Inflationary Period with a Low Prime Rate
Posted on | November 4, 2008 | 2 Comments
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In the month of September inflation in the United States was calculated at 4.94% and even higher in August at 5.37%. The last time that inflation was this high in the early Autumn months was 1990 during one of the most recent United States recessions. During that recessionary period, the prime rate was raised to 10%.
Prior to the 1990 recession, the previous inflationary period was the early 1980s. Those who lived through it know exactly how rampant inflation was as the price of almost every commodity skyrocketed. Gold and Silver were up over 1800% and 1200% respectively! Once again, the prime rate was raised during this period to 19%!
In recent history, at least not in most of our lives, there has there been a period in which there were low rates and increasing inflation until today. The prime rate is currently 4.0% with inflation heading higher. To understand where we must look at times that relate in at least some ways to the current state of this economy.
When digging deeper into history, this did occur in the late 1940s. After getting out of World War II the United States saw inflation rise to over 18%. During that time, the prime rate was actually extremely low at 1.5%. This is a bit of an anomaly as it was a little bit different with lending money at the time and we had just gotten out of a war and the Great Depression.
From 1948 to 1965, the Dow Jones Industrial Average increased from approximately 170 to 995, a 485% increase. While we all hope this will happen, a lot is going to be determined by the ability to control inflation. If commodity prices continue to climb and inflation pushes higher, there is no way that our stock market will increase at all like it did in the 50′s and 60′s.
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November 4th, 2008 @ 5:19 pm
[...] From 1948 to 1965, the Dow Jones Industrial Average increased from approximately 170 to 995, a 485% increase. While we all hope this will happen, a lot is going to be determined by the ability to control inflation. …[Continue Reading] [...]
November 8th, 2008 @ 6:20 am
Hiya:
Record high for Prime was 21.5%; that was between December 19, 1980 and January 2, 1981.
http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm