Stagflation Fears Return

The U.S. faces an unwelcome combination of looming recession and persistent inflation that is reviving angst about stagflation, a condition not seen since the 1970s.

Inflation is rising. Yesterday the Labor Department said consumer prices in the U.S. jumped 0.4% in January and are up 4.3% over the past 12 months, near a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3% in January, driven by education, medical care, clothing and hotels. They are up by 2.5% from the previous year, a 10-month high.

The same day brought news that sparked worries of a deepening recession. The Federal Reserve disclosed that its policymakers lowered their forecast for economic growth this year to between 1.3% and 2%, half a percentage point below the level of their previous forecast, in October. They blamed a further intensification on the slump in housing prices, tighter lending standards and higher oil prices. They warned that should the economy's performance differ from its revised forecast, it would be more likely to fall short than outperform

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A news analysis by Graham Bowley in the New York Times agrees that '70s-style stagflation may be making a comeback:

Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold is on the rise, along with the prices of such basic commodities as wheat and steel. And on Wednesday, with the latest government report on consumer prices, there are signs that overall inflation, after years of only modest increases, may be breaking out of its box.

For the Federal Reserve and its chairman, Ben S. Bernanke, all this could not come at a worse time. With the credit markets in disarray from the collapse of the housing bubble, Mr. Bernanke is cutting rates in a headlong rush to blunt the risks of recession.

But in putting its emphasis above all on reviving growth, America's central bank, according to some economists and even a few Fed officials, may face a bigger inflation problem down the road.

Comments

[Barrack69]

My advice, buy guns and gold. You are gonna need both.

[WIpatriot]

And some silver, and don't forget food seeds. Oh yes, ammo, too, before it doubles in price again.

[DumbDad]

But this time they've got no 'powerful unions' to blame it on. Criminals staked everything on protecting Wall Street, not 'the economy'.

[WIpatriot]

Dad, the blame game is so 90s...have­n't you noticed the lack of accountability lately. There is no blame anymore. It's all "who could've guessed...­?"

[Justinpassing]

Stagflation is just a more gentle way of saying depression. And this one will be a gobstopper; world wide is quite a dose of negative feed-back looping, and the Fed and our esteemed gubmint have used inflationary measures as if they were liquidity tools to hammer in place like a mile-deep pylon. They have exacerbated the problem at every turn and called it remedial measures. To be able to observe this level of "higher level leadership" and "think tank action" at a time of critical disaster control...­. is a significant insight indeed, but most importantly it is confirmation and vindication of the most important kind.

[WIpatriot]

A gobstopper, indeed!

[mmckinl]

Again ... The MSM is way behind the curve.

And actually after a period of accelerated inflation, the signs all point to the worst of all worlds ... a bifurcated deflation/ inflation scenario.

Inflation for all commodities in real dollar terms, especially food and gas. Deflation for all investment and real property.

[ashleybaines]

That's what is happening in my business. Thankfully, we moved out of the regional mall and got our costs under control - and have established ourselves as destination retailers with very cheap rent.

AND - I saw this coming. I've been here before. So I put all our money from the high season into 'institutional merchandise' - that which we sell over and over again... we stocked up on such items at lower prices - so we are going into our high season STOCKED with last years prices on non perishable goods we see routinely year round. That gives me a huge advantage -because prices on everything are going WAY up.

Stagflation is going to thin the competition however... putting us in a favorable position for lease negotiations etc.... we are enlarging our market share - with lower overhead. It's all about reading the economy - and having been there and done that before.

Our competitors are dropping like flies.

[mrcontinental]

Good luck. Sounds like you are prepared.

[WIpatriot]

Sound business planning, ashley.

[ystasino]

I have a great credit score and I'm looking to change my 5.9% auto loan APR to 1.9% for the duration of the loan without any transaction fees.

When are they going to pass the interest rates reductions to ME???

Lol

[WIpatriot]

That's about as good as you're gonna get, unless you get one of those manufacturer's ZERO percent loans....

[Moxo]

At least the Republicans in California kept the loophole that allows those who buy a yacht, plane or RV out of state and keep it out for 90 days to not pay any sales tax. I couldn't afford a Gulfstream V otherwise.

[iPolitics]

I fear what would have happened if we didn't have an MBA, pro-corporate president!

[SubparDude]

Whatyasay we just go for a literacy test next time?

[mrcontinental]

Can't do it. Then we would have NO choices.

[nanotubz]

Surprise, surprise. Once again a group of the US's valued PD economist proof they don't know their ass from a hole in the wall. But someone will get a Nobel for modeling it after the fact, which is about all economist actually can do well.

[JSquercia]

Your Comment reminds me of that great Harry Truman story about looking for a ONE handed Economist . People asked him WHY he wanted a One handed economist and Harry replied because whenever I ask an Economist a question he answers well on the ONE hand this will happen but on the OTHER hand that will happen .

[WIpatriot]

That is an AWESOME story, JS. Still plays 60 years later.

[studlyguy]

just read food prices will go higher because of supposed wheat shortage and planting less wheat and more corn for the ethanol ,so not only will you pay out the a*s to eat ,you'll also pay out the a** for fuel ,along with the high gasoline prices ,and the mortgage meltdown ,credit meltdown ,job losses,wages stagnant for people who have one still and skyrocketing prices for everything ,I PREDICT A DEPRESSION in 2008 wonder how Americans will react could what were seeing in Serbia be foretelling of what is to come in the DEPRESSION ERA America in 2008

[WIpatriot]

Plant a garden, studly, if you don't already have one.

