Economy Sliding Into a Stagflationary Spiral [View All]

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Economy Sliding Into a Stagflationary Spiral
By Jeff Harding May 16, 2011 10:40 am

The export sector is thriving because of a devalued dollar, and Wall Street, the financial sector have been the prime beneficiaries of QE. The rest of the economy is stalling.


According to most economists the first quarter GDP stumble was a blip, something we shouldn’t worry about because the economy is still on track for recovery. They are reacting to the preliminary report that GDP fell to 1.8% in Q1, down from 3.1% in the fourth quarter of 2010. They are also rather unbothered by increasing prices at the wholesale and consumer level.



Another way to look at it is that the economy is being harmed by monetary inflation and we are seeing massive distortions in the economy as a result of this intentional Fed policy. The economy is responding in predictable ways that will lead to less real growth, price inflation, and more problems. I think this is the correct way of looking at things and Q1 is not a temporary blip on the road to recovery.

One would think that with all the money that the Fed is pumping into the economy through quantitative easing (QE), GDP would rise. After all, GDP at its basic level is merely a measure of dollars spent in the economy and if you just throw more dollars into the mix, the result would be that GDP would rise (along with prices) just because of that. But more spending doesn’t necessarily measure real growth in the economy; with monetary inflation only an account of the physical production of goods can measure that. But the conventional wisdom is that GDP is a measure of an economy’s health, and if everyone believes that, then policies public and private are based on it and it’s worth following.

But the question persists: Why is the economy not performing up to the expectations of policy makers? ...........(more)

The complete piece is at: http://www.minyanville.com/businessmarkets/articles/stagflation-us-economy-gdp-quantitative-easing/5/16/2011/id/34563?camp=featuredslidealso&medium=home&from=minyanville