Tuesday, May 3, 2011

Economic Growth Slows As Inflation Surges

That's what I've been saying! The newer the numbers, the less positive things look for the economy. Recent news confirms that money can't buy prosperity. GDP growth slowed to 1.1% during the first quarter of 2011 while overall prices rose 3.8% for the quarter. That's at an annual rate of 15.2%! This has led some commentators to begin raising the possibility of the specter of stagflation, a stagnant economy with price inflation.

Sound economics teaches us that massive fiscal stimulus merely reallocates factors of production and consumes capital. Monetary inflation merely benefits those who receive the new money first at the expense of those who receive it later or not at all. It maintains previous and fosters new capital malinvestment, while leading to increased overall prices. It should not surprise us that bad macroeconomic policies have not fulfilled the promises of the policy makers.

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