Stagflation

Many of us in the Center feared that an unfocused $800 billion stimulus tied to unrestrained Federal spending would lead to a dangerous inflationary spiral. It appears that our fears were justified and that 70s era “stagflation” may become a reality.

Investor’s Business Daily reports:

Put simply, wholesale prices, often a trigger for consumer price rises, have taken off. In February, they rose at a 8% year-over-year rate.

Some 75% of that gain was due to surging prices for food and energy. Food prices today are the highest on record, rising at double-digit rates (see chart). Meanwhile, gasoline tests the $4-a-gallon level, the dollar is weakening and gold is near its all-time high.

At this pace, prices for the basics used by businesses will double in less than a decade, pushing millions of Americans down the economic ladder as they struggle to keep up.

Why is this happening?

It starts with a government spending way beyond its means, producing a $1.6 trillion deficit this year and $1 trillion-plus deficits through 2020. Since 2008, federal spending has surged 28% to a forecast $3.8 trillion this year. Thanks to the slow economy, tax revenues have lagged.

By buying hundreds of billions in U.S. Treasury debt, the Fed has helped the Democrat-led Congress hike spending to record levels over the past three years. It did so with a "Quantitative Easing" program under which the Fed has snapped up $1.7 trillion of government-issued debts, creating money out of thin air.

No doubt about it: The Fed has sown the seeds of inflation not just here, but around the world.

What remains truly astounding is that the President and the Democratic leadership in Congress appear unconcerned about Federal spending and deficits. Worse, they’re fighting efforts to implement even modest spending cuts and are stonewalling any attempt at making significant deficit recommendations of their own. The President’s hands-off approach to deficit reduction is a very troubling (and cynical) example of a lack of leadership.

There comes a time when strident application of a fantasy ideology becomes dangerous to the future of the nation. We’re there.

The problem is that children have trouble distinguishing reality from fantasy. It appears that we’re being lead by children, and that the few adults in the room are powerless to act aggressively to correct the impending crisis.