By pa360, Jan 23 2015 01:42PM
A barrel of oil is currently trading anywhere between about $45 and $48. This is a sharp contrast to seven months ago when the same commodity was trading at about $110. For those economies heavily reliant on oil revenues, the plummeting price of the commodity is disastrous news. But what does the price of a barrel of oil and the over-reliance of nation states on that product have to do with believernomics? Well it has to do with balance and the need to ensure that your economy is in balance and not out of balance.
Let me explain further, using three examples.
First, an economy is out of balance if it becomes over-exposed to risk. This over-exposure, which increases vulnerability, can happen for a number of reasons. It may, occur if an economy is over-reliant on a particular product or activity. During the good times this might be ok, but what happens if the market becomes volatile? In such a situation a lack of diversity will increase an economy's exposure to the shocks brought about when market conditions change. The earlier example of the falling price of oil is a case in point.
Second, an economy is out of balance if it is over-reliant on imports (which create deficit and debt) as opposed to exports (which generate revenue and income). In a situation where the value of your imports exceeds the value of your exports you have a trade deficit. In economics as in life, deficits are usually bad and surpluses are usually good.
Third, an economy is out of balance if those who it supports cannot live within their means. This situation occurs when outgoings (expenditure) exceed incomings (revenue) and is further exacerbated when spending is fuelled by unsustainable levels of borrowing. There is a simple rule of thumb here that if you spend more than you earn, you will end up in debt. You cannot live a champagne lifestyle on a beer budget.
Each one of these scenarios is applicable to your personal economy. If you are over-reliant on a particular skill or talent, you will be over-exposed to risk during times of uncertainty. However, by diversifying your skills base you will increase your business resilience and mitigate risks associated with market volatility. Likewise if you expect more than you give then you are basing your economy on a dependency culture that will lead to learned helplessness. Similarly, if your appetite for consumption is greater than the strength of your brand, you will become over-reliant on good-will for lines of 'credit' to which you are not entitled. This will not be the case if you have significant 'capital reserves' of trust and influence to draw upon.