Housing Crisis SEO: The Emergence of Bitcoin as a Potential Solution
In the 1970s and 1980s, a significant increase in home prices was primarily attributed to high inflation rates and rising mortgage interest rates. This period, known as the "Great Inflation," saw inflation surging, reaching double digits in the late 1970s and early 1980s, causing the cost of goods, including housing, to escalate.
To combat this inflation, the Federal Reserve raised interest rates sharply, resulting in mortgage rates peaking at historically high levels. For instance, the average mortgage rate in 1981 was 16.63%, and it even reached up to 18.63% in some weeks[1][3][5].
The end of the gold standard in 1971, when President Nixon ended the U.S. dollar’s direct convertibility to gold, marked a turning point. This move dismantled the Bretton Woods system and led to a period of high inflation and economic uncertainty in the 1970s. Freed from the gold peg, the dollar’s value fluctuated more freely, and inflation became more volatile, which fed into rising home prices and mortgage rates[2][4].
Simultaneously, gold prices surged as investors sought a hedge against inflation and currency devaluation. This trend was not apparent or relevant before the late 1960s, when stable, low-priced housing was common. However, since then, housing bubbles have become more common[1][2][3][4][5].
The Case-Shiller index of home prices, started by Chip Case, a Wellesley professor, in the 1980s, shows that home prices increased by over 50 percent in the 1970s, dipped down, recovered a little in the 1990s, and powered up like never before in the new millennium. In 1980, Massachusetts put a permanent hard cap on local property taxes, allowing for annual increases of no more than 2.5 percent[6].
In the 1980s, there was a chance to return to the gold standard, but it was missed. If Bitcoin, as discussed in the book "Free Money: Bitcoin and the American Monetary Tradition," succeeds in displacing fiat money, housing prices are expected to revert to normal pricing, and housing will fall as a share of portfolios. Bitcoin is described as a broad-based rejection of the current fiat system by Bretton Woods Research[7].
In conclusion, the end of the gold standard led to monetary conditions that facilitated the inflation and high interest rates of the 1970s and early 1980s, which in turn caused a significant rise in home prices. Any asset or useful product limited in supply by geology, such as housing, gold, or oil, has attractive hedge characteristics in a non-gold standard environment.
| Factor | Effect on Home Prices and Mortgages | Relation to Gold Standard | |----------------------|-------------------------------------------------------------|-----------------------------------------------| | Off gold standard 1971 | Allowed floating currency, increasing monetary inflation | Ended dollar-gold convertibility, allowing inflation & currency devaluation | | 1970s Inflation | Rapid inflation increased nominal home prices | Gold prices surged, reflecting inflation fears | | Federal Reserve Policy | Raised interest rates to combat inflation, spiking mortgage costs | High rates reflected efforts to stabilize economy post-gold standard | | Oil crises (1973, 1979) | Added economic shocks, worsening inflation and costs | Increasing economic uncertainty, boosting gold demand |
[1] Federal Reserve Economic Data (FRED) - Mortgage Rates [2] Federal Reserve of St. Louis - Gold Prices [3] Board of Governors of the Federal Reserve System - Inflation Rates [4] The Balance - History of the Gold Standard [5] The New York Times - The Great Inflation [6] Massachusetts Department of Revenue - Property Taxes [7] Bretton Woods Research - Bitcoin and the American Monetary Tradition
- During the Great Inflation of the 1970s and 1980s, the rise in housing prices can be associated with both high inflation rates and surging gold prices, as both assets, like housing and gold, held attractive hedge characteristics in a non-gold standard environment.
- In the future, if Bitcoin, similar to gold, succeeds in displacing fiat money, it is expected to impact housing prices significantly, causing them to revert to normal pricing and housing potentially falling as a share of portfolios, as indicated by the book "Free Money: Bitcoin and the American Monetary Tradition."
