stagflation is back!!! what now?

Discussion in 'Trading' started by bat1, Feb 27, 2008.

  1. bat1


    The term "stagflation" -- an economic condition of both continuing inflation and stagnant business activity, together with an increasing unemployment rate -- described the new economic malaise. Inflation seemed to feed on itself. People began to expect continuous increases in the price of goods, so they bought more. This increased demand pushed up prices, leading to demands for higher wages, which pushed prices higher still in a continuing upward spiral. Labor contracts increasingly came to include automatic cost-of-living clauses, and the government began to peg some payments, such as those for Social Security, to the Consumer Price Index, the best-known gauge of inflation. While these practices helped workers and retirees cope with inflation, they perpetuated inflation. The government's ever-rising need for funds swelled the budget deficit and led to greater government borrowing, which in turn pushed up interest rates and increased costs for businesses and consumers even further. With energy costs and interest rates high, business investment languished and unemployment rose to uncomfortable levels.

    In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful. A perhaps more successful but less dramatic attack on inflation involved the "deregulation" of numerous industries, including airlines, trucking, and railroads. These industries had been tightly regulated, with government controlling routes and fares. Support for deregulation continued beyond the Carter administration. In the 1980s, the government relaxed controls on bank interest rates and long-distance telephone service, and in the 1990s it moved to ease regulation of local telephone service.

    But the most important element in the war against inflation was the Federal Reserve Board, which clamped down hard on the money supply beginning in 1979. By refusing to supply all the money an inflation-ravaged economy wanted, the Fed caused interest rates to rise. As a result, consumer spending and business borrowing slowed abruptly. The economy soon fell into a deep recession.:D
  2. LT701


    make no mistake, we have Carter era problems

    Carter was by no means a great leader, but I've always felt that the bulk of his lackluster legacy was owed to being in the part of a Fed/monetary cycle, that is very similar to where we are right now

    'when the chickens come home to roost'

    actually, we're probably in Ford era, which was fairly short

    the inflation problems of the 1970s began in about 1971, and peaked in 1979, after a DEVESTATING round of inflation, that made the prices of 1971 look like a fairy tale when it was all over
  3. hmm how bout the fed chairman stop cutting rates, let us go through a recession and stop inflation. I think it'd do us better than worse.
  4. LT701


    he should have let us have a recession in 1998

    we could have healed long ago

    instead, he just papered over, and papered over....
  5. This is a different animal. The stagflation is just one part of the problem. The other part is the financial gridlock of credit markets. The FED had to start cutting rates because of the abrupt slowdown in growth but they were late to the game and their timing was off. That will probably end up making the inflation aspect worse but thats how they see it. The whole system is spinning out of control.
  6. If you can trade, I think the best market to trade is coming up ahead.

    Most of the competition will be washed away and only serious players will be left to take the 401K money. Remember the wage slaves will still be pumping in money into the market.

    The pie might get smaller, but the number of players will get even smaller. Much more left on the table for the smart players.
  7. Keynes was one of the greatest minds of the 20th.

    His economic ideas helped the west get out of the great depression and helped capitalism get back on track...

    However, the keynessian measures were meant to be implemented only in very extreme and specific cases when the economy goes into a standstill...

    The problem was that many statist central bankers saw in Keynes idea a "fix-all" theory that they could apply everytime the market didn't move their way or they started to see trouble in the horizon. This error was made evident in the 70's.

    After the 70's most of the world [including the US] moved away from Keynessian economics... into Austrian and Chicago School lines of thought... and things went well for sometime...

    and then came Bush Jr... he pushed the US economy back into keynesianism in a time when keynessian measures were unecessary [there was no great depression, the economy was "strong and resiliant"]
    That was a foolish move, as only a fool does the same thing twice expecting different results.
    Stagflation is the only possible outcome of trying to manipulate the markets by printing money en masse.
    The ironic thing is, that if you apply keynessian measures while going into the depression, once in the depression, keynessian measures become useless... since the fundamentals of the depression have change dramatically.

    Whoever is the next president better give Jeffrey Sachs a call... he [she] is going to need some serious help.
  8. kkob


    Not really new news. We been in stagflation for years. Prices continue to rise - especially commodities. Cost of beef, milk, orange juice, corn, etc all have gone up. A gallon of orange juice is $7 in California!
  9. donnap


    Those who are savers and prudent with their finances are being penalized with low interest rates and declining buying power.

    Fixed income seniors, the ones who built up this great economy after World War II (remember them?) are being penalized.

    The irresponsible ones who spent themselves into bankruptcy are being bailed out with cheaper money to pay back debts.

    The Corps. are being bailed out of irresponsible finance practices with easy credit.

    It's a masive shift of wealth. It's criminal.
  10. Rising prices with a growing economy and low unemployment is not stagflation, that's plain old inflation.
    Stagflation is when the economy slows down, unemployment goes up, and you still have rising prices... it's the worst of both worlds.
    #10     Feb 28, 2008