1971: The Year That Changed Everything

The year 1971 saw the trajectories of nearly every major trend relative to our way of life shift massively.

That year is such a noticeable inflection point in so many data sets, that an intriguing website WTFHappenedIn1971.com has been created to drive the point home.

The website is a parade of data series visually showing how the world changed that year.

Be it income

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/img_0540-1_arrow.jpg” alt="“Productivity vs Compensation chart” width=“1200” height=“873” />

the cost of living

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/img_0681_arrow-1.jpg” alt="“US CPI chart” width=“960” height=“673” />

political polarization

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/ideological-positions.jpg” alt="“Political Polarization chart” width=“1572” height=“644” />

the divorce rate

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/img_0977.jpg” alt="“Divorce rate chart” width=“512” height=“344” />

…and a kitchen sink’s worth of other statistics – from the national debt to deficit spending, childhood obesity, the incarceration rate, energy use per capita – pretty much all aspects of life as we know it changed materially and permanently in the early 1970s.

This week’s guest experts, Ben Prentice and Collin, founders of WTFHappenedIn1971.com, explain how virtually all of these changes are a direct or indirect result of the monetary system “breaking” that year with the Nixon Shock and the end of the Bretton Woods System.

On a personal note, interviewing Ben and Collin was an unexpected pleasure, as I found it encouraging to discover that members of the Millennial generation are engaging with the shortcomings of our modern debt-based fiat currency system with the same passion and critical thinking as we older cohorts. Perhaps the future might just turn out OK in their hands after all…

That said, Ben and Collin echo similar concerns and advice as our previous experts. The system is unfair, unsustainable, and in desperate need of reform. The prudent investor shouldn’t expect any real positive change until a painful enough shock forces an abandonment of the status quo – so it’s best to use the time now to position prudently in advance for that inevitability:


Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.


This is a companion discussion topic for the original entry at https://peakprosperity.com/1971-the-year-that-changed-everything/

I find it strange that an interview by Peak Prosperity would accept uncritically the claim of monetary system break as cause of the the shift in 1971. And what caused the money shift? When we all know that US energy production peaked at the same time?

Energy is the big issue here. Until 1972 the Texas Railroad Commission limited oil production in Texas. And then this:

The Texas Railroad Commission today increased allowable oil production of wells in the state for April to 100 per cent of their “maximum efficient rate” for the first time since 1948. The rate for March was 86 per cent. The action came after executives from the nation's largest oil companies gave rosy forecasts of growing market demands in 1972. But they said domestic production simply could not meet more than a fourth of the 800,000 to 900,000 more barrels a day the nation would use this year than it did in 1971.
https://www.nytimes.com/1972/03/17/archives/texas-oil-rate-at-100-for-first-time-since-48.html OPEC had 2 major price increases in the 1970's. How did Americans respond? The stay at home moms went into the workforce in an attempt to maintain the same standard of living. Worked (sort of) once. Don't think it will play out as well in the future.    

These guys are close. For a smarter, more technical discussion as to “why” listen to hedge fund managers Hendry & Gromen explain it in detail (most people simply don’t have the educational background to understand the economic reasons 1971 is the key year).
I really enjoyed the demographic discussion (I’m only one year off your age Adam, and have the same views of 1971).

Great headline! Looking forward to the interview.
For the US, the only worse year, in terms of long-term ill, is 1913: it birthed the Fed and the income tax, and massive growth in Washington power (to grow further under FDR and LBJ programs).
As a general comment, I have no love for 1971 and its ill effects, but some commentators have compared America before and after 1971, looking at a decade or two on either side. The problem is an anchoring bias. The postwar American boom was a unique event, because WWII took out the manufacturing centers in Europe and Asia. For nearly 20 years the US had no real manufacturing competition, which allowed the US to have a (comparative) golden age. That also meant we could start making promises for future liabilities with the idea that the good times would never end.
So it’s tempting to anchor or baseline what a “healthy” America looked like to the postwar years. But that was never representative of the prior 100 years. A real baseline for expectations of life in America should look from post civil war to the present, and look at what those averages are.
Early, long, and comfortable retirements were never a standard experience, except for a brief period. Same with high-paying Detroit factory jobs that could comfortably support a family of four.
Too many Americans anchor to an idealized, romanticized 1950s world as the norm - but it was always an exception to the longer history.

