Driving my daughter to her first day of summer camp today, I sat at a red light on the radio talking about today’s hearings in Congress about the attack on our Capitol. It was an insurrection, a coup, an attempt to stop the constitutional counting of electoral votes after a free and fair election. The news is not much bigger than that.
In the meantime, I saw two gas stations. One advertised a regular gallon for $ 5.27, the other a penny less, as if saving a couple of cents on filling would make a difference. The AAA says prices have risen nearly two dollars from a year ago, at 58 cents just last month. He talks about a gas ache. This, and rising inflation in general, is also a giant story.
The juxtaposition of these two things, as we enter a long, hot summer with big mid-term elections, is fascinating. The way we are reacting to both of us reveals a lot about who we really are Americans and where our nation is headed.
First, consider this. The average age of an American is about 38 years. This means that most of us have no first-hand experience with the period that I think most closely resembles where we are: the terrible years 1973-75.
Compare. Then, as now, a major war led to the disruption of world oil supply. (Israel was attacked by its Arab neighbors, we supplied weapons to the Israelis, and OPEC, the oil cartel, responded with a crippling embargo.) Inflation soared. During the 12 months ended December 1973, the consumer price index was 8.7%, right where we are now.
But the worst was yet to come: the CPI at the end of 1974 was 12.3%. Unemployment was a lagging indicator: 4.9% at the end of 1973, but 7.2% a year later and 8.2% a year later.
Stocks were crushed. In real terms, the S&P 500 SPX Index
it fell by almost 52%, led by the fall of a concentrated group of shares that had previously been estimated on the market. The “nifty fifty” was called. Anyone who started 2022 with overweight in tech stocks (Netflix, anyone?) Can surely relate. If the collapse of 2022 ends up being something like ’73 -’74, then, as a hit song from those days was titled, we’re just getting started.
One more thing about the collapse of the market. The Biden administration has tried to relate our problems to the Russian invasion of Ukraine, but this is only partially correct. CL.1 oils,
it went from about $ 65 on December 1 to $ 85 on January 24, a full month before the war began. In 1973, by the way, the actions began to fall nine months before the war broke out that autumn.
That being said, Putin has certainly made things a lot worse. Mark Zandi, chief economist at Moody’s Analytics, estimates, for example, that the Russian invasion of Ukraine accounts for about a third of our inflation.
What about the biggest source of wealth for most Americans: their homes? This seems to be a good cover for all this nasty history. According to Federal Reserve data, housing in real terms remained in the 1970s. There are currently cracks in the market and TMUBMUSD 10Y interest rates.
they are growing rapidly, which can cost some out-of-market buyers. But a severe housing shortage could support prices, at least in some markets. May be. But one thing seems clear: the housing party is probably over.
Inflation and rising rates, and declining stocks, are not exactly good times, and although the labor market remains tight – the unemployment rate in May was 3.6% – Americans are nervous. No wonder consumer confidence is eroding as people tighten their belts.
Which brings us back to the other great story of this summer of the 22nd: the investigation into the attack on our Capitol. While more Americans are sitting around the kitchen table wondering how they will get to the end of the month (inflation resonates immediately and powerfully with everyone), this does not mean that the investigation into the assault on our Constitution and our democracy is less important. In fact, in the long run, it is even more so.
Why do I think that? Because no matter how bad the fall of ’73 -’74 was, it was part of a market cycle that took place within the parameters of a democracy and a functioning market economy. The worst excesses in the market were erased, and Watergate — which occurred at the same time — showed that our political excesses could also be erased. That we could cope normally with an economic and political crisis at the same time reflected one of our enduring strengths: our enormous resilience and capacity for self-correction.
The economy will recover; he always does. But how do we correct ourselves for what happened on January 6, 2021, when tens of millions of Americans think it doesn’t matter? Beginning with George Washington stepping away from John Adams in 1799, we have had more than two centuries of peaceful and respectful presidential transitions. Bye now. Our Constitution, and respect for it, is paramount, and without it we would have nothing.
What do Trump supporters mean when they say it doesn’t matter? That is why this, and not the cyclical ups and downs of a commodity and a nasty bear market, should be our biggest long-term concern.