Headed Back to 1980?

I was probably rocking a pair of bell bottom jeans at the time, but I recall prices increasing for many things while a number of folks (including my father) were unable to find regular work.

A dollar in 1980 was the equivalent of $3.40 today. 16-oz sodas in glass bottles were a quarter (and we got a dime back for returning the bottle). We had just survived the Carter presidency, but things were a right mess.

As noted here:

By the summer of 1980, unemployment hit 7.8% and the economy was actually shrinking. On the year, inflation spiked 12.3%.

The article goes on to talk about our current numbers and why it looks like we could be settling in for a long bout of inflation with low to no economic growth.

The cause? I’m not an economist, but things in our economy that seemed to be tied together (or would at least move in a generally correlative fashion) are all over the place.

As the central bank purchased these and other assets from investors, investors funneled those newly minted dollars into other assets. This gusher of cash helped push overall stock market capitalization 45% above pre-pandemic levels, even though economic output barely budged (up just 1.4%).

How does the market move up 45% while output (which is a large part of what the market should be indexed against) only increases 1.4%. That’s the market moving 32 times faster than output. This feels just a bit like the dotcom boom and bust days from 20 years ago — except we’ve not yet seen the bust.

Supposedly, my dwelling has appreciated 40% in 5 years. I say “supposedly” because I’m not planning on selling it, so won’t be able to determine true market value, but still. That’s 12.5% per year. That’s not sustainable.

What should we expect in the short term? At the federal level, I can’t see monetary policy changing dramatically. A contraction of the money supply would help, but what we really need is for interest rates to hit double-digits. But, that would be terribly painful, so we probably won’t go there (even though it would be a huge help).

Bottom line, it’s going to keep getting worse for a while. Might need to break out the bell bottoms.

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