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Stagflation: you heard it here
November 9th, 2007 by Sam

Lots of headlines saying “US economy to slow,” like this one on the BBC website.  When even Ben Bernanke, the Federal Reserve chief is chiming in, it’s time to pay attention.  He said that there was likely to be more

“financial restraint on economic growth as credit becomes more expensive and difficult to obtain”.

Now, doesn’t that mean interest rates are going up?  Isn’t that what makes credit more expensive??

And yet later in the article, it says “Some analysts say that the comments make it more likely that there will be another interest rate cut before the end of the year.”  Well, ‘In particular, it’s his comment that the FOMC (the rate-setting committee) expects growth to slow noticeably in the fourth quarter and expects sluggish growth in early 2008,’ said Dustin Reid from ABN Amro in Chicago.”

And then later they talk about inflation – yes, they are worried about inflation.

So, inflation + a shrinking economy = stagflation, if I remember from high school.

Now, they aren’t saying anything about a shrinking economy.  And I’ve read reports about how the economy is doing well by other measures – productivity is up.  Well, what is productivity?  Output divided by number of workers.

Well, we think we can measure output.  But, are we accurately measuring workers?  What if the reason our productivity numbers look so good is because we have millions workers who are not being counted?  Because they are not here legally?  What if the productivity numbers are bogus?

I’ve only seen stagflation mentioned a couple of times in the press in the last months.  But, I have a hunch that we’re going to see more, and that we’ll find out those productivity numbers are a little, shall I say, unrealistic.  Don’t get me started on the US dollar….  China’s going to diversify its currency holdings??  Stay tuned….


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