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View Diary: Dollar Still Falling, Nears All-Time Lows (169 comments)

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  •  Stagflation is caused by the "real economy" (0+ / 0-)

    The reason that policy makers did so poorly in responding to Stagflation in the late 1970s and the early 1980s is that they assumed that it was basically a monetary pheneomena.  

    It wasn't.

    Most inflation we see is monetary inflation.  The money supply grows faster than the supply of goods which causes nominal prices to rise, usually do to poor management by the federal reserve.

    But, the American economy is not a closed system.  Sometimes, as in the case of the oil embargo, there is a genuine scarcity of something we import, and no amount of monetary policy tinkering can address that problem.  It doesn't matter if your on the gold standard or the Euro or the Yen, any way you denominate it, life is more expensive because there is a reduced supply of something that the economy needs from the outside.  This is what happened in the stagflation period.

    Outside resources got more expenses, the economy slumped as a result, and no amount of monetary inflation regulation could change that fact.

    "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

    by ohwilleke on Tue Apr 24, 2007 at 08:41:14 AM PDT

    [ Parent ]

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