HOMELESSNESS has risen globally, becoming a significant issue in nearly every part of the world. This crisis, once rare before 1971, can be traced to the changing economic system and its contribution to rising inequality. Before 1971, the global economic system was based on the gold standard, with the U.S. dollar pegged to gold at a fixed rate of $35 per ounce. Other currencies were tied to the U.S. dollar, and this limited the amount of money countries could print based on their gold reserves. This system helped maintain inflation control, as the money supply was tied to tangible reserves.
In 1971, President Richard Nixon ended the gold standard, making the U.S. dollar a fiat currency. This shift allowed the U.S. and other countries to print more money, leading to rapid economic growth, particularly in mega-projects and urban development. However, with an increase in money supply, managing inflation in essential goods became necessary. Much of the excess money was diverted into financial markets, especially the housing market, inflating property prices and stock values while inflation for essential goods remained in check. Initially, the surge in housing prices benefited investors and homeowners. However, by 2023, housing affordability became a significant issue. Rising housing costs pushed homeownership and rental properties out of reach for many, directly contributing to the increase in homelessness. The housing market, overinflated in many areas, now faces a dilemma: further growth is limited and solutions are hard to come by.
A key question is why governments don’t simply stop printing money to avoid inflation. The answer lies in the global economic system. Reducing the money supply would lower GDP, a critical economic indicator. Lower GDP leads to rising unemployment, inflation and potential collapse, making countries hesitant to cut back on currency printing. Governments have tried to manage this excess by creating alternative markets like cryptocurrencies and bonds, but these have also become overinflated.
Redirecting money into the housing market would only worsen homelessness, while diverting it into food and essentials could trigger inflation in those sectors, widening the gap between the rich and the poor. Policymakers face a tough choice: continue printing money, exacerbating homelessness, or shift focus to essential goods, risking inflation for necessities. Stopping money printing entirely could reduce GDP, increase unemployment and potentially destabilize the system.
The economic system established in 1971 is now 53 years old and its flaws are becoming increasingly evident. The rising cost of housing, the proliferation of financial markets and the widening wealth gap highlight the need for a new economic framework. A global economic order is necessary to address these challenges and ensure stability and sustainability for the future.
—The writer is contributing columnist.
