During the thirty-year boom cycle lasting from the early 1940s to the early 1970s, most American families had enjoyed unprecedented prosperity. Real per capita family income doubled, and the
GDP more than doubled during those three decades of strong economic growth. The steadily expanding economy and rising living standards over a long period of time convinced most
Americans that prosperity was perpetual. But during the early 1970s, stagflation replaced perpetual growth and created a set of economic circumstances that eroded the prosperity that middleclass
Americans had taken for granted for decades.
During the early 1970s, the declining U.S. economy was also showing the effects of strong foreign competition. The industrial economies of West Germany and Japan, rebuilt using the latest technologies after having been destroyed during World War II, were more efficient than the older U.S. industries. U.S. shares of many world markets declined. Within America, many industries lost large shares of the domestic market to foreign competitors. In 1970, about 10 percent of new cars sold in America were imported; by 1980, that figure had reached 30 percent.
Inflation, deficits, and loss of both domestic and export markets combined to create a serious balance of payments problem by 1971, which threatened to undermine the value of the dollar.
When the Nixon administration in response devalued the dollar by severing it from gold, his action unleashed an orgy of gold speculation in the world that drove the price from $35 an ounce to over $800 an ounce and added to the inflationary burden of American