View Full Version : Was Stagflation in ‘79 Really Hyperinflation?

the riot act
16th September 2010, 05:28 PM
Was Stagflation in ‘79 Really Hyperinflation?

If my best friend is the truth, then my next best friend is history.

I’ve been writing about the possibility of hyperinflation (http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html), if there is ever a run on Treasury bonds. My argument has been, Treasuries are the New & Improved Toxic Assets, a termite-riddled house (http://gonzalolira.blogspot.com/2010/08/termite-riddled-house-treasury-bonds.html) waiting to collapse. If and when there is a run on them, money will flow to a safe haven (http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html), which I am predicting will be commodities. As a byproduct of this sell off in Treasuries and buy up of commodities, consumer prices will rise catastrophically in a hyperinflationary event—and the dollar will be left dead on the highway like roadkill.
http://4.bp.blogspot.com/_SSUbVSG_KVY/TIyqUvKBuVI/AAAAAAAAAFI/f2sjE-NOJZs/s320/1979+Crisis.jpgThis scenario got me thinking about the last time there was a panicked run-up in commodities: The stagflation of the 1970’s in the United States, specifically the period 1979–1983. Oil nearly doubled in price, gold and silver went hyperbolic. Gas shortages were rampant—the situation almost got to the point where the government considered rationing gasoline. In fact, ration cards were printed—that’s how bad things got.

Because of the Oil Shock, the inflation index rose to a peak of 15%—yet unemployment also exploded, reaching almost 11%. This combination of unemployment and inflation was what gave the period its name—stagflation: “Stagnant inflation”. Thinking about this period, I asked myself a simple question: Could the ‘79 Oil Shock, and subsequent bout of stagflation, be better understood as a period of incipient hyperinflation? And if so, what lessons could it teach us about today?

First, a bit of history: MORE HERE-->http://gonzalolira.blogspot.com/2010/09/was-stagflation-in-79-really.html

Saul Mine
17th September 2010, 04:51 AM
Excuse me, your time line is almost ten years off. Gas shortages were in 1973. Stagflation was around 1974-1975.

the riot act
17th September 2010, 06:29 AM
You are excused Saul. I didn't write the article, I just releated it from 321 Gold. That said, from Wikipedia....

Richard Nixon had imposed price controls on domestic oil, which had helped cause shortages that led to gasoline lines during the 1973 Oil Crisis. Gasoline controls were repealed, but controls on domestic US oil remained. The Jimmy Carter administration began a phased deregulation of oil prices on April 5, 1979, when the average price of crude oil was US$15.85 per barrel (42 US gallons). Over the next 12 months the price of crude oil rose to $39.50 per barrel (its all time highest real price until March 7, 2008.) Deregulating domestic oil price controls allowed domestic U.S. oil output to rise sharply from the large Prudhoe Bay fields, while oil imports fell sharply. Hence, long lines appeared at gas stations, as they had six years earlier during the 1973 oil crisis.

As the average vehicle of the time consumed between two to three liters (about 0.5-0.8 gallons) of gasoline (petrol) an hour while idling, it was estimated that Americans wasted up to 150,000 barrels (24,000 m3) of oil per day idling their engines in the lines at gas stations.

Gas coupon printed but not issued during the 1979 energy crisis

During the period, many people believed the oil companies artificially created oil shortages to drive up prices, rather than factors beyond human control or the US' own price controls. The amount of oil sold in the United States in 1979 was only 3.5 percent less than the record set for oil sold the year previously.

Many politicians proposed gas rationing; one such proponent was Harry Hughes, Governor of Maryland, who proposed odd-even rationing (only people with an odd-numbered license plate could purchase gas on an odd-numbered day), as was used during the 1973 Oil Crisis. Several states actually implemented odd-even gas rationing, including Pennsylvania, New Jersey, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.

On July 15, 1979, President Jimmy Carter outlined his plans to reduce oil imports and improve energy efficiency in his "Crisis of Confidence" speech (sometimes known as the "malaise" speech). It is often said that during the speech, Carter wore a cardigan (he actually wore a blue suit) and encouraged citizens to do what they could to reduce their use of energy. He had already installed solar power panels on the roof of the White House and a wood-burning stove in the living quarters. However, the panels were removed in 1986, reportedly for roof maintenance, during the administration of his successor, Ronald Reagan, and were never replaced.

Carter's speech argued the oil crisis was "the moral equivalent of war". Several months later, in January 1980, Carter issued the Carter Doctrine, which declared that any interference with U.S. oil interests in the Persian Gulf would be considered an attack on the vital interests of the United States. Additionally, as part of his administration's efforts at deregulation, Carter proposed removing price controls that had been imposed in the administration of Richard Nixon before the 1973 crisis. Carter agreed to remove price controls in phases; they were finally dismantled in 1981 under Reagan. Carter also said he would impose a windfall profit tax on oil companies. While the regulated price of domestic oil was kept to $6 a barrel, the world market price was $30.

In 1980, the U.S. Government established the Synthetic Fuels Corporation to produce an alternative to imported fossil fuels.