Author: NDV Research Observations | Jason
At 9 p.m. on August 15, 1971, the major U.S. television networks cut simultaneously to the White House, where Nixon announced: wages and prices across the country were frozen for 90 days starting now, no one was allowed to raise them; and other countries bringing dollars to the U.S. to exchange for gold—that was over. That day was August 15, 1971. Stretched over a longer horizon, this was just one scene in a whole stretch of history. That history ran from 1966 to 1982, 16 years: U.S. prices rose to roughly three times their original level; and the Dow Jones index, sixteen years later, was actually more than 20% lower than where it started.
Over those sixteen years, where did ordinary people's money go? More than fifty years later, on September 4 this year, Trump posted that the Fed should cut rates; 12 days later, the Fed, without a single dissenting vote, raised rates. In this piece, we go back to those sixteen years.
To answer where ordinary people's money went, we can take this history apart and look at it piece by piece. In Issue 56, "The Nasdaq 100 Drops Five and a Half Points in a Week—Will Stocks and Bonds Ever Fall Together One Day?", we looked at 1973 and 1974: on paper Treasuries didn't lose; after subtracting inflation, stocks were down nearly half, and Treasuries were down more than 10%. This piece stretches the lens out and lays out the entire sixteen years. This history is not distant from today—it is only about fifty years ago. Many people weren't born yet then and never saw these things; reading history helps bring us back into the scene of those years.
First, look at today's market environment. At the close on October 16 (Friday), the U.S. S&P 500 index was at more than 7,600 points, only about 2% below its all-time record in early October; U.S. prices in September were up 3.7% from a year earlier. The Fed's next rate decision is on October 28, U.S. time. Around these sixteen years, I have chosen three specific scenes: a Sunday evening, rows of gas stations, and a Treasury bond a president bought with his own hands. For each one, we compare it with an event from this year—where they are alike, where they are not. After that, we run a few sets of numbers, look at gold, see how the play ended, and finally hear how the two camps argued.
I. A Sunday Evening
On the weekend of the speech, starting Friday, Nixon called 15 advisers to Camp David and held closed-door meetings for three days. Freezing wages and prices was a first in peacetime America. The next day, Monday, the stock market surged, with the Dow up nearly 4%, the largest point gain in a single day at the time. During the months of the freeze, prices did indeed slow down. But once controls were relaxed, things changed. In June 1973, Nixon had to freeze prices a second time, and in his speech he himself admitted that meat, plywood, and zinc were all in short supply. This system of controls went through several phases before finally winding down at the end of April 1974.
There is one more thing that only became known later when the White House tapes were released. Nixon wanted to stimulate the economy before the 1972 election. On November 10, 1971, Fed Chairman Burns called to tell him: we are cutting the discount rate today. The discount rate is the interest rate at which banks borrow from the Fed. Economist Burton Abrams, who studied these tapes, also said he could not tell whether Burns could not withstand the pressure or genuinely thought a cut was warranted. So what happened to prices afterward? Around the 1972 election, with controls in place, prices looked fairly stable; by December 1974, U.S. prices were up 12.3% from a year earlier, with the 1973 oil embargo in between.
And this year? On September 4, Trump posted that if the Fed does not cut rates, countries with which the U.S. runs a trade deficit will stop trading with them. Twelve days later, on September 16, the Fed, without a single dissenting vote, raised rates by 0.25 percentage point, bringing the rate to 3.75%–4%, the first rate hike since 2023. Chairman Warsh, asked at the press conference about pressure from the president, answered: independence is bidirectional. On the day of the hike, Trump posted criticism; the next day he said he did not blame Warsh. Where are they alike? In both cases the president wanted the central bank to loosen a bit—except back then it was asked privately, and this year it was asked publicly. Where are they not alike? Back then Burns cut, while this year the Fed instead raised; back then the White House reached in directly and froze wages and prices, while today there are no such controls.
II. Gas Stations
In October 1973, war broke out in the Middle East, and Arab oil-producing countries imposed an embargo on the United States. Before the embargo, a barrel of oil was under $3; by January 1974 it was more than $11, roughly four times its original level. On November 25, another Sunday, Nixon gave a national address calling for gas stations across the country to shut off their pumps from 9 p.m. Saturday to midnight Sunday, starting December 1. It was voluntary at first, then mandatory once Congress passed legislation. Gas station prices were about 40 cents a gallon in October 1973—a gallon is roughly 3.8 liters; by March 1974 they were 53 cents, up 30% in 5 months.
