Minds of most Americans have been corrupted with many economic myths by mainstream economists and so called experts, which are reinforced by the media and often repeated on the streets. These myths are false in most cases, and based on half truths in others. We constantly hear things like: inflation is caused by rising oil prices; consumption is the most important element for economic growth; government expenditures help stimulate the economy; and many others.
In this article, First in a series of two, I will explore some popular myths regarding Inflation and Energy matters. In the second article, I will write for you about common myths about Consumption.
Inflation – translated in layman’s terms as a general rise in prices – and the increase in energy prices have always been at the core of some of these myths. The following are just a few of the most common ones.
Myth No. 1: Dependence on Foreign Oil is the Reason for Rising Oil Prices
This misconception suggests that the reason behind rising oil prices lies in America’s dependence on foreign oil.
In fact, the high price of oil is not connected to its place of origin. Oil prices are determined in international markets. Even if the US were to produce, and meet 100 percent of its consumption requirements, the price would remain the same if the supply and demand across the world were to remain the same. Oil is a commodity. So the price of a barrel produced in the US is the same as it is in any other country, but the costs of labor, land and regulatory compliance are usually higher in the US, compared to third world countries. Bringing down these costs will result in increasing supply, which in turn, will push the prices lower – regardless of the fact that it was done in the United States or elsewhere.
Importing a product does not imply that you “depend” on it. It would be like saying that when we “import” food from the local grocery store, we “depend” on that grocery store. What’s usually true is actually the complete opposite. It is the exporters who depend on us, since we are the customers and buying their products. Also, importing a product usually means that we are buying at lower prices; and producing in the US would mean consuming at a higher price. This point is easier to understand when we look at the cheap imports we can buy from China, compared to the high priced similar items we produce in our own country. An amazing contradiction arises when, on one hand it is claimed that America should be “protected” from cheap imports, but when it comes to oil, they demand to be “protected” from “expensive imported” oil.
In reality, most, if not all, of the higher oil prices can be justified by the debasement of dollar or the expansion of the money supply. It is not the foreign producer that is at fault, its out own national central bank that is the guilty party.
Myth No. 2: Inflation is Caused By Rising Oil Prices
If the supply of money was to remain constant, then a hike in the price of one good would cause a decline in the price of the other goods. In more specific terms, if more money is to be spent on oil, then less money will be available to spend on other goods. This will, as a result, cause a drop in the demand of other goods, which will then cause a drop in the prices of these other goods.
In truth, inflation is always a monetary matter, which is caused by the increase in the money supply due to interest rate easing policies of central banks.
Myth No. 3: The Cause of Current Inflation is the Rise of Demands by Millions of New Consumers in China and India
At face value, that might seem true. With the advent of millions of new Asian consumers in the market, there is a higher demand for most goods, which would apparently cause higher prices. But what is being ignored here is that these new consumers also happen to be new producers. In general, most people produce far more than they consume, because most workers have to produce more than what they earn to keep their jobs. So, where the demand has increased due to these consumers, supply has increased even more; thanks to their increased production. This is apparent from the frequent price drops in Chinese manufactured goods. On the other hand, the only method these new producers can increase their consumption beyond what they produce is through credit. Hence we have come a full circle to the point I have made twice already: Credit expansion due to central banks’ intervention in the financial markets is the true culprit behind inflation.
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{ 3 comments… read them below or add one }
The American people will believe anything the America President and all of his Harvard Buddies tells them.
They told the American People the reason America got into this Depression because the banks stopped lending money because they did not have any money to lend.
So, the Federal Government ask for Trillions of dollars in bailout money to resupply all the banks so they could start lending money again.
The real reason the banks do not have any money was because they stared losing money when the home prices started to falling because all the highest paying American jobs was sent off shore to China.
Then all the American workers was forced to take a job flipping hamburgers at McDonald for minimum wage.
Then all the other jobs that couldn’t be sent off to China was given to all those Illiterate Mexicans that our government has allowed to invade USA by crossing our south border.
This one single act, is an act of treason by the American President and congress.
This has caused the America middle class workers wages to spiral down, down and down for the last 20 years.
The American middle class workers reached a point they could not pay their house mortgage payments and they have tried to keep up by charging things on the their credit cards.
Then about two years ago millions of American workers had come to a point where they had maxed out all their credit cards, so they stopped paying the bank on the house mortgages.
Then the Banks started to losing mortgage money big time because there was millions of workers in this vary same position that could not make payments on their bank mortgages because they had just run out of money.
Then the Banks was forced to foreclose on all these loans and that caused all the real estate home prices to go into a downward spiral big time all across America.
What is a home owner to do if he owes $100,000 on a house that has fallen in value and is now worth only $50,000?
