Inflation Explained and Discussing the US Economy

Read More

What is inflation? What are inflationary policies? Is the Fed trying to cause a recession? We dive deeply into this Advanced English conversation to discuss the US Economy. If you're wondering how to come out of this recession stronger, smarter, and more equipped to handle any curveball, tune into this conversation.

00:00:00:03 - 00:00:32:12
Mary Daphne
Hello, Advanced English Learners. Welcome back for another conversation. We are really excited to be here and I'm joined by the one and only Greg. So thank you for joining me, Greg. We do this so that you have practice with listening comprehension. By the way, I'm sending out listening comprehension questions. So the only way to get that right now is to be a subscriber to our newsletter so you can join our mailing list for those and then you'll also get the answers the next week.

00:00:32:22 - 00:01:06:21
Mary Daphne
So that's a little fun thing we've started to do. I'm getting a lot of good feedback that you're enjoying it, so we'll keep it up. And, you know, in this specific lesson, we're going to give you some financial terminology because of the topic that we're discussing today. And you also get great practice with conversations in English, communicating, turn taking and things like, you know, your intonation, your pronunciation and vocabulary, building expressions and all of that wonderful jazz, as we say in English.

00:01:07:03 - 00:01:23:09
Mary Daphne
So today's topic is inflation, right? Get into it. All right. So we've been hearing a lot recently about inflation. So why is that the case?

00:01:24:18 - 00:01:45:26
Greg
Yeah, inflation seems to be the headline. I mean, I read a lot of financial newsletters, so for me, inflation is literally every headline. But the impression I get is that most people at this point have seen headlines about inflation. So the reason inflation matters is it affects the amount we pay for things, right?

00:01:45:29 - 00:01:53:22
Mary Daphne
Right. Yes. Things become more expensive and they're inflated, right? That's right.

00:01:53:23 - 00:01:56:12
Greg
The price the price of something becomes inflated.

00:01:56:12 - 00:02:05:12
Mary Daphne
Inflated, which means bigger write inflate. So you inflate a balloon, right? You blow air into it so that it actually takes shape.

00:02:05:21 - 00:02:34:23
Greg
Mm hmm. Exactly. And that's actually a good mental model for what's actually happening with inflation, right? Inflation ultimately is the expansion of the. Well, the cause of inflation is ultimately the expansion of the money supply. Right. Right. So when let's just we're going to use U.S. dollars, right? Yeah. When you normally let's just say a pack of gum costs $1.

00:02:35:10 - 00:02:39:04
Greg
Right. Okay. So $1 is equal to the value of a pack of gum.

00:02:39:13 - 00:02:39:22
Mary Daphne
Okay.

00:02:39:28 - 00:03:04:12
Greg
Okay. Now, let's just say that we the supply of dollars actually start with the gum. Let's say there are 100 packs of gum. Right. So with 100 pack a pack of gum, each one is $1. Mm hmm. Now, let's say that the supply of gum goes down.

00:03:04:22 - 00:03:05:03
Mary Daphne
Okay.

00:03:05:12 - 00:03:07:03
Greg
Now, there's only 50 packs of gum.

00:03:07:03 - 00:03:09:07
Mary Daphne
So there are fewer packs of.

00:03:09:15 - 00:03:16:28
Greg
Fewer packs of gum. And the same amount of people who want that gum. Is that gum going to be more valuable or less valuable?

00:03:17:24 - 00:03:22:22
Mary Daphne
More valuable, right. Whereas supply has dwindled while the demand has increased.

00:03:23:03 - 00:03:33:06
Greg
Or the demand has stayed the same, but on a relative basis it has increased. Right? Right. Because you have the ratio of gum to the people who want.

00:03:33:06 - 00:03:34:04
Mary Daphne
Them, it has.

00:03:34:04 - 00:03:56:06
Greg
Changed. Right. Right. And so the fewer the lower the supply of gum, yet the more valuable it becomes. Absolutely right. Because there's fewer. And eventually you get down to one pack of gum is one pack of gum, and there's still 100 people who want gum. Right. They're going to bid a lot for it. And then ultimately, the person who has the most money is going to get that piece.

