The year was 1978. The Bee Gees were the nation’s top pop group. Bell bottoms were en vogue. And the country was mired in an economic malaise, with so-called stagflation as a symptom.
And although Justin Bieber and hoodies have replaced the trends of the 1970s, the American economy is recycling a fad from that era, stagflation, according to CNBC host Larry Kudlow. On his Thursday night program, Kudlow pointed out that was a term Federal Reserve Chairman Ben Bernanke failed to use in his Wednesday press conference.
“I’m going to tell you what word the great Bernanke did not use — in yesterday’s historic press conference, one that perhaps he should have – and that is ‘stagflation,’” Kudlow declared.
Kudlow explained how the phenomenon occurs – slow growth with rising prices. And this is what is defined by Thursday’s gross domestic product (GDP) report from the Commerce Department and inflation indicators that accompanied that report on the U.S. economy.
“First of all, you can have slow growth with rising inflation at the same time,” he said. “We saw this in the 1970s. Right now we are seeing a miniature version of the 1970s. Let me show you the facts first. Then we’ll see if we can convince you of it. First of all, here’s your real GDP growth. Notice how it’s down to 1.8 percent. It’s been actually falling now for the past four or five quarters. It is going nowhere. There are a lot of headwinds like gasoline prices and so forth and so on. That’s fact number one. Fact number two, we have a bad inflation number today – 3.8 percent. Inside that GDP report, the consumption deflated. The consumer deflator – look at this, 3.8 percent.”
“The Kudlow Report” host gave viewers a tutorial of what stagflation is and why Bernanke is wrong for not acknowledging it.
“Look, what is stagflation?” Kudlow said. “It means the inflation rate is rising much faster than the economic growth rate. And a lot of people conventional economists say that can’t be. Strong growth causes inflation, not weak growth. But, in the 1970s, we had weak growth, high unemployment, and double-digit inflation. Why is this? Why are the conventional thinkers wrong? Because inflation is not caused by too many people working or growth that’s too strong – inflation is a monetary problem, when the Fed prints too much money, money that people don’t want, when they want bad money. You want to see some bad money? There is the U.S. dollar index going back about a year. It is down 17 percent. The dollar has actually been falling for quite some time, but I’m just saying the Fed is creating more money than anybody knows what to do with. And that excess money creation is working through the falling dollar, as illustrated by soaring gold and soaring commodities and soaring oil and soaring silver. All that is starting to work itself into the prices of goods and services and, guess what – bad money, a bad dollar, the Bernanke buck, as I’m taking of calling it, is causing higher inflation even while the economy is slowing down. And it’s a nasty witch’s brew. It troubles me despite the good corporate profits.”
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Kudlow pointed out the metrics that would indicate stagflation are described as “transitory” by Bernanke and Kudlow asked – how does Bernanke know they are “transitory?”
“All right, final point – as I said in the intro, Mr. Bernanke thinks slow growth is transitory. Mr. Bernanke thinks the higher inflation rate is transitory and, therefore, he must think the stagflation threat is transitory,” Kudlow said. “How does he know this? Why do you think it’s transitory? Even today and yesterday during his news conference, the dollar keeps falling, and gold and silver price keep rising. Why do we think it’s transitory? So that’s my question – how does the Bernanke know that stagflation is transitory?”