As Americans, we have an inherently privileged view of money with the USD being the reserve currency of the world (for now). But, where we live often skews our view of money because we have the benefit of being the world’s reserve currency. How did we become the world’s reserve currency? And what does that mean for other individuals around that world?
The Great British Pound Sterling was the primary reserve currency of much of the world in the 19th century and the first half of the 20th century. With Pound Sterling backed by gold, Britain was the center of global commerce, with most trade transacted in British pounds. Countries around the world would peg their currencies to gold to create stability in currency exchanges.
However, when WWI broke out in 1914, many countries were forced to abandon the gold standard to pay their military expenses with “government notes” or “IOUs”, which devalued their currencies. Britain, facing a similar scenario and wanting to maintain it’s gold standard and position as the reserve currency, found itself borrowing for the first time from the United States which became the lender of choice. By 1919, Great Britain was forced to abandon the gold standard entirely, devaluing its currency and destroying the bank accounts of anyone who transacted or traded in pounds. These series of events created an opening for the U.S. dollar to replace the Pound Sterling as the World Reserve Currency.
25 years later, as we entered WWII, the United States found itself in the position of being the main proprietor of weapons, supplies, and other goods to allied nations, collecting most of its payment in gold. By the end of the war, the United States owned the vast majority of the world’s gold as other nations had depleted their reserves to finance the war.
In 1944, delegates from 44 Allied nations met in Bretton Wood, New Hampshire, to design a system to manage foreign exchange between each other. Because the United States had all the gold, it was determined that the world’s currencies couldn’t be linked to gold, but they could be linked to the U.S. dollar, which was linked to gold.
This event would famously become knows as Bretton Woods Agreement, with the U.S. dollar being officially crowned the world’s reserve currency because the dollar was backed by the largest reserves of Gold. As a result, countries would maintain fixed exchange rates between their currencies and the dollar. In turn, the United States would redeem U.S. dollars for gold on demand. Instead of hoarding gold reserves, countries accumulated reserves of U.S. dollars. Needing a place to store their dollars, countries began buying U.S. Treasury securities, which they considered to be a safe store of money because they were backed by gold.
Throughout the 60’s, demand for U.S. Treasury securities along with the deficit spending required to finance the Vietnam War and the Great Society domestic programs (spending programs on education, medical care, urban problems, rural poverty, and transportation designed to eliminate poverty and racial injustice) introduced by Lyndon B. Johnson caused the United States to flood the market with paper money.
With concerns over the growing debt load and stability of the dollar, the countries began to convert dollar reserves into gold. The demand from allied partners to exchange dollars for gold was so strong, that President Richard Nixon was forced to intervene and de-link the dollar from gold, which led to the floating exchange rates that exist today.
In the swift swoop of a pen, an agreed-upon system of global money exchange that was linked to each other and backed and trusted by something of tangible value as gold was completely upended and shifted to the trust and confidence that the world has in the ability of the United States to pay its debts despite decades of deficit spending, trillions of dollars in foreign debt, and infinite printing of the U.S. dollar.
Now that you have a quick history lesson of how we became the world reserve currency, let’s discuss how currency, bad debt, loss of faith, and devaluation affects other individuals around the world. Our version of the world is very different from people who live under corrupt societies, poorly managed governments and authoritarian regimes that don’t have the luxury of being the world reserve currency or having the ability to print money.
Lebanon’s Currency Plunges, and Protesters Surge Into Streets
Lebanon is probably not on your radar but it’s worth learning more about to observe and understand how decades of mismanagement and corruption and the resulting market-based devaluation of currency can cause the obliteration of purchasing power, ruin, and financial revolution.
Over the past week, Lebanon erupted into a wave of countrywide protests as the citizens blocked roads, burned tires, and rallied against the political elite amid a deepening economic crisis. Even the central bank of Lebanon was set in flames
the protests this past week appeared to be a spontaneous burst of anger from citizens who have watched the government repeatedly fail to carry out reforms while the value of their salaries and savings has dropped (sounds familiar)
the country has been mired in intertwined political and economic crises since protesters took to the streets last fall to denounce the country’s leaders for decades of mismanagement and corruption
The protests began in October but petered out in March amid a government-imposed lockdown aimed at preventing the spread of the coronavirus.
The lockdown accelerated the country’s economic decline. Businesses have closed and unemployment has spiked as the government has cascaded toward insolvency.
