Jim, the one major hole in the "stagflation" scenario is that any Y2K induced shortages in oil production will likely be resolved within 3 to 6 months. Hardly enough time for stagflation to take hold.
It is more the anticipation of expected shortfalls that will drive the energy sector higher. And it is clear that an oil exporting nation, knowing it may suffer disruptions from Y2K, would be pumping out as much of the black gold as it could while they can.
So I personally expect a rush of crude to be delivered in November-December as producers cheat to their hearts content and sell into the fear. I know I would be.
Then if there is no Y2K induced panic, the oil market will likely suffer a serious decline placing inflation fear back into check as built up inventories are expended. So again, here we have every incentive for producers to sell forward while the prices are high creating a post-Y2K recession, not stagflation.
Either way, what the market seems to be ignoring is that during the 3rd and 4th quarter it was expected that GDP would be growing faster than normal since it reflects the build-up of inventory in preparation for Y2K contingencies.
I believe most folks would agree that stagflation during the '70s was primarily due to artificially inflated energy prices that impacted all economic sectors, as well as the US exiting from the gold standard. Obviously, the west was less prepared to deal with economic blackmail from OPEC than we are now. The Strategic Petroleum Reserve could supply the US requirements anywhere from 90 days to 6 months (and we still have all of those small stripper wells pumping out 1 1/2 million barrels per day and the Alaskan production).
And energy price surges would be FAR MORE destructive to Europe and Asia, both of which rely far more heavily upon imported oil than does the US.
No need to respond unless you wish... I just thought I would shoot a few holes in RBs "stagflation" scenario that he seems so fond of.
Regards,
Ron |
