This time without a safety net.
Great article, so am not trying to detract, but don't understand how you lump Bitcoin as a hard asset. "a bias towards hard assets — real estate, precious metals, and Bitcoin if you’ve got the risk appetite." Hard assets are those one can touch and use the physical product. You can plant crops, a tree farm, or build a house on real estate. Gold and silver not only have uses as jewelry, they also have other electronic uses, silver particularly in solar arrays. Gold has had monetary uses for 5,000 years and many use it as a type of hard asset insurance. You cannot hold a Bitcoin and it has no other uses. I am not bashing Bitcoin; it is just not a hard asset by definition.
I'm old enough to remember the 70s. And the 80s. Not a fond memory. I have positioned myself differently this time. Ty for your wisdom and guidance. These old eyes still have more to See. Keep Shining the Light.
So one difference I see between the 70s and now is that assets are already extremely inflated and in the 70s this only happened when the inflation started. I think many of the asset prices, like real estate, are credit bubbles. So it's hard to believe they can get much bigger as private debt is already unattainable.
Also you say that the oil crisis doesn’t explain the stagflation. However, when the inflation in 1970 starts, unemployment went down, which is consistent with Keynes’s prediction. Still the dominant theory of the time. It was only after the oil crisis when the stag in stagflation really started and both unemployment and inflation went up, which should supposedly not happen. However, before and also after this event, this central Keynesian principle (the Phillip’s curve) has always remained true. Actually one should plot credit (change in private debt) to unemployment rates and you will find a near perfect inverse correlation even during the stagflation event.
Private debt is very underrated.
An alternative view relates to energy products. There’s a strong correlation between energy supply and economic output. The industrial age started with coal and global economic output grew rapidly as coal output/consumption increased. By the 1930s coal production peaked in many advanced industrial nations (15 years earlier for Great Britain) which coincided with a a major downturn viz a viz the depression in Europe and USA. The world escaped the coal slump by the switch to oil with the USA in the vanguard. Oil output/consumption grew rapidly from the end of WW2 with the USA being the biggest producer and by far the wealthiest nation. By the 1960’s the USA was untouchable from a wealth and power perspective. By the 1970s the growth in global oil output began to slow (primarily US and Middle East) and that’s when the troubles started with economies starting to stagnate (stagflation). These challenges were clouded by events such as the Yom Kappur War and the Iranian Revolution plus the machinations of OPEC, but then ended up in the rear view mirror when new major oil fields came on line E.g. Alaska, Mexico and UK North Sea. Everything went well until these fields also peaked in the late 90s/ early noughties with global conventional oil peaking in 2005. The GFC followed shortly thereafter, but declines were temporarily offset by US non-conventional production (fracked) which papered over the cracks. This production was never sustainable (unprofitable and very short lived output from each play). Fracking has pretty much run out of steam and global oil output seems to have peaked in 2018 with no new mega fields in prospect. What we’re left with is the presence that wind and PV can save us ..
How do you reconcile the "everything" bubble that we're in this time? Real Estate, equities, all asset classes are grossly inflated after the massive qe campaign. A deflationary bust across all assets seems inevitable.
Love your commentary! How much of a plus do you think it will be this time around without Boomers entering the job force? We now have 2 jobs for every adult entering the job force.
Thx Peter, glad to see someone address the 70’s debacle, all I hear these days is how Good we had it back then!
Greatly enjoy the always common sensical with extremely well researched factual and thorough analyses.
From my research which extends into the spiritual and astrological as well as the economic, political, sociological and historical this doesn’t look to be saveable yet again. This century’s plus experiment of central banks becoming a global phenomenon doesn’t work, and that, along with the great awakening of all of the ego driven collusions at work, at the same time as explosively advancing technology, will add up to an end to things as we know them.
Which in the end is great news. Out of the end of failing systems will rise new hopefully sustainable ones on all fronts , starting with humanity and spirituality. How we get from here to there is anyone’s guess. Stay solvent and safe, and out of the way as the society as we know it comes to an end and our existence transforms into something very new.
Hopefully we evolve. It’s definite on time for it and we are well equipped if we embrace all that is available to us.
Thank you Professor! I greatly appreciate your frequent lessons and analyses.
Now, time for recess? I’m going to go beat Joeys ass. He started it.....!