Presenting The Currence Crises, Devaluations And Regime Changes Since The Collapse Of The Gold Standard

Tyler Durden's picture

One of the often repeated "truisms" of modern economics, is that the advent of central banking, and the end of the gold standard ushered in a far more stable, safe and secure financial system. Facts notwithstanding (because hard as we try, we can't find a historic episode where the entire developed world had to coordinate to fund, guarantee and backstop a $30+ trillion global bail out - using even more money created out of thin air, i.e., debt - to prevent the nearly $1 quadrillion derivative complex from collapsing, not to mention the failure of every single modern financial institution, during the gold standard), the reality is just slightly different. As the following table from Bloomberg's Joseph Brusuelas shows, modern "stabilty" is certainly in the eye of the beholder, in this case manifesting itself in countless periods of uni- and multi-lateral currency devaluation, beggar thy neighbor, and currency, trade, and various other types of war.

Here is Brusuelas' personal take on the past 80 years of "stable" central banking and floating exchange rate history:

Tensions between policymakers due to volatility in foreign-exchange markets pale in comparison to those induced by the policies of the Great Depression. That period saw tariff and non-tariff barriers imposed by countries attempting to arrest the economic slide that characterized the global economy in 1929-1939. The coordination between the large global central banks that are engaging in competitive QE has avoided the outbreak of protectionism that was observed during the 1930s. In Thucydides’ History of the Peloponnesian War, he stated: “The strong do what they can and the weak suffer what they must.” As the large central banks attempt to boost their economies via QE, small and developing countries will likely have to  adjust by accepting faster inflation or accommodate to these policy changes by accepting currency appreciation.

Currency warfare summary table:

Keep an eye on the 2007-??? line item. If history is any indication, what follows next will hardly be pleasant for anyone involved.

Source: Bloomberg Brief