By Sean Kelly
A lot went on in the 1970s. Like disco, Watergate, and the Russians invading Afghanistan.
Some memories of the 70s are better forgotten. Like avocado-color appliances, shag carpeting and pet rocks.
But one thing stands out on the economic front. Something that current events keep calling to mind. Something that could be about to plague us again.
The 1970s were the “Stagflation Decade.”
Stagflation can be described as the worst of two worlds. It is a combination of weak or no economic growth—a stagnate economy, coupled with rising prices—inflation.
We are deep into the stagnate part already: jobs destroyed, layoffs, downsizing, unemployment. Not to mention debtors who can’t pay their creditors. Think commercial real estate developers whose tenants are closing down and walking away. The real estate owners in turn can’t pay the banks or pension funds what they own. And so it goes, cascading downstream.
The inflation part comes from the explosion of money-printing by the Federal Reserve. The purchasing power of the dollar falls. Saving dollars becomes pointless. Consumer prices rose faster than American families could keep up. But the Fed decided it wanted higher inflation. It suppressed interest rates below the inflation rate. Just like the Fed has decided to do now.
All the red ink being spilled in the stock market now reminds of the 1970s stock market collapse. In fact, it was a plunge that lasted for many years. The Dow Industrials, at the unthinkable high of 7,700 in late 1966 sold off throughout the stagflation decade and didn’t stop until it hit 2,100 in 1982.
Thoughts of the 1970s also came to mind as the dollar fell to a two-year low last month. August was the fifth consecutive months of dollar losses.
The dollar situation was so bad in the 70s that the Bank of International Settlements in Switzerland (that’s the central bankers’ central bank) wagged its finger at the US, questioning the dollar’s international status. Today central banks, for the same reason, are moving their dollar holdings to gold.
We urge you to take this change in the dollar’s global status very seriously. In warning about the coming stagflation a few years ago, former Fed chairman Alan Greenspan said the ending of the dollar’s reserve status would result in wiping out the middle class and a quadrupling of the cost of living!
Of course, gold and silver are your haven of both safety and profit today, just as they were in the Stagflation Decade, when they experienced a powerful bull market!
There are other parallels with the 1970s worth mentioning.
The US was badly divided, as it is today. President Nixon continued the law and order conservative image in 1972 that had helped him win election four years before. The Democrats ran McGovern that year, as left-leaning then as the Biden Democrats today.
The analogy breaks down somewhat because in 1972 McGovern’s promise of free money were widely ridiculed and rejected at the polls. Today both parties champion some variation of free money giveaways.
But just as the Cold War was dangerously warm in the 70s, today, thick with naval forces, the waters in the South China seas are growing uncomfortably warm.
It’s not good to have a standoff with a major creditor. With over a trillion dollars of US government bonds, China is a major creditor. Talk of a change in its dollar position is becoming almost constant. A shoe is bound to drop.
Noah Smith, a Bloomberg columnist wrote this summer about the growing prospects of stagflation:
“If capital begins to abandon the U.S. and the dollar in large amounts, the currency will crash and Americans will find themselves paying much more for everything from cars to televisions to gasoline to imported food. Interest rates will be raised in an attempt to lure back investment capital, and the country might undergo a period of stagflation worse than the 1970s. Large-scale unrest would undoubtedly result and — in the worst-case scenario — the U.S. could collapse like Venezuela.”
“This is an outcome to be avoided at all costs.”
Smith writes, “If the U.S. goes from rich, world-straddling colossus to floundering dysfunctional developing nation in just a few decades, it will be one of the most spectacular instances of civilizational decline in world history.”
It will be more than spectacular. It will be one of the greatest tragedies of the ages as well.
This year’s remarkable strength of gold and silver is only an early warning of things to come.