Eclectic Floridian: A Whiff of Stagflation

Tuesday, April 19, 2005

A Whiff of Stagflation

Our Federal Reserve Chairman, Alan Greenspan, has a history of fighting inflation ... even when inflation is not really the problem. He is back at it, with "the word" being they'll raise rates again in May. Superficially, this may look right, but, there may be another way to see things. Remember, stagflation is rising inflation without full employment.

The NY Times columnist Paul Krugman says it well about our economic situation in the US. To summarize his comments:

1) Unemployment at 5.2% - the average for Clinton years (Note: 4% generally considered full employment)

2) "A lower fraction of the adult population is employed; the average duration of unemployment - a rough indicator of how long it takes laid-off workers to find new jobs - is much higher than it was in the 1990's."

3) "Above all, the weak job market leaves workers with no bargaining power, so they aren't getting ahead: wage increases have been minimal, and haven't kept up with inflation."

4) "... sluggish job creation. Private-sector employment is still lower than it was before the 2001 recession."

5) "... those whose standard of living depends on wages, not capital gains - in other words, the vast majority of Americans - aren't feeling particularly prosperous. By two to one, people tell pollsters that the economy is "only fair" or "poor," not "good" or "excellent."

6) Oil and Medical costs are on the rise while cement and steel are being driven up by demand from Asia [read China].

7) Wages are not rising (a true indicator of inflation). "... labor costs have been falling, because wages are growing less than productivity."

If there is an oil distribution disruption, or the housing market tanks, or consumers continue to "pull in their horns," or the dollar gets less attractive the US economy could be pushed into REAL stagflation.

MY WORDS: Mr. Greenspan, stop running OUR economy with your mouth! Try using your brain, or at least those of your advisors! Stop fighting the inflation you imagine and watch the stagflation you aren't paying attention to.


Anonymous Blackjack Trainer said...

I hope, you will come to the correct decision. Do not despair.

6/20/2011 4:26 PM  

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