I am not quite sure we thought this all the way through.
After dealing with two years of economic dislocation, supply chain disruption, and deaths due to the pandemic, we are now in yet another period of deprivation.
We are exacting financial revenge upon Russia for it’s invasion of Ukraine. That “we” is really the US. Because Europe really can’t walk away from the fuel supplies that Russia provides to keep their countries running.
It’s also why Mario Draghi’s government has failed in Italy. Because its Parliament is not as committed to the plans needed to sanction Russia for it war crimes. Macron (France) suffered his parliamentary defeat because of its high inflation rate as a result of this economic warfare. Even Boris Johnson’s (UK) government was toppled- not just because of his boorish, buffoonish behavior- but because inflation was battering the power of his Conservative party base.
Now, sure, Russia is suffering more than the West is. Western business has abandoned the Russian landscape. But, the West is experiencing rampant inflation, as we deal with the rising fuel costs (which drives up costs for all other items) and food shortages. Not to mention the substantial hikes the world’s central banks are imposing upon their economies.
Right now, the world’s GDP has been attenuated by at least $ 1 trillion due to the war. And, instead of the expected 4% growth, the global economy is only moving up by 2.8%. (Italy, Germany, and France are suffering the highest drops in output.)
The Western Nations all thought that Russia would be the only sufferer in this economic deprivation war. Sure, Russia’s output is dropping (some say 3.5%, others say as much as 15%). And, Russian inflation is running at 15% a year- considerably more than the sky high 9% rise we suffered last month.
The problem is that Putin controls the message in Russia. So, while the middle class (which is a stabilizing force in every civilization) has been deprived of the goods and services to which they’d become accustomed, they don’t necessarily equate that with the invasion of Ukraine.
And, if (as I expect) Russia will not turn its flow of Nord Stream gas back on after its scheduled maintenance period, the price of fuel will skyrocket as the world seeks a new equilibrium. Which will drive up inflation and exacerbate production capabilities almost everywhere. For example, German output could easily be decreased by another 5%. (Yes, America is self-sufficient for oil, but that does not mean our prices do not reflect world conditions.)
This is going to be an interesting second half of the year.
This is getting very scary and I don’t see it turning around any time soon. Thanks again for keeping us updated.
I’m with you, Martha! Thanks for the visit and the comment.
Don’t shoot me, but I think, every once in a while it’s not only bad if an economy isn’t growing. My point is, where is the limit? How much growth can be sustainable before the bubble bursts?
Also, people may whine and throw a fit about high gas prices, but maybe this is necessary to push clean energy projects. Again, don’t shoot me 😉
The economy MUST grow- because we have a growing population. If the economy doesn’t grow, then it means that folks will have to do without.
That’s true, and it’s already been happening for a while due to supply chain issues following the pandemic and war.
More the war nowadays, but you are absolutely correct, Tamara.
Thanks for adding to the conversation.
With all this economic news, is there any glimmer of hope that we can look forward to?
Are there any solutions other than waiting it out?
Perhaps helping Ukraine settle the war more quickly, instead of the tit-for-tat attrition that seems to be the current plan, Paul.
Our interesting times continue. What a roller coaster ride! I hope the Democrats can implement effective messaging to explain what is going to happen and is happening, because I think messaging needs to be a lot better than it has been. This inflation is really hurting a lot of people, and they have to be given the facts. Too many of them are getting “facts” from sources of misinformation.
I’m with you all the way on that messaging, Alana.
Your post reflects how connected the world is. I do question if price increases are not just an easy excuse to gain more profit. Corporate profits skyrocked during the pandemic. Is this inflation real or is it manufactured?
The petro-industry always plays that game. But, once we have to pay higher fuel prices, then the costs for shipping our goods rises- which raises our prices. Fertilizer is made from fuel- so that price rises. There is a link- but not quite the way you tried to imply, Angel.