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Blog

    Conflation: The New Economic Circumstance?

    08/07/2008

    Energy and food prices have risen at an astonishing clip. That means the U.S. economy is in inflation, right?

    But the price of a key asset class, housing, is declining at 15 percent annual rate. That means deflation, right?

    So what's the word for an economic condition that contains relatively disruptive levels of both inflation and deflation simultaneously in different sectors of the economy?

    Lousy public policies are a major driver of our current problems, of course. In particular, the Federal Reserve, led by Chairman Ben Bernanke, has cut interest rates far below the real cost of capital, weakening the dollar and causing a significant part of the increase in commodity prices.

    Congress, not to be outdone, recklessly expanded the ethanol fuel mandate and continues to limit energy production, putting further upward pressure on both food and fuel prices.

    In housing, a combination of tax breaks, conflicted ratings agencies, and government backstops for reckless (and in some cases fraudulent) lenders like Countrywide and Indymac Bank helped spur a bubble that is now correcting.

    So some of the folks at FreedomWorks kicked around a few possible names for this unhappy outcome that seems different from traditional inflation or deflation (at least so far...).

    Multiflation
    Dumbflation (nod to bad policy)
    Bailflation (nod to the bailout)
    Fedflation (for our friends at the Federal Reserve)
    Bearflation
    Schizoflation
    Scareflation
    Badflation
    Sadflation
    WTF-flation

    If you want to lay it at Bernanke's feet, "Benflation" has a nice ring.

    Biflation
    Dissflation
    Price Dissonance (already has microeconomic meaning though)
    Greenflation (nod to former Fed Chairman Alan Greenspan’s role)
    Coflation
    Simulflation
    Fragflation
    Chipflation
    Dieflation

    I rather like Conflation, which captures both the conflated nature of the current economy, the role Congress plays, and the “con” involved in shifting housing market losses to the taxpayer.

    What do you think? Share your own ideas in the comments below!