Conflict, COVID, China and Congress Combine to Cause Inflation

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Your wallet is at war. He loses because of inflation.

Almost everything from gas to food to computers costs more, and chances are a tax increase will top it all off.

The reasons are clear: conflict, COVID, China and Congress.

Most of us feel very distant from the main forces of change. We struggle to regain the life we ​​led just a few years ago. But the interconnected world reaches into the pockets of average people.

You can see it in most LL Bean catalogs. Everything, except some boots, is marked “imported”. Imports are cheap, thanks to cheaper labor and lax environmental rules elsewhere, compared to traditional products made in Maine by the company. American consumers liked it cheap and too bad for world politics. This will change.

It is now impossible to ignore world events and avoid their effects. Hostile relations between nations lead to economic warfare between emerging areas in search of greater self-sufficiency. A zone led by China and another led by the United States seem to be forming. Although everyone plays in the global economy, everyone is also looking for a strategic advantage by reducing dependence on others.

There may be outright conflict in places like Ukraine or perhaps Taiwan. The effect is felt by most people in the form of higher prices. While it is easy to blame President Joe Biden or either party in Congress for inflation, the forces driving prices higher are far more powerful than federal deficits.

The most obvious and immediate upward pressure on prices comes from the war in Ukraine. Russia is the biggest supplier oil and natural gas to Europe. The European Union now understands that its ability to fight against Russian aggression is limited by its dependence on these fuels. He turns to other supplies which are all more expensive.

The United States and Canada will step up more expensive fracking and send fuel to Europe. Qatar will add its natural gas. As Europe cuts Russian supplies, the price of fossil fuels rises. Oil and gas are traded in a global market, so rising prices are felt everywhere.

US suppliers charge US customers more. There are not enough renewable energies to save the day, and they have their own price.

Food supplies and most other products must be transported from their origins to end users. The price of fuel is in almost everything we buy or seek to sell. Higher fuel costs lead to higher costs for almost everything.

The impact of COVID-19 on national economies, as people retreated and reduced production and transportation, also led to shortages of consumer goods and a resultant rise in prices. The notion of “supply chainand its interruptions have entered common vocabulary.

Another effect has been the change in attitude of many workers who resist the low levels of pay and part-time hours which compromise their quality of life. the Big resignation of millions of workers is real and either limits production or raises wages, both of which drive up prices.

At the same time, the Chinese government decided to reduce the free market that had developed there. the The Communist Party regains control on what is produced, by whom and at what price. In this way, he can use trade and finance as weapons in international relations.

“Rare earth elements are necessary components of more than 200 products in a wide range of applications, especially high-tech consumer products,” the US Geological Survey said. China accounts for 97% of global supply. Moving away from its dominance will make these products more expensive.

In the short term, the economy is growing as it recovers from the effects of the coronavirus. The government is able to cushion the shock of rising prices. But it’s a first aid, not a cure for inevitably higher prices.

The Federal Reserve is now increase in interest rates, which have been kept at extremely low levels to stimulate growth in recent years. The return to traditional levels should limit inflation by slowing down an overheated economy and allowing it to manage itself. In the long run, higher rates will increase the cost of a home or a college education.

To these increases in the market price of almost everything must be added the federal tax increase expected at the end of 2025. In the last tax law, Congress granted a permanent break to businesses, but for individuals it was only temporary. Without congressional action, taxes will automatically rise to their former levels.

The economy and the economic situation of individuals will no longer resemble what they were at the beginning of this century. Although we may feel the effects of inflation now and expect the government to address it, most prices will be permanently higher.

This is not just old-fashioned inflation. It is history that presents its bill.