The Crash Course - Chapter 9 - Brief History of US Money

Summary

This video script provides an insightful overview of the evolution of the U.S. monetary system, focusing on key historical moments like the creation of the Federal Reserve in 1913, the gold standard's collapse in 1971, and the subsequent rise of fiat currency. It highlights how government actions during crises, such as currency devaluation and gold confiscation, have shaped the modern financial landscape. The script explains how the removal of gold backing and unchecked money printing have led to rapid debt accumulation, inflation, and currency devaluation. It concludes by discussing the potential future consequences of these policies and the global monetary system's uncertain future.

Takeaways

• 😀 The U.S. monetary system has undergone significant changes during times of crisis, often radically altering the rules of the economy.
• 😀 The Federal Reserve was created in 1913 as a federally sponsored banking cartel, not a true government institution, with private banks owning its stock.
• 😀 One of the original goals of the Federal Reserve was to prevent financial panics, but it contributed to the speculative bubble that led to the 1929 stock market crash.
• 😀 In 1933, during the Great Depression, the U.S. government confiscated gold from citizens and devalued the dollar, moving away from the gold standard.
• 😀 Prior to 1933, U.S. paper dollars were backed by gold, with an ounce of gold priced at $21. After the gold seizure, the price was raised to $35 per ounce.
• 😀 The U.S. government effectively defaulted on its gold-backed obligations in 1933, nullifying gold-backed bonds with the Supreme Court's approval.
• 😀 The U.S. dollar was made the global reserve currency at the Bretton Woods Conference in 1944, with a fixed exchange rate to gold at $35 per ounce.
• 😀 The Bretton Woods system collapsed in 1971 when President Nixon ended the U.S. dollar's convertibility into gold, marking the end of the gold standard.
• 😀 The removal of the gold standard allowed the U.S. to print more money without physical constraints, leading to rising federal debt and inflation risks.
• 😀 The U.S. federal debt has grown exponentially since the 1970s, particularly after the end of the gold standard, with significant increases in recent years.
• 😀 The current global monetary system relies on unbacked fiat currencies, and future shifts in the currency system are likely to emerge from another financial crisis.

Q & A

What was the main purpose behind the creation of the Federal Reserve in 1913?

The Federal Reserve was created to stabilize the financial system by serving as a central bank capable of stepping in as a lender of last resort during emergencies, particularly in times of financial panic.

Why was the Federal Reserve's structure controversial?

The Federal Reserve's stock was privately owned by member banks, not the U.S. government, making it a government-sponsored but privately controlled banking cartel, which was seen as problematic by critics.

How did the Federal Reserve contribute to the 1929 stock market crash?

Instead of merely being a lender of last resort, the Federal Reserve fueled a speculative bubble by expanding the money supply, which eventually burst in 1929, leading to widespread financial damage.

What drastic measure did President Roosevelt take in 1933 to combat the Great Depression?

In 1933, Roosevelt ordered the confiscation of privately held gold and devalued the U.S. dollar, severing its link to the gold standard and nullifying gold-backed government contracts.

How did the U.S. dollar’s value change after Roosevelt's gold seizure?

Before the seizure, it took about $21 to buy an ounce of gold. After the seizure, it rose to $35 per ounce, significantly devaluing the dollar and altering its gold-backed value.

What was the Bretton Woods system, and how did it function?

The Bretton Woods system, established in 1944, pegged global currencies to the U.S. dollar, which was redeemable for gold at $35 per ounce, making the U.S. dollar the world’s primary reserve currency.

What caused the collapse of the Bretton Woods system in 1971?

The U.S. faced large deficits, particularly during the Vietnam War, and flooded the world with paper dollars. This led to doubts about the U.S.'s ability to redeem dollars for gold, prompting President Nixon to end the gold standard in 1971.

What were the consequences of Nixon ending the gold standard in 1971?

Ending the gold standard allowed the U.S. to print unlimited amounts of money, leading to rapid inflation, skyrocketing national debt, and the creation of a fiat currency system with no physical backing.

How did the U.S. money supply change after the removal of the gold standard?

After the gold standard was abolished, the money supply began to grow exponentially, as evidenced by charts showing the rapid increase in both federal debt and money in circulation from 1971 onward.

What does the transcript suggest could happen if the U.S. continues its current monetary policy?

The transcript warns that continued money printing without physical backing could lead to hyperinflation, the collapse of the dollar, and a loss of its status as the global reserve currency, potentially triggering a new global monetary system.