STAGFLATION IN U.S.
INTRODUCTION
An article from “The New York Times” published on Febuary 13
th
, 2011 mentioned that:
“In the USA, CONGRESS has made a terrible mistake. Amid a rhetorical debate centered on
words like “crisis,” “emergency” and “catastrophe,” it acted too fast. While arguments were made
about the stimulus bill’s specific components — taxpayer money for condoms, new green cars and
golf carts for federal bureaucrats, another round of rebate checks — its more dangerous
consequences were overlooked. And now the package threatens a return to the kind of stagflation
last seen in the 1970s.
From a global perspective, the picture only looks worse. As we have debated how much money to
borrow and spend in hopes of jump-starting our economy, we’ve ignored the worldwide stimulus
binge. China, Europe and Japan are all spending hundreds of billions of dollars they don’t have in
hopes of speeding up their economies, too. That means the very countries we have relied on to buy
our bonds, notably China and Japan, are now putting their own bonds on the global credit markets.
It seems that no one in Washington is discussing what happens when the world begins this
gargantuan borrowing spree. How high will interest rates rise? And more fundamentally, who will
have the money to buy our bonds? It is possible that the Federal Reserve will succumb to pressure
to “monetize” our debt — that is, print new money to buy our bonds. In fact, the Fed is already
suggesting that it will buy long-term Treasury securities in order to lower borrowing costs. If it
does, then our money supply, which has already increased substantially over the past year, will
grow even faster.
To American families, inflation is a destroyer of savings, a killer of wealth, a crusher of
confidence. It calls into question the value of our money. And while we all share in the pain, the
people whom inflation hits hardest are elderly people who live on fixed incomes, those in the
middle class who are struggling to save for retirement and college and lower-income people who
live paycheck to paycheck.
Combine high inflation and high unemployment and you have stagflation. Hindsight shows how
the pain of the late 1970s and early 1980s could have been avoided, yet we’re now again planning
to borrow and spend — and raise taxes — as President Jimmy Carter did. Soon we may again find

3. Explanation for risks of stagflation return
IV. Recommendations
1. Increasing aggregate supply
2. Long-term stock pick
3. Commodity investment
4. International system of buffer stocks
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STAGFLATION IN U.S.
I. DEFINITION
The generally agreed-upon stagflation definition is a state of the economy that exhibits elevated
unemployment rates and inflation at the same time. Typically, stagflation presents serious
problems for monetary policymakers, since the remedies for high unemployment are nearly
directly opposed to the remedies available for inflationary cycles. Most economists believe
stagflation can be attributed to either failed economic policies or to destructive or catastrophic
events that seriously affect the production capability of the overall economy. During the 1970s, for
instance, the United States experienced a prolonged period of stagflation due primarily to shortages
of raw materials. Livestock feed manufacturing was significantly impacted by the loss of the
Peruvian anchovy fishery in 1972, but the most significant economic factor was likely the oil crisis
of 1973, when OPEC severely limited the international oil supply in order to control prices and
boost profits for their members.
Regardless of its origins, stagflation is likely to cause significant and prolonged economic
problems that cannot be easily resolved. High unemployment reduces the overall buying power of
consumers and companies, and increasing prices lessen that buying power even more. This can put
a financial squeeze on both the consumer and the corporate sector and cause still more
unemployment as companies try to compensate for lower profits, increasing expenses and the
resulting reduction in financial liquidity.
II. FACTS
1. STAGFLATION IN THE 1970s
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STAGFLATION IN U.S.

GDP in
billions of
chained 2005
dollars
Real
Growth
rate
%
Year
GDP
GDP in
billions of
current
dollars
GDP in
billions of
chained 2005
dollars
Real
Growth
rate
%
1960 526.4 2,828.5 1975 1,637.7 4,875.4 -0.21%
1961 544.8 2,894.4 2.33% 1976 1,824.6 5,136.9 5.36%
1962 585.7 3,069.8 6.06% 1977 2,030.1 5,373.1 4.60%
1963 617.8 3,204.0 4.37% 1978 2,293.8 5,672.8 5.58%
1964 663.6 3,389.4 5.79% 1979 2,562.2 5,850.1 3.13%
1965 719.1 3,607.0 6.42% 1980 2,788.1 5,834.0 -0.28%
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STAGFLATION IN U.S.

