Stagflation Lives

Those old enough to remember the 1970s may remember "stagflation." It describes an economy that features the worst of both worlds: low or negative growth and rising prices. Such times are decidedly unpleasant. In a depression, your income falls but the things you need to buy get cheaper at the same time. With inflation, everything costs more but your income is probably rising, too. Stagflation doesn't have a silver lining. It's bad no matter how you look at it.

Thus it was rather shocking to hear retired Fed Chairman Alan Greenspan tell ABC News over the weekend that he now sees the "early symptoms" of stagflation. Others concur; economists at JPMorgan Chase are forecasting the slowest global growth in four years this quarter, along with the highest inflation in a decade. The ongoing credit crunch is not easing despite the best efforts of the Fed and other central banks. Rapid growth in China and other emerging markets is driving up food and energy prices. It is beginning to look like the perfect storm may be coming.