Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Transition From Financial Crisis to Stagflation

Economics / Stagflation Aug 28, 2009 - 12:37 AM GMT

By: Christopher_Laird

Economics

Now that we are just about 2 years into the world financial/credit crisis, it’s time to ask what is next in one or two years.  One is to ask will stagflation emerge in 2010 and after, which is highly gold bullish long term.


Crisis to stagflation?
We may be moving from a two year crisis stage to a post stage of stagflation that lasts years.
There are several aspects to clarify first. First, assuming there is NOT another credit meltdown this Fall/Winter, and the USD does NOT have a big devaluation event, but rather tails down gradually, then I expect stagflation to emerge. The US and Western economy could do a Japan esq battle with deflation for a decade. It is caused by a hobbled credit system and huge government deficits.

Depending on how the West handles that battle, inflation in essentials like food and energy could emerge, while the economy stagnates or has slightly negative growth or flat growth. One problem with the inflation side of the equation is that major currencies are so managed (manipulated) now, that to get inflation in any major currency (especially the USD) requires the others not to inflate or hold their own.

But, if the USD devalues, and we still do have fairly large exports that compete out there, then our trade competitors will be very tempted to co devalue, or else face a significant loss of price competitiveness. That currency linkage to exports is what allows the USD to hold up far better than it would with the US Fiscal deficit now running $2trillion a year – another problem that has to be discussed.

Even with the US running a $2 trillion Federal deficit, if the other central banks decide to co devalue with the USD, they effectively will underwrite the USD, which can hang in there years after it ‘should’ before the bond markets rebel. Sort of like the central banks ‘holding hands’.

Some scenarios
So, assuming the USD does not have a bond market rebellion on that $2 trillion deficit, and there is no new credit meltdown like fall 07/08, a stagflation environment emerges. A few years of stagflation is highly gold and commodity bullish – over the long term.

Another food shortage
Right now, the world economy is battling deflationary forces. I do not see a great deal of inflation, except perhaps food and energy and related commodities. Energy is more manageable, but food production is basically peaking and the world is running out of stocks of grains. Necessities need to be considered separate from the general commodity complex. Obviously if there is any food shortage worldwide, we have a totally new ballgame in many areas. A food price escalation would not be good for an economy struggling to recover. Likely oil speculators would jump in more and do a repeat of the oil and grains speculation bubble of 08 that later collapsed. In fact, if you want one area that can easily do well in 2010, its Potash stocks.

Can we survive a credit blowup III
Another scenario is what would happen if a third credit blowup like the 08 and 07 fall crisi happened again. Since we really shot the wad on the last two, can we do a third? The ‘we’ here is the Western central banks. If another credit crisis of the same magnitude of the 07 and 08 fall crashes happen, and ‘we’ cant’ do another $10 trillion or so of bailout on a flash basis, will we lose control this time and actually have a pan Western bank holiday, which results in a total economic shutdown till its sorted out, and likely shortages of food and fuel? I suspect every stop in every central bank in the world would be thrown at any Credit Crisis III because of the economic disaster that would ensue in a few weeks. If you think the economy is bad now, imagine what it could be like if people pulled their money out of banks and we had banks close across the West.

So, stagflation in 2010/11 can emerge if the Western economy starts to at least ‘land’ and gets out of deflation. One problem with that scenario is that we are still at the early stages of the USD bubble deleveraging that began with the housing bubble crash in 06, then led to the credit crisis I in 07 and II in 08. That could prevent deflation from turning into stagflation.

By Christopher Laird
PrudentSquirrel.com

Copyright © 2009 Christopher Laird

Chris Laird has been an Oracle systems engineer, database administrator, and math teacher. He has a BS in mathematics from UCLA and is a certified Oracle database administrator. He has been an avid follower of financial news since childhood. His father is Jere Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He has grown up immersed in financial news. His Grandmother was Alice Widener, publisher of USA magazine in the 60's to 80's, a newsletter that covered many of the topics you find today at the preeminent gold sites. Chris is the publisher of the Prudent Squirrel newsletter, an economic and gold commentary.

Christopher Laird Archive

© 2005-2019 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