Six years later, in 1979, the Iranian Revolution. By January 1979, Iran's oil production had fallen by 4.8 million barrels a day, about 7% of the world total. On May 9, nine counties in California began rationing gasoline. By late June, outside Philadelphia, Pennsylvania, there was a small town called Levittown. In that area at the time, filling up required waiting in line for about two hours. The town had a five-way intersection surrounded by six gas stations. A group of truck drivers drove their vehicles into the intersection in protest, the crowd grew larger and larger, and the chant was "More gas"—give us more gas. The unrest went on for two consecutive nights, and a Shell station was smashed. According to a later retrospective by the Philadelphia Inquirer, over those two nights, hundreds were injured and nearly two hundred were arrested. That year, a gallon of regular gasoline in U.S. cities rose from 66 cents in December 1978 to just over $1 in December 1979, up more than 50% in a year. A bit of background here: at that time, domestic U.S. oil prices and where gasoline was allocated were both controlled by the government, and only after Reagan took office in January 1981 were all controls lifted.
Bringing it back to today. Figures released on October 14 show that U.S. gasoline prices in September rose 9.1% in a single month and more than 30% from a year earlier. The benchmark for international oil prices, the Brent crude spot price, was $71 a barrel on February 27 this year and about $126 on October 14; what people often see on their phones is the futures price, which is lower, around $110 on October 16. Speaking of driving far to fill up, a friend of mine recently traveled to South America. His driver, in order to get cheaper gasoline, deliberately drove two hours, crossing the border round trip, to fill up. That is what high oil prices look like when they land on ordinary people.
Where are they alike? In both cases oil prices pushed prices up first: in September this year, more than half of the extra increase in prices compared with August was driven by gasoline. Where are they not alike? Two points. First, core inflation back then—prices excluding food and energy—was 4.7% in December 1973 and rose to 11.7% by February 1975, catching up in just over a year; in September this year, core inflation was 2.6%. Second, in 1977 the U.S. imported nearly half of the oil it used; today it is the reverse—the U.S. sells more oil abroad than it buys. Today U.S. gas stations have gasoline, it is just expensive.
III. A Treasury Bond, and a Passbook
Data sources: Federal Reserve History website (1980 passbook rate ceiling), FRED (CPI), FDIC (2026-09-21 national average rates), U.S. Bureau of Labor Statistics (2026-10-14)On October 8, 1974, President Ford addressed Congress wearing a badge with three letters on it: W, I, N—meaning "Whip Inflation Now." Together, the three letters spell the English word "win." He called on everyone to drive 5% less and waste 5% less food. Half a year later, at the end of April 1975, a White House staff member wrote him a memo: recommending the President buy a $200 face-value savings bond—200, corresponding to the 200th anniversary of the nation's founding—and write a check for $150. This kind of savings bond was sold at a discount: buy in for $150, hold it for a full five years, and it becomes $200, which works out to roughly 6% a year. On May 1, 1975, at 12:50 p.m., in the Oval Office of the White House, Ford bought from the Treasury Secretary the first savings bond printed with the 200th-anniversary design. Let's do the math for Ford on this bond, exactly as the memo suggested. From May 1975 to May 1980, the money went from $150 to $200—up by one-third; but over the same period, U.S. prices rose by more than 50%. Holding this bond for the full five years, what it could buy actually shrank by about 13%. The same was true for what the President himself bought. This wasn't just Ford's ledger. In early 1979, the U.S. Treasury said roughly one-third of American households held savings bonds; in 1978 alone, Americans bought more than $8 billion of savings bonds, the most in any year since World War II.
What about putting money in the bank? In March 1980, the interest rate on U.S. bank passbook accounts was capped by law at 5.25%; that month, prices were up 14.8% from a year earlier. Subtract the two, and you lose 9.5 percentage points a year after inflation. 9.5 percentage points, a year. At the time, short-term Treasury bill rates were above 12%, but the minimum purchase threshold for T-bills was $10,000, raised from $1,000 in February 1970; households with only a few hundred or a few thousand dollars in passbook accounts couldn't reach it. A lot of money also ran into the then-newly emerging money market funds: by the end of 1979, such funds held more than $45 billion, and a year later more than $76 billion. Bring it back to today. The FDIC's national averages published on September 21 show one-year CDs at 1.73% and regular savings at 0.37%; in the same month, prices were up 3.7% from a year earlier. What's similar? The deposit accounts ordinary people use most all pay rates below inflation. What's different? Back then, deposit rates had a legally set ceiling above them, and T-bills had a $10,000 threshold; both began to be dismantled starting in 1980 and were basically gone by around 1986—today neither exists in law.
