The World’s Economy:
A Look at the Current Global Economic Crisis
Abstract
The global economic crisis has been linked to two specific events in history. The first being in 1933 when President Roosevelt took away the American’s right to exchange paper money for gold and the second when President Richard Nixon took away foreign government’s rights to exchange paper money for gold. The United States government imports far more than it exports which is another reason the rest of the world’s leading industrial nations are feeling the pinch. The large deficits that are being carried by the leading nations is yet another factor in the current economic crisis.
Keywords: global economic crisis, fiat currency, gold standard
Today’s worldwide economic struggles and high unemployment rates have been closely linked to the abandonment of the gold standard. The gold standard is a system where money is backed by its equivalence in gold. What has resulted from this is a system known as fiat currency. Fiat currency is money that is not backed by a physical commodity such as gold. When a fiat currency system occurs, a government runs the risk of inflation by printing off more paper money than they have commodities to back it up with. In the case of our current global economic crisis, inflation due to this form of currency has provoked a pattern of spending, particularly in the United States, which has added to an already enormous deficit.
Bill Haynes (2005) wrote of two distinctive events in American history that had a direct impact on our current global economic condition. The first was a decision made by President Franklin Roosevelt in 1933 that took away Americans’ right to exchange paper money for gold. The second event was President Richard Nixon’s abandonment of the gold standard in 1971, which denied foreign countries the right to exchange money for gold. These two events have catapulted the world economy into a state of inflation.
The economy we live in today is one where huge deficits are not uncommon among the world’s leading nations. Bailouts are given to the very financial institutions that many feel are responsible for the economic issues we face. And what is perhaps more shocking is the rate at which governments such as the United States are continuing to spend money that is not backed by a physical commodity. Countries are now faced with record unemployment rates, foreclosures are at an all time high and banks are refusing to lend.
Hugo Salinas Price (2010) expressed concern that the American government seems to have no interest in the production of exports, which is greatly outweighed by imports. With the economic struggle that America is facing, it has caused a ripple effect to the industrial countries around the world. The de-industrialization of America began when the fiat currency system came into play. Paper money was limitless and was traded for the goods of other countries, which have escalated into a deeply imbalanced monetary system.
Between a lack of fiscal discipline and a reliance on a fiat currency system, the entire world has felt the effects of downsizing businesses and the closing doors of industries. The false sense of freedom that paper money gave us has come to a close and the world is feeling the harsh reality of an inflated global economy. Fearing the unavoidable hangover of years spent over budget, many hold their breath and wallet for a less than desirable outcome.
References
Haynes, Bill. (2005). Abandoned Gold Standard Guarantees Inflation.
Retrieved from http://www.lewrockwell.com/orig3/haynes2.html.
Price, Hugo Salinas. (2010). Global Financial Crisis for Dummies: Why the
Abandonment of the Gold Standard is Responsible for the World's Sovereign
Debt Crises. Retrieved from http://www.zerohedge.com/article/global-financial-crisis-
dummies-why-abandonment-gold-standard-responsible-worlds-sovereign-d.