Stagflation, Here We Come

But the old fox wasn’t mumbling yesterday. He warned that we will see rising rates and rising unemployment. “Stagflation,” in other words.

Here’s Greenspan on Bloomberg:

You’re getting into a system now that has no outcome that’s in equilibrium other than inflation and no productivity growth.

Agence France-Presse has confirmation, at least of the “flation” part:

U.S. consumer inflation got a bump in October, as prices for gasoline and electricity shot up, rising along with the cost of shelter and medical care, the government reported Wednesday. The increase in overall consumer prices was the largest in nine months.

Also in the news was this observation from The Washington Post, confirming the “stag” part:

Rising prices have erased U.S. workers’ meager wage gains, the latest sign strong economic growth has not translated into greater prosperity for the middle and working classes.

Cost of living was up 2.9 percent from July 2017 to July 2018, the Labor Department reported Friday, an inflation rate that outstripped a 2.7 percent increase in wages over the same period. The average U.S. “real wage,” a federal measure of pay that takes inflation into account, fell to $10.76 an hour last month, 2 cents down from where it was a year ago.

The stagnation in pay defies U.S. growth, which has increased in the past year and topped 4 percent in the second quarter of 2018 – the highest rate since mid-2014.

Win-Win World

You may recall that “stagflation” was thought to be impossible. The Phillips Curve suggested that inflation drove employment. That’s why the feds pursue a 2% inflation target rather than a 0% inflation target.

They think the extra money adds to consumer demand… which then puts people to work producing things to sell.

All nonsense, of course. “Products are bought with products,” not with money alone, said the great 19th-century French economist, Jean-Baptiste Say.

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