IV. Several Ledgers: The Numbers on the Books vs. What They Can Buy
Data source: FRED (CPI, not seasonally adjusted); Dow closing prices on 1966-02-09 and 1982-08-12; calculations by this article, starting point = 100
Data source: Aswath Damodaran (New York University), FRED, U.S. Bureau of Labor Statistics; calculations by this article; start and end dates differ for each item, see labels in the chart
With the three scenarios told, let's return to the question at the beginning: over those sixteen years, where did ordinary people's money go? It's like this. Over those sixteen years, most people's money didn't disappear—it shrank: the numbers on the books were still rising, but what they could buy was shrinking. The number on the books is called nominal; what it can buy after subtracting inflation is called real. For example, if the number on your paycheck rises 5% a year while the same cart of goods rises 8% a year, your paycheck looks better and better, but the goods you push home get fewer and fewer. Following this, let's go through the several ledgers of those sixteen years.
First, stocks. The Dow Jones Industrial Average closed at 995 in February 1966, just 5 points shy of 1,000. Over the next 16 years, it touched 1,000 and stood above 1,000 several times, then fell back; the deepest drop was in late 1974, to just over 570. By August 12, 1982, it closed at 777—more than 20% lower than sixteen years earlier. Later, people came to see that day as the end of that long bear market. Over the same period, prices tripled. Excluding dividends, what the Dow could buy shrank by nearly three-quarters. The first time I saw that number, I froze for a moment. Counting dividends and reinvesting them, the ledger doesn't look so bad. From 1966 to 1981, the S&P 500 roughly two-and-a-half times on paper; after subtracting inflation, it still lost about 14%. Of course, this number varies greatly depending on which year you pick as the endpoint: calculated through the end of 1982, it's basically break-even after inflation.
Next, Treasuries. For 10-year U.S. Treasuries, again from 1966 to 1981, holding throughout and reinvesting interest, the book value rose more than 70%; after subtracting inflation, it lost 40%. In those years, Treasury yields were often slower than price increases: in December 1974, the 10-year yield was 7.43% while prices rose 12.3%. Next, passbook accounts. Deposit $100 in a bank passbook at the end of 1972 and roll it at the legally permitted maximum rate through the end of 1981: the book value becomes more than $150, but what it can buy? Only a bit over seventy. Next, wages. The average U.S. worker's hourly wage, after subtracting inflation, peaked in January 1973; by June 1982, it was down about 14%. Wages weren't stagnant—they kept chasing prices and never caught up. At the time there was a kind of contract clause under which wages automatically rose partly with prices; in 1979 it restored only about half; looking only at large union contracts, about 5.4 million people had such clauses in 1980. Retirees split into two groups. Those on Social Security had benefits indexed to prices—one adjustment in July 1980 alone raised them 14.3%; those on fixed corporate pensions saw what they could buy shrink by about one-third from 1978 to 1981.
Putting these ledgers together: stock prices nominally fell 20% over sixteen years, Treasuries nominally rose, and the numbers in passbooks and on paychecks rose every year; but after subtracting inflation, every ledger was shrinking. One more thing must be added about what happened after 1982. The 10-year Treasury yield peaked in September 1981 at an average of 15.3%, then trended broadly downward; the Dow closed above its January 1973 high on November 3, 1982. Stocks and Treasuries both went on a long upward stretch afterward. Let's also check corporate profits. What's similar? Both are numbers on the books, and both must be viewed after subtracting inflation. Back then, corporate book profits nearly tripled over sixteen years, roughly in line with prices; this year in Q3, according to FactSet's October 16 tally, S&P 500 earnings were up 29% from a year earlier—though fewer than 10% of companies had reported by then, so the number will still change. What's different? Treasuries. Back then, yield minus inflation was often negative; today, the same subtraction gives 10-year Treasuries at 5.09% on October 16 minus 3.7%, a positive 1.4 percentage points or so. The roughly 2.7% mentioned in Issue 56 is another method, subtracting expected inflation; both methods come out positive.
