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January 4, 2008
Is stagflation coming back?
“Like disco, stagflation died out with the 1970s,” says Paulette Miniter in SmartMoney. But with cresting oil prices pushing up prices at the same time that the “economy shows signs of slowing down,” there are certainly “whispers” that “1970s-style stagflation” could be making “a comeback.” We may not be there yet: unemployment is still “at a low 4.7 percent,” compared with the “double digits” of the ’70s. But monetary policymakers have some tough choices ahead. Raising interest rates can tamp down inflation but could also slow growth; cutting rates to promote growth can also spur inflation.
Sovereign wealth gambles
Sovereign wealth funds went from being the “bogeymen of global finance” to “its Santa Claus” in just a few months, says Michael Sesit in Bloomberg. But as they rapidly scoop up stakes in struggling U.S. and European financial institutions, “you have to wonder: Do they know something other investors don’t or are they just spending too much, too fast?” After all, Warren Buffett rebuffed U.S. banks last year. But the sovereign funds can “afford to be long-term investors,” and these bank stakes are bets on “growing middle-class wealth, especially in Asia.” So if the banks aren’t hiding too many more losses, they might turn out to be “smart” investments.
of The Week magazine.