Supply and Demand

As human beings, we have a natural tendency to overcomplicate things. And when the world is in such a state as it is right now, we can drive ourselves crazy trying to make sense of it all.

Personally, I’ve learned to keep things as simple as possible. Some call it the KISS principle: Keep It Simple, Silly. And when we’re trying to understand the seemingly topsy-turvy economy right now, simple is best. That’s why I’ve done my best to boil it down to supply and demand. 

The Basics of Supply and Demand

If we break it down into the very simplest terms, the world has certain amounts of resources (supply), and a certain number of people who want or need those resources (demand). When there is a certain commodity in great supply, with little demand, the prices are very low. 

On the opposite end of the spectrum, you may have commodities in low to moderate supply, and high demand. In those cases, prices are high. 

This paradigm exists in every market, and every sphere, including currencies. We all, in some way, interact with currencies. If you look at the history of the US dollar, you’ll see that from 1913, the supply of currency looks like a hockey stick. Which means it held steady for a time, and then drastically increased. In 2020 alone, we’ve added trillions of dollars to the money supply. 

So now there’s a massive money supply, yet only a certain amount of goods. In most cases, the production of goods has not increased. In some cases, products have shifted, or production has even decreased. The result of this disparity, is now that the price of many things has increased because the demand of money doesn’t necessarily keep up with the supply.

Gold and Silver

On the flip side, if you look at gold and silver, there’s only a certain amount of gold and silver bars on the planet. And there’s only a limited supply of these metals being mined. Now, because there’s suddenly a lot of uncertainty about the global economy, what do people do? They flock to their safety assets—gold and silver. So the demand for these metals has increased overnight out of panic, causing the prices to rise. 

Cryptocurrencies

The same thing is happening in the cryptocurrency sphere. Bitcoin, the most well know cryptocurrency, actually has a limited supply. Through the coding of Bitcoin, we know that there will only ever be 21 million coins. And the uncertainty of the global economy, again, is driving people to seek safety assets. Bitcoin and other cryptocurrencies fit the bill. Especially since there’s only a limited supply of gold and silver. So the demand is high and supply is limited, meaning prices are bound to increase. 

The Housing Market

In the United States, we’ve seen a massive explosion of housing prices in certain markets. Not only are prices of houses going up, people are actually overbidding on houses to secure their claims. There are actually a couple of reasons why. 

The first reason is because people are trying to get out of the major cities and into the suburbs. This shift of focus means that specific suburbs are becoming highly competitive. People are willing to overpay in order to secure the house that they want, or even any house at all. 

Many homeowners have experienced hardship this year. Maybe they’ve lost their jobs, or are behind on mortgage payments. These are folks that might have otherwise sold their houses had the year gone differently, but just aren’t in the position to sell their house anymore. So there’s also a limited supply of houses that is driving up the competition. 

Then, you have the incredibly low interest rates. Plenty of people still have decent credit right now, and can take advantage of these rates. It’s one more incentive that raises the demand of the housing markets.

All three of these factors contribute to the major supply and demand discrepancies of the housing market, which is keeping prices high. 

The Stock Market

Finally, let’s look at the supply and demand of the stock market. A ton of fiat currency has been created, and because the supply of goods has not kept pace, that money is looking for a place to go. And it’s going into the markets. I mean, we’ve even seen the Federal Reserve buying junk bonds. So money has been pumped into the market, even though a lot of the companies haven’t been producing many goods. Yet the stock market is almost back to where it was at the beginning of the year, and is heading toward an all-time high. 

Back to the Basics

When you look at the world as a whole, and compare it to the fundamental principle of supply and demand, it all starts to make sense. We humans tend to overcomplicate things. When we keep it simple, in many cases, we can get more clarity on situations like the state of the economy. In turn, we can make better decisions as business people and as investors. 

As human beings, we have a natural tendency to overcomplicate things. And when the world is in such a state as it is right now, we can drive ourselves crazy trying to make sense of it all.

Personally, I’ve learned to keep things as simple as possible. Some call it the KISS principle: Keep It Simple, Silly. And when we’re trying to understand the seemingly topsy-turvy economy right now, simple is best. That’s why I’ve done my best to boil it down to supply and demand. 

You can listen to my new podcast, Cashflow Investing Secrets here.

Live your Freedom, Live Your Legacy, On Your Own Terms,

M.C.

M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/