WTF Happened in 1971?
Most of these graphs can be explained by the Nixon shock as other people have mentioned. This also factored into what is considered backing a currency, in this case the global reserve currency. Leading up to the “Nixon shock” there was a decades long move away from direct gold to dollar conversion. The replacement was the petrodollar combined with the move to more of a fiat reserve currency. Then you had a geopolitical struggle over the 1970s with oil producing countries that exists to this day. By 1979, Iran’s revolutipn happened which pushed the U.S. closer to the Saudis, cementing the defense agreement that had been in place for decades, itself mirroring one the British had with the House of Saud. The petrodollar concept underpinned much of the next few decades and we have only begun moving away from it.<p>Since the debate at the end of WW2 that led to Bretton Woods, which currency or the Bancor would handle reserve currency functions, in addition to the petrodollar, the U.S. bond and treasuries specifically have been closely tied to this system. Also during the 70s, you had China begin opening up, then as a way to kind of solve the trifflin dilemma, the U.S. would grow the world economy being an importer, so long as the money found its way back with treasuries and other foreign investments. Japan began playing a bigger role here too and as everyone continued industrualizing and globalizing, the U.S. economy grew along with it because of this system. It was also a great way to sort of export inflation along the way too. A big problem in the 70s that we are seeing again today.<p>So if a big crash is coming, expect another Bretton Woods type agreement first with an attempt to control the strength of the dollar.<p>The difference this time is that there really isn’t another China to bring into this system, and in fact, many foreign countries have looked to avoid using USD all together. Just ask Russia about that.<p>Of course, these are just a few reasons for all of this. There are many factors, like the increase in productivity from computing, and advances in other industries that increased productivity and output.<p>Historically you will see patterns like this, similar ones exist between 1929-1945, 1864-1918, and so on.<p>Unfortunately, everytime this system is challenged, a sort of global reordering, there are economic crashes, and often large wars. We might be seeing another example of this now…