We're not there yet, but the Federal Reserve may be steering us back to the 1970s by underestimating the danger of higher inflation.
Comment: If people make stupid mistakes, they should pay and learn from them. Living well beyond your means is a huge mistake and when the bill comes, they should be made to pay. If I go to Las Vegas and bet 10,000 on something and loose, the Government should not bail me out. Same thing, people bet on their house going up in value and leverage them to the 9's, they bet, they lost, they pay.
Comment: If people make stupid mistakes, they should pay and learn from them. Living well beyond your means is a huge mistake and when the bill comes, they should be made to pay. If I go to Las Vegas and bet 10,000 on something and loose, the Government should not bail me out. Same thing, people bet on their house going up in value and leverage them to the 9's, they bet, they lost, they pay.
Comment: free market queen wrote:
"Debt is a bad thing and people want to live larger than what they should. The democrats want to intervene? The last time I checked when government intervenes with the free market is risky for the overall health of the market."
free market queen should re-read her history. The Bush administration has been "interfering" in the free market for quite some time, with corporate welfare handouts for big business. She's right that this is unhealthy for the market - but don't blame the Democrats for this debacle.
Comment: free market queen wrote:
"Debt is a bad thing and people want to live larger than what they should. The democrats want to intervene? The last time I checked when government intervenes with the free market is risky for the overall health of the market."
free market queen should re-read her history. The Bush administration has been "interfering" in the free market for quite some time, with corporate welfare handouts for big business. She's right that this is unhealthy for the market - but don't blame the Democrats for this debacle.
Comment: I hope that you all learned a lesson and do not vote for McCAIN.
McCAIN is not economically grounded and will continue BUSH policies. ECONOMIC FEUDALISM. STAGFLATION OCCURS WHEN THE GOVERNMENT RIps off it's own people and medals to much with the FED. THE FED reduce interest rates again.
THE MEDIA LOVES TO create a crisis and a panic, because they are controlled by the same entities that want the "average JOE"S" to spend at all COSTS. IT is a REFLECTION OF THE BUy AT ALL COSTS ATTITUDE OF THIS ADMINISTRATION AND GREEDy INVESTORS. TOO MUCH MEDALING. THE MARKET MUST SUFFER A LITTLE, WHAT GOES Up MUST COME DOWN. IT iS A NATURAL CyCLE. INTEFERING WITH THE CyCLE over and over again will cause weird things to happen like STAGFLATION.
Comment: the central theme that the Fed controls inflation may be wrong! this assumes that the declining dollar and inflated imports are a minor factor. since the US economy no longer seems to control the price of oil, the US economy may no longer control much at all.
Comment: You're exactly right about wage increases and everything else. Unemployment has increased significantly. Those countries will loose the most from free trade, due to Uinted States lagging behind on wages and job lost. America needs more training programs to teach our people the technical jobs and keep jobs here in America. Americans need to work to earn a living like the foreign countries.
Comment: I hope that you all learned a lesson and do not vote for McCAIN.
McCAIN is not economically grounded and will continue BUSH policies. ECONOMIC FEUDALISM. STAGFLATION OCCURS WHEN THE GOVERNMENT RIps off it's own people and medals to much with the FED. THE FED reduce interest rates again.
THE MEDIA LOVES TO create a crisis and a panic, because they are controlled by the same entities that want the "average JOE"S" to spend at all COSTS. IT is a REFLECTION OF THE BUy AT ALL COSTS ATTITUDE OF THIS ADMINISTRATION AND GREEDy INVESTORS. TOO MUCH MEDALING. THE MARKET MUST SUFFER A LITTLE, WHAT GOES Up MUST COME DOWN. IT iS A NATURAL CyCLE. INTEFERING WITH THE CyCLE over and over again will cause weird things to happen like STAGFLATION.
Comment: Exactly my reaction to this piece, Jaelithe: what wage increases could he possibly be referring to. Wage increases have been trailing *real* inflation (as opposed to the contrived statistics the government creates)for decades. Free trade agreements only made the situatiion worse. And now that the American consumer has tapped out his home equity, there's just not going to be the kind of strong demand that drives inflation for a long, long time. And the risk of rising unemployment? Not much here; they've already sent most of those jobs to India, China, and Latin America. It's those countries that have the most to lose from the inevitable closing of American consumer pocketbooks. They are the ones who will bear the brunt of the pinkslips. Time for those countries to experience "downsizing" -- corporate America-style.
Comment: You are right on. I was a newly wed during the 70s when Carter came in to office. We lost our jobs, interest was 22% so we couldn't hardly pay for our farm. Then Carter and company put a luxury tax on the toys of the "rich" and put another 2 million or middle class workers out of a job. Reagen came in and gave us tax breaks, took off the luxury tax and put everyone back to work. From that time on I became a die hard Republican.
