One definition is a period of high inflation with no growth. Another is a STAGnant economy plus inFLATION. My definition is a period in which more than 2/3’s of nominal sales growth comes from inflation.

Business sales (Manufacturing Shipments, Retail Sales, and Wholesale Sales) grew by $44.7B between June and December 2005, in nominal dollars. Real Business Sales (deflated for price increases) increased $15.4B during the same period. The government statisticians due not count inflation until a good is sold. The value of Business inventories grew by $26.9B between June and December 2005, in nominal dollars. Real Business inventories (deflated for price increases) increased $7.3B during the same period.

We have it and policy makers are not willing to acknowledge its existence or deal with its consequences. One should question the actions of a FED that accommodates growth of short term credit (bank loans + commercial paper outstanding) at a 10.2% rate for the last 13 weeks and a 12.4% rate for the last 52 weeks in this environment. One should question the actions of a FED that accommodates growth of M2 at a 7.5% rate for the last 13 weeks and M3 at a 8.3% rate for the last 13 weeks in this environment. To put M3 into perspective, it is up $789.5B in the last 52 weeks; the FED is ceasing to publish this statistic – the lifeblood of loanable funds - they say it is not meaningful.

You should care because this environment should not be facilitated by high monetary aggregate growth and high Federal deficits, both of which the U.S. is experiencing. The result in the past is higher inflation, leading to lower growth, a restrictive policy response by the FED (raising reserve requirement is the only tool they have left), a recession, and loss of confidence in our currency’s value by foreigners who lend us $75B a month to fund our trade deficit.

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