Why Things Cost So Much

The Laffer Curve

They are laughing at us.
They are laughing at us. | Source

Why do things cost so much in a down economy?

The short answer is: speculators. ‘Speculators’ is also the long answer. Meaning, the long and short of it is this: things cost too much because of speculators.

I saw the rise of oil prices to asinine levels, all the way up to $147 a barrel in 2008. Then suddenly the oil prices fell drastically, all the way down to less than $30 in 2009. And gas, I remember getting it for $1.27 a gallon a couple of times. But at the same time, the biggest banks were experiencing a crisis of their own. They had no money to lend. I looked at that coincidence and realized the big banks were financing the speculators who were running up oil prices. When the banks could not do that, oil prices went down. Way down.

But not to worry, our Gub’ment bailed out the banks and they were able to once again finance the commodities speculators and oil went right back up above $100 a barrel. But before 2008 the big concern was the rising price of houses. That, clearly, was the work of speculators. No way could a decent, honest person afford those home prices, and even today the prices are still too high. Seriously, median home prices above a quarter million dollars in a country where median incomes are below $30,000 for individuals, that’s just crazy. But not to worry, with all the money the banks are making from lending to commodities speculators, the banks can afford to sit on millions of vacant foreclosed properties for a very long time. For ever, if necessary.

So essentially it has become painfully obvious to me that the reason everything costs too much is because the big bailed out banks are providing the financing the speculators need to drive up prices. And by ‘costs too much’ I mean prices are well above where normal market forces would have them. I could accept a speculative premium between five and ten percent, to ensure availability of resources by providing incentive to producers... but right now the speculative premium is more like 40% for housing and 150% for oil. That's just plain exploitative.

In early 2012, gasoline demand in America sits at a ten-year low, yet the price of gasoline is going back up to record levels. But in early 2009 the biggest banks were too cash-strapped to finance the speculators and gas was down to a buck and a quarter a gallon.

It is not demand-pull inflation, it is not a matter of too many consumer dollars chasing scarce resources. It is too many speculative dollars hoarding stockpiled commodities, running prices up long before an actual consumer ever demands a good. But it’s not just gas, it’s everything: food, clothing, shelter, and anything else traded on a commodities exchange. And that is why everything costs too much.

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Comments 8 comments

mackyi profile image

mackyi 4 years ago from Philadelphia

Speculators have long been playing a key role in the rise and fall in prices of certain goods and services. They have a way of giving their own predictions along with rationales that causes some people to either get on board or jump overboard. As we all know, the supply and demand concept plays a critical role in the rise and fall of prices. The Speculators have a way of influencing a shift in the supply and demand curve!


amillar profile image

amillar 4 years ago from Scotland, UK

Very interesting and useful Jed, but surely this can't be right. The UK Gub’ment, whilst bailing out these very same banks, expressly said, "We're all in this together".

They must be either stupid or wicked. You don't think they'd lie to us - do you?


Jed Fisher profile image

Jed Fisher 4 years ago from Oklahoma Author

It's the Oilgarchs flexing their muscle. And Hollywood, naming a black & white silent movie as picture of the year 2012. That shows the arrogance of the monopolists, demanding top dollar for an inferior product. It's like Andy Whorhol paintings; not even trash, but pictures of trash. This can't end well.


lilyfly profile image

lilyfly 4 years ago from Wasilla, Alaska

Oh, you mean the plague of Derivitave bankers who have bastardized the monetary system, even tho we bailed them out. Yes, Jed, I write regularly on this issue, and for my my troubles I am being investigated. keep with it! Publish BIG! Bleat! Cry! Make noise! Thank you! Love yaz, lily


Jed Fisher profile image

Jed Fisher 4 years ago from Oklahoma Author

It's not like they are trying to hide anything, they aren't even embarrased. They feel like they are doing us all a favor. Check out the Bank of International Settlement web site, bis.org. It's all there. Tons of articles, speeches and reports loaded with useful information.


feenix profile image

feenix 4 years ago

Hello, Jed,

Economics is not my strong suit, but you did a very good job of explaining things in a way in which even I can understand it.

I am bookmarking this article so I can study it. For me, it is very educational.


Jed Fisher profile image

Jed Fisher 4 years ago from Oklahoma Author

Thank you Feenix, I'm flattered!


Jefsaid profile image

Jefsaid 4 years ago from London, UK

Jed fantastic! I have read a couple of your articles now and they are extremely informative and readable. The economy was once a comparatively simple mechanism where the elite basically controlled everything. In more recent times and with technological advancements like the internet anyone can now gamble on the markets. As a consequence, thousands of speculators have entered the fray and the means of manipulation have become more sophisticated to exploit the general naivety of the speculative masses. Where simple supply and demand once dictated prices, "sentiment" and "bar diagrams" now influence supply and demand.

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