In March, Lebanon failed to make a $1.2 billion payment for foreign bonds, the first such default in Lebanon’s history.
the collapse of the Lebanese pound, which the government had kept pegged at 1,500 to the dollar for decades, permitting Lebanese to use the two currencies interchangeably.
Much of the public anger has focused on the banks, which have imposed tight restrictions on dollar withdrawals as the currency dropped 70-percent in value since October
Can you imagine the purchasing power of your money dropping by 70 percent in value in less than 9 months? Everything around you costing almost 3.5x as much. As the domestic currency, the Lebanese pound (LBS) teeters, the citizenry are looking to offload the failing fiat for Bitcoin as a relatively stable alternative. Data from LocalBitcoins indicating that Bitcoin is being sold for LBP39,894,863.99 or $26,000 which is almost 3 times the price of Bitcoin globally.
Bitcoin as a monetary hedge against the failing economic policies of isolated countries is a recurring phenomenon and something we’re seeing in real-time in Lebanon, Argentina, Hong Kong, Venezuela, Nigeria, Chile, Peru, and Guatemala. This is an extremely real problem for individuals around the world living in countries where printing money to escape fiscal and monetary irresponsibility has consequences.
While this is unlikely to happen here in the US anytime soon it would be borderline ignorant and foolish to believe it’s not going to at some point in the future. When it comes to currency failures in world history including almost every empire, collapses are preceded by periods of stability and then occur abruptly.
Alarmingly, while we print money and watch other countries burn, it’s likely we’re in the early stages of our own currency collapse with most people just not paying attention. Right now, we have the least shytty house on a really bad block. The signs are there. I’ve discussed this several times in past posts but I’ll continue to hammer this theme now and in future writing about how printing dollars, wealth inequality, and the financialization of the economy are fucking up the money.
Credit to Tim Wiher for an excellent tweet thread illustrating this point perfectly. I’m just gonna narrate his work with emojis.
Stocks & real estate = 📈, 👜=📉
🏥, 📖, 🏚, 🌮, 🧒🏽= 📈, 🚗, 📺, 📱,🛋= 📉
💰💰💰 vs. 💳😭💳
🇺🇸🐘 vs. 🇺🇸🐎
Unlimited you say…what does that mean for my current dollars?? 😱🤑🤮🤢
Me either Tim, me either… and this is why I Bitcoin and why most of you need to begin the process of getting off zero and having some percentage of your wealth allocated to it. As a non-sovereign, hard cap fixed supply, decentralized, digital store of value, holding Bitocin offers both an insurance policy against the irresponsibility of central banks globally AND as an opt-out of the traditional financial system which is the central source of power for governments and the worsening wealth inequality they foster. If we fix the money, we can fix the world.
Federal Reserve on Wealth Inequality
If you ever want to wonder if the Fed knows what it is doing, perhaps consider this whole thing is either one giant experiment or a controlled looting of the U.S. people. My money is on the latter. Listen to our current Chairman of the Fed trying to discuss how Fed policy, money printing has no effect on wealth inequality. This guy might be the most powerful policymaker in the world and he sounds like a bumbling idiot.
LOL…. How bout some jokes and memes
Watch this bit on money printing. It’s like intellectual finance comedy at its finest
By now everyone has heard about Robinhood traders running the stock market. While the whole day trading thing with kids using Robinhood making millions has been kind of funny, it reminds me of late 2017 runup in crypto before people got really hurt and destroyed. I would not be surprised to see some destruction this week where we hear stories of people losing it all. That being said, this video capturing the day trading phenomenon is too funny not to share.
Speaking of Robinhood, if you haven’t heard by now, Robinhood day traders have been buying up bankrupt shares of Hertz, the rental company that declared last month. Why is this news? Because creditors(bondholders) of Hertz are so shocked that idiots would buy something with ZERO equity value that they are petitioning the judge overseeing the bankruptcy case to let them issue additional shares of worthless stock to raise cash and pay debtors as a cheaper form of financing then a DIP loan to get them through bankruptcy because the equity market is so dumb.
As a former distressed debt trader, that has participated in dozens of bankruptcies, I’ve honestly never read anything more insane and stupid in the finance world and at the same time genius. We can thank the Federal Reserve and Robinhood for the absolute annihilation of orderly markets.
Bitcoin has a peaceful protest
I already wrote plenty about Bitcoin as a peaceful protest in last weeks issue of New Money, but watch this beautiful speech at the #BlackLivesMatter rally in LA last weekend from @iamthecharacter. These are the voices we need to elevate to keep spreading the message and use our tools to build our fair & just society together.
Spread the Word 🗣
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