USA: Stagflation Here We Come!

By tothetick

Just when you think that the worst has come, been and gone, there will be more stuff hitting the fan in the very near future and that should serve as a lesson to the next head of the Federal Reserve that central banks don’t usually necessarily have the people in mind when they take things over and end up doing a pitiful job. But little reminders are just nudges in the ribs and there is a lot more needed than somebody elbowing the Federal Reserve of the United States right now.

Inflation is set to rise in the United States and that will be beset the people that have savings as well as drag the retirees down and create more hardship than is being experienced and endured by the people already today.

The Federal Reserve has been unable so far to bring about any form of positive inflation level in the US economy and the current inflation rate stands at 2%. But the economy is not growing enough and it is certainly not seeing worker salaries approaching anything near the increases in prices that are taking place. Prices are just outpacing salaries and jobs aren’t being created.

That’s the problem with using U3 unemployment levels and not U6 unemployment levels (including all the people that have been discouraged from seeking employment as well as those that are underemployed in the economy). The latter stands at nearly double the official figure issued by the Bureau of Labor Statistics.  Just looking at the figures for Friday 6^th September that were issued by the Bureau it can be seen that 312, 000 people gave up looking for employment and dropped out of the job market due to discouragement through not finding work. In one survey carried out people actually stated that they were dissatisfied with the job market and they would prefer to wait for the right job to come along.

The Federal Reserve has expanded its balance sheet by $3.6 trillion and the administration is touting the benefits of what it believes Quantitative Easing has actually done in the job creation area. But, if for one moment we do take U3 unemployment as the rate, then it doesn’t look like money well spent. Since we are still in the area of just-in-time economics applied to the employment sector. The jobs are few and far between and they are certainly not being stored somewhere for someone to come along later and snap up; they are being created slowly and sluggishly, if at all. Whatever happens, whether that be a push or pull in the Federal Reserve balance sheet the effect ripples into the lives of people slowly but surely, for good or for bad.

Inflation has been fixed at the target rate of 2.5% by the Federal Reserve and unemployment needs to come down to under 6.5% (from the official 7.3%). Then interest rates can be raised.  For the time being however it’s only the speculators that have managed to reap the rewards of low interest rates. The American people have just temporarily imagined that they were wealthy by being able to contract cheap loans and get granted easy credit. But, soon they will realize that they are only debt-wealthy and that will be the crunch in the future when interest rates rise again.

Financial imbalances and excessive inflationary pressure can only be hiding just round the corner in the not too distant future. Some analysts believe that we will be in for a period of stagflation, unemployment will be high and inflation will have set in in a stagnant economy. It has been predicted that prices will rise for the US consumers by at least 10% in the next 30 years.

So the Federal Reserve wants inflation and it will most certainly end up getting it. But, it will probably get more than it bargained for. Although, it is very much debatable as to whether or not the guys at the Fed have actually considered what will happen afterwards.

Or do they also actually believe that the improvements are really there and the figures are a true representation of the economic health today of the USA?

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