00:03:56:06 - 00:04:05:28
Mary Daphne
So it becomes a bidding war where people are essentially, you know, the item is essentially in an auction and people bid as much as they can for it.

00:04:05:29 - 00:04:11:08
Greg
Right. Yeah, exactly. Someone says I'll pay $2 for that gum. Someone says, I'll pay five.

00:04:11:08 - 00:04:13:12
Mary Daphne
Right. I'll pay ten, 1000.

00:04:13:12 - 00:04:14:12
Greg
Right. For a pack.

00:04:14:12 - 00:04:16:25
Mary Daphne
Of gum that's valued at.

00:04:17:02 - 00:04:37:15
Greg
$1 should be $1. But because the supply has decreased now. Yeah. On the flip side, let's say that the supply of gum increases. Yeah. Right. So let's say there's a hundred people who want gum and there's 100 packs of gum. Right. Supply equals demand. Now, let's say that there are 200 packs of gum.

00:04:37:24 - 00:04:38:05
Mary Daphne
Okay.

00:04:38:14 - 00:04:41:11
Greg
Right. Is the value of gum higher or lower now?

00:04:41:29 - 00:04:43:12
Mary Daphne
Now the value is lower.

00:04:43:22 - 00:05:08:16
Greg
Right? Because everyone can easily get gum. Right. And so as the supply of gum increases, it's sort of the reverse of the scenario we're talking about before. Yeah. The value, the relative value of it decreases because there's an abundance of it. And so there's a lot of gum that goes unsold. And so, you know, eventually people are don't feel like they have to pay as much for it because there's so much of it.

00:05:09:09 - 00:05:33:22
Greg
The same. Why are we talking about the supply and demand? Why is this matter for inflation? Well, it's the same dynamics at play that drives inflation. Right? Right. So one of the things we said before is the money supply. That's the supply of dollars in our economy. Right. Right. In during COVID, what happened was we were a lot of companies were suffering.

00:05:33:22 - 00:05:52:20
Greg
Right. Business demand was dwindling like airlines. Airlines. And so what the government said was, we're going to give people a lot of money and we're going to give businesses a lot of money so that everyone feels interested in buying things again. Right. Because if the economy is going down, everyone gets afraid and they want to save. And that causes the economy to contract.

00:05:52:20 - 00:05:54:09
Mary Daphne
Right. Because no one's buying anything.

00:05:54:25 - 00:06:04:16
Greg
So always in recessions or when there's the danger of a recession, what the government wants to do is stimulate the economy. Right. And that means giving people money.

00:06:04:16 - 00:06:09:08
Mary Daphne
And that right might remind you of maybe you've heard of it. Stimulus checks.

00:06:09:09 - 00:06:09:26
Greg
Yes. In the.

00:06:09:26 - 00:06:11:03
Mary Daphne
U.S., you had several other.

00:06:11:03 - 00:06:18:18
Greg
Countries. They distributed stimulus checks early on during the pandemic. And part of that was just to help people pay for their bills.

00:06:18:18 - 00:06:46:23
Mary Daphne
Right. Just to get by, because, you know, jobs were it was all a whole complication, a whole slew of difficult things. You know, suddenly double income families were having to resort to one person's income while the other person did full time childcare. Right. Things like that. So there was a lot at play. Hence, you know, stimulus checks being important for people to be able to continue to put food on the table, right?

00:06:46:24 - 00:06:47:07
Mary Daphne
Correct.

00:06:47:17 - 00:07:10:17
Greg
So you have stimulus checks, right? You also had the PGP, which is the pay. Paycheck Protection Program, which enabled businesses to continue paying their employees. Right. And several other stimulus measures. So the government is giving a lot of money, people. The first reason is so that they can pay the bills. But the second reason is that they go and buy things right and go and invest in things.

00:07:11:07 - 00:07:25:26
Greg
They also kept the interest rates low. So the interest rates you've probably heard about the interest rate refers to the overnight federal funds rate. Right. And this is the rate at which banks can borrow from the Federal Reserve.

