The beginning of the economic crisis

Since the dissolution of the Bretton Woods agreement in 1971 and the introduction of the modern fiat currency system, the world entered a new era of mostly freely fluctuating foreign exchange rates. National central banks started to implement various monetary policies to manage money supply in their respective economies. Monetary policy objectives may have had various nuances around the world, but a common, widely accepted theme has been inflation targeting. This is done in order to provide healthy, stable, low inflation rates, facilitating sustained economic growth. By targeting low inflation rates, central banks around the world aim to create stable economic conditions, providing the right incentives for consumers' and businesses' economic activity, in the absence of huge price swings up or down.

This strategy has had varying degrees of success throughout the years and across different countries.

In the same period, there has been unprecedented credit growth and accumulations of debt globally, which led to the sub-prime mortgage crisis, credit crunches around the world, and the global economic recession. When banks started to fail and investments in new economic ventures decreased, governments and central banks around the world realized that they needed to do something to stimulate the economy; hence, the rounds of quantitative easing (QE) started.

This resulted in an unprecedented supply of new fiat money entering the economy, and close to zero (and, in some cases, even negative) interest rates, which is another economic phenomenon unheard of in standard economic theory and practice.

The idea behind printing so much money was to stimulate the economy and save the financial system from collapse. However, as happens frequently, there were also some side effects of such policies. The prices of real and financial assets, such as global equities and real estate, rose significantly, thereby debasing the store of value aspect of fiat currency.