Tale of two headlines: Inflation rate spikes highest in 18 years, while recession worries grow

I found two sets of stories that I want to talk about. The first is this story off The Washington Post:

Inflation spiked in 2007, driven by escalating food and energy costs that more than cancelled the wage gains earned by workers over the year.

New federal government statistics show the consumer price index rose 4.1 percent over the 12 months ending in December, 2007, compared to a 2.5 percent increase in the 12 months before that. Energy prices, responding to a surge in the cost of oil, rose 17.4 percent over the period. The price of food increased 4.9 percent -- the largest rise in 18 years.

Excluding volatile food and energy costs, so-called core inflation was more moderate as consumers benefited from lower prices for housing, apparel and other goods. The core inflation rate, closely watched by economists, was 2.4 percent over the 12 month period, slightly below the 2.6 percent increase registered in 2006.

Still, the overall rate of inflation left consumers with less money in their pockets by the end of the year -- a fact reflected in the poor December retail sales results that helped push markets sharply lower yesterday. The Bureau of Labor Statistics reported today that, once discounted for rising prices, the wages of American workers fell 0.9 percent between December 2006 and December 2007.

And I want to look at all these interesting news headlines hyping a potential U.S. recession:

Odds are growing for economic recession

Recession hinges on coping with credit crisis

Recession fears stoke political debate

Economic Worries Put Americans In Sour Mood

Economic Worries Grow Among Voters: Poll

Market drops as Intel fuels recession worry

What is the connection? It is a potentially bigger story of where the U.S. could be heading into a bigger economic problem of stagflation. Stagflation is defined as "a period of out-of-control price inflation combined with slow-to-no output growth, rising unemployment, and eventually recession." It is really the worst of all worlds where you have both a period of economic recession and out-of-control inflation. I look back into history and I see some very disturbing parallels between the Lyndon Johnson administration and the George W. Bush administration. Both presidents sent the U.S. into an undeclared war--Johnson in Vietnam, Bush in Iraq. Both presidents embarked on a spending program of guns and butter--Johnson with Vietnam and his Great Society programs, Bush with the occupation of Iraq and his tax cuts to the rich. In 1973, the U.S. was dealt with a severe OPEC oil embargo, which caused U.S. oil prices to quadruple, from $3 per barrel in late 1973 to $12 per barrel in 1974. The 1973 Arab Oil Embargo was certainly a factor in causing the U.S. inflation woes of the 1970s. Today, we've seen how oils prices have shot up from around $25 per barrel in September 2003 (which is six months after the U.S. invasion of Iraq) to around $100 per barrel this month. And now we have the inflation rate spiking due to increased food and energy costs.

Do you see a pattern here?