The Return of Stagflation?

[whell]

Its funny that I was just thinking the other day about the term "Stagflation" and if (or how) it might apply to our current economic scenario. And poof, here it is in the Wall Street Journal.

http://online.wsj.com/article/SB1000...googlenews_wsj

"In mid-2011, the supply of ordinary bank credit to firms and households continues to fall from what it had been in mid-2008. Although large corporate enterprises again have access to bond and equity financing, bank credit is the principal source of finance for working capital for small and medium-sized enterprises (SMEs) enabling them to purchase labor and other supplies. In cyclical upswings, SMEs have traditionally been the main engines for increasing employment, but not in the very weak upswing of 2010-11, where employment gains have been meager or nonexistent."

This synchs pretty well with the feedback I get from many of my clients, who are "SME's". Some of them are seeing market opportunities where they could expand and increase revenue (and add employment), but can't get the working capital from banks that they used to be able to get. To get a line of credit in the current market is more difficult than it has ever been for most of them.

The banks will suggest that the tightening of federal loan requirements makes it more difficult to lend, and of course recent history is likely making banks more risk averse. Banks are, interestingly enough, fueling government spending by buying bonds, since they have the excess liquidity.

Also, if the stimulus was meant to provide equity to grease the skids in the employment sector, it either has yet to arrive, or it hasn't worked.

Is this set to be a return of the Carter economy, complete with Stagflation and malaise?

[finnbow]

I think if the Fools on the Hill successfully navigate the silly Debt Ceiling debate, it's onward and upward (albeit very slowly). If not, we're screwed.

[whell]

Originally Posted by finnbow

I think if the Fools on the Hill successfully navigate the silly Debt Ceiling debate, it's onward and upward (albeit very slowly). If not, we're screwed.

I'm fairly certain that excess liquidity in the banking sector, coupled with a reluctance to lend, are not related to the debt ceiling issue inside the beltway.

[finnbow]

At some level, it's all interrelated IMHO. Stagflation implies an inflationary element. Don't pass the Debt Ceiling and just watch interest rates shoot upward, perhaps being the last straw to trigger the cited "stagflation." Then again, maybe not. Anyone who claims to have a full grasp of the dismal science (to a point of making and believing their own forecasts) is either full of chit or delusionary IMHO.

[whell]

Originally Posted by finnbow

At some level, it's all interrelated IMHO. Stagflation implies an inflationary element. Don't pass the Debt Ceiling and just watch interest rates shoot upward, perhaps being the last straw to trigger the cited "stagflation." Then again, maybe not. Anyone who claims to have a full grasp of the dismal science (to a point of making and believing their own forecasts) is either full of chit or delusionary IMHO.

Well, its interesting that there were a fair number of folks who pointed to QE and QE II as laying the groundwork for inflation whenever the recovery would begin, and here it comes.

[bhunter]

Originally Posted by whell

I
This synchs pretty well with the feedback I get from many of my clients, who are "SME's". Some of them are seeing market opportunities where they could expand and increase revenue (and add employment), but can't get the working capital from banks that they used to be able to get. To get a line of credit in the current market is more difficult than it has ever been for most of them.

The banks will suggest that the tightening of federal loan requirements makes it more difficult to lend, and of course recent history is likely making banks more risk averse. Banks are, interestingly enough, fueling government spending by buying bonds, since they have the excess liquidity.

Given the lingering 2008 crisis and the current uncertainty engendered by the Obama administration, I can understand their reluctance to lend.

Also, if the stimulus was meant to provide equity to grease the skids in the employment sector, it either has yet to arrive, or it hasn't worked.

Well, obviously the government stimulus just wasn't large enough—much more is needed. Just ask Krugman.

Is this set to be a return of the Carter economy, complete with Stagflation and malaise?

Yes, I've already let my hair grow long and I am considering returning to Cal. All we need is for Obama to don a sweater and have a fireside about thermostats.

[flacaltenn]

Bhunter:
You sure did undo the wonkiness of the discussion..

I think "uncertainty" is an operative word here. A great idea and business plan for a new restaurant or golf course doesn't mean much to a banker when he's looking to see if Boeing is still gonna be in town in 2 months (for frickin' instance) ..

If politicians wanted to help here besides making it rain Benjamins -- they'd work to undo some of the uncertainty and get a budget, clean foreign policy issues, lay down tax reform and work like Tazmanian Devils to swab the decks.

[BlueStreak]

As I read your pointless, boring discussion, Carl Orffs "Carmina Burana" is playing on a ReVox A77mkIV at 7.5 IPS on the main system. A magnificent tape machine built in West Germany in 1978. I have a Nakamichi 480 (From the same era.) I've been working on for a week now. New belts, lubrication, new meter lamps.......It has one sticky pinch roller arm still hanging up. Once I get that freed up, the Nak will be up and singing as well. Then I set about figuring out what that foreboding noise in my truck is. The truck I have been maintaining myself since 1996, over 188,000 miles.

This is what I do. This is what I've done my entire life.

I fix things. Starting with my mothers toaster, when I was six.

And, I've found that self sufficiency and hard work is a great thing.
But, even that is a waste of time if you don't spend the extra money to get
high quality parts.

Dave

[merrylander]

No one ever regretted buying quakity.