Posts Tagged ‘stagflation’

Stagflation is an economic phenomenon characterized by slowing economic growth and rising inflation. It is an interesting economic problem since the traditional medicine for inflation–rising interest rates–is what chokes off economic growth, thereby aggravating stagflation.

In the aftermath of the global credit crisis following the crash of the housing market, interest rates have fallen dramatically as central banks throughout the world have pumped liquidity into the system by bailing out troubled financial institutions.

However, with excessive liquidity comes inflationary fears as excess money supply will generally increase market prices (Zimbabwe being an extreme case). As inflationary fears increase, central banks will eventually be constrained to raise rates to contain inflation, which might be too soon to allow the world economies to recover–thereby creating: stagflation.

In the following clips, two notable industrialists: Richard Branson of the Virgin Group and financier George Soros share their thoughts on stagflation.

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