50 years of dollar as fiat currency

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ppbob
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50 years of dollar as fiat currency

Post by ppbob » Fri Aug 13, 2021 11:10 pm

Fifty years ago, on Sunday evening, August 15, 1971, after crisis meetings with close advisers at Camp David, President Richard Nixon announced an historic decision in his “Address to the Nation Outlining a New Economic Policy.”

Said Nixon to the nation, “The speculators have been waging an all-out war on the American dollar,” and that to “protect the dollar from the attacks of the international money speculators” would take “bold action.” “Accordingly,” he announced, “I have directed [Treasury] Secretary Connolly to suspend temporarily the convertibility of the dollar into gold.” The suspension of course turned out to be permanent. Today everybody considers it normal and almost nobody even imagines the slightest possibility of reversing it.
....
The distinguished economist and scholar of financial crises, Robert Aliber, pointedly observed that the Nixonian system of pure fiat money and floating exchange rates has been marked by a recurring series of financial crises around the world. Such crises erupted in the 1970s, 1980s, 1990s, 2000s, and 2010s.
There’s no going back and we have to cope with the monetary system we have.



https://lawliberty.org/fifty-years-without-gold/
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Re: 50 years of dollar as fiat currency

Post by ppbob » Sun Aug 15, 2021 2:09 pm

Interesting article by Steven Hayward about the context of Nixon's decision. I was unaware that it was part of a larger package that included what at the time was huge deficit spending and wage and price controls. These policies lead in no small part to the economic malaise of the 1970s.

It is interesting that the deficits mentioned were between $10 and $20 billion. A rounding error with today's deficits. It shows what happens with fiat currency.

https://www.powerlineblog.com/archives/ ... oday-2.php
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I Shrugged
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Re: 50 years of dollar as fiat currency

Post by I Shrugged » Sun Aug 15, 2021 9:03 pm

Yes under this system we have experienced some novel, spectacular financial crashes. And what do they do? More more more. It’s one of those things in which “more more more” works until it doesn’t. Then it will be very bad.
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Re: 50 years of dollar as fiat currency

Post by D1984 » Mon Aug 16, 2021 8:51 am

I Shrugged wrote:
Sun Aug 15, 2021 9:03 pm
Yes under this system we have experienced some novel, spectacular financial crashes. And what do they do? More more more. It’s one of those things in which “more more more” works until it doesn’t. Then it will be very bad.
1. As compared to the 100% totally non-existent financial panics/crashes that never helped lead to, contribute, or exacerbate depressions (or at least pretty bad recessions) that totally completely never happened in 1796, 1807, 1819, 1825, 1837, 1857, 1873, 1893, 1907, 1910-11, 1929, 1931, 1932, and early 1933? Oh wait. Those actually did happen.

2. We experienced few if any significant financial crashes/panics between the 1940s and, say, 1980. There were stock market declines, consumption and production slumps, falloffs in consumer sentiment, garden-variety recessions, etc during this time period to be sure......but nothing like 1929-33 or 2008-09 or like the financial panics of the 19th century. What was the "magic ingredient" during the time period we had less crashes? Simple. We regulated the ever loving hell out of the financial sector and prevented them from working too much mischief.That probably had more to do with it than being on the gold standard or not having a central bank that could print hundreds of billions of fiat dollars willy-nilly in a printer go brrrr manner.
Last edited by D1984 on Mon Aug 16, 2021 9:15 am, edited 3 times in total.
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Re: 50 years of dollar as fiat currency

Post by Kbg » Mon Aug 16, 2021 8:54 am

AMEN Brother
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Re: 50 years of dollar as fiat currency

Post by ppbob » Mon Aug 16, 2021 9:27 pm

D1984
We experienced few if any significant financial crashes/panics between the 1940s and, say, 1980. There were stock market declines, consumption and production slumps, falloffs in consumer sentiment, garden-variety recessions, etc during this time period to be sure..
Off the top of my head, what about: the inflation of the late 1940s, the 1974 stock market crash, the inflation of the 1970s?
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Re: 50 years of dollar as fiat currency

Post by vnatale » Mon Aug 16, 2021 9:37 pm

ppbob wrote:
Mon Aug 16, 2021 9:27 pm

D1984

We experienced few if any significant financial crashes/panics between the 1940s and, say, 1980. There were stock market declines, consumption and production slumps, falloffs in consumer sentiment, garden-variety recessions, etc during this time period to be sure..


