There have been many ups and down within the United States economy that have effected why our economy is the way it is today. Being knowledgeable about what went wrong in the past can help the United States not make the same mistakes in the future. Although the Bretton Woods Agreement seemed logical at the time it was established we soon find out the effects it had on the economy when it all came crashing down. So now the questions we need to ask are; What is the Bretton Wood Agreement? How did it all come to an end? What effects did it have on the United States economy? These are all questions that people may be wondering about and that will be answered in this paper.
The Bretton Woods Agreement was the turning point system for monetary …show more content…
By the 1960s there was a surplus of the U.S. dollars caused by foreign aid, military spending, and foreign investment which threatened the Bretton Woods system, because the United States did not have enough gold to cover the volume of money in the worldwide circulation at the $35 per ounce exchange rate (Office of the Historian, n.d.). Traders in foreign exchange markets became increasingly inclined to sell dollars based on their belief that the dollars overvaluation would one day compel the United States government to devalue it, which resulted in periodic runs on the dollar (Office of the Historian, n.d.). As a result of these runs, President Nixon announced his New Economic Policy on August 15, 1971. He proposed tax cuts and a 90-day freeze on prices and wages, suspended the dollar’s convertibility into gold, and imposed an extra 10 percent tariff tax on all dutiable imports (Office of the Historian, n.d.). A group of ten industrialized democracies agreed to a new set of fixed exchange rates centered on a devalued dollar in what’s known as the Smithsonian Agreement established in December 1971 (Office of the Historian, n.d.). Unfortunately, the exchange rates put into effect in the Smithsonian Agreement did not last long. …show more content…
While the United States was in the midst of the “Triffin dilemma,” which occurs when a country issues a global reserve currency because of its global importance as a medium of exchange, it was also facing a growing problem of inflation at home (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). At first the Nixon administration and the Federal Reserve believed in a slow gradual approach by lowering inflation with a minimum increase in unemployment and would tolerate an unemployment rate of up to 4.5 percent (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). Unfortunately, by the end of the 1969-1970 recession the unemployment rate had climbed to 6 percent and inflation was at 5.4 percent. President Nixon ordered a 90-day freeze on wages and prices to check inflation, which marked the first time that the government imposed wage and price controls outside of wartime (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). Shortly after the plan was implemented the growth of employment and production in the United Stated increased. Although inflation was practically halted during the 90-day wage/price freeze, it soon reappeared as the monetary momentum in support of inflation had already began (Ghizoni, Nixon Ends
The Bretton Woods Agreement was the turning point system for monetary …show more content…
By the 1960s there was a surplus of the U.S. dollars caused by foreign aid, military spending, and foreign investment which threatened the Bretton Woods system, because the United States did not have enough gold to cover the volume of money in the worldwide circulation at the $35 per ounce exchange rate (Office of the Historian, n.d.). Traders in foreign exchange markets became increasingly inclined to sell dollars based on their belief that the dollars overvaluation would one day compel the United States government to devalue it, which resulted in periodic runs on the dollar (Office of the Historian, n.d.). As a result of these runs, President Nixon announced his New Economic Policy on August 15, 1971. He proposed tax cuts and a 90-day freeze on prices and wages, suspended the dollar’s convertibility into gold, and imposed an extra 10 percent tariff tax on all dutiable imports (Office of the Historian, n.d.). A group of ten industrialized democracies agreed to a new set of fixed exchange rates centered on a devalued dollar in what’s known as the Smithsonian Agreement established in December 1971 (Office of the Historian, n.d.). Unfortunately, the exchange rates put into effect in the Smithsonian Agreement did not last long. …show more content…
While the United States was in the midst of the “Triffin dilemma,” which occurs when a country issues a global reserve currency because of its global importance as a medium of exchange, it was also facing a growing problem of inflation at home (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). At first the Nixon administration and the Federal Reserve believed in a slow gradual approach by lowering inflation with a minimum increase in unemployment and would tolerate an unemployment rate of up to 4.5 percent (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). Unfortunately, by the end of the 1969-1970 recession the unemployment rate had climbed to 6 percent and inflation was at 5.4 percent. President Nixon ordered a 90-day freeze on wages and prices to check inflation, which marked the first time that the government imposed wage and price controls outside of wartime (Ghizoni, Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls, 1971). Shortly after the plan was implemented the growth of employment and production in the United Stated increased. Although inflation was practically halted during the 90-day wage/price freeze, it soon reappeared as the monetary momentum in support of inflation had already began (Ghizoni, Nixon Ends