Stagflation’s Worldwide Strangulations

May 30, 2008

Dr Enzio von Pfeil submits:

Excerpts from Dr. Enzio von Pfeil’s May 29, 2008 appearance on Channel News Asia:

Inflation
remains a big concern.
- Particularly stagflation – which is characterized
  by higher prices AND lower (if any) growth.
- We have “called” stagflation since 2006.
- Crucially, as this is cost-push inflation, Central
  Banks can not do so much about it. After all, even a Central Banker’s ego
  cannot manage crop cycles or mineral cartels!
Inflation has limited impact so far because there’s no
wage price spiral.
- As we discuss next, that is the good news (no wage
  spiral).
- But, as we will also discuss next, the bad news is
  mounting political tension.
But, will that scenario change?
- Yes: the political implications are not good.
- We are seeing food riots in Egypt, and rice export bans in parts of Asia.
This is not good news for the man in the street - wages
can’t compensate for rising prices.
- Hence the food riots and thus food export bans.
- Think of cost-push inflation, particularly as regards
  food, as a “tax” hike. The result is that the population at large has less
  discretionary cash to spend.
- Thus, less consumption leads to a worsening of The
  Economic Time™: it morphs from an “excess demand for goods” to an “excess
  supply of goods.”
Are there options to deal with rising inflation?
- It is very tough to control
  cost-push inflation.
- It looks like tighter money is
  ahead, or, in the jargon of The Economic Clock™, an “excess demand for money.”
- This excess demand for money
  gets exacerbated by banks lending less and less, as we already see in America.
- Whenever there is an “excess
  demand for money,” that, in conjunction with an “excess supply of goods,”
  implies that corporate profits wane – and that will be bad for markets as
  stocks have to get re-valued, based on weaker earnings.