The Winter of Our Discontent

There’s an inflationary IED waiting to be detonated in the coming months, one that just might have Russia cheering, Europe, Asia and Latin America cringing, and the United States confused with the complexity of the issues. There are so many “little” giant signs in the winds. Like a United Nations report that tells us that internationally, food inflation has driven costs up 33% over the past year. Or the collapse/shortfall in the sophisticated computer chip manufacturing sector that has shut down assembly lines, increased the cost and availability of everything from cars and appliances to computers and automated control systems or the backlog of ships at almost every major harbor on earth, waiting to offload delayed cargo (Los Angeles harbor is pictured above). Construction costs and even the used car market have sent prices soaring. Globally.

In the UK, the ripples of Brexit are beginning to hit hard. As those semi-skilled and unskilled workers from less affluent EU nations were disinvited from the United Kingdom, it turns out that a whole lot of them were truck drivers. And without truck drivers – and a long training and licensing period for new ones, if there are enough people ready to take those jobs – “stuff” just isn’t getting delivered where it is needed. Higher pay might help (inflation working) in a longer term, but some of that “stuff” includes petrol (gasoline and diesel fuel to us) getting to the filling stations across the UK. Long lines and angry patrons have forced the government to fall back on military tankers to deliver the otherwise available fuel.

As vaccine shortages plague much of the rest of the world, predictions of a COVID surge in colder weather pose an ominous threat for so many. Even with growing employer mandates in the United States, red state resistance seems set to prolong our pandemic misery and prevent the otherwise positive movement of our economy. With hope for new and seemingly effective anti-viral on the horizon, there is reason for hope. But with the long-term shift in so much of the United States against science, medicine and vaccinations of all types, we are creating new risks for the entire nation. Accordingly, our economy is also sputtering again as the economists see inflation raising its ugly head here too… not from the infrastructure bills pending in Congress… but from continued pandemic slowdowns and global supply chain disruptions and scarcities.

There is an economic monster hovering above the entire planet, and while the United States may have sufficient resources of its own to soften the inflationary blow, it will hardly be immune to the global impact on manufacturing, agriculture (the production of fertilizer in particular) and simply keeping warm in colder weather from one shortage with staggering economic consequences. Natural gas, a fossil fuel that absolutely contributes to global warming (albeit emitting about half the CO2 that coal fired plants produce), is in pitiful short supply. Natural gas rich Russia is cackling all the way to the bank. But the lack of natural gas is a global problem, pushing many countries back to coal as an electrical power mainstay with devastating environmental consequences. Already, natural gas prices here in the US are trading at their highest level since 2014.

Natural gas – which is shipped in a liquified state (LNG) – is in global short supply. The United States and Canada have “enough” for domestic needs with an ability to export some of this commodity, but since “commodities” are priced in a global marketplace, we are likely to experience further major cost increases right here in the United States. Since Russia is one of the major exporters of natural gas, literally Europe’s lifeline as winter approaches, Moscow is downright giddy as Europe faces natural gas price increases north of 500%!! Buyers in Asia, including China, are also facing staggering price increases and inexplicable shortages of natural gas.

Under pressure from Europe, the United States was forced to lift some of the sanctions we imposed on Russia for all their numerous miscreant actions (from hacking and interfering in our elections, to annexing Crimea, fomenting unrest in Ukraine and aiding our enemies in Syria and Iran, to name a few) in order to keep Europe’s natural gas pipeline from Russia open. But that still does not solve the global shortage issue. Added to climate change caused water shortages across the earth, even with record floods in certain areas, bad situations are simply getting much worse.

“Data on the availability of water is as significant to the power market as the aggregate number for European gas storage levels, which traders watch like hawks these days… There isn’t enough water to export to both the continent and the U.K., said Sigbjorn Seland, chief analyst at industry consultant [Norwegian] StormGeo Nena AS. Britain and Ireland are arguably the hardest hit by the global gas shortage and are starved of power.” Bloomberg, October 2nd.  China has recently prioritized securing water and natural gas imports, setting the stage for an ugly international bidding war, most certainly producing additional inflationary risks.

Russia is hardly the only supplier of LNG. In addition to the United States, Qatar, Trinidad and Tobago are also major exporters of natural gas. Yet, there just isn’t enough to supply global demand, particularly given the shipping anomalies noted above. “In China, industrial users including makers of ceramics, glass, and cement may respond by raising prices; households in Brazil will face expensive power bills. Economies that can’t afford the fuel – such as Pakistan or Bangladesh – could simply grind to a halt… 

“The prospect of accelerating energy costs, in conjunction with squeezed supply chains and food prices at decade highs, could make more central bankers question whether the jump in inflation is transitory as they’d hoped. Traders will be carefully dissecting every weather forecast published from now to December.” Bloomberg Businessweek, October 4th. Colder weather, which has already begun in Europe, will send prices soaring. We all need to brace for the issues mankind has imposed on itself.

I’m Peter Dekom, and the piper is knocking at our door.