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Q. What is "stagflation?" Is it worse than a depression? I heard a news report say the U.S. is entering a period of stagflation and it will be rough. If it's true what can we do as individuals to protect our families?
First, let's all review this important verse:
"Don't worry about anything. Instead, pray about everything. Tell God what you need, and thank him for all he has done. Then you will experience God's peace, which exceeds anything we can understand. His peace will guard your hearts and minds as you live in Christ Jesus (Phil. 4:6, NLT).
It is imperative that we rely upon God for all our provisions (even while we are educating ourselves about failures in our monetary system).
Stagnated Inflationary Period
Stagflation is a time when the nation's economy is "stagnated" or stuck in a period of little or no growth. Yet, there is inflation in the prices of just about everything. That's where we get the word "stag-flation."
Stagflation is like an inflationary depression. Incomes don't rise to keep up with inflation. Jobs are lost. Yet, prices for milk, eggs, bread, coffee, gasoline, heating and cooling, rent and other things just keep going up.
Rising or Lowered Currency-Value
In my opinion stagflation can be worse than a depression. In a depression people renege on their debts (like they are now). They just walk away from houses they can't afford anymore or cars they can't pay for.
But, at the same time the currency rises in value during a depression. In other words, if a person can hang on to his money, as time goes on that money will buy more and more - it will appreciate in value. You can afford bigger bags of groceries and your money will buy more gas at the pump.
In a period of stagflation, however, the money in the bank loses value. It "erodes" (as the economists say). Any savings we have becomes more and more worthless (worth less) and buys less.
For example, gas which costs $30 to fill your tank last year may cost $60 to fill up the tank this year. Then you know that next year it will probably cost $120 to fill that same tank.
How can you keep up with that if you lose your job and you have to keep paying for things from your savings account or with a credit card?
Why is this happening?
Our government is printing more and more money to deliberately make it cheaper to pay off its own debts. (The money is worth less - it is cheaper - as it loses value). If you or I tried this we would be hauled off to jail for "fraud&forgery." This means it takes more dollars to buy the same things for U.S. citizens. But, for the government that trillion dollar debt is cheaper to pay off than last year's trillion dollar debt.
Please understand that when you hear news that the government is "adding liquidity to the system" or is funding $200 billion to "purchase agency debt," this means the fed has printed more money to bail out banks or to buy up mortgage debt. They have added "liquidity" or more money to help banks. They have bought up mortgage loans that banks will not buy. This is all a form of "printing money."
In 1920s Germany the government was forced to pay reparations for WWI. Instead of saying "we refuse to pay," they just printed massive amounts of German Marks to pay off foreigners. They didn't care what happened to the citizens.
German citizens tried to adjust as best they could. For instance, they bought two cups of coffee at a restaurant so they didn't have to pay double for the second cup at the end of their meal. Teachers were paid midday so they could quickly buy groceries before prices doubled at the end of the day.
Inflationary prices were awful. For example, 12 German Marks bought an ounce of silver in 1919. But, by 1923 it took 543,750,000,000 marks to buy that same ounce of silver (that's not a typo).
In comparison, last year in America it cost $12 to buy an ounce of silver. This year it costs $20! (Five years ago it cost $4 for one ounce of silver, by the way). Are we on our way to a Weimer Republic type of economy?
1930s America is a good example of a deflationary depression. Citizens lost money in the stock market, lost their jobs, and lost their homes. Many banks fell into bankruptcy, and people lost their savings. So much money disappeared from the system that the dollar became more valuable - not less.
U.S. Government Prefers Inflation
As you can see "stagflation" combines 1920s Germany with 1930s America. Governments prefer inflation to deflation because they can pay back their own debts in cheaper dollars.
Inflating the money supply in this way is a "hidden" tax to citizens. For example, people won't usually say something like: "The cost of gas went up yesterday because my government is purposely devaluing my dollar." People usually blame the oil companies, gas stations, and the grocery store.
New European way to value Money
Therefore, we suggest our readers begin to think like this:
- Today the gas prices went up because it takes more dollars to buy gas.
- Today my insurance went up because it takes more dollars to buy insurance.
