What do you know about the '70s?

What is the first thing that comes to mind when we talk about the '70s? Hippie culture, perhaps? Or the release of The Godfather?

If you ask economists, they will say unequivocally: the U.S. crisis of the 1970s. Tax cuts, funding for social programs, and the Vietnam War all ramped up inflation in America to 15%. At the time, a key rate hike by the Fed led to a temporary slowdown in inflation, with a further renewed peak and, as a consequence, a breakdown of the economy. A kind of "Zugzwang" has developed, where one can no longer raise the rate because it would make unemployment even higher, and one cannot not raise it either because inflation continues to skyrocket.

* Zugzwang (German for "compulsion to move", pronounced is a situation found in chess and other turn-based games wherein one player is put at a disadvantage because of their obligation to make a move; a player is said to be "in zugzwang" when any legal move will worsen their position.


That is why the Fed's current rhetoric is rather harsh. They are afraid of repeating the mistakes made in the 70's. If they don't "push back" now, the slowdown in inflation can only be temporary, resulting in more losses in the long run. And as long as there are no significant breakdowns in the real economy, the Fed will raise the rate and then hold it high for an extended period of time. The goal is the same: surely to prevent a repeat of the stagflationary history of the 1970s


Best regards EXCAVO