00:07:26:01 - 00:07:26:21
Mary Daphne
Right. So from the.

00:07:26:21 - 00:07:43:02
Greg
Government. From the government. And the lower that inflation rate is, the easier it is for banks to borrow. Yeah, right. Because they can borrow more cheaply. And if it's the banks can borrow more cheaply, then they they can issue loans more cheaply too. So if you want to go and buy a house, right, you're going to take out a mortgage.

00:07:43:09 - 00:08:05:21
Greg
What is a mortgage? A mortgage is a loan from a bank to you. Now, what is going to determine the percentage interest on your loan, on your mortgage? It's going to be what the bank has to pay the Federal Reserve plus a little bit because the bank needs to make some money. Right. Right. So it let's just say the federal funds rate is 1%.

00:08:06:17 - 00:08:17:03
Greg
The bank says, okay, I have to pay 1% to borrow from the Fed and to you, I'm going to charge 2%. Now I get that spread. I get that 1%.

00:08:17:03 - 00:08:17:26
Mary Daphne
Some profit.

00:08:17:29 - 00:08:34:28
Greg
You get some profit right now with the if the government wants to stimulate the economy, what they'll do is, well, this is the Fed now. They're going to lower the interest rate so it's cheaper to buy. And so people buy more things, right? Slightly more.

00:08:34:28 - 00:08:45:06
Mary Daphne
Money. Right. And suddenly getting a mortgage is a lot cheaper. So suddenly people are, you know, now in the in the, you know, business of buying a home.

00:08:45:15 - 00:09:04:04
Greg
Well, suddenly it becomes very cheap to buy a home. Yeah, because you're basically borrowing for free. Right. And so as we noticed over the last couple of years, the price of homes skyrocketed because it was you could borrow money for almost no interest rate. It's basically free money. You have to pay it back. Right. But you can hold on to it and pay very little for that.

00:09:04:14 - 00:09:15:09
Greg
So that that caused the price of housing to inflate. Right. Right. So that was part of it. So housing inflation that jumped up because of these these low interest rates?

00:09:15:10 - 00:09:15:26
Mary Daphne
That's right.

00:09:16:06 - 00:09:41:18
Greg
Meanwhile, like we said, we also had a lot of money getting pumped into the system from the government. You have monetary stimulus and also fiscal stimulus. And one of those refers to the interest rates set by the Fed. Right. The other refers to actual government, you know, executive office that, you know, laws that basically allow money to be sent directly to people as the stimulus checks.

00:09:41:24 - 00:10:02:03
Greg
So people are buying more because they have more money. That's going to push up the price of things, right? When people are buying Buy More something, that means demand's increasing. So prices are going to come up and likewise people have more money or they can borrow money cheaply. So that's going to intensify their their buying because they can do so at a lower cost.

00:10:02:12 - 00:10:09:27
Greg
So the combination of these things, very inflationary, which is what they wanted right at the time, the economy was tanking. And so they wanted to.

00:10:09:28 - 00:10:12:09
Mary Daphne
Tanking means it's going into the, you know.

00:10:12:11 - 00:10:12:29
Greg
Yeah, going.

00:10:12:29 - 00:10:14:09
Mary Daphne
Down going down fast.

00:10:14:09 - 00:10:19:13
Greg
Yeah. Right. And so it worked perfectly. That was great. And they should have done that and they did do that.

00:10:20:10 - 00:10:25:06
Mary Daphne
However, there are some ramifications right there, consequences from that.

00:10:25:15 - 00:10:51:25
Greg
So that works. But you don't want to do that forever because eventually you're going to overstimulate the economy. And once you overstimulate it, it's very hard to then try to get it to calm down, down. And so over the last two years, they continue to run these very stimulatory, very inflationary policies, which was originally very important. But over time it became less important because the economy had already recovered.

00:10:51:26 - 00:11:05:23
Greg
Yeah. And so a lot of critics will say that the government ran these these inflationary policies for too long. Right. So they continued for too long. And you heard last year, oh, inflation is transitory. It's transitory. It's going to pass soon.

