Terror, War, Revolution and Gold - The 1970's and Now

The world is burning, and it seems that even the fiddlers have stopped. There are concurrent conflicts, skirmishes and hostilities raging in at least a dozen countries and across five continents: Iraq, Iran, Israel, Palestine, Afghanistan, Syria, Russia, Ukraine, Libya, Nigeria, Somalia, Mexico, Venezuela, etc.

So what is everyone fighting about? We may be harder pressed to point out precisely where we all get along. Across the globe, there are civil wars, border disputes, cultural clashes, kidnappings, religious conflicts, acts of terror, and full blown insurrections. While it may seem like we are living in extraordinarily perilous times, there is precedent for our global woes.

A look back at the 1970’s reveals some astounding similarities. In 1970, Palestinian terrorists hijacked five planes bound for New York and London, blowing up three in the Jordanian desert. In 1972 another group of terrorists attacked the Olympic Games in Munich, Germany; killing 11 members of the Israeli Olympic Team. That same year, the Watergate political spying scandal broke. In 1973, the last US combat troops left Vietnam ending one of the most unpopular wars in US history. In 1975, Civil War broke out in Lebanon. In 1976, the Ebola virus broke out in Sudan. In 1979, Iranian students stormed the US embassy in Tehran and took 52 US citizens hostage.

Our current decade has seen a similar mix of terrorism, the winding down of war, government scandal, viral outbreaks, and hostage-taking. Much like now, the 1970’s were overwrought with weak economic growth and high unemployment. It was another era that lay claim to accommodative monetary policy which eventually triggered high inflation and a dramatic spike in interest rates. The term “stagflation” was coined in the 1970’s to describe the coalescence of rising inflation and stagnant economic growth.

In 1970, the average US inflation rate was about 5.7% and by 1980 it had more than doubled to 13.5% reaching levels never before seen. US GDP growth in 1969 was 2.12%. By 1975, it had dropped to (-) 1.25%. It is interesting to note that since October of last year our current inflation rate has also doubled and in the first quarter of this year US GDP shrank and astonishing (-) 2.9%.

The 1970’s also saw an historical gold bull market. At the beginning of the decade gold was set at $35 an ounce. By 1980, it had soared to $615 an ounce, catapulting some 2000%. It was bolstered by the removal of the dollar from the gold standard as well as an unpopular war, a Mideast oil crisis, an Islamic Revolution, and a Soviet invasion.

Both our decade and the one that preceded us some 40 years ago have been marred by worldwide turmoil and such periods ultimately trigger dramatic flights to safety. As we sit in this second decade of the new Millennium, we not only confront similar threats to those of the 1970’s … terror attacks, a new Russian annexation, another unpopular war, similar distrust of Washington but we have the added burden of a global recession, staggering world debt, new terror states, new spying scandals, raging currency wars, and deadly nuclear proliferation.

As we make our way through these tumultuous times it is important to retain the lessons of the economic moments that came before us. Where did inflation go? Where did GDP go? And, where did gold go? If we are not asking these questions then we are not adequately protecting our future.