With frozen wage increases combining with high unemployment and a growing commodities glut, plus minimal interest rates, it seemed the post-Great Recession was bordering on disinflation, both in the United States and Western Europe, as the first half of 2015 ended.

But with the advent of higher-than-expected health-care expenses, an outburst of spreading minimum wage hikes through private and public U.S. businesses, and the acceleration of cost increases to agricultural and industrial products alike, the dreaded stagflation seems to have gained new footing as the second half of 2015 got underway.

For those who may have forgotten the term stagflation, this defines a combination of increasing labor, material and interest costs, without enough consumer/producer demand to generate a comparable growth economy expansion.

This began to be reflected in the “snake-bit” first quarter of 2015, which featured one of the worst drops in productivity the United States has witnessed in years. It defines the disturbing combination of a lackluster, if not a receding, economy with higher costs, causing an increasingly shrinking margin inbetween.

The combination of factors that brought this about was primarily caused by an overall surge of a broad range of higher wages, services and overall cost-of-living. With the gross domestic product of goods and services remaining near a standstill, if not a recessionary slant, profit margins have shrunk.

This “worst of all economic worlds” tends to come about when the universal political pressures of the ruling powers-that-be, and their supporters, move up costs, first at the public services union level, then at high-profile retail giants such as Wal-Mart. These succumb to the pressure of the voting public and its representatives, no matter that such wage increases are not justified by business expansion.

This causes a dismal reversal of productivity and eventually perpetuates a stagnant economy. As long as wages, social services and the imposition of universal health care are paid primarily by the squeeze on income taxes, they hobble independent businesses. Large multinational corporations solve the problem by fleeing overseas to more cost-effective business climates.

While these stagflation episodes eventually implode, due to their undesirable economic consequences, a lengthening tenure of such periods can make a positive, long-term economic rebound harder to come by.

Golden era for U.S. banks

If there was any sector down and out, and verging on potential disintegration during the recent recession, it was leading U.S. banks.

Even such illustrious and rock-solid financial institutions such as Bank of America, Wells Fargo, JPMorgan Chase, Morgan Stanley and a strong phalanx of mid-sized banks seemed on the verge of a major downfall, if not downright extinction. This eventuality became even more grim as most of the big banks were overloaded with mortgage-backed derivatives, which proved almost worthless, in the wake of the financial crash.

This part of the banking problem was largely resolved by the Federal Reserve Board, which made the buyback of this worthless paper a significant component of its subsequent bank bailout during its four quantitative easing series.

The remedial measures taken from late 2008 through 2010 to save the Big Bank sector from collapse were successfully orchestrated by Federal Reserve Board Chairman Ben Bernanke and subsequent U.S. Treasury Secretary Tim Geithner. These included a strict test of banks’ viability and guidelines for future direction, graded by the Federal Reserve Board as being compliant with these imposed limitations.

In the five-year aftermath officially demanding strict adherence by American and some foreign leading banks as to their capability of functioning efficiently, this imposed adherence to these strict standards set by a combination of the U.S. Treasury and the FRB have pronounced the bulk of America’s big bank sector as in the best fiscal and financial health in decades.

The additional leverage provided by a global monetary glut, wide disinflationary environment, and the FRB’s near-zero federal funds rate have improved the relevant banks’ monetary strength. While these financial institutions’ liquidity has never been more secure, the anticipated conservative series of forthcoming interest rate increases will make it possible for the dominant banking sector to support a continuing U.S. and associated world recovery, in keeping with economic expansion as it manifests itself.

This combination of conservative and plentiful collateral will assure a solid future expansion, within the limits of rational, noninflationary interest rates, and will keep the critical U.S. banking establishment economically functional.

Refineries critical to demand

One of the great technological advances of America’s multifaceted innovative genius has been the amazing increase in the productive capacity of the U.S.’s 140-plus refineries, the world’s leader in refining volume, far above that which existed a mere two decades ago.

At that time, as America reached a refined derivatives demand level, the pressure of adding to the existing nucleus seemed the only way to satisfy U.S. demand for gasoline, diesel, heating oil, jet fuel, etc. But it soon became apparent that skyrocketing construction costs and length of time for an original development process made the necessary financial building costs too prohibitive.

Not to be deterred, the spirit of inspired U.S. innovative ingenuity has produced an estimated 25% refinery capacity increase serving the much enlarged U.S. automotive population. It also satisfies increasing consumer demand in Central America, especially Mexico, which is 70% dependent on Louisiana and Houston refinery production.

While the tripling of domestic crude oil sourcing due to fracking in the past six years is satisfying about one-half of the nation’s needs, as well as refineries’ expanded exports not covered by the 1974 U.S. crude oil embargo, dependence on offshore crude sourcing is again becoming critical.

With the prerecession level of America’s new and heavier car/truck buying close to being reached, foreign oil from Saudi Arabia, Nigeria, Venezuela and such disparate sources as Angola, Algeria and the oil sands of Canada has increasingly filled the gap. Despite the large congressionally mandated ethanol blend comprising ever larger refinery-produced gasoline products, the painful misplacement of America’s increasingly antiquated piping matrix is making it difficult to get enough crude oil to meet its surging domestic and export demands.

When considering only half of refinery usage of crude oil is available domestically, even with the extensive fracking-produced growth at this point, there is hardly enough global crude available to meet the U.S.’s 140 refineries’ capabilities. This, of course, is compounded by the long-delayed piping matrix update.

While gasoline at the pump and its other varied usage face America’s super-refinery systems with shortages, the rail car tankers have greatly expanded their shipping activities. This is hardly an effective substitute for a modern piping system, made from up-to-date material and tied in with the major developed shales. Exceedingly dangerous tank car mishaps also have made this substitute transportation less than satisfactory.

Although imported crude has given U.S. refineries a badly-needed source, at greatly lowered world prices, this has resulted in benefits to the refineries’ customers. This, at least, is providing U.S. refineries with lower buying costs. They have partially used such additional revenues to finance expansions and updates.

But until the Keystone XL oil pipeline and a renovation of America’s total piping systems is resolved, America’s refinery input and ultimate evolution into the required oil derivatives will have to utilize a current distribution system that is cost ineffective, outdated and dangerous.

 This article was originally titled “Shadow of stagflation” in the September 2015 print edition of Plumbing & Mechanical.