The BEAT™: From Chaos To Clarity - Themes to Invest In | Feb 2026 | Jim Caron | Morgan Stanley

Image Source: MSIM Portfolio Solutions Group as of February 15, 2026

Excerpt:

MS: For the past few generations, we have been living in a post-Bretton Woods financial era. If you ever took an economics course, you likely heard about Bretton Woods, NH, where in 1944 allied nations came together to decide on a post-war order designed to rebuild global economies. Since the U.S. would clearly emerge as the strongest economy, the U.S. dollar (USD) should then be as strong, designating it as the reserve currency and fully convertible into gold. This meant other currencies would be weaker, enabling these countries to rebuild their export base, manufacturing and economies much more easily.

The agreement was necessary and sound, but with one major drawback: It meant the U.S. would likely run a deficit, something that would need to be handled competently in the post-Bretton Woods period. In fact, the management of this deficit has been the crux of major geo-economic events since the end of World War II (Display 1).

By the late 1960s the U.S. was embroiled in the Vietnam War and faced with a rising deficit. Many other countries saw this as an opportunity to convert their USD into gold, such that U.S. gold reserves dropped precipitously. In the early 1970s U.S. President Nixon considered this a serious threat to national security and terminated the Bretton Woods agreement and the easy conversions. This was a major economic event that ushered in fiat money (i.e., money created and backed by a government) and became know as the Bretton Woods II era.