Equilibrium. You can tell that an economy is moving dangerously close to economic recession when market following market explodes. It is easy to tell the markets that are at risk through the prices. A market-based economy, like ours, always seeks equilibrium. If there isn’t enough goods or service is available and the price increases, it will. The ideal situation is that more manufacturers or suppliers join on the scene, which means the cost drops.
However, for more than an entire year we’ve seen rising and more expensive costs in the economy. In simple terms, the economy is in an unbalanced state. This disequilibrium first appeared around the time of the field of energy. As a new hire Biden, the president Biden declared one of his main goals to upgrade the current energy systems. Note that it isn’t a matter of importance to the market which energy system Biden picked as his replacement. The important thing is that the new systems don’t generate more energy than the previous systems.
Sure, Biden was using a Great Transition to shift away of fossil fuel-based energy sources and to shift towards renewable. This could prove to be a noble aim. Biden started by shutting down the sources that were previously in use as well as cutting off Keystone Pipeline, closing the Keystone Pipeline, canceling Federal Lands leases on gas and oil and, now, apparently, cancelling leases on offshore oil.
Check out the President’s decision to block Russian gas supply. The President did this before we had a sufficient substitute. In one quick move the president cut off 90% of American fuel. The more sensible option would have been to first replace the supply by Saudi Arabia or Venezuelan, actions he’s taken after the actual. If Biden initially substituted the Russian supply and we had in a position to inform Russia to “take an increase” without triggering today’s horrendous inflation.
I hope you can see that the motives of the President are irrelevant to economics. To ensure equilibrium in our economy, we need to ensure that we are balancing our energy resources in line with our energy requirements. Biden hasn’t done this. We’re currently in a state of reckless under-supply and that’s one of the causes of the higher prices for energy.
Energy was, therefore, the first market in which inflation erupted and the first place in which we witnessed inflation grow exponentially.
We are seeing a similar trend in the food market. In the past, inflation in food was higher than it’s energy price for the first time, making it the main driver of producer prices. As we’ve previously discussed, inflation becomes a contagion. The higher prices in one industry can lead to the rising price in another. Also the energy and food industries are closely linked. Machinery and farm equipment to till the soil, while trains and trucks transport food items. Petroleum is one of the major components of the most popular kinds of fertilizer used in commercial farming.
To add to the current high inflation of food are numerous factors beyond the President’s or anyone else’s control: weather, natural disasters, drought, and, perhaps most intriguing, the mysterious plant fires in processing plants. The recent Hurricane Ian is predicted to have a devastating effects on Florida crop, which is currently in the midst of harvest.
The “act in nature” elements are likely to be sufficient to trigger a rise in food prices that are above and beyond the price of fuel. When taken together, they are now, we are likely to experience one of the highest increases in food prices in the nation’s history.
Also, keep in mind that this is a matter of supply not demand. In the days of rising inflation, in past with a fast expanding economy and population as well as demand inflation, we had to contend with. It was the time when our consumer base outpaced our production.
The current economy is showing a flat rate of growth and a rapidly declining population. The problems we face today do not stem from a shortage of demand, but rather an insufficient supply. Insufficient fuel, inadequate food. The name of the game is The Supply Chain. Manufacturers from overseas, mainly Asia particularly China have experienced a production decrease.
It is also upon this tiniest supply line our economic future rests. If we fail to resolve the supply problem and we slide further and further in the commercial pit. If we can solve the supply issue The economy will recover and prices rise back to their an equilibrium.
Yes, that’s the remainder of the quote by Ronald Reagan is as follows:
“A recession happens the time when your neighbor loses his job.
Depression happens when you have to lose yours.
Recovery occurs the moment that Jimmy Carter loses his.”
That’s exactly what happened.
