I know oil prices went up big, but it was CHRONIC inflation. I was under the impression that chronic, long-term inflation can only go on if the government is printing the money that leads to the inflation. Otherwise, with a fixed amount of money in the economy, massive long-term inflation cannot occur because the velocity of money (i.e. how quick people turn around and pay/spend/etc. money they receive) can only be so high. I don't think we had the huge government debt spending, and thus those related massive inflationary pressures, in the 70s. So how was inflation so high for so long? Thanks!
One VERY SIGNIFICANT event that triggered the 70's inflation was the "Nixon Shock". Simply stated, governments (worldwide) no longer needed to be concerned about a run on gold. IOW, Domestic policies (worldwide) were no longer bound to fiscal responsibility created by a fixed price for gold. Let the spending begin!! History is fascinating!
COMPLEX question. Short answers/depends on the money you use/silver + gold did fine. Actually even with a FIXED Amount of money, RE........ can still go sky HI/because we can skip eating out.[Practical answer/not just a textbook reply] FEW gov budgets were ever balanced ;+labor unions greed is another cause.......................................................................................... I"M looking @ a coffee/retail inflation chart/but that's storebought\my homemade coffee has not inflated much @ all from 1970's. Grains/guns/RE + gas sent up huge/supply + demand......................................................................
I think nobody has a complete answer to this. My own thinking is that inflation has both real and psychological components: you need to have a) strong money supply growth, 2) institutions or circumstances which transmit that money growth into aggregate demand/spending pressure once the economy is already running hot, and then 3) people over time need to become accustomed to the idea of rapidly rising prices - where you would've accepted a 5% raise before, now you demand a 10% raise in part because you expect prices to rise; and then your employer hikes prices by 10% to keep his margins; and so on down the line. Union-negotiated pay increases in key sectors seem to have been a major factor in the 1970s - both by directly driving the wage-price spiral and by helping to disseminate inflationary psychology into the public consciousness. The Fed was also notably weak during this period: Nixon outright demanded that the Fed gun the economy heading into the '72 election, Arthur Burns complied and never thereafter attempted to stand his ground, or to materially reign in the inflation.
Search the history of Paul Volker's inflation-busting tactics. Most of the impact comes in the early '80s but it's a decent read on inflation.
So, but I was under the impression that significant budget deficits (since the 40s) did not come into effect until the Regan years in the 1980s (and even then it was a minute amount compared to today's numbers). I am also under the impression that the Fed does not just print money and hand it out to the public, its prints it to buy government bonds. So if there were no (well, little) government bonds being issued, no printing of money big time.
But where was this "too much money" coming from if the government was not running huge deficits that were being funded by the Fed printing the money and buying the government bonds?