The New Economy & The Challenges It Brings

If you haven’t noticed already, things are very different from how it used to be in the past.

Many people nostalgically say: “The past is long gone”.

Some also say “The past will never come back”.

I tend to agree with them.

Even though I am only 30 years old, I can relate to older, simpler times, when people were less busy, when the cost of living was low and when people used to live in closely-knit communities.

Nowadays things seem to be different.

People, especially those in developed countries, always seem busy; they are always running around. The cost of living has increased & many people aren’t even able to afford a principal residence.

So what changed?

Have people changed, or is there something much more subtle which is the cause of such a radical shift in ideology.

I personally think it comes down to one word: Economy.

The period before 1971 was what I term as the Old Economy.

The Old Economy could be described as comparatively simply, slow & less risky, at least to the masses.

In the Old Economy, you could study hard, ace the exams, graduate & find a good stable job. If you worked hard enough at that job, you would keep on getting promoted until around the age of 65, when you would retire. The great part in those days was that major employers would cut you a check for life i.e. they would take care of you after you retired. This was done through a Defined Benefit retirement plan.

Many employees would become home owners in their late 30s or 40s, make steady mortgage payments on their principle residence and by the time they retired, had a good chunk of equity in their home (if they hadn’t already paid off their mortgage).

In the good old days, many people used to start  at the bottom of the ladder with a specific company & spend their whole life climbing the ladder in a slow & steady manner.

Changing jobs every 2 or 3 years was unheard off and was actually frowned upon. Doing so meant that the employee wasn’t loyal to the company.

Also, since the cost of living was lower in those days, the main bread winner of the family could earn enough to sustain a small family of 4 without both the husband and wife working.

It was an era of relative calm.

The employees were better off in the Old Economy than they are right now.

People had more time to socialize & live life.

Things were generally what we would define as being “good”.

 

On August 15 1971, Richard Nixon made a bold move and took the US dollar off of the gold standard. This event is referred to as the Nixon Shock.

The Nixon Shock meant that the US dollar would be backed by nothing of value, except for the government’s promise to uphold its value.

Since the US dollar was the world reserve currency, other countries around the world moved to freely floating currencies as well.

This resulted in the entire monetary system of the world changing to bring about fiat currencies.

Why the US dollar was taken off the gold standard is not important; what is important are the series of events which happened right after.

 

As you might imagine, removing the dollar from the gold standard meant that the US dollar could have any value the government might assign to it.

This meant that the US government could decide how much the dollars in your wallet were worth.

This also meant that the government could print  as much currency as they wanted since the pegging controls on currency creation were not in effect anymore.

The result: Tons of new currency being printed 1971 on wards.

In the beginning it was all good. T

 

 

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