Comment by somenameforme | Hacker News Reader

Comment by somenameforme | Hacker News Reader

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But Bretton Woods is indeed the root cause, because the entire system was a bit of a Trojan Horse (or at least turned into one). Why doesn't any random country just go print trillions of dollars, import what they can't locally produce, and boom - call themselves an advanced economy? It's because demand for their currency would plummet in other countries, and in their own country they'd do little but create runaway inflation and probably become the next Zimbabwe.

But when the US did this it was very different because with Bretton Woods we had already established the USD as the global currency to be used in international trade and settlement everywhere. So countries were unable to move away from the dollar as fast as they could other currencies. And in the interim we started setting up the Petrodollar to prevent them from doing this - by making it impossible to buy the most in-demand commodity in anything other than USD - making fighting against the dollar futile.

But one of Biden's many 'accomplishments' was pushing Saudi Arabia far away enough that they chose to not renew the 50 year Petrodollar agreement, which ended on June 9th 2024. This means now that the USD is completely and absolutely free floating with no backing, indirect or direct. And you can see this in which currency countries are holding as a reserve currency. [1] Just before Bretton Woods it was about 85% USD. It then plummeted (after the Bretton Woods default) and then bounced back to reach a peak of 72% in 2001. It's now down to 57% (Wiki table has not been updated with latest numbers) and continuing to steadily decrease.

As soon as a viable alternative currency emerges, the USD will collapse - and this entire economic system alongside it. Trump's ideas aren't so much radical as he is simply saying the quiet parts (probably as a result of intelligence briefings) out loud. This entire thing is why he's threatened 100% tariffs if BRICS countries try to replace the dollar. Of course tariffs from what would be a collapsed economy have far less weight behind them than e.g. the lack of access to oil. So the interesting times we live in are certain to continue for the foreseeable future.

[1] - https://en.wikipedia.org/wiki/Reserve_currency

> This means now that the USD is completely and absolutely free floating with no backing, indirect or direct.

All fiat currencies are backed by the strength of their economies. The US denominates its considerable goods and services in USD. That's not nothing.

Literally all advanced economies use fiat currency, but only one benefits from petrodollars. Shouldn't whatever bad thing you think will happen to the US now already have happened to them?

No, fiat currencies are backed by the belief that the government will not abuse their ability to print money. The reason one backs their currency with a metal or whatever is not because that magically does anything in and of itself. All it does is constrain government's ability to excessively print money (and a guarantee of the continuation of such) which is important because printing money is highly rewarding and incentivizing in the short run, but catastrophically damaging in the long run. If a government acts responsibly with their monetary policy the difference between a fiat and backed currency is academic, outside of the guarantee of this behavior continuing indefinitely.

Most countries in the world have been abusing their currencies as a 'hack' for growth. The need for infinite and accelerating growth to fuel the infinite and accelerating debt caused actually seemed briefly sustainable thanks to the computing and internet revolutions. Granted you still have the zillion other negative effects (as per the wtfhappenedin1971) site, but you can at least keep moving forward because the peasants (who are the most negatively affected) will just take it anyhow, so long as they have bread and circuses.

But as soon as you stop the accelerating growth, you get drowned by your own decades of YOLO debt, faith in the currency collapses, and your economy right alongside.

> No, fiat currencies are backed by the belief that the government will not abuse their ability to print money.

That's part of their value, but not their backing. This is one of the reasons something like a gold standard is nonsensical: the amount of gold a country has is wholly unrelated to its economic strength (I think we agree on this).

> Most countries in the world have been abusing their currencies as a 'hack' for growth.

I don't think there's any evidence for this. AIUI growth is entirely explained by technology (e.g. fracking) and natural resource discovery. From time to time something very bad happens and we dump money into the economy, and depending on what the bad thing was that can be a moral hazard or potentially inflationary, but we've only ever seen that on a very small scale (the COVID stimuli were responsible for a very small proportion of the recent inflation spike).

> Granted you still have the zillion other negative effects (as per the wtfhappenedin1971) site, but you can at least keep moving forward because the peasants (who are the most negatively affected) will just take it anyhow, so long as they have bread and circuses.

