HERE COMES STAGFLATION

Will there be stagflation? There's almost certainly going to be stagflation, without a quick "about-face" in economic and monetary policy.

Since there has been a massive attack by the federal government on the private sector in just the past nine months, I honestly don't understand how anyone except true faith-filled believers in Marxism can be seeing any "green shoots."

Consider that in the spring of 2008, President Bush pushed through a so-called stimulus tax cut that was worth a little more than $150 billion. Do you remember that at the time, this was considered a gargantuan sum of money? Analysts on CNBC and other mainstream press complained about the future impact on the budget deficit and interest rates.

Well President Obama's Porkulus stimulus package amounts to a whopping $787 billion in money we don't have, and the expected federal deficit this year is approaching $2 trillion, or 4X the worse annual budget deficit in history (2008).

The CBO projects that the federal debt as a share of the economy will DOUBLE over the next decade, from about 41% last year to 82% by 2019.

Both federal spending and the money supply have increased at unprecedented rates over the past year (notice 2010 in the chart provided).

The money supply is measured several different ways. They all show alarming increases. The monetary base (coins, currency and bank reserves) has doubled over the past year. It is increasing at a rate 12 times the average since 1981. M1 (the monetary base plus checking deposits) increased last year by roughly 16 percent, a near record and three times faster than average since 1981. M2 (M1 plus most savings deposits and money market funds) increased 9 percent in the past 12 months (a rate more than 50 percent higher than the average since 1981).

The demand for money is relatively stable and generally increases in proportion with economic activity (although precautionary motives play a role). Given the huge increases in the money supply and credit, future inflation is virtually ensured. Money supply will outstrip money demand, and the excess money will cause prices to be bid up.

Inflation isn't caused by the actions of private citizens, but by governments, by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people's savings on a scale comparable to the plunder perpetrated by the fiscal policies of Barack Obama.

So there you have it, the perfect environment for stagflation (stagnation + inflation), a weak, slowing economy with little, if any economic growth, combined with above average inflation -- the worst of both worlds -- something the Keynesian economists thought impossible prior to Jimmy Carter.

HERE COMES STAGFLATION