I completed my MBA degree in Finance from the University of Kentucky in 1980. While I was happy to be finished, in many ways it really didn't mean much for me in terms of job prospects. After all, people with twenty years of experience and an MBA were getting laid off all around. Those of us in the MBA program had contests to see who could get the most rejection letters from the resumes we sent out (one guy amassed over 150 letters).
This was a time of a very weak economy that was coupled with high inflation -- it became known as stagflation. And the more the Carter administration tried to do to fix it, the worse things got.
We were used to periods of inflation that were followed by mild recessions that cooled things off a bit. But not this time. This was a time that had a very different set of conditions. Consumer confidence was low, which fed the recession. But forces outside of our control (the Middle East to be exact) kept pushing energy prices higher. This plus strong unions that continued to fight for increases in pay and government meddling in what should have been free markets created run-away inflation.
I worry that the signs are there for a return to a similar mess.
Confidence is low. We saw it the last couple of weeks in surveys of investors that I blogged about. Now we see it in consumer confidence surveys. From the Wall Street Journal:
U.S. consumer confidence slumped in February, accelerating a decline that began in January, according to a report released Tuesday.
We also see signs that inflation is not easing in spite of the slowing economy. Also from the Wall Street Journal today:
Meanwhile, U.S. wholesale prices surged in January and core inflation also climbed above expectations, according to more data revealing price pressures amid the economic slowdown.
Once again, energy and wages are at least partly to blame for the inflationary pressures on our economy.
And what about the third ingredient for a potential economic disaster? Rather than following the course that took us out of the mess the last time -- cutting taxes and freeing the free market from governmental control -- we hear cries from Washington that they will fix problems we face in a different way. How?
The Democratic front runners both want to increase taxes, take profits from the oil companies (a sure way to push prices even higher), and put government in control of health care (another recipe for even more inflation in this sector). And McCain? Every bit of evidence is that he is a big government Republican and will likely follow a similar path as both of the Democrats.
Hang on to your cash! Keep your debt burden as low as possible! And get ready to hunker down for a rough couple of years!
Leave a comment