Up until the 1970s the US was a manufacturing power house. We made almost everything and we were the world’s #1 exporter because we were able to produce some of the highest quality goods for the lowest prices, and yet our workers were the highest paid workers in the world.
Prior to the 1970s people would brag about how they bought something imported… It was America that made all the affordable products. Imports were more expensive compared to the stuff we made.
What changed? Well along with the wave of UNCONSTITUTIONAL regulations, We also defaulted on our debt in 1971.
I’ll give you a brief history lesson…
After WW2 we proposed a system called Bretton Woods. The Bretton Woods system made it so that instead of foreign Central Banks backing up their currencies with gold, they would back them up with the dollar and at the time of creation, the dollar was backed up by gold. Of course, that’s the only reason the system made sense, if the dollar was backed by nothing than we couldn’t have conned the world into signing up for this system.
It made sense. Hold dollars because the dollar is backed by Gold, at the time America was the world’s richest country, we had the largest trade surplus, we were the worlds biggest creditor nation, we had 90% of the gold, you can earn interest holding dollars, you can’t holding gold… Good deal for the world right?
Well it was actually a great deal for us, because the minute the government got that privilege they abused it, because now all of the sudden, we could pay for our imports by printing money. Technically the government was supposed to make sure the money was totally backed by gold, but that didn’t stop the government, they just lied. They wrote checks that they couldn’t really cash, assuming that the other countries would just not care, or not notice. Well after the 1960s when spending went through the roof with the Vietnam war, the war on poverty, the gun and butter economy, the great society and all these government programs, we were running large deficits. Some of our creditors began to notice this and realized that we couldn’t possibly have enough gold to back up these IOU’s, which is what Federal Reserve Notes were, they were promises to pay real money (gold).
So rather than acting responsibly and allowing deflation, cutting government spending and doing the right thing, the politicians did the expedient thing and an almost unthinkable thing… They Defaulted. Nixon basically told our Creditors that “We promised to give you gold for your federal reserve notes, we are now going to give you nothing… You can hold on to them if you want, but you are not going to get any gold.”
After that, the dollar lost about 2/3rds during the 1970s. Oil prices went from $3 a barrel to $30 a barrel. The dollar devaluation is why oil prices went up, it wasn’t entirely because of the Arabs, It was because of Nixon and what the government did. It was because of all the money we printed diluted the value of the dollar. Oil Prices didn’t go up at all in terms of gold. The price of Gold went from $35 to $800…
A lot of other interesting things happened in the 1970s as well. Loads of women entered the work force, and it wasn’t because they were liberated. They had been liberated a long time before that. But as a result of all this inflation and all these taxes, husbands could no longer afford to support their families, so the women had to get jobs too just to keep their families afloat.
Look at this Chart.
The red line denotes when the Gold Standard was ended. Notice how wages stop rising with productivity. That is because inflation eroded the value of wages. If you get a 1.5% raise, you are still making less each year. Even the government’s fudged numbers say inflation averages about 3% a year. You would need a 3% raise EVERY YEAR just to make the same amount of money and that is assuming the government’s numbers are accurate (lol).
But the dollar didn’t totally collapse in the early 1980s because Federal Reserve Chairman Volcker raised interest rates to 20% and cooled inflation a little bit and created some confidence in the dollar. So the world continued to function and the dollar still remains the reserve currency of the world.
But the system should have failed, that is the problem. We should have gone back to a gold standard. The problem with the system we have now is that a Swiss Frank or an Aussie Dollar and all these other foreign currencies aren’t backed by gold because they were backed by dollars which were supposed to be backed by gold. But if the GBP is backed by the dollar and the dollar is backed by nothing than the GBP is backed by nothing.
So that is basically when we embarked on this Giant experiment that has failed every time it has been tried. The whole world is now on this Fiat money system… But of course, once the world knew the dollar was backed by nothing, now it was so much easier for the US government to run deficits. Much easier than it was when they had to pretend the dollar was totally backed by gold under the Bretton Woods system. At least back then, when LBJ was ballooning govt spending, he had to worry that a foreign nation might figure out what was going on. So Basically, When we told the world, “you are going to get nothing for your dollars” then there was no limit to how many dollars we could print.
And that is when the US economy began this massive transformation from the world’s biggest creditor, to the world’s biggest debtor. From the worlds biggest exporter, to the worlds biggest importer. Everything changed when we began to live off the printing press and debt. Because when the dollar can be just printed out of thin air and the world is going to take it, we can buy all these products from our trading partners for nothing.
And for a while this system was maintained. But now we have this entire bubble… this entire phony economy that is predicated on Americans borrowing money that we didn’t save, to buy products that we can’t afford and didn’t make. And this whole thing is phony. All of our economic policy today is designed to sustain this. Nobody wants to allow it to be corrected, because the correction happens in a recession.
All this consumption has been financed with debt, it’s not real prosperity. It’s phony. It’s like looking at half of a balance sheet. You are looking at the assets but you are ignoring all the liabilities. Or on an income statement, you look at the income, but you don’t look at the expenses. We are not better off because the GDP went up, we are worse off. Where did that money come from? We borrowed it. And what did we do with it? We spent it on consumption. We didn’t invest it, we don’t have more factory equipment… we blew it. The government blew it.