  • None of this is to diminish the problems coming from 1971. I want to clarify that a common criticism is somewhat false due to the anchoring bias.

Responding to the video comments regarding liquidation of assets during the “great depression,” … conditions are different today.
At the time of the great depression, the federal reserve reduced the money supply. Literally, the average US citizen’s pockets were empty. They did not have any money, not even a penny. There was very little money circulating.
Today, the federal reserve is creating money like a wild banshee. The conditions are different. The US dollar is washing about, almost everywhere.
Will this lead to asset liquidation of the banks and property as in the “great depression?”

The US dollar is washing about, almost everywhere. Will this lead to asset liquidation of the banks and property as in the "great depression?"
No. Watch hedge fund managers Hendry & Gromen explain why in detail. In fact, the USA is a "benevolent hegemony" since 1971, as we willingly exported all our jobs so that poor nations could to go from a $1/day to wealthy in 50 years. And we did it on the backs of US labor market...while all the profits went to Washington DC. Basically, since 1971 the working man (breadwinners) got screwed, which caused a trickle down effect on families for the bottom 80%. The top 20% did quite well since 1971.

'71 was bad, but it wasn’t unique. I was born in '47, among the earliest of the “boomers”, so my cultural roots were in the wars and the depression. My husband was born in '40, so his were even more in that earlier “no hope” time. (Edited to add:) Thinking back even further, my Dad was born in 1908. The Great Depression hit when he was 22, just starting out. He took anything he could get, selling stuff door to door (and anyone less suited to that would be hard to imagine - an intensely private man of few words.) People now worry, and rightly so, about what this period will do to young people’s prospects. Well, the 30s didn’t do anything for their prospects either. But they outlived the bad times.
We certainly felt the effects of the changes in the early 70s. We’d just got married, had mortgaged ourselves to the hilt to buy a piece of land, couldn’t get a mortgage to build anything but could get a “vacation loan” so used that to build the foundation and then mortgaged that, etc, until the house was up. When we started, we weren’t afraid of debt - that was how you did everything, because you figured you could pay it off eventually. But the explosion in the cost of materials was terrifying. We’d work out the prices of whatever we needed the following week, get quotes and “promises”, and by Monday the promises were dead, and prices had gone up 10 - 30%, depending on the item. So yes, it was bad. The Volcker solution was applied when we had to move to get to a new job, so our new home mortgage was at 20%, after a year or two went down to about 13%. We finally got out of debt 30 years later, and vowed never to get back in. It was a rice and beans and DIY life, but we rode the ensuing inflation up, and eventually saved enough to semi-retire by building each house ourselves and selling it when we needed to move.
So I appreciate what these young guys are saying. I don’t know if it represents hope, or just yadayada, that we’ve been here before, and that this too, I hope, will pass.
I’d like to ask again, as I did in another post elsewhere - what am I missing about bitcoin? I realize it’s an innovative technology, but it is very energy intensive when energy is about to become less reliably available. Also, I don’t see how it is any less subject to control than anything else. Someone is doing the mining, controlling the software, instituting laws about what form of money you need for paying taxes, and also playing it up and down like a game on “the markets”, just as they’re doing with gold, and the Fed is doing with the US dollar. Some of this is government, some of it is “private enterprise” (the " marks are because I wonder how much outfits like Google or JPMorgan are private enterprise anymore, and how much they’re an arm of government.)
Anyway, just wondering. All money is fiat to some extent, except for barter, which is obviously very limited. In my life at least, we just lived with it, adapted to it as best we could, and found our value in life outside those limits. If it really is a totally new thing under the sun, I hope to understand it better.

The historical facts that document the decay of society when money is slowly destroyed is out there for those that care to look. Hard work and saving ethics continue to gradually fade away in America. Only to be replaced with rampant speculation, greed and scheming. America can do better!!! The Federal Reserve Bank and CONgress reign of terror is literally tearing apart our great society and they must be stopped immediately before any more damage is done. Where are today’s moral leaders that will make the right decisions about money, energy and the environment, and truly serve the American people?

