Y’all have heard me gripe and grumble about the Fed cutting interest rates, with my main concern being inflation or even worse stagflation. Break out the polyester leisure suits and disco albums (yes, vinyl LPs), because it looks pretty official to me: Stagflation has returned to the U.S.
Short definition of stagflation
Stagnant economic growth or recession coupled with higher level of inflation.
The president is currently denying that we are in a recession right now (Wow, he not only looks like his father but now he sounds like him as well!). Technically, he is right when you apply the classic textbook definition of recession, which is two quarters of economic contraction. The official government numbers say we haven’t had actual economic contraction, but the anemic “growth” of 0.4% and 0.6% would put snails to shame. Basically, the economy is moving about as fast as swamp water … stagnant, in short.
Inflation numbers DO lie
Now for the other half of stagflation, which is inflation (prices inflate like a balloon). The “normal” government numbers show an annualized inflation for the past month of 4%, but then they get downright sneaky and strip out food and energy prices for some (male bovine excrement) figure they call the “core inflation” figure. I’ve made several snarky remarks about how Ben Bernake must not eat or drive to think the core inflation number is anywhere near realistic.
Doing a little digging around on the web I have discovered the government has changed how they figure inflation several times, and each change they make doctors up the numbers to make things sound much rosier than they are. Sit down and hang on to your hats, because here is a graphical representation of MY budget reality versus the government’s rose-colored glasses:
That’s a huge difference in figurings! And when you take into consideration food and gasoline, that top line reflects how I had to adjust my budget for April … and how I’ll be working the numbers again for May.
Stagnant Economy + Inflation = STAGFLATION
There you have it folks, stagflation is back … I am not at all happy about having seen this coming either. Supposedly the members of the FOMC are old enough and educated enough to have seen the signs of this economic catastrophe sooner and clearer than I could have! Yet they have been on an interest rate cutting spree reminiscient of those 70s slasher horror films in hopes of keeping the Wall Street markets happy and every consumer in America spending like before (at unsustainable levels).
This could have been avoided. Energy costs, especially oil, are priced in dollars and the dollar has fallen with just about every rate cut. Even OPEC says the price of oil wouldn’t be nearly as high if the dollar was stronger. This round of stagflation is on Ben Bernake and seven others in the FOMC - excluding inflation hawk Richard Fisher of the Dallas Fed and recently Charles Plosser of the Philly Fed.
I’ll do some rooting around and asking the older generations how to survive stagflation and report here when I come up with something good. In fact, I’ll make it my post-finals project, hopefully starting tonight. Until then, turn on the 1970s classic rock radio station to get into the mood … the angrier the better.