Chapter 52 Start a dollar war

Buying companies in Western Europe at lower prices could generate higher profit margins, so New York banks began to abandon the US market.Because of the war and the collapse of industry, Europe just needed a lot of money at that time.As a result, Europe had to pay very high interest rates, attracting the only "international" currency at the time - the dollar of the big New York banks. For banks such as Chase Manhattan and Citigroup, which took the opportunity to reap huge profits in Europe, investing in Europe is often twice as profitable as investing in municipal bonds to rebuild sewage systems, bridges or homes in the United States.The problem is that Washington, fearful of alienating the powerful New York financial community, refuses to discuss this important issue in any serious way.The funds fled the United States and went abroad to make high profits.

By early 1957, for the first time since World War II, U.S. capital exports exceeded capital imports in quantitative terms. From 1957 to 1965, the net value of US capital exports to Western Europe grew rapidly from less than US$25 billion to more than US$47 billion a year. At that time, this was a very shocking figure. However, if only US dollars were flowing out at that time, the problem would be simpler.The problem is that US gold reserves also began to decline sequentially, sometimes precipitously, especially after 1958.The Bretton Woods monetary system quickly collapsed after the war, but U.S. policymakers didn't care about that.They are listening intently to the banks of New York, and after the 1957 depression, big oil companies and big American corporations are turning to cheap labor markets outside the United States to boost their profit margins.

At the end of the 1950s, the U.S. dollar, as the world currency, once had an absolute advantage in the post-war Bretton Woods system, completely became a bad currency.When Western Europe once again set out to achieve industrial independence, its productivity was far higher than that of the United States, which went from bad to worse until President Kennedy took office in early 1961. In 1944, US negotiators used Bretton Woods to formulate their terms for the postwar international monetary system, and the system they built had a fatal flaw.Bretton Woods was built on the "gold standard" under which all new IMF members had to agree to fix the value of their currencies.However, its monetary value is not directly fixed relative to gold, but directly relative to the dollar, which is equivalent to the fixed value that a fixed weight of gold has, which is $35 per ounce of gold.

The price of $35 per ounce of gold was set by President Roosevelt during the Great Depression in 1934 and has been used ever since.Despite the outbreak of the world wars, and the rapid development of the world economy after the war, the dollar-to-gold ratio has remained unchanged for more than 25 years. These fundamental flaws can be ignored as long as the United States remains the only economic power in the Western world.In the decade after the war, dollars were desperately needed for rebuilding Europe and for economic recovery to buy oil from the United States and Britain, which held the vast majority of the world's gold reserves.But by the early 1960s, when the European economy began to grow faster than that of the United States, it became increasingly clear to many that certain arrangements fixed in Bretton Woods had to change.

But Washington, under the growing influence of New York banking circles, refused to play by the rules it had imposed on the Confederates in 1944.The Bank of New York began to invest in new resources abroad and to reap higher profits.The two administrations of Eisenhower and Kennedy failed to effectively prevent a large number of investment outflows, which was the crux of the international currency crisis in the 1960s. International bankers in New York are in no rush to advertise because they don't rely on investing in America's future for huge profits.According to the presidential report submitted to Congress in January 1967, between 1962 and 1965, the profitability of American companies investing in Western Europe was between 12% and 14%.And the same investment in American industry is less than half as profitable as in Western Europe!

The banking industry has quietly lobbied Washington to keep the current policy.They continue to hold dollars in Europe and are in no rush to send profits back to the US to invest in US development.This was the beginning of the Eurodollar market.It was the sticking point that threatened the entire world monetary system by the end of the 1970s. Of course, if the U.S. Congress and the White House insist on using tax and credit policies to direct these dollars at a fair rate of return to investment in U.S. factory and equipment, advanced technology, transportation infrastructure, and investment in modernizing the aging railroad system, Investing in developing Third World markets with huge export potential for U.S. industry is good for the U.S. and the world.For the United States, this may be the wiser choice, but for some powerful New York banks, it is not the case.

If, over a period of time, say ten years, a country produces the same quantity of marketable goods at the same level of technology, but issues twice as much money as the total value of the goods at prices at the beginning of the decade, "consumption The author called this result a huge price inflation.For example, a slice of bread cost two dollars in 1960, but the same loaf cost only one dollar in 1950.Because of the dominance of the dollar, inflation will be hidden for longer when the effects are felt around the world.However, the results will be more damaging. Under the advice of senior counselors, President Lyndon Johnson overturned President John F. Kennedy's decision as soon as he took office.Johnson was a politician from a small Texas backwoods town with little knowledge of international politics, let alone monetary policy.President Johnson was deliberately misled into believing that launching an all-out military war in Southeast Asia would solve many of the problems of America's economic stagnation and would show the world that America still had solutions to real problems.