As the days tick by, people are starting to see this problem may be bigger than the collective efforts of governments combined can handle. Some of the major factors that will help set the direction of recovery or crash are completely out of the hands of the governments.
As the meltdown continues to unfold, there is a fair share of finger pointing going on. Some are pointing to the banking and lending system, others are pointing to poor government oversight, and still others are pointing to methods and procedures that unbalance the system. Those are the things that can be fixed and have been caused by human error or greed.
This global economy can be loosely defined as a machine held together with bubble gum and bailing wire. It moans and sputters along just fine until there is a real demand on the machine. When the economic machine is cranked up to a higher setting to compensate for demands on it, it starts to come apart at the seams.
The global economic machine was not built to handle the rapid rise in price of oil. In fact anything over $70.00 per barrel is really making the machine overheat. $50.00 is tolerable but the economic machine is already moaning by then. Think of feeding an oversize log into a wood chipper and you can get the idea what it is like. Over $100.00 per barrel and the machines cooling system can’t keep up and starts to meltdown.
Under the laws of supply and demand the price of oil has dropped as everything slows down. But as soon as demand starts to pick up again, so will the price of oil. It is a bit like being mauled by a bear. Play dead and the bear goes away. Try to get up and the bear comes back to attack once again. In case you are wondering that bear lives in lower manhattan.
Another factor outside of the government’s control is panic and sheep mentality. The simple fact of the matter most people never took a university course on economics and all they know is the basics of supply and demand. Realistically 95% of the time that is all you need to know, this however is the other 5%. Understanding the intricate workings is beyond their ability simply because they never took the course. So as a result they rely on the wisdom of others who did take the course to provide guidance. Unfortunately the average Joe will have a hard time naming someone he trusts, and will simply follow the herd of sheep in whatever direction they run. Assuring words from the government fall on deaf ears, particularly when they are part of the problem.
Because the economy is like a big ship, quick maneuvering is not what it is best known for. We have all heard about ships hitting things including other ships, and it is not a pleasant outcome. This may not be the Titanic, but it will be a least hitting bottom on a sand bar and needing to wait for the tide to float it off.
A big part of what it will take to turn things around is overcoming the survival instinct fight or flight reflex when it comes to where and what people do with their savings. Listening to the advise of the people that caused the problem is not at all comforting. A leap of faith sums it up nicely. There is also the situation that each country must be on the same page as the other countries. If they are not working together, they may accidently sabotage each other.
In summary unless the governments can get out from oil dependency as a cause, and manage to control panic as an effect, it will be a rough ride for everyone and prolong the misery. New technology and new thinking must take the lead or any recovery will be short lived.
This is part 3 of a periodic series. Click here for part 2.