“South of the bor-der, down Mexico way. That’s where I fell in love when the stars came out to play. And now as I wander, my thoughts ever stray, south of the bor-der, down Mexico way”. Jimmy wrote that, in classic Tin Pan Alley fashion, after seeing a post card of Tijuana. He never went there.
“Every gal in Cons-tan-tinople, lives in Istanbul not Con-stan-tinople. So if you've got a date in Cons-tan-tinople, she'll be waiting in Istanbul.” (The name was officially changed in 1930, at the behest of the Turkish Post Office.)
Among the things settled at Bretton Woods was how to structure the world’s economy after World War II. It was clear to everyone that the lead would have to be taken by the United States, because we were the only nation that ended the war with more gold than we had started with. It’s the golden rule; he who has the gold makes the rules. But it just seemed less tacky that the idea would be put forward by a Brit rather than by an American.
So the Bretton Woods accords, presided over by Keynes, tied all of the world’s monetary systems (the pound, the franc, the yen) to the American dollar, because each and every ounce of gold in America’s vaults was officially represented by 35 dollars . And nobody else in the world could make that claim in post WWII. But all things change over time, and eventually we Americans were feeling so rich and all powerful that we tried to pay for our “Great Society” and our Vietnam War both at the same time, and both without raising taxes. You know what? You can’t do that, not in 1969 and not in 2004. No matter how many Republican economists may want to believe that you can, you can’t. Nor can you lower taxes on the top 1% without forcing everybody else to cover their share.
Back in 1969, newly elected Republican President Richard Nixon tried to close the budget deficit Lyndon Johnson created by shutting down many of the anti-poverty programs started by the Democrats. But those programs were far too small a fraction of the Federal budget to stop the bleeding. A Massachusetts Institute of Technology study done in 1971 calculated the real cost of the Vietnam War (in 1971 dollars) was about $750 billion, smaller after inflation than the $750 billion Wall Street bailout thirty-five years later which caused fiscal conservatives to flinch.(“Vietnam; Past and Present” by D.R. SarDeasai).
The pressure by 1970 was for Nixon to increase taxes to pay for the war. But that would have made the war even more unpopular than it already was. Nixon didn't yet have a way to meet his pledge of ending the war “with honor”, so he expanded the war, and he did not raise taxes. Instead he borrowed to pay for the war. Businesses couldn’t expand because the government had sucked up all the credit. Wages were stuck while prices inflated. And, as I recall, that was when hamburger jumped from 35 cents a pound to something closer to a $1.25 a pound. It is was an untenable situation. But “Tricky Dick” eventually found a way to make it "tenable".
In 1971, Nixon ordered that Americans could no buy gold. In the stroke of a pen the dollar was no longer backed by gold. That’s when the treasury stopped issuing real dollars and started issuing “silver certificates” - read your dollar bill sometime. They called it "The Nixon Shock". With no limit on credit, we could afford any war we wanted, and all the Saudi oil we wanted. Economists call the economy Nixon placed us on a “Floating Currency” but I call it the "Good Faith Economy". There is no longer any gold behind your dollar, and, really, there is no silver, either. You trust that your dollar will provide you with goods and services of value because of the economic strength of the American middle class. And you trust is that the bankers and the politicians will not destroy the middle class. Unfortunately, the 1% have figured out a way to profit by doing just that.
I don’t blame Nixon for our current economic mess. Politicians are not hired to create perfect systems, just systems that function for the time being. But what the sub-prime mortgage fiasco has proven, and the dot-com bubble proved before that, and the Savings & Loan debacle proved before that, is that without regulation, and shared sacrifice there can be no trust. To quote Ronald Reagan; “Trust and verify.” And to quote French President Sarkozy, “We must rethink the financial system from scratch, as at Bretton Woods”. And this time we (the United States) ain’t got the gold, so we ain’t making the rules. Those days are past.
Or as Jimmy Kennedy put it, “No, you can't go back to Con-stan-tinople, been a long time gone, Con-stan-tinople, Why did Con-tan-tinople get the works? That’s nobody's business but the Turks.” Words of wisdom to ponder as we enter the woods again.
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