00:11:05:29 - 00:11:08:21
Mary Daphne
Right. Don't worry about a temporary thing.

00:11:08:21 - 00:11:25:15
Greg
And a lot of economists say, no, I don't think this is transitory, Don, unless you change your policies. Right. But we didn't change our policies. And so we kept inflating. Inflating. And so finally got to a point where we're like, okay, maybe we actually have to do something. And just as we sort of reached that point, which was the end of last year.

00:11:25:16 - 00:11:51:26
Greg
Yeah, the conflict between Russia and Ukraine also broke out. Right. And when that conflict broke out, what happened to there was also a huge what's called a supply shock. Right. And so we talked about earlier. Yeah. When the supply of something goes down, the price of it goes up. Up. So what supply got shocked. Oil? Yeah. Oil and gas.

00:11:51:27 - 00:12:11:01
Greg
Right. Probably the most important commodity in our economy. Yeah, right. We need energy for everything. But you turn on the lights to run our cars, to run factories. Right. We need energy for everything to run the Internet. So energy is one of these things where we always need it.

00:12:11:02 - 00:12:12:07
Mary Daphne
Yeah, we're dependent or.

00:12:12:07 - 00:12:32:25
Greg
Dependent on it. And so if the supply of energy goes down, the price of energy goes up, and if the price of energy goes up, that means it's expensive to do everything. Yeah, that means it's more expensive for the factories to produce things. It means it's more expensive for restaurants to keep the lights on. Right. So they have to raise the prices.

00:12:33:12 - 00:12:56:01
Greg
So in a situation where we were always already had a very inflationary economy, we then had a supply shock to energy. And so the combination of all of those things together. Yeah. Oh, by the way, there's. There's one more piece to this puzzle, which is another supply shock, and that is staff to run.

00:12:56:02 - 00:12:56:23
Mary Daphne
Right. Quitting?

00:12:57:01 - 00:13:20:27
Greg
Well, yes, staff quitting, but also not being able to go to work. So a lot of ports. Right. A lot of cargo terminals around the world couldn't operate at full capacity and truckers were not able to operate at full capacity. So all of our supply logistics also became impacted. Yeah. So the supply of things also became constrained just because you couldn't get them to the warehouses or to the stores.

00:13:20:27 - 00:13:29:16
Mary Daphne
And there was a lot of backlog, like a backup and backlog and just a lot a host of different, you know, inconveniences.

00:13:29:17 - 00:13:58:17
Greg
Exactly. And so all of these things combined created an intense, intense explosion of prices. Right. And some of those were transitory. Right. Some of these things probably could get fixed with time as the COVID rules relax and the economy sort of returns to a more functional state. But other things stay. And one of the most sticky things that that can can be inflated is your income.

00:13:58:26 - 00:14:07:09
Greg
Write your paycheck once paychecks start going up, once employed, you say, Hey, I need more money to live. You got to pay me.

00:14:07:09 - 00:14:14:22
Mary Daphne
More, because now the price of a baguette has gone up. Exactly. You know, I need to be also that me see reflected in my paycheck.

00:14:14:23 - 00:14:40:08
Greg
Exactly. It all sort of trickles down, right? The price of making things gets more expensive, which makes the goods themselves more expensive, which makes the people, by buying them, say, hey, I need more money, which means the companies have to pay them more. And the whole thing slowly like builds on itself. And once you get to the point where the cost of labor increases, then employment are sorry, inflation is there to stay.

00:14:40:13 - 00:14:47:24
Greg
Right. Right. That is sticky. Sticky inflation because how how often do you ever see salaries go down? Right. They never go.

00:14:48:09 - 00:14:49:01
Mary Daphne
Almost like they might.

00:14:49:01 - 00:14:59:21
Greg
Stay flat or they'll go up, but they never go down. So once the once salaries go up, that's sort of it done, you've inflated. And there's no going back or it's very, very rare to go back.

00:14:59:22 - 00:15:00:00
Mary Daphne
Right.

