Lessons from America's Resilient History
Good Times Follow Bad Times
Throughout the rich history of our country, our nation has navigated waves of profound challenges, from the grim clutches of the Great Depression to the divisive years of the Civil War and Vietnam War, and from the suffocating grip of stagflation in the 1970s to the shattering tremors of the 2008 financial crisis.
Each era, while testing the resilience and spirit of the American people, also carved pathways for rejuvenation, innovation, and growth. As we reflect on these past adversities, it's heartening to remember that not only have we survived these formidable times, but we've also emerged stronger, more united, and better equipped for the future. Just as our ancestors overcame, so too shall we persevere and prosper in the face of contemporary challenges.
Interest Rates To Go Up Sharply?
JPMorgan Chase CEO Jamie Dimon is warning that interest rates could go up quite a bit further as policymakers face the prospects of elevated inflation and slow growth.
Though Federal Reserve officials have stated that they are nearing the end of their rate-hiking cycle, the head of the largest bank in the United States has stated that this may not be the case.
Indeed, Dimon told The Times of India that the Fed's key lending rate could rise significantly from its current target range of 5.25%-5.5%. He claimed that the Fed's increase from near zero to 2% was "almost no move," whereas the increase from there to the current range "caught some people off guard."
“I am not sure if the world is prepared for 7%,” he said, according to a transcript of the interview. “I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system. We urge our clients to be prepared for that kind of stress.”
The remarks come less than a week after Fed officials indicated in their quarterly economic update that they could approve another quarter-point increase by the end of the year before beginning to cut a few times in 2024.
However, this is dependent on the data continuing to cooperate. Fed Chair Jerome Powell said the central bank will not hesitate to raise rates, or at least keep them at elevated levels, if inflation does not appear to be on a sustained downward trajectory, a higher-for-longer reality that markets are grappling with.
“I would be cautious,” Dimon told the Times. “We have to deal with all these serious issues over time, and your deficits can’t continue forever. So rates may go up more. But I hope and pray there is a soft landing.”
Wolfe Research cautioned Tuesday that the benchmark note could hit 5% before the end of the year, from its current level near 4.5%.
At the same time, Fed researchers noted the high level of inflation uncertainty in a white paper released Monday, saying it "may be acting as a headwind to U.S. growth and pose challenges for monetary policy." According to the paper, such uncertainty can have an effect on industrial production, consumption, and investment. - CNBC
Geopolitics Is The World’s Biggest Risk
Dimon continues, “Geopolitics after Russia’s invasion in Ukraine is the biggest risk, larger than high inflation or a U.S. recession.'‘
“I think the geopolitical situation is the thing that most concerns me, and we don’t know the effect of that in the economy,” he added.
Further downward pressure on markets has come in recent months as the Chinese economy has slowed, owing in large part to weakness in the country's massive property market.
When asked about the potential impact of the slump on China's and the global economy's long-term prospects, Dimon suggested that Eastern Europe was the actual epicenter of risk, with the war in Ukraine straining relations between economic superpowers.
Asked if geopolitics was the No. 1 risk facing the world today, Dimon responded, “absolutely.”
“We have dealt with inflation before, we dealt with deficits before, we have dealt with recessions before, and we haven’t really seen something like this pretty much since World War II,” he added. - Read the article here
A Little History, And How We Prospered Afterward
The 1970s Oil Crisis and Stagflation: The 1970s saw a combination of stagnant economic growth and high inflation, often termed "stagflation." Contributing factors included oil embargoes by OPEC, government policies, and other global events.
After the oil crisis in the 1970s, several positive outcomes and shifts emerged, both in the U.S. and globally. Here are some of them:
Improved Fuel Efficiency: The crisis highlighted the importance of fuel-efficient cars. This led to significant advancements in automotive technology and design, resulting in cars that could travel further on less fuel. The Corporate Average Fuel Economy (CAFE) standards were established in the U.S. to improve the average fuel economy of cars and light trucks.
Diversification of Energy Sources: Recognizing the dangers of over-reliance on oil, especially from politically unstable regions, many countries started to diversify their energy portfolios. Investments increased in alternative and renewable energy sources like solar, wind, and nuclear power.
Strategic Petroleum Reserve (SPR): The U.S. established the SPR in 1975 as a response to the oil embargoes. It serves as an emergency stockpile to ensure against future supply disruptions.
Energy Conservation Awareness: The crisis served as a wake-up call for many to the importance of energy conservation. This led to public and private sector campaigns promoting energy-saving habits, resulting in more conscious consumption patterns.
Development of North American Oil Sources: The vulnerabilities exposed by the crisis spurred exploration and development of domestic and nearby oil resources, like those in Alaska and the Gulf of Mexico.
Strengthened Global Cooperation: The energy crisis highlighted the interconnectedness of global economies and the need for cooperation. This was a driving factor behind the formation of the International Energy Agency (IEA) in 1974, which works to ensure reliable, affordable, and clean energy for its member countries.
Economic Adaptation: Over time, Western economies, including the U.S., adapted to become less energy-intensive per unit of GDP. This meant that while energy consumption continued to grow, it did so at a slower rate than economic growth.
Increased Research and Development: The crisis spurred governments and private entities to invest in research and development related to energy. This paved the way for innovations in energy extraction, storage, and utilization.
Though the 1970s oil crisis was a challenging period, it precipitated significant shifts in policy, technology, and behavior that had long-term benefits for energy resilience and sustainability.
Given the current economic trends marked by inflation and high valuations, a normal market correction could be on the horizon. The subsequent recovery cycle is likely to reward those who exercise patience and long-term vision.
The subsequent recovery cycle is likely to reward those who exercise patience and long-term vision.
