Friday, December 14, 2007
Back in the seventies we had "stagflation," a new economic term coined at the time to describe something that had never happened before. It was right after President Drahcir Noxin was chased from office and Gerry Ford had stumbled into the presidency and there was an oil embargo. Stagflation is what happens when there are rapidly rising prices (the "flation") at the same time as the economy slows down and wages and new jobs dry up (the "stag").
Then Jimmy Carter got elected and he had no more idea what to do about stagflation than Ford did. It was the old bipartisan shoulder shrug.
Today we found out that inflation jumped up more in November than at any time in two years. The AP article on this new round of inflation reports that "In a troubling juxtaposition, the rise in inflation is coming at a time when economic growth is slowing sharply under the weight of a steep slump in housing and a severe credit crunch."
Long story short -- prices are going up real fast at a time when there's very little money out there. Very little money and just a lot of bad paper left over from the last gold rush.
"We are in store for a period of very weak if not recessionary growth and uncomfortably high inflation," says the chief economist at Moody's. "People are going to get hit with both a weaker job market and having to pay more to fill their gas tanks and buy groceries."
It's a pretty alarming article, ostensibly about the stock market drop today, but really covering the whole spectrum of disturbing economic changes occurring right now.
Inflation is one of the most socially destabilizing economic phenomena. I once had a history teacher who said the only thing more destabilizing than inflation is food shortages. Nowadays I would think gas shortages are right up there in the same league as food shortages.
Inflation is especially bad when there's little money because credit has dried up. Most people can still buy food and a little gas, but we're not going to be able to move those microwave ovens, or be able to move those color t.v.'s (apologies to Dire Straits). And that means more layoffs, more foreclosures, more people sitting at home wringing their hands and crying all day long wondering how they're going to pay the heating bill.
Merry Christmas to you, too, Mr. Greenspan.