According to no less a source than Forbes magazine, a U.S. default is no longer a question of if. It’s when. In a July 23 article, Forbes’ Addison Wiggin warned readers not to get caught holding U.S. dollars when the United States government defaults — again.
Daring to challenge the oft-repeated claim that any U.S. default would be a historic first, Wiggin points out that the United States has in fact defaulted several times in the past, such as when the federal government failed to redeem dollars for gold during the Civil War and the Great Depression. The latter default, when FDR took the United States off the gold standard rather than honor in full debts incurred during World War I and the Roaring Twenties, resulted in the U.S. dollar’s losing about 40 percent of its purchasing power. That default occurred in the context of a worldwide flight from the gold standard (technically, the gold-exchange standard in Europe; England and most of the rest of Europe had abandoned a full gold standard before the war, and never returned to it, substituting for circulating gold coinage the dubious promise to investors and foreign states to redeem currency in gold). And Wiggin might also have mentioned Nixon’s closing of the gold window — the final end to the U.S. gold standard — as a result of our inability to fully service debts incurred to fight the Vietnam War. That little parlor trick turned into roughly a dozen years of recession and stagflation, and is the real starting point of the bubble that led to the ongoing economic collapse.
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