What is Stagflation?

Most people are aware of at least the idea of inflation, even though they may not have an economist’s firm grasp on its actual causes and implications. The general increase in consumer prices or the devaluation of money’s purchasing power is a concept to which anyone in a capitalist workforce setting can relate.

In traditional economic theory, inflation was thought to be opposed by recession, or an economic “slow down” in which unemployment rises as consumer demand and worker wages fall. However, in the 1960’s, economists and politicians began to identify what is now know as “stagflation,” or a state in which characteristics of both inflation and recession are present.

Stagflation is important both because it defies long-held economic ideas, and because it can be especially difficult to remedy. One of the first and most well-known examples of stagflation occurred in the 1970s, when countries that controlled the supply of oil to the United States decided to raise prices. This action increased demand while decreasing production revenue that would normally be flowing back into the U.S. economy.

A combination of government and corporate policies can lead to stagflation as well. If, for instance, the government implements tighter regulations on the market at the same time that banks are freely lending (and therefore causing inflation, since there is more money circulating), the result can be simultaneous high unemployment and high consumer prices.

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Given the large amount of money currently in circulation in the U.S. due to excessive lending and the impending economic recession, some fear we may be entering a period of stagflation.

If the economic downturn has affected your financial situation in a serious way, you owe it to yourself to consider whether filing for bankruptcy might be your best option. Contact the experienced Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, P.A. at 561-353-2800 today to find out more about this possibility.