Sageman's Blog

So when we get down to understanding economics and we try to talk about interest rates, cost of living, credit ratings it all comes down to one thing, money. The fact is that we base our whole economy and faith on the dollar. A piece of paper that logically should be worth what ever a piece of paper sells for, right? Well no because we whether we want to think about it or not this piece of paper is being substituted for gold and silver and as such the federal government goes to lengths to insure that money in your pocket is backed up with an equal amount in our treasury. In theory at least, the actuality of it even becomes more complicated.

Yet here is where we get to the illusion of our economy, we are basing our whole well being  fiscally  on the assumption that money is the deciding factor in whether our economy exceeds or fails where as in actuality it's not money at all but rather whether people are willing to give us as credit that defines the strength of our economy.

See everything comes down to how much people are willing to invest in each of us. If the economy is booming people will give you money for anything, because in their eyes, we have an excess and as such by giving credit it will cause people to spend more and as such improve the economy. Where as this is a good system it is dependent on whether or not people are spending money.

See if no one is spending money, then there is no room for growth in economy. As such you have either an economy that is stagnant, or even worse, in recession! So the key is to get people to spend money thus giving it a much needed shot to arm! Remember those economic stimulus checks you received recently? Those were that shot in the arm the feds were hoping would boost our economy.

Yet here we come to the conundrum, there are certain factors that will always affect the economy. One is employment, simply because if people aren't working, they aren't spending money. If  they're not spending then, there is nothing to gauge their worth credit wise. Second is the housing market, mainly because out of everything a person owns, the house is the most expensive and as such it is the largest definition of your credit worth. Though many would agree it took the last year to bring this to it's true impact, Oil is another major influence on our economy!  Oil impacts so much its almost hard to fathom! What we sell, how what we sell gets from place to place, how people get from place to place, so much is impacted by oil! I'm amazed that how much we spend on oil has never impacted an individuals credit rating? Now we move on to inflation.

Well everything I've mentioned above is the end cause of inflation. Inflation is defined by the prices people are willing to pay for goods and services. As a result it directly impacts the value of an economy's money, thus it also impacts credit and is also affected by credit. Simply put if no one is using their credit then no one is spending money and as a result we see inflation drop this is not as good as it sounds. The reason being that when inflation rises, it is usually a sign that people are injecting money into the economy. When it drops then people are not spending money which in turn lowers the value of the money they do have, which in turn effects the health of the economy.

So the biggest thing is that the illusion of our economy is all based on one simple thing, credit and how much faith creditors feel is worth investing in the people the economy is built upon. If people aren't spending then there is a lot less faith in the economy and as such we see unemployment rise, the housing market slump. It seems that the biggest impact lately as too spending has been oil. I don't think I need to explain what that did to the economy. I hope that cleared it up a bit. It's no way doctoral thesis but it is a simple way of understanding economics.