Comment: There are several things I'm doing to fight stagflation. 1) I gave away my car and received a huge tax credit at AutoGiver.com 2) To on my electric bill I went to SunLightTech.com and got some solar panels for outdoor lighting . 3) I consolodated my outstanding creditcard bills at MoneyStuck.com 4) I use healthnradiance.com to save on my medical cost. I am also carpooling now to work.
Comment: This article posits that easier credit will cause wage inflation, but we certainly haven't seen that happening yet, at least not among average people. Middle class wages in the United States have been stagnant for years in the face of rising energy, food, and health care costs; this fact is widely known and has lately been a topic of frequent discussion among economists (and politicians).
Is the author referring to wage inflation among company CEOs or Hollywood actors? Because that's the only wage inflation I've seen happening.
Comment: A radical mind shift is needed in America. Borowing for foreigners to 'stimulate the economy' is like getting a second mortgage to pay up the current one that you could no longer pay....But hey, isn't the goverment behaving like its own irresponsible people that took loans that they can not pay?
The only difference here is that the foreign lenders are not fools, and they are not going to repeat the same mistake the subprime national lenders made. At some point somebody has 'TO TAKE THE MEDICINE' and
say no more subsidy for stupidity and greed.
Comment: How does the federal debt fit into all of this?
Comment: I agree, the feds need to stop lowering rates. It won't help anymore. Many people are stuck with high credit card bills and student loans ect. I consolidated all my loans at MoneyStuck.com Highly Recommended.
Comment: People, one element of the equation that is frightenlingly absent in discussions like this is the decrease in value (internationally) of the dollar. This will continue to spiral downward due to the incredible fiscal irresponsibility of the current administration and the congress for allowing it. In just 8 years the national debt has skyrocketed to mars and beyond from 5 trillion to 10 trillion, and the war expenditures in the middle east will continue to add to the deflating value of the dollar due to the debt funding by such countries as China and Saudi Arabia. China has already seen the writing on the wall and needs to diversify its investment and wants to cease funding US treasury bonds. Most nations as well are at a point of wanting to do the same thing. We CAN NOT pull ourselves out of the inevitiable recession and stabilize our currency until we become responsible in our national budgetary policies. Regardless of your position on military police actions, the funding of such endeavors will collapse us if we continue the war for "another 100years if that is what is needed.:"( As John McCain has stated.) It wont take even another 5 to bring us to a depression if we continue propping up corrupt middleeastern dictatorship/ puppet democracies. NONE of the candidates will even address this issue, because of the hidden and unspoken need of a controllable global economy based out of Iraq.This is what has been intended all along. Russia is to volitile and manipulative to count on for European oil needs, so the U.S. ties with the European countries need to have a sustainable oil source prevents our government from extracting our military presence from countries like Afghanistan and Iraq and even soon to be Iran. The western world powers believe they can control and manipulate the backward middle east, but Russia and China would never be able to be controlled. Wait and see, 10 years from now the new global Trade center will probably be in Iraq somewhere close to Bagdad or the ancient center of word affairs, Babylon.
Comment: People, one element of the equation that is frightenlingly absent in discussions like this is the decrease in value (internationally) of the dollar. This will continue to spiral downward due to the incredible fiscal irresponsibility of the current administration and the congress for allowing it. In just 8 years the national debt has skyrocketed to mars and beyond from 5 trillion to 10 trillion, and the war expenditures in the middle east will continue to add to the deflating value of the dollar due to the debt funding by such countries as China and Saudi Arabia. China has already seen the writing on the wall and needs to diversify its investment and wants to cease funding US treasury bonds. Most nations as well are at a point of wanting to do the same thing. We CAN NOT pull ourselves out of the inevitiable recession and stabilize our currency until we become responsible in our national budgetary policies. Regardless of your position on military police actions, the funding of such endeavors will collapse us if we continue the war for "another 100years if that is what is needed.:"( As John McCain has stated.) It wont take even another 5 to bring us to a depression if we continue propping up corrupt middleeastern dictatorship/ puppet democracies. NONE of the candidates will even address this issue, because of the hidden and unspoken need of a controllable global economy based out of Iraq.This is what has been intended all along. Russia is to volitile and manipulative to count on for European oil needs, so the U.S. ties with the European countries need to have a sustainable oil source prevents our government from extracting our military presence from countries like Afghanistan and Iraq and even soon to be Iran. The western world powers believe they can control and manipulate the backward middle east, but Russia and China would never be able to be controlled. Wait and see, 10 years from now the new global Trade center will probably be in Iraq somewhere close to Bagdad or the ancient center of word affairs, Babylon.
