| since we have a couple economic related threads here, all making similar baseless allegations - i just wanted to show the historical progression that our currency, and international foreign-exchange rates have seen over the past 50 years or so...
following ww2, our monetary policy was governed by a system of fixed-rates, using gold as the standard for the dollar's value. it was focused on providing domestic policy autonomy and international monetary stability. since we were the victor of ww2, and our economy became the most powerful in the world, countries began to peg their currencies to our dollar. they gradually began to fill their central bank reserves with dollars. at the same time, we pegged the value of the dollar at $35 an ounce in gold. over time, the dollar became the de facto standard currency because so many countries had filled their reserves with dollars. despite occassional instances of competitive devaluation, particularly in the 30's, this system provided stability to the international monetary system.
between the end of ww2 up until 1971, our foreign policy was becomming increasingly involved in foreign pursuits. there was a huge outflow of dollars to pay for reconstruction in western europe and japan. then we had the korean war, and later, vietnam. what this meant was that one day, we would no longer be able to redeem our dollars in gold. inflation began to creep into the market
as confidence in the dollar was increasingly questioned. however, countries that built up dollar-denominated reserves agreed to retain their dollars - mostly for fear that we would withdraw our investments and return to isolationism. also, exporting countries (japan in particular) chose to retain their dollars in order to maintain access to our market.
and then we had lbj's presidency... the increasing costs of the vietnam was, combined with his "great society" project caused global inflation to accelerate and further threatened the dollar. in a political attempt to hide the costs of vietnam, lbj chose to pursue inflationary macroeconomic policies rather than raising taxes. instead, lbj cut taxes even though our country's expenditures were constantly increasing. the acceptance of keynesian economics began with jfk, greatly worsened under lbj and continued under nixon.
in 1971, nixon abandoned the gold standard and imposed a temporary 10% tariff on all imports in order to sufficiently devalue the dollar (it needed to be devalued because of rampant inflation). there was also the smithsonian agreement where other countries agreed to let their currencies appreciate until a sufficient balance was restored. later, in 1976, the days of fixed rates officially came to an end with the jamaica conference - when flexible exchange rates were established..
at this point, we had two options. we could either return to fiscal responsibility, or we could abuse our newfound priviledges - we were priviledged because all major foreign economies held dollars as their reserve currency (not gold). it must be human nature or something, but we went the greedy route - exploiting their adherence to the dollar, we began to view balanced budgets are not being very important. the possession of large foreign reserves of dollars has financed both our budget deficit, as well as our account deficit.
and this is where we are today - continuing to exploit foreign "dependency" on dollar denominated assets. |