Stagflation rears ugly head

[marmar]

From 24/7 Wall Street:



August 04, 2008
The Stagflation Kid Rides Again



Today's inflation and employment numbers had the putrid scent of the recent past on them along with a whiff of a decaying future. Prices rose .8%, which takes the economy back to inflation rates from the 1980s. Challenger said corporate job cuts rose 33%. If the entire economy is not in a fairly deep recession, many industries and geographic areas are.

It has become inescapable. The tech and energy sectors cannot cure an economy where other industries from autos to airlines to newspapers will have to cut at least 15% of their workforces. The last quarter showed nominal GDP growth. Absent the kickback from the government, the number would have been negative.

It is now occurring to economist that real estate defaults will not be walled off with subprime borrowers. People with reasonable credit cannot afford mortgage resets along with higher energy and commodities prices. Match that with a drop in disposable income and lay-offs and the typical citizen is in trouble.

It is hard to say which of the most recent deep recessions was the worse. In the early 1980s, unemployment went over 10%. In 1974, inflation topped 11%. Both sides are arsenic.

The 1973/1973 recession was probably worse because of the raw panic of combined job loss and sharp spikes in prices.

There are now very few plausible arguments that the economy has not entered a period of stagflation. Economist may have started to worry about this in the first quarter, but it has breached the defenses set up by the Fed and Treasury. Neither agency can do much about it now other than let it run its course. It is an infestation that cannot be dug out.

With any luck, the economy will spew that trouble out before the end of the year, but that is wishful thinking.


Douglas A. McIntyre


http://www.247wallst.com/2008/08/the-stagflation.html