The Impatience Of A Young Mind

“Why can’t we just write all the other countries a big check? Get them off our backs?” [The Wiggin Sessions] September 09, 2022 [WEBSITE]( | [UNSUBSCRIBE]( The Impatience Of A Young Mind “The foundation of every state is the education of its youth.” - Diogenes, a really old wise guy [Addison Wiggin] Addison Wiggin Dear Reader, Today, my twenty-two year old son Henry asked me why running a Budget Deficit is a bad thing. He said he was talking about it with his buddies – God help them! – because they’re trying to figure out how to survive this economic environment. “Why can’t we just write all the other countries a big check? Get them off our backs?” He said innocently. I think he had one too many to drink. Today, being 3am. And from the sounds of it, just outside of a bar in New York. The impatience of a young mind. Young people – like my son, God bless him! – think we can solve all our fiscal difficulties in a night. I don’t know if he’ll read this. He should. I remember thinking I could solve the world at night, too! Last week. Like most Federal monetary policy decisions, precedent takes center stage. Our current situation is the result of decades and decades of poor decisions. So we go back to the history books, and take notes. Creation of the Bretton Woods System, 1944 (Source: Federal Reserve History) Bear with me. Leading up to the Bretton Woods Accord in 1944, the United States was running up a fat budget deficit. Meaning, as a country, we were spending more than we were making. In the 60s, waging a War on Poverty, Johnson proposed “The Great Society.” And all was supposed to be glorious and good as can be. The Baby Boomers were born. People took care of their lawns. Budweiser was everyone’s favorite beer. Things looked good. To President Johnson, that meant spending inordinate amounts of money on raising the standard of living across the country was the answer. Trouble is, under the Bretton Woods system, if other countries like France or Germany wanted to redeem their paper dollars for gold bars at “The Gold Window,” they could. Easy peasy. Back to the bar scene last night: “What’s wrong with a budget deficit?” Henry asks. Here’s where the story gets good. During the Era of the Gold Exchange, the world’s trade goliaths could hold each other accountable. For even more ease, we nicked this directly from the [International Monetary Fund’s website]( explaining why the Bretton Woods accord fell apart: The efforts to mend the Bretton Woods exchange-rate system were no match for the severe exchange-rate crises of the late 1960s. Continual balance of payments deficits finally forced Britain to devalue the pound in 1967. People speculated that the dollar might soon follow. Private holders rushed to exchange their dollars for gold. As a result, in 1968, the United States stopped redeeming privately held dollars for gold. Only central banks could still redeem their dollars at the fixed rate of $35 per ounce. Unable to get gold, private holders now sold their dollars for stronger currencies, such as the German mark, the Japanese yen, the Swiss franc, and the Dutch guilder. For a time, many central banks, particularly the West German Bundesbank and the Bank of Japan, bought dollars to defend the U.S. currency and keep their own currencies from appreciating. This ended in May 1971, when the central banks began to redeem their dollar reserves for ever greater quantities of U.S. gold. U.S. gold reserves were vanishing. If dollar redemption continued, they would soon be gone! “Today,” [Jim Rickards, our Wiggin Sessions guest this week]( states, “the U.S. dollar is completely disconnected from the profligate spending of its government.” When the world financial system feels pressure, when the Chinese begin to get nervous, when the Saudi sheiks fear for their Rolls Royces, they bail out of speculative assets like cryptocurrencies and meme stocks and pile into dollars. Or, for that matter, commodities which require the purchase of dollars first. Even after writing a book called [The Demise of The Dollar]( and publishing its second edition in 2008 before the Lehman Moment, I still was astounded to see the U.S. dollar rally 22% against a basket of currencies in September of that very year. What is propping all this up? How weak are the stilts? The fact that our young ones still think we can pay our way out of this debacle… It’s sad really. Rickards continues: The entire international monetary system is driven not by the Fed, but by your dollars, by money that banks lend to each other so that they can support their balance sheets and lend to customers or offer transactions to customers if they will. And the main transaction that the 800 pound gorilla, if you will, is approximately one quadrillion dollars of derivatives. Options, futures, forwards, swaps, swaptions, I could go on… A lot of millennials even opened accounts on Robinhood and started trading cryptos. They could kiss that money goodbye. Right now, if we use a [rallying dollar]( despite very poor fundamentals, as a bellwether for a financial panic, well… sounds like the bell is ringing. “Now we're back to 2008,” says Jim, “This wouldn't look like 2020, this would look like 2008, except worse.” So it goes, [Addison Wiggin] Addison Wiggin Founder, The Wiggin Sessions P.S. Regarding our response to reader Shirley N. yesterday, Todd G. writes “Broken clocks or not, you all deliver entertaining articles and food for thought. “And I sincerely appreciate your proper usage of (American) English. In this age of dumbed down, overly familiar marketing emails your well-written pieces are always welcome in my inbox. [“Keep doing what you do.”]( Thank you, sir, and a well appreciated email this morning after my dismal showing on the tennis court. Sponsored by Legacy Research [Click here to learn more]( A new “boots on the ground” investigation reveals Americans will be forced to make a drastic decision… Become one of the ‘new poor’ in America… Or the ‘new rich’. While everyone else could end up in “Permanent Recession”. [Click Here To Get The Details.]( Ed note: Got something to say? 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