Stagflation? Or just stagnation?

Last I saw inflation was about 10% in China.Since it seems like most consumer goods are made in China, I’m sure that at least some of that will get passed onto us.As far as the economy goes I live in the SF Bay Area and I’m middle class for the area.My household income is about 3x median U.S. and so is my house.The economy isn’t great here,I see more houses for sale and office buildings vacant.I hear about more layoffs in the area all the time.If 1 person in this area gets laid off it’s like 3 in Texas.But there is good news,the Feds are controlling cost and they’re laying off 2000 people at LLL.

To Tiller and others who say the economy is really doing just fine and any so called down turn is in our heads:

The argument of “Who are you going to believe, me or your lying eyes?” is only going to get you so far. Is it true that the US is going from outrageously wealthy to less wealthy? Yes. Are we a bunch of whiners who don’t like the idea we have to stop borrowing money, cook our own meals and stop expecting the Nanny State to solve every real and imagined crisis? Yes, that too.

But to say nothing is really worse out here is laughable. You can’t convince me that the inflation rate they have been feeding us of around 2% is real, because I’ve been looking in my wallet after buying gas and groceries. You also can’t convince me that that 2% growth is real to anyone but the top 2% of income earners. Because I know that my real income has gone down. And my business has gone down, and several of my friends are out of work, and 20% of the eating establishments have closed and the mall looks like ghost town.

I do agree that the “liberals” are lying to us for their own political purposes. But I have no less faith in that the conservatives are also lying to us for their own purposes, and that the media is like wise reporting as suits their purposes.

How one chooses to apply math to inflation is one thing. But what inflation means to most of the rank and file is this: Can I buy more, or less, with my day’s labor then I could last year?

And by that measure, for MOST of us, the answer is less. And by that measure, again for MOST of us, there is a lot more worse before us.

Oh, right, I remember, the fact that only prices have gone up but not my income means it isn’t really inflation. I feel better now.

Dear Tiller,

Thanks for the response. I appreciate your insight. As far as our State budget deficit, I think you are right. We need massive cuts in our spending. NYS is as bad as the Federal government when it comes to pork barrell projects.

Sincerely,

What inflation? We have little in the way of wage pressure and just about all input costs have fallen dramatically. Housing is down dramatically as well. If it wasn’t for the stupid equivalent rents calculation, deflation would be the discussion. Prepared to be shocked when Aug PPI comes in negative.

To John Poughkeepsie in NY,

I have been to upstate NY and visited beautiful Saratoga. I’ve even caught a few events of some fine breeds running around a circle. Upstate NY is beautiful-you’re doing a hecka job Johnnie!

We can never have 100% employment, there will always be people who cannot work for several reasons; age, opportunity costs regarding continuing education, disability, etc. With 2% GDP GROWTH, the economy is experiencing normal growth. A little slow, but not a stag-whatever. The second issue regarding your state deficit. Well partner, that’s easy to solve. CUT SPENDING!! SAVE CA$H.

As to your third issue, foreigners buy our debt for several reasons. One, the full faith and credit of the U.S. Govt is bulletproof. We’ve never defaulted and never will. Second, the economy is growing good. Third, our military can provide some cash rich countries protection (read Middle East, Japan, Europe), or social stability (Middle East, China.

Hope that answers your questions good buddy! Buy stocks!

To Tiller in Dallas.

Have you been outside of Texas lately? Come visit Upstate NY or the Heartland and I will show you pockets of the economy that are moving backwards with fairly high unemployment and looming state budget deficits. Don’t worry though, since I rent, Iam thinking of moving to TX to compete for your job.

As far as foreigners demanding higher interest rates, you may be right. My quandry is why buy US bonds if you are a foreigner and the dollar is depreciating? Can you shed some light?

Todd Farwell is correct. This isn’t true inflation we’re facing. To have true inflation you have to have wage inflation. What we have is the opposite, and helicopter Ben has been more than clear that he’s ok with spiraling costs…as long as wages don’t follow along. Right now we’re just playing kick the can until a new group takes over. Then? Ever heard of deflation?

The guy that writes this article is really lame. He needs to add a few years of experience under his belt. Inflation is here in a big way and has dire consequences for the nation.

What about fiscal policy and the effects of INFLATIONARY SPENDING under the Bush/Cheney Administration?

Every program they spend money on seems to be inflationary, Military, Homeland Security, Border Control, etc, programs that put more money into the system, but fail to create assets or goods available for purchase by the public.

