We Are Hurtling toward Stagflation

The comments below are an edited and abridged synopsis of an article by Michael Maharrey

The US economy is getting weaker even as inflation gets stronger. In other words, it is hurtling toward stagflation.

We Are Hurtling toward Stagflation - BullionBuzz - Nick's Top Six
Economy stagnation during rising inflation. Stagflation concept, 3D Illustration

Why have revenues at Target and other retailers plunged, even while retail sales numbers have remained strong? In a nutshell, consumers are paying more and getting less.

First, people simply don’t have any money left over after paying for essentials such as gasoline and food. Second, everything is more expensive. Retailers are getting hammered by higher costs.

Meanwhile, in order to make up for lost revenue on clothing and housewares, Target will likely have to raise prices on the thing it is selling – food. And at some point, Target will have to begin cutting jobs.

Another storm that’s brewing is the effect of declining inventories on GDP. Inventory builds pump up GDP; inventory declines will suppress it. The Atlanta Fed just downgraded its Q2 GDP estimate to 0.9%; that would mean a 0.7% contraction in GDP through the first half of 2022. This belies the Fed narrative that the economy is strong.

American consumers are straining under rising prices. To make ends meet, they are turning to credit cards and depleting savings. Consumer debt has risen to record levels, while the savings rate has plunged to the lowest level since 2008.

Consumers are in desperate straits. Whatever savings they accumulated during the pandemic when the government handed out stimulus money is gone. Now they’re maxing out their credit cards. They’re buying necessities: food, energy, shelter. There is no money left for discretionary spending. The US economy is on the verge of collapse.

The trade deficit further reveals just how hollowed out the US economy has become. While the $87 billion trade deficit was lower than projected, it was still an extremely high number and on a year-on-year basis, it set another record. This shows how unbalanced the US economy has become. Decades of artificially low interest rates have incentivized speculation and consumption, and disincentivized savings.

All of this data points to one thing: Inflation is a massive drag on the economy.

Government officials, central bankers and talking heads can talk about a strong economy until they are blue in the face, but the data says otherwise. It’s screaming stagflation.

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