Embark on a riveting exploration of the US dollar’s journey from post-World War II triumph to its current global reserve status. Uncover the pivotal moments, including the Bretton Woods Agreement and the Nixon Shock, shaping our monetary landscape. Discover how the dollar’s detachment from gold led to unchecked money printing and potential repercussions. From the current state of the dollar to the looming threat of a crash, this narrative offers insights, warnings, and practical advice for navigating a potential historical shift. Buckle up for a concise yet comprehensive journey through economic history and the challenges ahead.
How the dollar became a GRC
In 1944, the Bretton Woods Agreement officially set the US dollar as the world’s primary reserve currency. Following the American triumph in World War II, the United States emerged as a global superpower. It actively engaged in global politics and solidified the dollar as a gold-backed global reserve currency. The main reason the USA became victorious in WWII was that America joined relatively late, and mostly focused on supplying allied countries. Europe was left in ruins after the war because of all the fighting. On the other hand, no war was ever started on American land (except for a little island far away from the mainland in Hawaii). It was simply too far away. So America was left with all its infrastructure in takt and no damage to the economy.
Under the war America’s industrial production doubled. Its GDP grew by 47 billion dollars and unemployment dropped to 1.2%. It was also more technically advanced and had the strongest military. While everybody was destroying each other, America grew stronger.
After the war, America committed itself to rebuilding Europe and Japan. It also created new political institutions that favored the United States in those countries. No wonder the value of the dollar went up and in 1944 became to global reserve currency.
The dollar is the global reserve currency
After World War II, the Bretton Woods Agreement established the U.S. dollar as the world’s primary reserve currency. Under this system, other major currencies were pegged to the U.S. dollar, and the dollar itself was tied to gold. This arrangement aimed to stabilize the global economy by promoting exchange rate stability. Or that is at least the story the media will tell you. In reality, it is beneficial for the dollar (people investing in the dollar) to be the central exchange medium for buying gold.
The gold-backed U.S. dollar became the cornerstone of international trade and finance. A person could not simply trade another currency directly for gold. Instead had to first convert to USD and then to gold. However, by the late 1960s, the United States faced economic challenges. These included a growing trade deficit and inflation. Politicians and the rich also got greedy and wanted more money. They came up with the great idea to un-pegg the dollar from gold. In 1971, then-President Richard Nixon announced the suspension of the dollar’s convertibility to gold. This effectively ended the Bretton Woods system.
The move, known as the Nixon Shock, marked the shift from a gold-backed to a fiat currency system. The value of the U.S. dollar was no longer directly tied to a fixed amount of gold. This event significantly impacted the global monetary system and led to the era of freely floating exchange rates.
The transition had profound implications for the role of the U.S. dollar as the world’s reserve currency. It set the stage for the dollar’s continued dominance in international trade and finance. This continued dominance happened despite the dollar no longer being backed by a tangible asset like gold.
The practical result of that was that the US now could print money freely. What this means is that the people printing the money (politicians) could indirectly steal money from people owning dollars. How you may ask? Let me explain.
How rich steal your money
Now, let’s dive into how unpegging the dollar from gold makes you poorer and the rich richer. So imagine this. Me and you make a new currency. We print out 1000 Of that currency and 1 of that coin is worth a gram of gold. You get half and I get half. Now I double the amount of money from 1 000 to 2 000 by printing it. I take 900 of it and give you 100 because I’m nice. It all sounds great, right? you earned 100 and I earned 900 coins. We just both got richer. FALSE! I never created any value when printing the money, and what you did not notice is that 1 coin is now only worth 0.5 grams of gold. This means that you got poorer while I got richer. You can now only buy 600*0.5= 300g gold, and I can buy 14000*5= 700g gold. Before we both could buy 500g of gold, but I was able to steal from you without touching your money.
You see, it’s very hard and obvious to directly steal from you. No politician would break into millions of homes to steal people’s money. But with fiat currency and printing, politicians can effectively do the same thing just by sitting in their chairs.
Remember. It’s never about how much you own, It’s about how big a share of the total you own.
Today’s dollar
The dollar is today worth only about 1% of the amount it was in gold 100 years ago (look at the graph below). This is due to money printing to fund unethical wars and filling undeserving pockets with money. The United States has the largest gross federal debt in the world (debt to itself). I’ll make a separate post about it in the future as it can get very complicated. The debt right now (February 2024) is at 34 trillion dollars and still growing. This is not good at all. All of this and more is leading countries to sell the dollar for a better currency. USA has in many unethical ways tried to postpone its demise. But the inevitable fall of the dollar as the global reserve currency is without a doubt coming very soon.
What this means for you
So what would happen to the regular people if the US dollar crashed and was replaced as the global reserve currency? If you know anything about the 2008 house crash, then I can tell you it will be the same, but much worse. The housing crash was only a crash in the housing sector. Now think the same but for all sectors. Yeah, all sectors. Not only mortgages, but also auto loans, credit, student loans commercial mortgages, equipment loans, and many more.All sectors are incredibly indebted
You might think, “No worries, I’m in Europe (or any other continent). This won’t affect me. It will be just like 2008. Only America gets affected.” Think again. Because of globalization and countries having large amounts of dollars in their banks. The Everything crash will affect all countries that own USD. To understand this better I would recommend watching The Big Short. But don’t watch it just once. Learn from it, and understand every term. Then compare 2008 to today and notice the similarities.
Summary
In summary, everything is going to shit very soon and you should start to prepare yourself. Get strong, learn to survive on your own, secure your wealth, and get ready. This will be the biggest historical event of our lifetime. I will write articles on how you should prepare yourself and how you can secure your wealth. I will teach you everything I know for I truly want you to prosper. The biggest downfall also comes with the biggest opportunities. Listen, observe, be critical, and think for yourself. Be ready and good luck!