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We're back to the 1970s. The Washington Post reports that the Fed's Beige Book suggests that growth is stagnant and prices are rising. That's an economic condition known as stagflation -- slow growth and high prices. That's bad news for policymakers and investors.

I first posted about Stagflation back in May 2006. What is striking to me is that the price of oil was $69 a barrel back then and it's almost double that now. Back then I noted that stagflation "prevailed in the US during the 1970s. For example, in 1979, US core inflation, excluding oil and food, rose at a 9.4% annual rate, GDP grew at roughly 3%, and unemployment averaged 6%. Furthermore, this condition was bad for stocks which rose an anemic 0.37% annual average during the decade." I also wrote about stagflation here and here.

Here are three key findings from the Beige Book:

• Weak retail spending - The Post reported that consumer spending was weak, despite the economic stimulus checks from the government that went out starting in May. There was some demand for electronics, and discount stores got a temporary boost. But discretionary spending froze on housing-related items and vacations.

The dollar rose to a one-month high Thursday morning, as dollar bulls cheered a report that U.S. Congressional legislation designed to shore-up Fannie Mae and Freddie Mac had passed the House and that the Senate will begin evaluating the measure.

The House voted 272-152 in favor of the measure, and the Senate is expected to pass the bill within days, The Washington Post reported Thursday. President Bush, reversing earlier opposition to a component of the bill that would help communities hit hard by foreclosures, said he will sign the legislation in its current form.

The Associated Press reports that the House passed a bill that will increase the amount of debt available to buy houses. In the process, it will make the U.S. a much riskier place to invest. That's because when a country's debt tops 60% of its Gross Domestic Product (GDP), lenders consider it a risky credit. The House bill will lift the U.S.'s ratio to 75%. And the dollar will continue to plummet.

Of course, the bill is not being sold that way. Instead its stated goals are to help 400,000 people with foreclosures and to save Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Here are six key provisions according to AP:

• Puts distressed real estate on the government's books - Provides $3.9 billion in grants for "devastated neighborhoods" -- a provision the White House hated since it looked like the S&L bailout's RTC, that Bush I approved.
• Gives Paulson unlimited Fannie/Freddie bailout power - Gives the Treasury Department an unlimited line of credit to bail out Fannie and Freddie and to buy an unspecified amount of their stock.
• Creates new debt for drowning borrowers - Lets 400,000 foreclosing homeowners refinance into more affordable, fixed-rate loans backed by the Federal Housing Administration (FHA).

Sirius Satellite Radio Inc.'s (NASDAQ: SIRI) $3.5 billion acquisition of rival XM Satellite Holdings Inc. (NASDAQ: XMSR) might at long last be approved by the Federal Communications Commission, according to the Wall Street Journal.

"Republican commissioner Deborah Taylor Tate is the only FCC member left to vote on the deal and she is expected to do so shortly, two FCC officials close to the negotiations said," the paper said. "She is expected to sign off on the deal in exchange for a consent decree that resolves several enforcement issues involving the satellite radio companies and a combined fine of about $20 million, an FCC source close to the deal."

Even with the regulatory hurdles just about cleared, the future of satellite radio is far from clear. As my colleague Douglas McIntyre noted earlier today, losses at both companies are narrowing but their subscription growth rates are slowing. Both firms also are more than $1 billion in debt.

Though I am a big fan of the medium, I wonder sometimes whether its moment in the sun has past. Remember BetaMax and 8-track players were considered cutting edge at one time.

In these times of uncertainty, it's good to know that we can look to our president as a beacon of wisdom, shining light and nuance on the tough economic challenges our country is facing.

The New York Times reports that Bush summed things up this way at a Republican fund raiser: "Wall Street got drunk. . . It got drunk, and now it's got a hangover. The question is, How long will it sober up and not try to do all these fancy financial instruments?""

That kind of trenchant insight must be the true benefit of a Harvard MBA. I'm tempted to make a reference to the fact that George "Choked on a Pretzel" Bush knows all about drunkenness and hangovers, but instead I'll keep this non-personal. Although, maybe I won't: How long between Bush's last beer and his first run for office? Maybe that's how long it'll take Wall Street to sober up. Could be a quick turnaround!

But with bailouts of Fannie and Freddie set to cost taxpayers $25 billion -- to say nothing of the Bear Stearns fiasco -- it looks like this decade-long round of Grey Goose was on us. Cheers!

Three of the commissioners of the FCC have voted on the Sirius (NASDAQ: SIRI) merger with XM Satellite (NASDAQ: XMSR). Two have voted in favor, and one has voted against. That leaves two other votes. In other words, the deal could still be killed.

One of the remaining commissioners has indicated that he would vote for the merger if the companies would agree to a six-year price cap on their services. According to The Wall Street Journal, "The offer was viewed as an attempt to start negotiations, but the companies so far are showing little interest in haggling."

