Oil Crisis in the 1970’s

The 1970’s economic history was full of its ups and downs. This was a decade of slow business growth, with uncontrolled wages, and price inflation. This mixture of negative economic factors created the term “stagflation”. This decade experienced the end of the Vietnam war, two oil crises, swings in interest rates, the Watergate scandal, and the weakening of the American dollar.

In the 1970s the United States experienced several recessions, one started in 1969 and extended into1970. Another in 1974 to 1975, and again in 1979 that stretched into 1982.

The oil crisis from 1973 saw amplifying oil prices by OPEC. In1979 the oil crisis caused by the Iranian Revolution led to the decreased oil production in the world.

When Nixon ended the convertibility of the US dollar, OPEC nations started to retaliate by ceasing exports of oil to the US This quadrupled the price of oil. The automobile industry started to perform poorly because consumers were electing to buy foreign cars because of the gas prices and because the typical American cars were not efficient on energy.

Now with higher gas prices, higher home heating oil prices the American public had less money to spend on goods and services which decreased economic growth and encouraged inflation. Credit card usage increased as well as rising property rates and higher cost of living standards (Federal Reserve History, 2019).

The most famous period in the US was during the time where inflation and unemployment were certainly correlated with the 1970’s. Businesses were unable to increase prices secondary to Nixon’s wage and price control implementation.

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AS a result they had to cut payroll and jobs to continue to remain profitable. The federal reserve in order to stay afloat raised interest rates. The job market continued to dwindle as a result of the decrease in the value of the dollar.

According to Kramer, this great inflation was responsible for oil prices, currency speculators, greedy businessmen and predatory union leaders. However, it is clear that financial policies that financed these massive budget deficits and inclusively supported by political leaders, was the result (Kramer, 2018)

When the economy is stable and there is a rise in GDP, investors will invest. As demands for funds increase so will interest rates by lenders. The rise in inflation can also be caused by a rise in GDP. If the inflation outpaces the GDP then the economy becomes susceptible to failure. Higher interest rates also increase the value of the dollar which increases the price of US goods and services which in turn reduces spending in the US (Wolfe, 2017).