Stagflation Cometh (Joseph Stiglitz)

[swag]

http://commentisfree.guardian.co.uk/joseph_stiglitz/2008/01/stagflation_cometh.html

The world economy has had several good years. Global growth has been strong, and the divide between the developing and developed world has narrowed, with India and China leading the way, experiencing GDP growth of 11.1% and 9.7% in 2006 and 11.5% and 8.9% in 2007, respectively. Even Africa has been doing well, with growth in excess of 5% in 2006 and 2007.

But the good times may be ending. There have been worries for years about the global imbalances caused by America's huge overseas borrowing. America, in turn, said that the world should be thankful: by living beyond its means, it helped keep the global economy going, especially given high savings rates in Asia, which has accumulated hundreds of billions of dollars in reserves. But it was always recognised that America's growth under President Bush was not sustainable. Now the day of reckoning looms.

America's ill-conceived war in Iraq helped fuel a quadrupling of oil prices since 2003. In the 1970s, oil shocks led to inflation in some countries, and to recession elsewhere, as governments raised interest rates to combat rising prices. And some economies faced the worst of both worlds: stagflation.

Until now, three critical factors helped the world weather soaring oil prices. First, China, with its enormous productivity increases - based on resting on high levels of investment, including investments in education and technology - exported its deflation. Second, the US took advantage of this by lowering interest rates to unprecedented levels, inducing a housing bubble, with mortgages available to anyone not on a life-support system. Finally, workers all over the world took it on the chin, accepting lower real wages and a smaller share of GDP.

That game is up. China is now facing inflationary pressures. What's more, if the US convinces China to let its currency appreciate, the cost of living in the US and elsewhere will rise. And, with the rise of biofuels, the food and energy markets have become integrated. Combined with increasing demand from those with higher incomes and lower supplies due to weather-related problems associated with climate change, this means high food prices - a lethal threat to developing countries.

. . . more

[aquart]

1. Uh. It's here.

[sam sarrha]

2. price of lots of food like eggs fruit and some vegies has doubled in 6 months

[aquart]

3. Yep.

[tom_paine]

6. Eggs are going up like a rocket. Last year, or two years at most: $1.19/dozen for X-large eggs

Yesterday, the the same market, $2.29/dozen for X-large eggs.

But inflation and unemployment are the same as they were during the Clinton Presidency, or don;t you watch Cable TV Infoganda?

[swag]

4. I think Stiglitz is talking about real stagflation,

along the lines of the Reagan Recession, when the Fed Funds rate hit 21.5%, in response to an annual inflation rate over 13%. Unemployment then made it to 10.8%.

We may well get there, but we're not into anything that deeply and broadly painful just yet.

[dantyrant]

5. Except that...

the Fed is going to have to continue to lower rates to keep the musical chairs going... Helicopter Ben knows what to do.