Might The Delaware Valley Be Dealing with One other Period Of ’70s Model Inflation?

Talk of trillion dollar government spending plans and tight labor markets inspires speculation about the dreaded “me” word – inflation – and brings back painful memories of the Delaware Valley in the 1970s.

In Abington, 78-year-old Carol Gash recalls how she and her late husband, Dr. Arnold Gash, had trouble getting a mortgage after moving to the Philadelphia area when Dr. Gash retired from the Air Force.

“The interest rates were well over 10 percent,” she told DVJournal. “They were sky high. But my parents offered to give us a 10 percent mortgage, so we took it.” At its peak in October 1981, the 30-year mortgage hit 18.63 percent according to the Federal Reserve Bank of St. Louis. The Fed hiked rates to fight inflation that had plagued the economy for a decade. From 1974 to 1980 The annual inflation rate was 9.4 percentIn 1979 it was 13.3 percent.

And it is inflation, not interest rates, that worried Gash today. The Wall Street Journal reports that inflation – too many dollars chasing too little goods – accelerated in March due to a consolidating economy and rising energy prices. MarketWatch has taken inflation to a two and a half year high.

“Since I have a limited income, it bothers me more now than it did then,” said Gash. “It costs me a fortune to feed my child.” Her adult son is disabled and lives with her.

“It was crazy,” said Fred D’Ascenzo, 67, of Newtown, of this earlier period of inflation. “But I wasn’t worried. I knew it was cyclical.”

D’Ascenzo agrees with Gash on mortgage rates. He and his ex-wife bought a house in Drexel Hill in the 1970s and paid 14 percent interest. But if you had money in a money market account, you could get 10 or 12 percent interest, he added. However, the high mortgage rates caused the real estate market to stagnate.

“Buying a house or a car was ridiculous, the price of a loan,” said D’Ascenzo. “Everything you bought was crazy how much it cost.”

President Gerald Ford battled inflation with Whip Inflation Now (WIN) buttons, he recalled. In 1976, Ford was beaten up for election by Jimmy Carter, another president with a term who also failed to “whip” inflation.

But D’Ascenzo also sees higher prices these days, “especially for building materials, sawn timber, flooring. It doesn’t just creep up. You can’t get furniture. It’s crazy.”

Experts consider government spending to be a major inflationary factor.

“I think inflation is one of the major health issues in the American economy as so many dollars are being pumped into the economy through various COVID relief efforts,” said Jonathan Williams, an economist with the American Legislative Exchange Council (ALEC), one bipartisan organization of legislators in favor of limited government, free markets and federalism.

While COVID relief laws can help the unemployed to some extent, Williams warned that a national debt rapidly approaching $ 30 trillion is a cause for concern.

“The numbers are sure to go up,” Williams continued. “Anyone who recently went to the gas station to refill their tank has seen a sharp rise in gasoline prices, and this is just one example of a commodity that has been rising in prices recently.”

According to the AAA, the national average for a gallon of regular gasoline on April 21 was $ 2.87. Drivers paid roughly the same amount in late March, but the average for a gallon of regulars on April 21, 2020 was $ 1.80.

“For those who bought wood, aluminum, or copper for various home improvement projects, prices have gone up in those areas too,” Williams said.

And most of the raw material prices have gone up. In an April 22 tweet, Charlie Bilello, founder and CEO of Compound Capital Advisors, said that commodity prices were up year over year. Sawn timber up 265 percent; West Texas Intermediate (WTI) Crude Oil Up 210 Percent: Gasoline Up 182 Percent; Brent Crude Oil Up 163 Percent; Heating oil up 107 percent; Corn Up 84 Percent; Cooper up 83 percent; Soybeans Up 72 Percent; Silver Up 65 Percent; Sugar Up 59 Percent; Cotton Up 54 Percent; Platinum Up 52 Percent; Natural gas up 43 percent; Palladium Up 32 Percent; Wheat up 19 percent; Coffee by 13 percent and gold by 3 percent.

However, not everyone is concerned. At least one Federal Reserve president, Eric Rosengren of Boston, does not anticipate a worrying rise in inflation.

“As long as it’s in the 2 to 2.5 percent range, which I think is very likely in the next two years, I wouldn’t be particularly concerned,” Rosengren told the Wall Street Journal earlier this month. Still, that doesn’t satisfy former Treasury Secretary Larry Summers. Former Clinton cabinet member believes the Federal Reserve should raise concerns about the inflation outlook.

While a lot could happen between now and next year’s midterm elections, Williams believes the Democrats will be primarily to blame if inflation picks up too quickly. Democrats currently control the House, Senate, and the White House.

“Right now the numbers we’re seeing are on the higher end than recently, but still a bit in the moderate range,” said Williams. “The other bigger problem would be getting into a Japanese-style situation where, in some cases, there is stagflation or even deflation.”

The stagflation explained by Investopedia is characterized by slow economic growth and relatively high unemployment or economic stagnation, which is accompanied by rising prices.

“So, I think you have to look at the real problem of a combination of lack of economic growth and also combine that with inflationary pressures you get the stagflation we saw in the 1970s under Jimmy Carter, and that would be the worst. Case scenario think me for the American economy, “warns Williams. “Therefore, proposals like the one to increase corporate income taxes would be very detrimental to the economy and, in my opinion, would bring us closer to the problem of stagflation with lower growth and higher inflation.”

The Delaware Valley Journal provides unbiased, local reports for the Philadelphia suburbs of Bucks, Chester, Delaware, and Montgomery. For more stories from the Delaware Valley Journal, see DelawareValleyJournal.com