The issues in the next election

It's still a long ways off, so any speculation about it may be quite premature.  Nevertheless, I have a hunch that it will be the economy.  The conventional wisdom seems to be that the economy will be recovering strongly, but what if inflation comes back into the picture?

Krugman doubts that this will happen, but as I pointed out yesterday, the lack of wage pressure did not stop increasing inflation in 2008.  The same factors at play for increasing inflation pressure in 2008 are present today. That is, the increasing price of oil.  Oil supplies are tight enough so that any loss of supply will be reflected in prices.  Thanks to Obama's de facto drilling ban in the Gulf, the oil supplies are now tightening up, and will get tighter just as the economy is improving.  This will lead to higher prices and the danger of having the recovery being stalled by it.

Not to mention the increasing regulatory burdens placed upon industry.  This will act as a brake upon new business startups and job creation.  The latest job figures may look good, but the internals, as I have heard, are not that good.  The recovery is getting near two years old, and the economy is still not growing robustly.  Yet there are already signs that inflation is out there and will accelerate soon.  This presents a problem for the Fed.  If inflation picks up, what do they do about it?  Can they sit around and take an accomodative approach to monetary policy while inflation begins to heat up?  I think the answer to that is no.  In fact, they may already be behind the curve.

This doesn't even count the debt issue, which could become a crisis at any time.  If that should occur, all bets are off.  What could spring that crisis?  It is hard to say.  Maybe it won't happen at all.  If so, it will be a small miracle, in my opinion.  It won't be helpful if the government can't come up with a credible deficit reduction plan.  If this fails, it could be an important signal to the rest of the world that the government just can't do what is necessary and they could respond to this in ways that will not be pleasant for policy makers nor the rest of the country.  But if the government doesn't come up with a credible plan, the rest of the world could just play along for awhile longer.  Therefore, it is hard to say how this will play out.

Inflation could be the trigger too, but Krugman says he doesn't think that will happen.  We will see.

Update:

Here is something on CSPAN which I thought may be interesting in terms of this post.


Update:

Just finished listening to this. It appears that the future is not going to be easy to predict. The reason is because of independents. You really don't know where that might end up. You can see independents hurting either party, or only one party, or both. Independents are the wild card. Its tough to categorize them and probably impossible to manipulate them. This is where the parties could lose their influence if this trend intensifies.