COMMODITIES NOT DONE SLIDING, The headlines scream. “The record 39% decline in commodities since July 3 is nowhere near finished, if history is any guide.” (“Commodities,” for those who don’t pay much attention to this stuff, means the prices for things like oil, soybeans, corn, iron, copper and so forth.)
While other headlines proclaim “Days of falling prices are over, say economists.”
Anything for a headline. If you listen to all the newscasters, they all pretend to know what the future is, but they don’t. No one does. What we do know is Human Nature, and History. When our Dear Leader, George Bush, got on the tube and told the world that The Sky Is Falling, The Sky Is Falling, for all that no one believes this liar anymore, we were all alarmed anyway, wondering what he was really up to.
We quickly found out that his ploy (we all knew it was a ploy) was to try to fool us into bailing out all his rich buddies. It turned out that we did anyway, sort of, except that his rich buddies have to pay us back now. Under Bush’s plan, they didn’t. In the meantime, the sky is still staying up just fine, thanks.
The newscasters are still bleating that the world’s economies are “not responding” and so forth, and it’s very true that an awful lot of us are still scared, thanks to them. A good friend of mine is pretty upset about seeing his 401K’s plunging in value. That’s his only retirement. So our knee-jerk reaction is to stop spending our money quite so freely, to hold off on buying major items like homes and new cars, to stop investing part of our income, and to stash our money at home instead of in a bank. All this only adds to the problem that the bankers themselves created by lending far more money than they actually had in deposits, by getting other banks (which had done the same thing) to back them up, on unsound loans to people without sufficient income who were buying properties they couldn’t afford because the banks convinced them to do so.
What’s happening now is that global finances are readjusting and already leveling out. Oil has come back down to fully half of the outrageous $143 a barrel high of last summer, as it needed to. The soaring price of oil has a lot to do with the collapse of commodity prices, as it artificially inflated them to begin with.
As the days pass and people keep making their loan payments, keep eating at the dinner table and watching the games on Sunday TV, all the panic will fade away. Already, lower prices are freeing up a larger percentage of wages, and that increase in spendable income will renew confidence in the economy, and people will soon start spending and banks will soon start loaning, once again. I’m seeing the price of gas at the pump come down already, (though not as fast or as much as oil has come down) which certainly puts a smile on motorists faces.
History teaches us that everything cycles. Economies always go through good times and bad times. I noticed years back while driving north from the Bay area that traffic had what I called “density waves” and pointed this out to a passenger friend. It’s true. Someone up there will be going slow in the fast lane, and cars pile up behind him until he finally moves over and we can all get by, until we come to the next one, and the next one. Well, economies are the very same. We get people who are slowing things down by hogging more than their share, like the Saudis and OPEC, and the greedy bankers. Finally they’re forced to move over so the economy can take off again.
Which it will. Prices are going to be lower, and while some companies that depended on higher prices for basic goods like oil will have to lay off workers, other companies that were about to close because of the escalating price of those commodities can now expand again and hire more workers. Then, as the economy warms up again, prices will start to rise with competition as more people have the money to buy a limited amount of goods, wages will increase to compensate for rising prices and an expanding job market, and we’ll be off again on another cycle of money, inflation, wealth, greed and collapse.
So don’t panic, just keep plugging away. It all goes round and round.
Agree. One could hope better regulation will help but I daresay we will all be here again in 30 years although if I’m still around I will probably be too demented to notice.
Good observation. That traffic thing has been shown by research and is justification for density-related variable speed limits on our M25 motorway.
I have to say that was the most calm way of putting it makes perfect sense. for people like myself it hasn’t effected or worried me none i have just sat back and watched the media make this whole thing worse, they made the people panic but as you say it’s a cycle.
when I say people like me I mean, no massive savings, no morgage and no real depts. maybe now the house prices are dropping I can starting thinking about it.
ps sorry if a little messy, iPod blogging