Stagflation And The Fed (September 17, 2007)
Inflation is rising. (See the e-ssay dated July 16, 2007 entitled “Back Door Inflation”). Examples abound. The standard venerable five (5) gallon container of paint now hauls only four point six eight (4.68) gallons. The benchmark basket of goods and services used to calculate the consumer price index is getting much smaller.
The housing boom has played out. Consumers would like to spend more, but they completed thirty years of spending in three (short) years. The bills are arriving monthly for the next twenty seven years. Consumers will not be able to consume. The economy is stagnating and will continue to stagnate.
The economy is in a state of “stagflation” with both inflationary and recessionary pressures. (See the e-ssay dated August 7, 2006 entitled “The Fed: Deal with ‘Stag’; Deal with ‘Flation’?”). This past August 7, the Fed expressed concern about inflation. Now the concern du jour is recession. The Market anticipates a drop in the Federal Funds Rate (FFR). What should be done is problematic and a problem. The Fed likely will reduce the FFR by .25 to appear to be doing something.
Bumper sticker of the week:
Do something. Anything.