Comment: The talking heads of the conservative just don't get it. Yuo can produce a billion widgets but if there is no one who can buy it then you are in trouble. High energy cost is passed along to the consumer, product become more expensive (food clothing cars homes) credit is tighten (homes) less middle class means the nation is buying less. Putting more money in the hands of the rich dose not solve the problem it makes it worse.
Comment: How is investment made if the rich are not given income by which to invest in the free market? I think the problem is that people overspend what they are making and are not able to pay it back! Debt is a bad thing and people want to live larger than what they should. The democrats want to intervene? The last time I checked when government intervenes with the free market is risky for the overall health of the market. Too much control limits growth.
Comment: free market queen has contradicted herself. You think the rich should be "given income by which to invest in the free market"?. You say debt is a bad thing, and people overspend what they are making yet it is the corporations, banks, large money lenders and the "rich" who have continually lived beyond their means and expect the government to spend more and lend them money because they spent beyond their means. You certainly do not sound like a true free market, fiscal conservative to me.
Comment: Any president (OR PRESIDENTIAL CANDIDATE! I see no real "change" on it's way) gets in trouble when they make it their job to solve problems they shouldn't. When on the campaign trail, they're always asked things like "my husband lost his job last year, what will you do to make sure that doesn't happen to others?" or "How will you help me stay in a house I can't afford?" or "I prefer to spend rather than save money, how will you provide for my retirement?".
The answer from any candidate should be "I'm not going to do anything about that, it's not up to the president to to guarantee any of those things."
I have yet to see any president or candidate correctly answer those questions.
Comment: "But persistent inflation???the general rise of most prices???has only one cause: too much money chasing too few goods. It's not a random accident or an act of nature. The Federal Reserve regulates the nation's supply of money and credit. The Fed creates inflation and can control it."
So Samuelson thinks the Fed can control oil prices or the price of corn with monetary policy? Inflation in this case is caused by too few goods (period).
"But so far, the lower inflation hasn't materialized in part because, outside of housing, there hasn't been much of an economic slowdown. "
Guess Samuelson hasn't been following the auto industry lately. Or retail.
The Fed has tied its own hands and the country will have to weather this recession/depression for as long as it takes a recovery to start. (which usually means housing, so it's going to be a long wait.)
Comment: The latest rip off of tax payer. Tax cut rebate checks. This is trickle down economics. the Republican elephant is constipated.Gas prices rose as soon as tax rebate passed.Depression is within reach. WE need a tax hike big time and suffer for year. Tax cut is B S .
Comment: I hope that you all learned a lesson and do not vote for McCAIN.
McCAIN is not economically grounded and will continue BUSH policies. ECONOMIC FEUDALISM. STAGFLATION OCCURS WHEN THE GOVERNMENT RIps off it's own people and medals to much with the FED. THE FED reduce interest rates again.
THE MEDIA LOVES TO create a crisis and a panic, because they are controlled by the same entities that want the "average JOE"S" to spend at all COSTS. IT is a REFLECTION OF THE BUy AT ALL COSTS ATTITUDE OF THIS ADMINISTRATION AND GREEDy INVESTORS. TOO MUCH MEDALING. THE MARKET MUST SUFFER A LITTLE, WHAT GOES Up MUST COME DOWN. IT iS A NATURAL CyCLE. INTEFERING WITH THE CyCLE over and over again will cause weird things to happen like STAGFLATION.
Comment: The present increased demands for credit are the result of the irresponsible fiscal practices of the federal government (Bush had the 5 largest budgets ever). Bush's borrowings have been to non-productive recipients & to finance "DEAD-WEIGHT" MILITARY HARDWARE. Since the goods and services being financed by these monstrous deficits are not offered in the marketplace, enormous inflationary pressures are generated in the economy.
Prorating the federal deficits over the entire spectrum of federal expenditures, it can be said that virtually all of the current deficits are attributable to DEFENSE SPENDING, MILITARY and civil service pensions, interest on the debt, and welfare and unemployment benefits. Social security is not included in the above list since only a very small proportion of social security benefits are financed from nonsocial security taxes. From an economic standpoint, only interest is ???untouchable???.
From the historical perspective, remember that the PENTAGON???s excessive U.S. government unilateral transfers to foreigners (re: foreign policy ??? our far flung military bases and personnel) was soley responsible for decoupling the dollar from gold in 71 (soley responsible for our current account deficit up to 76) During all this time the private sector was running a surplus in all accounts: merchandise, services and financial (up to 76).
The more alarming aspect of the deficits is not the effect on interest rates but the effect of high interest rates on the level of taxable income and the volume of taxes required to service a cumulative debt now exceeding $9.1 trillion. Both high interest rates and high taxes induce STAGFLAION, thus eroding the tax base and increasing the volume of future deficits.
The rising cost and diminishing volume of imports will contribute to an increase in inflation, and the expectation of further inflation will also push up interest rates. This spells STAGFLATION.
