Word of the Day: Slowflation
While we await today's FOMC non-action, let's edumacate ourselves as to a new definition, via Wordspy, we get today's word of the day:
slowflation (n.): An economic state characterised by slow growth and high inflation. [Cf. stagflation.]
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Example Citations:
Stagflation light. Slowflation. A variety of terms are floating around to describe the current state of the economy: growth that's too slow and inflation that's too high for Federal Reserve comfort.The nicknames refer to the stagflation of the late 1970s and early '80s, when the country endured not only disco, but double-digit price increases, slow growth and high unemployment.
—Sue Kirchhoff, "Economy searches for a new word S-word," USA Today, May 2, 2007
The risk that the U.S. real-estate market's woes might affect stocks and bonds is front and center for Raj Sharma, a private wealth adviser with Merrill Lynch in Boston. Merrill's North American economist, David Rosenberg, recently warned against a combination of slower growth and faster inflation ("slowflation") that the real-estate slowdown would exasperate.
—Suzanne McGee, "Best in Class," Barron's, April 23, 2007
Earliest Citation: The only question is whether the monetary tightening is enough to do so. Consistently strong monetary expansion suggests it is not. Still higher interest rates are probably needed, leading to a politically unpopular, perhaps budget-wrecking, economic slowdown. It may turn out to be "slowflation" rather than stagflation, with growth modest, but positive.
—"Monetary blues," Financial Times, June 18, 1998
Wednesday, May 09, 2007 | 11:45 AM | Permalink
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We should call this what it really is: Fedflation. By allowing unrestrained growth in money supply the Fed has turned over the reigns to the market movers. The Fed really can't control the economy because economics is based on actual supply and demand of goods and services while the Fed only has a small degree of influence of the supply and demand of debt.
Ignoring currency supply excess is fueling the bubble, causing worldwide inflation, while the world economies react to actual, physical forces.
Fedflation, AKA Bubblation.
Posted by: Winston Munn | May 9, 2007 12:06:56 PM
I looked up the word stag: "An animal, especially a pig, castrated after reaching sexual maturity"
Sounds about right.
Posted by: KirkH | May 9, 2007 12:07:26 PM
Subflation: Substandard growth. Sub Rosa inflation statistics. Subconcious subliterate populace. Subsistence wages.
Posted by: Robert Cote | May 9, 2007 12:16:32 PM
So what is the fun of a stag party??
Posted by: me | May 9, 2007 12:27:40 PM
Fedflation, AKA Bubblation.
I have fascination with Fedflation causing the Bubblation. It's not just us expanding the money/credit double digits.
Worldflation.
Posted by: SPECTRE of Deflation | May 9, 2007 12:30:27 PM
Next step: "ConFLAgraTION"?
Posted by: Pool Shark | May 9, 2007 12:42:02 PM
I like Fedflation. Sounds about right.
I used to think that the best hedge against inflation was gold or quality real estate, but now perhaps China is it. Gains of 1-3% day in and day out will almost keep up with the losses in our buying power!
Posted by: Michael C. | May 9, 2007 1:28:45 PM
can anyone explain why Fed decided 2% was a magical number for inflation target?
Posted by: yc32 | May 9, 2007 1:44:22 PM
We have all heard that the Fed has lost control of the ability to restrict credit through Fed Policy because of global liquidity. My question is, "would Helicopter Ben raising rates a measly .25 not restore Fed credibility?". Who expects them to do this? Nobody.
As Mish just pointed out M Prime is below zero while M3 [courtesy of Nowandthefuture] is running at 12%.
This is no prediction but only a remote possibility. The Brits will have their meeting tommorow and are expected to raise.
Ben could do worse. This would allow him to continue to put a floor in for the $USD while letting the players know that the Fed is still relevant.
Posted by: SPECTRE of Deflation | May 9, 2007 1:56:15 PM
Lakshman Achuthan, managing director at Economic Cycle Research Institute in New York, comments on why he expects the Fed to keep interest rates unchanged:
"I think people just don't have a clear idea or framework to deal with the economy we have got right now. We have an economy that's growing healthy, it has tight labor markets, but for the time being, underlying inflationary pressures are easing."
"The key thing is that there's not going to be any kind of recessionary information" out of economic reports. Concern for a recession "is completely off the table. In the fall we had some vulnerability, but now we have none."
Posted by: Fred | May 9, 2007 2:12:34 PM
Market is up..woohoo. Concerns on inflation in the FOMC statement means nothing in this market
Posted by: ManhattanGuy | May 9, 2007 2:21:48 PM
I think Ben just missed a golden opportunity unless he has a gentleman's agreement with the other FCB's on also holding their rates steady.
If not, the $USD will be in trouble LARGE!
Posted by: SPECTRE of Deflation | May 9, 2007 2:22:38 PM
Spectre,
If $USD is in trouble over this fed decision, why is GLD losing ground now?