Chairman Mao stated shortly after Nixon‘s move off the gold standard: “We see the end of American experiment.“

Fascinating thought brought up at the end of the interview. Was 1971 a failure of Gold ? Is the thought of “getting back to a Gold Standard” really just a romanticized idea of the past ? Will Bitcoin take the baton ?
I’m not a big crypto fan, but I will give it some more thought. The advice of having some of your net worth in Gold, perhaps should apply to Gold bugs as “have some of your net worth in Bitcoin / crypto”.

I will just be direct with you- you are missing a lot about bitcoin. Miners do not control the network. No one controls the software for anyone else. You control your own bitcoin. There are a lot of surface-level arguments against bitcoin that seem strong; I promise you they are not. I strongly encourage you to read and learn as much about bitcoin as you can. If you would like some suggestions I can direct you to plenty of resources.
Also, it is a big mistake to conflate bitcoin with “crypto”. Don’t be discouraged if you’re not getting it at first, we are still very, very, early. But at the same time, the fact that bitcoin is so difficult to understand is precisely what allows it to be such a fantastic asymmetric bet. The market doesn’t understand bitcoin yet, but it will. Since it’s inception bitcoin has been the best performing asset in history and I believe it will continue to be the best performing asset until it has changed the world forever.

I wonder how bitcoin would fare with a ‘Carington’ event; I remember the event in the 60’s when the power grids went down in the whole northeast, and that was a minor sized solar flare

dreinmund, I also found that part interesting. He’s right in many respects:

  1. Gold did fail in 1971 - the US hegemony successfully outlawed it for personal use, then forced/bribed the entire world to fiat. However, the central banks may be making comeback for gold as things spin out of control.
  2. Bitcoin is no better: it can be outlawed even easier if the US ever wants to (right now, it’s no threat so who cares). BC also fails for many other reasons: a) it will have the threat of being replaced by another crypto that has better facets, b) various states all over the world will outlaw it if it ever gets big enough to be a threat to their power, c) it faces the same problem of gold in that it cannot easily expand for economic growth (which, right or wrong, is what put a fork in gold).

2retired said:

I wonder how bitcoin would fare with a 'Carington' event
It will fare better than any bank account, mortgage account, credit card account, set of health records, or portfolio of personal info lodged with the government. It'll fare better than a car built since the 1990s, or "smart" home energy meters and solar panel power systems. Will BTC become inaccessible in a grid-down scenario? Yes. Locally - whatever "local" means in the event. But unlike the other, traditional items I mention, about which no one ever asks "what will happen...?", BTC is stored on tens of thousands of computers scattered across the globe. Only if power goes out or systems fry everywhere at the same time will BTC disappear. In which case, I for one won't be wondering where my medical records are, or fretting about how much BTC I've lost. That kind of scenario is the case for also having some pm (at home, not in a vault somewhere) and some cash on hand, right? Or, better - since food on the table is not guaranteed for long by a pile of pm and a wad of cash in the safe - productive land. The real question, however, is: short of TEOTWAWKI, what's the value of BTC? That's the intriguing, and promising, question. Drop down that rabbit hole: it's far more likely.

