The Economy: Small Problems Can Become Big Ones (Part 1)

My travels took me to Spokane, WA, to address my twelfth Executive Producer Roundtable sponsored by Northwest Farm Credit Services. My good friend, Dr. Ed Seifried, was a highlight for the producers by giving them a glimpse of the economy. The following are a few key points from his address:

Energy
The rise of energy prices and interest rates in tandem has resulted in a recession every time since 1971.

The worldwide economic growth is being held hostage by potential energy supply and terrorist disruptions.

Inflation
Ben Bernanke is an inflation hawk in favor of inflation targeting. His critics say he’ll pursue price stability at the expense of employment and economic growth. As an academic, he is cited as being a possible theorist.

Inflation targeting strategies attempt to keep the Consumer Price Index (CPI) between 1.5 and 2.5 percent. Critics argue the inflation target ignores housing and equity prices. Core inflation was 2.3 percent for 2004. Add housing prices and the CPI would be 4.9 percent.

GDP
The rise in oil price slows GDP. As oil prices increase it enriches foreign economies so they can fund our deficit

Since 1984, GDP volatility in the U.S. is down by 60 percent. Why? Better monetary policy. The lower the inflation, the more favorable the environment. Better inventory management control has led to production price reduction, also.

My e-mail address is:sullylab@vt.edu

Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.

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