Chris Martenson: The U.S. Economy Is 'Dangerously Close' To Experiencing Stagflation

"When people ask me -- are we [experiencing] inflation or deflation? I say 'Yes'. We are experiencing both right now," economic researcher Chris Martenson said in a recent interview with Aaron Task of Yahoo's Tech Ticker.

How is it possible that the U.S. could be experiencing both inflation and deflation at the same time? It's all about where you look, Martenson said. Commodities are seeing a general rise in "observable prices," but at the same key asset prices like housing are still falling.

In fact, Martenson believes that the country is getting "dangerously close" to experiencing stagflation, which is generally defined as a situation in which the inflation rate grows but the economy doesn't.

England is already in a state of stagflation, Martenson said, a condition which would represent the "worst of all possible worlds" for the U.S.

Martenson added that the continuous commodity index, up 12 percent over last year, is absolutely "screaming inflation." The rise in generally available commodities, combined with declines in housing and weak wage growth has "really squeezed workers," he noted.

WATCH:

Want to get a better understanding of the economic crisis? Check out Martenson's Crash Course.

Comments

[AdHack]

03:14 PM on 08/16/2010

We're all waiting for the tipping point into the event that sends the country into a fast downward spiral. Will it be a banking/stockmarket bust? Another corporate disaster like BP's oil leak? A terror attack? Something else we can even imagine? I don't know. No one does. But it's coming. We all feel it. People realize the country is heading the wrong way, but no one can act. We are frozen by the headlights of a dark destiny, blinded to what it might be, but sense it bearing down on us. May g-d help the United States.

[MeinNH]

05:17 PM on 08/13/2010

Dangerously close? I think we are already there folks.

[GoodNews]

03:05 PM on 08/12/2010

meanwhile, my wealthy brother giddily plans his trip abroad and shrieks with delight at all the amazing real estate bargains he can now pluck from the garden.

[guveqzero]

05:48 AM on 08/11/2010

Another propagandist. We need inflation in every aspect of our economy to prime the pump, not just commodities. Then, prices go up, assets go up and then wages will go up. Stagflation, inflation with no growth in the economy, only occurs because of global trade problems that distort prices in certain sectors. Bring back US industries, that is made in the USA,and then you can forget about stagnation.

[William1950]

12:25 AM on 08/11/2010

12/21/2012 can't get here soon enough...

[Legalize]

05:41 PM on 08/13/2010

man i have mixed feelings about that date.

[StopMakingSense2]

02:08 PM on 08/10/2010

Supply side economics and free trade. Is the jury still out? Sift the results from the ashes of our economy! Only the ideologically blind don't get it. This happens when you let the elites write their own rules and you don't really make anything any more because you shipped it over seas to avoid paying a living wage. The service economy was just smoke and mirrors. A big circle jerk that went nowhere. If you look around the planet to find what the republicans want you find it in third world countries. Looks like we are well on our way.

[William1950]

12:26 AM on 08/11/2010

right... capitalism would work great if everyone had a modicum of moral restraint... and one doesn't need to be a christian to have moral restraint.
greed, unfettered and celebrated is rampant.

[Wanderland]

10:30 AM on 08/10/2010

How can this be when many indicators apparently show a strong risk of deflation, not inflation? The Fed is meeting about it today.

see: http://www.nytimes.com/2010/08/10/business/economy/10fed.html?_r=1&hp

[jeremyemilio]

04:10 PM on 08/10/2010

The idea of a deflation 'risk' is always and everywhere a myth. A 'risk' implies something that can happen, as an unintended consequence of given actions, and then cannot be easily or quickly remedied. Under the Federal Reserve monetary system, deflation can ALWAYS be remedied easily and almost instantly. The Fed (in combination with the treasury, but even without if it really wants to) has the power to print tens of thousands of dollars for each and every person in the US and send it out in the mail tomorrow. You really think there could be deflation (lower prices and wages) in that environment? Fine, then they could just print $1 Million for every man, woman, and child. Whatever it takes. In any case, it's an instant and painless solution (if 'painless' is the right word for a receiving a big fat check in the mail)... making deflationary spirals IMPOSSIBLE. Inflation is another case altogether. If inflation begins spiralling out of control the only way to solve it is to tighten the money supply and begin collecting excess cash through a combination of higher interest rates and taxes... both of which are extremely painful.

Anyone who buys into the 'deflation risk' story is being duped. Sorry.

[Kate Bires]

03:42 PM on 08/12/2010

Wow where did you get your ECON degree? You live in fantasy land. MYTH no afraid not.

