Contributed By: The Big Fat Whale
Stagflation is the buzzword in recent times. The definition of stagflation will be persistent high inflation combined with high unemployment and stagnant growth in a country's economy.
The most relatable period in which we can have insights into the impact of stagflation would be a relook into the 1960s-1970s period. This was the only time in modern history(20th and 21st century) that this economic phenomenon has happened.
Inflation was persistently above the 8% mark throughout the period from 1972 to 1981.
History Rhymes
As Mark Twain famously quoted:
"History does not repeat itself but it certainly rhymes"
There are many market analysts and commentators that dismissed the possibility of stagflation happening and argue that the situation is different this time. One of the main arguments is that stagflation is caused by the oil shock in the 1970s which send oil prices spiralling up and the US was heavily dependent on it.
Currently, the US is a net exporter of oil as they have the largest shale oil reserve in the world and with the advent of alternatives (Solar, Wind and Nuclear), the impact of oil on the economy would be less pronounced.
But we might not have an oil shock but a debt shock could be on the cards which have been built up from trigger happy Quantitative Easing in the past. Debt to GDP is at a record of 124% versus 35% in the 1970s.
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