I have seen elsewhere comments on the rising architectural billings data, a usually leading indicator, that shows construction might improve late next year. Yet we are in a three year slump and it is only now showing signs of life. I think that this is a sign a false optimism in the commercial sector. What I think is happening is that developers might pay for a design that could be used if things improve. A few million down the drain on a design is a lot less than hundreds of millions, if they build, and find no buyers or tenants.

I think that stagflation will be the norm for more than a few years. The costs of staples are well above official inflation figures and will remain so for many years. This will cause problems within the US as living standards are destroyed by the lack of wages growth. A few billionaires taking home more money does not equate to earnings growth. In fact governments could actively encourage stagflation as it allows living standards to drop to the point where they can compete on a world market with inflation eroding the value of debts from the bubbles.

The threat of debt-deflation is increasing, with problems growing economically and political both in the US and Euroland, and with China possibly rolling over.

China’s House of Cards

Your comment about job losses in December is right on the money. I am right now about to look at all the revisions the BLS did to last year’s unemployment data. I was listening to a UK radio show podcast called “Wake Up to Money” this morning (excellent show). On the show, they had a guy, Chris Thornburg, who claimed that the BLS just released data showing we have been losing jobs for a number of months as they revised the 2007 employment numbers down.

I intend to also soon address the issue of Credit Deflation. My feeling is that we will see stagflation, but only in the short term. The credit deflation will lead to money supply contraction and deflation in the medium and long term. That’s why this whole thing is so troubling.

If they don’t have growth, expansion, profits, and at least temporary employment then, when will they?

Some economists are also raising red flags about inflation. There are even questions as to whether we are headed into stagflation, that intractable situation not seen since the 1970s.

Stagflation really stumps the economists. In fact, the combination of both inflation and recession (or stagnation) at the same time is, in theory, impossible under classical models of economic theory.

This economy is in more trouble than the most people realize, and the general public knows it’s in trouble.