Today, as I was driving my daughter to her first day of summer camp, I sat at a red light and was talking on the radio about today’s congressional hearings on the attack on our Capitol. It was an uprising, a coup d’état, an attempt to stop the constitutionally required counting of the electoral vote after a free and fair election. Messages don’t get much bigger than that.
In the meantime I saw two gas stations. One advertised a gallon Normal for $5.27, the other a penny less – as if saving a few dimes on gas would make a difference. According to AAA, prices are up almost $2 from a year ago, with 58 cents of that added in the last month alone. Talk about a pain in the gas. This, and rising inflation in general, is also a gigantic story.
The juxtaposition of these two things is fascinating as we enter a long, hot summer that will be followed by major midterm elections. How we respond to both reveals much about who we Americans really are and where our nation is headed.
First, consider this. The median age of an American is about 38. That means most of us don’t have first-hand experience of what I think most closely resembles our present time: the horrible years 1973-75.
let’s compare Then as now, a major war disrupted the world’s oil supply. (Israel was under attack from its Arab neighbors, we were arming the Israelis, and OPEC, the oil cartel, responded with a crippling embargo.) Inflation skyrocketed. In the 12 months to December 1973, the consumer price index was 8.7%, which is where we are now.
But the worst was yet to come: at the end of 1974 the consumer price index was 12.3%. Unemployment was a lagging indicator: 4.9% at the end of 1973, but 7.2% a year later and 8.2% a year later.
Stocks were crushed. In real terms, the S&P 500 Index SPX,
fell nearly 52%, led by the decline in a concentrated group of stocks that had previously been market darlings. It was called the “nimble fifty”. Anyone who started overweighting tech stocks (Netflix, anyone?) in 2022 can certainly relate. If the collapse of 2022 becomes something like ’73-’74, then, as a hit of the day went by, we’ve only just begun.
One more thing about the market collapse. The Biden administration has tried to link our problems to the Russian invasion of Ukraine, but that is only partially true. oil CL.1,
rose from about $65 on December 1 to $85 on January 24, a full month before the start of the war. Incidentally, in 1973, stocks began to fall a full nine months before the outbreak of war in the fall.
That being said, Putin has undoubtedly made things a lot worse. For example, Mark Zandi, chief economist at Moody’s Analytics, estimates that the Russian invasion of Ukraine accounts for about a third of our inflation.
What about the greatest source of wealth for most Americans – their homes? This seems to be the silver lining to all these historical inconveniences. According to Federal Reserve data, housing in real terms stopped in the 70’s. There are cracks in the market today and rates TMUBMUSD10Y,
are rising rapidly, which could force some buyers out of the market. But a serious housing shortage could support prices in at least some markets. Maybe. But one thing seems clear: the apartment party is probably over.
Inflation and rising interest rates and falling stocks don’t mean good times, and while the job market remains tight – the unemployment rate was 3.6% in May – Americans are on edge. That’s no surprise consumer confidence is erodingwhen people tighten their belts.
Which brings us back to the other big story this Summer 22: investigating the attack on our Capitol. As more and more Americans sit around the kitchen table wondering how to make ends meet – inflation resonates immediately and strongly with all of them – that doesn’t mean investigating the assault on our Constitution and our democracy is any less important. Even more so in the long run.
Why do I think that? For as bad as the ’73-’74 downturn was, it was part of a market cycle that played out within the parameters of a functioning democracy and market economy. The market’s worst excesses were flushed out, and Watergate – taking place at the same time – showed that our political excesses could also be flushed out. Our ability to deal normally with both an economic and political crisis at the same time reflected one of our enduring strengths: our tremendous resilience and capacity for self-correction.
The economy will recover; it always does. But how can we correct ourselves from what happened on January 6, 2021 when tens of millions of Americans think it doesn’t matter? Beginning with George Washington’s resignation for John Adams in 1799, we have had more than two centuries of peaceful, respectful presidential transitions. Until now. Our constitution and respect for it is paramount, and without it we would be nothing.
What do Trump supporters mean when they say it doesn’t matter? Therefore, that, rather than a commodity’s cyclical ups and downs and a nasty bear market, should be our biggest long-term concern.
https://www.marketwatch.com/story/split-screen-summer-a-troubled-economy-has-the-power-to-drown-out-the-jan-6-insurrection-hearings-11655146215?rss=1&siteid=rss Commentary: Split-screen Summer: A struggling economy has the power to drown out the Jan. 6 riot hearings