Stagflation Nation

[Teatownclown]

What I said...." The Fed has just taken one small step to acknowledging reality... and Zero Hedge's keyword of 2011: stagflation. "


Federal Reserve Lowers GDP, Raises Unemployment And Inflation Projections
http://www.zerohedge.com/article/federal-reserve-lowers-gdp-raises-unemployment-and-inflation-projections


I'm going to continue to holler for printing more money to fuel more projects (2 trillion) and pump the economy through the increase velocity of money throughout the economy. After all, the hoarders (tax cheats and upper %3 incomers) won't loosen up their purse strings.

Nice to see the fed is starting to come clean.

[Gaspar]

Recycled keyword you mean.

Same thing happened with Carter, just didn't take as long.

I have a feeling we will learn this lesson again, and again, and again until we either embrace socialism or throw the chains from our backs.

[Conan71]

Help me out here.  Wouldn't more dire economic projections affect our debt rating if we print more money? 

Not being a smartass, I'm curious what sort of correlation there might be.  Again, you know I have a tendency to apply micro concepts with macro reality.  Just seems like going to the bank and telling them you need to borrow a million dollars when your pay just slipped from $200K to $50K per year and it's going to remain that way for years to come.

In addition, wouldn't printing $2 trillion more devalue the dollar which will also increase the price of oil which will in turn lead to more inflation, since the price of just about every consumer product and durable good is relative to the price of oil?

[bokworker]

I am not sure that printing more money will have the desired effect. Cash hoarders are far broader than the 2 you mention but the end result is ther is NO velocity of money in our system. The primary mechanism for monetary velocity in our economy, the fractional banking system, is still fundementally broken and as such, additional money printing will do nothing but add to an already highly liquified system. We have never in our history had a banking system with the level of free reserves evident today. Monetarists are rightfully fearful of the potential inflationary impact of all this liquidity but in the absence of velocity we continue to suffer the effects of deflation...not inflation.

What the Fed is acknowledging in their statement is that in fact, they have done just about all they can and it will be fiscal policies from here that chart the future course.

In another thread WevsUs quoted a portion of Bill Gross' most recent monthly newsletter. The snippet quoted indicated a support of further govermental stimulus. As I read the entire piece though the interesting part, to me, was the type of additional "stimulus" Bill was calling for. To whit, "put a shovel in every man's (and woman's I suppose) hand that needs a job from 8 am to noon and then have them study in a classroom from 1 to 5 pm". I wonder how our populace would react to the requirement to do something good for society in order to recieve society's largesse?

[Gaspar]

Help me out here.  Wouldn't more dire economic projections affect our debt rating if we print more money? 

Not being a smartass, I'm curious what sort of correlation there might be.  Again, you know I have a tendency to apply micro concepts with macro reality.  Just seems like going to the bank and telling them you need to borrow a million dollars when your pay just slipped from $200K to $50K per year and it's going to remain that way for years to come.

In addition, wouldn't printing $2 trillion more devalue the dollar which will also increase the price of oil which will in turn lead to more inflation, since the price of just about every consumer product and durable good is relative to the price of oil?

Tea is operating on the premise that you can prime the carburetor with cash and the engine will just take off.  This is the primary flawed Keynsian concept.  You have to simulate private sector confidence first.  A cash bolus actually reduces confidence and the engine stalls immediately.

Compound that with a reduction in consumers (preliminary reports show that the private sector added only 83,000 jobs in May, compared with an average of 244,000 over the previous three months) and you have exactly as you predict.  Devaluation with no return.

[Teatownclown]

Help me out here.  Wouldn't more dire economic projections affect our debt rating if we print more money? 

Not being a smartass, I'm curious what sort of correlation there might be.  Again, you know I have a tendency to apply micro concepts with macro reality.  Just seems like going to the bank and telling them you need to borrow a million dollars when your pay just slipped from $200K to $50K per year and it's going to remain that way for years to come.

In addition, wouldn't printing $2 trillion more devalue the dollar which will also increase the price of oil which will in turn lead to more inflation, since the price of just about every consumer product and durable good is relative to the price of oil?

bokworker, SCOTUS just took the shovel from Women's hands.

NO, it wouldn't hurt the debt rating if GDP went over 4% as opposed to %1.5. You really don't get the concept or you are so politically motivated you refuse to see the consequences of stagflation which would be far worse than a gradual inflation.

More off base comparisons. Can you put a rag in that? Banks loan on their own risk oriented terms depending on the customers ability to perform. You must have a no confidence attitude towards US corporations and capitalism in general.

YES, this just might reinflate the economy. And yes, the value of the dollar would continue its moderate drop but so would every other currency at this point in the game.

btw, oil's dropping....not good.

[Gaspar]

Huh? 

I can't follow that train.  Hurts my head.

Continue.

[bokworker]

Well I am not a lender so I will leave the attitude towards capitalism to those that make those decisions....but, it is of no small consequence that the banking system has a myriad of new regulations (Dodd-Frank) with little clarity on just how the rules are going to be written.