Off the top of my head, what about: the inflation of the late 1940s, the 1974 stock market crash, the inflation of the 1970s?


I was 23 in 1974 and had little money. I was totally unaware that there was a stock market crash. Shouldn't things like the 2008 / 2009 financial crisis be an example of something significant wherein almost the entire adult population was aware it was going on unlike 1974?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: 50 years of dollar as fiat currency

Post by ppbob » Mon Aug 16, 2021 10:43 pm

vnatale wrote:
Mon Aug 16, 2021 9:37 pm

I was 23 in 1974 and had little money. I was totally unaware that there was a stock market crash. Shouldn't things like the 2008 / 2009 financial crisis be an example of something significant wherein almost the entire adult population was aware it was going on unlike 1974?
I think public awareness is a poor criterion for judging the extent of a crisis. The news media of the early 1970s is vastly different from the news media in 2010. There was no Internet, no cable news, no Facebook or Twitter.
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Re: 50 years of dollar as fiat currency

Post by D1984 » Tue Aug 17, 2021 11:27 am

ppbob wrote:
Mon Aug 16, 2021 9:27 pm
D1984
We experienced few if any significant financial crashes/panics between the 1940s and, say, 1980. There were stock market declines, consumption and production slumps, falloffs in consumer sentiment, garden-variety recessions, etc during this time period to be sure..
Off the top of my head, what about: the inflation of the late 1940s, the 1974 stock market crash, the inflation of the 1970s?
1946-47 inflationary period

Inflation: circa 8.6% inflation in 1946 and 14.3% inflation in 1947 is hardly a hyperinflationary economic crisis a la Weimar/Zimbabwe/Venezuela. We increased the US money supply and monetary base a bit over 3X from 1938 to 1945 and yet prices (even including the increase in 1941-45 on top of the increase from 1946-47) didn't even come close to doubling, much less tripling....for the whole period from 1941 to 1947 they increased by around 65%. Did the inflation of 1946-47 (which was less per year on average than that from 1794-95, 1813-14, 1862-65, 1916-1920, and 1978-1981) cause any kind of serious financial crisis or shocks? There was (strictly by real GDP measures) a "recession" of sorts in late 1945 and 1946 but this was mostly driven by two things: One, an economy that had been operating above normal full capacity (in order to produce enough war material to beat the Axis) going back to running at only normal full capacity (i.e. factory workers going from working, say, 55 or 60 hours a week to 40 hours a week) and having to retool and reallocate labor and capital from war production to civilian needs (i.e. factories having to convert back from producing guns/tanks/planes/to making cars/washing machines/refrigerators.....and Rosie the Riveter becoming Rosie the Housewife again); and two, the economy having to find jobs for now-discharged returning GIs. Unemployment increased from around 1.05% in late April/early May 1945 to around 4.3% in May/June 1946 which is hardly another Great Depression (note that 4.3% is lower than unemployment ever was from mid-1970 to the spring of 1998).

Recession: See above; unemployment only reached 4.3% in 1946 and stayed at between 3.1 and 4.7% for 1947 and 1948. Total industrial production indices (even at their lowest in mid-1946 which was as above caused by what might be referred to as a "recession sui generis" or perhaps as a "recession in name only" ) were above their 1929 peak, their early 1937 peak, and their early-mid 1941 reading which was the last mostly peacetime reading as by that time the US had begin converting to war production (first for its allies and by late 1941 for itself).

Financial crisis/credit crunch/market crash leading into/feeding/exacerbating economic recession: Nope, we did have stock market declines through June-November of 1946 but this was (mostly) a grind downward with only a few sharp falls and it was nothing like 1929, early 1930-March 1933, 2008-09, or even early 1937-mid 1938. As for the financial markets in 1946-47 besides stocks, there was little or no disruption in either the Treasury market, commercial paper/money market, or corporate bond markets during these years. Rates did rise a bit but it wasn't due to any kind of credit crunch or credit crisis like happened regularly in the 19th century through 1933 or in 2008 when the commercial paper markets and corporate credit markets nearly froze up.

In short, the inflation of the immediate postwar era in the mid-late 1940s was not an example of a financial panic of any kind.

