A recent college graduate with a major in “global peace studies” working at Starbucks is not so much underemployed, as just someone who borrowed too much to finance a bad investment.
In the first decade of this century, Americans borrowed recklessly to paper over these problems and created a false prosperity, then got their comeuppance with the financial crisis.
Since 2008, the Federal Reserve has poured more than $3 trillion dollars into financial markets by buying Treasury and mortgage securities and lending to banks at near zero interest rates. That can’t fix the combined consequences of America’s lousy trade, energy and educational policies.
History has taught printing too much money usually fires up inflation, and once ignited, inflation is darn painful to douse. That has already occurred in prices for assets like some social media stocks, commercial real estate and farm land, and now it is spreading more broadly. Since March, consumer price inflation has accelerated and is now about 4 percent.
Fed Chairwoman Yellen in her recent testimony expressed little appreciation for the nagging structural problems causing unemployment and denied inflation is much of a problem at all.
Americans should expect the Fed to flail about, recklessly printing money and brace for a bout with stagflation – high unemployment, stagnant wages and rising prices.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and a national columnist. He is the five time winner of the MarketWatch best forecaster award and tweets @PMorici1