Income and wealth inequality aren't the result of printing money, and my evidence here is the robber baron era. This is something else goldbugs never want to reckon with: sure things were pretty good in the post-war expansion, but what about before that? Oh right, the Great Depression... hmm. Oh right the robber baron era... hmm. Oh right, the panics of 1819, 1837, 1857, 1901, 1907, and 1910, the Long Depression in 1873, the financial crisis of 1914, the depression of 1920, the recessions in 1949, 1953, 1958, 1960, and 1969. And that's just the US.

Overall the criticism of floating currencies is fully detached from reality. Countries that use them are super successful, there are no successful countries that don't, the dangers that goldbugs warn about have never occurred and there's no evidence they will. On the other hand, the ability to print money is wildly effective when combating crises. So from a policy perspective, you're asking us to 100% endure depression after depression to avoid downsides that have 0% occurred. Even if you're right and you elect people who think you're right, the first depression will kick you and yours out of power forever.

This is the core problem I have with backseat policy entrepreneurs: they rarely have any (usually zero) appreciation of the issue's complexity. As soon as you try and engage in a detailed discussion, you get mired in moralisms and a total lack of empiricism. This debate inevitably goes down to "debt" and "inflation is the most immoral of taxes" (what a lack of imagination btw; I can think of so many virtuous things to tax) and both are full on polemics you can't at all discuss. Debt bad! Harming wage workers bad! Never mind that between 1971 and now things got infinitely better.

It would be a good idea to site your facts rather than relying on instinct, because I suspect you write be surprised.

For instance this [1] is the US monetary supply. If we only dump money on the economy when "bad things are happening" then it must be assumed that really bad things are always happening, and at a rapidly accelerating rate.

And similarly Wiki has a passable section on the history of wealth inequality in the US [2] : "In the late 18th century, “incomes were more equally distributed in colonial America than in any other place that can be measured,” according to Peter Lindert and Jeffrey Williamson. The richest 1 percent of households held only 8.5% of total income in the late 18th century...

In 1860, the top 1 percent collected almost one-third of property incomes, as compared to 13.7% in 1774. There was a great deal of competition for land in the cities and non-frontier areas during this time period, with those who had already acquired land becoming richer than everyone else. The newly burgeoning financial sector also greatly rewarded the already-wealthy, as they were the only ones financially sound enough to invest.[19]"

And once again many of the problems with our current system are already highly visible, completely quantified, and have clear causal backings.

[1] - https://fred.stlouisfed.org/series/M2SL

[2] - https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite...

You won't catch me defending ZIRP, but other than that and a weird dip in the 90s, M2 seems to track the value of the US economy pretty well. Why didn't things immediately go to shit after Bretton Woods? Why did it take 40 years and huge, long-lived Fed rate cuts before M2 started outpacing GDP? Could it be that floating currencies maybe aren't disastrous?

> And similarly Wiki has a passable section on the history of wealth inequality in the US [2] : "In the late 18th century

I'm not going back to the economy of literally 1774 to find proof that the gold standard works. "Are banks a good idea" is something you'll have to take up with Hamilton, not me.

> And once again many of the problems with our current system are already highly visible, completely quantified, and have clear causal backings.

Again feel free to post any evidence here, or respond to any of my questions (also with evidence).

https://fred.stlouisfed.org/graph/?g=eTtE

> M2 seems to track the value of the US economy pretty well

Ah, now you are seeing! The US prints completely ridiculous amounts of money. The superpower we have/had is to then dump a significant chunk of the resultant inflation onto other countries. So we get to turn a far larger chunk of that printed money into "growth", keep the currency stronger, suffer less inflation, etc than would be true for other countries engaging in identical behavior.

BTW to make sure we're on the same page here. There are two distinct topics at play. One is quality of life for the average person. I think that has stagnated to declined for the plethora of reasons illustrated on the 1971 page. The second is the economic state of the country (as opposed to the people). And that has obviously substantially improved since 1971, particularly with our superpower, but I am arguing that as our ability to export inflation continues to decline we're towards a major inflection point that I suspect will be the end of this economic system.

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