In 1971 America had a currency crisis. Other nations had stopped accepting our paper dollars as payment for our debts and were demanding gold instead. The problem was that America didn't have enough gold to cover the massive debts being run up because of the war in Vietnam.
What did we do? We simply defaulted on our debt by repudiating the promise to back our currency with gold. The situation was epitomized by Nixon's Treasury Secretary John Connally, when he responded to the complaints of 29 trading and banking allies:
“It may be our currency, but it's your problem.”
37 years of massive budget and trade deficits later it is still our currency and it is still someone else's problem. However, every game must someday end. Eventually the costs of playing the game become so great that the benefits of not playing become attractive.
The world is now approaching a point where it is being forced to make a choice.
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