Date: 2024-11-22 Page is: DBtxt003.php txt00022597
US ECONOMY
INFLATION
Dear Americans, Prepare to Reduce Your Standard of Living
Food & Gas Prices will get much, much worse.
INFLATION
Dear Americans, Prepare to Reduce Your Standard of Living
Food & Gas Prices will get much, much worse.
Photo Credit: Bloomberg
Original article: https://medium.datadriveninvestor.com/dear-americans-prepare-to-reduce-your-standard-of-living-1e9e8c8b849a
Peter Burgess COMMENTARY
On the surface, this article seems to be a quite sensible analysis of the economic situation today (June 2022), but it is really quite superficial and essentially wrong.
Yes ... a lot of businesses are faced with a cost-push pricing situation, and it is to be expected that these businesses will raise prices in order to stay in business.
There are, however, some businesses that are in a demand pull pricing situation. These businesses have a choice. They may choose to keep their prices at a level that merely generates a reasonable margin of profit or they may choose to charge the maximum that the market situation will bear.
Two sectors of the economy that have chosen to charge the maximum the market will bear are the banking and finance industry and the energy industry. Nobody really knows how these companies generate their profits. A part of their business model is 'trading' where profits emerge by buying or selling something 'on paper' without actually taking delivery. The profit for one organization (owner) is offset by a loss for another organization. Overall, the result of this is more and more concentration of wealth, and with that also a concentration of power.
As thing stand at the present time, the energy sector and the banking and finance sector have inordinate power ... and they show no signs of changing their historic modus operandi. The profits are simply too good, so why would any of the leaders in these industries give up on this bonanza.
Food and agriculture is another sector with considerable power. There are several factors in play including its importance to people who absolutely need food and the various concentrations in the industry ... national and corporate.
My background has three components: (1) engineering / technology; (2) economics; and (3) accountancy. I have learned something about these three fields through formal academic study and a lot more by several decades of real world observation (and indeed professional practice). It bothers me that much of the chatter about the present state of the economy seems to be based on a very simplistic understanding of how the overall complete socio-enviro-economic system actually works. To a large extent, this is intentional. There is very little meaningful transparency in the reporting that comes from big corporate organizations, especially when it comes to how profits are actually generated.
When I was mid-career I was able to work on the behavior of costs and the behavior of prices. By understanding these two behaviors it was possible to determing the sweet spot where the maximum oprofit would be realized. I am sure this is going on in all well managed big corporate organizations, and it is generating record profits.
The trouble is that the end consumer of everything is a person ... and people have much more limited options than corporate decision makers. People have basic needs which are 'inelastic' ... which simply means that they are essential and reduction in quantity is diffcult if not impossible. People have to get these things no matter what the price.
Very few corporate executives have personal experience of poverty ... but most consumers are faced with a degraded level of purchasing power. Mostly the policy options that are talked about ignore the issues faced by consumers, and focus more on the welfare of corporate entities and their owners than on the welfare of people and society as a whole.
When I first studied economics in the late 1950s, there was considerable focus on the badness of monopolies, and the ways in which monopoly power should be addressed. This seems to have disappeared in the past several decades. Why is this? Is it, maybe, connected to the links between corporate interests and legislators?
When I was training in accountancy, I had to do 'grunt work' on the preparation of tax returns in the UK. I got to work on the tax returns for some very wealthy corporate executives, but their wealth back in the 1960s was paltry compared to the wealth and wealth accumulation of people at the top of the modern economy. Furthermore, the tax bite that wealthy people faced in the 40s, 50s and 60s was substantial ... way more than the wealthy have faced in the past 40+ years, despite their moaning and groaning about excessive taxation. I have memories of the 'excess-profits tax' that was imposed in the UK when companies took advantage of unusual economic conditions as, for example, during WWII. The USA, in contrast, seems to celebrate situations where excess profits are possible, ignoring the downside associated with the rise in cost of living for people.
I am concerned ... the policy options being considered for the USA by the Federal Reserve, by the executive branch of government and by the legislative branch seem to exclude anything and everything that addresses the exorbitant wealth concentration and accumulation at the top of society. Without this ... things are going to get worse and worse.
Peter Burgess
Food & Gas Prices will get much, much worse.