1974 stock market crash

Oct-Nov 1973 to late 1974 did have some days or weeks with sudden market breaks down but it was also largely an example of a bear market that consisted mostly of a "my God will this ever end" slow grind downwards. IIRC none of the top 25 or 30 days in percentage term declines happened in 1974. There was a bit of market turbulence in late Oct to Nov 1973 (oil embargo) and again at the very end of Sep 1974 to early Oct 1974 (collapse of Franklin National Bank....which was a bank that--in addition to making some garden-variety bad loans--was owned by a Mafioso and had violated several Federal laws in making risky investments, speculating in forex, and in fact said Mafioso had defrauded the bank on top of all this and then got the bank's president and senior VP to falsify records to try ad cover things up) but by and large the 1973-74 "crash" was more of a steady decline than a sudden sharp crash.

I should also note that the stocks that suffered the worst in 1973-1974 decline were the high-multiple large-cap growth "Nifty Fifty"; small and mid-cap stocks that weren't inflated as much to begin with didn't fall quite as much and value stocks didn't nearly do as badly either (in fact, if you had invested in either the "Small Dogs of the Dow" or "Dogs of the Dow" strategies on 1-1-73 and sold on 12-31-74 you'd have--counting reinvested dividends--been at basically breakeven in nominal terms...and this was at the market's near nadir and doesn't count the 1975-76 bull market at all).

There was a recession from late 1973 through 1974 but that was (mostly) caused by an exogenous external shock (the oil crisis and embargo) and not due to any financial panic or market crash a la 1929 or 2008; rates did rise with inflation (and tighter money and higher short-term rates by the Fed) but there was never any lock-up/freeze up of any financial market during this time.


Inflation/stagflation of the mid to late 1970s into 1980

There was never even an actual recession (much less a bad recession or a depression) from early 1975 to year-end 1979. There was slow average real GDP growth (well, slow at least compared to the 1947-73 postwar boom period) but much of this was likely due to the productivity growth slowdown that started in mid-1976 and continued until 1982 or early 1983; in fact, productivity growth (in terms of output per hour per person worked) would remain somewhat sluggish until the 1996-2004 computer/internet/technology boom again brought robust productivity gains). There was a recession in 1980 and then one in mid-1981 through late 1982 but this was due to the Volcker fed hiking rates to 20% plus to stop inflation; it was not due to any financial crisis that caused a market crash and financial markets freeze-up/credit crunch, which led to decreases in business spending, consumer spending, consumer confidence, production, and employment, which in turn helped lead to further declines in these indicators, and so on, as happened in 1819, 1837, 1857, 1873, 1893, several times in various waves between 1929 and 1933, and the late summer of 2008 to early 2009.

The recessions from 1947 to 1990 were mostly garden-variety recessions caused by the Fed raising rates to cool an overheated economy rather than by any kind of self-reinforcing feedback loop that involved a financial crisis. We kept the financial markets heavily regulated during most of this time (1990 and 2001 were kind of unique cases; while each did have some elements of a market decline or crash associated with them it wasn't nearly to the degree that, say, the Panic of 1893, the Great Depression, or 2008-09 did) and as a result tended not to suffer recessions caused by financial panics/crashes like we had in the "good old days" of hard money and the gold standard (or for that matter during the 2008-09 crash capping the era of deregulated finance that was allowed to run wild).
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Re: 50 years of dollar as fiat currency

Post by vnatale » Tue Aug 17, 2021 1:12 pm

ppbob wrote:
Mon Aug 16, 2021 10:43 pm

vnatale wrote:
Mon Aug 16, 2021 9:37 pm


I was 23 in 1974 and had little money. I was totally unaware that there was a stock market crash. Shouldn't things like the 2008 / 2009 financial crisis be an example of something significant wherein almost the entire adult population was aware it was going on unlike 1974?


I think public awareness is a poor criterion for judging the extent of a crisis. The news media of the early 1970s is vastly different from the news media in 2010. There was no Internet, no cable news, no Facebook or Twitter.


I disagree. In Harry's Browne's writings I think he stated to not keep checking your portfolio and don't make any changes unless there was some country or world events that were so momentous that you could not miss knowing about them.

Even now...almost every day of the year I have no idea what happened to the market today, yesterday, last week. Just do not seek that news and it does not come my way. But that decline in February / March 2020 was definitely noticed by me. As was the September 1987 one day decline.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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