U.S. Dollar & The Great Recession

The Evolution of the U.S. Dollar

Understanding the impact of the U.S. dollar on global trade and its evolution over time.

The Evolution of the U.S. Dollar

The U.S. dollar has transitioned from the gold standard in 1971 to become a global currency accepted for trade worldwide. It holds immense power as the most popular global currency and has been adopted by several other countries.


Today, the U.S. dollar plays a crucial role in international trade.

U.S. Dollar: Global Currency

The U.S. dollar is the most popular global currency.
- It is widely accepted in international trade, making it a preferred medium of exchange.
- Its stability and widespread use contribute to its dominance.

The dollar's influence extends beyond the United States, impacting economies worldwide.

Many countries hold U.S. dollars as foreign reserves. The dollar's status as a global currency has significant implications for global financial markets and trade relationships.

Multiple Choice

What role does the U.S. dollar play in international trade?

• It is no longer accepted as a global currency

• It is the most popular global currency

• It is only accepted in the United States

• It has lost its power as a global currency

• Countries wanting gold in exchange for dollar led to the abandonment of the gold standard for the U.S. dollar

• President Nixon was prompted to abandon the gold standard.

The initial abandonment of the gold standard created stagflation, but over the strength of the U.S. economy has resulted in a strong dollar.

​End of the Gold Standard

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Countries wanting ​

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in exchange for dollars, prompted Nixon to abandon the Gold Standard. This resulted in ​

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stagflation.

U.S. Dollar and the Buisness Cycle

• Periodic economic crises in the United States, such as in 2008, affect the dollar's value in international markets.
  

  • Real estate prices ballooned, in part by lax lending 

  • Banks lowered their standards because companies would bundle the mortgages and sell them as mortgage-backed securities (similar to a bond)

  • The easy profits encouraged banks to generate more mortgages by lowering their lending standards, which drove house prices even higher 

Multiple Choice

What led to the real estate price increase and the creation of mortgage-backed securities?

• The periodic economic crises in the United States

• The easy monetary policy

• The strength of the U.S. economy

• The lowering of bank standards

​Real Estate Bubble Burst

• When real estate bubble burst, falling prices lead to foreclosures

• Mortgage-backed securities changed from “hot-investment” to “toxic-asset” 

• Critics say that the crisis could have been avoided if government watchdogs had done their job properly, others say deregulation allowed banks to take risks that led to the crisis

Reorder

Reorder the following

• companies would bundle the mortgages and sell them as mortgage-backed securities

• easy profits encouraged banks to generate more mortgages by lowering their lending standards,

• This drove house prices even higher

• • Th real estate bubble burst, falling prices lead to foreclosures

• The economy went into the "Great Recession"

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Open Ended

What does the cartoon imply about bank lending practices during the housing boom?