During community lacked the post-war economic growth previously. Several

During the 1970’s the international Economic Community experienceda phase off little or no economic growth. This came right after many good yearsafter World War 2 which ravaged most of Europe creating growth in rebuildingContinental Europe and Great Britain.

 Manyeconomists argue to why such a period came to be, I have addressed what I believeto be the three most important reasons, the Collapse of the Bretton Wood Systemat the hands of President Nixon, the Oil crisis’ (OAPAC & Iranianrevolution) and the stock market crash of 73. The “70’s Stagnation”, denotes a period between 1973 to1978, where the international community lacked the post-war economic growthpreviously. Several factors contributed to this state, below are three reasons.”Stagnation is asituation that occurs within an economy when total output is either declining,flat or rising just slightly.” Source:http://www.

investopedia.com/terms/s/stagnation.asp#ixzz4T2b1EUcu 1.

     Collapse of the “Bretton Wood System”. In july 1944 a total off 33 countries met in Bretton Woods,NH with the goals of designing a system to better ones currently in place. Otherinstitutions such as the IMF (International Monetary Fund) and the World Bank. TheIMF had the role of allowing countries to obtain external and internal balance byborrowing and occasional devaluation. Also to avoid any unwanted changed in the financial account,which could lead to a possible balance of payments crisis, countries in theBretton Woods System will often limit the flow of financial assets between twocountries, but will greatly encourage the free flow off goods and services asthis as it was believed trade benefits all economies. The Bretton Wood System was a monetary and rate management system,established in 1944.

It was designed to ensure low inflation, conserve valuesof exchange rates and prevent competitive devaluation. Under the Bretton Wood System, the dollar was fixed to theprice of gold ($35 per ounce), meaning the US dollar had a fixed value. But underPresident Nixon the international settlement broke down in 1973, this was dueto the overvaluation of the dollar and failure in West German negotiation torevalue the Deutschmark. The collapse of the Bretton Woods system started around the60’s and 70’s where rapid increases in purchases raised aggregate demand andoutput as well as prices. This inevitable led the US dollar to become overpriced in terms off foreign currencies and gold.

Another issue was that foreign economies began to grow andtheir need for official reserves to support the growth needed to grow also, butthe rate off growth was faster than the rate in which the gold in the reservesgrew. This meant that eventually the federal reserve would no longer be able tomaintain the fixed price of gold at $35 per ounce, leading for countries tolose trust in the system and redeem their value before the reserves dried up. By reducing government spending, increasing taxes vastly orreducing money supply growth the US could have reduced aggregated demand,output, inflation and greatly reduced unemployment, all of which would of haveto been at the cost of a slower economy. However, speculation that theimbalance of the US and the value of its dollar, led to imbalances in othercountries and made maintaining a fixed exchange rate much harder.its wasbelieved by many financial markets the US economy was facing a “FundimentalDisequilibrium” ( fundamental disequilibrium.

a situation under a FIXED EXCHANGE RATE SYSTEM where acountry is in a position of persistent (long-run) BALANCE OF PAYMENTS deficitor surplus at a particular (fixed) exchange rate against other countries), “The Bretton Woodssystem itself collapsed in 1971, when President Richard Nixon severed the linkbetween the dollar and gold — a decision made to prevent a run on Fort Knox,which contained only a third of the gold bullion necessary to cover the amountof dollars in foreign hands. By 1973, most major world economies had allowedtheir currencies to float freely against the dollar. It was a rocky transition,characterized by plummeting stock prices, skyrocketing oil prices, bankfailures and inflation”. Time, M J.

Stephey Oct 21 2008, http://content.time.com/time/business/article/0,8599,1852254,00.html   The graph above shows the inflation rates between differentcountries between 1966 to 1972.

Note how Britain goes from 6.5 to 9.7 between1970 and 1971. The other countries don’t make a notworthy increase and the USA inflationdecreased.  Now see the graph below.

Source http://slideplayer.com/slide/4725180/ On this graph you can see that after 1972 things lookconsiderably different the USA has had a sudden increase from 3.3 to 18.7, Europeand Japan also experienced steep rises in inflation between 1973 and 1982, thisis due to the collapse of the Bretton Wood System and oil crisis. During thisperiod unemployment is very high also as work forces are being squeezed so thatcompanies can cope with the extra economic pressure. Looking at the Per CapitaGDP growth we can see a significant decrease with Japan displaying the worst symptoms.   2.

     Luxation in oil prices OAPEC (Organization of Arab Petroleum Exporting Countries) imposedan oil embargo on the USA and UK due to their assistance to Israel in 1973.At the time thr price of oil went from $3 to $12 by 1974. AsArab countries decided to punish the west for their support of the Yum Kippur War.

This hike in oil prices made transport costs skyrocket with talks off rationingin the UK. Inflammation had hit more than 24%. The US economy was slowed greatly by the Oil embargo as ithad grown increasingly dependant on foreign supplies. Source: http://politics.lilithezine.com/History-of-Oil-Prices.html As shown in the image above during the Tom Kippur War OilEmbargo the price of oil increased greatly from little under $15 per barrel toexcess £40, such an inceease of price in a commodity as important as oilgreatly affected the international economy it slowed growth which had atoppling effect from large economies looking to expand and invest to smalledeconomies reliant on support from the larger economies.