Written by Meziechi Nwogu
AprIL 2nd, 2022
Could the United States survive another Great Depression, the worst economic downturn in the history of the industrialized world, which lasted from 1929 to 1939?
Some 56% of Americans cannot cover an unexpected $1,000 bill, and runaway inflation is pushing people deeper into debt. US inflation rate in February 2022 hit 7.8%, a level not seen since 1978.
The average US family will likely see $3,500 disappear this year due to inflation, which is terrible news for the quarter of Americans who don’t have emergency savings. Household debt is already up 6%, and many people report that financial pressures harm their mental health.
A study by Debt Nation Relief reports that the average American loses four hours of sleep each week worrying about debt.
Analysts expect US companies to pay their workers 3.4% more in 2022, which will lead to a surge in the prices of goods and services. Yet that pay increase equates to only half of the official inflation rate.
Therefore American workers need to prepare to get by with less. Although the Biden Administration states the current inflation rate is only temporary, the Federal Reserve is creating $250 billion out of thin air every month. In early February, the US National Debt surpassed $30 trillion.
The last time inflation was above 7.8% was in 1978. Now inflation is back with a vengeance. At the same time, the US National Debt is wrecking the US government’s ability to deal with the economy.
Higher Gas Prices May Push America Towards Recession
The Russia — Ukraine war could incredibly hurt the United States’ economy. America’s benchmark crude, WTI, surged 8% to $103 per barrel when Russian tanks crossed the Ukrainian border.
That was the highest WTI price since Russia annexed Ukraine’s Crimea Peninsula in 2014. The average gasoline price is above $4 per gallon. It could remain at that level into the summer. The Biden administration’s decision to ban Russian crude on March 8th drove Brent crude to $133 per barrel and WTI to $123 per barrel.
Americans are already struggling with inflation rates at a 40-year high. High energy prices would hinder economic growth as consumers cut spending. The only solution is to convince Saudi Arabia, the UAE, and other OPEC producers to pump more oil to drive international fuel prices down.
However, there is a saying that charity begins at home. Since signing his infamous executive order, on January 21, 2021, cancelling the Keystone XL pipeline and revoking new oil & gas leases, there has been no public debate over reversing those bans.
Rising gasoline prices and massive increases in home heating and cooling costs may be part of the Biden administration’s overall strategy to force the country to transition away from oil and gas toward green energy.
Although Democrats may temporarily lower gas prices before this year’s midterm elections, their long-term goal is to make energy so expensive that Americans will reduce their standard of living, weakening America’s power.
Fertilizer Shortages Threaten the Global Food Supply
Food cost is skyrocketing as farmers struggle to afford fertilizers. Given that Russia is the world’s largest synthetic fertilizer exporter, the war in Ukraine is disrupting the fertilizer supply chain.
America and EU sanctions against Russia have spurred ships to stop calling on St. Petersburg. This Russian port city exports the majority of the world’s fertilizer. Consequently, farmers are paying three times as much for fertilizer in 2022 than in 2020, and they’re pushing the cost to consumers worldwide.
According to the Fertilizer Institute, urea fertilizer costs surged from $200 to $600 per ton between July 2020 and February 2022. The surge will impact food prices. An expert warned that the world would be without 50% of its food supply without fertilizer.
Peru, in March, declared a state of emergency in its agriculture sector over fertilizer shortages. At the same time, farmers in Kenya and Zimbabwe are reverting to using manure to nourish their crops. US farmers are still using synthetic fertilizer, but they foresee paying 12% more in 2022 than in 2021.
No wonder President Biden is warning that the globe will experience food shortages due to disruption in the fertilizer supply chain as the Russia- Ukraine conflict continues.
Fertilizer disruption shows a much more profound threat to humanity, famine. In “Half the World Would Starve Without Natural Gas — Much of It Fracked,” David Nabhan noted that food grown with naturally fixed nitrogen only feeds 3.8 billion people today. That means that 50% of humans are dependent on synthetic nitrogen derived from natural gas via the Haber process for the food they consume.
Therefore, a supply chain crisis that constrains a region/ continent of nitrogen fertilizer could create a famine of epic proportions. Since China and Russia are both the world’s largest fertilizer exporters, Western nations would suffer the most in such a famine.
It’s time America realizes that we have entered into something worse than a mere economic crisis.
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