Stagflation Entrenched

Fed pause promises financial disaster

The cause of stagflation was accelerating inflation in the US and the rest of the world during 1969-74, a falling US dollar, and depressed aggregate demand in the rest of the world. Based on the data for the seventies, it could be argued that the drawn out inflation since 2003 has gained a strong enough momentum in 2008 to cause a period of more severe world stagflation than the one experienced in the 70s. The severity of stagflation will stem from very low interest rates, unsustainable credit expansion, severe limitations on oil and food supplies and abnormally high energy and food inflation. All these factors will contribute to intensifying inflation and at the same time to crippling world aggregate demand and supply.

Cut interest rates and then pause, such was the Fed's recent decision. Pause for what? For more instability? Maintaining the Federal Funds rate at 2% means that the Fed will supply any amount of liquidity required to achieve this target. This policy will depreciate money, put an end to prosperity, and disrupt world energy and food equilibrium.

Other than that, things are looking pretty good though.