The 1970s Are Back: What High Inflation, Labor Strikes, and a Major Hostage Crisis Reveal About Today

High inflation, labor strikes, a major hostage crisis and war in the Middle East are just a small handful of the events considered hallmarks of the 1970s period. Amazingly, we see these same events all taking place today, 50 years later.

Here are ten of the most striking parallels we recently discussed on our Financial Sense Newshour podcast (see Déjà Vu: Ten Striking Parallels Between the 1970s and Today for audio).

High Inflation

Just as inflation hit dizzying heights in the 1970s, the June 2022 inflation print of 9.1% represented a high we haven't seen since that same period of time. What lies behind this resurgence? For one, massive monetary expansion during the 2020 Covid crisis was a large driver as both the Federal Reserve and the US Federal government injected vast sums of money into the markets and the economy. Though the Fed has now tightened their policy, the US government is still spending trillions of dollars, which continues to act as an inflationary tailwind.

See related podcast: Eight Reasons Why Inflation Will Trend Higher This Decade

Supply Chain Issues and Trade Frictions

In alignment with inflation, heightened supply chain issues and trade frictions have risen to levels we also haven’t seen since the 1970s. During that period of time, most of the disruption was concentrated to the oil sector through repeated energy crises. Though we did see similar concerns and a spike in oil prices after the Russia-Ukraine war, today’s supply chain issues are much broader in scope, affecting everything from computer chips to fertilizer prices to everyday consumer products.

Geopolitical Tensions

Rising geopolitical tensions were also a similar feature of the 1970s. During this period, we saw a significant reshuffling of alliances and a variety of conflicts occurring simultaneously around the world. Russia's invasion of Ukraine in 2022 and the current conflict in the Middle East are but two striking examples that are similarly reshaping global politics and international relations at a level we haven’t seen since the late 1960s and ‘70s period.

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Social Unrest and Protests

The 1970s was a tumultuous decade marked by various protests and activist groups demonstrating on college campuses and major cities over a wide range of issues including war, various social justice movements, the environment, apartheid, energy policies, and much more. Interestingly, the 1970s saw the emergence of the modern environmental movement, which led to the first Earth Day in 1970. Similarly, today's protests and demonstrations often center around fears over climate change but have shifted more recently to the outbreak of war.

See related interview: "The Fourth Turning Is Here" with Neil Howe

War in the Middle East and Major Hostage Crisis

Almost 50 years ago to the day, war similarly broke out in the Middle East in what is known as the Yom Kippur War or the October War. It began October 6, 1973, and was a major conflict between Israel and Arab nations. The current war between Israel and Hamas began October 7, 2023, and although many are hoping it will not spread to become a wider regional conflict as occurred during the 70s, the leaders of other Middle Eastern countries such as Iran and Turkey have threatened to join the fight. Another striking similarity between what we saw then and now is a major hostage crisis. In the 1970s, Iran took 52 Americans hostage; today, Hamas is estimated to be holding over 200.

Cultural Changes

The widespread protests seen during the late 1960s and throughout the 1970s were part of a much broader set of cultural changes and social upheaval. There was also extreme polarization during this time period alongside major divides over various social issues. Though the civil rights movement characterized the 50s and 60s, social activism at large became particularly acute during the 1970s period.

Technological Innovations

The Advanced Research Projects Agency Network (ARPANET), developed by the U.S. Department of Defense, became operational in 1969 and laid the foundation for the modern internet by first connecting public and private research institutions across the US. The early 1970s also saw the development of the microprocessor, which paved the way for the first personal computers by the mid-1970s and the founding of Apple in 1976. Laser printers, floppy disks, fiber optic communication, and breakthroughs in miniaturized computer circuitry were all major technological innovations during this decade. Today, we see similar breakthroughs across a variety of areas with swelling enthusiasm around artificial intelligence, machine learning, virtual reality devices, quantum computing, biotechnology, and robotics.

