Stagflation: Stagnation, Inflation, and Beyond

Since my prediction in April of 2007 of an impending economic crash, I've vowed not to risk my unblemished record with any further predictions. But a simple thing that I learned from the run-up to that catastrophe was when the “little people” -- the “every man and every-woman” -- found their way into stock market speculation, trouble was looming. Early in 2007, I recall acquaintances then announcing that they were day-traders, bragging that they were making more money buying and selling on their devices than from their regular job. 

The Wall Street Journal headlined in early October that More Working-Class Americans Than Ever Are in the Stock Market. “Among Americans with incomes between $30,000 and $80,000, 54% now have taxable investment accounts. Half of these investments have entered the market in the last five years according to…Commonwealth and the BlackRock Foundation.” 

A red flag.

And also, I learned that when the investment commentariat-- not the media cheerleaders-- sound the alarm, Marxists should listen. It’s a curious thing that academic Marxist economists, who frequently claim to foresee future crises in broad terms of overproduction and rate of profit, seldom cite the views of those solely driven by money-making realities. The Wall Street Journal, hedge fund managers, investor consultants, and others of the pursuing-alpha herd are good sources of alarm for market volatility as opposed to the capitalism-boosters of The New York Times and The Washington Post.

When a few weeks pass with the front page of The Wall Street Journal warning Credit Markets Are Hot, But Froth Is Worry and OpenAI’s For-Profit Restructuring Draws Pushback, Rattling Executives and Persistent Inflation, Soft Jobs Data Pull Fed in Two Directions and Shutdown Starting To Exact Its Toll on Business and Volatility Returns To Haunt Stock Market, it might be time to sit up and take notice.

When financial sites like QTR’s Fringe Finance-- not one to mince words-- announces Sh*t is Breaking… And it’s Going To Get Worse or when Reuters Morning Bid coins the jingle Bubble, bubble toil and trouble or when Wolf Street raises the alarm that Corporate Profits in Nonfinancial Industries Plunge by Most Ever in $, amid Massive Downward Revisions, it might be just the moment to question the health of the US economy.

More red flags.

The truth is that the US economy is strapped with two intractable, life-sucking issues.

First, the post-2007-2009 economic crisis has never been resolved. The US has foisted the damage onto its partners, subsidized sick and floundering corporations, run up enormous debts through monetary pump-priming schemes, fostered new armament production through escalating global confrontations, and sold investors on shaky, over-hyped “innovations.” That same concerted effort to overcome the deflationary tendency spawned by the financial collapse overshot the mark, generating a powerful inflationary trend. 

As I’ve argued emphatically since 2021-- contrary to the punditry-- inflation is rarely, if ever, a momentary, episodic development. It does not go away with policy tinkering or rebalancing. Once prices begin to rise, businesses and corporations try to catch up or get ahead. The floodgates of profit-taking and profit-preservation will not be easily closed. For those who fashionably love to borrow Marx’s concept of commodity fetishism, the conventional thinking on inflation fetishizes price rises, hiding the fact that inflation is the result of human decisions and human (capitalist) interests. And when capitalists see an opportunity to raise prices, they seize it.

Compounding the last four years of persistent inflation is stagnation in the non-financial economy. Economic growth-- apart from the stock market, the pocketbooks of the very rich, and the bloated military budget-- is slow and slowing. In November of 2021, I reminded readers of the dangerous return of 1970s “stagflation” in an article aptly entitled When Have We Seen This Before?. Of course, the dilemma is that government efforts to invigorate the stalling economy will only further increase inflation.

Second, the economy is currently in the hands of a helmsman without a compass. President Trump’s economic policies are decidedly a departure from the conventional reliance on the Federal Reserve as a somewhat independent arbiter and navigator of economic policy, from the reliance on and guidance from Bureau of Labor Statistics and Commerce Department data, from some self-preserving restraint of corporate and financial excess, and from muting obscenely deep and unrestrained graft and corruption. Trumpism is elite enrichment on steroids, the public be damned. Reportedly, Communist Party of China Chairman Xi believes that Trump is not ideological, but “transactional.” That would well summarize his economic program.

Whether Trump’s approach is politically sustainable is one question. Whether it will add confusion and misdirection to escaping stagflation is not in question. It will make things worse.

What are the markers, suggesting economic hardship and a rocky road ahead?

