STAGFLATION--I TOLD YOU SO!!!!!!!!!!!!!!!!!!!!!!

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Friday July 09, 2004 · 7:35 AM PDT

2004/07/09 · 07:35

Ah, but AmericanHope...what is stagflation, you might ask.

Stagflation is a very weird economic phenomena where we have rising prices, but below potential GDP performance. In basic terms, it means we have inflation AND a downturn at the same time.

How does it happen? It can happen in alot of ways...the basic premise to remember is that there is an aggregate demand and an aggregate supply in our economy. We also have a [relatively] constant GDP potential. If graphed, ideally, agg demand and agg supply cross at GDP potential. However, if agg supply shifts in w/no change in agg demand [that is, if businesses make less stuff and demand stays the same] prices go up, but the economy shrinks. Stagflation.

Today, factories are puffing away at b/w 75%-78% of capacity. Normally, they run at 85%. Industrial businesses, here in the US, are making less stuff. But due to exceptionally well crafted fiscal and monetary policy, demand has stayed relatively constant [even after 9/11..people were buying]. So agg supply has shifted in, but demand is still there...Lots of dollars, few goods. And less produced than we could..econ functioning below potential. That = STAGFLATION.

I wrote this months ago in my "GOT STAGFLATION" post.

Finally, MSN picks it up.

http://moneycentral.msn.com/content/P85427.asp?GT1=4244

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