U.S. support for Israel also resulted in the Arab Oil Embargo, which drove oil prices up and touched off a wave of inflation. Furthermore, confidence in the government had been severely disrupted over the Vietnam War. It is therefore true that political and economic factors outside of the Watergate scandal had an effect on the poor performance of the stock market, and subsequent rise in gold prices. In fact, it is probably safe to say that these factors had a larger role in the cause and effect scenario of the 1974 recession. It is through lack of confidence in government and its leaders' ability to solve the world's economic and political troubles that consumer and investor confidence becomes eroded.
Confidence lies at the heart of finance.
What the Watergate scandal proved was that public pessimism created by a presidential scandal has a negative effect on the economy and the financial markets. The Watergate scandal had a dramatic impact on this national lack of confidence. Just as in 1974, the economic and political worlds are unstable. However, if political scandal grips the nation, the Clinton Administration could very easily find itself in jeopardy when its attention must be focused on an economic or political crisis brought about by problems in Asia, Russia, the Persian Gulf, or the threat of the Y2K Bug. Despite the November 3 elections, Clinton's legal problems have still greatly decreased the American public's confidence in the administration's ability to deal with these and other problems.