Saturday, 19 May 2018 20:20

All Roads Lead To Stagflation - This Is How We Got Here...

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Authored by Adem Tumerkan via Palisade Research,


  • I’ve been very critical of the mainstreams ‘growth story’ they continue to push. There are very troubling cracks widening in the economy they seem to ignore.

  • The last 15 months has seen U.S. GDP rise, but most of this came from increased exports which has benefited from the declining USD.

  • As we learned from the Austrian Economist F.A. Hayek – this is only temporary growth – and the effect of this is rising inflation, which is becoming a problem now.

  • This puts the Fed between a rock and hard place – they either fight inflation by hiking rates (which U.S. economy can’t handle) causing a recession...or they let inflation run higher.

  • Either way, there is a trade off. And the short-term growth has led us down the road of Stagflation.

There’s been a lot of talk lately about the dollar and the United States’ economy.

I don’t think people realize how the latest ‘growth’ the U.S. has had is superficial – all thanks to a weaker dollar.

Most CNBC pundits don’t even mention how the weaker dollar has given the economy a short-term spurt. And the couple that won’t even acknowledge that it’s temporary.

Let me explain...

A country can weaken their currency to make their exports look more attractive abroad.

Look at these three charts

First – and most importantly – the U.S. dollar has been in a steep decline over the last 17 months – regardless of the recent rally.

Why does this matter?

When a country needs to boost economic growth – a key thing they can do is to weaken their currency. This matters because. . .

1. It will give the nation a trade advantage and make their exports look attractive abroad.

2. The weaker currency will make imports more expensive, discouraging domestic consumers from buying foreign goods.

And since the USD has declined, exports have grown considerably. . .

This is what President Trump has wanted – all this talk of trade deals and trade wars with China is his way of increasing U.S. exports. He wants to make sure when foreigners look at the tags on their products it says “made in America”.

Now, as we’ve learned from the over-rated economist – John Maynard Keynes – when you cheapen your currency and boost exports, it will increase your economic output.

Economic growth = GDP (gross domestic product). . .

The formula for GDP is C (consumption) + G (government) + I (investment) + NX (net-exports).

And if you have more net-growth in any of those four, your GDP will...

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