How the U.S. Dollar Came to be the World’s Reserve Currency

The latest news from the U.S. housing market is bad. New house sales are still near their lowest level in 17 years. And the New York Times reports that even the best markets – like Seattle – are beginning to sink. The Times mentions a guess that prices could fall another 10% before stabilizing.

*** Rising consumer prices, combined with stagnant incomes and falling house prices, has the U.S. public in a squeeze. The “middle class is struggling to stay in the same place,” says a report on CNNMoney.

This has to result in lower consumer spending – and an economic slump in the United States. We got evidence of sharply lower spending in yesterday’s driving figures.

Now, we’re going to see it in other areas. Yesterday, for example, Dow Chemical announced price hikes of 20% – which will feed into a whole range of consumer goods, from diapers to detergent.

*** The BRIC nations held an historic meeting in Yekaterinburg, Russia, last week. They’re growing very fast…with rising markets, rising incomes, rising currencies, and rising GDPs. Together, their percentage of total global growth grew 50% between 2000 and 2008.

The BRIC meeting seems intended to remind us that it is a big world…with a lot more going on it than we realize. Economies rise and fall. Nations and empires too. And here is colleague Byron King’s explanation of how the U.S. dollar came to be the world’s reserve currency. (It helps us look ahead…to when the U.S. dollar will no longer be the world’s reserve currency.)

“I have long tried to imagine the discussion at Bretton Woods in July 1944. US, British & Canadian troops had just landed in France. Germany was bleeding white on the Russian Front. The Japanese Empire was dying in the Pacific. Everyone knew that there was hard fighting ahead. But everyone also knew that the Axis was going to be defeated, and the Allied nations would win the war.

“So 730 delegates from 44 Allied nations gathered in New Hampshire to chart the future course of the world monetary system.

“There are, of course, reports and summaries of what people said for the record. But what did the US delegates REALLY say at Bretton Woods? Let’s just imagine…

“‘OK, everyone. Nice to see you all. Hey, did you see the invasion force at Normandy last month? Can you do that? No? Oh. Well, we did that. And we can do it again.’

“‘How about that industrial base back home, eh? Those Rosie the Riveter girls sure can knock out the old landing craft. How’s your industrial base? Oh. Well, that’s OK.

“‘And it’s a good thing we had all those bombers in the 8th Air Force in England, huh? Yep. Those bombers just turn the sky black, don’t they? And how about that steel rain when the bombs come whistling down? You want area bombing? We have area bombing. On a good day, we can do precision bombing too. Can you do precision bombing? No? Oh.’

“‘And we have 200 submarines in the Pacific. Do you have 200 submarines? No? Oh, gee.’

“‘Overall, we have a 2,000 ship navy, with over 100 aircraft carriers. Do you have a 2,000-ship navy, with over 100 aircraft carriers? No? Oh. That’s OK. Not everyone can have a 2,000-ship navy. Or 100 aircraft carriers.’

“‘And have you heard about the B-29? It’s an intercontinental bomber. Yep. Takes off from the U.S., and bombs another continent. We’re going to build a lot of those B-29s. Do you have B-29s? No? Oh.’

“‘And I can’t get into details, but the U.S. has this really big program to develop the next generation of weapons. It’s all classified, so I can’t talk about it. But we have all the best physicists and chemists and mathematicians working on it. Really, there are so many brilliant minds working on it that you just can’t find a decent physicist or chemist or mathematician any more. Do you have one of those programs? No? Oh.’

“‘And how about all that gold in the U.S. government vaults? Back in 1933, President Roosevelt collected all the gold from every person in the United States. All of it. The whole national treasure. It’s all under our control now. The Supreme Court said it was OK, so it’s even legal. Now we have just thousands of tons of gold. Do you have thousands of tons of gold? No? Oh.’

“‘OK everyone, let’s get down to work. I propose that we make the U.S. dollar the world’s reserve currency. Any questions? No? Oh.’”

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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2 Comments on "How the U.S. Dollar Came to be the World’s Reserve Currency"

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Robert Kiyosaki always says that the middle class will be wiped out, and that there will only be 2 groups left- rich and poor. How very scary! How very true!

Smack MacDougal
House prices arise from money bid to buy houses and deed holders offers to sell houses. House prices have nothing to with the sum total of consumer expenditures. What supports Consumer Expenditures is income for cash outlays, income and collateral for credit. It’s the ratio of Money Owed on a Cash Renting Contract (mortgage) to the current Street Price of a hosue in relation to the Cash Renter’s Income that decides whether a Cash Renting Agent will lend money to that Cash Renter (Mortgagee). Folks that borrow cash this way for Hedonistic Buys (holidays, cars, personal water craft, weddings) suffer… Read more »
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