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In this video, we’ll explore what caused the Great Inflation of the 1970s and what policies were put in place to try and fix the situation.
If you’re curious about the history of the 1970s, then this video is for you! We’ll explore what caused the Great Inflation of the 1970s and how it was fixed. We’ll also talk about Paul Volcker and his role in the inflation crisis. Finally, we’ll look at stagflation, the economic condition that followed the inflation crisis.
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What Caused the Great Inflation of the 1970s?
The 1970s were a period of economic turmoil, with several countries around the world experiencing rampant inflation. This phenomenon, often referred to as the “Great Inflation,” had significant implications for governments, businesses, and households alike. Understanding the factors that led to this inflationary crisis is crucial in order to prevent such occurrences in the future and ensure economic stability.
One of the primary causes of the Great Inflation was the significant increase in oil prices. In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) declared an oil embargo against several countries, including the United States. This decision led to a substantial reduction in oil supplies and a subsequent surge in oil prices. As oil is a crucial input in various industries, this sudden increase in its cost had a ripple effect on the overall economy, triggering higher production costs and reducing consumers’ purchasing power.
Another factor contributing to the Great Inflation was the expansionary monetary policy pursued by many governments during this period. In an attempt to stimulate economic growth, governments increased the money supply by printing more money and lowering interest rates. However, this excessive liquidity in the economy fueled inflationary pressures. When combined with rising energy costs, it created a vicious cycle where businesses faced higher production costs and subsequently increased prices, leading to a further rise in inflation.
Labor market dynamics also played a role in the inflation of the 1970s. The era witnessed a notable increase in labor union power and frequent strikes, demanding higher wages and better working conditions. As these demands were met, labor costs skyrocketed, putting additional pressure on businesses to increase prices. This pushed inflation even higher and eroded the purchasing power of individuals and households.
Additionally, expectations of future inflation played a significant role in exacerbating the Great Inflation. As individuals and businesses anticipated rising prices, they adjusted their behavior accordingly. This included hoarding goods, purchasing durable goods sooner rather than later, and pushing for higher wages and prices. These actions further fueled inflationary pressures, leading to a self-reinforcing cycle.
Lastly, the international economic environment contributed to the Great Inflation. The breakdown of the Bretton Woods system in 1971, which had previously fixed exchange rates to the US dollar, led to a more volatile foreign exchange market. Currencies fluctuated, creating uncertainty and disrupting international trade. As a result, imported goods became more expensive, adding to inflationary pressures.
In conclusion, the Great Inflation of the 1970s can be attributed to a combination of factors. The increase in oil prices due to an embargo, expansionary monetary policies, labor market dynamics, expectations of future inflation, and the breakdown of the Bretton Woods system all contributed to this period of high inflation. Lessons from this tumultuous period have shaped subsequent monetary policies and provided valuable insights on the importance of maintaining price stability and managing the various factors that can lead to inflation.
Did Tricky Dickey and his cohorts actually stop a potential peace agreement in Vietnam to help win an election and did Ronny Raygun actually freeze any US hostage release till after 1980 election to influence his electability…I don’t know because I wasn’t around but these selfish acts(if true) for self gain at the expense of soldiers/civilian US lives and USA’s economic stability and futures is crazy. Politicians that choose personal or political interests over country should be tried and found guilty of treason….why isn’t this more well known if a fact?
And everyone seems to think that all of this was coincidence.
1962 crash was similar in the S&P as the covid crash on a 3 month chart
all 18k viewers are going to be the richest ever
I wish the world got back to basing currency on precious metals, which worked great for centuries instead of faith in the American economy which created the greatest wealth gap in history between people and also between nations in just a few decades.
Sounds like our governments today make this same mistake at an exponential level.. less than 1% interest rates to compensate for post 2008 economics. And nobody sees this will be a very bad inflationary problem when it comes to housing and economic stability.
12:00
Lots of things caused it. Runaway government spending, devaluation of the dollar. the final nail was the oil embargo, when we couldn't pay for oil imports.The only answer(at the time) was to print more money.
What Volker did in 70s pre global economy IS NOW CAUSING FOOD AND ENERGY FAMINE in mush of world . Dollar rising value directly causes higher inflation globally . Srilanka, philippines, Pakistan and many others
Inflation is ALWAYS, ALWAYS a monetary phenomenon
In the fall of 1979, I started College in Boston. Completely paid for via a BEOG and a SEOG from the government. Tuition was $1,150 a semester. Pretty good and affordable times compared to now.
Answer: detachment of the dollar from the gold standard
As the efforts to Colonize Vietnam failed, the US admitted the Treasury had little left to fight Poverty.
Once again as the US attempts to exploit Russian Resources, the expense of expanding NATO, seems to show how much that cost.
Here we are again…..
They are all complicit, all guilty. Establishment politicians from both parties promised more to more people than could ever be delivered, whether business interests or welfare recipients. Both Republicans and Democrats are guilty. It all stunk, every bit of it.
I'm really glad to see this time period covered on YouTube or anywhere. This stuff happened during Generation X's childhood. No one was getting ahead. Some were falling behind faster than others. Plus, we keenly felt the loss of the Vietnam war.
