The total credit <a class=market now exceeds $90 trillion.” decoding=”async” src=”https://mishtalk.com/.image/c_limit%2Ccs_srgb%2Cq_auto:good%2Cw_700/MTkyNjY4NzMwMDg0MzA0NTcw/total-credit-market-debt-owed-2022-09-28.png” height=”474″ width=”841″ srcset=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7″ itemprop=”contentUrl url”/>

The total credit market now exceeds $90 trillion.

Flashback November 1971

John Connally, President Nixon’s Treasury Secretary, bluntly told a group of European finance ministers “The dollar is our currency, but that’s your problem.”

Nixon Shock

Connally’s statement is part of what is now labeled as “Nixon Shock“.

The Nixon Shock was a series of economic measures taken by US President Richard Nixon in 1971, in response to rising inflation, the most significant of which were wage and price freezes, import surcharges and l unilateral cancellation of the direct international convertibility of the US dollar into gold.

Nixon said the decision to end gold convertibility was temporary. This was not the case. But it is important to understand the background story after the end of World War II.

Background

In 1944, representatives from 44 nations met in Bretton Woods, New Hampshire, to develop a new international monetary system known as the Bretton Woods system. Conference participants had hoped that the new system would “guarantee exchange rate stability, prevent competitive devaluations and promote economic growth”.

It was not until 1958 that the Bretton Woods system became fully operational. Countries now settled their international accounts in dollars which could be converted into gold at a fixed exchange rate of $35 an ounce, which was redeemable by the US government. Thus, the United States pledged to back every dollar abroad with gold, and other currencies were pegged to the dollar.

For the first few years after World War II, the Bretton Woods system worked well. With the Marshall Plan, Japan and Europe were rebuilding after the war, and countries outside the United States wanted dollars spent on American goods – cars, steel, machinery, etc. Because the United States possessed more than half of the world’s official gold reserves – 574 million ounces at the end of World War II, the system seemed secure.

However, from 1950 to 1969, as Germany and Japan recovered, the United States’ share of global economic output dropped significantly, from 35% to 27%. Additionally, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve led to an increasing overvaluation of the dollar in the 1960s.

In France, the Bretton Woods system has been called “America’s exorbitant privilege” because it resulted in an “asymmetrical financial system” where non-American citizens “are supported by American standards of living and subsidized by American multinationals. “. As American economist Barry Eichengreen summed it up: “It only costs the Bureau of Engraving and Printing pennies to produce a $100 bill, but other countries have had to shell out $100 worth of real goods to get one. “. In February 1965, President Charles de Gaulle announced his intention to exchange his US dollar reserves for gold at the official exchange rate..

In 1966, non-US central banks held $14 billion, while the United States had only $13.2 billion in gold reserves. Of these reserves, only $3.2 billion was able to cover foreign holdings, with the rest covering domestic holdings.

Nixon did not want to raise interest rates for his guns and butter policies (war in Vietnam and social spending), and as a result the United States was rapidly losing its gold supply.

Charles de Gaulle’s announcement that France would redeem its balance of trade in dollars marked the end of Bretton Woods.

Stock market applauded

The stock market applauded the “temporary” suspension of gold buying and hence government around the world.

A direct consequence of Nixon Shock was that governments could and did spend at will without checks and balances.

The American consumer then became the global shopper of last resort.

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This is our 2022 dollar style

The dollar soars without plunging and the Fed, unlike Nixon, blithely raises its rates.

Bloomberg reports Yuan to 2008 Weak fuel speculation Monetary easing will slow

The yuan’s fall to its lowest since the 2008 global financial crisis has fueled speculation that China’s central bank will slow the pace of monetary easing to avoid adding further pressure on the currency.

The People’s Bank of China is likely to delay any major stimulus, such as lowering interest rates and reserve requirement ratios for banks, analysts including Australia & New Zealand Banking Group Ltd said. and Tianfeng Securities Co.

Emerging markets, which have borrowed dollars expecting them to become cheaper, are in crisis mode.

Japan is using monetary intervention while the Bank of England has taken emergency measures to shore up its bond market.

For more, please see the Bank of England to buy bonds at whatever scale needed to end the crisis

Also note dollar fatigue: Japan’s intervention in the yen will not work. How can he?

Ever since Nixon killed gold convertibility, there has been no check on budget deficits. Countries could and did spend at will. The Fed was finally forced to raise rates, the dollar soared in response.

Total dollar credit now exceeds $90 trillion and the debt clock shows the US national debt at nearly $31 trillion. There are no constraints on debt or government spending anywhere.

Meanwhile, the mainstream media is devoid of any discussion of the root cause of the current problems. Nor is there an end in sight to reckless fiscal policies.

Gold curbed recklessness. Gun-and-butter policies with low interest rates have resulted in the loss of your gold.

This post is from MishTalk.Com.

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