An economic recession in the US is drawing closer. Ironically, the main road to economic recession will be through higher inflation. Higher inflation will cause a growth slowdown and that slowdown will accelerate inflation, at least for a while – so which is the chicken and which is the egg?
The recession won’t come from a traditional, consumer-led slowdown, as some believe. Right now, US wage income is far too strong for the doughty US consumer to pack up. Personal income rose 6% year on year in the first quarter and 6.4% year on year in the second. Indeed, measured by taxes, personal income is up 12.6% year on year in the second quarter of 2006. These sorts of numbers don’t fall in line with recession or disinflation.
The US national income cake keeps expanding; the Chinese (and the Indians and others) make things ever cheaper for...
