This is an interesting chart. This is a representation of the gross national debt as a percent of the gross domestic product. In other charts, it's not so easy to see the "hole" left behind after WWII. We had tremendous national debt as a result of the huge military expenditures of WWII. In the late 1940's early 1950's there was much discussion about economies; about fiat currency and specie currency; about confidence. In July 1944, at the height of the graph, the US along with 43 (44?) other nations met at Bretton Woods, New Hampshire to lay a new economic framework in order to stabilize the world's economic situation. Two organizations were born of this conference: the International Monetary Fund (IMF)and the International Bank for Reconstruction and Development(IBRD, which is now one of the 5 branches of the World Bank.)
One of the primary purposes was to stabilize exchange rates by linking all the world's currency to a common standard -- an ounce of gold. Of course, the amount in 1944 of $35 for an ounce of gold seems ridiculous now and it was ridiculous then -- it was based on the value of gold from the 1930's however it was not too terribly far off. Thus this was not a real return to specie currency; people could not get and ounce of gold for their money however foreign nationalities still had the right to "cash out" their accounts in gold if they so wished -- our money was "as good as gold" quite literally. Additionally, I believe that an "ounce of gold" was not a true ounce; this is in my memory banks and I cannot find the reference.
This, of course, was not sustainable and it was the insistence that we keep such a low value on an ounce of gold eroded the value of the system; there was two values for gold: first the "Bretton Woods" value and the real market value. If this had been adjusted for inflation, the system could have been workable. But this was not to be.
In 1968, there was a run on gold in London and the London gold pool was closed permanently. Additionally, President Lyndon B. Johnson said in 1967 that:
"The world supply of gold is insufficient to make the present system workable – particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth."
He instituted a series of measures intended to curtail the outflow of US gold. Even though it was the plan of the original Bretton Woods delegates to link all currency in the world to gold, in reality and in practice only the US currency was linked directly to gold and all other currencies linked to the US dollar. In 1971, Nixon "shocked" the world by closing down all gold exchange except on the open market. This in effect unhinged the Bretton Woods framework. He did this in conjunction with a 90-day wage control and price control and a 10% surcharge on imports. The surcharge was lifted by December of that year, but the gold exchange was never reopened.
The US dollar then was no longer a gold standard or even a pseudo-gold standard currency, but exclusively fiat money. However, all other currencies have remained hinged to the US dollar. Therefore, as the US goes, so goes the world.
But there are other "factors" to consider: you have to consider the stability of the native currency and political situations in addition to the stability of the dollar. The "instability factors" multiply. Thus the horrible inflation in Zimbabwe. If it's a little bad in the US it will be a lot bad in less stable countries.
What should our response be? We have a dreadful responsibility. We get so very concerned about our pockets that we lose sight of the millions of inhabitants that our American Dollar can influence. From everyone to whom much has been given, much will be required; and from one to whom much has been entrusted, even more will be demanded. One day an accounting will come; we will reap what we sow. Will it be greed and avarice?