The S-Word

David Merkel at RM notes that as controversial as the word "Stagflation" is, it is getting more popular as "references to the S-word lately both on the web, in print, and on the radio, but the gains are from a tiny base. Though inflation is rising, and the economy is slowing, the real drubbing that the US economy took in the 1970s is not happening now, and probably won’t happen, unless we get some sort of disruption in global flow of goods, services and capital."

A number of people who are presently bearish because they see slowing growth
and stronger inflation have nonetheless avoided using the "Stagflation" moniker.
The reason is that inflation was so much higher and growth was so much slower in
the 1970’s than the present economic scenario. Its simply a poor direct
comparison, and therefore a more creative phrase is needed:

This morning, Street Insight’s Doug Kass calls it "Blahflation;"

back in June, NYU’s Nouriel Roubini calls it Stagflation Lite;

In May 2005, I called it Demi-stagflation;

The key takeaway for wordsmiths and investors alike is that we are looking at a somewhat structurally similar economy to the 1970s — but one that is
unlikely to be anywhere near as bad as the 0% growth and 14% inflation of the
disco/bellbottoms/Nixon era.

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What's been said:

Discussions found on the web:
  1. drewburn commented on Aug 14

    I’ve long expected inflation to return. This time, I expect less “stag.” Key difference I see is that this time there is no baby boom entering the job market. Sooner or later, I suspect the Fed pushes the limit and the Philips Curve gains better “street cred”……..I could be wrong………. Stagflation wasn’t zero growth, it was high unemployment (with inflation.) It discredited the Philips Curve. I think it told us you didn’t need low unemployment to have inflation, not that employment levels don’t matter. Maybe the longer term question is “could inflation get worse this time?”

    So what happened to the hot story on real estate?

  2. Cherry commented on Aug 14

    If the Global credit ponzi scheme collapses, the last thing I would worry about is stagflation.

  3. Bob A commented on Aug 14

    I like Neoconflation

  4. Alaskan Pete commented on Aug 14

    I thought stagflation was when you over-exaggerated the events at your bachelor party. Or when that last deer you killed morphed from a 4pt to an 8pt by the third retelling of the tale. ;^)

  5. scorpio commented on Aug 14

    or too many guys without dates, crashing the party anyway, trying to snake yours… never ends well

  6. Blissex commented on Aug 14

    «Key difference I see is that this time there is no baby boom entering the job market.»

    But we have now a very large ”baby boom” of eager and biddable young workers from Mexico, India and China entering the jobs marker, both directly in the USA itself and indirectly via offshoring.

  7. Chas commented on Aug 14

    Bill Gross was using an apt word: Reflation — it doesn’t over-imply, and is consistent w/ starting from a small base and increasing. The word doesn’t capture the slow growth part, but neither do the other contemporary alternatives. Stag-reflation? Ugh.

  8. Blissex commented on Aug 14

    As to stagflation, I just found a an interesting footnote about the ”Greenspan “put”” by a PIMCO guy:

    «[6] I attempted to put a value on the Greenspan Put in the February 2000 Fed Focus, “Me and Morgan le Fay”, writing that without the Put, the P/E for the S+P 500 should be 18, not 32.»

    If the markets ever become persuaded that Bernanke is not going to put a floor on valuations, by cutting rates fast at the first sign of difficulty and only raising them slowly at the last sign of overheating, and PEs start halving back to a sensible level, they may well more than halve, and drag down the rest of the economy.

    In the UK there is a similar thing, I would call it the ”Brown “put””, for house prices, as the Chancellor has clearly signalled that he is going to do whatever it takes to keep house prices from going down.

    As to the inflation part of the equation, I will mention again here these PPI graphs:

    and how the steepness of the slope in 2001-today happened before in 1972-1982…

    Also note that stagnation in the USA is not necessarily going to moderate the prices of commodities, because demand for commodities is growing much faster outside the USA. And yes, a large part of that demand is financed by profits on exports to the USA, but not all…

  9. ~ Nona commented on Aug 14

    Alaskan Pete, I always get a kick out of your comments. Keep ’em coming!

  10. ~ Nona commented on Aug 14

    Alaskan Pete, I always get a kick out of your comments. Keep ’em coming!

  11. whipsaw commented on Aug 14

    I doubt if there is any real purpose in trying to coin a term for the conditions that we are in now vs. 70s stagflation. You can of course point out various differences, but history doesn’t offer many cookiecutter episodes and the point is that when inflation does not respond to tightening but growth does, you’ve got stagflation.

    I would add that this doesn’t come about overnight, it’s the product of years of imbalance that finally comes to a head. By the same token, it isn’t fixable in the short-term without some fairly severe meaures on both the fiscal and monetary sides. The former is obviously out of the question for at least two more years and the latter looks unlikely- my current thinking is that we will hear choppers in the air before the end of the year just to please the oligarchy even with inflation spiraling. I doubt if that will do any short-term good and can promise you it will do a lot of long-term harm, but it looks like the most probable scenario to me.