[Feettotheflame]

The Federal Reserve has been stealing from Americans for a long time now.

Let's unite against these tyrants and take back our country.

1776

[WIpatriot]

Yuppers, since 1913.

[Rule Of Law]

"The Federal Reserve--Stealing From Americans Since 1913"

Has a kind of homey ring to it, don't it?

[realitytrumpsbull]

Doctor Spitzer will see you now...

[Wiredwilly]

Well, Thomas Jefferson was no fool.
As corrupt as it is, America is still a Great Country if you ignore the politicians and bankers. I know thousands of compassionate, hard working, brilliant people. America gave the Dalai Llama refuge when the Chinese overran Tibet. America stopped Hitler. America ultimately ran Nixon out of office. Don't underestimate the will of the people. As the illustrious Sherlock Holmes said to Dr. Watson, " The game is still afoot . "

[pirea]

I totally agree. You guys need just a wake up signal, and unfortunately this will be painfull for everybody.
Expect big troubles ahead, all starting from huge financial systemic problems. This crap has to pop up before you can get to the normal. Speculative making of money and wealth went too far and does not have any connection with reality of economics. Now is time to pay.

[paixa3]

Your past historical points are true...but­, keep dreaming about the future. Sadly, it seems that USA citizens are just rats in a maze.

Case in point, I think that the populace (democratic party members) would prefer Obama, but the SYSTEM will appoint Hillary.

I am independent and would not vote for either mentioned above.

[kdeen]

MSM ran Nixon out of office, just as they are keeping GWB in office.

[Donk]

Impeach Cheney first!

[funkalicious]

Where the hell were the Senate regulators when banks started handing out 125% loans. no money down interest only...

When Rubin and Summers jacked the dollar to new heights and lost control of interest rates.

They turned the US into a consumer society, which meant that manufacturing and production were no longer the engine of the money supply.

The onus to increase in money supply was transfered to consumer debt.

Now that our savings of individuals and by extension, our government have gone negative. the consumer is tapped out.

The only way we can expand our money supply is to borrow 8 billion a day from over seas.

Now we are seeing our major assets sold off to foreign entities. The trust in our banks has been shattered and we have left our flank open so the jackals can feast.

Well it has become apparent that we are standing on a foundation of loose shit.

The Bush administration exploited this ticking time bomb because it benifits their Plutocracy.

The only way out the midget minded Bush could dream of was guns and butter. So he became the war president.

The lesson to Clinton and Rubin and Summers never gamble more than you can stand to lose.

Bush holds the lost cause.

It will take time to rebuild the trust in the dollar, and repair the rent to own culture this madness has wrecked upon America.

[WIpatriot]

Where were they, you ask? Follow this trail: The Glass-Steagall Act was effectivelt repealed by the GLBA http://en.wikipedia.org/wiki//Gramm-Leach-Bliley_Act

Lead by Phil Gramm of TX (why does TX keep popping up in these trails of greed?) left the Senate to join...any­body waqnt to guess? Riiight. UBS, sewen on these pages in the last week: http://en.wikipedia.org/wiki/UBS_AG

Next thing you know, he'll be the new Secretary of the Treasury after Paulson gets run out of town.

[WIpatriot]

effectivelt = effectively
Lead = Led
sewen = seen.

phat phriggin' phingers..­.tiny keyboard.

[Tom95134]

"Where the hell were the Senate regulators­...?"

They were all clipping their cupons on the Republican ripoff that they had voted into law. Remember, except for only a few years, the Republicans have been in control of Congress since Reagan. If you want to know when this started you have to go back to the Reagan Years. Reagan put the framework in-place to dismantle the protections tghat were put in place during the New Deal.

[JSquercia]

Yes I knew Ronnie wasn't good news for me and my middleclass family when he cut the top withholding bracket from 70% to 50% and cut our rate by 3% .
However to my mind the most egregious thing he did was to TAX Social Security Benefits and Unemployment Benefits . The latter is really like kicking a man when he's DOWN . Lose your job and your Health Insurance : get a fraction of your pay and NOW pay Taxes on that .

[andyboy]

I'm glad an interest rate cut and a $600 payoff is all it will take to right the economy!

My new prediction. Recession this summer. Serious concerns about a Depression within 2 years.

Ross Perot was right all along. You should have listened to that big-eared genius.

[WIpatriot]

I did. If I had bigger ears and a squeekier voice, you'd have thought it was me, except everyone says I make way better charts.

[Justinpassing]

been meaning to mention that to ya WI. I for one had started to realize that I never saw you and Ross in the same room at the same time....( i still got my vote for perot lisence plate)

[RichardD]

The Bush Administration has very skillfully, almost in a way the defies comprehension, transitioned a hugely robust economy into one so vulnerable the whole world is threatened with the impact of its death throes.
The GOP simply do not understand the modern world. They want to go back to their "blankie" position on each issue - all the old positions from decades upon decades ago - and think they will work now.
Not even to mention their ethical handicaps.
A hard, hard rain will fall...on every citizen.