There’s a reason we’re sending Billions of Dollars to Ukraine
I originally hail from the tiny Caribbean island of Trinidad. We’re small, just over 1 Million souls on 1850 square miles. The only significant export from our island is oil and we’ve devoted our existence to it.
Almost every institution, process, budgetary guide, plan, organization and government employee focuses on the extraction and optimization of petroleum related products. We’re hyperfocused on the minutiae of oil.
Cycles of Boom and Bust:
What we’ve learned over time is that whenever oil prices spike, the island receives windfall revenue that reinforces our tilt towards oil production at the expense of everything else. It’s the so called ‘Dutch disease’ modeled after the Netherlands during their Tulip boom.
We are not self sufficient in food, clothing, lumber, technology, or any of the multiple goods and services a modern economy requires to function. We export oil. We import almost everything else.
Rising oil prices increase the costs of oil production, even as the selling price goes up. At the same time, the costs of food and other essential imports go up with the oil price.
Higher oil prices in total have not helped the island much in recent times because we end up spending more than we make and USD has become as scarce as hen’s teeth.
But when the oil money is flowing, we experience a booming economy and the good times just roll. Decades of booms however have always been followed by busts. We have learned the hard way, that sudden influxes of money drives up the price of everything.
America is learning this lesson today.
When huge sums of money are generated in the USA out of thin air, dark prayer and blinkered thinking, naturally it creates inflation. Increasing amounts of money chasing after a limited number of goods/services drives up the prices of both.
Add to this, supply side shortages, like what’s happening with oil around the world and it seems the global inflation phenomenon is driven by both supply side and demand side pressures.