“The history of paper money issued by a government belongs indubitably to the Americans.” ~ John Kenneth Galbraith in Money: Whence It Came, Where It Went.
For thousands of years, money used to be “hard” (i.e., linked to gold or silver). Till the early decades of the twentieth century most nations were using some kind of hard currency. The credit for making money “soft” (i.e., fiat) goes to America. In the 1970s, American president Nixon passed a series of orders which transformed the dollar into a fiat currency. The fait dollar (the paper dollar) had the potential to accommodate unlimited borrowing at low rates and prevent corporations from going bankrupt.
The rise of the paper dollar led to an unprecedented debt-financed boom in America and Western Europe. Some Asian and South American countries also benefited from the boom. But this boom was not based on a rise in economic productivity—it was a fake boom. It was based on massive debt that had become possible with paper currency. This debt should have led to high inflation in America, but the Americans were able to take advantage of the dollar’s status as the Global Reserve Currency to transfer a significant part of their own inflation into other economies.
In the post-gold standard world, the dollar became America’s most lucrative export. The Americans were making money by printing money. Making money by minting or printing money is the world’s oldest scam, and American capitalism prospered from this scam. While paper currency can fuel the domestic economy for a few decades, it has a pernicious impact on the nation’s values and culture.
By the end of the twentieth century it was clear that the debt culture fueled by paper currency had led to a decline in America’s work ethic and moral values. Why should the Americans work hard, take risks, and live morally, when they could make money by printing dollars and using them to raise debt from every part of the globe? Instead of productivity, debt became the fuel of American capitalism. The Americans started believing that they could keep borrowing and spending and that the rain of paper dollars would never end.
The decline in work ethic and moral values had an impact on American wars and industry. Since 1973, the Americans have not won a single war. Their economic competitiveness has declined. The Asian countries—Japan, China, Taiwan, South Korea, and India—have made economic progress, often at the cost of the American economy. American manufacturing and research has moved into Asian countries, and since 2008, the paper dollar has been showing signs of strain. America’s paper currency empire could collapse in 10 years.