1. News & Issues
Kimberly Amadeo

Could Stagflation Reoccur?

By June 3, 2009

Follow me on:

A reader asks:
Can you write a bit about Stagflation? It seems inevitable.
Stagflation is when the economy experiences slow GDP growth (stagnation) with high inflation. The term was coined in the 1970's, when there were six quarters of negative GDP growth, and inflation reached 12%.

Stagflation in the 1970's was caused by three factors:

  1. A sudden increase in global liquidity when the U.S. went off of the gold standard.
  2. Stop-go monetary policy, which confused price-setters, contributing to sticky inflation
  3. Wage-price controls, which disrupted the economy's ability to correct itself.

Stagflation could reoccur, but not to the same extent. Global liquidity has increased, thanks to new banking products, such as Collateralized Debt Obligations, (CDO's). However, central banks learned from the '70's, and now only change monetary policy gradually. Furthermore, wage-price controls have been abandoned.

Related Articles

Comments

June 9, 2009 at 12:01 pm
(1) david says:

Bull
Nixon made sure 72 was good year when he and Burns gun the money supply. He was reelected but the nation would pay the price.Later a poor appointed by Carter {Miller} also was a factor.

Leave a Comment


Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.