People continue to ask me for my opinion of what is happening with the budget deficit and debt ceiling. Why are food prices going up and the cost of gas surging? What is the economic future for our country? I wish I was smart enough to have answers to all these questions…because if I were I would probably be sitting on my own private island.
First, a very quick history lesson. In 1944, after World War II, over 700 world leaders from the over 40 allied nations met in Bretton Woods, New Hampshire for the purpose of stabilizing and reorganizing the world’s economy. As a result of this conference a new postwar monetary policy was developed. It resulted in history’s first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. The result was the creation of the International Monetary Fund (IMF), the World Bank Group, and the General Agreement on Tariffs and Trade (GATT).
At this conference each country agreed to a monetary policy based on the “Gold Standard.” They each agreed to maintain the integrity of their currency based on a fixed price related to one ounce of gold. They also agreed that the U.S. Dollar would become the reserve currency for rest of the sovereign states (which it still is today). In 1971, the U.S. left the “Gold Standard” and allowed our dollar to become “free-floating fiat currency.” Many debate if this was wise move, but it was largely done to grow our economy.