00:15:00:09 - 00:15:26:00
Greg
So that's what the government wanted was most afraid of. So in the last few months, what the government's done, we talked about that federal funds rate. They've started increasing it, right? So when they were trying to stimulate the economy, economy, they were decreasing that interest rate. Now they've been increasing, increasing it and they're increasing it at the fastest pace in history.

00:15:26:12 - 00:15:42:09
Greg
Right. And so this this interest rate is ramping up, which makes it more expensive to borrow. And it makes it more expensive to pay the loans that you already have out. Yeah. So businesses have to reduce the amount of activity that they're doing.

00:15:42:09 - 00:15:57:14
Mary Daphne
And that's why a lot of maybe you've been thinking about applying for a job. You'll see that a lot of companies have slowed hiring, have frozen hiring. Right. This is part and parcel due to the recession and inflation. Right. All of this.

00:15:57:14 - 00:16:19:25
Greg
So when a lot of economists are saying that is that the Fed is trying to the Federal Reserve is trying to cause a recession now. Right. And they're doing that because they need inflation to come back down. How do you get inflation to come back down? You have to reduce demand. Right. And the number one tool they have is to adjust this interest rate.

00:16:19:25 - 00:16:33:22
Greg
And so as they increase this interest rate and the speed at which they increase the interest rate has a deflationary effect on the economy. And so if they actually do get a recession, and many would argue we are already in a recession.

00:16:33:23 - 00:16:34:02
Mary Daphne
Right.

00:16:35:16 - 00:16:47:24
Greg
The demand comes down, which ultimately causes prices to come back down. And when that happens, things slowly start to stabilize. But that process can be very, very painful.

00:16:47:24 - 00:17:10:00
Mary Daphne
Yeah. So it's tough, right? We need to maybe get smart about what we're doing. We need to be try to be as optimistic as we can, maybe be a little bit smarter with, you know, budgeting and spending money and on things and just buckle up for it because it's going to be a little bit of a ride.

00:17:10:02 - 00:17:30:10
Greg
Yeah, I would say the number one thing to do in situations like this where the economy is, you know, very unpredictable. Yeah, the number one thing is to just be patient. Right. Don't expect anything because most likely, the more you want something as an investor, I know this, the more I want something, the more the less likely it is to happen.

00:17:31:12 - 00:17:49:25
Greg
The best thing to do is just to be patient. To be conservative. Yeah, right. And thoughtful about it. And from the perspective of. So one thing is, you know, on the side of. Yeah. Be be more reserved with how you're spending money and the other side, what you should really focus on is delivering value.

00:17:50:05 - 00:18:09:09
Mary Daphne
And I would even go a step beyond that and say, okay, one way to deliver, deliver value excuse me, or continue to deliver value is to make sure that you are equipping yourselves with skills that is going to help you come back after this bear market. Right.

00:18:09:24 - 00:18:10:15
Greg
Totally. Yeah.

00:18:10:15 - 00:18:32:25
Mary Daphne
That's it. And invest in yourself, right? If that means skill development, if that means, you know, spending an extra hour or two each week, professional development, personal development, learning a skill, improving your English, working on your communication, you know, learning some hard skills, whatever it is, go for that investment in yourself, especially during times like these.

00:18:33:01 - 00:18:53:21
Greg
Exactly. Because what you find happens is just when things seem like they can't get any worse, they get a little bit more worse. And by that point, people are so exhausted, they just sort of give up. Right. Right. And it's at that point that you have an opportunity to step in and say, I can do this. They may have left, but I'm ready to do this.

00:18:54:00 - 00:18:57:21
Greg
And generally, it's around that time when everyone's sort of thrown in the towel. Right.

00:18:57:24 - 00:19:05:02
Mary Daphne
The economy is giving up. When you throw in the towel, it means you've given up. Exactly. No more. You're not. No more fighting the game.

00:19:05:03 - 00:19:28:02
Greg
No, we're fighting again. Exactly. So at that point, you can step in and provide that value. And you've developed these skills that that, you know, over the past few months, you haven't, you know, spent time being depressed by the news. Right. Right. You've ignored the news and you're just focused on making yourself better and more productive and more able to to provide value.