Source: World BankThis graph shows a sharp decrease in exports of goods andservices directly linked to the hike in oil prices. Such a large decrease inannual growth would have massively affected global economies, growth is neededto ensure flow off money and economic balance. When growth slows economies feelthe strain but when growth drops economies suffer, cost of commodities rise, unemploymentbecomes common, and countries start to lose trust in current systems. Quickly the prices off essential commodities began to rise resultingin a wage stagnation tipping the population into protest, as in 1972 and 1974 whereminors in the UK protested due to wages not being enough to keep up with highpriced commodities.

Both times ending with the government increasing miner’swages. As price for oil went up so did the prices for commodities this topplingeffect made the price of sugar increase fivefold, creating the phenomenon ofinflation. Davis, E. Philips, Comparing bear markets 1973 and 2000Wage stagnation also meant less people were not as able tospend as freely reducing the populations spending power decreasing in salesproductivity.

The graph above shows the sudden increase in food prices after1973. Another key factor in the Stagnation In the International Economywas due to the Iranian revolution, which took place in 1979. “76February 28, 1979 THE IRANIAN OIL CRISIS INTRODUCTION Following a lengthyseries of paralyzing strikes and sporadic work slowdowns or ganized byanti-Shah oilworkers last fall, the Iranian oil industry ground to a near haltand suspended oil ex ports on December 26, throwing world oil markets intodisarray and generating intense consternation among oil-importing states…”https://www.

heritage.org/middle-east/report/the-iranian-oil-crisisAfter the Iranian revolution spot market prices rose to $23a barrel before slowly decreasing below $20, although this was almost $5 higherthan the price OPEC offered per barrel. Although the increase off prices from Iraniandeposits has little effect on the consumer the real danger is when other oilproducers such as OPEC feel it is their right to increase their oil prices andachieve the same increase of revenue that Iran may,  3.

     1973 to 1974 stock market crash The financial crisis played a largepart in the Stagnation of the 70’s. many different factors played in the runningto the financial crisis ranging from Lord Anthony Barber’s (Chancellor of TheExchequer 70-74) failure to address the increase of unemployment caused byfalling output, the inadequent attempts made by the Health Government to fixrent prices in 1971 and the eventual collapse of the Batton Wood Agreement.    The graph above shows a sudden spike in unemployment from 1975through to 1983. “In 1973, house pricesrose in real terms by 24.7%. At that time, the average price of a property was£9,942, compared with £155,467 today.

The 1973 price equates to £81,226 attoday’s values.” Rupert Jones The Guardian. The comparison of price shoes how international factors wereaffected British markets such as housing. Causing irregular shifts. Due to the crash London stock exchanges FT30 lost a massive73% of its value. Whilst the Dow Jones average benchmark lost 43% of its totalvalue. Source about.

com Dampier, Mark May 6th 2003. From this JohnD. Turner, banking in crisis the rise and fall of the British bankingstability, deduced that this crash partially related to the slowing of the USeconomic growth from 5.26% in 1972 to -0.517% in 1974 and the decrease of theUK’s economic growth from 4.29% in 1974 to -2.47 in 1974.

This decrease helpedshape the stagnation of the 70’s, this also led to other issues arising such aswages not being enough to support people, house prices fluctuating, anddistrust in international markets. These drastic drops in economic growths in two off the worldslargest powers played greatly on smaller countries as the UK and US were lesswilling to expand investment, these figures also indicate a decrease in importand export. Source: https://data.bls.gov/timeseries/LNU04000000?periods=Annual+Data&periods_option=specific_periods&years_option=all_yearsThis graph shows a sudden spike in unemployment in Americaafter the collapse of the Bretton Woods system, it peaked at 1975. This was alsodue to the oil crisis. It then again rises in 1979 during the oil crisis in theIranian revolution. This shows how movement in the middle east affected therest of the world.

  Now see below for the comparison with inflation in Americaduring this period. Source: https://www.frbsf.org/education/publications/doctor-econ/2003/january/monetary-policy-1970s-1980s/Now looking at the graph above one thing is visibly apparent,that inflation went side by side with unemployment. This also goes hand in handwith the graph below, which shows the increase in oil prices, all three ofthese factors caused stagnation in America which led to an affect on worldeconomies. Source: https://foresight.org/more-on-limits-to-growth/Increase in oil prices during the embargo and Iranian revolution.To conclude, the major reasonswhich led to the Stagnant International economy were due to the collapse of theBretton Wood System in 1973, the oil crisis brought on by middle easternpolitics (OAPECK and Iranian revolution) and lastly the stock market crash of1973.

All these factors led to distrustin the global economy increases in prices imbalance in exchanges and otherissues which caused this period of stagnation. This showed how vulnerable theglobal economy was to global factors, and saw that middle eastern countries hadto much influence over the west leading them to look elsewhere for oil,  Bibliography “A Breif History OfThe Bretton Woods System” http://content.time.com/time/business/article/0,8599,1852254,00.htmlStagflation, 1970s Style, Barry Nielson, https://www.investopedia.com/articles/economics/08/1970-stagflation.

asphttps://foresight.org/more-on-limits-to-growth/Also lecture slides and notes.