Summary Of The Nixon Shock, The End Of Bretton Woods

The Nixon shock, the end of Bretton Woods The rapid industrialization during the late nineteenth century imposed a greater need for countries to expand their economy via global commerce. Moreover, in the United States, the harsh economic realities of the Panic of 1893 encouraged Americans to look for new conduits to stabilize the economy beyond its borders. Consequently, leaders and thinkers in a country rich with isolationist history of avoiding permanent or entangling alliance embraced sympathetic views toward engagement in global commerce. For example, Nichols presented a diverse group of isolationist figures, Senators, Henry Cabot Lodge and William Borah, a noted philosopher and psychologist, William James, a progressive writer, Randolph
the prestige and the benefit of being the world’s undisputed economic power, the title also carried significant responsibilities. Consequently, the task of rebuilding the global infrastructure destroyed by World War II became a U.S. quandary. To accomplish the mission, the U.S. announced the Marshall Aid in 1947, providing Western Europe with $13 billion in aids enabling them to import food, consumer goods and industrial machinery for reconstruction. Moreover, to prevent the spread of communism under a containment policy, the U.S. not only underwrote the reconstruction of Western Europe and Japan, but also the rest of the world. Being the numéraire, while exporting dollars to underwrite the post-war global reconstruction soon proved to be unmanageable contradictions. Indeed, this was the Triffin dilemma, which led to the U.S. carrying a large balance of payments deficit. The consequence of any attempts to correct the balance of payments deficits, was the shortage of dollar which stomped the economic growth and destabilized the global economy. On the other hand, if attempts were not made to correct the deficit, a prolonged deficit would result in the dollar glut that eventually led to the erosion of confidence in the value of the U.S. dollar and undermined the dollar’s role in monetary system. Accordingly, as Western Europe, Japan and other countries recovered from the devastation of World War II with the U.S. help, the balance of
Johnson continued the Kennedy’s administration efforts to correct the balance of payments. For instance, in the State of Union Address on January 8, 1964, President Johnson stated: “We must continue, through such measures as the interest equalization tax, as well as the cooperation of other nations, our recent progress toward balancing our international accounts. This administration must and will preserve the present gold value of the dollar.” In fact, a report from the cabinet committee on balance of payments highlighted the need to maintain wage and price stability, the need to reinforce efforts to increase export, pressing the Congress to appropriate funds by the U.S. Travel Service to promote travel in the United States, and review recommendations of the Presidential Task Force on promoting foreign investment in the U.S., achieve additional savings in the military expenditures. Furthermore, the communication between the Security of Treasury C. Douglas Dillion and President Johnson dated October 30, 1964, indicated that the administration efforts to correct the balance of payments deficit were making impacts. As a result, the deficit was running at an annual rate of $2 billion versus, $3.9 billion and $3.3 billion for 1960 and 1963 respectively. The exports were 12 percent above the previous year and 27 percent above 1960. Additionally, in 1967, the Johnson’s administration supported the creation of an alternative reserve