[dubyadipp]

05:19 PM on 08/10/2010

Part 1:

people want to understand, but fail (or are simply too lazy) to look at the big picture. this isn't intended to be a lecture. it is intended to be an eye opener.

inflation is coming.

we created billions out of thin to stimulate the economy (which i support). currently, little of this is going to infrastructure or technology products that will increase the value (or efficiency) of the United States. without the improvements to infrastructure or technology, this money is "created" with nothing to back it up and essentially devalues the currency that it is tied to. with inflation, more dollars will be required to pay for the same services because everyones money will be worth less.

this is what leads to the commodity increases. commodities are THINGS WITH REAL VALUE. things with real value become more expensive in times of inflation. people have basic needs, and these basic needs are commodities. these include housing, energy, and food. these are needs that must be satisfied and hold real value, therefore, it takes more devalued $ to purchase these commodities.

LAND IS DEFLATIONARY, not housing. places with high land values (ex. CA, NV, AZ, FL, etc.) lead to home prices that are unsustainable. the bundled commodity of the structure (lumber, electrical, concrete, etc) becomes more expensive in times of inflation.

[tribilin219]

09:54 AM on 08/10/2010

How can this be? Wall St. and the Big Banks are making money left and right? And Washington said everything is Rosie and every month more and more jobs are being had? What a joke these clowns in Washington have Bing playing on the American people, And to think we owe it all to the Republicans in Washington! The way they see it is if they can't make money for their Special Interest pals like Big Oil ,Big Banks, ,Big Coal, Big Business, Their not going to do anything! They hear Rush Limbaugh but they don't hear the American people? So if you think things are bad now? just think how worst they'll get if the Republicans win congress? But don't forget the Blue Dogs, They have to go, their DINOS and we don't need them in the way of this country moving forward

[deeplycynical]

03:32 PM on 08/10/2010

Bingo! Great observations. Fanned

[studmoose]

08:58 AM on 08/10/2010

Go GOP...

Your apparent goal to subvert and destroy America seems to be working!

Give yourselves a hand. WooHoo!

[MANOFCOMMONSENSE]

05:33 AM on 08/10/2010

Wall street type sucks!!! Any normal business if people are coming through there doors to buy there goods will hire people!!! ( Recessions take time ) Houses don't rust out and wear out!!! So to use Wall Street and housing as a limus test on how they economy is doing is not wise!!

[Valerie Keefe]

04:40 AM on 08/10/2010

*facepalms*

Stagflation, while a quizzical effect of a generally mediocre economy combined with price shocks, (Keynesian economics didn't cause the stagflation of the 70's, Arab politics did,) is NOT worse than a liquidity trap fuelled price collapse. And while commodity prices are rising, they are probably well below economic value. The only thing keeping Oil from $100 a barrel again is the complete collapse of global demand.

[jeremyemilio]

04:17 PM on 08/10/2010

Silliness. The Fed and the Treasury don't need to get cash out through lending. They can literally print money up and send it out, no strings attached. Which makes broad widespread deflation impossible. Lower prices in certain sectors, on the other hand, are to be welcomed. The fact that the rich have successfully convinced the poor and middle classes to wring their hands when prices go down and life gets cheaper is a testament to their e v i l genius, and to the gullibility of the general populace.

[rtb61]

03:17 AM on 08/10/2010

The reality is of course that is exactly what is required. A stable sustainable economy, with people working together to achieve mutual goals. No more get rich quick schemes, no more ruthless exploitation of resources, the environment and people and an end to ostentatious mass consumption which if course is a disease and not something to be celebrated.

[twhiting9275]

12:52 AM on 08/10/2010

Wait, you mean we're not THERE yet? The past few years have seen this very thing, unemployment rise, prices rise. Yeah, I think we're pretty much there already!

[frankiestage]

12:47 AM on 08/10/2010

"England is already in a state of stagflation, Martenson said, a condition which would represent the "worst of all possible worlds" for the U.S...." Wouldn't the worst of all possible worlds be something more along the line of a gigantic meteor colliding in the middle of the country (at least for the people living in the middle of the country)?

[Mafdet]

12:45 AM on 08/10/2010

We are in a stalemate. When the investment banks took our bailout money and refused to send it back through the economy, they sent the economy into deeper crisis. Small business had been haning on for most of 2008 waiting for the banks to lend again, and when lending was halted through all of 2009, it killed us. Our credit ratings are terrible according to every conventional barometer. The demand for our products has remained constant even while we have had to pull back the capital that it takes to produce so we CAN hire, but we have to borrow in order to hire. But we aren't credit worthy. We were, but not now.

Unfortunately, the new businesses that can get funding will fail at a rate of 50% in their first year not having hired a single soul.

So it makes a lot more sense to make underwriting exceptions for existing small businesses needing loans now., than it does to try to drive us out of business and replace us with start-ups. But the Administration doesn't see that.