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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (4075)	8/7/2002 1:43:15 PM
From: lurqer	Read Replies (6) \| Respond to of 89467

Toss a handful of chaff into the air and you get a small cloud of floating detritus. Depending upon their personality and skill, everyone will choose differing pieces of debris as their straws to see "which way the wind is blowing". An interesting straw for me is FIG reuters.com the report said. "Despite the mildness of the recovery, U.S. inflationary pressures are clearly gathering steam." i.e. inflation is coming. So - what kind of inflation? There the inflation associated with a booming over-heated economy. In this case the Fed just applies the brakes and (usually) after a brief pause (to wring out the inflation) all is well and the economy picks up again. There is also a phenomena that I haven't seen in a while called stagflation. Stagflation is a far more serious conundrum for the Fed. With stagflation if the Fed increases the money supply/lowers interest rates, the inflation accelerates to double digit levels. If the Fed decreases money supply/raises interest rates, the already stagnant economy sharply contracts into a deflationary death spiral. Given this "Damned if you do, and damned if you don't" dilemma, the Fed is rendered impotent. The last time I saw stagflation was the '70s. Then the double whammy of (1) an essential commodity (oil) price explosion, and (2) a demographic trough of peak productive workers combined to produce a kind of perfect economic storm. Currently, there is no similar essential commodity price explosion, but there is a Persian Gulf war on the near horizon. The baby boomer demographic isn't quite into the retirement phase either. But there is the post market mania hangover. Once the air is let out of the ball, it just doesn't bounce very well. Is stagflation in our future? I don't know. But I'm a watchin'. lurqer