Why Things Cost So Much
The Laffer Curve
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.