The Return of Stagflation and Its Political Consequences

The return of "stagflation" to the American economy (a word almost forgotten by the media, as serious inflation had not been a problem for 27 years in the US) and the combination of inflation with a possible recession triggered by the housing market slump seemed unthinkable since Alan Greenspan's stewardship at the FED started working its magic.
Now, the word "stagflation" is popping up in the headlines of every newspaper: The annualized inflation rate for the past three months has been 6.8 percent, while unemployment is going up and growth is slowing, as Ben Bernanke said yesterday. The prices of oil and of gold hit new highs every week, while the dollar continues to drop to new lows compared to the Euro and other world currencies.
This is serious stuff -- and Bush's "stimulus" packages, will only make things worse because it's not a problem of lackof demand but a problem of lack of trust inside the overgrown financial and banking sector.
If the Republican party wanted to do everything to stop John McCain from winning the presidency this fall, it would implement an economic policy exactly like the one that is developing right now. There is no way that any Republican can hold the White House if the economy starts looking like that of Jthe late Seventies, that made President Ronald Reagan. Of course, the Democratic Congress this year will not even consider passing any legislation to prevent the crash.
Whoever will enter the White House on January 20, 2009, will have a task as formidable as the one of Franklin Roosevelt's in March 1933.