See related interview: Big Tech's Billion-Dollar Race Towards AGI

Apocalyptic Forecasts

There are also striking similarities in apocalyptic “end of the world” forecasts. Cold War tensions between the United States and the Soviet Union had fully seeped into the public mindset, leading to widespread fears of nuclear war and civilizational collapse. Movies, books, and media often portrayed scenarios of societal breakdown or environmental disaster. Well-known books during this period included The Limits to Growth, The Population Bomb, and The Late Great Planet Earth. Feelings of impending doom, cataclysmic collapse, and environmental catastrophe were all dominant themes and feelings present during the 1970s. Today, we see fears over climate change and an environmental crisis ever-present in the public discourse with protestors blocking traffic, gluing their hands to roads or major art exhibits all to raise awareness over fears of climate change, rising sea levels, and ecological disaster. Leading figures in the scientific and technology communities—Stephen Hawking, Elon Musk, and others—warn of an existential threat and potential wipeout of humanity by artificial intelligence should it grow beyond our control.

Cold War 2.0

The last Cold War began in the mid- to late-40s and lasted until the dissolution of the Soviet Union in 1991. Although the US and the Soviet Union had reached a period of easing hostilities during the 70s period, there was still an ongoing power competition between the two countries when it came to geopolitical influence, proxy wars, technological dominance, and military might. Today, we see another Cold War between the world's two largest superpowers: the United States and China. As took place in the 1970s, we see heavy amounts of military spending, attempts to outmaneuver one another in geopolitical influence, and an ongoing technological arms race.

See related interview: We Are in a Cold War With China, Says Russell Napier

Monetary Regime Change

In the economic and monetary arenas, the early 70s witnessed a major monetary regime change when the US abandoned the gold standard in August 1971. This significant economic event is often referred to as the "Nixon Shock." In a nationally televised address, President Nixon announced a series of economic measures, including the suspension of the convertibility of the U.S. dollar into gold. This effectively ended the direct link between the U.S. dollar and gold, which had been a cornerstone of the international monetary system established after World War II at the Bretton Woods Conference.

The move towards a system of fiat currency, where the value of money is not backed by a physical commodity like gold, allowed for more flexibility in monetary policy and greater governmental control over economic conditions. However, it also introduced challenges and complexities in managing international currencies and exchange rates. The decision to abandon the gold standard had profound implications for the global economy and the way currencies were managed.

Today, China and other nations are now actively discussing and making attempts to trade outside of the U.S. dollar, with gold resuming a growing share of central bank reserves. Cryptocurrencies and central bank digital currencies have also emerged as potential players in upending the U.S. dollar’s hegemonic role as a reserve currency. Furthermore, skyrocketing US debt levels and quickly rising interest expenses are beginning to raise concerns among foreign buyers of US Treasuries. In fact, it was because of the large US deficits and increasing amount of dollars piling up in the vaults of US trading partners, who in turn were demanding gold in exchange, that led to the “Nixon Shock”. Similar dynamics are bubbling under the surface today, 50 years later.

Investment Implications

For investors, the parallels suggest a similarly volatile decade. Just as commodities and hard assets came to the fore in the 1970s, we believe they are likely to outperform in the inflationary period ahead. Stocks and bonds may face headwinds and experience compressed returns. After the 1973-74 bear market, the "Nifty Fifty" growth stocks of the day crumbled, while oil surged from $2 per barrel to $40. Gold exploded from $35 to $800 per ounce, while silver moved from $1.55 to $50. A large part of this was due to the expansion of money, unrestrained debt growth, and higher than average inflation over the course of a decade.

In sum, while history never repeats in the exact same way, we believe a look back at the 1970s provides a potential insight into the present day and how things may continue to unfold in the years ahead. Markets and societies move in cycles; recognizing the rhythms and patterns allows for better navigation of these large-scale shifts. Whether it’s inflation, technology, geopolitics or social change, the present day carries a rather eerie reflection of the past. As Mark Twain noted, history may not repeat itself, but it certainly rhymes. Heeding the lessons of the past equips us to meet the challenges ahead.

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