The pubs beckon. Independence Day awaits. Just a few more days… but a busy few, that’s for sure.
And as I mentioned last week, we’re about to publish the monthly issue of The Fleet Street Letter Monthly Alert on the possibility of inflation returning in a big way. It’ll be a full digest on the possible causes and definite losers of such a scenario: what to own, and what to avoid if Reagan’s “violent mugger” comes to the fore once again.
It’s also time for the quarterly conference call for subscribers of The Price Report this week. It’s an event I love to host, where subscribers can interact with defensive fund manager Tim Price directly to get his views on any and all aspects of the investment landscape. It’ll be interesting to see what Tim makes on the outlook for inflation, as he’s a value investor, and as we explored last week, value stocks get juiced when inflation begins heating up.
On that note, I’d like to ask you something. I’m relatively young, a member of the millennial generation, and as a result have no memory of the high inflation experienced during the 70s. While we have and do experience continuous inflation, it is nothing like the double-digit cash-burning extremes reached 50 years ago. The millennial experience of inflation is the price of a Freddo going from 10p in 2000 to 30p today…
Nickolai Hubble asked readers of Southbank Investment Daily, our premium daily eletter, for their experiences of inflation through the 60s and 70s – and received some fascinating responses. One in particular got me thinking:
I was conceived the year the war ended so I guess I am one of the people you are aiming the question at. I was lucky in that I had a roof over my head, a father who had a job and a mother who had various part time jobs usually driving for the local butcher and the local shop. I was unaware of debt. My family didn’t have any debt. I didn’t know any other family that had any debt. I didn’t know the government had any debt. One of my father’s favourite sayings was “neither a borrower nor a lender be………”. The first wage I remember my father earned was £5 per week. It didn’t seem to matter whether that was a lot or a little but we had a big garden in which grew lots of veg and potatoes and later came rabbits, hens and pigs.
My mother used to get tipped off about when various things were in the local shop and I was dispatched with the ration book to get some quick. I remember the bare shelves and the things I wanted were always brought out from the back. I guess this was real austerity not the faux sort you mention but I didn’t feel poor.
I remember when the first people in our street got a mortgage. My dad was in quite a mood about it. He clearly thought it was shameful and “it’ll put up the price of houses”. Such was the mood I feared I would not be allowed to play with their kids.
His wages went up to £20 per week and I went out with him to buy a nearly new car for £400, cash of course. By that time I had become aware that footballers earned £25 per week and rued being such a poor footballer but tried to get better. We didn’t have a telephone, we eventually got a washing machine and even later a TV, all second hand for cash. I remember watching Churchill’s funeral and the coronation on BBC but had to go across the road to friend’s house for ITV. In my teens I got a bike and rode with the cycling club but everyone had a posher bike than mine. They are buying them on hire purchase my dad said and we don’t do that.
I went to college on a full grant of £360 but was very careful to underspend. My mate in digs had wealthy parents so only got a small grant which his parents didn’t top up so I occasionally bought him a beer and some food. I even saved enough to take a girl out to the Royal Opera House in Covent Garden (middle stalls too!) but still arrived home at the end of term with a few quid in my pocket. I worked on the Christmas post and Easter and Summer on the council bins. I never felt poor.
The first time I felt poor was in 1968, graduation year. Four of us decided to skip graduation and go to the Olympics in Mexico but the Harold Wilson government had run up such debts that we had to get a loan from the International Monetary Fund and there were controls on the amount of money you could take out of the country, £50. So we realised that we would have to go a few months early and earn some money in Canada to get us by in Mexico…
I returned to Old Blighty, got a job, got married and got a mortgage for £5,000 from a local mutual building society on a flat on the market for £5,750. I can’t remember if I told my dad or not, probably not. I remember being bribed with £1,500 to vote for a change from mutual to limited company. I took the bait and years afterwards felt quite ashamed of myself!
I worked for a very good firm with a starting salary of £1,100 in 1970, perhaps ’71. I bought a sports car and didn’t feel poor but inflation was getting rampant so by 1975 my salary was up to £4,000. in 1975 I decided to go self employed, partly helping a friend start his firm and partly finding my own work. We then sold our flat for £15,000, borrowed £5,000 from my dad and £5,000 from my father-in-law, bought a derelict property by the river and took a £20,000 mortgage to develop it. Normal houses in London were changing hands in the range £10,000 to £20,000 but rising rapidly.
In summary:
1950s people saved and bought what they could with their savings, government nationalised.
1960s people started buying things on tic and taking out mortgages but to start with from building societies who did not indulge in fractional reserve banking, the government continued to nationalise everything borrowing to do so until we had to be bailed out by the IMF. Still not much private debt though but it was taking off.
1970s burgeoning inflation kicked off by 60s debt and failing nationalised industries not allowed to go bankrupt at the same time as fractional reserve banking came in and mortgage debt boomed putting a rocket under house prices. I remember, as a young person, loving inflation.
I now think dad was right, debt is bad but young people love inflation because it inflates away debt. I didn’t understand all this while it was happening but managed to make enough money in the 80s, 90s and naughties by buying, developing and selling property. Riding the property inflation wave in other words. I’m now debt free but had to pass some of the property down a generation because I realised that if I left it for them as inheritance they could never pay the tax. Phew! What a relief but now I’m scared inflation will take off again and my pension funds will be whittled away so I’m frantically learning about investing from Southbank and Money Week.
We explored last year how inflation could become a mechanism to redistribute generational wealth from the boomers to the millennials, either as an accident or deliberately by a Machiavellian politico. But I hadn’t actually heard anybody speak of inflation being a positive thing for young people having lived through it themselves.
So if you lived through the 70s, do you feel inflation during that time benefited your life? Are you glad it happened, or even think of its force as a positive one for the young? I’d love to know your thoughts: [email protected].
All the best,
Boaz Shoshan
Editor, Capital & Conflict
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Category: Market updates