Stagflation

.

The article you transcribe the end of this comment conveys a very didactic explanation of stagflation, however, and as the economy is not an exact science due to the human component of it, I think that the current stagflation is "a very human component "that is not reflected in that article and referred to one of the Deadly Sins that has encouraged the neoliberalism ... GREED!.

As I have written repeatedly, the economic laws that the good of Adam Smith gave us were based on observations made in relation to the society in which he lived, but that society is not the same society that exists in the century Current XXI which have lost a great deal of moral values.

Applying the ratio [common sense] and these economic laws, to the fall in consumption [claim] because we are seeing a clear stagnation of the economy should be a price drop, but it is not. Why?.

For me, the answer is not in doubt .... By greedy businessmen that despite the decline in demand and therefore sales, due to the recession existing prices rise because they want to receive, at least the same benefits. At this point it is clear that the " free market ? has become a farce.

We must not forget for one moment that prices are not only governed by the binomial demand-supply, but there is a component of "personal" of the employer who will decide the amount of benefit you get with their products. Therefore, inflation is not always and not only is produced by an objective pressure of demand, but by a decision "human" owner of the goods.

That said, spreading a falsehood often unhealthy, probably as an excuse to hide this, saying that wage increases cause inflation [is curious that the two components of production, capital - labor, the latter only produce inflation; Does the profit margins that are applied to products not influence it?]. That might be so, perhaps, the most developed countries [I've never believed that wage increases, whether they are proportionate to the effort of the component "work" in production, causing inflation and an increase in demand due to increased purchasing power should result in an increase in supply and therefore prices should remain stable], but in underdeveloped countries where wages are subsistence, and therefore purchasing power is below the minimum, such a claim is nonsense it only wants to increase corporate profits via the quasi-slave labor.

Remember that the relocation of businesses with the famous globalization does not occur in a capricious due to the adventurous spirit of the owners of the same, occurs precisely because the search for cheaper labor force to provide a increase in the income statements of companies.

Of course that tactic in the long run, resulting in a decrease in purchasing power in countries of origin of such companies, which are, in turn, the countries of destination of goods produced in other places as entrepreneurs are delocalized to produce but do not want to be to sell their products [a shirt that costs $ 5 where they sell to make $ 50 in their own countries]. This decrease in purchasing power, which is being displayed at present, an obvious increase in unemployment in most developed countries, is creating a slump in sales and thus many companies facing serious financial difficulties, which also begins to see with increasing bankruptcies and defaults [ see ].

Miguel de Arriba

In the tightrope of stagflation

Stagflation English-tracing "stagflation," a word made from "stagnation" (stagnation) and "inflation" (inflation) indicates the time or economic conditions that, in an inflationary situation, there is a stagnant economy and the rate of inflation does not yield. According to some economic observatories, that the table is already present in Spain, one of the most difficult to address.

Stagflation is a term that was coined in 1965 by former British finance minister, Ian McLeod, who, in a parliamentary speech made the following definition: "It is the economic situation shows the simultaneity of rising prices, increased unemployment and economic stagnation, entering a crisis or recession. "

Spain is not technically in recession, a situation that requires chain two consecutive quarters of negative growth, but it is the edge of the "zero growth", according to the semi-official estimate yesterday predicted the Bank of Spain, which usually coincides with the official National Institute of Statistics. With inflation above 5 percent and so far unabated, the diagnosis is close to the "stagflation", considered one of the worst possible economic scenarios for the difficulty of handling and correction. Monetary and fiscal policies that are used to stimulate a recessionary economy worsen the inflationary component of stagflation and restrictive monetary policies that are used to combat inflation tend to deepen and broaden its recessive component.

Stagflation completely distorts markets and placed on governments and central banks in a very delicate position. In the stagflation recession is usually partial, recording simultaneously the decrease of some sectors, such as production of goods, together with the growth of other sectors, such as production services. If it is a relatively open economy and inflation is accompanied by a process of devaluation, you can register a contraction of the currency-consuming activities and an expansion of generating foreign exchange. This represents an enormous challenge for the authorities as they receive mixed and contradictory signals about the economy that make it very difficult to decide what policies to implement, in what sequence and when to take them. "It's the worst of both worlds," say many economists.

Although the recession may be internal or external causes, stagflation is always from within, "inflation is always and everywhere a monetary phenomenon" and those who manage sovereign currencies are monetary authorities of each space. In the Spanish case, as for the entire euro zone, the monetary authority is not national but European Central Bank (ECB), whose original mandate is to combat inflation. Monetary policy is beyond the scope of government. The other basic tool of economic policy, fiscal, is also limited by the Community obligations of budgetary stability.

In any case, the Stagflation becomes a dilemma for the authorities to manage the cash flows themselves, who must choose between commonly used measures to increase economic growth and increase, therefore, inflation, or policies to combat inflation reduced activity in an economy where unemployment situation. A clear example: the strategy of reducing interest rates is generally indicated to revitalize consumption and investment and, therefore, may help to overcome economic stagnation, yet repotencia inflationary pressures. Another case: raise rates, as has been done since 2005, the ECB can help to contain inflation, but restricts the expansion of growth.

Source: The New Spain

A clear example of the greed that promotes the economic system can be seen in images downloading this file ...