Inflation is far worse than what they are copping to. Fuel prices have
doubled, groceries are up 50%, and mortgage payments have caused
hundreds of thousands of defaults and foreclosures. That's just in the
past year.
The official inflation measure the government likes to use excludes
energy and food, but DOES include the cost of a new car or a house. It
doesn't include the mortgage payments made on that house. If you happen
to be buying a McMansion or a Hummer right now, you can get them at
bargain basement prices. You could save 20, 30, 40% off last year's
price. Buy enough of them, and you'll be rich! You'll save enough to buy
all the bread and gasoline you want!
So for the vast majority of people, the inflation rate is pure crap. I
bought a loaf of bread this morning – on sale – for $3 a loaf. I paid
$4.67 for regular gasoline. But since I didn't buy any homes or large
vehicles, I wasn't able to ease the burden of the price increases.
If the inflation numbers are skewed, the economic growth rate – which
uses the official inflation numbers – is even worse.
Not that they look all that good. Economic growth is up 1%. Not over the
past quarter, but above this time last year. Seasonally adjusted, of
course, which is their way of flattening out the sine waves caused by
the fact that economic activity is greater in the fall and early winter
than it is in spring and early summer. Since little of that economic
activity involves buying 12,000 square foot homes or F-350s, that means
that the effects of inflation are understated. There is more "economic
activity" if you buy five gallons of gas at $4.50 then there is if you
buy seven gallons of gas at $3.00, but you still end up with less gas in
your tank. Even allowing for inflation. Official inflation, that is.
According to the Bureau of Economic Activity, "Real gross domestic
purchases – purchases by U.S. residents of goods and services wherever
produced – increased 0.2 percent in the first quarter, in contrast to a
decrease of 0.4 percent in the fourth." That's allowing for "official"
inflation, so it probably means, in actual terms of how much stuff got
bought, there was a sizeable contraction in the fourth quarter, and an
only slightly milder one in the first quarter of this year.
Mind you, that does NOT factor in population growth. Compared to a year
earlier, you had about 7.5 million more people buying things with
dollars that were worth only about 80% of what they had been a year
earlier, and even then they were only able to grunt out one fifth of one
percent more spending.
According to the BEA, "Current-dollar GDP – the market value of the
nation's output of goods and services – increased 3.7 percent, or $126.9
billion, in the first quarter to a level of $14,201.1 billion. In the
fourth quarter, current-dollar GDP increased 3.0 percent, or $103.7
billion."
I wonder how many trillions of marks the German GNP was in 1924? It grew
quite spectacularly in current-marks in the years preceding.
Incidently, the economic growth DOES include government spending, which
has increased more under this administration than under any other
American administration except FDR's, where the Depression and the War
forced huge increases in spending. Military spending alone, for the
failed occupations of Afghanistan and Iraq, was up 5.9% last quarter.
So we have fake economic growth that is based both on ersatz economic
activity and completely fraudulent inflation numbers.
So we are in a period of stagflation (economic slowdown AND inflation)
despite the official numbers, and it's going to get worse, and quickly.
I can't even blame the Republicans for much of what is going to happen.
Granted, they are responsible for the relaxed rules and lack of
oversight that caused the domestic economy to become so corrupt and
fraudulent, resulting in such phenomena as Enron and Countrywide. They
took the suicidal course of pushing globalization, reasoning that an
artificially weakened and depressed labor force would result in higher
profits. Maybe they thought China and India would rapidly evolve large
monied middle classes to replace the no-longer-needed Americans, but
then balked when they realized they would have to pay good wages to
achieve that.
As a result of all this we are facing a perfect storm of events, and the
policies the administration has adhered to will only make things worse.
The shock in gasoline prices results from a combination of a weaker
dollar, a speculative bubble, and, while America is loath to admit it, a
concerted effort by much of the rest of the world to bring this
administration to heel. Oil is America's Achilles's heel, and countries
alarmed by US expansionism and empire-building are working to weaken the
US economy with a sudden oil spike.
However, commodities overall are taking a big jump. Food is the one that
will cause the most trouble, since it brings devastation to severely
afflicted areas, severe affliction to areas where hunger was a
background problem, and hunger to areas that haven't known such in
years. That is politically destabilizing.
Other commodities, including all forms of metals, have skyrocketed in
price, both in terms of stable currencies such as the euro, and in terms
of currencies that are devaluing, such as the dollar. The rise in world
terms is significant–20% on average. In American terms, it's closer to
60%, and will have a devastating impact on an already teetering economy.
This, in turn, will further weaken the dollar, creating an even greater
inflationary surge.
This exacerbates America's institutional flaws such as the privatized
health care system, the lack of mass transit, and the lack of a safety
net. It also magnifies such ongoing problems as the mortgage crisis
(before it's done, 10 million families, or 15% of the country, might be
out on the streets), and the increasingly repressive tax structure. In
the meantime, the country will be spending badly-needed money in Iraq,
and banks will still be charging mafia rates for credit.
Unfortunately, the Republicans have created such a vast flaw in the
American economy that the country may not be able to recover.
Supply-side was the greatest redistribution of wealth in the country's
history, and America is well on its way to becoming a country where a
thin scum of ultra-wealthy rests atop a deep restless ocean of grinding
poverty. Such types of economies are notoriously inflexible, and
politically are prone to ongoing unrest and deep corruption. They do not
make for strong countries.
Lay in lots of staples, plant a garden, and regard the dollar as being
not particularly helpful. These will all help you weather the storm that
is breaking upon us.