@MKI: What “put a fork in gold” was the habit of deficit spending adopted by government, especially the US, and the “endless summers” scenario of ever-increasing resource consumption that we’d been on since WWII. The global problem was that the restoration of Europe’s War-devastated economies had largely taken place, so the wealth-generating productivity of the US was facing increased competition. Our high standard of living could no be longer maintained on the back of mostly one-sided international sales. As the world increasingly provided its own domestic goods, our markets were closing, but no politician here wanted to encourage Americans to shift to a lower relative standard of material consumption. It’s no mistake that planned obsolescence has gone hand in hand with debt-based economics.
IMO, the US did not abandon Bretton Woods because the gold standard could not keep pace with GDP growth. The problem was the government needed to be able to spend more than it brought in to realize the “American Dream” for all Americans as the working population grew while international markets contracted. “American Dream” was defined as “ever-increasing consumption,” which is not identical to “high standard of living.” Deficit spending and increased consumption, together, dictated going off the gold standard, not rising GDP. It was a political decision to support vote purchasing, and a business decision to benefit the high-production factory owners - both at the expense of the long-term welfare of the American people and environment (about which few thought very much at the time).
Had we stayed on the gold standard, we would not see our wealth inflating away. Rather, we’d see our wealth growing as increased productivity/hour and (essentially) non-existent government spending caused goods prices to decrease. Quite likely, were our earnings not taxed and inflated away to provide us “benefits,” the once-vaunted promise of more leisure and less wage-work through increasing production efficiencies could have been realized.
We wouldn’t need government benefits in such a case. Personal savings would be strong if tomorrow a dollar will buy more than it does today, so consumption would reduce as people adopt long time horizons and make more prudent decisions about what artifacts are “must have’s.” Planned obsolescence goes out the window, too, as people demand longer-lasting consumer goods. So there enters the resource-use discipline we’re lacking and can’t seem to instill despite long, costly educational campaigns.
As Munger said: “Show me the incentive and I’ll show you the outcome.”
Bitcoin offers an opportunity to opt for a non-State coin that has the same hard money characteristics as a gold standard. It’s virtue is that it remains constantly hard, and increases in nominal value as fiats continue to be inflated toward worthlessness.
Can BTC be outlawed? Yes. Can it be suppressed? Well, even Venezuela and China are finding it incredibly difficult to curtail its use. Can the US do better? Possibly, if our government becomes as oppressive, but so far people less accustomed to individual liberty than us have resisted, and have used BTC to preserve wealth and move it outside of national boundaries.
What we actually see, however, is the US government slowly embracing crypto in general, and BTC in particular. Thus the new Special Purpose Depository Institution (SPDI) legal framework codified in Wyoming a year ago this month; and now the first approved SPDI bank charter - given this month to Kraken, a cryptocurrency exchange. There is at least one more SPDI bank charter coming soon, to a startup called Avanti.
These banks will be operating within a year, able to custody both dollars and cryptocurrencies across the US, in the same bank accounts, and offer all of the services banks normally offer. The one thing they cannot do that all other US banks do, is take possession of customer deposits and redeploy them as the bank chooses. SPDIs are custodians; they custody monetary assets as a custodian depository for gold custodies customer gold - each in its own silo, forever owned by the person who placed it there for safekeeping.
This development is not the path of segregating and forbidding crypto; quite the opposite. And as increasing big-money financial firms add crypto (esp. and mostly BTC) into their investment portfolios, politicians on the receiving end of big money contributions lose appetite for suppression. This is not 1971, and we are headed in an opposite trajectory because those same commercial interests that made real money by abandoning gold now see that the real money in the future is not in overly inflated and hypothesized currency. Debt expansion, like resource consumption, is reaching its end-point. The future is in hard money currencies. (Thus Russia, China, India, Brazil, and even Western European countries are reclaiming gold stored out-of-country, and are adding to their sovereign gold holdings.)
Bitcoin plays into that hard-money scenario, and smart money knows it. So Jaime Dimon loudly tells the retail investor there’s no future in BTC while JPMorgan Chase busily establishes a large crypto trading desk, effectively front-running Joe and Jane Sixpack for still-inexpensive crypto assets. (Kinda reminds me of Coronavirus “masks don’t work” assertions back in February and March while the government scarfed up all the masks it could find.)
The incentive today is in owning cryptocurrencies, especially BTC. Smart money - whether individual high-net-worth investors, or hedge funds, or family offices, or institutional investment houses, or retirement account managers, or corporations with excess cash - are either starting to buy or are looking closely. The limiting factor for many large firms is not the question of whether BTC is the future, it’s the problem of the BTC market still being too small for them to be able to move in with the quantity of dollars they need to use to make a difference for them, without destabilizing the coin price. That is, the BTC market is not yet liquid enough; the market cap is too small. But that’s changing as smaller “big money” entities take stakes. That organically grows the market cap, which entices the next tranche of investors, building momentum.
Wide-spread adoption is already happening. We’re watching another example of “case, case, cluster, cluster, boom.” We’re now moving into the “cluster, cluster” phase. We know what comes next.

