From Wikipeda: “Stagflation is a term in macroeconomics used to describe a period characteristic of high inflation combined with economic stagnation, unemployment, or economic recession.”In the 1970’s we saw a period of economic reversals brought on by several factors, including a spike in: energy prices, gold, inflation rates and the CPI. Then in August of 1981, thanks to Paul Volcker we saw the yield curve invert. I’m not sure we’re going to see Bernanke flip the curve, since he’s currently raising rates. Checking the US Treasury CMT rates for May, I noticed that while they are mostly flat, 1yr=5.00% and 30yr=5.23% the 20yr=5.38%, that’s a mere 230bps spread on the 1 to 30 yrs and an inverted yield of 150bps on a 20 to 30 yr.
Either way, the escalating federal debt and budget deficit, are going to eat up a greater portion of the GDP than they already do.
Another issue on the burner is the continuing changing of definitions and data that needs to be compiled in government and central bank economic reports. In a press release last year the Federal Reserve Bank, announced it would discontinue reporting M3 money supply data. The official reason was that it was too costly and “convey any additional information”. Some of the M3 data will still be reported for the benefit of commercial banks in the z.1 and h.8 reports.
Economist John Williams over at Shadow Statistics gives the official government economic stats at: “annual inflation is running less than 3.5%, unemployment is less than 5%, annual GDP growth is about 3.5%, and the 2005 federal deficit was $318 billion” while his figures have the stats running; “annual inflation is over 8%, unemployment is around 12%, and annual GDP growth is flat.”
To put this in perspective, the Misery Index in 1976 was 13.57%. In 1980 when Regan ran against Carter it was 21.98%. If Mr. Williams is right, it now stands at 20% and is staged to go higher.
In other words, Stagflation is upon us.