Remember the 1970s’ high unemployment, empty store shelves, lines at gas stations and skyrocketing inflation? History may be set to repeat!
Many are old enough to remember the turbulent economics times of the mid-1970s. The U.S. economy, strong through the early 70s, bounded along with high growth and low inflation—the nirvana that all economists long for. Times were good, at least from an economic standpoint.
That began to change rapidly in the fall of 1973. That October, Arab nations attacked Israel on its most solemn holy day, Yom Kippur (the Day of Atonement), when Israeli armed forces would be at rest, setting off months of war. In retaliation for U.S. and European support for Israel, the Arab-controlled Organization of Petroleum Exporting Countries (OPEC) embargoed oil sales to the United States and many European nations. Oil prices skyrocketed, nearly tripling almost overnight. Home heating oil and other oil-based products likewise greatly increased.
In 1973 and 1974 poor wheat and corn harvests caused a sharp rise in the price of those commodities. Given the twin “supply shocks” of high oil and commodity prices, Americans soon found themselves paying much more for gasoline and diesel fuel as well as food prices, the latter made even worse by rising transportation costs.
The money supply also was growing rapidly. America’s central bank, the Federal Reserve, had added more than $90 billion to the U.S money supply between 1970 and 1975, the dollar being completely disconnected from gold in August 1971. In just one year, from December 1971 to December 1972, the nation’s basic measure of the money supply increased from $228 billion to $249 billion. That trend accelerated in 1975. In one of its most expansionary weeks, July 31 to Aug. 6, 1975, the “Fed” grew the money supply by $1.9 billion.
By 1975, America faced the twin threats of an expanded money supply leading to devalued dollars along with supply shocks in food and fuel prices reducing the dollar’s buying power even further. As people were forced to pay more for these necessities, they had less money to spend on other things. Consumer demand, which has long accounted for about 70 percent of the U.S. economy, dropped. This and other factors led to job layoffs, and unemployment rose.
That ran contrary to accepted economic thinking of the time. Economists coined a new term, stagflation, to describe the twin and contradictory phenomena of U.S. economic growth stagnating during a time of inflation.
Stagflation was then short-lived, as the U.S. economy rebounded in the second half of the 1970s in an expansion that lasted until early 1980. But stagnation returned in late 1980, somewhat as a result of the Iranian Revolution. A second oil shock lit a fire under inflation, which reached more than 14 percent by late 1980.
Back to the 70s again
Now, more than 40 years later, we may be seeing the same thing occur again. As the Covid pandemic subsides and life has in some ways returned to normal, demand for all sorts of goods and services has surged. This increased demand, fueled even more by large federal stimulus checks over the past 20 months, has rapidly pushed up prices. Those higher prices have in turn caused workers to demand more pay as prices have risen.
As employers have had to raise wages in order to fill jobs, they have had to pass along some of these higher labor costs to consumers in the form of higher prices.
The U.S. Bureau of Labor Statistics (BLS) reported that U.S. employers added 678,000 jobs in February and 431,000 in March, surpassing economists’ expectations. Additionally, the BLS revised upward its figures on new job creation in both December 2021 and January 2022. Rising employment almost always signals a growing economy.
Most economists agree on a simple point: Major increases in the money supply lead to inflation. And, as happened in the early 1970s, the Federal Reserve is again ballooning the U.S. money supply—yet now in figures previously unheard of. In an effort to prop up the economy during the pandemic, the Federal Reserve increased money in circulation by more than $226 billion between June 2019 and June 2020, which equates to almost 22 percent of all current U.S. dollars being created in that one year alone!
The government has thrown more fuel on the inflation fire with trillions of dollars in new stimulus spending—well beyond the early stages of the Covid epidemic. Many economists have rightly questioned the need for government fiscal stimulus when the economy was already recovering, a clearly inflationary move.
There is no doubt now that inflation is running wild. Rising food and fuel costs will likely force millions of Americans, most of whom have little savings cushion, to cut spending in other areas. Spending on nonessentials like dining out, travel and major purchases could slow dramatically, again slowing economic growth to a crawl as in the 1970s.
The Fed has signaled it will be aggressive in getting inflation under control. Most economic forecasters now predict multiple rate hikes this year. But as interest rates rise, financing costs for homes, cars and business expansion will rise, further dampening economic growth.
The Ukraine war effect
Late February saw the attack by Vladimir Putin on Ukraine. This war, the first large land conflict in Europe since World War II, will also affect the U.S. economy in ways many are now just beginning to realize.
To penalize Russia for its aggression and weaken its ability to continue the war, the United States and Europe quickly slapped on a host of economic sanctions, including measures against Russian banks and Russian billionaires who largely control the Russian economy. Russia depends on oil exports for much of its national income, and in early March America took the further step of cutting off imports of Russian oil. Though the United States imports only 4 percent of its needs from Russia, this embargo has only worsened America’s oil shortage, a shortage created in large part by the current administration’s hostility toward U.S. oil production.
With increased U.S. oil production ruled out for political reasons, the administration reached out to Iran and Venezuela, both U.S. enemies, to urge them to export more oil. Both refused, a further sign of weakening American influence throughout the world. Now the administration is tapping into U.S. strategic oil reserves, using up emergency supplies critical for the nation’s future for short-term political gain. Even so, Americans may be looking at gas prices of $5-7 per gallon nationwide when peak summer travel season arrives.
The Russian invasion will also impact food prices. These were already on the rise due to supply shortages and inflation—in spite of U.S. administration attempts to shift blame for rising prices to the current war. But of course the war makes things worse—as does the West’s response. Russia and Ukraine together account for nearly a third of world wheat exports. With Ukrainian exports curtailed due to the invasion, and Russian exports cut off due to economic sanctions, food prices will shoot up even more. Prices of some food items could easily double.