• Inflation shows no sign of a letup, still well above the consensus goal. While Trump has “declared” it defeated, consumers are even more alarmed than the numbers suggest, with grocery store prices a particularly sensitive arena for shoppers. The full weight of Trump’s tariffs has yet to spread through the economy, promising even further price elevation.

• Hiring is falling off; businesses are hiring fewer people. Though limited hiring has not yet resulted in a dramatic change in unemployment, it foretells an increase in those jobless.

• Real average hourly earnings growth is tepid, growing .7% from August 2024 to August 2025. Median household incomes remained largely unchanged last year, adjusted for inflation. When higher incomes are extracted, the numbers for most households are in decline.

• Outlandish financial schemes are back and collapsing, especially around the used-car market. As in 2007-2009, irrational, super-exploitive lending patterns have generated unserviceable debt with lower-income consumers. Car-loan delinquencies have reached 5.1%, a level approaching that of the earlier financial crisis.

• While stocks appear to be booming, their price-to-earnings ratio-- a traditional measure of overvaluation recently hit 22.5, one of the highest readings in the last forty years.

• Investor fear of market volatility is reflected in the great demand for the safety of gold, a commodity hitting its all-time high in price. Other signs of the turn toward safety are emerging. 

• The driver of stock-market growth is almost entirely artificial intelligence (AI) and its data centers. With immediate investment in AI estimated in hundreds of billions of dollars (as much as three-quarters of a trillion globally), little return on investment has materialized. OpenAI is expected to return only $13 billion this year. Morgan Stanley calculates that the entire industry only sold $45 billion in products last year. Many see a bubble much like the fiber-optic mania of 2000.

• Bank failures have prompted JP Morgan Chase’s top dog, Jamie Dimon, to quip “When you see one cockroach, there are probably more”.

• Private, direct credit-- a growing factor in finance-- has a default rate of over 8%, the highest ever.

• Class divisions are intensifying. Annual wage and salary growth for the bottom third of households through August of this year was lower than any year since 2016. At the same time, growth for the top third grew four times faster than that of the lower third. For the first time, consumer spending by the top 10% of earners was nearly half of total consumption.

• The Black unemployment rate went from 6.1% last August to 7.5% this August, a harbinger of employment trends: last hired, first fired.

• Recent college graduates are experiencing one of the highest unemployment rates of the last decade, another harbinger of a weak labor market.

• More children are claimed to suffer from some food inadequacy than at any time in nearly a decade; the US Department of Agriculture estimated the number at 13.8 million in its 2023 report. The Census Bureau similarly reports that nearly ten million children live in poverty, the most since 2018. The Trump Administration has halted the USDA survey of hunger in the US.

The high interest rates established to contain inflation are predictably slowing real, material economic activity and large consumer purchases for the majority. Four years of rising interest rates have made debt service a growing burden, as well as making the refinancing of debt costly. 

Economic royalty and their courtiers are publicly downplaying the growing inflation in a desperate effort to convince the Federal Reserve to lower interest rates and stimulate tepid economic activity. Should the Federal Reserve comply, inflation will undoubtedly accelerate to the great harm of most working people. Historically, stagflation ends with a deep recession, like the painful Reagan recession of 1981-1982. 

Many in ruling-class circles believe that a new wave of innovation will rescue the sluggish, fragile economy with the exploitation of Artificial Intelligence. They foresee a new age of high productivity and growth. 

However, research by JP Morgan Chase economists has failed to find a significant connection yet between the use of AI and industrial productivity. So far, it has boosted stock market values enormously, without showing a concurrent return on investment.

James Meek, writing in the October 9, 2025 issue of The London Review of Books, may well have captured where AI has taken us and how far it has to go:

Leaving aside the known problems…-- their massive energy use, their ability in malign human hands to create convincing fake versions of people and events, their exploitation without compensation of human creative work, their baffling promise to investors that they will make money by taking the jobs of the very people who are expected to subscribe to them, their acquired biases, their difficulty in telling the difference between finding things out and making things up, their de-intellectualizing of learning by doing students’ assignments for them, and their emerging tendency to reinforce whatever delusions or anxieties their mentally fragile users already carry-- leaving aside all this, the deep limitations of generative AI make it hard to see it as anything but a dead end if AGI is the goal.

Faith that AI is more than a possibly malign novelty is based on confidence that the tech oligarchs have a vision of our future that benefits us all.

Not likely.

Is economic reckoning on the horizon?

Greg Godels

zzsblogml@gmail.com