00:19:28:09 - 00:19:54:09
Greg
In doing that, you step in and suddenly people want you. You're in demand. Yeah, right. And you're able to start thriving as the economy starts recovering. And that starts a beautiful, beautiful cycle where you grow with the economy and you tend to get pulled toward where the demand is greatest. So you grow that demand. It typically leads to raises, it typically leads to good investments.

00:19:54:09 - 00:19:56:00
Mary Daphne
New business investment.

00:19:56:00 - 00:19:58:24
Greg
New business opportunities, new relationships.

00:19:59:12 - 00:20:05:14
Mary Daphne
Better social networks, which is also very important for our longevity and our health and business outcomes.

00:20:05:15 - 00:20:14:05
Greg
Yeah, it's a lot like nature, right? Nature is this cycle of, you know, things are up, things are down. Did the forest, for example.

00:20:14:05 - 00:20:15:09
Mary Daphne
Harsh, harsh, were.

00:20:15:09 - 00:20:41:21
Greg
You? You always need forest fires. So. Forest fires are terrible, right? But forest fires are a necessary part of the health of a forest. Right. Things need to burn down for them to regrow. Yeah, right. If the forest never burns, it becomes overcrowded and it ultimately dies. It sort of rots. Whereas when you have a steady cycle of burns and regrowth, you get a much healthier forest.

00:20:42:00 - 00:20:56:26
Greg
And it's kind of the same with the economy stronger. Yeah, exactly. The economy goes down. It tends to get rid of the things that were inefficient or shouldn't have existed in the first place. And it creates a new sort of fertile soil. Yeah. For you to go and provide value.

00:20:56:27 - 00:21:01:15
Mary Daphne
Making way for a new, new opportunity, new things.

00:21:01:19 - 00:21:02:08
Greg
Right. Yeah.

00:21:03:13 - 00:21:13:09
Mary Daphne
So that's a little bit of an overview. I think we did a lot of deep dives happening in there. So hopefully, you know, it's a lot. So we realize this hopefully.

00:21:13:09 - 00:21:14:12
Greg
Wasn't too technical.

00:21:14:13 - 00:21:33:26
Mary Daphne
Yeah. And you know, if it was, that's okay. Because it also helps you sort of, you know, starting to level up. Right. We talked about the skill development. Like these are all important things you might want to listen to it again. You might want to have a look at the transcript so that you get all of the words in there and just make sure you're following along.

00:21:33:26 - 00:22:09:15
Mary Daphne
And then check out also the listening comprehension which you can find by joining our newsletter. So just go to Advanced English Echo and if you scroll to the bottom you'll see join mailing list or you can opt in for our free downloadable that will also allow you to get there. So hopefully these resources are going to come in clutch, they'll come in handy, which I think they will, and just keep doing what you're doing and don't lose, you know, don't lose sight of the things that matter to you and the goals that you have and keep on investing in yourself.

00:22:09:19 - 00:22:11:23
Greg
And the opportunities that are on the horizon.

00:22:12:03 - 00:22:31:04
Mary Daphne
Exactly. These are important investments to make. And just, you know, let's try to cherish all those moments in between. Yeah. All right. So thank you so much for joining us. We really value you. We appreciate you and your time and thank you for sharing it with us. That means the world to us and we enjoy hearing from you as well.

00:22:31:04 - 00:22:58:11
Mary Daphne
So definitely leave a comment or question in the Q&A. Leave a response in the YouTube comment. Check out our blog that all supports us as we support you. So it's a nice symbiotic relationship, and we're going to be sharing some exciting news with you in the coming days, weeks, depending on what's happening. But definitely stay tuned for that news and we're going to share it on our newsletter first.

00:22:58:11 - 00:23:07:28
Mary Daphne
So very exciting. I'm excited. Greg's excited. We're all excited. All right. So thank you so much for joining us. We'll see you in the next one.

