A big worry, if you worry about big things, is this. Does the current explosion in commodity prices mean another economic blowdown like 1979-82, when the world, led by the United States and Europe, experienced “stagflation?” Are we going to see a replay of the Carter years when we had inflation and recession at the same time?
William P. Kucewicz takes a look at the numbers, and asks: is the runup in commodity prices a monetary phenomenon or a response to economic growth?
Don’t worry, he says. The numbers show that it’s an economic response, not a monetary phenomenon.
Well, it’s nice to be so sanguine about it, but I took a look at the graphs in his article and I don’t get it. It looks to me as if the world is heading for a big economic slowdown resulting from the huge increase in commodity prices of the last few years. And just what was the global economic boom driven by other than the huge increase in credit when the Fed started fighting recession in 2001/2002?
Here are the interesting numbers. Economic growth towards the end of 2005, worldwide, has almost stalled out. Global capital spending is still increasing even though global economic growth has been slowing since late 2003.
What the numbers say to me is: Expect a sharp decline in economic growth, a stall in capital spending, and a sharp drop in commodity prices. And then start wondering where the bottom is going to be.
Sounds a bit like 1980 all over again.
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