I'm hardly an expert so I'll welcome someone who is to correct my mistakes. However, the main problem with the gold standard was that it's too easy to corner the market in gold. As new economies gain traction, they have to purchase gold to back up their currencies. However, at the time the liquidity in gold was very, very low because everybody was hording it. This caused the price to spike. Occasionally large amounts of gold would be sold, causing huge dips in the price. Because the currencies were bound to the price of gold, this caused instability in the currencies.
Something like the gold standard works well if you have a zero sum game. As one economy does well, another suffers. Wealth is transferred from one economy to another. However, it doesn't work like that. Especially as Japan was starting to kick into high gear, overall wealth increased.
Lots more interesting reading if you care to dig into what both the US and the USSR were doing with gold reserves at that time. My own impression is that the gold standard was unsustainable and would have resulted in catastrophe if they had persisted. Others clearly disagree. ;-)
Bretton Woods comes with its own problems, though. Making capital available in order to bootstrap growth is kind of an obvious solution from an economic perspective, but I think that making capital too available allows bad actors to play a lot of funny games. (Bad actors being those who optimise for their own gain while intentionally or unintentionally screwing everybody else over). In the west there was a lot of deregulation in the late 90s and early 2000s as well, which has made the problem worse.
Even now, I think that the economic policies of most countries are positively loopy. You've got most of the western world hovering on a knife's edge of personal bankruptcy and most of the growth tied up in extracting even more money from the common people. In Japan (where I live), we've got Abenomics, which is just Reganomics in disguise -- we'll give rich people a lot of money and they will disperse it to the poor people (really, they will... I promise). There is a massive national debt, which isn't actually that bad because taxes are low, but now they've loosened the rules on personal debt and... will normal people actually be able to pay the bills?
So I wouldn't say that Bretton Woods is really at fault, but I'll agree that the subsequent economic policies that Bretton Woods enabled are making it pretty easy to ignore the underlying problems that appear to be getting worse. Whether it all blows up on us in the near future?... No idea.
Just an FYI, the Bretton Woods system was the gold tied system that lasted until the 70's and was discarded for a fully fiat system. From context it seems you're using the reference incorrectly to mean this post gold standard system.
Thanks for that! All this time I thought that Bretton Woods was the name of the meeting that stopped the gold tied system :-P Like I said, it's not my area of expertise. I appreciate the correction.
Something like the gold standard works well if you have a zero sum game. As one economy does well, another suffers. Wealth is transferred from one economy to another. However, it doesn't work like that. Especially as Japan was starting to kick into high gear, overall wealth increased.
Lots more interesting reading if you care to dig into what both the US and the USSR were doing with gold reserves at that time. My own impression is that the gold standard was unsustainable and would have resulted in catastrophe if they had persisted. Others clearly disagree. ;-)
Bretton Woods comes with its own problems, though. Making capital available in order to bootstrap growth is kind of an obvious solution from an economic perspective, but I think that making capital too available allows bad actors to play a lot of funny games. (Bad actors being those who optimise for their own gain while intentionally or unintentionally screwing everybody else over). In the west there was a lot of deregulation in the late 90s and early 2000s as well, which has made the problem worse.
Even now, I think that the economic policies of most countries are positively loopy. You've got most of the western world hovering on a knife's edge of personal bankruptcy and most of the growth tied up in extracting even more money from the common people. In Japan (where I live), we've got Abenomics, which is just Reganomics in disguise -- we'll give rich people a lot of money and they will disperse it to the poor people (really, they will... I promise). There is a massive national debt, which isn't actually that bad because taxes are low, but now they've loosened the rules on personal debt and... will normal people actually be able to pay the bills?
So I wouldn't say that Bretton Woods is really at fault, but I'll agree that the subsequent economic policies that Bretton Woods enabled are making it pretty easy to ignore the underlying problems that appear to be getting worse. Whether it all blows up on us in the near future?... No idea.