If you write about domestic issues and you’re jealous that foreign policy bloggers get to throw around “Carter II” all the time, you’re in luck:
In every region, fuel prices are up compared against the week before. Gasoline is increasingly more expensive than diesel fuel per gallon. The national gasoline average is now about a $1.42 below the price this time last year. Despite the increase in price, diesel fuel is still $2.19 below this time last year.
Economic stagnation plus energy inflation equals what again? Stephen Gallo thinks that the current government strategy is going to make it “very difficult” to “manage these stagflation risks that crop up on the horizon.” But he’s just the head of market analysis at Schneider Foreign Exchange.
The wonderful thing about stagflation is that at the beginning, if you limit yourself mostly to the financial side, it looks just like a recovery. It takes a while for the supply-side shocks triggered by high oil prices to take hold, and in the meantime the markets do brisk business. That works exactly until people begin to notice what’s going on:
Money is pouring into the markets once again… Is it going to be back to business as usual? Some experts are already seeing a V-shaped recovery. Indeed, the rally in the markets has led to a scramble among analysts to revise their earnings estimates upwards. But as Citigroup equity strategist for the Asia-Pacific region Markus Rosgen put it… “It requires some convincing that the world economy has reached ‘normality’ as witnessed over the last 10 or 30 years a mere 14 weeks post the March lows seen in equity markets.” Moreover, what exactly does “back to business as usual” mean? Does it indicate that we have started on another bull run?
But perhaps the most cogent argument that a global recovery cannot be engineered by liquidity alone has been made by economist Andy Xie… While the rapid growth of China and India led to rising demand for resources, the Soviet contraction offset this inflationary force. The problem, says Xie, is that none of these conditions is now present… “The current party is likely to be short-lived. Next year, inflation expectations may become apparent. That would lead to expectations of interest rate rises. While central banks will still be reluctant to raise rates, rising bond yields will force them to do so. But they won’t raise rates quickly enough to stem the inflation momentum. Stagflation will probably take hold.”
No worries though. As long as the people who run our economy keep their eyes on the ball we should be fine.
References:
* Average gas prices–June 8, 2009 [Cosumer Reports]
* Fed Rate Rise Speculation "Nonsense": Strategist [CNBC]
* Setting the stage for another bubble [Manas Chakravarty]
* Super Smart Stimulus Czar: Knowing About The Economy Is “Above My Pay Grade” [MR]
Previously:
* Obama To Bankers He’s Been Scapegoating: I’m "The Only Thing Between You And The Pitchforks"
* House Dems Trying To Deregulate Predatory Payday Loans After Accepting Massive Campaign Donations From… Payday Loan Industry
* Keenly Perspicacious VP: Please Join Me In Destroying The American Airline Industry
