Given our episodes today, we hit on different aspects of price, the supply chain is another place to look because of the supply / demand issue.

Price, if we strip out all of the government distortion, is nothing more than a balance point between demand (people wanting to buy) and supply (how much of it is available).

Here are 4 things to track to determine the supply chains impact on prices.

Topics:

• Freight Costs
• Integrated Logistical Systems
• Congestion at the Pinch points
• Does JIT (Just In Time) really work or is it back to JIC (Just in Case)

Given our opening statement about the misuse of credit - making the cost of borrowing too low and hiding the moral hazard of taking on debt, inflation was built into their policies. This is also the major cause of economic bubbles.

So what happens when inflation gets out of control? The standard response and one of several tools is to raise the cost of borrowing. By raising rates you make the borrower think smarter about the hazard of the loan especially if the market is contraction. This logical response harms a number of individuals and industries as unintended consequences. It destroys the housing industry: construction, real estate, etc. and the home owner. Suddenly your home is worth less and the number you can buy it shrinks because it is now outside their budget.

In the United States we have raised the interbank rate to 3.75% and will increase it in 2023 to 5-6%. Now add the usual 3% margin banks place on top of what they pay you have interest rates at 8 to 10%. And that is for the best customers, imagine the impact credit card rates?

The forecast for 2023 is the global interbank interest rates will stabilize around 4.25-4.5%. This is a world-wide number and what will happen in your country will be different.

There are many ways of computing inflation, but the universal metric is a mixture of PPI, CPI, CCI, and employment.

The PPI is the Producer Price Index and it is a measure of the costs producers are paying to deliver the products and services the sell. Another valid metric is the PMI - the Purchasing Managers Index. It measures their confidence in purchasing more raw materials (production) based upon purchase orders they are receiving. Both is these are leading indicators - what will happen.

The CPI is the Consumer Price Index and measures what consumers are paying. It is based on a basket of goods and services and measures how each item changes over time. This is a real time indicator - what is happening. A companion to this metric is the CCI. It measures how confident are consumers, based on the CPI, they are about the future. It has a direct impact on their willingness to purchase anything beyond the necessities.

Unemployment is a trailing indicator and measures the impact of a downturn in manufacturing and series - if you don't have the work, you don't the employees. The reason most companies are reluctant to start here because of the costs of layoffs even though it is tempting to start here. Labor makes up about 30% of your costs and a controllable expense.

The global forecast is inflation will continue until 1st or 2nd QTR of 2023 before beginning a decline. But that assumes the government and their central banks make the right moves.

The last Economic Show we did was on November 11th and we discussed how government intervention distorts economies. The focus there was for any market economy to operate it has to have accurate information on price. The government's intervention distorts price and therefore making all of the decisions businesses and consumers make wrong - the creation of disastrous bubbles. Today's show will focus on what we can expect in 2023. We don't have a crystal ball or claim the power of prophecy. Rather we look at past behaviors of the people and institutions that shape economies and assume these approaches will continue. Never forget the past predictor of future behaviors is the past.

EPISODE 25 - THE GLOBAL ECONOMY The outlook is gloomy. Given the policies that have been put into place since the last recession, 2008-2010, world governments have kept interest rates almost at zero. That is the interbank leading rates which means if they place a traditional 3% margin on top of the loan, most business loans were artifically low. This meant credit was too cheap.

Also, because of excessive spending and building unsustainable sovereign debt, this contraction was inevitable. All of the factors are present for a recession: rising prices, unemployment, and declining GDP.

The only question is will be there a world-wide recession or isolated recessions bringing growth down.

After surviving 4 previous recessions, we have learned there are several things you can do to not only survive, but use it to strengthen your core.

Topics: Cash Flow Management Lowest-Cost Producer Holding Your Best Accounts

Regardless of your motivation for starting a business, it needs to be treated as an asset. For most entrepreneurs, it is their primary or only asset having invested their future in its success. There is an old saying in the stock market that you cannot fall in love with a stock, otherwise you will trade it when its performance demands it.

That is not true for your business. You must love it and bring passion to improving it every day or it will fail. It is not a stock to be sold!

Topics: Your Business - A Job or an Asset Invest in the Business Like an Investor Growth Only Comes from Productivity

The business cycle is easy to understand. Every 8 - 12 years, an economy goes through an expansion and contraction. An expansion follows a contraction where the economy has been cleansed of bad capital or investment decisions. Consumer attitudes change from fear to exuberance. People perceive good times are back and they start buying - demand. Businesses read this shift in attitude and begin increasing production, creating new products and services - supply to meet the demand, and what is the trigger?

When demand exceeds supply, it drives up the price and invites more investments in those areas. At some point, the prices reach an equilibrium point which starts the bubble phase. Bubbles are nothing more than an overproduction of goods and services because the feedback loop is slow. By the time businesses realize they have over produced prices are already falling apart and they are stuck with inventory (labor) nobody wants and the bubble bursts.

Topics: The Business Cycle The Price Mechanism The Inevitability of Bubbles Why Bubbles Burst?

Today we are taking a break from interviews and focusing on the global economy. Once a month we stop and look at what is going on - to borrow the song title from Marvin Gaye.

Although today's show is a lesson about monetary policy in the United States, the example works for almost every country in the world. As the world becomes more interconnected, the same philosophy drives decision making in London, Brussels, and Beijing.

If you take every country in the world and look at monetary policy since the Great Recession of 2008-2010, they printed and added $35 trillion dollars to the global money supply and that represents 50% of the world's GDP ($85 trillion). Since the root of inflation is the over-printing of money, which devalues the purchasing power of a currency, that money must be extracted from circulation.

Why is it a problem?

Because when you distort the value of a currency, you distort prices. If a currency is inflated, the prices of all products and services, by definition, must be increased. Since any market that operates on some market basis uses price as a signal to produce more or produce less - you create artificial stimulation. The increase in price is a signal to produce more if you are in a market or to jump into a market. This usually turns into a disaster for those companies that act on price signals - and we all do.

This sounds complicated, but it really isn’t.

EPISODE 21: Our Distorted Economy The essence of the problem is that there are VERY TRUE market economies, economies that would be considered capitalist. Today, most economic models are a blend of capitalism, state corporatism, and modern monetary theory. This is a witch brew that will lead to economic devastation globally.

Topics: Will this lead to a global recession? (Destruction of the dollar as a reserve currency, high price for energy due to policy, the inability to reduce the money supply) How long will the recession last? (government action distorts the business cycle, 18 months at least instead 6-8 months, ) What should governments do to solve the problem? (bring down inflation by reducing the money supply, accurately measure inflation - it is not a social construct, dealing with sovereign debt, abandon a central planning mindset)