First of all, the worldwide economies are fundamentally strong! Repeat. Fundamentally strong. Yes, I said that the worldwide economies are fundamentally strong. What we are seeing right now is "doom and gloom" building on "doom and gloom" - the ole "sky is falling" metaphor. Fortunately, the sky is NOT falling and all is not doom and gloom. It's the ole knock on downstream effect - if everyone says that the sky is falling, well, the sky might actually fall - or at least we might believe it is falling.
The truth of the matter is that we are seeing a little blip right now, a long overdue financial correction in the markets. The market economies of the world are strong, but periodically the natural forces of economies force corrections. As Adam Smith, the great economist would put it "the invisible hand is at work correcting the situation created and restoring balance to the world".
There are a multitude of reasons why this correction is occurring and it all has to do with money. Money flows hither yithar and yawn and can be created, but never really destroyed - just reallocated or reassigned. The world has been in an expansion mode for many years fueled by easy money - or loose restrictions on credit. The faucet has been wide open on the money tap and now the money/water line has burst and little is coming out. It's not just consumers that are mired in debt, but also companies and industries as a whole. Companies have had "easy credit" in order to expand and enlarge their business through capital expansions, takeovers, etc. Many companies are also in serious trouble, not because of the lack of credit, but because of serious management decision making errors.
Another thing that has really fueled this economic blip has been the stratospheric rise in the price of oil and natural gas. The average consumer and business owner has known for a long time that we have been mired in a recession, now confirmed going back to December 2007, and that inflation has been anything but tame. Oil prices have finally subsided back to reasonable levels, but the damage has already been done. A funny thing about economics is that anything that is done to fine tune the economy takes generally eighteen months to show any results. Fine tuning the economy has been likened to tuning an aircraft engine at 38,000 feet - it's dangerous and just can't really be done. Oil fuels the worlds growth and keeps the captains of industry running. Everything we seemingly do consumes oil. The average consumer and business has a "fixed" amount of money available in the form of cash flows on a monthly basis. If you are working, then your cash flow is generally determined by your weekly paycheck. There is only so much money available each month and on the whole most people don't have a huge reserve - or an on-going reserve of money to meet unexpected changes in price.
The economies of the world work great when oil is at a steady and anticipated price. It must be remembered that the worlds economy for the most part is capitalistic based. However, you also need to remember that a large portion of the oil market is controlled by a cartel and cartels are disdained in a capitalistic economy. Remember, not long ago the "benchmark" for crude set by OPEC was at $28 per bbl. OPEC certainly wasn't trying to maintain that benchmark when oil shot past $140.00 per/bbl. There was and is no good reason for why oil shot up to the levels that it did. The demand curve of the world did not just overnight shoot up into a vertical line. No, the oil market is controlled and manipulated. If a butterfly flaps it's wings in Chireno Texas, then is that a cause of oil prices to escalate?
With the price at the pump at or near $4.00 per gallon, up several dollars in a short amount of time, businesses and individuals could no longer afford to fill the tank and also remain in the lines at the local grocery store or warehouse outlet - why, because of cash flow - cash is king. Something had to give, thus consumers decreased discretionary spending - spending that you have a choice on. The money went into the tank and not at the local retailer or automotive dealer.
Explain to me why all of a sudden oil prices have slammed down to $40/bbl? Is the world suddenly at peace? Did the butterfly in Chireno Texas not flap it's wings? Did demand for oil suddenly cascade through the floor? No, there are unnatural forces at work that are impeding the invisible hand of Adam Smith.
So, how do we get out of this economic blip that we are experiencing. Once again, the markets will take care of themselves naturally - over time. There are certain things that governments of the world should do and should not do. I am not exploring these ideas as they are highly political and emotions are running high.
So, in short summary here, blame the price of oil and cheap money - exceedingly low interest rates - for the economic blip we are seeing. Enjoy the cheap prices at the pump, $1.60 where I'm at, while they last. You will be putting less money in the tank and hopefully have additional money to spend. Thus, the answer to the economic blip is to NOT hoard money but to spend - spend - spend. Consumer spending drives the vast majority of the chunk of the GDP - Gross Domestic Product (sum total of all goods and services produced within a given country during a specific time frame). See, the rise/fall of the GDP determines whether we are in a recession or not. Two or more consecutive quarters of decline in the GDP indicate a recession. Thus, when consumer spending dries up and stops, then we are in a recession. Why, because the GDP is driven by consumer spending - there is a direct cause and effect relationship between the two.
Thus, in closing, the sky is NOT falling, and as long as the consumers spend money - which is now available since the price of oil has fallen, then the recession will be short lived. The worst thing to do is to spread doom-and-gloom and get everyone to hoard money. I'm not saying to go out and charge the charge cards to the hilt or pull the money out of the deflated 401K and empty the savings accounts - but to spend your discretionary income. Remember, approximately 70% of the GDP is fueled by consumers...
Ok, spend something on me then. I've got a suggestion for you. I want this in the Synchro32 colors please, but I'll really take any color you choose for me...
Ariel Atom
Remember, spend spend spend and it is better to spend on others than to spend on yourself...
One of these day's I'll discuss my favorite economic concept of elasticity and how it relates to the foundry and metal casting industry.
Cheers from North America...
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