JPow aint no Volcker! Inflation is back baby!
Having lived through the 1970's and the Nixon resignation, I can tell you that part of the reason interest rates rose so high back then is because the world's investors also lost faith in the USA as a place of law and order. Nixon was allowed to walk away, get pardoned by Ford and Republicans thought everything should return back to normal but they never even consider that foreign nations would no longer buy USA debt, forcing the US Treasury to beg the Federal Reserve to raise rate, which they refused. The result was 18% mortgage rates once Volcker came aboard.
The USA is in the same exact situation right now. The world just witnessed an attempted coup in the world's largest economy and everyone involved at the highest levels has been allowed to walk away with any repercussions. The world's investors havent forgotten the 1970's like today's RepubliQans have done.
i migrate to Canada in 1974 but things were still affordable for the small pay regular folks were getting. but by 1987 I was selling Real estate and house prices went sky high causing market crashed. Hong Kong speculating buyers increased the problems while US manufacturing companies were moving to Mexico Brazil then soon after to China creating higher unemployment.
Key-Nesh-ian…oh no
1) Gold bug rhetoric…oh no
2) Quotes Milton Friedman…oh no…
3) Spends a more time talking about Bretton Woods than the energy crisis…I think I left the stove on
4) Doesn't answer it's own question, but blames the Fed. Yeah, that's to be expected.
There is like a 4 to 1 ratio of private debt to public debt. Sure the fed needs to do what it says it's going to and change rates as per long and very public plan. The open commodities market not being able to keep up with demand pull inflation causes stagflation. More money going to fewer hands turns economic velocity into stagflation instead of inflation. That only happens when there is more liquidity than demand.
No one would complain if inflation of wages and salaries went up 100% besides private capital. Inflation in the costs of private capital are effectively deflationary on the rest of us. You might want to focus on that more than the money market.
The 1970s was the decade that the big surge of baby boomers were entering the workforce. Every month, more people became work eligible, and work seeking and high unemployment was the result of the lag of the economy to absorb them into jobs. But these people WERE getting jobs, eventually, and so there was a steady growth of grocery buyers, car buyers, gas buyers, home buyers – more money chasing a (temporarily) fixed amount of goods, hence inflation.
Biden turn tail and run,take the dollar down with delution of dollars, illegal break in of a presidents home, no difference between Nixon and Biden they both had treasonous acts against our nation.
Nixon, turn tail and run , took us off gold(idiot), break in of democratic party headquarters. Can u spell CROOK.
Johnson was as stupid as he looked. Yet, he makes Biden look good. Sorta.
Deserves more views! Thanks for the nice info, man!
Causing price inflation by means of monetary inflation (raising the ratio of money in circulation to GDP) and then trying to reduce/fight it by raising the interest rate (reducing GDP) is the height of economic folly. It inevitably produces 'stagflation'. Our gov't is led by economic morons.
While I have no problems in composing complex music, I'm danged if I can understand economics. The stuff in this video goes right over my head. I still cannot understand why we have inflation. The government decides what money is worth. If the government decides that an electrician's wages should be $5 an hour and that $5 buys a steak dinner or one tank of gas or 3 bags of groceries or two movie tickets and so on, if this is what $5 is worth, then I cannot see how or why these values should change. The thing that puzzles me, is where do these decisions come from? How was it ever established that one hour of electrician's work equated to one steak dinner? Why not one hour of work for 3 steak dinners, or 3 tanks of gas, and so on. Who decides the value of work versus compensation?
Three things ruined America: 1) Getting off the gold standard in the 1970s. 2) Deficit spending based National Debt expansion in the 1980s and 3) The dismantling of America's industrial base in the 1990s. There ain't no quick & painless rebound from THAT TRIPPLE WHAMMY!!
Don't see why Johnson is on there. He died in 72.
Globalism and money printing is destroying this country.
We debased our money in 65 When we quit minting 90% silver coins. We finished the job when we quit minting the 40% Kennedy halves. FDR started it by restricting/essentially banning gold ownership in 33.
The FFR should never again be lower than 3%.
The "Unemployment rate" is not a good measure of US productivity.
We are much better off starting to measure and disclose the "work participation rate."
That rate has been going down since the lockdown lunacy of 2020 and will continue to go down until we replace the current wrong people in charge.
We sure could use another Paul Volker today.
Sounds just like what we have had since 2019, and more so since 2021, with the wrong people in charge.
It may also be worse than 1970 to 1984 due to our 31 trillion dollar debt.
More big government control always results in bad unintended consequences.
When will the voters ever lean and stop electing incompetent politicians?
It's not backed by faith it's backed by guns. No one has faith in the dollar just faith that the us government will kill kill kill.
Unconditional war on poverty. Looks like we lost that one too.
15:58 "in October 1979, the Federal Open Market Committee announced that it would target reserve growth instead of the Fed fund's rate as its policy instrument"
How did it achieve this? Quantitative tightening?
The feds new mandate is to maintain a stable Wall Street by flooding it with boatloads of liquidity….. it’s trickle -up economics … until nobody is willing to work for dollars…. Then a flood of young migrants will dwarf all other waves of immigration