🌊 Will BRICS Beat the Dollar?

Did someone forward you this? Subscribe here free!

By Max Frost

History makes the news: In this weekly series, we look at a historical event and how it has shaped the world today. This is part 3 of our trilogy on how the dollar took over the world. Part 1 looked at Bretton Woods and Part 2 looked at the Nixon Shock. Today, we examine whether the days of dollar dominance are numbered – and what could come next.

This July, the BRICS nations will meet in Brazil. Among various points on their agenda will be currency – specifically, how to decrease their reliance on the US dollar. Decades ago, a rival to the dollar was unthinkable. Today, BRICS members – including Brazil, China, and Russia – are trying to make it happen. If they succeed, America’s economy will never be the same. 

Until 1971, there was only so much the US could borrow. From 1944 until then, the US promised to exchange gold for dollars at $35 an ounce. If the US borrowed too much, it wouldn’t have enough gold to pay out.  

Buckling under Vietnam War spending and Lyndon B. Johnson’s “Great Society” welfare programs, the US could no longer defend this policy. In 1971, President Nixon shocked the world by abandoning it altogether. 

And with that, the floodgates opened. 

No more did the US’ gold holdings limit its ability to borrow. Now, it could borrow and print as much as it wanted – and borrow it did. 

Between 1961 and 1971, the US federal debt increased by 37%. Between 1971 and 1981, it increased 150%. By 1991, it had increased another 267%. Its growth has continued to accelerate since, hitting $35T last year, nearly 100x the federal debt in 1971. Economic growth has not kept pace: America’s debt has grown four times as fast as its economy in the last 50 years.

The upshot is that the US is more indebted than ever before: Its debt-to-GDP ratio is now 124%, versus just 35.6% in 1971. 

Enabling this borrowing spree has been a strong dollar. 

Now, is that changing? And what will happen if it does? 

Editor’s Note

We hope you’ve enjoyed this series. In case you missed parts one (Bretton Woods) or two (The Nixon Shock), read them at those links. If you have thoughts, send them over!

We also hope you enjoy your Sundays. If you want some more weekend reading, check out our five most recent stories below.

• Is There a “White Genocide” in South Africa?

• Trump’s reversal of foreign policy in Saudi Arabia

• Inside Trump’s Crypto Empire

• Trump-themed savings accounts?

• Will Trump Tax the Rich?

See you tomorrow.

—Max and Max