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Thursday, February 21, 2008

Welcome to 1978

There's no doubt about it -- stagflation is back. This is the lethal combination of a stagnant economy and high inflation. We saw it in the Ford and Carter years, and the only thing that eventually cured it was high interest rates -- and I mean super-high. In 1981, the interest rate for a 30-year fixed-rate home mortgage was 15.5 percent. That sounds bad at first, but the prime rate was 21 percent.

In some ways, I pity the fool who next occupies the White House. He or she will be trying to give the country a hand boost out of a hole a mile deep. And with all the talk by Obama and Hillary about expensive new programs like universal health care, mortgage foreclosure bailouts, random stimulus checks for everybody, and bond default mop-ups, it's hard to see any light at the end of the tunnel. It looks like it could be a long one.

Comments (7)

I pity the fool who next occupies the White House.

Bingo. There is no cleaning up the mess we're now in without hard choices involving higher taxes and reduced or redirected federal spending that will be fought tooth and nail every step of the way. We're screwed.

The company I worked for back then was borrowing money at prime plus six percent for inventory flooring. They were a wholesaler. They folded at the end of 1982, along with almost every other wholesaler in town.

I seem to recall those fast-walking, fast-talking car salesmen touting their "super-low" interest rates of only 12.99% at the time.

It's the proverbial elephant in the living room and none of the remaining presidential candidates (other than Ron Paul) have taken any note of it so far.

Allan L, your prescription will just make matters worse. Maybe we need W.I.N. buttons and bricks in the toilet.

We need capital gains, corporate and other tax CUTS asap and MAJOR spending cuts.

Ron Paul only looks like a nut, he is not.

I guess it's better than a depression, which is what I think Bernake is trying to avoid. He's clearly trying to inflate his way out of this credit crunch.

2008 is going to be a wild ride. Be prepared for expensive gas and cheap housing. This could get ugly.

Help me, please. I need to set my alarm for whenever the sky is falling.

I'll take that answer in o'clocks.


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