1966 1.9231% 2.5641% 2.5559% 2.8662% 2.8662% 2.5316% 2.8481% 3.4810% 3.4810% 3.7855% 3.7855% 3.4591% 2.8571%
1967 3.4591% 2.8125% 2.8037% 2.4768% 2.7864% 2.7778% 2.7692% 2.4465% 2.7523% 2.4316% 2.7356% 3.0395% 3.0864%
1968 3.6474% 3.9514% 3.9394% 3.9275% 3.9157% 4.2042% 4.4910% 4.4776% 4.4643% 4.7478% 4.7337% 4.7198% 4.1916%
1969 4.3988% 4.6784% 5.2478% 5.5233% 5.5072% 5.4755% 5.4441% 5.7143% 5.6980% 5.6657% 5.9322% 6.1972% 5.4598%
1970 6.1798% 6.1453% 5.8172% 6.0606% 6.0440% 6.0109% 5.9783% 5.4054% 5.6604% 5.6300% 5.6000% 5.5703% 5.7221%
1971 5.2910% 5.0000% 4.7120% 4.1558% 4.4041% 4.6392% 4.3590% 4.6154% 4.0816% 3.8071% 3.2828% 3.2663% 4.3814%
1972 3.2663% 3.5088% 3.5000% 3.4913% 3.2258% 2.7094% 2.9484% 2.9412% 3.1863% 3.4230% 3.6675% 3.4063% 3.2099%
1973 3.6496% 3.8741% 4.5894% 5.0602% 5.5288% 5.9952% 5.7279% 7.3810% 7.3634% 7.8014% 8.2547% 8.7059% 6.2201%
1974 9.3897% 10.0233% 10.3926% 10.0917% 10.7062% 10.8597% 11.5124% 10.8647% 11.9469% 12.0614% 12.2004% 12.3377% 11.0360%
1975 11.8026% 11.2288% 10.2510% 10.2083% 9.4650% 9.3878% 9.7166% 8.6000% 7.9051% 7.4364% 7.3786% 6.9364% 9.1278%
1976 6.7179% 6.2857% 6.0721% 6.0491% 6.2030% 5.9701% 5.3506% 5.7090% 5.4945% 5.4645% 4.8825% 4.8649% 5.7621%
1977 5.2158% 5.9140% 6.4401% 6.9519% 6.7257% 6.8662% 6.8301% 6.6202% 6.5972% 6.3903% 6.7241% 6.7010% 6.5026%
1978 6.8376% 6.4298% 6.5546% 6.5000% 6.9652% 7.4135% 7.7049% 7.8431% 8.3062% 8.9286% 8.8853% 9.0177% 7.5908%
1979 9.2800% 9.8569% 10.0946% 10.4851% 10.8527% 10.8896% 11.2633% 11.8182% 12.1805% 12.0715% 12.6113% 13.2939% 11.3497%
1980 13.9092% 14.1823% 14.7564% 14.7309% 14.4056% 14.3845% 13.1327% 12.8726% 12.6005% 12.7660% 12.6482% 12.5163% 13.4986%
1981 11.8252% 11.4068% 10.4869% 10.0000% 9.7800% 9.5526% 10.7618% 10.8043% 10.9524% 10.1415% 9.5906% 8.9224% 10.3155%
1982 8.3908% 7.6223% 6.7797% 6.5095% 6.6815% 7.0640% 6.4410% 5.8505% 5.0429% 5.1392% 4.5891% 3.8298% 6.1606%
1983 3.7116% 3.4884% 3.5979% 3.8988% 3.5491% 2.5773% 2.4615% 2.5589% 2.8601% 2.8513% 3.2653% 3.7910% 3.2124%
1984 4.1922% 4.5965% 4.8008% 4.5639% 4.2339% 4.2211% 4.2042% 4.2914% 4.2701% 4.2574% 4.0514% 3.9487% 4.3173%
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STAGFLATION IN U.S.
1985 3.5329% 3.5156% 3.7037% 3.6857% 3.7718% 3.7608% 3.5543% 3.3493% 3.1429% 3.2289% 3.5138% 3.7987% 3.5611%
Table 2: U.S. Annual and Monthly Inflation Rates (1965-1985)
Source: />Figure 2: U.S. Annual Inflation Rate (1959-2000 Year-over-Year)
c. Unemployment Rate
Here's a look at the U.S. unemployment rate for people aging 16 and over for selected years from
1960 to 2000.
Throughout the 1970s and 1980s, unemployment rate was quite high in comparison with the
percentage of 3.5% of 1969, which created a significant social burden for the economy. This might
be the result of production contraction or reflected a level of minimum wage lower than expected.