Traveling Back to the 1970’s

They say history repeats itself. Do you have a penchant for bellbottom jeans and the nostalgic hiss of eight-track tapes? If so, you might find the economic echoes of the 1970s particularly resonant today. That decade was defined by a term that made every economist shudder: stagflation, a perplexing combination of stagnant economic growth and rising prices. Fast forward to the present, and we may be heading towards a similar economic path: persistent and stubborn inflation that refuses to ease its relentless grip.

Despite optimistic proclamations from various quarters suggesting that inflation is on a downward trajectory, the reality for the average consumer feels markedly different. Prices are not falling; they continue their upward march, albeit at a marginally slower pace. This subtlety is lost in the broader discourse, leading to a significant disconnect between official statistics and public sentiment.

The inflationary trend we’re experiencing is multi-faceted, driven by a confluence of factors. Notably, energy prices have soared since the year's outset, creating a ripple effect across multiple sectors. Regulatory changes, ostensibly aimed at improving long-term sustainability and market fairness, have inadvertently escalated operational costs for businesses. These increased expenses are inevitably passed on to consumers, adding fuel to the inflationary fire.

Compounding the issue is the federal government's relentless expenditure. In a bid to stimulate economic activity through government expansion creates an opposing force against the Federal Reserve's attempt to stabilize prices. However, this fiscal largesse, particularly in an election year, is double-edged. Promises of increased social welfare and economic support measures, while politically popular, exacerbate inflationary pressures by injecting more spending.

In the labor market, the inflationary cycle perpetuates as employees demand higher wages to offset the rising cost of living. States like California have responded by mandating wage increases, further contributing to the cost-push inflation dynamic. This wage-price spiral is manifestly evident in sectors such as auto insurance, which has seen premiums surge by 22%, and in housing, where rents and related expenses have climbed by nearly 6%. The most palpable impact for the average citizen, however, is the escalating cost of essentials like food and fuel.

The Federal Reserve, finds itself in a precarious position. Ideally, it would prefer to lower overnight lending rates to spur economic activity. Yet, with inflation remaining stubbornly high, such a move could risk exacerbating the situation. The central bank might ultimately be forced to 'break something in the economy' to achieve stabilization - a scenario that would have detrimental consequences for households nationwide.

As the election year progresses, calls for fiscal prudence are likely to be drowned out by the clamor for more government spending. However, the efficacy of such spending is finite. Once the boost fades, the underlying economic frailties will become apparent.
While the return of bellbottom jeans might offer a touch of retro charm, the economic parallels with the past are far less welcome. As one who lived through the economic challenges of the 70's, the era of stagflation is better left in the pas
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RICH FLANERY IS A CERTIFIED MORTGAGE PLANNING SPECIALIST AND AN INVESTMENT ADVISER REPRESENTATIVE. BRANCH LOCATION 600 S. SAINT VRAIN AVE #4, ESTES PARK, CO 80517. WWW.PEAKCAPITALMORTGAGE.COM PEAK CAPITAL MORTGAGE, LLC, 1045767 & 2347925, RICH FLANERY, 256117, PEAK CAPITAL MORTGAGE, LLC, CO-2347925, PEAK CAPITAL MORTGAGE, LLC, (970) 577-9200, CO-256117, WY-256117, WY-2347925 PEAK CAPITAL MORTGAGE, LLC, 970-577-9200, FL-2347925 FL-256117 SUBJECT TO BORROWER APPROVAL