The Hindenburg Omen

…We now know, of course, that the Bear Stearns failure could have brought the global economy to its knees virtually overnight. The fact remains that the overall conditions that created that prospect are far from healed.

Political pressure to bite the bullet and take the approach Paulson advocated continues to grow, however, because the consequence of Fed bailouts is inflation run amok. We are already into the worst of all possible scenarios, akin to the dreaded “stagflation” of the 1970s, with rising inflation and stagnating growth.


But the conditions are different now, and worse. Then, it was perpetuated by inflationary and wage hike pressures. The latter is not a factor this time, only energy resource scarcity, something that will not be relieved for the foreseeable future.

…In the 1980s, Federal Reserve Chief Paul Volcker had to vanquish “stagflation” by driving interest rates higher than the inflation rate. It was painful but, some argue, effective. The same approach today, as Bernanke senses, would be downright cataclysmic.

Falls Church News-Press