Economy Sliding Into a Stagflationary Spiral

from Minyanville:




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

swing at this. Why is the economy not doing better?

Ummmm...because people who are out of work or barely surviving on a 30-hour-per-week minimum wage job don't have money to buy a lot of stuff and the economy depends in large part on people buying stuff? And billionaires are cool and all that but if you are in a McDonalds with one billionare and one hundred people who don't have a cent, and only two burgers are bought, do you scratch your rear end and wonder endlessly why more burgers aren't being sold? Or do you act to allow the other hundred people in the room to work at wages that give them enough money they can buy a burger or two?

How do we convince them otherwise?

Let's hope they get the message before things get to that point.

that the policymakers intend for the economy to benefit anyone but the bazillionaires and the corporations. They are not stupid.

if that's even possbile

And who wants to (or is able to) borrow money in this economic climate? Nobody. People without jobs can't borrow. People with shaky jobs or relatives w no jobs aren't crazy enough to borrow. Anyone who would possibly want to start a business won't borrow until it becomes obvious that there are enough confident people with jobs who can buy his service or product.

The rich, whether individuals or corporations, simply are sitting on their money.

This is not a recipe for recovery.