What would you do if the value of your house falls $50,000 or more below the amount of money you owe the bank your house mortgage?
Even if your working or not working?
Why of course your going to default on the loan and let the bank take the house back. Right?
Now, here is the $64,000 question.
Please tell me how resupplying the banks with money is going to give that American worker a job so he can get off of unemployment and start paying his bills again?
There can be only one thing that will solve this problem and that is bring back to America all them jobs that the President and the congress encouraged international companies to send off shore to Mexico, India and China.
President Obama and all of his Harvard educated buddies are all Globalist.
That means President Obama and his Globalist buddies will never pull out of NAFTA and the WTO for any reason.
So, buckle your seat because we are in for a very, very bumpy
What was the main Cause of the Great Depression of 2009?
How did American the wealthiest country in the world get into this Global Depression?
The Great Depression of 2009 was caused by the same forces as back in 1930s. Make no mistake about it we are presently in another Great Depression and it began in 2006.
America will remain in a Depression until we define and address the real root cause of this Depression. Addressing the various symptoms of the problem will only make things even worse.
If you were to ask 5 different guys “what cased the Great Depression” they would all probably give you 5 different answers.
You absolutely can not base your answer on any one person because it seems most people are biased by any number of various personal reasons.
So, that means you are required to search and read, read and read.
The most important thing to remember; “Before any problem can be truly solved it must be defined properly”.
Then cut away all the fat and start searching for all the various answers.
Then you must separate “the symptoms of the problem” from the real things that have directly caused the problem.
The problem must be approached with an open mind and in an unbiased manner. You must do extensive research on the problem.
Then you must formulate an unbiased answer based on all your diligent research.
This is the way I think we got into this mess.
In order to keep the economy moving along down the track there must be two things happen:
1) Wealth must be created by mass production.
2) Real demand to purchase that mass production.
Now, what happens if all the corporations hog all the profits and refuse to pay the very same employees a fair share of the profits generated from this mass production?
Please tell me if the Corporation Mass Produces a Product and pays slave labor wages as in China $2/day.
Who can purchase the slave labor mass produced products from China?
I have worked as a union member for 10 years and then was transfer in the front office and worked the next 20 years in the Front Office as a Department Head over an engineering department.
So, I have worked on both sides of the fence and I completely understand the necessity of a union.
This is exactly why we must have a union to help the workers get a fair and living wage from the profits they help to generate with mass production.
If you think your doing the company a favor by allowing them to hog up all the production profit your totally wrong because the workers must be allowed to make a fair wage because that fair wage is the steam that drives the train down the track.
You may be opposed to unions. But, before you make a final judgment on unions you must accept the fact that if the corporation is to earn profit year after year, it must pay the worker a fair and living wage to buy the very same product they must sell to earn a profit.
This is exactly what the union was created to do.
The main cause of this Depression of 2009 was uneven distribution or profits between the large corporations and their workers. In other words the corporations chose to move all the high paying jobs off shore to China to avoid paying a fair and living wage to mass produce the product.
American workers are indebt up to their ears based on an American wages at the time the debt was incurred.
The American workers average wage have been falling for the last 20 years thanks to the American Congress encouraging all the international companies to move all the highest paying jobs off shore.
Then all the other jobs that couldn’t be sent off to China were given to all those Illiterate Mexicans by the American President and congress by allowing them to invade USA by crossing our south border.
The American People should march on Washington and physically take all these politicians put them all in jail and then try every one of them with TREASON.
Then strip everyone of them of the millions of dollars of family wealth they have been paid to screw all the American workers out of their jobs.
The biggest problem is that most of the American people don’t understand that America is going into a VERY, VERY huge DEPRESSION.
Most of the American people think that America can survive almost anything and they are right if the President and the Congress would start caring more about the American Workers instead of the rest of the world.
But, the American people are hoping our government with all of those well Educated Harvard graduates will figure it all out someway.
But the problem is that all these people are Globalist and headed right on down the same track as the last Globalist President.
Please trust me. I know exactly what I am talking about. This train is headed in the wrong direction and America will continue sliding deeper and deeper into the greatest Depression the world has ever seen.
We are in big, big, big trouble.
The only way out is to stop fattening up the bankers and the all of their wall street buddies and start creating as many American Jobs as possible.
America must pull out of NAFTA and the WTO and start caring about all the American Workers and hell with the rest of the world.
Please tell me how can the American President and Congress justify sending Billions and Billions 0f Dollars worth of Jobs off shore to China see Americans go homeless on the street?
This is getting absurd.
If you want to get out of this Depression you must March on Washington D.C. and physically take back your country because they are going to continue fattening up all their Bankers and Wall Street friends with your money.