Commentary; Posted: 4/20/05
Reflections on the times of Pope John Paul II
Dave Purdy
Guest columnist
The death of Pope John Paul II has caused me to take stock, look back over the last quarter century and evaluate our progress. John Paul was elected in 1978 and now in reflection, I am amazed at how tough conditions were then.
On the international side, we were still locked in the Cold War. The Soviet Union was viewed as unshakable and our struggle was not going well.
The burden of military spending on the U.S. was high - nearly 6 percent of GDP and headed higher. Few thought Communist control of Eastern Europe would crumble, much less be eliminated along with the Soviet Union itself.
It is hard to believe now, but the fear of an all-out nuclear exchange between the super-powers was very real.
Our domestic economy was in rough shape and headed for worse. We had just left a major recession in 1975 and the unemployment rate had fallen from a peak of 9 percent in 1975 to about 6 percent in 1978.
Little did we know that it was headed back to even greater highs, hitting 10.8 percent at the end of 1982.
Inflation followed a similar path, falling from about 12 percent in early 1975 to ìonlyî 6 percent in 1978 before rebounding to a peak of 14.6 percent in mid 1980. The stock market peak in early 1973 was not recovered until mid-1980 and, adjusting for all the inflation, the stock market did not recover its 1973 value in real terms until 1987. Talk about a bear market.
Of course all the inflation back then wiped out a huge part of fixed income investments.
A newly minted 30-year Treasury bond issued in 1977 had lost about 75 percent of its value by 1982 when yields crested at 15 percent. By 1981, mortgage interest rates hit 18.5 percent. Now thereís a serious monthly payment!
So much has changed and so much has been learned since 1978. The Cold War is over, of course replaced by the threat of terrorism.
But freedom has expanded across Eastern Europe and the former Soviet Union and we are no longer threatened with total nuclear annihilation. And economic lessons have been learned.
The scourge of high inflation is gone and we now find the current unemployment rate of 5.2 percent to be unsatisfactory. (Though we are still putting up with OPEC, goodness knows why!) We have come to expect sensible government policy, strong economic performance and rising standards of living.
We have yet to recover the 2000 peak in the stock market, but in many other respects we have already recovered from the last recession.
Employment is at an all-time record high as is industrial production, real per capita income, housing starts, company earnings and a host of other economic measures. However, Pope John Paul II was always one to remind us of poverty around the world and the good work still to be done. That said, I am awed as I look back at all that has been accomplished over the last quarter century and the many ways that life has improved. It is certainly an inspiration for our future.
Writer David Purdy is president of Wealth Management Midwest, Forest Lake, and offers securities through Linsco/Private Ledger, Member NASD/SIPC and an investment advisor.
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