"even though we have not seen the volatility of the 70's we are certainly traveling in the same direction."
In the 70s, gold spiked to over $800, Inflation rates were over 14%, OPEC limited the supply of Oil, there were wars in the Middle East and the U.S. economy was a wreck.
If you remember the 70's culminated in a double digit blow off in inflation similar to the stock blow off which ended in 2000.
In the 70's we had Oil coming out of an era where the US controlled the supply and the price and entering an era where OPEC was in control.
In the 70’s, war in the Middle-East had a drastic effect on the price of oil. Syria and Egypt attacked Israel in 1973 resulting in a backlash of support from the US and other Western countries.
In retaliation several Arab Oil exporters imposed the “Arab Oil Embargo”. This resulted in a drastic increase in the price of oil and showed the Arabs the power they now had.
By the end of 1974 the price of oil had quadrupled.
In response to foreign price increases the US instituted price controls on domestically produced oil.
This ill advised price control policy caused U.S. producers to receive less than the world price for oil.
So naturally they cut back on costs like exploration etc.
n a nutshell the 70’s began with a poor economy, high inflation, and the problem was made worse by war and Oil supply problems and compounded by wage and price controls.
The late 90s started with a recession in the Asian economies as they stumbled and both production and consumption fell.
This put downward pressure on demand for oil at the same time former communist countries ramped up production as they became more capitalistic.
This increased the supply of goods and depressed prices even further. It also put an effective cap on U.S. inflation.
Going into 2000 the government pumped up the money supply in preparation for a Y2K event that never happened.
Combined with low priced labor from China, this increased capital had no where to go except the stock market, so rather than seeing price inflation we had “stock inflation.”
When the market crashed it effectively eliminated massive chunks of excess capital. So we entered the new millennium with much lower levels of inflation than in the 70s and more overseas competition resulting is greater supply.
Economic similarities between the 1970's and 2000's
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