With the headline inflation figure of 8.5% not having been experienced in the United States for more than 40 years, since 1981, the begging question is: Is the inflation of 2022 anything like the inflation of the 1970s?
In a word, no. Inflation today has come in far more quickly than it did in the 1970s and taken most Americans by an unhappy surprise. Inflation began at 5.5% in 1970 and hovered at that figure throughout most of the 1970s—before culminating at 14% in 1980.
Gas Prices in 2022 vs. the ‘70s
Let’s start with a baseline of gas prices. In 1970, the average American paid $0.36 for a gallon of gas. That soared to $1.19 a gallon by 1980, a 230% markup in the span of a decade. Inflation-adjusted to today’s prices, gas went from $1.72 a gallon in 1970 to $2.95 a gallon in 1980, a 72% rise.
Today, gas costs an average of $4.21 a gallon, up from a recent low of $1.94 a gallon in 2020, according to the U.S. Energy Administration Office. That’s a 117% jump in the span of just two years.
“Today’s record-high inflation comes as much more of a shock to the average person, who has no prior experience to draw on,” Ed Cofrancesco, CEO of broker/dealer International Assets Advisory, tells Newsmax Finance. “Also, so much of this inflation is self-inflicted by our political leaders. They were forewarned that the extra stimulus packages they unleashed were not necessary and would be inflationary. We have had historically low levels of inflation for the last 20-plus years.”
On top of this, the Trump administration succeeded in making the U.S. oil and gas energy independent. By comparison, in the 1970s, the Organization of the Petroleum Exporting Countries (OPEC) took the U.S. by surprise when the Mideast oil cartel suddenly decided to exercise its leverage and raise gas prices, Cofrancesco adds.
Prompted by the green energy contingent of the Democrat party, the Biden administration made the proactive decision to cancel the Keystone pipeline in the U.S. as its first order of business—its first step away from U.S. energy independence.
As Cofrancesco puts it, “The U.S. had proven in recent years that we can, and should, be energy self-sufficient. Instead, they [Biden administration officials] have chosen to leave us energy dependent on madmen, dictators and mullahs, and then are surprised when the price of oil soars.”
The Federal Reserve Bank
Today, May 4, 2022, at 2 p.m. EST markets expect the Federal Reserve Bank to announce a 50-basis-point interest rate hike, its second since 2018, following a 25-basis-point rate hike in March, in order to slow down the economy and tame inflation.
Cofrancesco believes, as do some economists, that the Fed waited too long before ending its quantitative easing (QE). “The Fed is too late in cutting back on QE and has provided ‘cheap’ money for too long,” Cofrancesco says. “Ultimately, the Fed’s chief weapon to fight inflation is the same now as it was in the 70s—that is, raising interest rates.”
Mark Matson, CEO of investment advisory firm Matson Money, agrees that the Fed has been slow to rein in the economy, prioritizing its impact on the stock market, instead. “People put so much emphasis on the Fed’s decision to raise interest rates,” Matson says. “What they fail to realize is the Fed is actually handcuffed and is essentially following market movements—not dictating them.”
Russia, China and the Mideast
As to geopolitical considersations in 2022 versus the 1970s, Matson and Cofrancesco say Russia and China pose far more of a risk to the U.S. and the world today than they and the Mideast did in the 1970s.
“Russia’s invasion of Ukraine signifies the greatest geopolitical risk people face everywhere: an attack on their rights and liberty,” Matson says. “It has never been more important to uphold the principles of a strong democracy and free market capitalism.”
Cofrancesco says: “Geopolitical risks today are significantly greater than in the 70s. Yes, the Soviet Union was hostile to us and our allies, but there is no comparison between Brezhnev and the mania and delusional behavior of Putin. China in the ’70s was a concern, but not a real military or nuclear threat and, certainly, was not a global economic competitor.”
So, from a pure dollars, fiscal and world economic standpoint, inflation in 2022 feels far starker, far more sudden and a bit more unpredicatable than it did in the 1970s.
The ‘Costanza Opposite Theory’
For now, Cofrancesco and Matson, like many other business leaders, hope the Fed maneuvers a soft landing to avoid a recession. They also hope the U.S. government stops its stimulus spending, promotes U.S. energy independence and rolls back excessive regulations.
As Cofrancesco puts it: “Frankly, they need to watch ‘Seinfeld’ and employ the ‘Costanza Opposite Theory.’”
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