“I’m going to tell you what word the great Bernanke did not use — in yesterday’s historic press conference, one that perhaps he should have – and that is ‘stagflation,’” Kudlow declared.
Kudlow explained how the phenomenon occurs – slow growth with rising prices. And this is what is defined by Thursday’s gross domestic product (GDP) report from the Commerce Department and inflation indicators that accompanied that report on the U.S. economy.
“First of all, you can have slow growth with rising inflation at the same time,” he said. “We saw this in the 1970s. Right now we are seeing a miniature version of the 1970s. Let me show you the facts first. Then we’ll see if we can convince you of it. First of all, here’s your real GDP growth. Notice how it’s down to 1.8 percent. It’s been actually falling now for the past four or five quarters. It is going nowhere. There are a lot of headwinds like gasoline prices and so forth and so on. That’s fact number one. Fact number two, we have a bad inflation number today – 3.8 percent. Inside that GDP report, the consumption deflated. The consumer deflator – look at this, 3.8 percent.”
“The Kudlow Report” host gave viewers a tutorial of what stagflation is and why Bernanke is wrong for not acknowledging it.
“Look, what is stagflation?” Kudlow said. “It means the inflation rate is rising much faster than the economic growth rate. And a lot of people conventional economists say that can’t be. Strong growth causes inflation, not weak growth. But, in the 1970s, we had weak growth, high unemployment, and double-digit inflation. Why is this? Why are the conventional thinkers wrong? Because inflation is not caused by too many people working or growth that’s too strong – inflation is a monetary problem, when the Fed prints too much money, money that people don’t want, when they want bad money. You want to see some bad money? There is the U.S. dollar index going back about a year. It is down 17 percent. The dollar has actually been falling for quite some time, but I’m just saying the Fed is creating more money than anybody knows what to do with. And that excess money creation is working through the falling dollar, as illustrated by soaring gold and soaring commodities and soaring oil and soaring silver. All that is starting to work itself into the prices of goods and services and, guess what – bad money, a bad dollar, the Bernanke buck, as I’m taking of calling it, is causing higher inflation even while the economy is slowing down. And it’s a nasty witch’s brew. It troubles me despite the good corporate profits.”