Schedule a Free Consultation

facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Taking on Debt is Unsustainable.  How Much More Can We Borrow? Thumbnail

Taking on Debt is Unsustainable. How Much More Can We Borrow?

“As good as gold.”

-Charles Dickens


A half century ago we all (unwittingly) became subjects in a vast global experiment, the outcome of which is still in doubt.  August 15, 2021 marks the 50th anniversary of one of the most significant events in global financial history, though one which will probably go unnoticed outside a rarefied cadre of (mostly older) economists.  On that date, President Richard Nixon, in a surprise move originating from a top-secret meeting at Camp David, took the United States off the gold standard, severing the ability of foreign governments to exchange their dollars with the U.S. at a fixed rate of $35 per ounce and launching us into the uncharted waters of unlimited fiat currency.  Also, as a result of the “freeing” of the dollar, the fixed-exchange rate mechanism pegging all currencies to the dollar that was established at Bretton Woods in 1944 ended, creating a system of (mostly) free-floating exchange rates.

The results of these changes in the old post-war order have been far reaching.  As the supply of credit became untethered from the relatively fixed supply of gold, global economic growth soared.  All the gold found and mined in human history (about 6 billion ounces) is only worth $210 billion at $35 per ounce – that’s only 1% of current U.S. GDP!  This limitation was the driver behind Nixon’s decision; in 1971 the U.S. Treasury held only enough gold to redeem a quarter of the dollar reserves held by foreign governments, so remaining on the gold standard was impossible unless we were prepared to undergo another Great (or Greater) Depression.  If we could have remained on the gold standard, we would all be much poorer today as a result. 

However, there have been negative consequences as well.  After a relatively stable economic era, both in the U.S. and globally, between 1945 and 1970, economic crises have become more frequent.  The 1973-74 bear market was one of the worst in history, with the S&P 500 dropping over 50% and marking the first time in over a generation that the market declined in consecutive years.  Severe inflation and soaring interest rates followed (remember 18% 30-year mortgage rates?) and we had to endure a sharp recession (engineered by the Volcker-led Fed in 1980) to get them under control.  Other “bubbles” resulting from easy credit (dot.com stocks in the 90s and housing in the 00s, for example) also led to steep (>50%) market declines.  Debt, both sovereign and private, has exploded.  The U.S. now has a debt/GDP ratio above 100% (and climbing fast) for only the second time in history, the other being right at the end of World War II.


So, the “experiment” continues and no one knows how it will turn out.  How much can we borrow?  Many today act as if the credit well is unlimited, but somehow that doesn’t seem right.  The gold standard was an unsustainable rein on economic growth, but the current regime is also flawed.  Let’s hope we can find a stable middle ground without too much economic pain.  That would indeed be a future “as good as gold”.

Click here to schedule a call with a BWC advisor today.

The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security.

All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice.

About Beirne Wealth Consulting Services, LLC – www.beirnewealth.com

Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor* with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.

*Registration does not imply a level of skill or training.

© 2021 Beirne Wealth Consulting Services, LLC (BWC). All rights reserved. Reproduction or Use without permission is prohibited.