Last week, you were introduced to the history of North American economics. You learned about the gold standard and the creation of the Federal Reserve so that you could better understand how real estate operates today. In order to master the present, you need to learn the past. Today, we continue on with the Bretton Woods Act and come up to the present day.
History of Economics: 1944 to 1971 The Bretton Woods Act
The U.S. got itself out of the Great Depression by President Roosevelt devaluing the dollar by almost 50%. This created new demand for U.S. goods from overseas. At the same time, there was a huge influx of gold into the U.S. because of a new price setting of $35 and because of Europe’s fear of Adolf Hitler.
The U.S. became one of the world’s largest holders of gold and remains so today.
In 1944, the Bretton Woods Act decided that all countries would peg their currency to the U.S. dollar. The U.S. would make their currency redeemable in gold at a rate of $35 per ounce.
This existed until 1971 when Richard Nixon closed the “gold exchange window.” The U.S. announced to the world it would no longer exchange its currency for gold. In that instant, all currencies around the world, including the Canadian Dollar, became free-floating “fiat” currencies. They are backed by nothing but U.S. paper. Basically, at this point in history, the U.S. declared bankruptcy, but no one dared call it that.
History of Economics: 1971 to Present Print, Print Away
After 1971 there was nothing keeping the U.S. currency “honest.” They didn’t have to acquire more gold to print currency, so they began printing away.
Politicians could begin promising all sorts of new programs without worrying about how to pay for them. Deficit spending became the new way of life in the U.S. and around the world.
With no checks and balances to spending, it’s proven too tempting for governments to spend irresponsibly. It’s become the public’s expectation that the government should have enough money for every program it wishes.
So, although gold remains a barbaric relic, it does serve its purpose of acting as a store of value. It keeps people “honest” and not spending money that they don’t have.
We now live in an environment where debt levels must increase to maintain our standard of living, strange but true.
If you are thinking of becoming a real estate investor, or you are already an investor and would like to leverage your current investment(s) into more properties, or you are looking to sell one or more of your investment properties, give me a call at 905-683-7800 and I’ll be more than happy to answer any and all of your questions.
Thanks For Reading Today’s BLOG!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
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