@vshelford said:

I realize it's an innovative technology, but it is very energy intensive when energy is about to become less reliably available.
Bitcoin mining does consume a lot of energy. And without miners looking for cheaper ways to secure that energy, the cost of mining would keep going up, making mining a diminishing return on investment. In turn, that would slowly erode the network and, finally, produce failure. But that's not what's happening. Instead, miners are growing their mining activities even as the number of bitcoin they receive for their work is diminishing, and by a lot. Every 4 years, the number of coins a miner receives for maintaining the system is cut in half. Energy cost alone should be destroying their profitability, but they're expanding their operations. So what's going on? Several things. First, miners look for places where there is excess energy production. Certain Eastern European countries, for example, produce more energy than they use. Iceland, too. Unused energy is an economic loss for local companies, and that is a drag on the local and national economy in those countries. When Bitcoin mining moves in and consumes the excess, even at a wholesale discount, the entire economy operates more efficiently, and wealth expands. In such settings, mining does not take energy away from other productive uses, but adds revenue to the local stream. Second, because miners are looking for greater energy efficiency, they are among the foremost adopters of clean energy. They locate in places where they can take advantage of existing solar, geothermal, and hydro electricity generation. They also establish their own solar farms, on occasion, as a means to reduce energy costs, primarily, and environmental impact secondarily. As adopters of green energy they help drive innovation and improvement in those fields, in the same way that they have driven dramatic improvements in computer processing speeds by seeking faster, more efficient chips. (I liken this to the way innovation in race car technology leads to improved performance, power, and efficiency for road-legal automobiles.) Is mining everywhere and always a net positive for energy and environment? No. What is? But as energy consumes more of the revenue mining produces, and as the costs of energy climb, Bitcoin miners are among the vanguard of consumers that want, and have an incentive to pursue, more efficient and greener options. In true free market style, personal interest drives social good. Here's a key, brief article on the issue that has enough links to lead you down the rabbit warren as far as you care to go: https://cointelegraph.com/news/researcher-challenges-bitcoin-mining-energy-consumption-alarmists-says-debate-oversimplified

Discussion on Pomp elucidating why BTC is the perfect money.

^Robert Breedlove is one of the brightest minds in bitcoin, maybe my favorite bitcoin author/content creator. I highly recommend watching that entire Pomp interview with Breedlove that Mohammed Mast posted. Breedlove also has written a bunch of brilliant articles on Medium.

1971 saw the end of Bretton Woods. Bretton Woods (1945-1973) was not a gold standard system. It was personally designed by Keynes and White, who were emphatic that it would not be another gold standard.
“Although Keynes and White had many disagreements pertaining to the details of the new economic system, they both agreed what the system would not be – another Gold Standard.”
What led to the collapse of Bretton Woods?
(from the same article)
“Part of the problem was due to increased American spending on the Vietnam War and President Johnson’s Great Society program, but issues outside of the Americans’ control also began to take a toll on the system.
France was also a major player in the Bretton Woods system, but never content to be fourth or fifth in the pecking order. In 1966, France left NATO and two years later it converted $150 million of its reserve dollars into gold and then left the gold pool, essentially ending their involvement in the Bretton Woods System.”
With a sound currency, government cannot print money to fund every desire. Sounds money acts as a control on government spending. But LBJ pushed forward, simultaneously, with an expensive war and with an expensive increase in government programs (the “Great Society”). The funding sources would be debt, taxes, or devaluing the currency. Or a combination.
De Gaulle and others realized that the additional money printing in the late 1960s was unsustainable, and the US would eventually be unwilling or unable to honor the conversion from the dollar to gold. So, he pushed to convert France’s dollar holdings, which put the squeeze on Washington. They didn’t have enough gold to honor the trade, so Nixon closed the gold window.
TL;DR: Bretton Woods failed because of government spending, not a tie to gold.
Edit to add:
There are numerous cases in history in which nations went off a gold standard to take on debt to fund a major war. A gold standard makes it too hard to raise the funds necessary to pay for such an expensive enterprise.
Britain went off a gold standard in WWI, took on debt to fund the war, and then attempted to return to it after. Churchill made the mistake of pricing gold at pre-war price, which caused a massive deflation that crushed the British economy, and is largely responsible for the fall of the British Empire. Had he priced gold at the current price, they likely would have avoided the economic crash. Churchill later called it his greatest mistake.
LBJ’s great expansion of the war in Vietnam, like most large wars, required huge funds, which meant using unsound money. Couple that with federal expansion and the final severing of a tie to gold was inevitable.
Nixon pulled the trigger, but LBJ made it inevitable.
Of course, the history of monetary policy post-WWI included various flavors of semi-quasi-gold-standard systems, but not true gold standards as existed prior. I would point to the price stability of the 19th century as an indicator of what a gold standard could do.