What caused inflation in the 70s?

Discussion in 'Economics' started by bridenour, Jan 2, 2010.

  1. Hi,

    Can anyone enlighten me as to what caused the decade of inflation in the 70s? Obvs the gov raised interest rates in an effort to stem the issue, but what caused it originally and what made it persist?

    Looking at today's situation, I am convinced the gov needs to cause significant inflation to enable our ability to meet our federal obligations (SS, Med, etc) and to keep housing deflation from crushing the nation. However, I don't have a good sense as to whether they can actually accomplish this.

    Was inlfation caused purposely in the 70's, or was it an accident?
  2. I was a rookie in the hardware/lumber business, man all we did was change prices.

    Inlflation probably had many causes, the war, Johnson's social policies, environmental regulations, added costs with no benefits which trashed productivity.
  3. I think I recall reading in Market Wizards a trader who traded lumber in the 70s.. the gov't went and fixed the price of lumber for a while... people were trading away from exchanges..
  4. i remember my econ professor couple of years ago told us...

    if you ever think inflation think one thing....the federal reserve

    if there is every inflation its because the federal reserve printed too much money...period.
  5. pspr


    Simple answer, OPEC.
  6. Im pretty sure someone posted an article that gave some good information about this recently, but it basically had something to do with us getting off the gold standard, spending too much money and nobody trusted us to sell us oil for what they thought would be our soon to be worthless US dollars and all the countries were buying gold & silver because by then the whole world was on the fiat money system for the first time in the history of the world. Before 1970 everyone kept their reserves in dollars because it was backed by gold, so essentially the whole world was still on the gold standard. We go off it, and the whole world goes off it at the same time. Then Nobody wanted bank vaults full of dollars once we went off the gold standard, so they started dumping causing massive inflation.
  7. Money printing (demand-side).

    Oil embargo (supply-side).

    Double whammy.
  8. That's probably what we'll GET... and if we do, you'll regret it IN SPADES... you and everbody you know will be effectively bankrupted and the US won't be able to borrow money again until their is a revolution and new government.

    What we NEED is for the government to stop spending more than they take in taxes.
  9. Here's another reason: US Oil production in the lower 48 peaked. OPEC oil embargo was not just about the Isreali war - but also the fact the Arab producers could no longer exchange their dollars for gold. Nixon shut the gold window about a year after oil peaked.


    Look at oil imports as well. They went thru the roof ever since.

    IMHO, we tend to assign too much importance to monetary policy at the expense of looking at tangible real world factors. Money is but an abstraction - a representation of real world energy inputs and outputs. When a society has to spend an increasing amount on energy inputs and in return receives a diminishing amount of energy outputs, that society's economy shrinks. Less energy in and more energy out is how interest is paid back in a fiat money economy. Economic output is reliant on that equation. Fiat money adjustment/creation is but a meager and temporary tool used to mask that disturbing trend of diminishing energy returns.

    In other words, the cheaper the energy and the less amount expended to obtain that energy, the better the subsequent economic growth. When that cheap energy gets more expensive, and takes more energy to extract, economic growth is more difficult to obtain.

    This field of study is called Biophysical Economics. A theory, I believe, which will grow in relevance as resource depletion intensifies globally.

    Offshoring manufacturing to affect CPI, and in its place, creating a FIRE economy that focuses inflation on asset valuations (bubble blowing) instead of expensive manufacturing was how the US dealt with this issue. That's why we had a great bull run from the early 80s to 2007.

    We are at the end of that system.
    #10     Jan 3, 2010