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How the U.S. Became Banker to the Post-War World (Part 3) Both the international monetary system and American fiscal policy began to change in the 1960s. The system developed at the United Nations Monetary and Financial Conference, held in Bretton Woods, New Hampshire, in July 1944, fixed exchange rates to a dollar backed by gold. It worked successfully for years. But it couldn’t last forever. By 1960, foreign dollar holdings exceeded U.S. gold reserves. The gold drain, in which foreign central banks turned in dollars for gold, had been a constraint on fiscal policy. Deficit Spending Sustaining economic growth was also a top priority, and Kennedy’s administration was the first to wholeheartedly embrace deficit spending as a tool for managing the economy.

Kennedy’s advisers were confident that Keynesian demand management could be used to fine-tune the economy by increasing deficits during slowdowns and reducing them during booms. Kennedy’s successor, Lyndon B. Spending wasn’t the only reason for the gold drain. Breaking Point Reagan Deficits. Abandoning Gold Helped Dollar Gain Preeminence (Part 2) The birth of the U.S. was paid for by both a debauched paper currency and large debts that it soon defaulted on. When Alexander Hamilton became Treasury secretary in 1789, his job was not just restoring the country’s credit by restructuring the debt and imposing new taxes; he also had to clean up the mess that was money in the early U.S.

Hamilton proposed to base the monetary system on both gold and silver. Gold had advantages, including greater stability, he argued, but it would be disruptive to withdraw the large amounts of silver that were already in use. He proposed “ten dollar and one dollar gold pieces, one dollar and ten cent silver pieces, and one cent and one-half cent copper pieces,” and the Mint Act of 1792 largely followed his recommendations. As gold and silver were both widely recognized bases for money at the time, this was relatively uncontroversial. Not Enough Coins Fixed Exchange Rates Clinging to Gold Falling Dollar It wasn’t.

Read more opinion online from Bloomberg View. Bitter Money Fights Shaped U.S History (Part 1): Johnson & Kwak. On June 1, 1812, President James Madison asked Congress to consider a declaration of war against Britain. The Democratic-Republican majority was happy to oblige. Britain’s insults to the U.S. ranged from seizing its ships and forcing its sailors into the Royal Navy to supporting American Indian attacks along the Western frontier. With war approaching, it fell to Treasury Secretary Albert Gallatin to figure out a way to pay for it. Gallatin hoped to borrow the money, but he wanted to raise taxes to cover the interest on the new debt. He worried that, otherwise, bond investors would be unwilling to lend large amounts of money to a young country.

But the war hawks were ideologically and politically opposed to taxes -- particularly the excise (internal trade) taxes that Gallatin favored. As the party of small government, the Democratic-Republicans believed that higher federal taxes were a threat to individual and states’ rights. Too Late After a decade of tight budgets, the U.S. No New Taxes. Bianco & Biderman On Bonds And deBasement. The Big Picture. Neo-Alpha. America's economy: Room to grow. The Keen/Krugman Debate: A Summary. Paul Krugman and Steve Keen have been debating endogenous versus exogenous money – as well as some other issues – for the past few days.

The debate appears to have drawn to close, so here I offer a summary for those who can’t see the wood for the trees. 1. Krugman reads Steve Keen’s paper and rejects it; specifically, he rejects endogenous money, asserting that banks need deposits before they can lend. 2. 3. 4. 5. 6. 7. 8. Looking over the debate, I’d score it to Keen – you might expect that, but I genuinely went through periods where I thought he might be wrong. I can’t help but feel that the orthodox economists were deliberately obfuscating the debate – making it unclear exactly what they advocate, but simultaneously clinging to a core theory and asserting that its critics are attacking a straw man, ignorant of what is ‘added’ at a higher level.

Mark Graph. Japanese Home Price To Income And Rent.