Stagflation refers to the situation where the economy gets worse and worse instead of getting better and better over time. The classic example of stagflation would be if inflation was high, economic growth was low, unemployment was high, and interest rates were very high. Sound familiar? That’s because we are living in a period of stagflation today in the United States, and it’s destroying our economy! What can we do about it? Let’s talk about that now...
Stagflation is a tricky concept to get your head around. Here are three important points that might help you see it from a different perspective: 1) Stagflation occurs when growth slows, inflation rises, and unemployment increases at once. 2) There are two kinds of stagflation – demand-pull, which happens when rising prices lead consumers to curb spending; supply-side, which happens when rising costs push companies to scale back production. 3) Experts don't know how long stagflation will last. Will it be short-lived or lingering? This is why many economists say we're facing hybrid stagflation rather than classic versions of either type... There's still more but I'll stop there for now! Hope it helps :)
The economic stagflation we’re in today is largely a result of post-Recession monetary policy, where government officials chose to keep interest rates close to zero for too long. This leads to a lot of bad things happening in our economy — both fiscal and monetary. You see, low interest rates can lead to high inflation or high unemployment; they go hand-in-hand. In fact, that’s why we call it stagflation — a horrible combination of things that go bump in the night.
Right now, interest rates are so low (and have been for so long) that there isn’t much room for them to fall further.
Stagflation occurs when a country is experiencing both inflation (rising prices) and stagnation (falling output, or income). This is a real threat to U.S. economic growth because of our high debt levels, which have been fueled by deficit spending. Many economists expect stagflation in 2017 because of President Trump’s $5 trillion tax cut proposal that will put more money into consumers’ pockets without an increase in productivity. But it remains to be seen how effective that stimulus will be, especially given concern about higher inflation rates down the road.
The biggest risk to an economy with inflation is stagflation, or a period of rising prices coupled with slow growth. One way to combat stagflation is to encourage consumption through monetary policy. This can be accomplished by lowering interest rates or increasing borrowing opportunities (i.e., opening up credit markets). When there’s more money in circulation, consumers tend to buy more goods and services. Low interest rates encourage borrowing and increase demand for loans, which in turn creates even more spending. Lowering interest rates—especially those related to mortgages—can also prompt people to borrow money for home purchases, potentially leading them to spend it on other goods and services as well.
The recession is finally coming to an end, but many experts aren’t convinced that it’s a true recovery. Instead, they believe that we are in for a long period of sluggish growth as conditions continue to worsen for ordinary Americans. The economy has been plagued by both inflation (the rising cost of living) and deflation (the falling value of currency), a condition that many economists have termed stagflation—and it appears as though we will be dealing with these issues for quite some time. While there are no clear-cut solutions, if policymakers are truly committed to ending stagflation and reviving our once-proud economy, they should focus on expanding productive employment opportunities while simultaneously maintaining stable consumer prices.