5 - 1970s: The great inflation

A turbulent era: major recession of 1974/75, the subsequent stagflation many were thought impossible at the time.

Problem: The country's only great peacetime inflation, sparked by an oil embargo, the breakdown of the Bretton Woods monetary system, and poor Fed decisions.Outcome: New Fed chairman Paul Volcker cracked down, bringing on a deep recession.

The Great Inflation from 1965 to mid 80s is the climactic monetary event of the last part of the 20th century. It destroyed the Bretton Woods system of fixed exchange rates, bankrupted much of the thrift industry, heavilytaxed the U.S. capital stock, The annual reported rate of consumer price increase rose from 1.07 percent in January1965 to 13.70 percent in March 1980 before declining in 1983.

The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.[3]

The 1973 oil crisis began on October 15, 1973, when the members of OAPEC Egypt and Syria announced an oil embargo "in response to the U.S. decision to re-supply the Israeli military.

The 1973–1974 stock market crash was a stock market crash that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom,[1] it was one of the worst stock market downturns in modern history.[2] The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation.

At a still deeper level, the United States had a burst of inflation in the 1970s that was not ended until the early 1980s because no one had a mandate to do what was necessary in the 1970s to push inflation below four percent and keep it there. It took the entire decade for the Federal Reserve as an institution to gain the power and freedom of action necessary to control inflation.
We also learnt in the 1970s that inflation distorts interest rates. Once inflation becomes widely anticipated, market-determined interest rates move higher to compensate for the erosion in the real value of the principal sums involved.