You are absolutely correct that 4% GDP would help, the question is will the plan you desire achieve that goal. From the very start of QEII the stated goal was to increase inflationary expectations to avoid deflation. A noble goal as deflation in a capitalistic economy is very bad. It was always an unknown however if this higher inflation expectation would spur a sense of urgency on the part of cash hoarders to do something with their money. To date it does not seem as though that is occcurring.

I am interested in your final comment on oil going down being bad. Higher energy and food costs have a highly regressive impact on our populace. With 70%+ of our economy based on consumption how can a reduction in this regressive "tax" be  a bad thing?

[Conan71]

bokworker, SCOTUS just took the shovel from Women's hands.

NO, it wouldn't hurt the debt rating if GDP went over 4% as opposed to %1.5. You really don't get the concept or you are so politically motivated you refuse to see the consequences of stagflation which would be far worse than a gradual inflation.

More off base comparisons. Can you put a rag in that? Banks loan on their own risk oriented terms depending on the customers ability to perform. You must have a no confidence attitude towards US corporations and capitalism in general.

YES, this just might reinflate the economy. And yes, the value of the dollar would continue its moderate drop but so would every other currency at this point in the game.

btw, oil's dropping....not good.

But printing $2 trillion doesn't guarantee GDP will take off for the sake of taking off, unless you are suggesting that the government will simply spend as the primary consumer it on things it doesn't need as a means of creating sales and ergo jobs.  If you print the money and GDP doesn't rise as a result but remains flat or gets even worse, then what happens to our debt rating per your scenario that increased GDP would be attractive to our creditors?

Now, other problem with a 4% GDP growth rate is that it's unsustainable.  Any time you have rapid growth, people get dependent on it, the bubble pops and we wind up with the pile we've been dining on for three years.

I totally understand the consequences of stagflation.  I'm all about a stable, growing economy, regardless who is in the White House.

[Teatownclown]

Oil decreasing is bad for our local economy here. It's happening due to the breakdown in price equivalency in Europe, the Arab cartel breaking ranks, a lousy world economy, and supply and demand factors in general. It won't drop much but I already am witnessing several major world wide expansion projects being put on hold. You see, this all becomes a viscous circle when you allow obstinacy to rule over forward thinking.

QEIII is coming....mark my words. Why do you all worry so much about our debt rating? Could it be a way to stymie every political action? Just raise the debt ceiling....kick the can down the road another 40 years unless you foresee revolution in the US.

And BOK has done a super job the last 4 years through all the mess. The SEC must love them.  


"I'm all about a stable, growing economy, regardless who is in the White House"  there you go dreaming again....

[bokworker]

Local economy...yes, lower oil is bad. nationally, it is not bad. Sorry, I thought we were talking national issues.

BOK has done well by avoiding much of the problems that affected many. And at the time we were called way too conservative. And while parts of the bank are overseen by the SEC, the bank overall is regulated by the OCC. And our ability to avoid major problems, and not take TARP, has not helped us one bit in avoiding the additional regulations and the requisite increase in costs to meet said regulations.

I personally feel the AAA rating is very much worth protecting. Beyond the increased debt service costs from losing it, the change would fundementally alter our perception as the safest most secure economy and society in the world. Would it be the end of the US? No. But I don't like being second best....

[Conan71]

BOK, agreed.

As far as falling oil's impact on Tulsa's economy, it might restrict cash flow for producers, but not drastic enough to warrant layoffs.  From my industry, I'm seeing an uptick in domestic oil exploration which can be sustained with oil at or above $65 to $70/bbl.  The extraction methods are more expensive, but as long as oil is above $80/bbl it gets quite attractive.

[Teatownclown]

What about NG....it's dismal performance is directly related to a sluggish economy....it's been a suckers bet the past two years and will be for some time. Meanwhile, the related manufacturing segment here will see....stagflation!

Be careful about assuming oil will stay high....I may just have too much memory recall from the early 80's.

[Conan71]

What about NG....it's dismal performance is directly related to a sluggish economy....it's been a suckers bet the past two years and will be for some time. Meanwhile, the related manufacturing segment here will see....stagflation!

Be careful about assuming oil will stay high....I may just have too much memory recall from the early 80's.

As long as speculators are allowed to trade oil on paper, it will remain high.

I still can't figure out natural gas.  We saw a slow down in midstream treatment plant activity, yet companies are spending billions drilling for it right now as well as running high risks of future EPA fines for fracking disasters.  I guess the idea is plough current profits from oil into having all this natural gas tapped as the price goes up in the future.  I also think people like TBone are probably really unhappy no one is carrying their water for them like they'd hoped on legislating er exploiting NG.

[Townsend]

I also think people like TBone are probably really unhappy no one is carrying their water for them like they'd hoped on legislating er exploiting NG.

I forgot about that.  Color me surprised he hasn't gotten further.