Off-Topic: Are we on the brink of stagflation?
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Name:
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MartiniMan
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Subject:
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Are we on the brink of stagflation?
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Date:
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3/16/2011 10:57:44 AM
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As many of us observed over the past two years the policies of the current administration had the potential to cause something we have not seen since the worthless one, Jimmy Carter, was President: Stagflation. Stagflation is a combination of inflation and a stagnant economy. Under normal circumstances you would not expect this to happen because presumably as the economy stagnates, demand is lower, competition for jobs is higher and the cost of living should rise more slowly. However, when government intervention results in a distortion of this natural economic process you can see the contradictory outcome of inflation and stagnation.
Over the last 2-3 years there is no doubt we have had a stagnant economy and it seems to be continuing with GDP growth of less than 3% and unemployment hovering around 10%, real unemployment at ~13% and underemployment at ~20%. What we have not seen is inflation. Over the past 2-3 months there has been more and more evidence that we are entering an inflationary period, primarily a result of the fiscal policies of the Fed. And here is the real rub, the primary mechanism for the fed to control inflation is through interest rates and providing easy money to the banking system. But in a time of economic stagnation, increasing interest rates and reducing the availability of money can have a significant, detrimental effect on the economy. So the Fed is in a real pickle and in fact may have to decide between continuing the quantitative easing process which will only drive inflation or pull back on the reins and send us back into another recession.
Either way, Obama is in the same trouble that Jimmy Carter faced at the end of his one-term fiasco. Can he overcome it with his personal charm, his Chicago-style political machine and his willing accomplices in the government media? Maybe. And if the GOP doesn't do the right things over the next 18 months in Congress and with our nominee he will likely end up with Jimmy Carter's 3rd term.
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