Is it any wonder? The most recent earnings reports from the two companies indicate that, while their losses are getting smaller, their subscription growth rates are slowing. Each firm has more than $1 billion in debt and neither has ever had an operating profit. In other words, if the companies cannot raise their rates the chances of them becoming profitable are significantly curtailed.

The FCC may be putting Sirius and XM in an almost impossible position. If they are willing to make moves which could hurt their earnings longterm, they may get the votes they need for approval. If not, the merger could be scuttled.

The future of satellite radio is now based on two bad outcomes.

Douglas A. McIntyre is an editor at 247wallst.com

Republicans and my colleague Aaron Katsman are trying to blame Democrat Barack Obama for rising gas prices. This is election-year politics at its worst.

For one thing, as the Washington Post and other independent observers note, drilling for more oil will do little to alleviate the pain U.S. drivers are feeling at the pump. The available supplies are probably not going to make much of a dent in our never-ending thirst for the black gold. Remember, the oil may not be as easy to get or cheap to process.

"Drilling off the coasts would increase U.S. oil production but have no short-term impact on gas prices," the Post says. "While some analysts disagree, an Energy Department report last year said production would not start until 2017 and have no 'significant' effect on prices or supplies until 2030."

An even more ridiculous idea floated by Republican John McCain is the so-called gas tax holiday, which has been roundly denounced by economists and Obama as a dangerous economic gimmick. Experts estimate that it would save the average consumer a whopping $30.

Republican presidential candidate Sen. John McCain, is launching a new TV ad that puts the blame of $4.00 gasoline at the feet of Barack Obama. As reported by Breitbart.com the ad asks, "Gas prices-$4, $5, no end in sight, because some in Washington are still saying no to drilling in America. No to independence from foreign oil. Who can you thank for rising prices at the pump?" The answer is Obama.

The fact is that while I doubt only Obama is to blame, the nominee, along with the power brokers in the Democratic party, have presented no solution to help ease pain at the pump. If the jump in crude oil is based on a a supply shortage, then the Republican solution of more drilling, both offshore and in Alaska makes sense.

Obama has rejected this, but has put forward no tangible solution. On the one hand, he agrees that the U.S. needs to be energy independent, but on the other hand, offers no serious way of getting to independence. Wind power and other non-nuclear alternatives don't have the scale to power an entire nation. Just an aside, but isn't it odd that when talking about 'alternative energy,' nuclear is never mentioned, though in other parts of the world like Europe it produces a sizable amount of energy.

As for environmental concerns, oil is now brought out of the ground with cutting edge technology, so worries of huge oil spills isn't all that realistic.

Consumers should stop being held hostage by election year politics, and for the good of the nation, Obama should cross party lines and agree to increased drilling.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/21/08.

The New York Times reports that there's a price to pay for your staycation. As I posted, many people are skipping their summer vacations and staying at home thanks to the litany of economic problems we've become all too familiar with in the last year.

Here are some of the ways that people pay the price for not taking a vacation:

• Health risk. The Times reports that men who skipped vacations for five straight years had a 30% higher chance of suffering a heart attack than those who took an extended annual break from work each year. It notes that Brooks B. Gump, an associate professor of psychology at SUNY Oswego and a colleague, Karen A. Matthews believe that vacations help the brain build "reserve capacity" which helps it "cope with stressors that come up."
• Discouragement. The Times also quotes Hollister H. Hovey, a public relations executive who lives in Brooklyn, who postponed a trip to Scandinavia this summer because of high air fares and the weak dollar. She said: "It's a tremendous disappointment that you're sort of stuck here. It's too expensive to drive, too expensive to go overseas, because you can't afford to fly, and once you're there, you can't shop. I know that travel is a luxury. But it really plays on the heart and minds of people, because people need that escape."

President Bush has expressed willingness to use taxpayer resources to bolster Federal National Mortgage Association (NYSE: FNM) and Federal Home Loan Mortgage Corp. (NYSE: FRE), on the grounds that their collapse or inability to continue buying loans would have a catastrophic effect on the market.

He's right about that and, in this particular case, using taxpayer money to rescue these entities is the lesser of two evils.

But here's the problem: if shareholders are allowed to retain their stakes in the companies, then any bailout amounts to a transfer of wealth from taxpayers to people who happen to own those two stocks. That's really messed up.

The Federal Reserve set a terrible precedent when it helped finance a deal that put cash in the pockets of Bear Stearns shareholders, but now is the time to nip the moral hazard problem in the bud. The effect that problems at Fannie and Freddie would have on the broader economy can be averted without bailing out public shareholders who were aware, or should have been aware, that investments in equities contain risk.

There are many ironies in the fact that President George W. Bush will throw the first pitch at Major League Baseball's All-Star Game in New York. For one, President Bush is the first managing general partner of a Major League team (the Texas Rangers) to become President of the United States.

