The brief history of money that we will present in this page will touch on how the U.S. dollar evolved from a national means of exchange into the accepted reserve currency of most of the developed world. It would take several pages to go through the entire process. I've included a thirty minute video to expand on the historical perspective..
We should begin with the period after World War 1 and then through the era of the first depression. Coming out of that period, much of the economic power in the world was held within a few countries. The leaders of these nations were all hoping to avoid a repeat of that depression, but even more important, they were all angling for a way to get in to foreign markets.
Even before America entered the second world war, President Roosevelt had crafted a plan to gain access to those markets that were previously unavailable. That plan was placed in motion a few years later.
In the summer of 1944, over 700 delegates from 44 countries gathered at Bretton Woods New Hampshire to hammer out this new system of worldwide finance. They didn't agree on every detail but they did all agree to peg their respective currencies to a set price for an ounce of gold.
This worked pretty well until some of the countries in the world began to wonder why so much of the world's gold was held in America and Great Britain. Some of them wanted it back. Since the theory was that every dollar printed was backed by physical gold, anyone could turn in a dollar and they would get the value back in gold.
The history of money was about to change again. America was printing more money than it could back with physical gold as it tried to finance the Vietnam War. Amounts of physical gold were diminishing, so Richard Nixon made a fateful and historic decision. He took America off the gold standard in 1971. And he stopped the policy of exchanging physical gold for dollars. The beginning of the current fiat currency system was unleashed. The Bretton Woods agreement was abandoned.
There was a time when America was making half the manufactured goods in the world, was running huge trade surpluses and held 60% of the physical gold in the world.
It is interesting to note that John F. Kennedy sent out warnings about high taxation, negative trade deficits and increasing national debt a decade before Nixon's decision. History paints President Kennedy as a liberal politician and many current liberal leaning people claim to represent Kennedy's economic position.
In act JFK was in favor of lowering taxes to encourage investment. He was also adamant about not sending troops into Vietnam. He didn't want a war on the other side of the world. And he saw the cost as unsustainable and budget busting. The history of money was once again effected on November 22nd, 1963 in Dallas Texas. As were the lives of 58,000 American soldiers.
So now we're at a point where we have a deficit of over $17 trillion. We face yearly battles about raising debt ceilings rather than balancing costs to meet actual income. We have a system in place that rewards very large banks connected to the federal reserve. This system was put in place in 1913 during secret meetings on Jekyll Island.
And we face a changing landscape when it comes to nation's ways of paying for things between each other. No longer is the U.S. dollar the only method of payment.
The chart above this paragraph shows the growth of the dim sum bond market. The yuan is the traded currency in these bonds.
In his book "America 2020", Porter Stansberry states that this chart "represents the biggest threat to your wealth. It represents the growth in issuance of dim sum bonds...It won't be long before more corporate bonds are issued in yuan than in the dollar."
I'm not sure if I believe that scenario, but given the fact that China is steadily increasing it's gold holding, we cannot look past a situation where the yuan is actually backed by physical gold just as the dollar was prior to 1971.
I have great respect for Harry Dent, author of the "The Roaring 2000s." He rails against any fear of a dollar collapse. He sees the U.S. dollar as the safest of all safe havens. He feels the dollar will survive all the economic turmoil that is ahead and fully expects deflation to take hold in a way similar to the first depression.
I have great respect for Mike Maloney, author of "Guide To Investing In Gold And Silver." He expects a dollar collapse. He sees other countries already setting up alternate means of exchange and expects a loss of confidence in America's ability to honor this massive national debt.
We've never been in this type of economic calamity so the next chapter of the history of money is hard to predict. We've had governments print fiat currency to finance wars in the past. But we haven't seen a time where an American government and it's central bank have produced so much fiat currency and flooded the world with currency.
I can see a scenario where both Harry Dent and Mike Maloney are correct. I can see a devastating deflationary period. I can see elected officials tinkering further with the ideas of free market capitalism and replacing deflation with runaway inflation.
The next chapter of the history of money is unfolding right in front of us. I'm hoping that even if you don't agree with this page, it will encourage you to read as much as you can. Knowledge is the means to protect yourself. Spend thirty minutes watching the next video. You may not agree with the content. And you may be correct.
But you will have gained some more knowledge and advanced your financial literacy. That is part of the mission statement at books-empower.com.
To see the other videos in Mike Maloney's six part series, please go to the resource library. I've also linked this page to the "Teach Your Children Well" section of the navigation bar. This information is vital to their financial future. They will bear the costs of dubious decisions from their preceding generation. Understanding the history of money could give them a huge advantage.