A prime concern now that the Obama Administration has flooded the economy with money is stagflation. Stagflation is when inflation is high and the economy is poor at the same time. A bad economy is when there is high unemployment and negative growth (Gross Domestic Product – GDP). Today, the economy is poor, but inflation is in check. However, inflation can spiral out of control with the excess money injected into the economy coupled with present day low interest rates. Obama and his administration are counting on the economy turning before inflation rises. Most economists agree that inflation will be on the rise due to the large amounts of money that the federal government has injected into the economy. Pumping money into the economy is going to cause high inflation; it is just a matter of when. Either way the American public is going to suffer from Obama’s economic policies. An economic policy that only hopes inflation happens after the economic downturn is not a very good policy. If inflation happens before the economic downturn (stagflation) is alleviated then the economy could be in peril for a much longer time period. This risk is unnecessary, and an obvious flaw in the Obama stimulus plan. We all will have to endure ridiculously high food and energy costs within the next few years. If we thought 4 dollar gasoline was bad, it may be much worse in the next few years. It is just a matter of when the inflation occurs: during or after the economic downturn.The sad thing about the Obama economic policy is that they believe they are doing the right thing and there is little risk in their plan. A plan of tax cuts is a better way to flood the economy with money. Under a tax cut the federal government does not have to print additional monies to stimulate the economy. Less money in our economy will stagnate inflation. Tax cuts are supply side economics or a bottom to top method to help the economy. Money from tax cuts goes directly to the consumer to stimulate the economy immediately. A Keynesian plan to create demand by using government sponsored programs could have a devastatingly adverse affect on the economy. This is a top to bottom method to help the economy. A Keynesian plan is hopeful the money will reach the American public as some point. Maybe 50 cents on the dollar reaches the American public or less, but there is no way it is as efficient or effective as tax cuts. The Obama plan will lead to inflation; it is just a matter of when. Our only hope is that inflation will happen after the economy recovers. Either way we really do not have too much to look forward to.
Blog Site: http://patrickbohan.blogtownhall.com/
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