[Doly]

I'd like people's opinions on why the economic climate is nothing like the seventies, in the face of the same economic pressure of rising prices of oil.

For a start, there goes mine. I've been studying my economic textbooks again to try to figure out what to expect after the events of the last days, and I've reached some conclusions.

The main difference between what's happened in the last years and what happened in the seventies is two things: interest rates and job security.

When the oil embargoes happened, interest rates and job security were both relatively high. So, when people found that things were getting more expensive because oil was more expensive, it made sense to demand higher salaries and not to borrow money. This leads to a wage-price spiral and high inflation. This is unsustainable, and to prevent runaway inflation, central banks intervene, driving the economy into stagflation. (If they didn't intervene, things would have got even worse, in the way of Germany in the thirties).

In the last few years, interest rates and job security have been low. So, as the bills get more expensive to pay, it makes sense to borrow money instead of going to your boss demanding a higher salary. This leads to a state of things where everybody gets into debt. And, as paying a mortgage is usually cheaper than rent, it also leads people into trying to buy a house. When there is more demand for housing, prices go up. (I know the housing bubble started before prices of oil went up, but this explains why it continued for so long instead of bursting earlier). Again, this is unsustainable. Eventually, things must end up in general bankrupcy and a depression. Probably it would all start with a big crash, 1929 style, because anybody with a big hole in their accounts try to hide it for as long as humanly possible. I think this might be the beginning of it, but it's too soon to tell. But, as oil prices will continue going up, it's possible that we won't have deflation even when the economy is in such a poor state that you normally would expect it, but a moderate inflation instead. Which government officials may use to claim that the economy is doing OK, in spite of the fact that anybody with a pair of eyes will be able to notice that it looks as healthy as somebody who has turned blue.

OK, that's my take on it. What do other people think?

[MD]

$this->bbcode_second_pass_quote('Doly', '.').. Which government officials may use to claim that the economy is doing OK, in spite of the fact that anybody with a pair of eyes will be able to notice that it looks as healthy as somebody who has turned blue...

[Tanada]

The biggest difference as I see it, there are 50% more 'adult' people in the USA using the infrastructure, buying fuel/food/shelter/entertainment.

I don't care how efficient you make your vehicle, when we hit real shortages that increased population is going to cause increased difficulties in dealing with it.

[I_Like_Plants]

Yes - huge population increase. When biologists study an animal population and see 50%-100% more in some areas, they know a collapse is that much more likely. Just simple overpopulation.

Also, in the 1970s, the North Sea oil finds were still in the near future. Those allowed the party to go on a while longer.

Also, 1975 is about where the middle class and working class in the US stopped doing better and better and started on the downslope. Now, only the most brainwashed have any illusions about a better life in the future.

[IrrationalExuberanceMonky]

1) The amount of debt floating around out there.
2) Following on from 1, the ratio of real GDP growth/total national debt growth (personal, government and corporate) as a percentage of GDP is sickly and long term declining (since the late 60's IIRC).
3) The rise in the "service economy", not to say important services such as designing super-advanced computer networks or whatever but the financial engineered Wall St slime and starbucks jobs crap.
4) The demographics of an elderly population and an absurd and unaffordable amount of "unfunded liabilities".

That's all for now, I'm sure I forgot some shit, but my beer is getting warm.

[RonMN]

Nothing like the 70's...DARN GOOD question!

In the '70's my folks HAD a few dollars stashed away...and they were making 17-20 % on VERY SAFE Treasury-bonds.

Today we can't even count on the dollars in your pocket being worth what they are today (so spending them might make more sence than saving them).

When AAA rated bonds are loosing 20-50 % it becomes very difficult to find a safe haven.

IMHO...THAT is what is different between the 70's & today...we are no longer GROWING!

[Eli]

I think the thing to also keep in mind with this current credit bubble people were plowing their debt into increasingly expensive homes.

The only peoples wages that went up were CEOs and Hedge fund managers.

Because the money went into homes it helped keep a lid on inflation in the wider economy.

[Kingcoal]

Interesting theory, Doly. I'd like to point out one more difference. The oil shocks of the 70's were based on politics, not shortage. In the 70's, the Middle East was just coming into it's own. There were plenty of new sources waiting in the wings. Today... Well, you're guess is good as mine. Today the new sources are crap; sour, heavy, tar sands, etc, you get the picture.

[billp]

We were on sabbatical leave at UI Champaign-Urbana in 1972-3 in computer science

Not peak oil then.

Not so many people then.

But FAR MORE people than in 1956. Eisenhower just started the Interstate system in 1956.

This senior is becomming active in electric and natural gas futures.

As well as genocide too.

[watercut]

There are many contrasts between today and the 1970's, however, the one that has not been mentioned is BRIC (Brazil, Russia, India and China). These economies are growing and "pulling" the U.S. economy with it (for now). The U.S. GDP is about 14 trillion $ and the world economy is about $45 trillion so the U.S. is about 30% of world total. In the 1970's it was about 50%. Between now and 2012 what we will see develop is much higher prices for all commodities including oil and then a creshindo of oil prices when either a peak is recognized or a major global "event" occurs. Oil consumption will collapse followed by prices back to $20-30/barrel. This will mark the depression all mention above. Over 8-10 years we will work our way out of the depression only to be followed by another quick boom and bust driven by limited oil availability.

Should make for an interesting 20 yeas ahead.!!!

[cube]

1970's USA == net creditor nation


Today == world's most indebted nation

[MD]

In sum: there are so many differences that a historical comparison yields little or no insight to the future.

[darren]

$this->bbcode_second_pass_quote('RonMN', '
')Today we can't even count on the dollars in your pocket being worth what they are today (so spending them might make more sence than saving them).

[MrBill]

$this->bbcode_second_pass_quote('darren', '')$this->bbcode_second_pass_quote('RonMN', '
')Today we can't even count on the dollars in your pocket being worth what they are today (so spending them might make more sence than saving them).

[evilgenius]

Since the 70's the Saudis have played along with America because it has been in their best interest to do so. The embargo didn't really work for them either. It is still in their best interest, but today what the Saudis desire gets a lot more attention in Washington than it did yesterday. Today there is real competition with China for who can line the Saudis mattresses. The US still holds sway, but at what cost? For how long?

[Petrodollar]

evil genius wrote:
$this->bbcode_second_pass_quote('', 'S')ince the 70's the Saudis have played along with America because it has been in their best interest to do so. The embargo didn't really work for them either. It is still in their best interest, but today what the Saudis desire gets a lot more attention in Washington than it did yesterday. Today there is real competition with China for who can line the Saudis mattresses. The US still holds sway, but at what cost? For how long?

[IrrationalExuberanceMonky]

To petrodollar,

The book in your avatar is great, I heard you wrote it?
I'm gonna read that right after I read my reading list (very long) and after:

http://www.amazon.com/Next-Great-Bubble ... 0743222997

[static66]

This is a good subject, I try and warn my friends and colleagues of the upcoming meltdown and they shake their heads and say "It all happened in the 70's and interest rates were 19%! We made it through that." The real scary part of it that I see is that this is truly a global meltdown literally and figuratively... The same crazy run-up in housing happened in the UK and Ireland and pretty much everywhere else... Could this really be a massive land-grab by the Illuminati???

[Petrodollar]

IrrationalExuberanceMonky

Yes, the rumor is correct. If you're curious, here's some basic info from my humble website: http://www.petrodollarwarfare.com/

Feel free to send me a private email if you'd like, I have not read the Next Great Bubble Bust, but it sounds interesting (I hope the author of that book takes into account the changing global landscape re hydrocarbon reserves and production trends...).