The economy: order, counter-order, disorder

 

There's tremendous disagreement right now over whether or not we're careering towards an economic cliff, and about to fall over the edge.  Much of the evidence offered is convincing, but much is duplicitous propaganda designed to stampede us into precipitous action before we've had a chance to think things through.  If anyone says to you, "This is how it's going to go down!  Guaranteed!", I suggest you ask them what they're selling, because they're out to convince you to buy it.

Rather than advance my own views on our and the world's economy (which are and have for some years been negative, as regular readers will know, but for very different reasons than the Iran war alone), here are a few articles that caught my eye over recent weeks.  I suggest you read each of them, and make up your own minds.  I've included a few key paragraphs beneath each link.

1.  We’re on the brink of a global recession, but it’s not Iran we need to worry about

With the Strait of Hormuz impassable, a widespread inflation spike is looming, which would seriously damage the global economy.

Along with a fifth of the world’s oil and gas supplies, this dual Iran-US blockade also prevents a third of the world’s seaborne fertiliser feedstocks from reaching global markets.

That points to lower crop yields this summer – a serious energy-price spike with a food-price surge too.

A third of global helium supplies – which is is vital when making semiconductors – pass through the strait. Those chips, comparable in strategic terms to oil, enable trillions of dollars of downstream economic activity – from manufacturing to energy structures, wireless and computer data storage and defence.

On top of all that, multiple sovereign bond crises are brewing across the G7, as Western nations struggle with high fiscal deficits, tightening demographics and big government, while failing to constrain runaway welfare spending.

2.  U.S. Wheat Futs Hit Two-Year High As Wall Street Sounds Alarm Over Drought Shock

Hard red winter wheat climbed to a two-year high by the end of the week, as our coverage of the drought shock now hitting America's Breadbasket raises serious alarm bells on commodity desks.

The concern is not just reduced crop yields and quality. It is colliding with fertilizer shortages and elevated diesel prices, creating a broader inflationary transmission channel that could work its way through the food supply and translate into higher supermarket prices down the road.

3.  I Am Calling It Now: THE EVENT Has Happened

Michael Yon has spoken of "flash-to-bang"—that delay between seeing a distant explosion and feeling/hearing its shockwave. I witnessed this firsthand in Iraq. Out on the highway in front of COB Speicher, a massive car bomb detonated miles away. I saw the giant mushroom cloud rise first—a silent, horrifying spectacle—before the low, guttural bass thump finally rolled in. You feel it in your chest as much as hear it. The bigger the blast, the longer the delay when you're observing from afar.

That same principle applies here with the Strait of Hormuz. The "flash"—the initial explosions, ship attacks, blockades, and seizures—has already lit up the horizon. The "bang"—the full economic, energetic, and societal shockwave—is still traveling toward us. It will hit hardest in the months ahead as fuel shortages cascade into transportation failures, fertilizer disruptions, higher food prices, and broader supply chain collapses. Global food systems are already under pressure, and this energy crunch could tip vulnerable regions into outright crisis.

I know extremely hard times lie ahead for millions. In places like the Philippines, the challenges will be especially brutal—not just because of external shocks, but because of deep cultural and societal realities on the ground.

4.  The Economic Destruction of Trump’s War Goes Far Beyond High Gas Prices

A lot of economic pain has already been locked in by this war. But to really understand it, it’s necessary to keep a few important economic truths at the front of our minds.

First is the fact that the entire purpose of the economy is to produce goods and services that consumers value enough to pay for. All of the production happening anywhere in the economy is geared towards that end ... Every consumer good can be viewed as the end of a long chain of production stretching all the way back to the cultivation of raw materials like iron or timber, or the creation of basic components like resins or plastics. Economists call those basic capital goods at the beginning of the chain higher order goods.

. . .

And second, production takes time. That’s true for the production of any given good, but it’s especially true if we look across that entire chain of production. The higher order goods that are currently being produced won’t help bring about finished consumer products until months or even years down the road.

All of this is important to understand and keep in mind because the war with Iran is, so far, primarily impacting the production of higher order goods. And it goes far beyond oil.

And, to show how left-wing "thinkers" (you should pardon the expression) are relating economic issues to their own pet ideological hobby-horses, here's what a New York Times opinion columnist had to say about older people and the economy.  The original is behind a paywall, so the link goes to an archived copy.

Older Americans Are Hoarding America’s Potential

It is not ageist to ask whether older people should be required to give more to younger Americans and national priorities — it is critical to the future of our democracy and society. America needs to confront gerontocracy before the system collapses under the weight of its inequality and injustice.

Older Americans deserve a say over the future even when they might not live to see it. But they do not deserve the stranglehold over it they currently enjoy through overrepresentation in elections, which produces too many regressive policies and too many seniors in the highest offices.

Older Americans are owed the care that everyone else funds. Indeed, they should get more of it than they get now — including funding for long-term care at home or in nursing homes. But they also need incentives to give up accumulated housing, jobs and wealth.

Considering that I'm now numbered among "older Americans", that does not give me warm fuzzy feelings about my economic future under a progressive left government in this country, should one come to pass.  The above screed sounds more to me like "We're young!  We don't want to wait our turn!  Give us the keys to the kingdom right now!  And while you're handing them over, give us all your money as well!"  Greedy, much?

I'll give the last word to the inimitable Karl Denninger.

How Much Further?

The real problem for ordinary people in the economy is that anything that is unsustainable over a sufficient amount of time will blow up in your face.  But when will it blow up?  That's a more difficult problem.  For example we know that housing is largely locked up in a large part of the country -- indeed, most of it.  In those places where it sort-of-isn't there are other serious problems including property tax and insurance concerns that might as well have it locked up from a standpoint of actual affordability.  Add to this that many formerly thought of as "safe" professions which earn a nice wage, including computer science and medical, are rapidly being destroyed in terms of forward earnings capacity by both AI and foreign worker imports.  There are plenty of stories already of people living quite high on the hog having accumulated a lifestyle with mandatory monthly spend commensurate with $250,000 wages suddenly being laid off and finding no replacement for that wage at even half what they formerly made.  If you've managed to get yourself into a leveraged position with a forward requirement for such earnings and they disappear you're in very serious trouble indeed.

True dat.

Peter