  12. Bob A commented on Aug 14

    Yo Barry, do we get to hear nothing about the goings on at MIM? Did you have to sign a NDA or what?

  13. Cherry commented on Aug 14

    Agree Whipsaw, If the Black Helicopters are going to make “humanitarian aid” drops these coming 12 months, the damage will be quite impressive and make the “awfull menance of deflation” not quite that bad………….

  14. kennycan commented on Aug 15

    It’s still early in the stagflation cycle. It would be interesting to know when that term came into the lexicon. Bet it wasn’t 1972 but closer to 1975 after we already had years of whatw e now know as stagflation before it was realized what was happening.

    People talk about the 1970’s (and all other times I guess) as if it happened in an instant ie we woke up on Jan 8, 1970 and “stagflation” and “Pinto’s exploding rear gas tank” and “Ford to NY: Drop Dead” were that weeks most read headlines. It took years for the stag to slowly depress growth at the same time the flation part built up to double digit levels before anyone noticed that they were happening together.

  15. ss commented on Aug 15

    Here’s a look at corporate tax reciepts. It will certainly turn the heads of the armwaving bears (Democrats) that say the tax cuts haven’t “worked”:

    Does THIS chart look even remotely like the ’70’s? lol

  16. Hans van Deun commented on Aug 15

    Don’t forget that the gold standard had only just ended in the seventies. The transition was quite rough and brought about by such bone-headed actions as the Nixon Shock :

    “In the first six months of 1971, assets for $22 billion fled the United States. In response, on August 15, 1971, Nixon unilaterally imposed 90-day wage and price controls, a 10% import surcharge, and most importantly “closed the gold window,” making the dollar inconvertible to gold directly, except on the open market.”

    As dumb as the current US administration may be, I don’t think they would ever impose wage and price controls. They only put more pressure on the system.

  17. spencer commented on Aug 15

    The current inflation rate is essentially the same as the inflation rate was when Nixon imposed price controls in 1971.

    Kind of puts it in perspective.

  18. student_of_the_trade commented on Aug 15


    What is the bullish case for equities (even if it is misguided) specifically regarding the evaporation of “free money” vis a vis rising central bank interest rate hikes in Japan, Europe, and America? Is there one?



  19. ss commented on Aug 15

    Not on this blog….sorry! (smirk)

  20. M.Z. Forrest commented on Aug 15

    For SS’s sake, I will make the bullish case:

    Margins are very high. It is a matter of how far they fall whether you make the bull or bear case. A smaller decline means still great margins. With these margins, dividends should continue their increase. These cashflows are worth money. Cash and bonds still aren’t great money, and they are not likely to become better money unless interest rates move markedly higher (i.e. more than a quarter point). A bear case is that interest rates will have to move higher, but I don’t subscribe to that myself. (I do believe they should go higher however; I do not believe they will.)

    The other part of the bull case is that a wage floor hasn’t formed and is unlikely to form. The wage differential in China and India are significant (although it is closing in India.) This only leaves materials prices as the factor that could hurt the expense line. A cut in margins due to materials prices would still leave many companies highly profitable. It is also an open question on how much of these raw materials prices are showing up on companies sheets. There a very few companies that start with raw materials. There has been significant compression in the margins for manufacturing (actual production). IOW, many companies can exert heavy pressure on suppliers to absorb rising material costs.

  21. BDG123 commented on Aug 15

    The gold standard ended in the 30s.

  22. ss commented on Aug 15

    Well said, MZ.

    I would add that (despite massive skepticism) the record cash on the corporate balance sheets will (eventually) find its way to the CTO’s office, and yes, an upgrade cycle on productivity (tech) based capex. Vista meets Wimax anyone? We are witnessing the early signs of Internet.2….ubiquitous, and mobile convergence of computing, communication, and entertainment = another leg of productivity.

    I expect no less that 5 posts flaming this theory…peppered with sarcatic insults (from the usual characters). C’est la vie.

  23. BDG123 commented on Aug 15

    The gold standard ended in the 30s.

  24. Bud Hovell commented on Aug 15

    I prefer the term “indeflation” — neither solitary inflation nor deflation but some of both simultaneously.

  25. thom commented on Aug 15

    Instead of Neoconflation, I like Neo-Stagflation. Then we could be Neostaflationists — or neo-stags for short.

  26. The Everyday Economist commented on Aug 16


    Barry Ritholtz mentions that the talk of stagflation is getting more popular.
    Google Trends seems to agree:

    Personally, I am not concerned.

  27. humphrey commented on Aug 17

    Stagflation you said? Nay… starvflation!

  28. mike carey commented on Aug 24

    Check out ‘Caculated Risk’ post for Aug.24-July 2006 new home sales (unadjusted for seasonal factors) were the lowest July sales since 2002!
    Mike Carey

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