Thursday, November 03, 2005


The 70's All Over Again?

A letter to the editor at the Washington Post has a comparison to the inflationary 1970's. "In his Oct. 26 column, Robert Samuelson said a 1970s-era inflation breakout 'ain't gonna happen this time,' in part because "the Federal Reserve won't let it happen."

"In fact, the Fed under Alan Greenspan has held interest rates below the inflation rate for the past several years. But negative real interest rates probably were the key policy mistake that ignited inflationary pressures in the 1970s."

"Today, as in the '70s, we also have a huge demographic bulge; the 'echo boom' of the baby boomers' children, this time combined with millions of immigrants, entering the housing market and bidding up prices. And we obviously have another oil price shock akin to those of the '70s."

"Other parallels include a weak dollar, a huge trade deficit, an enormous structural deficit in the federal budget, and an expensive and seemingly endless war. One factor worsening inflation today that was not present in the 1970s is the rapid growth of the Chinese and Indian economies, which is pushing up prices of industrial and agricultural materials. Copper prices, for instance, recently reached a record high before retreating."

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