Posted 10/18/2010

ARE WE FACING STAGFLATION?

Federal Reserve Chairman Ben Bernanke doesn't think the inflation is high enough at 1.1 percent. He says he fears a Japanese-style deflation which will send the economy down again.

He's afraid that as prices drop, consumers will hold back on spending, in anticipation of further price declines.

He thinks he can prevent that and generate an inflation in which people will spend like crazy because they will fear future price increases.

He thinks he can accomplish that by printing more paper dollars, even though the world is swimming in greenbacks. At this time, business has over $2 trillion in banks and liquid assets. The banks themselves have another trillion or so. The Federal Reserve has over $2 trillion. The total cash and liquid stuff is $5 trillion, or $15,000 for every man, woman and child living in the USA.

Every day the value of the dollar falls further and further. This increases our exports, but drives our imports even faster. The result is a drastically increasing national trade deficit. China, Russia and other countries are moving to reduce the dollar in world trade – which would further drive down its value.

What good would more money do?

It would just put us at greater risk of stagflation than we are today.

Do you remember the misery of the 1970s when the economy was stagnant, but we had a huge inflation? We were so miserable that President Carter said the country had "malaise."

More money risks a new decade of stagflation because more money will simply not get consumers to spend more. Ditto business. Which means continued unemployment and stagnant income levels for the already hurting middle class.

In the last two years Washington has spent so much money that our national debt has increased by $2.7 trillion, or $8,000 for every person in America.

Warning: More dollars will mean more government spending and more national debt.

The sad part of this is that Ben Bernanke seems completely out of touch with what is happening at this time in the economy.

Future inflation is on the rise.

Commodity prices have zoomed 58% since March 2009. Rising prices of corn, wheat, soybeans, rice and other foodstuffs are now on the way to raising supermarket prices. From Cheerios to hamburger, you're going to be paying a lot more.

Crude oil is up 82% since Bernanke started printing money. It already costs a lot more to drive to the supermarket.

The dollar has fallen over 14% on a worldwide basis during the same time period. This means that all that cheap stuff you used to buy at Walmart is going up. The dollar stores may become "Dollar Fifty" stores. Manufacturer outlet stores will soon have comparable prices to Saks and Nordstrom.

Gold, silver, platinum and palladium prices are going through the roof. Those higher prices are already evident everywhere from jewelry stores to aircraft manufacturing.

This year producer prices have jumped 7.1% and these increases are rolling down on consumers.

Printing more dollars will make inflation much worse next year.

The American middle class, having suffered stagnant earnings the past ten years, is in for a real introduction to Jimmy Carter-style stagflation next year.

When the President said he would not raise taxes on the middle class, he apparently did not realize that inflation is the cruelest tax of all.

An Obama stagflation will hurt the middle class by freezing its income while increasing its cost of living.

But worst of all, inflation is regressive. More and more of the poor will be driven to desperation.

The most important thing the President could do now is take Ben Bernanke out to the woodshed.

Before we all catch Jimmy Carter's "malaise."

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