U.S. Entering Stagflation era by Greenspan

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xsocal land merchant_IHB

xsocal land merchant_IHB

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What are the thoughts by members on the this article? Greenspan is suggesting that we may be entering a period of STAGFLATION.

I survived the late Carter era with 18% mortages and 12% CDs. One of the events I remember upsetting every thing was a 5 or 6% move in the discount rate one day.

Graphrix or awgee may be able to find the history of that period. It was very unstable.

If one had CD's rolling over this month what are suggestions for reinvesting the dollars in a conservative manor? Tomorrow I can lock up 5.05% for 5 months at Wachovia.

Thoughts?

Thanks
 
I think our choices are between stagflation or depression. If the FED rate is kept too low to stimulate spending, we will have stagflation, if it is raised up to quell inflation, we will have a depression.
 
I vote for stagflation. Things sucked in the 70s but were relatively mild in comparison to the Depression.
 
The problem with stagflation is it is difficult to stop. We had to endure a deep recession in the early 80s to finally end stagflation. If the 70s and 80s are a good model, we will probably try stagflation first, and when it fails, we will go for deep recession to purge the whole system. The 80s recession made possible 25 years of solid growth.
 
IR,

I for one have been saving like an idiot for years now and am just looking for some good CD's to come up. With some long term 15% cd's retirement could be a early slam dunk. The down side will be keeping liquid during this time though.

-bix
 
I think there will be either deflation, stagflation, or inflation, and most likely some combination of the three. The Carter era was very unstable and if one is prepared, there will be net asset increasing opportunities during an even more unstable time. Actually, I am betting on it.

"If one had CD's rolling over this month what are suggestions for reinvesting the dollars in a conservative manor? Tomorrow I can lock up 5.05% for 5 months at Wachovia."

I think monetary inflation, M3, is running at between 12% to 15% annually. I think the various government stats showing price inflation to be around 2% to 4% to be crock of horse manure. I would guess price inflation to be closer to 10%, but sooner or later price inflation will reflect monetary inflation. I think if you CD or tbill any cash, you will be losing 5% to 10% annually on a real, (inflation adjusted), dollar basis. Which may not be such a high price initially if deflation occurs.

If the economy incurs deflation, cash will be king, but I think only for a short while. The Fed and the government can not allow deflation to occur for any length of time and will do anything and everything to prevent deflation.

My personal preference is to be long precious metals, to sit out any possible deflation, and to bank on the 94 year history of the Federal Reserve that it will always inflate, (devalue the currency), it's way through any problem.
 
how about treasury tips (inflation-indexed US treasuries)?

Indexed to the CPI. Somehow oil goes to $100/barrel, gas jumps from $2 to $3/gallon and Milk jumps to $5/gallon and CPI says we have 2% annual inflation...
 
Does stagflation/inflation benefit individuals that take out mortgage debt on fixed terms? It seems that when the period of stagflation/inflation is over with, so long as your job had income adjustments in tune with inflation rates, that the ultimate "cost" of the mortgage would depreciate (at an accelerated rate?) - and really only adversely effect the secondary debt market... Or, would this just harken a steeper housing correction?
 
"so long as your job had income adjustments in tune with inflation rates,"

The definition of stagflation is increasing prices without a commensurate increase in wages.
 
I closed fixed loans as high as 17 1/2%. Prices were low. Developers were selling new only cheap tiny things, because that's all that could be afforded.

It wasn't as bad as now. The mkt was not seized up. Closings were happening. One wealthy lady was moaning and groaning about her horrible interest rate and I got sick of it and said, well, you are obviously a person of means, why don't you just pay cash? She mumbled something about having her money out at even higher rates and shut up. Frankly, it is worse now. There wasn't the pervasive feeling of fear.
 
"It seems that when the period of stagflation/inflation is over with, so long as your job had income adjustments in tune with inflation rates, that the ultimate "cost" of the mortgage would depreciate (at an accelerated rate?)"

Many people bought homes in the late 70s betting on this phenomenon. DTI ratios of 60% were last seen during this period. A ridiculously high DTI can be justified if inflation is going to turn it into a 30% DTI in a few years. Long-term fixed-rate debt is a good thing if you correctly anticipate periods of high inflation. Unfortunately, for many people who bought in the late 70s, inflation was tamed, and many were stuck with very high payments and little income growth.
 
A lot of people on this board are saving their dollars for a large downpayment when the timing is right. What are people do with all that cash if we go through a period of stagflation or inflation? Would it be smart to buy precious metals? Leave all the cash in CDs? Buy other currencies? I don't want my savings to become worthless.
 
Greenspan Says U.S. Economy Is on Edge of a Recession (Update1)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aI_HoK4yXcYc&refer=home

He reiterated comments from last month that the odds of an economic contraction are ``50 percent or better.''

,,,

``Home prices will continue to weaken,'' the 81-year-old former Fed chief said. ``When a bubble breaks, you go to primordial fear.''

...

``Stagflation is too strong a term for what we are on the edge of,'' Greenspan said yesterday. ``I trust we have enough sense to come up with policies to avoid that.''
 
``Stagflation is too strong a term for what we are on the edge of,'' Greenspan said yesterday. ``I trust we have enough sense to come up with policies to avoid that.''

LOL. We have policies... ROFLMAO. We have great policies over at the FED, and I have the utmost confidence in their ability to straighten this mess out... Not!
 
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