Next Stop: Recessionville

NEXT STOP: RECESSIONVILLE….Fasten your seatbelts. Economic growth is tanking and inflation is spiking:

Gross domestic product rose at a seasonally adjusted 0.6% annual rate October through December, the Commerce Department said Wednesday in the first estimate of fourth-quarter GDP.

Aside from the housing slump, slowing consumer spending, inventory liquidation and lower overseas sales restrained the economy. The 0.6% pace wasn’t only much slower than the third-quarter’s racing 4.9%, it was far below expectations on Wall Street.

….The price index for personal consumption expenditures rose by 3.9% after increasing 1.8% in the third quarter. The much-watched PCE price gauge excluding food and energy increased 2.7% after rising 2.0% in the third quarter.

It looks like Alan Greenspan was right: his successors are going to have a much harder job than he did because they won’t have the luxury of working in a low-inflation environment. Greenspan could focus on economic growth without worrying much about stoking inflation, but Ben Bernanke can’t. He’s got a housing bubble that’s blown up, a credit crunch, slowing consumer demand, and rising inflation. The right policy response is tricky and delicate.

Washington Monthly - Donate today and your gift will be doubled!

Support Nonprofit Journalism

If you enjoyed this article, consider making a donation to help us produce more like it. The Washington Monthly was founded in 1969 to tell the stories of how government really works—and how to make it work better. Fifty years later, the need for incisive analysis and new, progressive policy ideas is clearer than ever. As a nonprofit, we rely on support from readers like you.

Yes, I’ll make a donation