On top of that, even before the invasion, U.S. and Canadian wheat and corn crop yields were lower as a result of widespread drought. Ukraine and Russia are also major exporters of fertilizer. Again, due to the war Ukraine is in no position to manufacture and export fertilizers, and Russian exports have halted due to sanctions. This scarcity is leading American, Canadian and European farmers to ration what fertilizers they can get, leading some to switch from planting corn and wheat to less fertilizer-intensive crops—and in some cases, to planting nothing at all.
As a result, the International Monetary Fund (IMF) in mid-March forecast sharply rising energy and food prices. In a statement the IMF warned that “the ongoing war and associated sanctions will also have a severe impact on the global economy.”
From here to . . . recession?
Seeing the gathering storm of massive inflation coupled with a slowing of the U.S. and world economies, prominent voices from around the world now see the specter of the dreaded “R” word—recession. In early March, French Finance Minister Bruno Le Maire alerted an energy conference to the possibility that economic fallout from the Ukraine war might lead to 1970s-style stagflation. In April more economists forecast recession later in 2022.
After a strong 2021, economists everywhere have slashed their forecasts for 2022 growth. Goldman Sachs, the world-famous New York bank and brokerage, has cut its 2022 growth forecast for the United States from 2.75 percent to 1.75 percent. They now see a 20 to 35 percent chance of a U.S. recession by the end of 2022.
The Atlanta Federal Reserve forecasts a major slowing of U.S. first quarter growth in GDP (Gross Domestic Product) to as little as 0.1 percent, down from 6.9 percent for the final quarter of 2021. Economist Mark Zandi of Moody’s Analytics said: “Inventories are roughly back to where they should be, and now you’ve got growing headwinds from fiscal and monetary policy. So growth starting the year will be very soft.” Looking farther ahead, the Conference Board sees growth for 2023 at an anemic 2.3 percent, saying it cut its previous forecasts due to effects of the Russian invasion of Ukraine.
The factors for stagnation are clearly in play. The economy could cool while prices for nearly everything will almost certainly continue to rise. It could be 1975 all over again.
No one is immune to world conditions
For most of its nearly 250-year history, America has felt secure in its physical separation from Europe and Asia. Protected by two large oceans and blessed with natural resources, a strong workforce and free-market economic system, it produced nearly everything its people needed, with much left over to export abroad.
While most do not realize or accept it, this abundant national prosperity was prophesied in your Bible. The first part of Deuteronomy 28 details blessings God Himself would bestow in fulfillment of promises made to Abraham in Genesis 12 (see our free study guide The United States and Britain in Bible Prophecy for a detailed explanation of this amazing truth).
But America’s separation from the world has ended. The world is now highly interconnected. Supply chains now stretch around the globe. As a result, the United States is vulnerable to events in faraway places, events that can destabilize its national economy.
The events of the 1970s brought this stark reality to the forefront. Now America is seeing this again. It could—and will—lose the prosperity it has enjoyed for the past 150 years. Those blessings are being removed. Read the second half of Deuteronomy 28 for a glimpse into what will happen as a result of America’s national rejection of God’s law.
Students of prophecy know the Bible foretells a time of global turmoil that Jesus Christ referred to as “great tribulation” in Matthew 24. Christ told His disciples this time of war, famine, economic collapse and upheaval will increase in severity leading up to the time of His return.
He also revealed to the apostle John more details of this time of trouble in Revelation 13 and 17, which speak of a new global system that will massively deceive the entire world. This system will enslave most of mankind into accepting its “mark,” without which a person will be completely shut out of normal economic activity such as buying and selling.
If history teaches us anything, it’s that desperate times can lead to desperate measures—including the rise and fall of national powers and a reordering of the world’s political systems. Continue reading Beyond Today to better understand the seriousness of the times in which we live and what you need to be doing!
How Can You Prepare?
With the uncertainty of the U.S. and global economic situation, and other dangerous times ahead for the world, it would be wise to be prepared in at least a basic way for emergency situations.
A good starting point is to have basic necessities such as food and water stored. This is a biblical principle, as Proverbs 27:12;tells us: “A prudent person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences” (New Living Translation). So having at least a week’s supply of food and water available in our homes, if not considerably more, is a good idea even when no immediate threat is apparent. The U.S. government’s Federal Emergency Management Agency (FEMA) lists practical advice and contents for a family emergency supplies kit at ready.gov/kit.
However, with our physical preparations, we must remember that the Bible emphasizes looking to God for our physical needs as we seek His Kingdom. We have Christ’s own promise that if we pursue His Kingdom and way of life first, then God will provide our physical needs (Matthew 6:33).
Christ also warns us to be vigilant concerning our spiritual state. In His last major prophecy before His crucifixion, recorded in Matthew 24, Mark 13 and Luke 21, He describes and summarizes the conditions and events that will lead to His second coming.
After describing the calamities of the world to which He would return, Jesus said to His disciples, “But of that day or hour no one knows, not even the angels in heaven, nor the Son, but the Father alone” (Mark 13:32, New American Standard Bible).
The next verse clearly shows that we should continue to keep a watchful eye on world trends and conditions as well as our own spiritual state, for we will not know the exact time of His return: “Take heed, keep on the alert; for you do not know when the appointed time will come” (verse 33, NASB, emphasis added throughout).
Christ then compared Himself and His second coming to a man who traveled to a distant country, left his servants in charge of his property and asked the doorkeeper “to stay on the alert” till he returned. Then He gives His warning to His disciples a second time: “Therefore, be on the alert—for you do not know what day or hour the master of the house will return . . . and what I say to you I say to all, Watch!”