The postmodernization of global economics started in earnest forty years ago when Richard Nixon announced the end of the gold standard, nominally to protect American economic interests. It behooves us to go back and listen to the man’s statements regarding the decision. Note the dark tone delivered toward “international financial speculators,” a group that is held in disrepute compared with the “working man” and “savers” who are presented as the drivers of real prosperity.
How interesting in retrospect that Nixon’s chief rationalization for creating a fiat currency is that if you are in the market for foreign cars or exotic trips, you may feel the pinch of devaluation, but for all you Americans who want to buy AMERICAN goods, your dollar will be worth just as much.
First, let us compare the long-term suspension of the convertability of the U.S. Dollar directly into gold:
It would seem that the value of gold has done quiet well against the U.S. Dollar since this decision. Or is it that the U.S. Dollar has lost its value? Eye of the holder, we suppose.
Nixon pointed out that as long as you only bought American goods, this would not be a big deal at all – your purchasing power would stay exactly the same.
I guess somewhere between Honda, Toyota, Hyundai, and Volkswagen cars, Samsung televisions, LG appliances, textiles, home goods, and chopsticks, Americans have been buying billions in foreign goods, leaving the United States with a trade balance that has never been equalized. Nixon loses some futurist points right there.
The economic prosperity of the United States has been more than enough to equal the loss of purchasing power of the dollar, correct?
Actually, it seems more that household debt, both as credit cards and student loan debt, have been making up the losses since the unshackling of the U.S. dollar from the Bretton Woods agreement.
Whether you take these trends to be correlation or causation, the last forty years of economics have been an experiment with a new international financial regime. Almost every currency on Earth is run by diktat, which means “it’s worth what we say it’s worth.” The world’s economic system becomes ever more complex as new countries trade in earnest, but there is no longer a limiting factor, i.e. the limited availability of reserve goal, to which to tether the system. The world system now requires a group of like-minded global financial engineers to keep fiscal infrastructure running through policies that beg and pray for status quo stability, rather than a group of reasonably unbiased referees who set a few rules and let the game play out as it may. This is where the intellectual work of Nassim Nicholas Taleb comes into play, posing the question, “Who could possibly possess the wisdom to manage a system of limitless complexity?” Answer: nobody we see in the public sphere today.
Returning to Nixon, he wanted to hamstring the “international financial speculators.” Today, megabanks, hedge funders, traders and George Soros-type financiers enjoy limitless access to Washington policy makers and even get made Treasury Secretary with significant frequency. Nixon wanted to end the crises that enriched financial engineers at the expense of real wealth creators. Hello double digit unemployment and simultaneous record-breaking financier bonus pools. He wanted to protect American purchasing power and promote American-made goods within her borders. We instead see never-ending trade deficits.
Where does monetary policy go from here? If you ask gold bugs, it is right back to some form of gold standard. If you ask central banks, they will tell you we just need one more bailout of some sunburned nation that lost control of its finances, but then we’ll be back to “normal.” If you ask the average working person or job-creating entrepreneur, they will likely look at you blankly, uninterested in the machinations of ultra-high level policymaking.
In any event, the trend lines suggest the end of an era. Step back hundreds of years, and there are no global systems of fiat currency to give us an instructive analogy. We will be creating our future anew.
What do you think? Is it back to precious metals with us? Will the system shatter into competing local currencies? Facebook credits? Giant stone wheels of the Yapman? Leave us your view in the comments section.