Friday, January 16, 2009

Welcome Back Stagflation, we hardly knew ye

Every year things happen faster than the year before. Wars are fought more quickly, technology progresses faster, communications are instantaneous and populations migrate en mass in no time. What once took centuries and decades can now be done in weeks. People have come to expect fast results in every aspect of their lives nowadays and economics is no exception.

The American public has short memories and expects things to happen fast. If Obama, Reid and Pelosi cannot deliver on tangibles by late summer of 2010, they will lose control of the house. Tangibles being private sector jobs, positive GDP growth, stabilization of housing prices and a stock market that increases.

The root problem of the US economy is that we consume more than we produce. Any attempt to “stimulate” the economy without attempting to fix our fundamental consumption/production deficit will fail. Unfortunately all the talk of stimulus that I read about involves the looting of the US treasury to pay for shiny new things and has little to do with the real bitter medicine we need to take.

The inflation that is surely going to come along with these newly promised multi year trillion dollar deficits will stalk Obama in 2012. With higher inflation comes higher interest rates. If people cannot afford their homes when they have 6% mortgages, how does anyone believe that they will afford them with 16% mortgages. Higher interest rates will also force the fed to increase the yield on its bonds and make financing the nations debt even more expensive. Last year alone we spent $450Bil financing our debt. Higher interest also makes financing a business expansion increasingly difficult.

The media will do its best to make sure that Obama doesn’t own the recession. Unfortunately for him they wont be able to do that for more than a year or two.


  1. Welcome to the "New Malaise". I'm surprised that Americans are clamoring for the government to "do something" so they can live in fancier homes and own more toys beyond their means. Another reason why I'm souring on the concept of Democracy.

  2. Better go get yerself a nice cardigan!