Comment: The present increased demands for credit are the result of the irresponsible fiscal practices of the federal government (Bush had the 5 largest budgets ever). Bush's borrowings have been to non-productive recipients & to finance "DEAD-WEIGHT" MILITARY HARDWARE. Since the goods and services being financed by these monstrous deficits are not offered in the marketplace, enormous inflationary pressures are generated in the economy.
Prorating the federal deficits over the entire spectrum of federal expenditures, it can be said that virtually all of the current deficits are attributable to DEFENSE SPENDING, MILITARY and civil service pensions, interest on the debt, and welfare and unemployment benefits. Social security is not included in the above list since only a very small proportion of social security benefits are financed from nonsocial security taxes. From an economic standpoint, only interest is ???untouchable???.
From the historical perspective, remember that the PENTAGON???s excessive U.S. government unilateral transfers to foreigners (re: foreign policy ??? our far flung military bases and personnel) was soley responsible for decoupling the dollar from gold in 71 (soley responsible for our current account deficit up to 76) During all this time the private sector was running a surplus in all accounts: merchandise, services and financial (up to 76).
The more alarming aspect of the deficits is not the effect on interest rates but the effect of high interest rates on the level of taxable income and the volume of taxes required to service a cumulative debt now exceeding $9.1 trillion. Both high interest rates and high taxes induce STAGFLAION, thus eroding the tax base and increasing the volume of future deficits.
The rising cost and diminishing volume of imports will contribute to an increase in inflation, and the expectation of further inflation will also push up interest rates. This spells STAGFLATION.
Comment: The author affirms the primacy of the Philips curve, stating that any deviation from the inverse relationship of unemployment and inflation that it predicts is necessarily temporary.
He implies that the main driver of prices is labor costs, and that the main driver of stagnation is high interest rates. But inflation and stagnation each have other causes, and these other factors are in fact the reason that we now have both high unemployment and high inflation.
One such factor is the decline of the dollar, which increases the cost of imports. This is significantly due to U.S. borrowing, which in turn is significantly due to
the wars in Iraq and Afghanistan. To put this in another way: you cannot throw large amounts of our nation's productive capacity into non-consumable and non-exportable (i.e., military) production without creating a scarcity of consumable / exportable goods relative to the wages that have been paid in order to produce those goods. Although you can temporarily borrow from abroad to prevent the population from waking up to its impoverishment (and run up a trade deficit by backfilling U.S. consumer goods with Asian replacements), ultimately other nations will not tolerate unlimited deficits.
The cumulative trade deficit (nearly 7 trillion) has placed large numbers of dollars in the hands of foreigners, who have experienced significant inflation in their own economies as a result of paying their workers to make goods that they cannot buy with their paychecks because they have been exported to us. Increasingly, they want something real in exchange for that money, and their recent purchases of U.S. commodities (especially grain) have created scarcity that has driven domestic inflation.
NAFTA, CAFTA, etc., allowed U.S. corporations to export our manufacturing jobs overseas and ship back products to the U.S. market. This has contributed to the trade deficit, and also to the "stagnation" part of "stagflation." As a result, even with the dollar in decline, the possibilities of an export-driven recovery are nonetheless bleak.
Finally, as long as we are talking about labor costs, shouldn't we also mention outsized corporate profits and executive compensation as significant drivers of inflation?
In short, we have been spending beyond our means, and we have been reducing those means by exporting jobs, and so we have been borrowing money and importing goods, and the world is getting sick of us because we are deadbeats and because we are creating a public nuisance with the military that we have funded through our borrowing from them. And so they are pulling the rug out, and much as I would like to implore them not to do so, on what basis could we even begin to argue for such kindness?
In the face of these realities, Mr. Samuelson asks: should the Fed lower interest rates or raise them? This is like asking whether the driver of a runaway train should put out his left foot or his right foot in order to stop it
Comment: Right. The last time we had stagflation it was triggered by the Johnson and Nixon administration decision to fund the Vietnam War with deficits. This was done for the obvious reason that the general public didn't see the benefit to be had from the conflict, and didn't want to pay for it.
It should be noted that Samuelson has repeatedly assured us that the cost of this war is no big deal. Time to come clean, pal.
Comment: The Fed os walking a tightrope because it is being asked to print money to compensate for massive federal borowing to finance the budget deficit. Slashing federal spending (just for starters, corporate welfare is estimated by both liberal and conservative groups at $100 billion per year) would be a non-inflationary way of making more credit available.
Comment: The Fed is walking a tightrope because it is being asked to print money to compensate for massive federal borrowing the finance the budget deficit. Slashing federal spending (just for starters, end corporate welfare, estimated by both liberal and conseravtive groups at $100 billion/year) and balancing the budget is a non-inflationalry way to make more credit available.
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