V. Gold: How This Play Ends, and How the Two Camps Argue
Data source: Aswath Damodaran (New York University) historical return data, updated 2026-01, single source
Finally, gold. For this part, I want to walk you through it again. Before that Sunday evening in 1971, the official price of gold was $35 an ounce, and an ounce is a bit over 31 grams. Ordinary Americans could not legally own gold bars again until late 1974. In 1979, the gold price more than doubled in a year; on January 21, 1980, it reached $850—about 24 times the original. Many people said at the time that gold rising like this was everyone casting a vote of no confidence in the dollar. But the other half must also be remembered. In 1975, gold fell about 25% in a year; after peaking in 1980, it fell more than 30% again in 1981. The $850 price would not be exceeded nominally for nearly thirty years. Bring it back to today. What's similar? Both surged to highs and then fell more than 20%: back then, in 1975; this year, from the late-January high to the end of September. What's different? Back then, the International Monetary Fund was auctioning gold; today, central banks are net buyers. How did this stretch of history finally end?On August 6, 1979, Volcker became Fed Chairman, and that month U.S. prices were up 11.8% from a year earlier. On September 30, former Chairman Burns gave a speech in Belgrade, Yugoslavia, titled "The Anguish of Central Banking." He said the central bank had the ability to stop inflation, but it was carried along by the currents of thought and the political environment of that era. A week later, on October 6, another weekend—this time a Saturday. Volcker called an emergency meeting, changed how the Fed managed money, and let the market set interest rates. After that, rates swung wildly: in mid-1980 they briefly fell back to around 9%, then surged again by year-end. What is the federal funds rate? It is the interest banks charge each other for borrowing. In its highest month, it averaged 19.1%, in June 1981. The cost was two recessions, one in 1980 and another from 1981 to 1982. By the end of 1982, unemployment reached 10.8%—roughly one in every nine people who wanted a job could not find one. According to later reporting by the Associated Press, during those years homebuilders sent wooden planks to the Fed, and car dealers who couldn't sell their cars sent in the keys. The rate on a 30-year mortgage reached nearly 19% in October 1981. Think about that: Freddie Mac's figure on October 15 is around 7.4% today. Now compare that with this year. Warsh was sworn in on May 22 and raised rates for the first time on September 16. Where is it not alike? In the month Volcker took office, prices were up 11.8%, and rates were eventually pushed to 19%; today prices are up 3.7%, and rates are 3.75% to 4%. On September 16, Warsh also said he didn't think employment necessarily had to be traded away. Back to today, the question is: how much is now really like the 1970s? The situation in the 1970s had a name: stagflation—prices kept rising while the economy barely grew. First, someone who straddles both sides. Ed Yardeni, who does market strategy research, in March raised the probability of a 1970s-style stagflation this year, with stocks falling along with it, from 20% to 35%. But his biggest bet this year is still a roaring twenties. Apart from him, the market is mainly split into two camps. The first camp thinks the 1970s playbook is back. Ray Dalio, founder of Bridgewater, said in a May interview with The New York Times that the most likely outcome is a stagflation spiral like the 1970s, with the Fed eventually forced to print money to pay off debt. This camp often also points to government spending. In fiscal years 1965 to 1968, while fighting the Vietnam War and expanding social welfare, the U.S. federal deficit rose from 0.2% to about 2.7% of the economy; in the just-ended fiscal 2026, the deficit was about $2 trillion, or roughly 6.2% of the economy by Congressional Budget Office calculations—and that is without a recession. The second camp, by contrast, thinks this time is different. There are mainly three reasons. First, the central bank acted first. That is the Fed's own account: on September 16, Warsh said the rate hike was meant to keep energy price increases from spreading into second- and third-round price increases, and the current unemployment rate is basically at a level where everyone who wants a job can find one. Second, the momentum of wages chasing prices is weaker. David Kelly, chief strategist at JPMorgan Asset Management, said back in 2022 that about a quarter of the labor force was unionized in the 1970s, versus about one in ten now; in 2025, the U.S. union membership rate was 10.0%. Third, the oil point just mentioned: the U.S. today sells more oil than it buys, and uses only about one-third as much oil per $1,000 of output as it did in 1973. So what are the two camps actually arguing about? The first camp is betting that government spending, presidential pressure on the central bank, and oil prices pushing up prices have come together again, and prices will rise round after round; the second camp is betting that the central bank acted first this time, wage momentum is weaker, and the U.S. produces its own oil, so this round won't get going. Back to that Sunday night at the beginning. Americans sitting in front of their TVs that day did not know there would be an oil embargo, gas-station lines, and double-digit interest rates ahead. Over those sixteen years, where did ordinary people's money go? Most of it did not disappear; it was slowly worn down by prices. There is another question, which I am saving for this Thursday's (October 22) episode of "The Non-Consensus Gas Station," to put together with the questions left from these past few episodes: over those sixteen years of the 1970s, which scenes are most likely to repeat in 2027, and which will not? The facts are already on the table. Here is a question to leave you with: if you had lived through those sixteen years, in which year would you have realized you were in the play? The next episode is No. 58, "Can U.S. fixed deposits beat 3.7% inflation? After World War II, who paid off America's debt?" (launching October 21), about how, after World War II, U.S. government debt held by the public fell from more than a year's economic output to less than a quarter of it. In which year, and because of what, would you have realized you were in the play: the line at the gas station, the number in the passbook, or something else? Tell me in the comments. If you think I missed a fact, please add it.