• 2020s could be worse than 1970s
• Investors too carefree?
At the Ambrosetti Forum in Italy, historian Niall Ferguson gave his assessment of the current political and economic situation to CNBC. For investors, his remarks are a warning sign.
Catalytic events have already occurred
The 1970s were not only marked by social unrest and geopolitical upheavals, the economy also suffered a serious setback during this time. Upheavals and crises determined this time. Compared to the current economic and political environment, however, Ferguson does not have good news, because he sees clear parallels between the two eras. “The ingredients of the 1970s are already there,” Ferguson, who is a senior fellow with the Milbank Family at Stanford University’s Hoover Institution, told CNBC’s Steve Sedgwick.
In fact, the inflation triggers, which the historian locates in mistakes at the monetary and fiscal policy level, are “very similar to those of the 1960s”, the most recent price shocks are a repetition of the stubbornly high inflation of the 1970s, according to the expert.
In addition, there is another parallel between the 1970s and today, namely a war. While the 1973 Yom Kippur War between Israel and an Egyptian-Syrian-led coalition of Arab states rocked the world community, today it is Russia’s war of aggression in Ukraine that has ushered in an energy crisis. But Ferguson sees one difference: At the time, the conflict only lasted 20 days, but Russia’s war against the neighboring country is now in its sixth month, which should have a massive impact, especially with regard to the energy markets: “This war is taking much longer than that 1973 war, so the energy shock it causes will actually be more lasting,” Ferguson said.
Warning to Investors
In view of this mixed situation, the historian is not very convinced that the current crisis can be alleviated by measures taken by politicians or by central banks. “Why shouldn’t it be as bad as it was in the 1970s?” he said. “Let’s consider the possibility that the 2020s may actually be worse than the 1970s.”
Specifically, the expert named lower production growth, higher levels of debt, but also unfavorable demographic developments in this context. Because while there was a relaxation between the superpowers in the 1970s, there is currently little sign of it. Referring to the political situation between the USA and China, he emphasized in the CNBC interview: “In fact, I see the opposite”.
Global shocks are unpredictable, which means that many people are largely unprepared for such a crisis. “You start with a plague – or something we don’t see very often, a really big global pandemic – that kills millions of people and disrupts the economy in all sorts of ways. Then you hit it with a big monetary and fiscal shock. And then there’s the geopolitical shock,” Ferguson summarizes the developments of the past two years.
Against this background, the historian warns against too much optimism on the part of investors: “This is a country that is heading for a recession,” he emphasized with regard to the United States.
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