Stagflation nation

Never has the price of oil, food and other commodities jumped so early in the face of a “recovery.”   Peak oil is causing prices to surge as oil demand increases. Climate change and peak oil are really wreaking havoc on global agriculture: food price indices are even higher now than they were in 2008.

But over and over, I’m reading about these “positive” economic signs as the media try to con us that it’s all getting better.

  • The ADP National Employment Report recorded a surprising 297,000-job jump in private-sector employment in December.
  • Economists are revising their GDP growth projections upward, and if the conventional wisdom holds, that has to result in stronger job creation at some point quite soon.
  • Companies are already sitting on mountains of cash because they increased productivity through layoffs and other efficiencies. They have the money to hire, but they need to see increasing sales to justify it.
  • There’s some evidence that consumers are finally opening their wallets. Christmas sales were strong.
  • Given the stimulus coursing through the economy from the Federal Reserve’s quantitative easing, the tax-cut extension and a 2-percentage-point reduction in the payroll tax, the retail therapy should continue into the new year.

This is all nonsense.

The reality is that prices for food and energy are going through the roof at the very same time that incomes are frozen or are falling.  Social Security recipients haven’t had a cost of living increase in 2 years and none is expected this year.   Real unemployment is over 17% and unemployment among youth 18-29 is a staggering 37%.  Wages just aren’t going to improve.   And with rapid increases for food and energy, people will have less to spend on consumer goods and services, thus depressing the economy further.

More ominously, this surge in inflation will force the FED to raise interest rates.  This will kill the stock market rally, as investments will be able to gain a reasonable return while invested more safely than in the Casino.  Rising interest rates will put the final nail in the coffin of the housing industry. Rising interest rates will hamper any increase in consumer borrowing, especially for large ticket items.  All this will stop any improvement in unemployment.

The Economist notes this difficult in their January 15th issue:  Commodity prices are surging at a very early stage of the cycle.

In this article they raise three vital questions:  Given that the global recovery is at a very early stage, do high prices indicate that the world faces significant supply constraints, which will be a problem for years to come? Will such constraints lead to prolonged inflationary pressures and cause central banks to tighten monetary policy? Or are high prices simply a bubble, the result of speculative activity in the futures markets?”

That first one is the key:  are we at resource limits, the end of growth? Despite being asked, the article does not answer it, leaving it hanging as perhaps too brutal to even consider.

Here in Lex, these trends will affect us across the board.  For example, since so much of our food system is globalized, we will be at the mercy of global forces in the price of our food.  Wouldn’t it be better if we had a little more control over something so important – by growing more food locally?  Climate change caused flooding in Australia will dramatically reduce the amount of coal they can mine and ship to China.  Unless China’s economy slows way down, their demand for coal will drive prices up…even here. Wouldn’t it be better if we could get even some of our energy from renewable sources? Spiking oil prices will act as a tax on us here.  Wouldn’t it be better if we had a stronger transit system and more bike friendly streets?

This is happening right in front of our eyes.  What responsible officials are doing the things that need to be done to address our new reality?

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One response to “Stagflation nation

  1. Pingback: Stagflation setting in….. | Bluegrass reVISIONS

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