[xfs]

I find Yanis Varoufakis' account of the history leading up to the collapse of Bretton Woods very telling:

As the combined costs of the Vietnam War and the Great Society began to mount, the government was forced to generate mountains of US government debt. By the end of the 1960s, many governments began to worry that their own position, which was interlocked with the dollar in the context of the Bretton Woods system, was being undermined. By early 1971, liabilities in dollars exceeded $70 billion when the US government possessed only $12 billion of gold with which to back them up.

The increasing quantity of dollars was flooding world markets, giving rise to inflationary pressures in places like France and Britain. European governments were forced to increase the quantity of their own currencies in order to keep their exchange rate with the dollar constant, as stipulated by the Bretton Woods system. This is the basis for the European charge against the United States that, by pursuing the Vietnam War, it was exporting inflation to the rest of the world.

Beyond mere inflationary concerns, the Europeans and the Japanese feared that the build-up of dollars, against the backdrop of a constant US gold stock, might spark off a run on the dollar which might then force the United States to drop its standing commitment to swapping an ounce of gold for $35, in which case their stored dollars would devalue, eating into their national ‘savings’.

The flaw in the Global Plan was intimately connected to what Valery Giscard d’Estaing, President de Gaulle’s finance minister at the time, called the dollar’s exorbitant privilege: The United States’ unique privilege to print money at will without any global institutionalised constraints. De Gaulle and other European allies (plus various governments of oil producing countries whose oil exports were denominated in dollars) accused the Unites States of building its imperial reach on borrowed money that undermined their countries’ prospects. What they failed to add was that the whole point of the Global Plan was to revolve around a surplus generating United States. When America turned into a deficit nation, the Global Plan could not avoid going into a vicious tail spin.

On 29th November 1967, the British government devalued the pound sterling by 14%, well outside the Bretton Woods 1% limit, triggering a crisis and forcing the United States government to use up to 20% of its entire gold reserves to defend the $35 per ounce of gold peg. On 16th March 1968, representatives of the G7’s Central Banks met to hammer out a compromise. They came to a curious agreement which, on the one hand, retained the official peg of $35 an ounce while, on the other hand, left room for speculators to trade gold at market prices.

https://www.yanisvaroufakis.eu/2011/02/10/surplus-recycling-...

[candiodari]

You can summarise this argument, and several of the other arguments in this thread as: It was large-scale government spending financed by seignorage/inflation instead of taxes that did this. "Free money" for politicians, hidden from the electorate. Not just in America, but as a global phenomenon.

With GREAT emphasis on the fact that is was not the large-scale spending that did it in, but the hidden aspect of it.

You correctly identify the catch-22 for governments: once one government (arguably France I guess, or at least they forced the world to follow them, I guess they didn't start it) showed you could do this, other politicians in other governments had little choice but to follow suit.

In a way you can say that the breaking of the gold standard was the problem. But that's like saying in a heart attack the heart is the problem. It's not wrong, but it's of course not the root cause: it's (usually) the decades-long excess of cholesterol in your arteries, mostly due to unhealthy eating habits, that's where you should look to the root cause. Hiding increasing government expenditures is the root cause.

[pjc50]

> You can summarise this argument, and several of the other arguments in this thread as: It was large-scale government spending financed by seignorage/inflation instead of taxes that did this.

That's the angle that a lot of people want to push, but is it actually correct? What about the trade deficit angle? Especially with regards to oil imports.

[thaumasiotes]

> Beyond mere inflationary concerns, the Europeans and the Japanese feared that the build-up of dollars, against the backdrop of a constant US gold stock, might spark off a run on the dollar which might then force the United States to drop its standing commitment to swapping an ounce of gold for $35, in which case their stored dollars would devalue, eating into their national ‘savings’.

Isn't this an inflationary concern? The problem is that there are too many dollars for the price of gold to stay low. The devaluation has already happened regardless of whether a run has occurred; there is no way to realize the value of your "national 'savings'" without performing the run and dropping the value.

The only way for this concern to make sense is if

(1) You are committed to never spending your "savings", no matter what; but also

(2) You need the paper value of your "savings" to be a particular number, even though you will never do anything with that number other than look at it.

[sroussey]

We are generating mountains of debt yet again, unfortunately.

[webmaven]

> We are generating mountains of debt yet again, unfortunately.

We never really stopped.