Stagflation - A Possible Scenario?

In 1965, Ian Macleod, a British Tory MP, first the concept of stagflation in a speech: "We now have the worst of both worlds, not just inflation on one side or stagnation (recession) on the other. We have now a sort of "stagflation" situation. "

Stagflation is accompanied by a period of slow economic growth and relatively high unemployment and inflation. So, in reality, stagflation is the worst of both worlds, speed up the prices, ie inflation and aEconomy with no growth or an economy in recession.

Last stagflation

Discussing stagflation takes a few recent examples Spirit, the United Kingdom in the 1960s and 70s and the U.S. in the 1970s.

In the United States in the early 1970s, to the surprise of many, the Keynesian theory came to the conclusion that stagflation could not possibly take place in oil prices were of the Organization of Petroleum Exporting Countries (OPEC) tripled following the1973 Arab-Israeli war - fueling sharp inflation in developed countries. This resulted in simultaneous recession and inflation - stagflation.

The reason that those who had followed the Keynesian theory was that recessions (and the subsequent unemployment should be healed by it caused) by the inflation surprise, while inflation cured by recessions. If both occur simultaneously, the theory is seriously called into question. The weakness in the original Keynesian theory brought about the developmentNeo-Keynesian theory, which had a more detailed model in terms of inflation.

The USA is in danger?

It is generally accepted that growth in the U.S. housing market to a slowdown in economic activity has caused. Moreover, the recent experience in the subprime market, many investors had been uncertain about the U.S. economy. Then there is the danger that inflation is required to be a problem in the U.S. and therefore the Federal Reserve to further raise the interest couldPrices and you can see why some people say, stagflation is a possibility. Many economists believe that stagflation will only occur if the oil price above $ 80 per barrel for a persistent period.

It is very early days yet stable as U.S. interest rates currently are. Nevertheless, the U.S. economy is the largest in the world and therefore, no slowdown, have a negative effect here will be worthwhile to be aware of such concepts. As the proverb says, "... the United StatesSneezing and the world catches a cold ".