Thursday, February 21, 2008

1970s Stagflation? Don't Buy It for a Nanosecond

The topic of stagflation was discussed tonight on CNBC's "Kudlow and Company," and guest John Browne, former member of British Parliament and ultra-stagflationist, argued that we are facing a "far, far worse situation than the 1970s," and further predicted that we are "facing a massive recession."

Larry Kudlow disagreed, and said "Stagflation is a total canard."

The money supply data support Larry Kudlow, not John Browne. The chart above compares the growth of M1 during the peak of the stagflation period of the 1970s (the 85 month period from December 1974 to December of 1981) to the growth of M1 over the last 85 months, from January 2001 to January 2008. (M1 is set to equal an index value of 100 in the beginning month of each sample period.)

Notice that there is a significant difference between the two periods: During the 1970s, M1 grew by almost 60%, compared to a 24% growth during the last 7 years. And for the last 3.5 years, M1 has been flat, with almost 0% growth!

Like Larry Kudlow, when it comes to stagflation, "I don't buy it for a nanosecond." Not gonna happen.

6 Comments:

At 2/22/2008 12:51 AM, Anonymous Anonymous said...

Isn't it true that "stagflation can occur when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable"?

 
At 2/22/2008 1:00 AM, Anonymous Anonymous said...

Yesterday's release showed “official” inflation data running over 4% but of course that’s a joke. The table below courtesy of Shadow Government Statistics shows CPI calculations using today’s method, another experimental method [in the works no doubt] and the method before Clinton & Co. changed the methodology. So, based on the old method inflation is running near 8%
The next table shows inflation measurements using methods as they stood in 1980 and by that measure inflation is running at nearly 12%!

http://seekingalpha.com/article/65463-thursday-outlook-the-inflation-con-game

I was born at night but it wasn't last night old great optimist. I remember when gasoline was less then 30 cents a gallon, my grandchildren will remember when it use to be 3 dollars a gallon and it isn't going to be because it's cheaper then that either. Hyper inflationary depression is on the way as the dollar implodes.

 
At 2/22/2008 1:10 AM, Anonymous Anonymous said...

How is it possible that Commercial, Consumer, Industrial and Real Estate Loan volume increase every year but M1 is flat?

 
At 2/22/2008 7:45 AM, Blogger Lee said...

Hey, what about M2? Can't do the graphing right now, but going back 48 months, M2 grew about 25% while M1 grew only about 5%. You're certainly right that economy is doing WAY WAY better than most would have us believe, but isn't M2 a better measure of the actual money supply?

 
At 2/22/2008 12:28 PM, Blogger Walt G. said...

CPI is a statistical factor that does not apply to personal inflation. The BLS disclaims using it is such on their Website: “The CPI must represent a composite consumer, and it does not necessarily represent the price-change experience of any one individual, household, or family” (p. 6). http://www.bls.gov/opub/hom/pdf/homch17.pdf

I’m sure there are fancy software packages for tracking personal expenses and income. I just use a simple Excel spreadsheet. I list ten categories of expenses ranging from my monthly house payment to my monthly cable television bill in one column and my monthly income in another column. My sixty months’ of data show my personal annualized inflation rate is more in line with the 8% to 12% mentioned in the link by anonymous 1:00 AM. In fact, only 2 of the 10 categories are less than 4%. My food and fuel categories have the largest increases over the last five years.

I realize there are numerous researchers who find the CPI overestimates inflation. I don’t dispute those findings. However, my inflation rates seem to be running 2 or 3 times more than the published CPI rates. What’s your personal rate?

 
At 2/22/2008 6:16 PM, Blogger juandos said...

I see the problem right away...

Its entitlements...

Thanks anon @ 1:00 AM

But, certainly making things look better than they are is one reason and another is entitlement benefit [Social Security, etc.] costs would be adjusted higher under the older methods. Is this con game a scandal? It damn well should be but most are unaware of it

Yes, entitlements are the con game de jure...

 

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