 

What is the cause of inflation? 
[2:37] The cause of inflation is expanding the money supply (the supply of dollars in the U.S. economy).
 
What is a bidding war? 
[4:10] When an item is rare enough, people try to outbid each other as they purchase it.

How has the pandemic affected the current inflation? 
[5:39] Companies were suffering since business demand was dwindling. The U.S. government stepped in and said that they would give the companies and people money so that people feel interested in making purchases again and contributing to the economy. People fear the future and want to save money when the economy is going down, and they don’t want to buy in this type of economic climate. This type of behavior causes the economy to contract. 

What does it mean to “stimulate the economy?” And how is the U.S. Government doing this? 
[6:16 – 8:48] The government stimulates the economy by giving people money. In the U.S. (and some other countries), the U.S. government distributed stimulus checks to individuals to help them pay their bills. Additionally, there was the PPP, the paycheck protection program, which allowed businesses to continue paying their employees, and several other stimulus measures. So, the government is giving people a lot of money for two reasons (1), so they can pay the bills and (2) to buy and invest in things. They also kept interest rates low. The interest rate refers to the Overnight Federal Funds Rate, the rate at which banks can borrow from the Federal Reserve (the U.S. Government). The lower the interest rate is, the easier it is for banks to borrow because they can borrow more cheaply. Lower interest rates also mean that banks can issue loans more cheaply. So, if someone wants to buy a house with a mortgage with low-interest rates, it’ll be cheaper to buy a house. And this is why so many people bought homes when interest rates were low – when the government was stimulating the economy. Things were cheaper because people had more money during times like these.  

Why has the price of homes skyrocketed over the last few years? 
[9:12] The price of homes skyrockets because the interest rates to buy homes are very low. It was almost “free money” in a sense because mortgages were cheap, and so this caused more and more people to be on the market for buying homes. That caused the price of housing to inflate. Due to an increase in demand, with people wanting to buy homes, many people wanted to sell their homes as well because they could sell them for a lot more than they paid for and make a profit. Thus, the housing market became very hot. Housing inflation jumped due to low-interest rates. When people buy more of something, demand increases, which causes prices to come up. 

What is “supply shock?” Give an example from the conversation. 
[11:56] When the supply of something goes down, the price goes up. In this conversation, we talked about gas and oil being two commodities that experienced supply shock. Energy is an essential commodity since we need it to do virtually everything in the modern world. So, if the supply of energy goes down, the price of energy goes up. And if energy prices go up, it’s expensive to do everything. In a nutshell, we had a supply shock to energy.  

What are the implications for a ramped-up interest rate? 
[15:52] It’s more expensive to borrow from banks, making it more costly to pay the loans you already have. So businesses also have to reduce the amount of activity they’re doing because everything becomes more expensive. A lot of companies have slowed and frozen hiring.  

Why is the Fed trying to cause a recession now? 
[16:21] The Federal Reserve (the Fed) is now trying to cause a recession because they need inflation to come back down. The way you get inflation to come back down is to reduce demand. The number one tool they have is to adjust the interest rate. As they increase the interest rate, the speed at which they increase the interest rate has a deflationary effect on the economy. And so, if we get a recession (many argue we’re already in a recession), the demand comes down, which ultimately causes prices to come back down. When that happens, things slowly start to stabilize. That process can be harrowing.  

What should you do when the economy is like this? 
[17:41] Be patient and don’t expect anything. The best thing to do is to be patient, conservative, and thoughtful. Be reserved with how you’re spending money. Also, focus on delivering value. One way to continue delivering value is to ensure you’re equipping yourself with skills that will help you invest in yourself and your future. Invest in personal and professional development, such as improving your English communication skills. You’ll be able to step in and start thriving while the economy starts recovering. That creates a beautiful cycle that allows you to grow with the economy and flourish with the new demand.  

*** 


Have you picked up on these words & expressions? Your challenge: search for their meanings and use them in a sentence this week:

· Dwindling 
· Resort to  
· Skyrocket 
· Tanking 
· Ramifications 
· Transitory 
· Throw in the towel