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The US dollar was the global reserve currency in the 1960s but the US was running a trade surplus then.
by Symmetry 1y ago
The US dollar was the global reserve currency in the 1960s but the US was running a trade surplus then.
- hunglee2 1y agoNixon broke Bretton Woods by coming off the gold standard, leading to massive expansion of the money supply. Lyn Alden has good analysis of this process https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- franktankbank 1y agoThe more I hear about this Nixon feller the less I like him. Seems like a real scoundrel.
- HDThoreaun 1y agoDumping the gold standard was one of the best moves nixon made. The gold standard was directly responsible for untold economic suffering in the country.
- franktankbank 1y ago[flagged]
- HDThoreaun 1y agoSecond worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression Worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression Fiat currency is just below electricity and insulin as the greatest inventions of the recent centuries.
- hunglee2 1y agohe may have had no choice - there are inherent contradictions in every monetary system - there is a reason they all collapse in the end.
- triceratops 1y agoFruit vendor: You like these apples? That'll be $2. Buyer: Yeah I want them. But Fort Knox doesn't have enough gold yet, so I don't have the dollar bills right now. Fruit Vendor: No problem. Bring me an IOU from your bank that says you're good for it. (The Invention of Paper Money)
- ty6853 1y agoDollar bills under the circa pre-Nixon gold standard were IOU for gold, there was no need to have enough gold to cover them as it was a fractional reserve.
- triceratops 1y agoSo why gold? Why not buildings or factories or railroads or ports?
- ty6853 1y agoNot going to be answered in a one liner but the short answer is historically it had about the highest density of value that was relatively easy transport, divide, and the inflationary properties though highly imperfect were less susceptible than that of factories or railroads. Humanity came to it empirically. Many people have suggested alternatives such as units of energy or baskets of goods but at the end of the day there is no perfect unit, dollars being backed by essentially largely threat of imprisonment if you don't pay your taxes and scarcity of how many the government decides to 'print' is yet another arbitrary choice of backing.
- mitthrowaway2 1y agoHow do you ship fixed infrastructure to another country when they want to redeem their USD?
- triceratops 1y agoYou don't. You give them a title to the infrastructure. Exchange paper for paper. Pretty neat right?
- Attrecomet 1y agoImagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. The gold standard was a system breaking up by its inherent contradictions, as another poster has phrased it, when Nixon went off it.
- ty6853 1y ago>Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense This is only the case if you have full reserve banking. Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold. There are certainly problems with fractional reserve banking but gold backing is not a fundamental weak point here. Even IRL if everyone demands real dollar notes there is not enough in the banks and the FDIC reserves to pay it all out on demand if everyone recalled their deposits, they could not even run the money printer fast enough to cover it. Yet somehow world trade still goes on, despite there being more value of goods in trade than currency than can back it. Side note for completeness: theoretically all trade of any size happen with even a single gold coin by increasing velocity of money.
- robocat 1y ago> Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold What happens when foreign buyers want to withdraw gold and not hold "money" in an account? Internally, gold-backed fractional reserve sounds reasonable.
- roenxi 1y agoThe growth rate of the economy wasn't limited by the rate of gold mining - people would just adjust prices relative to gold. And by most accepted measures I'm pretty sure the US economy was growing faster when it was on a gold standard.
- deeg 1y agoThis isn't correct. The gold standard caused a lot of problems with money shortages; in the 1800s they were called panics. The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech
- xk_id 1y agoDo you find Lyn Alden insightful? I remember studying her articles a few years ago on the inevitability of hyperinflation due to oil shortages, which never materialised.
- elteto 1y agoRemnants of the massive industrial effort of WW2 plus China/Japan had not entered the chat yet.
- jcfrei 1y agoThere were no free floating currencies back in the 1960s nor open capital markets as we understand them today. Cannot really compare the two eras.