WTF Happened in 1971?

Flimflam fiat, shrinking wages, ballooning obesity and the great "we think; they sweat" delusion...

(Hard to believe it was all downhill after…this. Source: Getty Images)

Bill Bonner, reckoning today from Poitou, France...

“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.”

– F.A. Hayek 1984

As David Ignatius matured, his own world grew more and more remote from working class America. Private schools…elite colleges, connections (his father was Secretary of the Navy) and on to the 4^th Estate – the Washington Post. 

And now he’s a cheerleader for the Deep State and its Empire.  

We’re looking for an explanation. Why? Why now? Why have Ignatius and his ilk turned against ‘The People’ they are meant to serve? Today, we give you the most obvious reason: it paid.    

“When the money goes, everything goes,” is one of our favorite dicta, here at Bonner Private Research. Prices…values…retirement funds…wages – everything is calibrated in money. And when the money is fake, everything begins to wobble.

Flimflam Fiat

America’s money went fake in 1971, just as Mr. Ignatius became an adult. Since then, almost every measure you use shows a nation headed downhill – faster and faster…towards a brick wall. A marvelous website, entitled “WTF Happened in 1971” lays it out. Everything from earnings to GDP to childhood obesity – America’s decline is illustrated in one damning chart after another.

In 1972, after going up together for 30 years, productivity and hourly compensation parted ways – productivity kept rising, but wages slumped. In real terms, the typical man earns little more than he did half a century ago. By our measure – comparing the time it takes him to buy an average house and an average car – he is much poorer.

In 1970, you could buy an average house for about $25,000 – or about 2 1/2 years of income. Another way to look at it: it took about 18,000 hours of work at the minimum wage to buy a house in 1970. Today, it will take you more than 50,000.

In 1970 a new car cost about $3,500. At the average wage, $4/hour, it took about 900 hours on the job to buy one. Today, the average car sells for $48,000…which, at an average wage of $30/hour, takes a man 1,600 hours to earn (forgetting taxes, medical insurance and other costs).

In 1971, the wages for “The People” and earnings for the elites also parted company. While most people earn little more than they did 50 years ago, earnings for the top 5% have gone up 80%. And the top 1%, now earn five times as much as they did back then.  

Whereas the top 1% got about 40% of all income in 1970, the total reaches to nearly 70% today. 

Money is Time

The working man has his time. The elites have their assets. Comparing the two, from 1880 to 1971, the S&P 500 stocks generally sold for the equivalent of about 30 hours of labor by the average employee. After 1971, the value of time went way down…so that now it takes about 120 hours of work to buy the S&P 500. In other words, the asset holder has gotten 4 times richer. Or looking at it from ‘The People’s’ point of view, the non-asset owning working stiff has lost 75% of his relative wealth.

WTF happened in 1971?  

They changed the dollar into a pure-paper currency! Since then, the dollar, along with other major currencies, has lost somewhere between 90% and 100% of its value.

Meanwhile debt grew – in real terms. In 1971, US debt was about $370 billion....or nearly 25% of GDP; today, it is over $32 trillion, which is around 130% of GDP.  US federal budgets were generally in balance before 1971 – except for times of depression or war. The US budget deficit for 1970 was just $26 billion. Over the last 12 months, by contrast, the feds have spent $2.4 trillion more than they took in.

Before 1971, US trade balances – same story. Generally, outgo and income met up regularly. But after 1971, they rarely even laid eyes on each other. Year after year, the deficits added up…until last year, when a new record was reached. The Wall Street Journal:

US trade deficit hit record in 2022

The U.S. trade deficit for all of 2022 rose 12.2% to $948.1 billion, the widest gap on record, as the U.S. continued to depend heavily on imports from other countries to meet domestic demand. Exports also rose last year as global demand for U.S.-made products picked up. A U.S. dollar rally last year drove up the cost of U.S. goods and helped widen the annual deficit.

Don’t Sweat It

After 1971, the dollar was America’s number one export. We sent dollars overseas. The foreigners sent us TVs, autos, computer chips, blue jeans and everything we wanted. And as long as the US was able to ‘print’ money, rather than having to earn it, its economy, its markets, its politics and its society became further and further detached from reality.  

“They sweat; we think,” was a popular, flattering delusion.

But can thinking ever really be separated from sweating? Probably not. As the elites stopped perspiring, they also stopped thinking. And they were soon in fantasyland…where they thought they could ‘print’ their way to wealth and borrow their way to prosperity. The Fed dropped its key lending rate below zero and kept it there for the most part of 13 years…the Trump and Biden administrations handed out trillions of dollars’ worth of nonsensical ‘stimmie’ checks to goose up US GDP…and since 1999, the federal government added $27 trillion to the national debt.

And as we saw yesterday, David Ignatius, chief propagandist at the Washington Post, thinks the same sort of magic policies will work overseas as well as at home.  Getting hundreds of thousands of people killed in the Ukraine…at a cost of trillions of dollars…was worth it, he believes, because it delivered a ‘strategic windfall’ to the US Empire.

But wait. There’s more. We’ve seen how the 1971 dollar switcheroo perverted our economy, our markets, our politics and our society. We’ve seen how the fake money made the rich richer and the poor, relatively, poorer…and how the mainstream media turned into a toady press, merely interpreting and reinforcing the elites’ messaging.  

But there’s more to the story, isn’t there? Tune in Monday…and we’ll look at the Green Transition..and how that helps explain how and why ‘The People’ have been kicked in the shins.         

Regards,

Bill Bonner

Joel’s Notes: Have you been enjoying Dan’s notes all week from the sidelines of Rick Rule’s Natural Resource Conference down in Boca Raton, Florida? Every day, after Bill’s missives, Bonner Private Research members see Dan’s commentary in this space.

As regular attendees have come to expect from Rick’s conferences, it features some of the world’s leading thinkers and investors, reckoning on some of the most important matters of our time. Like…

What does Jim Rickards think of a possible BRICS currency? About a “Petro-Ruble” or “Petro-Yuan”?

Why does Brien Lundin reckon the US government is “lighting the fuse on gold’s next bull run?”

Why does Grant Williams think the US action to kick Russia out of the SWIFT system may be one of the greatest foreign policy blunders it has ever made?

What was Addison Wiggin doing, summoning the ghost (and sage warnings) of the late, great Dr. Kurt Richebacher?

Where does Rick Rule see US equity markets a year from now? How about oil? And nuclear energy?

Then of course, there’s Dan’s own presentation… which members will get a sneak preview of later today.

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