The Double A Lounge

Everyone expects that the President of our country will have all the magic fixes for what ails our economy. He would certainly like to think so. So would the two contenders for the upcoming election as well. The reality is that whatever they have proposed thus far would only be a drop in the bucket and make little difference. It’s a worldwide problem on a grand scale far beyond our reach to fix as this article shows:

So far, neither of these textbook measures has worked—for reasons that
have less to do with flaws in the design, time, and sizing of the
policies than with global macroeconomic factors far beyond the control
of the Federal Reserve or the White House. As we noted last week,
there’s a good case to be made that the stimulus is essentially being
eaten up by higher gas and food prices—prices that are being driven
higher in large part by a weaker dollar and strong global demand.

The economic stimulus check was nice to get, but it will never even come close to fixing the problem.

The economy today is being buffeted by a popped domestic housing
bubble, which is deflationary; a global demand shock for food and
energy, which is inflationary; and a credit crisis, which
simultaneously inhibits consumer spending and makes capital more
expensive. There’s no effective short-term fix for any of these
problems.

Sounds like stagflation to me. This article about stagflation backs up my case:

Rising prices and rising unemployment are two of the data points
used in attempts to determine whether stagflation is threatening the
economy. While hikes in the cost of food, energy or other individual
items are generally not perceived as signs of stagflation, a
broad-based rise in the cost of goods and services is something to be
concerned about.

Well there must be a solution, right? Maybe so, but this one from years past may offer some insight:

An effective method of addressing stagflation once it occurs is equally elusive. During the 1970s, stagflation persisted in the U.S. despite the government’s
best efforts to contain it. The trend was finally broken when the
Federal Reserve hiked interest rates to the point where borrowing was
impossible for many segments of the economy, and the country fell into
a deep recession.

Problem is that due to the way stagflation is measured, we are no where near that point yet. We are in economic shock, but not considered to be in the throes of stagflation.

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