Friday, April 29, 2005
With increasing inflation and declining GDP, there has been mention by the economic pundits of the possibility of stagflation. This phenomenon last occurred in the seventies, when inflation soared and the economy remained flat, so that there was no apparent fiscal or monetary remedy that wouldn't either trigger higher inflation or drive the economy downward. We're probably not headed there yet, but there are ominous signals--and little indication that anything in being done to stem the tide, while both the U.S. trade imbalance and federal deficit continue to grow unchecked. If I were a dollar-holder, or a treasury bond trader, I'd be looking to get out pronto.