The 1970s Are Back (And Your Money Might Be in Trouble)

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Here's something wild I've been digging into: there's a word from your grandparents' era that's suddenly showing up everywhere in financial headlines.

Stagflation.

It sounds boring. I get it. But here's why it matters to you specifically: if stagflation happens, your paycheck could get bigger while simultaneously being worth less. Your investments could flatline for years. And the usual playbook of "just buy index funds and chill" might not work.

Let me explain what happened in the 1970s and why economists are worried we're heading there again.

Think of the economy like a car.

Normally, when a car speeds up (economy grows), the engine gets hot (prices rise = inflation). When it slows down (recession), the engine cools off (prices fall).

Stagflation breaks that logic completely.

It's like your car stalling in traffic while the engine overheats at the same time. The economy stops growing, people lose jobs, AND prices keep climbing. You're paying more for everything while earning the same or less.

That's what happened in the 1970s. Your parents or grandparents probably remember waiting three hours in line for gas while meat prices doubled. Inflation hit 12%. It was brutal.

The Oil Shock

In 1973, there was a war in the Middle East (the Yom Kippur War). OPEC—the countries that control most of the world's oil—said "we're not selling to America anymore."

Oil prices went from $3 to $12 per barrel basically overnight.

Here's the thing about oil: it's in everything. Gas for your car. Fertilizer for food. Plastic for... well, everything. When oil gets expensive, the cost of literally existing goes up.

Companies had two choices: raise prices or go bankrupt. Most raised prices. Some still went bankrupt. They also laid off workers. Boom—stagnation.

The Wage-Price Spiral

Then things got worse.

Workers said: "My rent just doubled. I need a raise."

Companies said: "Fine, here's your raise. But now we have to charge more for our products."

Those products get more expensive. Workers need another raise. Repeat forever.

It's like a dog chasing its own tail. Nobody wins.

The Fed Messed Up

The Federal Reserve is supposed to control inflation. In the 70s, a guy named Arthur Burns ran the Fed. He made two critical mistakes:

Sound familiar? That's basically what happened in 2021 when Jerome Powell called inflation "transitory." Same playbook, fifty years later.

The Government Printed Too Much Money

In the late 60s, the government tried to fund a war (Vietnam) AND massive social programs at the same time. That's expensive. So they printed more dollars.

In 1971, Nixon took the dollar off the gold standard. Before that, every dollar was backed by actual gold. After? The government could print as much as they wanted.

They did.

Here's where it gets uncomfortable.

Almost every ingredient from the 1970s is showing up today:

Supply Shocks? We've got them. COVID wrecked supply chains. The Russia-Ukraine war sent European natural gas prices up 700%. Instead of one oil embargo, we're dealing with an "everything shortage."

Wage-Price Spiral? It's starting. The Great Resignation forced companies like Walmart and Amazon to raise wages. Strikes are happening in auto and healthcare. Boomers are retiring, creating labor shortages.

Government Printing Money? Trillions in stimulus during COVID. We're adding $1 trillion to the national debt every 100 days.

Debt Levels? Way worse than the 70s. Back then, debt-to-GDP was 30%. Today? 120%.

This is the part nobody wants to hear.

From 1966 to 1982, the Dow Jones stayed basically flat around 1,000. Sixteen years of going nowhere.

But here's the really painful part: when you adjust for inflation, the stock market lost 70% of its value over that period.

So even if your portfolio number stayed the same, what that money could buy shrunk dramatically. Your gains were an illusion—just currency losing value.

Today's stock market is at historically high valuations. If stagflation hits, we could see a similar pattern: years of sideways movement while inflation eats away at your purchasing power.

A guy named Paul Volcker became Fed Chair in 1979. He did something nobody liked: he raised interest rates to 20%.

Twenty. Percent.

Imagine getting a mortgage at 20% interest. Nobody could afford to borrow money. The economy crashed. Unemployment hit 11%. It was a brutal recession.

But it worked. Inflation died.

Here's the problem: we probably can't do that today. Our national debt is $34 trillion. If interest rates hit 20%, the government wouldn't be able to pay its own interest bill. The banking system would collapse.

So instead of a sharp, painful cure, some economists think we're looking at a "long slow bleed"—maybe 4-5% inflation for an entire decade. Not catastrophic, but slowly eroding your purchasing power year after year.

Here's my honest take:

The era of easy money—0% interest rates, cheap goods from China, stocks going up forever—might be over. Not definitely, but maybe.

Stagflation, if it happens, is essentially a wealth transfer. It moves money from people holding cash (savings accounts, checking accounts) to people holding assets (real estate, stocks, commodities).

I'm not saying panic. I'm not saying sell everything. I'm saying pay attention.

The playbook that worked for the last 40 years might need updating. And the worst thing you can do is assume the future will look like the past.

If you read nothing else, remember this:

The 1970s taught us that prices can rise while the economy shrinks. It happened before. The warning signs are flashing again.

Whether it happens or not, knowing what stagflation is—and what it does to regular people's money—puts you ahead of most investors your age.

That's what we're here for. Making sense of this stuff together.

See you tomorrow.

— Alex