Barely six months ago, we were told the economy was poised for explosive growth not seen in decades. Now, they’re bracing us to cancel Christmas as the world experiences a shortage of everything from microchips to toys. How could the experts be so completely and catastrophically wrong once again?
Earlier this week, the respected economics firm, Moody Analytics, gloomily declared that American consumers can expect to experience shortages of just about everything in the coming months. “As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” they wrote, noting these disruptions “will get worse before they get better.” Moody’s blames these shortages on a whole host of factors, including “Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise and GDP growth worldwide will not be as robust as a result.” The International Monetary Fund (IMF) has taken notice as well, downgrading the United State’s growth forecast for 2021, by a full percentage point, the most of any advanced economy.
In other words, less than a year into the Biden Administration, the incredibly optimistic forecasts for the future are completely gone, wiped away as if they never existed, replaced by endless doom and gloom, and the associated finger pointing. You know the situation is dire when the Biden Administration itself is already claiming the Grinch is poised to steal Christmas, saying “there will be things that people can’t get” this holiday season. Bizarrely, they are also saying it’s not quite that bad because we might be able to get “substitute” goods, whatever that means. “At the same time, a lot of these goods are hopefully substitutable by other things,” a White House official told Fox News. “I don’t think there’s any real reason to be panicked, but we all feel the frustration and there’s a certain need for patience to help get through a relatively short period of time.” This “relatively short period of time” is left completely undefined. A potential shortage of holiday toys is, of course, a relatively minor inconvenience in the grand scheme of things, but they are just the more visible tip of a massive iceberg, some of which is both seen and unseen.
The crisis in the automotive market has received the most coverage by far as the average cost of a used vehicle has spiked some $6,000, purportedly as a result of a chip shortage caused by a fire at a manufacturing plant. Alas, the same thing is also happening with housing prices, up almost as dramatically, increasing a whopping 13.2% between May 2020 and May 2021, a record rise which is continuing. Perhaps needless to say, houses don’t use computer chips the way cars do and the shortage of one has nothing to do with the other. In this case, the increase in home prices is being driven by wild swings in the cost of lumber and other raw materials which have been rather hard to come by for largely unexplained reasons. Wood Resources International reported that prices have fluctuated from $438.50 for 1,000 board feet in February 2020 to $1670.50 in May. The price then declined to $602 in September, but is still running close to 50% higher than before the pandemic. “There will certainly be an ebb and flow to the housing market over the next few years,” Scott Reaves, director of forest operations at Domain Timber Advisors, explained to Barron’s. “We expect to see sustained increases in lumber demand from housing during that time.” Analysts are claiming high lumber prices are just another “new normal,” much like they are saying for everything else.
There is also another shortage of plastics, completely unrelated to either microchips or wood, or more specifically, the chemicals required to make them, and prices are rising in that market as well. Ethylene, sometimes known as the world’s most important chemical, is used in just about everything, from food packaging to polyester. It’s up 43%. Polyvinyl chloride, commonly known as PVC used in pipes, medical devices, credit cards, and more, has increased some 70%. The price of epoxy resin for coatings, adhesive, and paints, however, leads them all at 170%. As usual, the excuses are myriad. “There isn’t one thing wrong,” explained Jeremy Pafford at the Independent Commodity Intelligence Services, a group that analyzes energy and chemical markets. “It’s kind of whack-a-mole — something goes wrong, it gets sorted out, then something else happens. And it’s been that way since the pandemic began.” “It’s such a bizarre scenario,” echoed Hassan Ahmed, a chemicals analyst with Alembic Global Advisors. “Inventories are lean, and supply is low. Demand will exceed supply growth,” meaning we can expect prices to continue to rise.
Nor are we likely to see any relief on the energy front. In the United States, we’re lucky that gas prices are only rising. Elsewhere in the world actual shortages are expected. Europe, for example, is bracing for a cold winter and struggling to figure out how to handle the basic necessity of heating people’s homes. The problem is compounded by a lack of storage capacity as the continent switches to renewable energy sources in the endless quest to slay the global warming dragon. Incredibly, England can only store 3-4 days of natural gas supplies, that’s it. Bill Blain is an expert on financial markets and an investment banker. In a recent article posted to Morning Porridge, Financial Commentary for Smart People, he blames a European fetish with Environmental, Social, and Governance (ESG) that attempts to factor environmental and equity issues into policy decisions. This “ESG” has led Europe to prioritize renewable energy without considering the stability of energy supplies, or the impact on the average European citizen. Mr. Blain explains it this way, “The brutal reality is we can’t decarbonise the global economy overnight. Over 30 years…perhaps! Through the transition period we will still need power and energy derived from the old dirty hydrocarbons. Powering up EVs, making the fuel for hydrogen planes and trains, will all require hydrocarbon derived energy. That’s fact…”
Meanwhile, the green movement, as represented by Thomas Friedman writing for The New York Times, is busy saying “don’t blame us,” literally writing “A Scary Energy Winter is Coming, Don’t Blame the Greens.” “Natural gas and coal prices in Europe and Asia just hit their highest levels on record, oil prices in America hit a seven-year high and U.S. gasoline prices are up $1 a gallon from last year. If this winter is as bad as some experts predict — with some in the poor and middle classes unable to heat their homes —I fear we’ll see a populist backlash to the whole climate/green movement. You can already smell that coming in Britain.” Mr. Friedman is correct: Politicians in Europe are already preemptively rolling back certain green policies to prevent that backlash. The industry committee of the European Union recently voted to prolong fossil fuel subsidies through 2027, as long as the energy is mixed with a to be determined amount of hydrogen. The committee is also allowing natural gas projects including pipelines and storage facilities to be fast tracked for permits. This comes barely three months after the European Commission declared we were in a “make or break” decade to tackle Climate Change.
