To the editor:
A number of articles have been posted in The Berkshire Edge on the high cost of housing, including the write up on the recent public forum held in Egremont on June 26. Yet, very little has been conveyed to the public as to the other half of the equation: the falling value of our currency. The U.S. Dollar has enjoyed the “Exorbitant Privilege as the World Reserve Currency” ever since 44 nations met in Bretton Woods, N.H. and drafted an International Monetary System. Allied nations all agreed upon a system of exchange rates, disciplined by the U.S. Dollar directly linked to gold as collateral—just as a house is the collateral underlying a mortgage.
There was great confidence in the U.S. Dollar as the World Reserve Currency from 1944 until August 15, 1971. This is when Henry Kissinger advised President Richard Nixon to sever the link of our currency tied to gold, which acted as the collateral that supported the currency’s value. When President Nixon “closed the gold window,” other nations could no longer exchange their dollars for gold; essentially, he reneged on the Bretton Woods Agreement. Kissinger was Nixon’s National Security Advisor and advocated this action in order to increase fiscal spending to pay for the Vietnam War. Yet, if you increase the M2 money supply in circulation, inflation occurs, and this began in earnest in the 1970s.
Government actions, monetary policies, and fiscal spending all coalesce with the law of economics and lend clarity as to why housing has become such a highly valued tangible asset—most notably since 1971. According to the Federal Reserve’s Economic Data, the median sale price of a house in August 1971 was $25,300, while today it is $436,800, or an increase of over 1,600 percent. This is more accurately described as the loss in the purchasing power of our currency, which falls against the value of all tangible assets when the collateral is removed and the M2 money supply is increased.
Two years later in 1973, by necessity, Henry Kissinger had to negotiate a new form of collateral to back the World Reserve Currency; this became known as the Petro Dollar. The US provided Saudi Arabia with military protection, and Saudi Arabia agreed to sell oil exclusively denominated in U.S. Dollars. Other nations, therefore, had to convert their currencies into dollars—often at a loss in exchange rates—then purchase oil in U.S. Dollars. Saudi Arabia’s further obligation was to purchase our Treasury Bonds with their Petro Dollar revenue sales from oil.
Fast forward to today, in 2023, or 50 years later, we are now experiencing the slow demise of the Petro Dollar system under the policies of our current administration. When Biden’s energy policy is coupled with the weight of our $32 trillion debt, it once again undermines the faith and confidence in our currency. There is diminishing collateral supporting the U.S. World Reserve Currency; yet, the difference today is many alliances have already been formed among BRICS nations (Brazil, Russia, India, China, and South Africa) to trade oil and other essential commodities outside of the U.S. World Reserve Currency system. Actions have consequences, and we will all bear the consequences of this decision.
While Federal Reserve Chairman Jerome Powell has offered higher interest rates on our Treasury Bonds in hopes it may attract some buyers of our Treasuries in order to service our debt, the conundrum he faces is the escalating U.S. debt created by doing so grows exponentially and becomes even more difficult to service domestically. In this rising rate cycle, the interest rate charged by a bank for home mortgage is an added financial burden on what is already an expensive real estate market. This makes the high cost of housing even more unaffordable when local salaries have not kept pace; they have not gone up 1,600 percent since 1971. Our exorbitant privilege as the World Reserve Currency may come into question unless we get our fiscal spending under control and implement austerity measures, which does not get politicians re-elected.
However, aside from the obvious monetary and fiscal policies, which have contributed to the fall in the purchasing power of our currency, we also live in the number one megaregion in the world; yet our land mass is limited in relation to our thriving megalopolis. Under the economic law of supply and demand, the value of real estate will rise when the supply of undeveloped land is limited—as in our megaregion.
Megaregions are the economic powerhouses that drive global economic growth. In 2019, a study revealed that there were 29 megaregions found globally. However, the Boston-New York-Washington, D.C. corridor, which extends from Boston through New York City and Philadelphia down to Washington, D.C., was ranked number one as the world’s largest megaregion, with nearly 50 million people, generating almost $4 trillion in economic output.
In the United States, the Regional Plan Association in partnership with the Lincoln Institute of Land Policy coordinate studies on population growth, employment opportunities, and transportation hubs to better understand where infrastructure is needed for future growth. Their white paper, “America 2050,” was published in 2009 and shows the statistics on the 11 Megaregions identified in the United States. Clearly the Northeast corridor from Boston to Washington, D.C. has the densest population per square mile of land mass, which translates into higher real estate and house prices within the number one megaregion in the world. The study shows the Great Lakes megaregion has a slightly larger population density; however, it is distributed over three times the land mass area.
In conclusion, I believe personal home ownership should be a sanctuary available and within reach of every citizen willing to work hard and achieve the American Dream. However, the federal government chose to undermine this personal value when they incentivized Wall Street to slice, dice, and bundle homes to sell as commodity packages to the highest bidder. Now individual families are often priced out of the market, as hedge funds accumulate real estate and diminish the supply available for individual ownership. It seems unlikely the dilemma of affordable housing will be solved exclusively on a local level without addressing the real underlying causes occurring beyond Berkshire County.
Lucinda Shmulsky
New Marlborough