- Today corn flakes went up because it takes more dollars to buy cereal.
- Today clothing costs went up because it takes more dollars to buy shirts.
This is a more honest way to view government-induced inflation. It is how the Europeans think about our dollars. Just remember that the EU is in trouble, too!
What to Do? Stewardship Issues
So what can we do to protect our savings?
Please understand that we are not an advisory service. But, we can tell you what the Bible says about general principles of stewardship.
We are supposed to be good stewards of what God gives us. We want the Lord to say, "Well done, my good and faithful servant. You have been faithful in handling this small amount, so now I will give you many more responsibilities" (Matthew 25:21, NLT).
This may mean that we look carefully at various inflation hedges to see if we can circumvent the government's devaluation of the dollar. In times past real estate was a good inflation hedge. But, at this time it is part of the problem - it already went through incredible inflation bordering on hyperinflation. Now it is going down in value. People are losing their homes and prices are continuing to fall.
So perhaps we can look at commodities and foreign currencies as inflation hedges. See some of our book recommendations at the end, particularly The Risk of Hyperinflation, Jeffrey, pages 95-103.
Money isn't the answer to Everything
Ecclesiastes 5:10 says, "Those who love money will never have enough. How meaningless to think that wealth brings true happiness."
Be especially careful of current day money managers who quote Ecclesiastes 10:19 which says…"money is the answer to everything."
Stewardship of God's Word
They neglect to point out that this verse refers back to verse 16 which warns about youth who hold to a hedonistic philosophy that money answers everything! We need to be good stewards of God's Word as well as our money!
Learn to be Content
Hebrews 13:5 tells us not to love money but to be satisfied with what we have. Paul says, "If we have food and covering, with these we shall be content" (1 Tim. 6:8).
This verse means that we shouldn't continue our indiscriminate shopping sprees every Saturday at the mall, don't you think? Perhaps we need to lower our standards a bit and learn to become contented with fulfilling our basic needs.
I am aware that many financial advisors recommend taking on debt in an inflationary environment - because the debt is easier and easier to pay off with cheaper money.
But, I don't think this advice is consistent with God's Word or the particularly dangerous financial period in which we live. Having debt may be fine if you are assured of a job and are confident the government won't completely destroy our dollar. Yet, the Bible teaches:
"Just as the rich rule the poor, so the borrower is servant to the lender" (Proverbs 22:7).
Paul warns, "Owe nothing to anyone" (Romans 13:8).
The bible tells us to pay off our debts:
"The wicked borrow and never repay, but the godly are generous givers" (Psalm 37:21).
"Give to everyone what you owe them: Pay your taxes and government fees to those who collect them, and give respect and honor to those who are in authority" (Romans 13:7).
We are even warned not to cosign notes! Listen to this:
"Don't agree to guarantee another person's debt or put up security for someone else. If you can't pay it, even your bed will be snatched from under you" (Proverbs 22:26-27, NLT).
God Owns Everything
More than ever, Christians need to be good stewards of God's money. After all, everything belongs to Him - not to us. It isn't ours to begin with.
"The heavens are yours, and the earth is yours - everything in the world is yours - you created it all" (Psalm 89:11).
Why God trusts us with Money
God may have allowed you to be prosperous so that you can share His money with your needy relatives or the poor. So let's conclude with these Scriptures:
"If someone has enough money to live well and sees a brother or sister in need but shows no compassion - how can God's love be in that person?" (1 John 3:17).
"Teach those who are rich in this world not to be proud and not to trust in their money, which is so unreliable. Their trust should be in God, who richly gives us all we need for our enjoyment. Tell them to use their money to do good. They should be rich in good works and generous to those in need, always being ready to share with others" (1 Timothy 6:17-18, NLT).
Brussee, Warren. 2005. The second great depression. Booklocker.com.
Jeffrey, Grant R. 2005. Finding financial freedom. Colorado Springs: Waterbrook.
Robinson, Jerry. 2009. Bankruptcy of our nation.Green Forest, AZ: New Leaf.
Wilkerson, David. 1998. God's plan in the coming depression. Lindale, TX: Wilkerson Trust Publications.
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