Worries grow for worse 'stagflation'

Worries grow for worse 'stagflation'

news.yahoo.com

It's a toxic economic mix the nation hasn't seen in three decades: Prices are speeding upward at the fastest pace in a quarter century, even as the economy loses steam. Economists call the disease "stagflation," and they're worried it might be coming back.
Prices paid by consumers are up 4.1 percent over the past year, the biggest increase in 17 years. Those higher prices — especially for heating homes and filling up gas tanks — are taking an ever-bigger bite out of paychecks. Workers' weekly e
Oil prices galloped past $100 a barrel to close at a record $100.88 on Tuesday. Those lofty energy prices are a double-edged sword: They can spread inflation through the economy by boosting the prices of lots of other goods and services, and they can leave people with less money to spend on other things, thus slowing overall economic activity. There are signs high energy prices are causing some damage on both of those fronts.

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I guess the term "stagflation" is the polite way of saying "We are screwed."
Most on this board have been discussing this issue for a while, it is a big DUH moment for us but for the rest of the US how are they going to deal? I just don't see a bandaid for this perfect storm of events, the answers are not there, no easy fixes.
How do we fix this mess? What does all of this economic doom and gloom mean for our futures? We always talk about how we got in this mess, we should start talking about how we get out of it and stay out of it.

news.yahoo.com
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some more quotes from article for those who dont click.
The "war" seems to be focused on the "ailing economy" in other words screw the middle class:

Already, paychecks aren't stretching as far, and jobs are harder to find, threatening to set off a vicious cycle that could make things even worse.

The economy nearly stalled in the final three months of last year and probably is barely growing or even shrinking now. That's the "stagnation" part of the ailment. Typically, that slowdown should slow inflation as well — the second part of the diagnosis — but prices are still marching higher.

The latest worrisome news came Tuesday: a government report showing wholesale prices climbed 7.4 percent in the past year. That was the biggest annual leap since 1981.

"We're in a slowdown," Press Secretary Dana Perino said at the White House, where the economics talk was still upbeat until recently.

Once the twin evils of stagflation take hold, it can be hard to break the grip. People cut back on their spending as they are stung by rising prices and shriveling wages. Businesses, also socked by rising costs and declining demand from customers, clamp down on their hiring and capital investment.

That would be a nightmare scenario for Wall Street investors, businesses, politicians and most everyone else. They're already looking to the Federal Reserve for help, but the Fed's job is complicated by the situation.

The mission of Federal Reserve Chairman Ben Bernanke and his colleagues is to nurture economic growth and keep inflation under control. To brace the teetering economy, the Fed since September has been ratcheting down its key interest rate. Another cut is expected in March. However, to combat inflation, the Fed would be expected to boost rates instead.

"The Fed has its hands full. It is preoccupied with the economic slowdown at the front door, but inflation looks to be sneaking in the back door," said Greg McBride, senior financial analyst at Bankrate.com. "If that trend continues, the Fed would need to show the economy some tough love, meaning higher interest rates to keep inflation from getting out of hand."

On the other hand, Brian Bethune, economist at Global Insight, said Bernanke can fight only one war at a time, and the more pressing issue right now is to shore up the ailing economy. "That's the war that needs to be fought. The war on inflation will have to come another day," Bethune said.

Maybe things won't be so bad. Stock prices rose for the day, continuing a recent mini-rally. And Federal Reserve vice chairman Donald Kohn said in a speech that he doesn't expect the recent elevated inflation readings to persist.

"But the recent information on prices underlines the need to continue to monitor the inflation situation very carefully," he added.

Some numbers underscore the concerns:

• Prices paid by consumers are up 4.1 percent over the past year, the biggest increase in 17 years. Those higher prices — especially for heating homes and filling up gas tanks — are taking an ever-bigger bite out of paychecks. Workers' weekly earnings are down 1.4 percent from a year ago when adjusted for that inflation.

• Oil prices galloped past $100 a barrel to close at a record $100.88 on Tuesday. Those lofty energy prices are a double-edged sword: They can spread inflation through the economy by boosting the prices of lots of other goods and services, and they can leave people with less money to spend on other things, thus slowing overall economic activity. There are signs high energy prices are causing some damage on both of those fronts.

People are hunkering down. Earlier this month, nervous shoppers handed the nation's retailers their worst January in almost four decades. High gas and food prices, the toll of the housing bust, the credit crunch and a tougher job market all were to blame. Disappointing sales were widespread, hitting discounters like Wal-Mart Stores Inc. and upscale merchants like Nordstrom Inc.

Wary employers eliminated jobs in January, the first nationwide loss of jobs in more than four years.

With the economy on the edge of a recession — if it hasn't toppled over already — the Fed for the near term is much more likely to keep lowering rates. Yet, with its own forecast revised last week to show even slower growth this year as well as higher inflation and higher unemployment than previously anticipated, Bernanke and his colleagues have made clear they'll need to stay nimble.