WTF Happened in 1971? (2019)
Ok i see not many people get this but let me explain how bad things truly are.<p>Ever since the reinaissance nations used gold was the reserve currency in one way or another(the romans also used gold and all other civilizations in fact one of the reasons the byzantine empire survived was because they were forced to adopt gold as a currency since hordes arriving at constantinople were better deal with by bribing them than fighting them and the barbarians demanded gold as payment so they adopted gold as a currency once again).<p>The western roman empire went on hyperinflation and was never able to regain it&#x27;s stability.<p><a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=5YeEGcrinSM" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=5YeEGcrinSM</a><p>Now you may be asking what the hell does rome has to do with the renaissance or gold.
Well gold is a natural currency due to it&#x27;s high stock to flow ratio(the mined stock per year is too small relative to the existing stock) this gives gold a yearly inflation of around 1.50%.<p>The problem with gold is that as a currency it&#x27;s horrible and hard to transport and protect , in fact the byzantines adopted gold as the official currency due to what i mentioned above but the public still had a fiat currency for everything except paying taxes.
So to pay taxes people needed to exchange fiat for gold and then pay the taxes in gold , this gave the government in the eastern roman empire the ability to balance budgets on a currency with 1.50% yearly inflation.<p>So europe ends up getting out of the dark ages and gold is once again a currency, then spain discovers the americas and brings lot&#x27;s of gold to europe destroying it&#x27;s economy since this sudden intro of gold caused massive inflation ironically<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Spanish_treasure_fleet" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Spanish_treasure_fleet</a><p>But it also gave the whole of europe a golden age as a stable and abundant currency was introduced.<p>Eventually in the 19th 20th century gold was used as the reserve of fiat currencies.<p>This meant that governments WERE FORCED to balance budgets since they could not print more gold.<p>So from 19th century to 1939 the world prospered in some way constantly even if with massive wars.
But at the end of the war the powers united at bretton woods to create a new world trade system but there were a few problems.<p>1_The soviets did not attend.
2_They had insane ammount of armies relative to western powers in europe.
3_All western powers minus the usa were destroyed.<p>The idea was to avoid the problems that gold had by creating a global currency called the bancor so central banks could trade with each other and devaluate against that currency if needed.
But the usa smartly opposed this since in the case of the soviets marching west they were the only ones capable of financing the defense of europe.
So at the end on bretton woods instead of the bancor something differnet happened the us dollar was adopted as the reserve currency backed in gold and all other currencies were going to be backed in us dollars.<p>So in the case of a war with the soviets the usa could inflate the usd and break the parity to finance the defense of europe.
But that did not happened directly what happened was that after the korean war and eventually the vietnam war and LBJ programs i may add the usa broke the parity with gold.<p>This was all fine to a certain point until one understand that the usd was convertible to gold and countries like france demanded the gold in exchange of the usd.<p>The game theory behind the bretton woods was simple nations WERE FORCED to balance budgets since they could not print usds and the usa WAS FORCED to balance budgets since it could not print gold.<p>But in 1971 this unbalance was so great that nixon broke the gold standard and the world entered into something that never happened since the dark ages.<p>A system based on nothing and no game theory , the usa could print whatever the hell it wanted and other countries could also print what they wanted since now all currencies were floating against each other.<p>This is all fine if there is demand for those inflated currencies thus globalism and opening china , if the velocity of money goes up it&#x27;s irrelevant to some level how much you print since the demand for said currency also goes up.<p><a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M2V" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M2V</a><p>The problem is that disconnecting currency from gold which had a natural low inflation of 1.50% caused massive damage from a game theory because<p>1_Politicians could inflate without problem
2_Balancing budgets became irrelevant
3_They could change the definition of inflation to hidde the inflation.<p>So first they removed real estate from inflation indexes we went from<p>1_One worker being able to buy a house with two years of minimum wage in 1971
2_One worker needing a good job to buy a house in a 15 years mortgage in 1980
3_One worker needing a really good job to buy a house in a 15 year mortgage in 1990
4_One husband &amp; wife needing to work on good jobs to buy a house in a 30 year mortgage in the 2000s<p>This is happening because currency was disconnected from a real good with low inflation , gold was not used because muh shinny , it was used due to it&#x27;s low inflation.<p>When the dxy index that meassures the value of the us dollar relative to other fiat currencies(that constantly devaluate against the us dollar to keep their parity) shows exactly what i mean.
Every time the dxy goes down bitcoin &amp; ethereum or other cryptocurrencies which now has a low inflation goes up(and so does housing which also has low supply).<p>Basically it&#x27;s a road to hell because every currency is devaluating against each other , the usd &#x2F; euro rate can be the same for 10 years but relative to real estate both have lost their value.
This was not the case before 1971 we are living in an insane experiment and the worse thing is that asset owners benefit from this shit which is leading society into feudalism.<p>As for how do we get out of this , who the hell knows as it seems the elites will introduce ubi to keep capital going up while purchasing power goes down.
Maybe if we are lucky bitcoin takes over and forces politicians to reform this system but otherwise it&#x27;s in their interest to keep it so it&#x27;s hard to say what&#x27;s going to happen.