President Franklin Roosevelt was the first to attend an All-Star Game and throw out the first pitch, starting the tradition. He too had to deal with a poor economy and by the time he threw out that first ball the groundwork was being laid for World War II. President Bush has had to contend with his own war.

While there are differing views as to whether we should have gone into Iraq and whether we should stay or get out, this will always be viewed as George's war, fair or not. And the state of our economy in 2008 will also be viewed as George's economy, fair or not.

The ultimate irony for me is that Yankee Stadium is scheduled to be torn apart at the end of the season. This is YANKEE Stadium and the last president to set foot in it will be George W. Bush. The stadium with the greatest heritage in baseball, the 'House That Ruth Built', is going to be torn apart while our economy is also being torn apart. It is being torn out at its roots.

The Wall Street Journal [subscription required] reports that Ben Bernanke's congressional testimony is full of uncertainty. The interesting part is that he's suddenly coming to realize that there is inflation in the economy. With oil prices up five-fold from $24 in January 2001, the dollar down 72% and food prices triple where they were a few years ago, Bernanke's statement suggests that he his suddenly becoming aware that core inflation -- which excludes energy and food prices -- is not real inflation. His statement suggests he only now comes to realize that energy and food prices part of our economy too.

Investors are spooked by Bernanke's uncertainty. I would support an effort by Bernanke to stop the fall in the dollar, but in order to make that work, the White House will need to direct a change in policy. This would mean raising interest rates, reducing the budget deficit -- including ending tax breaks for the rich and pulling the plug on expensive wars, as well as paying down the $9.5 trillion federal debt.

Guess what? That policy will not happen under the current president. And if Paulson is serious about raising the national debt to bail out the mortgage industry, the dollar will grow even weaker. The administration's policy of waiting until a disaster strikes to wake up and do something is costing this country trillions. I think we're getting to the point where we need to ask whether there is a limit to how much bailing out the U.S. can afford.

Meanwhile, if Bernanke raises rates to combat inflation, it will be interesting to see what that does to the flow of credit.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Would it be better if the government sought to stabilize interest rates at 5% (a general goal), or is it better to change the rates willy nilly? Is it better for people to know where they stand or is it impossible given the large number of economic events that remain out of our control?

I was against the federal stimulus package and posted Fund roads & bridges NOT mad money stimulus and later Serious Money: Stimulate productivity not consumption contesting the federal governments economic approach, or lack thereof, under the current administration (White House and Congress) and this thought came to mind along similar lines.

All of the interest rate manipulations of the past dozen years have overheated and slapped our economy around. Adding to that the funding of the war effort and the price of food and energy means that almost every American household has been left in a quandary.

The government seems to be very bad at planning, and slow to react, or at least perceive a coming storm. They do appear reactionary at best and everyone cheers when they find a way to stave off disaster for one more day. That is the case today as they take over IndyMac Bank (NYSE: IMB) and bail out Fannie Mae and Freddie Mac.

Market absolutists' complaints notwithstanding, the U.S. Treasury's plan to shore-up Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) will stabilize the bond and credit markets, but it's unlikely to sidetrack a mortgage system revision by the U.S. Congress, in one economist's interpretation.

"[U.S. Treasury Secretary Paulson has acted, now is the time for [U.S. Rep.] Barney Frank to react," economist David H. Wang told BloggingStocks Monday.

At issue: who pays for mortgage risk?

At issue is what constitutes acceptable mortgage risk by banks and mortgage lenders whose loans or asset-backed securities are insured by the U.S. Government or government service enterprises, Wang said.

"The way the system was configured, if banks and mortgage lenders made high-risk loans and won, they collected huge profits. If they made high-risk loans and lost, the government, or the taxpayer, bore the cost," Wang said. "This system is untenable."

What's one likely revision? Wang said he believes a "two-tier mortgage system will emerge." The first group will include loans/mortgages offered by banks "for specialized clients/situations." This batch of mortgages and assets tied to them would not be backed by the government or by GSE insurance, he said.

Investors in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) must be applauding the government bailout. To my knowledge, it is unprecedented for the government to trade this openly in the stock of a private company. It is as if the government has become Goldman Sachs Group Inc. (NYSE: GS) which is not surprising since the Treasury Secretary, Hank Paulson, used to run Goldman.

Based on what has happened it looks to me like the Administration is trying to prove just how incompetent government is so we will agree to cut its budget. There are two possibilities: either the government knew how bad things were and did nothing or it didn't know. If it did know how bad things were, it should have done something to fix the problem, such as requiring Fannie and Freddie to raise more capital a year or two ago.

Perhaps it knew last week how bad things are and did not release data supporting its claim that they were in good shape because such data did not exist. If they were in good shape, the government should have been able to release comforting data and the problem would have gone away. The need to announce the bailout plan as a way to save them suggests an amazing lack of insight into their ability to cover their liabilities years or a realization that they were bankrupt and needed to be bailed out.