SEARCH BLOG: RECESSION and STAGFLATION
Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan. More recently, I have brought back the term "stagflation" ... a nasty combination of stagnation and inflation that occurs when the dollar falls and causes the price of imports to rise rapidly at the same time industrial output and employment fall. I remember how things were at the beginning of the 80s, but don't believe that the Federal Reserve will let the economy get that far out of hand (16+% mortgage rates).
Nevertheless, some cracks are beginning to appear despite calm talk from Washington.
At Economist's View, there is a post entitled Is GDP Growth Below Stalling Speed?
It talks about the possibility of a recession and and economy that is at "stalling speed." Let's hope that is the worst of it. We really don't want the flight from the dollar (which many believe is beginning to happen because our huge trade deficits are causing a loss of confidence in the international community) to lower the economy to "falling speed."
I know that trade deficits are supposed to be a only good thing because ... well, they just are according to our friends at Cafe Hayek and similar sites. The deficit probably was not much of a problem when it hovered around $100 million annually, but it is now at nearly 7 times that and cumulatively over $1 trillion with China, alone.
But too much of good thing may not be a good thing. Especially if China gets a little uneasy with holding that much U.S. currency and goes to something like the Euro which has been appreciating rapidly versus the dollar. That will be just another push toward a lower dollar and higher inflation.
Oh, it's probably much ado about nothing.
..
