What Stagflation Means For us?
Junious Ricardo Stanton
Sat, 08 Mar 2008
Stagflation is characterized by declining production and rising unemployment just like a depression; but unlike a depression, it also has inflation. Thus, three economic variables (production, unemployment, and inflation) are performing poorly. //There are several economic theories to explain the cause of stagflation, but the most common explanation revolves around a decrease in aggregate supply. An increase in resource costs causes firms to either cut back production, raise prices, or both. The cut back in production causes higher levels of unemployment, while higher costs are pushing prices up. This is called cost-push inflation.” /Global Economics Game (2) http://www.let.leidenuniv.nl/history/RES/Eco/evhgame2.html
While it has been proven government statistics are often fudged for any number of reasons, recent economic reports government and private, indicate the US economy is heading for a dive that will have a devastating impact on poor and working class households. Many economists are predicting a protracted recession (depression?) as the various components of the US economy go into into a tailspin. Government figures show unemployment is on the rise; rightly so given the US housing industry and related components of the US economy are at a virtual standstill. Home builders are losing money due to the glut of unsold homes as the inventory of new and used houses continues to pile up.
The mortgage/credit crisis is rippling throughout the global economy to the point major banks like Citigroup and Bank of America are facing seriousinsolvency problems . The policies of the Federal Reserve Bank a privately owned cartel that sets monetary, credit and interest rate policies coupled with the Bu$h administration's irresponsible fiscal and foreign policies have brought AmeriKKKa to the brink of moral and economic collapse. John Q Public, Joe and Jane Sixpack are the ones who will be forced to scuffle, suffer and struggle to survive during these tumultuous times.
If you are old enough to remember the '70's when the specter of oil shortages, long lines for gasoline, high interest rates, high cost of living and flat lined wages (stagflation) made life extremely difficult; this is a glimpse of what we can expect in the not too distant future. Only this time because the Fed has repeatedly cut interest rates and is printing money like crazy, there will be liquidity galore. The problem is not that there isn't enough money, there is plenty of money. The Fed is printing money like mad. The problems is the rising money supply is also causing prices to rise while the economy is in a slowdown mode due to stock market volatility (manipulation) and a simultaneous meltdown of the banking and financial industries.
Fed Chairman Ben Bernanke sent chills up and down the spines of the Senate Banking Housing and Urban Affairs Committee recently when he predicted some US banks would fail. “The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat...
As the concerns of investors increased, money center banks and other large financial institutions have come under significant pressure to take onto their on balance sheets the assets of some of the off-balance-sheet investment vehicles that they had sponsored. Bank balance sheets have swollen further as a consequence of the sharp reduction in investor willingness to buy securitized credits, which has forced banks to retain a substantially higher share of previously committed and new loans in their own portfolios. Banks have also reported large losses, reflecting marked declines in the market prices of mortgages and other assets that they hold. Recently, deterioration in the financial condition of some bond insurers has led some commercial and investment banks to take further markdowns and has added to strains in the financial markets. The banking system has been highly profitable in recent years and entered this episode with strong capital positions.
Some institutions have responded to their recent losses by raising additional capital. Notwithstanding these positive factors, the unexpected losses and the increased pressure on their balance sheets have prompted banks to become protective of their liquidity and balance sheet capacity and, thus, to become less willing to provide funding to other market participants, including other banks. Banks have also become more restrictive in their lending to firms and households. For example, in the latest Senior Loan Officer Opinion Survey conducted by the Federal Reserve, banks reported having further tightened their lending standards and terms for a broad range of loan types over the past three months. More-expensive and less-available credit seems likely to continue to be a source of restraint on economic growth.” http://banking.senate.gov/_files/BernankeSenateBanking21408.pdf
That's bureaucratic double speak. Bernanke was trying to obfuscate the fact US banks are in trouble, that in the not too distant future numerous banks may fail. He is saying the situation is so dire banks won't even lend to each other because they no longer trust each other. Why? Because of all the fudged bookkeeping and high liability for off book loans. In plainer language he said, “There will probably be some bank failures... There are some small and in many cases de novo [new] banks that have heavily invested in real estate in locales where prices have fallen. Among the largest banks, the capital ratios remain good and I don't expect any serious problems among the larger banks.” FDIC doesn't see bank failures surging Written by dagg988 <http://www.zimbio.com/member/dagg988> on Feb-29-08 4:49pm http://www.zimbio.com/Ben+Bernanke/articles/166/FDIC+doesn+t+see+bank+failures+surging
What does this mean for us? It means prices will continue to soar due to the rising money supply and devalued US dollar. It means the economy due to limited capital availability will stall. It means unemployment will continue to rise and wages will not keep up with inflation. It means more people will lose their homes and homelessness will climb. In other words things don't look good. This is no cause for panic, stay cool; don't even think about jumping out of a window. We are survivors. We are resilient resourceful people.We will make it. What we need to do is take an inventory of our personal and collective situations, scale back purchasing where you can, figure out how to get out of debt because debt is the new slavery. Lastly, formulate a strategy to get ahead of the stagflation recession curve by working in tandem with like minded folks, establishing bartering and exchange groups, forming co-ops, credit unions or through sound investments. Please don't stick your head in the sand and ignore the warning signs of the impending economic storms.