Federal monetary policy over the last eight decades has been a model on how to destroy a currency. From a high in 1933, the purchasing power of the American dollar has dropped by 94% in the past 76 years. Accidental? Let’s just say that this was the only ending possible to such an unbroken string of bad economic decisions.
Did we just say ending? Strike that. It’s not over yet.
Let’s take a moment to reflect on exactly how we got here from there. In 1933, President Roosevelt made it illegal for US citizens to own gold. During the early days of 1944, with World War II still raging, the major industrial states of the world met at a hotel in Bretton Woods, New Hampshire, and hammered out an agreement on international monetary policy. Not only did they set up the International Monetary Fund (IMF) and what would eventually become the World Bank Group, the 44 allied nations agreed to terms whereby each nation was responsible for maintaining the exchange rate of its currency within a fixed value, in terms of gold.
The end result was that the United States dollar became the reserve currency of the world, to which other nations pegged the value of their own currency. Presto, the US dollar now occupied the role gold had previously played. Over the years, outflow of gold from the United States and the rise of strong economies in Europe and Japan made the Bretton Woods agreement untenable. By 1971, the US was running was running a trade deficit for the first time in the 20th century and down came the whole house of cards as the fiat currency was born.
