Chicken Or The Egg?

Vinny

I'm home today watching way too much TV because I have a chest cold. And on sunday the only morning programs are political and financial.

The Wall Street Journal Report came on and as I surfed the net I am listening to the oximroans.

One that really struck a cord with me is "how great fears of inflation are driving comodity prices up and up". Followed by how "inflation is being generated, mostly in part, by huge increases in comodity price run ups on wall street."

So which is it? Demand on supplies or greedy buisnesses??

__________________
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The Right Way Driveway Company
If you say you cant, your a loser. If you say you wont, your a quiter. Which one do you want to be?

abm2958

I think that most economic profiles are derived by a combination of factors that drive the markets and inflation. The feeling of uncertainty within the markets can push inflation. I don't think that it comes down to businesses beeing greedy at all, it's more a factor of them trying to secure prices for the commodities that they need to produce products which drives up demand and in doing so the prices are inflated.

abm2958

A good example of this would be the housing market crash that we are currently experiencing. Over the course of the years before the decline money was available to lenders and then extended to homeowners who probably should have never been able to access it. This drove demand up and artificially increased values. After the money ran out and interest rates started to climb a lot of these people were unable to meet the terms of these adjustable loans and the rising rates causing them to lose houses which flooded the market and drove down the values, which is where we stand today in most of the markets... everything is tied to other events.

Also with the value of the Dollar declining against the other currencies of the world you have less buying power for each unit spent, this leads to higher prices of commodities because they could be sold elswhere in the world for more money because their currency has more buying power per unit.

Double-A

Fear of inflation drives buying now at a lower rate than expected in the future. Lower supply, due to fear-driven buying is causing a higher price.

Higher prices = inflation.

The fear mongers are driving the price up.

How all that works exactly is beyond me. I quit watching shows like this because they just hurt my head. I've always wondered who the loyal viewers of such programs were. I think they are mostly just advertising fodder.

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

abm2958

I think that the loyal viewers of these shows are the people with economics degrees that work in commodity trading and also people that work in finance. I know both types and information really is their power. Not just the information itself but being able to gather it from multiple sources and deduct a representation of the big economic picture. For the average person it really doesn't have much meaning other than in the ways that it changes their life- mostly through higher fuel and heating costs, higher food prices, their electric bill going up ect. It seems like a lot of people never think about how it affects their life at all, but it really does, they just don't pay attention to it.

Poolman

I agree Vinny.

The "talking heads" think they're Kreskin...all I know is the year ahead looks to be more expense than any before.

We're all feeling the pinch at the fuel pump and it'll pinch harder as spring arrives and everybody starts coming out of hibernation.

So to answer your question...It's primarily the idiots in front of the camera.

Later
Scott

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Scott

Is this going to be expensive?
It's all relative.

SelfContract

Let's do some logic math::


1) Chicken ==>> Egg;

2) Egg ==> Chicken;

3) Conclusion :: Chicken <==> Egg!!!..

or Chicken = Egg = Chicken = Egg...etc... (Circle of Life)

Double-A

You forgot one variable in that equation.

Rooster?

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

Drbobp

Its the same thing described from two different angles:

Since 2001 the Fed has been cutting rates or holding them below the real rate of inflation (measured as an increase in the price of all goods, not the made up CPI). This has caused the dollar to crater against all currencies. In 2001 a Euro was worth $0.85, now its worth $1.55. Since most commodities like oil, wheat, cement, lumber, etc... are denominated in dollars this results in price inflation. If you adjust for the decrease in the purchasing power of the dollar the price of commodities aren't that far out of line.

Add in the growth in demand resulting from the world wide housing boom and you get some serious inflation. Wall street sees the price of something moving and they jump on it and take to ridiculous heights.

The fear of further dollar declines causes the price of commodities to increase. An increase in the price of commodities causes a fear of inflation. Wall street sees inflation and buys more commodities. Eventually everything gets back in line because $4 diesel is like throwing sand in the gears of the economy. Causing things to crash. then reality takes over again.