It's 1974. The inflation rate hit double digits in February of 1974 and would stay in double digits until May 1975.

Not much was looking any better. The stock market lost about a third of its value from the beginning of the decade to late 1974. In that same year, the unemployment rate was above 7%.

The easy money policies of the Federal Reserve were meant to generate 澳洲幸运5开奖号码历史查询:full employment by the early 1970s. Instead, they caused inflation to soar.

Under new leadership, the central bank reversed its policies, raising 澳洲幸运5开奖号码历史查询:interest rates steadily. Mortgage rates would climb to double digits by 1978 and kept climbing before peaking at 18.45% in 1981.

The Great Inflation of the 1970s

Overall, the macroeconomic event known as the Great Inflation stretched from 1965 to 1982. That means the economic disruption started during the🌞 era of President Lyndon B. Johnson and continued through the presidencies of Richard Nixon, Gerald Ford, and Jimmy Carter.

The most painful period began in late 1972 and continued into the early 1980s.

In his book, "Stocks for the Long Run", Wharton professor Jeremy Siegel called this time "the greatest failure of American macroeconomic policy in the postwar period."

Spreading the Blame

The Great Inflation was variously blamed on oil price manipulation by OPEC, cur𒀰rency specula𒁃tors, greedy businessmen, and avaricious union leaders.

However, 澳洲幸运5开奖号码历史查询:monetary policies that financed massive federal budget deficits deserve much of the blame. As economist Milton Friedman wrote in his book, "Money Mischief: Episodes in Monetary History" inflation is always "a monetary phenomenon."

The Great Inflation and the 澳洲幸运5开奖号码历史查询:recession that followed ruined many businesses and hurt countless individuals. Interestingly, John Connally, the Nixon-installed Treasury Secretary with no formal economics training, later declared personal bankruptcy.

Yet these unusually bad economic times were preceded by a period in which the economy boomed or appeared to boom. Many Americans were awed by the temporarily low unemployment and strong growth numbers of 1972.

In 1972, they overwhelmingly re-elected a Republican president, Richard Nixon, and a Congress co𒁏ntrolled🍬 by Democrats.

Causes of the Great Inflation

Upon his inauguration in 1969, Nixon inherited a recession from Lyndon Johnson, who had spent generously on the social programs of the 澳洲幸运5开奖号码历史查询:Great Society and the Vietnam War.

Despite some protests, Congress went along with Nixon and continued to fund the war and increase social welfare spending. In 1972, for example, Congress and Nixon agreed to a big expansion of 澳洲幸运5开奖号码历史查询:Social Security—just in time for the elections.

Nixon's Changing Viewpoint

Nixon came to office as a supposed fiscal conservative. However, he ran up the budget deficit and eventually declared that he was a Keynesian. 澳洲幸运5开奖号码历史查询:John Maynard Keynes was an influential economist of the 1930s and 1940s who advocated countercyclical policies in ha💧rd times, running deficits in recessions to pump money into the economy.

Before Keynes, governments had met recessionary times with balanced budgets and waited for businesses to adjust or liquidate. The object was to al꧂low market forces to bꦇring about a recovery without government intervention.

Nixon's other economic about-face occurred when he imposed wage and 澳洲幸运5开奖号码历史查询:price controls in 1971. They were a short-term success politically. Later, they would fuel the fires of double-digit inflation because, once they were removed, businesses boosted prices to recover lost ground.

Nixon's deficits also made dollar-holders abroad nervous. There was a run on the dollar, which many foreigners and Americans t🍰hou🔯ght was overvalued. Soon they were proved right.

In 1971, Nixon broke the last link to the gold standard, turning the American dollar into a 澳洲幸运5开奖号码历史查询:fiat currency. The dollar was devalued and millions of foreigners holding dollars, including oil barons in the Middle East with tens of millions of 澳洲幸运5开奖号码历史查询:petrodollars, saw their wealth fall. 

Election Year Politics

Still, President Nixon's primary concern was not the U.S. dollar, or deficits, or even inflation. He feared another recession.

He and others who were running for re-election wanted the economy to boom. The way to do that, Nixon💟 reasoned, was to pressure the Fed to lower interest rates🧸.

Nixon fired Fed chair William McChesney Martin and installed pres⛦idential counselor Arthur Burns as his successor in early 1970.

Nixon wanted 澳洲幸运5开奖号码历史查询:cheap money. That meant low interest rates to promote growth in the short term and make the economy seem strong as voters went to cast their ballots.

The Politics of Cheap Money

In public and private, Nixon put the pressure on Burns. William Greider, in his book, "Secrets of the Temple: How the Federal Reserve Runs The Country", Nixon is quoted as saying, "We'll take inflation if necessary, but we can't take unemployment."

澳洲幸运5开奖号码历史查询: The nation go꧟t an abundance of both.

The key money creation number, M1, calculates the total cash in circulation at a given time. It grew from $228 billion to $249 billion between December 1971 and December 1972, according to Federal Reserve Board numbers. As a matter of comparison, in Fed chair Martin's last year, M1 grew from $198 billion to $206 billion. M2, which measures retail savings and small deposits, grew even more by the end of 1972, from $710 billion to $802 billion.

Adding to the money supply worked in the short term. ℱNixon carried 49 out of 50 states in the election. Democrats easily held Congress. Inflation waꦓs in the low single digits.

However, the country paid the price with higher inflation once the election year festivities ended.

In the winters of 1972 and 1973, Burns began to worry about inflation. In 1973, inflation more than doubled to 8.8%. Later in the decade, it would go to 12%. By 1980, inflation was at 14%.

Was the United States about to become another 澳洲幸运5开奖号码历史查询:Weimar Republic experiencing the brutal effe🌃cts of crippling inflation?

The Great Inflation period would finally come to an end once later Fed chair Paul Volcker pursued a bold but painful contractionary money policy to control it.

The Bottom Line

It would take another Fed chair and a brutal policy of 澳洲幸运5开奖号码历史查询:tight money—including the acceptance of a recession—before inflation would return to low single digits.

In the meantime, workers would endure jobless numbers that exceeded 10%. Millions of Americans were suffering from day🍒 to day by the late 1970s and early 1980s.

Few remember Fed chair Burns, who in his memoirs, "Reflections of an Economic Policy Maker (1969-1978)", blames others for the Great Inflation without mentioning the disastrous monetary expansion. Nixon didn't even mention this central bank episode in his memoirs. Many who remember this terrible era blame it on the Arab oil producers for manipulating the global oil supply.

Pop histories mostly blame OPEC for the Great Inflation. Still, there's a good case to be made that the U.S. government caused the Great Inflation through misguided monetary policies.