This article is edited from Wall Street News, by Fang Ling
In August 1971, then US President Nixon announced the "New Economic Policy", which included the decoupling of the dollar from gold. August 15, 2021 marks the 50th anniversary of the abandonment of the "gold standard". In retrospect, what has all this brought to the world?
Jim Reid, a credit strategist at Deutsche Bank, warned in his latest report that this is a date to remember. "over the past 50 years, we have been using the flexibility of the legal currency to solve practical problems and put off a lot of problems until later, but the question is, can we continue to do so?" he said.
This thinking is not groundless. Fifty years after the abandonment of the gold standard, global debt has grown wildly.
Reid said the abandonment of the gold standard ushered in the global legal currency era, "one of the reasons why legal currencies have survived for so long is that global debt was very low at the beginning of this period".
Specifically, with the abandonment of the gold standard and the lifting of constraints between gold and currencies, countries are able to run structural deficits and increase debt to unprecedented levels.
Initially, with debt at historic lows, the increase in debt did not have any significant systemic impact on many people. But in Reid's view, the outbreak of the global financial crisis is an important point, a debt ceiling that a free market can handle.
Then came quantitative easing. The balance sheet of the G10 has grown rapidly, from less than $5,000bn in 2007 to just under $30 trillion today.
In addition to the huge amount of debt, the abandonment of the gold standard has also had an impact on the growth of people's wealth.
Financial blog ZeroHedge reviews an article it published a decade ago. On the 40th anniversary, ZeroHedge said that the assets of the American middle class had suddenly come to a standstill since 1971, while the wealth of 1 per cent of the rich had exploded.