Posted by: grodge | May 9, 2007 2:29:13 PM
Because metals including Gold, although the charts are much much better for Gold, will break down soon. Gold won't stay down, but will be cut down a notch like the industrial metals if for no other reason than sympathy.
I'm focusing on the $USD against other currencies. Rising rates from the Brits and EU will be bad for the dollar regardless of Gold.
Just my 2 cents.
Posted by: SPECTRE of Deflation | May 9, 2007 2:37:07 PM
The dollar will be going nowhere for a while....save this post.
Posted by: Fred | May 9, 2007 2:59:05 PM
Yep, don't overuse gold. Weakening economy is not good for gold(nor Oil). But have gotten a bit skiddish.
Gold's rise to hyperinflation or mass deflation is a panic.
Posted by: ac | May 9, 2007 3:05:54 PM
thank goodness i don't take bear blogs too seriously else i'd be out serious cash. couple of more months of this and i can buy another house as an investment and make even more. demise of the US economy because of subprime? what a crock.
Posted by: Richard | May 9, 2007 3:25:15 PM
In the omnicient and sagacious words of Jim Cramer, it's no time to panic, just time to buy.
Posted by: Michael C. | May 9, 2007 3:50:43 PM
Quote Spectre: "My question is, "would Helicopter Ben raising rates a measly .25 not restore Fed credibility?". Who expects them to do this? Nobody."
This assumes the Fed has some type of control, which they do not possess. According to Bloomberg, the 3-month T-bill yield is 4.85% - the Fed target rate is 5.25. The Fed cannot enlarge that spread without sucking in a massive amount of liquidity to protect the higher target.
The Fed is at the mercy of what bonds want to do. I believe the Fed knows well that inflation is out of hand, but the best they can do at this point is to resist chasing the T-bill down by lowering the tartet rate.
I give Ben credit for holding - it's the best he can do Greenspan would have cut by now. Ben has also done a good job managing the excess reserves. Too bad he wasn't born in Vienna or else he'd try eliminating some of the currency oversupply, as well.
Come to think of it, this might be his plan - to hold rates as the bonds lower, thereby creating a spread that will more slowly extract excess liquidity than a large increase that would cause a collapse.
Posted by: Winston Munn | May 9, 2007 3:58:06 PM
Go ahead, Richard. Buy my house.
Posted by: wally | May 9, 2007 4:40:59 PM
Quote Richard: "demise of the US economy because of subprime? what a crock."
Where do you find the concept that only subprime is involved? A subprime-led collapse has never been mentioned. Subprime lending standards applied to other areas such as Alt-A loans and LBOs has been discussed, but even then it was in the context of a larger bubble.
I agree that a collapse based only on subprime is indeed a crock - but that claim has never been made.
Posted by: Winston Munn | May 9, 2007 4:42:57 PM
You're suffering from "Snowflation."
That's when you've just been snowed by the Fed. Nothing changed... nada... zip... zero.
Bill Gross got it right... it's only now that elements that will drive the Fed are beginning to come into play.
I'm still game to play "cluck-cluck" Barringo. You feelin' lucky?
Posted by: Eclectic | May 9, 2007 4:44:57 PM
Here is some incredible information about the effects of inflation: From Charles Morris at Commonwealth Magazine:
"Much of the data documenting the income shifts has been collected by two economists, Emmanuel Saez, of the University of California at Berkeley, and Thomas Piketty at the École Normale Supérieure in Paris. Their study is based on analyses of the entire database of personal federal income tax returns.
The figures are startling. Since 1980, a period of prolonged stagnation in inflation-adjusted median incomes, the income share of the bottom 90 percent of families has fallen by about 17 percent. Even the very upper-middle class folks in the 90-95 income percentiles barely kept their shares constant, while the top one-thousandth and top ten-thousandth have more than doubled and tripled their shares. The top ten-thousandth, fewer than 15,000 taxpayers, now collect 3 percent of all personal income.
This has been a historic development. Not since 1928, hardly the proudest year in American economic annals, has the share of the very richest been so high."
A debt-based central banking system is an undisclosed tax whose primary effect is on the working class. Is there any wonder the polarization of wealthy versus poor is growing?
Posted by: Winston Munn | May 9, 2007 4:50:52 PM
Hey...where'd Barry's FOMC rate release post go? It was on the main page a little while ago...
Posted by: John | May 9, 2007 4:52:21 PM
"Bill Gross got it right... it's only now that elements that will drive the Fed are beginning to come into play."
Agreed. Totally agree. Credit crunch 101 coming to a theater near you. The Fed has lost control.
re: "Snowflation" -- I think that's when you spend too much time listening to that Republican water mule and fact fabricator Tony Snow.
;-)
Posted by: Mousefinger | May 9, 2007 4:57:17 PM
