Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17
Bitcoin Doesn’t Exist – Putting the Banks Out of Business - 9th Dec 17
China’s Struggle for Market Economy Status - 9th Dec 17
Is Gold Really Strong? - 9th Dec 17
Bitcoin Parabolic Mania - 8th Dec 17
SPX Make a 61.8% Retracement - 8th Dec 17
Gold, Stocks and Bonds - The 3 Amigos Update - 8th Dec 17
Gold Stocks Break, Gold to Follow - 8th Dec 17
4 Charts That Show How Trump Tax Cuts Will Trigger A Recession - 8th Dec 17
Precious Metals Breaking Down! 3 Amigos to Abort? 4 Horsemen to Ride? - 7th Dec 17
Bitcoin Just Smashed Through $12k… Wait, $13k… Now $14k… This Is Getting Ridiculous! - 7th Dec 17
Stock Market Tops Look Like This - 7th Dec 17
Crude Oil, Oil Stocks and Invalidation of Breakouts - 7th Dec 17
Bitcoin Doesn’t Exist – 2 - 7th Dec 17
British Pound Sterling Volatility In Crucial Week of Brexit Talk - 6th Dec 17
Day Trading vs Swing Trading: Which One is the Better Strategy? - 6th Dec 17
Crude Oil and Negative Divergences - 6th Dec 17
EU Bailins Coming – 114 Italian Banks Have NP Loans Exceeding Tangible Assets - 6th Dec 17
Bitcoin Doesn’t Exist - 5th Dec 17
Advantages of Car Insurance to Protect a Vehicle - 5th Dec 17
How High Will Gold Go? - 5th Dec 17
The Loonie Takes Flight -- BUT a "Labor Miracle" is NOT the Reason Why - 5th Dec 17
The True Meaning of Bitcoin's 'Success' - 5th Dec 17
Gerald Celente: Middle East Wild Cards Could Bring Down Markets, Drive Up Gold - 5th Dec 17
Silver’s Positive Fundamentals Due To Strong Demand In Key Growth Industries - 4th Dec 17
Stock Market Positive Expectations, But Will S&P 500 Continue Higher? - 4th Dec 17
Bitcoin Achieved What The Gold Market Never Could & Never Will? - 4th Dec 17
Stock Market Top Distribution Starting - 4th Dec 17
Understanding Real Time Forex Trading - 4th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

Here Comes Stagflation!

Economics / Stagflation Apr 29, 2011 - 08:41 AM GMT

By: Sy_Harding

Economics

Best Financial Markets Analysis ArticleIt’s official. The U.S. economic recovery is stumbling again, as indicated by Thursday’s report that GDP growth plunged to only 1.8% in the 1st quarter (from 3.1% growth in the previous quarter). And spiking oil, food, and other commodity prices have inflation on the rise.


Don’t lose sight of how we got here.

Exactly a year ago the recovery from ‘The Great Recession’ of 2007 – 2009 also stalled significantly as the government’s stimulus efforts, including rebates to homebuyers and cash-for-clunkers programs, expired. Economic reports from the housing industry, auto sales, and consumer spending were the leading indicators that the recovery had stalled, which was then confirmed when the 2nd quarter GDP report was released and showed economic growth had slowed from 3.7% in the 1st quarter to only 1.7% in the 2nd quarter.

At that point, the Federal Reserve seemed to panic, concerned the economy might be dropping back into a double dip recession. It began promising another round of stimulus, and then followed through by flooding the financial system with another dose of easy money via its current QE2 program.

That did the trick. The economy (and stock market) began to recover more strongly again. By the 3rd quarter of last year GDP was growing at a 2.6% rate, and then at a 3.1% rate in the 4th quarter. That was still well below the 5.0% growth of the 4th quarter of 2009, but promising.

However, over the past few months indications have been that the economy is stumbling again, and that it is due to the return of a number of the same issues that dampened growth last spring - along with a few new worries.

The early signs were again the return of dismal reports from the housing industry and consumer spending in January and February, accompanied by another inflationary leg up in oil, gasoline, and food prices.

And, as happened last year, those early signs have now been confirmed by Thursday’s report that GDP growth plunged to just 1.8% in the 1st quarter of this year, from 3.1% in the 4th quarter of last year.

It shouldn’t have been a surprise. Economists have been in a frantic race over recent weeks to revise their forecasts for 1st quarter growth downward. At the beginning of the quarter the forecasts were for 4% GDP growth for the quarter. Over the last two months the consensus forecasts dropped to 3.5%, then 3.0%, 2.5%, and last week to an average of 2.0%.

As noted , the actual number came in even lower, at just 1.8%.

With the negative economic reports, and rapid downward revisions of U.S. GDP forecasts by economists nationwide, and even globally, the first question is why did the Federal Reserve apparently not see the economy slowing?

In its statement after its FOMC meeting in March the Fed said, “The economic recovery is on firmer footing, and overall conditions in the labor market appear to be improving gradually.”

In its statement this week, after its April FOMC meeting, it said, “The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.”

The Fed’s statements this week regarding inflation indicate it is also behind the curve in that regard as well.

Last spring’s economic slowdown was exacerbated by the spike-up in the price of oil from $72 a barrel in February to almost $90 at the end of April (a high not seen again for 7 months), which was taking spending money out of consumers’ pockets. And central banks around the world began raising interest rates to fight back at the food and energy inflation they were seeing coming at them.

But the U.S. Fed said it saw no inflationary problems.

And in its statement after its April FOMC meeting this week, even as oil prices have spiked from $84 a barrel in February to $112 a barrel, food prices have risen further, companies have begun passing their higher costs along to consumers, and central banks around the world have been aggressively raising interest rates even higher to fight back at worsening inflation in their countries, the Fed said, “Inflation has picked up in recent months, but longer-term inflation expectations have remained stable, and measures of underlying inflation are still subdued.”

As it did a year ago, gold, the historic hedge against inflation, spiked up in reaction to the statement, this time jumping a big $24 an ounce, apparently believing the Fed is even further behind the curve on inflation.

Regardless of what the Fed says, the reality is that, as the GDP report clearly reveals, economic growth has stalled again, even while the Fed’s QE2 stimulus program is still in full effect (but will expire in June).

And if gold and global central banks are to be believed, an inflationary spiral has been underway for more than a year.

It does look like the Fed is getting itself into a stickier mess all the time, that if nothing is done the economy seems headed into that 1970’s double-whammy nightmare of stagflation, a stagnant economy with rising inflation.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2011 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife