Recession? Inflation? Stagflation? Take Your Pick

by Florida's #1 Mortgage Planner on February 29, 2008

Depending on who you talk to, you are right no matter what you pick these days.  Why is that?  Simple, the data supports all of the above, though no one in charge really wants to admit it. 

Inflation keeps climbing, growth is slowing and the best word to describe the economy overall is likely “stagflation.  Heard that before?  Yeah, I have been talking about it for a while, but I was hoping I was wrong.  Data keeps spewing out showing it to be true as it is defined…

StagflationA condition of slow economic growth and relatively high unemployment – a time of stagnation – accompanied by a rise in prices, or inflation.

The only real data that doesn’t support stagflation as of yet is the high unemployment.  That may be just around the corner though.

Bernanke and others keep talking about fighting recession, they say that recession is the bigger problem and that the economy will keep inflation in check.  If that were true, why is it that most of the recessions we have experienced have had inflation rise at the beginning?  Cutting rates to fight recession opens that “Pandora’s Box”.

The tug of war is on over which fear outweighs the other in the markets.  One moment it is fears of recession, the other is fears of inflation.  I would say it is one day this and one day that, but it sometimes doesn’t even last that long.  Is there any wonder why the markets are still in turmoil these days?  Why don’t we just call it what it is, take the losses (or gains) and let the economy recover like it should in due time?

Adding fuel to the fire is the constant beating the dollar keeps taking.  How can one say we are not experiencing out of control inflation when our purchasing power abroad is shrinking faster than an ice cube in boiling water?

Then there’s the talk about the whole housing mess and the Dems want to offer bailouts that include changing the bankruptcy laws.  Thank God that the republicans put an end to that nonsense.  Although Bush probably would have vetoed it anyway if it made it to his desk.  I have to agree with Paulson in that the industry should be allowed to work itself out, though some regulatory changes are likely needed.

Many have claimed Greenspan helped cause the current housing mess, I happen to be one of them.  And Fed head Poole came out and accepted blame that the Fed left rates at 1% far too long, resting the case.  So, why should we be in a rush to get that low again, which appears to be where Bernanke is headed?

All in all, the economy is messed up and everyone who thinks they can fix it are trying hard to do that. The only problem is they are likely prolonging the correction period, rather than letting things run their course.  What do you think?

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