2008-02-21

Back to the seventies with Stagflation

From the department of I-told-you-so:
Lately, many people are hearing an echo — faintly perhaps but distinctly audible — of the stagflation of the 1970s.

Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold is on the rise, along with the prices of such basic commodities as wheat and steel. And on Wednesday, with the latest government report on consumer prices, there are signs that overall inflation, after years of only modest increases, may be breaking out of its box.

For the Federal Reserve and its chairman, Ben S. Bernanke, all this could not come at a worse time. With the credit markets in disarray from the collapse of the housing bubble, Mr. Bernanke is cutting rates in a headlong rush to blunt the risks of recession.

But in putting its emphasis above all on reviving growth, America’s central bank, according to some economists and even a few Fed officials, may face a bigger inflation problem down the road.

“They are cutting rates with a bill to be paid later," said John Ryding, chief United States economist at Bear Stearns. “The question is not, will we get inflation, but how much will it cost to stuff the genie back in the bottle. This has the feel of 1970s stagflation.”

1 comment:

Dave Lankshear said...

The thing that makes me shake my head in amazement is that we KNEW all this was going to happen 4 years ago. So Joy and I scrimped and saved and bought all the oil and gold shares we could hey? Wrong. We did exactly the wrong thing, and moved, and got into further debt with a bigger mortgage.

Sighs.

At least we fixed the interest rates over 12 months ago, before they started rising.

Hey, geology sure can be useful. Whoda thunkit?