It’s The Economy, Stupid!

Why are so many of those individuals who have extensive educations so unable to recognize the reality of today’s world economies?  Oil prices will rise later on this year, there is very little inflation, deflation is bad for every economy, and so the cant continues.  In each of the world countries their individual economies grow or decline due to consumption of goods and services.  There is no exception, demand and supply interactions matter.  If one mines too much copper and the rest of the world is not demanding that increase production then the price goes down if there are several sellers and fewer buyers.  Just as the auto manufacturer can make hundreds of thousands of automobiles each year, they can only sell what the public and governments will buy.  So we see no down payments programs, longer repayment periods, and instant discounts.  But the demand rarely exceeds the supply and it is usually the other way round.  Of course the dealers will try to sell their stocks at a mix of prices that will assure a sufficient level of profit.  But if the inventories remain unsold then the only way to see off those inventories is to lower prices as low as possible and still cover the cost of the vehicle and the carrying costs (car dealers finance their inventories through short term loans, thus the longer a vehicle stays in the inventory the more its carrying cost or the daily interest rate that accrues and the less profit will be made, if any for the dealer.

Every economy depends on power, that is, a nation’s economy uses many kinds of energy, form electric power generated by coal fired power plants to hydroelectric to nuclear to wind and solar.  And the vehicles needed to move people and goods around often depend on diesel or gasoline to power them.  The cost of a barrel of oil is a large factor in the cost of government, the price of goods and services produced, and the everyday lives of the population.  A barrel of oil provides far more than fuels, there are many distillate products that are used everyday by the public.  Much of the fertilizer used by farmers comes from natural gas.  But production of goods and services is only one aspect of an economy.  There is an interaction of that thing called a market that results in the exchange of goods and services for a consideration.  That consideration is often referred to as money or a medium of exchange.  A market is suppose to act as a clearing house or place where those who product goods and services can discover what consumers are willing to exchange for them.  Now markets never act smoothly since their main purpose is that of discovery.  What does someone have to sell and what does someone want to buy?  If you go to the grocery store and want to buy a pound of ground beef, you might find that the supply of ground beef is low today and the price a little higher than it was two days ago.  On the other hand there may be a small surplus of round steak for sale and it might cost less than the ground beef.  So you change your buying decision and buy the round steak.  Or if beef is priced far too high for your pocket book you may decides to eat more chicken.  Chicken, then, is the substitution for beef in this case.

One of the problems with the free markets is that governments tend to interfere with their operations until they are no longer free.  This interference tends to adversely affect too price or price discovery.  Many states have price supports of milk as well and production limits.  The farmers collective support is that dairy prices are simply too low to make milk production economically feasible.  On the other hand the consumer with children will want good cheap milk.  Governments interfere trying to help which group will deliver the votes and keep the party in power.  But there is another interference factor that so few even recognize.  That factor is credit creation.  If you want to buy a house but cannot pay cash you will attempt to finance your purchase through the credit market.  That is, you show that you are willing to go into a period of debt where you make your required payments each agreed upon time period.  That is why a thirty year loan referred to as a 360 month loan period.  Better known as a thirty year loan.  Credit, or debt, if you like, is a way of expanding economic activity.  If you had to wait thirty years to save the cash price for the house of your dreams you might find that its price had increased considerably.  Credit allows the creation of the extra goods and services to be sold in the market.  But the problem is that an increase is the supply of a good for consumption today is a decrease in the demand for that same type of good tomorrow.  If America had been able to control its borders and keep most of the immigration from occurring, our GDP would not have been growing so well.  One can consume only so many oranges, steaks, cabbages, and bottles of wine each year.  Thus, overproduction tends to depress prices.  Over consumption by use of credit tends to create inflation in a nation’s economy and at some point the system tends to crash in on itself.

The world’s total collective GDP is perhaps a few trillion, maybe as much as 15 trillion.  The worlds collective debt is well over 100 trillion.  Do you see a problem?  Many do not consider debt such as the various government debts as a problem.  Governments can snap their collective and be gone with any excess debt.  Well, yes, there is no substitute to spending one’s way to financial security.  People, we are about to find out the hard way that there is a limit to the amount of debt that any one planet can carry.  There is a limit as to how far one can live into the future.  Caterpillar is not making as many of its construction equipment as it has made in past years.  The market in China and other foreign countries has hit new lows in sales and we ain’t exactly buying up the excess here in America.  There is trouble ahead.  The markets are broken due to the excessive amounts of credit.  The market is far to restricted by government intervention.  And there are far fewer jobs left to go around.  Technology and automation have made stuff so much cheaper but it takes people with money to buy stuff.  No job, no buying stuff.  Well, we have the government handouts, but they depend greatly on tax revenues and even tax revenues are down.  The world in in a hurt, period.  The future recovery will depend to a large extent on debt repudiation.  It also depends on a great deal of drastic reform.  Reform in economic terms, legal terms, social terms, the whole nine yards.  Call it the great reset, the great revolt, whatever you wish.  I don’t mind paying a plumber a fair wage for work done but when he is the recipient of monopoly pricing and work restriction I know I am being ripped off, his profession is stealing from me and I resent it.  But you see, the entire public is not at the mercy of a great deal of monopolistic powers.  To break up a monopoly requires a lot of revolt at the ways things are done and it is never smooth.  It’s the economy, stupid!  And the cost of corruption is excessively high.

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