I probably don’t need to tell you that the green movement in Europe is outraged. “Today’s vote would be a disaster for the climate if it ends up being reflected in the final law,” explained Tara Connolly from Global Witness, a climate campaign group. “The science is clear: we need to urgently phase out fossil gas to prevent the worst effects of climate breakdown. EU member states must not fall for this giveaway to the fossil fuel industry, and close the loopholes which would allow fossil gas subsidies when negotiations start.” Erik Bergkvist, a Swedish Social Democrat and Member of the European Parliament, who worked on the potential law, believes it was the best possible agreement. “What would the alternative have been? Of course we could have stepped off negotiations, but then we know we would have had a result that would have been much worse.”
What’s much worse? Perhaps, people actually dying from the cold because the miniscule storage supplies are exhausted and they can’t heat their homes? Yet, the reality that shortages of critical energy sources and an inability to store what’s needed in the event of a cold winter hasn’t slowed down the green wave. In fact, they’re pushing for even more of the same. “The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” The Executive Director of the International Energy Agency, Fatih Birol, said in a statement. “Governments need to resolve this at COP26 [an upcoming climate conference] by giving a clear and unmistakable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future.” Yes, they want even more investments and subsidies regardless of the potential risk to you and your family, even outside of the impact on your wallet, “The way ahead is difficult and narrow, especially if investment continues to fall short of what is required,” the IEA said in their report.
But, sure, we shouldn’t “blame the greens” for any shortage of energy or loss of life, much like Moody’s and others are blithely blaming all the other shortages on anyone and everything except for our political leaders. I mentioned just a few here, but the sad truth is the price of everything has gone up including the basic food we put on our tables. This is an astounding state of affairs for a 21st century global economy supercharged with automation and robotics. I’ve been on this Earth for 45 years now, but never in my wildest dreams did imagine there’d be an across the board shortage of just about every good and an accompanying price increase the likes of which we’ve never seen. Who would have thought it even possible?
Our so-called leaders, those we empower to manage political and world affairs, that’s precisely who. In retrospect, all of this was completely predictable, if the people we pay to predict these things were doing their job or paying any attention. The supply chain isn’t some new phenomenon that sprung into existence last year. The “experts” are supposed to monitor and analyze the impact of precisely these kinds of challenges and mitigate them, but that’s far from what they were actually doing. Instead, these same experts were too busy propagandizing for Joe Biden and the progressive movement. Earlier this year, we were told time and time again that the economy was going to take off like a rocket because Joe Biden was going to be President. They were practically competing with each other over their rosy predictions, nor was inflation a concern.
Here’s US News and World Report as they were “Anticipating a 2021 Boom” in February this year. “The influx of government stimulus and accelerated vaccine distribution could lift growth in the current quarter, ending in March, to 5% or even higher, economists believe.” Back then, we were looking at the “fastest annual GDP growth since the economy expanded at 7.2% when Ronald Reagan was president.” Sung Won Sohn, a finance and economics professor at Loyola Marymount University, said, “You have massive government stimulus, low interest rates from the Fed, and the vaccine supply is growing. The economy is beginning to fire on all cylinders.” There was nary a peep or word printed in the mainstream media about a looming supply chain crisis that would strangle economic growth within 6 months and cause inflation to spike to levels not seen in years, not to mention consistently hamper job growth far below expectations.
Suddenly, however, they’ve changed their story and it’s “going to get worse” before it gets better, of course without saying precisely how much worse. What we know right now isn’t exactly good. Just yesterday, it was announced that prices paid by U.S. consumers in September increased by “more than forecast” according to Bloomberg. These prices shot up by .4% in one month alone, adding to a year over year increase of some 5.4%, the largest gain since 2008. This is far, far above the 2.0% target and expectation of the Federal Reserve. As you might expect, Bloomberg blames a near endless list including a “combination of unprecedented shipping challenges, materials shortages, high commodities prices and rising wages have sharply driven up costs for producers. Many have passed some portion of those costs along to consumers, leading to more persistent inflation than many economists — including those at the Federal Reserve — had originally anticipated.”
Wherever you look, it’s the same story: We didn’t anticipate any of this, but don’t blame us, we’re only the ones that are highly paid to do the anticipating. As a result, the Biden Administration has been left scrambling, announcing this week that the Los Angeles ports will be operating 24/7, even if there are no truckers to ship the goods, while expecting Americans to brace for more pain ahead, both in terms of shortages and increased prices. Bizarrely, Biden himself claimed one of the problems is rush hour traffic, as if all of these goods were stuck on the freeway somewhere. Ultimately, one wonders where they’ve been for the past ten months. Perhaps instead of myopically focusing on vaccine mandates and masks, $3.5 trillion social engineering spending sprees, and unleashing the FBI on concerned parents, they should have been focused on this, but, hey, I guess we shouldn’t blame them either.
All of this, of course, begs the question: Who should we blame?