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Concept: July 27, 2021. What is Stagflation?

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@marcusantoniu26
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Stagflation is the situation in which high inflation and recession (low or negative GDP growth and high unemployement) coexist within a society. Economists until the 1970's could not believe a situation like this could exist because they believe that the economy should always balance between inflation and unemployment.

Two situations occurred in the 1970's. One was the Organization of Petroleum Exporting Countries (OPEC) oil embargo applied to the Western world and the other one was the end of the remainder aspects of the gold standard.

When OPEC applied the said embargo, oil prices increased dramatically causing an increase in the cost of goods and services. Subsequently, the cost of doing business increased causing business to close and unemployment to rise.

When the gold standard was finally removed in the early 1970's, the currencies of the world became fiat based. As a consequence of that there were no more constraints for currency devaluation. the monetary policies of the countries became inflationary, so even in periods of recession the prices of goods and services would still increase.

This post is intended to only raise awareness. In order to make actual financial decisions please contact your financial advisor and/or tax advisor prior to making the decision.

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