It is time for the FEDERAL GOVERNMENT to reverse this awful trend, time for public works projects that will add to our Gross National Product.

Projects like a MagLev Train System, NAWAPA (North American Water and Power Alliance), renewable energy, projects similar to the great projects of the past.

Consider the construction of Glen Canyon Dam for $264 Million in the early 60s, what an expense, but what an investment. Think of the hydro electricity that has been and will be produced. The irrigation and culinary water that provides for increased food production and economic growth.

Time for the FEDERAL GOVERNMENT to reassess all spending and redirect all spending to projects that will provide a future return and increase our Gross National Product.

Typical Paul. It’s great to see you back touting the liberal CNN machine. Trying to get certain democratic leaning candidates elected, you resort to fear-mongering headlines. THERE IS NO RECESSION. THERE IS NO STAGNATION, STAGFLATION. If people think that things are bad it is largely imaginery or in their heads!!

The economy is GROWING. GDP is at +2%! This is NORMAL. Oil is down -25%. Inflation is FALLING and low. Interest rates are low. Deficits DON’T matter-look at the 10 year treasuries. Interest rates are 3.81%. That’s LOWER than 4.10% a few weeks ago. If deficits mattered, foreigners would be demanding HIGHER interest rates. They are not because they know the US economy is GROWING!!

What more do you people want???!!!

Rising prices are the symptom, not the cause of inflation. True inflation is the adding of currency or credit to the current supply, i.e. all these bailouts, low interest rates and loose monetary policy.
We have not seen the last of our problems. We have a lot more mortgage resets to go, which will, in turn, cause more bailouts and more money will be created out of thin air to pay for them. More money out of thin air means your currency is devalued or inflated; however you choose to look at it.
I have a huge concern with the fact that commodity prices are declining at such a rapid rate as well… could be a signal that a GLOBAL recession or depression is coming. Buckle up, buttercup, this is not over yet.

Your article implies that the value of the US$ is solely dependent on interest rates. But it also depends on the number of US$ in circulation. Consider what happens when we go into what I believe will be a very prolonged and deep recession (the mirror image of the excesses created by two historic bubbles). The Federal budget deficits will mushroom to $1Trillion annually. We’re already there if you use the $490 Billion projected and add the $150Billion war expenses, the $167Billion tax rebates, and the $200Billion stolen from the SS Trust fund. But it gets much worse as the recession will mean lower tax receipts, increased expenditures, and numerous multi-billion dollar bailout packages. We still have to add the $300 Billion homeowner bailout to next year’s deficit. The trade deficit will improve somewhat, but the budget deficit will get much larger. And all of that debt means a much lower US$. It may very well mean higher long term interest rates as the market will demand higher rates for compensation for the higher risk of US treasury debt since there will be fewer buyers and a much larger supply of treasuries. I do expect industrial commodity prices to move lower due to decreased demand, but it is still a question of how much that lower demand will be offset by a lower US$. We have not seen the end of inflation, it’s just a question of where it will migrate to. I suspect it will be tangibles and things of real value such as precious metals.

I’m waiting for deflation to kick in

No. Are you trying to encourage helicopter Ben to spread around some more money, further debasing the dollar?

I don’t believe we’ve seen even the middle chapters in regards to THIS book on “Inflation 08-09″. Many business people here have finally emptied their figurative shelves and will be upcharging to pay for all past & current extra costs for the remainder of this book. There are no customers looking for anything but essentials, nobody has on anything but a skeleton crew, and the well has dried up to just above the mud.

If by that you are asking are prices going down, probably not really. Gas is down and some food basics will come down a bit too. But they will be balanced by some of the slow moving price pressures just getting to the end user. Oil is still past that 100$ mark that just a year ago talking heads were saying it wouldn’t never really get to and would kill our economy.

But I do think they will stop going up for a while. Allowing us to get used to them and the adjustments it means in our lives.

I also think the ramifications of higher prices for basics (food, energy) are not done yet. I wouldn’t be running out and buying stock in retail just yet, or betting on an improvement in the job market either, as that goes.

Mr. LaMonica,

Stagnation is a good word for the economy. The good news is that inflation should begin to subside due to lower demand. The bad news is, the reason there is lower demand is that the economy does not look to be getting better anytime soon.

Vote for McCain and you’ll get more of the same for another 4 years. By the way, Mr. Cheney it looks like deficits really do matter. The reason the Fed can’t raise the interest rates to fix this economy is that it would transfer vast amounts of wealth offshore in the form of interest on U.S. bonds – thanks a lot!