Smile When You Say Stagflation
If the resurgence of hip-hugger jeans and platform shoes wasn’t enough to leave us all feeling that everything old is new again, now there’s another blast from the past about to return: stagflation. Those of us who survived the 70s remember all too well that peculiar combination of inflation combined with economic stagnation triggered by the oil price spike, and how smart investors fled the stock market, preferring to buy gold instead.
Fed Reserve Chairman Ben Bernanke is hoping to keep the surge in oil prices from sparking stagflation which could cripple the economy for years.
“Maintaining confidence in the Fed’s commitment to price stability remains a top priority as the central bank navigates the current complex situation,” he said in a speech earlier this month.
But few Fed watchers count on him to back up that talk with action anytime soon.
Most expect the Fed to sustain its overnight ultra-low borrowing rate of 2 percent at its policy meeting this week.
Despite what the woman with the annoying fake-British accent assures us in commercials, those who buy gold don’t always turn into overnight millionaires (and they don’t always listen to Beethoven, either). When it comes to gold as an investment the trick is to understand that gold moves in the opposite direction of currency: you buy it when the dollar’s low and sell it when the dollar’s high.
What’s curious, however, is that even as the dollar has steadied in anticipation of the Fed’s meeting, Fidelity International announced today that we’ve entered a period of global stagflation. Their recommendation? Ditch equities and buy gold and government bonds.
Or so an “urgent” email alert from our investment company urged me this morning.
My response: buy it with what? Between losing half of our home’s equity in the past six months and the price of everything else going up, the only way we can possibly afford gold is if one of us gets a cavity that needs to be filled. Which reminds me… VH is due for a dental appointment.
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Boy howdy. I was too young to understand financial matters in the 70s (well, who’m I kidding, I don’t understand it now, either) but we’re hunkering down for a long, interesting few years. (If you believe some of the experts, we’re in this for the next 5 to 10 years. Yippee.)
Margis last blog post..Back to work *whipcrack*
That’s what I hear, too. The good thing is that a slump might finally and completely put an end to that conspicuous consumption we all got used to in the late 90s. I’m SO ready for a simple kind of life.
If bernanke wasn’t such a damned pussy he’d have raised rates 25 basis points and undone some of his mistakes of last year to partially handle the inflation issue, showing full support for the dollar which would put downward pressure on crude.
But he’s a dickless churchmouse. So instead he’s hinting about leaning towards considering maybe perhaps someday thinking about raising the rate… possibly.
Where the hell is Greenspan when we need him. (Enjoying a well earned break I hope.)
Mike Wilsons last blog post..MERCEDES NOW!