Tag Archives: current economic situation

One Strike Against Consumers

Our current economic situation is a result of two forces: commodity demand from the developing world, primarily China and India and an unrestrained appetite for profit today. Analyses like this one in the NY Times look at economic forces in terms of the symptom rather than the cause.

The rising prices of commodities like food, fuel and building materials have been largely driven by demand in Asia where large populations are seeing their disposable income increase. They could also be driven in some part by market speculation. There have been abnormalities in grain prices and there might be an oil bubble.

The housing bubble was driven by the same forces. The price of building materials increased due to increased building in Asia, as well as here and many other countries. Speculators got into the market buying and selling real estate as well as selling risky loans predicated on the notion that prices would go up forever, eliminating the risk of loss if they were to default. The primary driver was the large appetite for profit today and very little consideration for the future.

While there is some element of coincidence to our current situation, it really boils down to one real problem. The current investment and management climate is exaggerating the impact of major economic developments. It happened with the internet in the late 90’s then moved on to housing and commodities since then.