Posted on 04/29/2011 6:41:40 AM PDT by SeekAndFind
Stagflation officially returned today with a nasty GDP report that showed only 1.8 percent real growth, but 3.8 percent for the consumer spending deflator. It’s a mini version of the 1970s: low growth, higher inflation.
Looked at another way, rising inflation is coexisting with high, near-9 percent unemployment. Keynesians argue this can’t happen. They believe strong growth and too many people working leads to high inflation. But they were blown out of the water way back in the ’70s. And their view is hitting another pothole right now.
Supply-siders know that inflation is a monetary problem. Growth is caused by low tax-rate incentives. And the combination of flat tax rates and sound money could produce strong growth with no inflation. Think 1980s and 1990s.
But that’s not what we have now.
The dollar is falling relentlessly and gold is soaring. These market indicators are correctly predicting higher inflation as the Fed creates more excess money than anybody knows what to do with.
Fed head Ben Bernanke yesterday told us that low Q1 growth and high inflation will be “transitory.” How does he know this? Gold has gone up $40 since he started talking at his Wednesday press conference. It’s now at $1,536 an ounce. And the greenback keeps falling. Transitory? Actually, it looks like the whole QE2 pump-priming hasn’t stimulated economic growth, but has stimulated inflation.
And while the Bush tax cuts were extended last December, the sharp dollar decline and the resulting inflation have neutralized the positive effects of continued lower tax rates.
Once again I note the supply-side model is low tax rates and a stable dollar (backed by gold). But low tax rates and collapsing dollar is no good. Neither is overspending and over-borrowing. Nor is the new round of Obama-based tax-hike threats.
(Excerpt) Read more at cnbc.com ...
Can the “MISERY INDEX” be far behind?
“It’s a mini version of the 1970s: low growth, higher inflation. “
Mini? Ok, the inflation part hasn’t gotten the momentum that it’s going to get, ($4 a gallon and up gas will do that).
As someone who joined the Navy in 1977 for a variety of reasons, but the economy being a large factor, I say this looks smells and feels a lot like the late 70s.
Jimmy Carter is definitely available in black.
Supply-siders know that inflation is a monetary problem."
For those interested in the distinction between these causes of inflation, arguments for the monetary view can be found in a set of short, free essays, The Austrian Theory of the Trade Cycle. They are also available in audio, along with a lot more great (IMO) stuff on that site.
One thing I really found interesting is that the first two articles were written during "The" Great Depression (and what did we call WWI at that time?).
Stagflation is as bad a confluence of malevolent economic forces as it can get. It took years for the Reagan Administration’s pushing, cajoling and nudging of Congress and the American voters to move toward government deregulation and other market-based solutions. As of now, I don’t see any Reagans out there to repeat what the Gipper’s team accomplished in the ‘80s.
My question is... when inflation, unemployment and interest rates are all raging along at 15-17%... will the sheeple finally wake up THEN??
By some calculations, we now have 10% inflation and 17% real unemployment, and so Barack Obama’s misery index is 27. The commonly perceived worst-ever Misery Index (in 1980) was 21.98.
Weirdest "recovery" I've ever seen.
They are trying to stoke inflation to avoid getting crushed by deflation.
Completely different situation than in the 1970s, where stagflation is considered to be an improvement over a
deflationary depression.
Bernanke’s right, this inflation is transitory, but not for the reasons he hopes.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.