't yet really know is if it's worse than unemployment. The way the existing system works is if inflation starts to rise, the Fed raises the interest rate, hiring slows and people get fired, and this constricts the existing supply of money thus reducing inflation. But if you don't do that, and instead just put up with inflation, people get and keep jobs, so all you then have to do is make sure wage growth meets or exceeds inflation. Politically this ended up not working (no pun intended). People explain this by saying losing a job affects that person whereas inflation affects everybody, but personally I put it down to the right demagoguing inflation as the sign of an incompetent government (it turns out it was transitory and the result of supply shocks--maybe not a good reason to throw millions of people out of work). We'll never know the counterfactual, but the US managed this economic environment better than any of its peers, so honestly I don't know what a good faith criticism would even look like.
  - somenameforme 2y ago
    A term you definitely want to look up is "exporting inflation" which is largely why the US has thrived while others - well not so much. [1] This manifests in many ways, but I'll offer a simple example. The US remains the largest consumer economy in the world. So imagine you're Carland where your economy is mostly selling cars, and mostly to the US. And now imagine the US prints a bunch of money causing their currency to become worth less relative to yours. At a first level analysis this sounds great because now you get even more dollars per car! But in reality that's not what happens. Instead US customers can't afford your cars anymore and so turn elsewhere and your economy, which is dependent upon the US, would start to decline and possibly even crash. So the solution? You print money and intentionally weaken your own currency - helping to eliminate the relative US inflation! Now the US inflation has transformed into real growth (for Americans) and you've 'imported' their inflation, but can at least continue selling your cars. So your economy stumbles on for another day while the US economy only grows larger. But in contemporary times many of the factors that enable the US to export its inflation are gradually declining. And when you look at many of our economic indicators, without any particular 'superpowers', it's not so pretty. For instance our peers in debt:GDP ratio (4 worse, 4 better) are: Greece, Italy, Bahrain, Maldives, Laos, Cape Verde, France, and Bhutan. Not exactly the economic peers one wants. [1] - https://search.brave.com/search?q=exporting+inflation https://search.brave.com/search?q=exporting+inflation

kmeisthax 2y ago

The end of the Bretton-Woods agreement is not the root cause; that in and of itself is downstream of the US government prosecuting a bullshit war in Vietnam for the last decade and change. To be clear, this is not the US government "perverting capitalism", this is the capitalist class abandoning a fiscal constraint they found inconvenient in order to continue a pissing match against the existential threat of communism. There is no world in which capitalism stays under a "sound money" gold standard, stops fighting interventionist wars, and doesn't immediately either get cornered by the Soviet Union[0] or obliterated by an ascendant American left. With few exceptions, the government in the US acts on behalf of the capitalist class, not in opposition to it. There is no "pure" capitalism that would exist if the government just left free markets alone. Capitalists won't leave the free market alone. Capitalists will take ownership and control over the chokepoints of the economy, government or no[1], granting them their own sovereign territory they can levy taxes on. This is a state - a monopoly on the legitimate use of force - whose territory is not of a city or a nation but of a market niche. This system is sustainable in some ways and not in others. Yes, the market is distorted, which means it sucks for us, but the people who own the market-state don't actually feel that punishment. Which means they won't stop. Something has to actually force them to stop. [0] Analogous to how the PRC has cornered the modern neoliberal west today. [1] To be clear, nation-states are also culpable in this process, both through sins of omission (failing to enforce antitrust law) and sins of commission (creating legal monopolies that form new economic chokepoints to conquer)

somenameforme 2y ago
But Bretton Woods is indeed the root cause, because the entire system was a bit of a Trojan Horse (or at least turned into one). Why doesn't any random country just go print trillions of dollars, import what they can't locally produce, and boom - call themselves an advanced economy? It's because demand for their currency would plummet in other countries, and in their own country they'd do little but create runaway inflation and probably become the next Zimbabwe. But when the US did this it was very different because with Bretton Woods we had already established the USD as the global currency to be used in international trade and settlement everywhere. So countries were unable to move away from the dollar as fast as they could other currencies. And in the interim we started setting up the Petrodollar to prevent them from doing this - by making it impossible to buy the most in-demand commodity in anything other than USD - making fighting against the dollar futile. But one of Biden's many 'accomplishments' was pushing Saudi Arabia far away enough that they chose to not renew the 50 year Petrodollar agreement, which ended on June 9th 2024. This means now that the USD is completely and absolutely free floating with no backing, indirect or direct. And you can see this in which currency countries are holding as a reserve currency. [1] Just before Bretton Woods it was about 85% USD. It then plummeted (after the Bretton Woods default) and then bounced back to reach a peak of 72% in 2001. It's now down to 57% (Wiki table has not been updated with latest numbers) and continuing to steadily decrease. As soon as a viable alternative currency emerges, the USD will collapse - and this entire economic system alongside it. Trump's ideas aren't so much radical as he is simply saying the quiet parts (probably as a result of intelligence briefings) out loud. This entire thing is why he's threatened 100% tariffs if BRICS countries try to replace the dollar. Of course tariffs from what would be a collapsed economy have far less weight behind them than e.g. the lack of access to oil. So the interesting times we live in are certain to continue for the foreseeable future. [1] - https://en.wikipedia.org/wiki/Reserve_currency https://en.wikipedia.org/wiki/Reserve_currency

camgunz 2y ago

This comes up on HN all the time [0] and it's complete garbage. Japan has a fiat currency; how have they dodged inflation? Where are the successful non-fiat economies? If there's some kind of moral hazard with printing money, why is one of the Fed's 2 mandates to keep inflation at 2%? Why aren't they constantly printing money? Why isn't inflation 1000%? How long do we have to wait for this conspiracy theory to prove out? [0]: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=wtfhappedin1971&sort=byPopularity&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

somenameforme 2y ago
Japan is probably not the example you're after as it isn't the country many of us remember from back in the day when it was rivaling the US for economic dominance. Their economy has been in recession/stagnation for about 3 decades now. Their stock market is now finally above where it was in 1989, up 1.5%. [1] Though that will probably be short lived, especially as their population is now dying off fast enough that even places like Tokyo are declining in population! It's a great recipe for affordable housing, keeping inflation manageable, and much more. Probably not an advisable path to go down though! An example of a successful non-fiat economy would obviously be the US. Until 1971 we had various forms of backing to our currency. After 1971 we invented this abomination of a system which probably only lasted as long as it did thanks to the growth of digital technologies making infinite growth, to meet infinite debt, briefly sustainable, all be it only with rather dramatic consequences, particularly for the lower half of society. [1] - https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market
- camgunz 2y ago
  The only real problem the Japanese economy has is their top-heavy population, which isn't a result of monetary policy. By your own metric of Japan's failure (stock market value), the US economy has excelled tremendously since 1971 (yes, even adjusting for inflation), so now I'm confused about what argument you're making. I also assume all the other points I made stand.