MONOLOGUE WRITTEN BY CLYDE LEWIS
Often the things that have the most value or quality are small; the size of something does not always properly indicate its value. It is also a point of fact that sometimes small things become bigger things undefined like small problems can lead to bigger crisis.
The other day I was reading about how the Heinz company was facing a shortage of ketchup packets. Now, many people probably heard about it as well, and put it in the back of their minds as something that is insignificant compared to something like death by blood clots from the Johnson and Johnson vaccine.
I mean, no one is going to die from a lack of ketchup.
However, in modern day media fashion it was reported that perhaps many Americans would have to forego the use of ketchup on their burgers and fries with manufacturers struggling to keep up with demand for single-use packets as restaurants heavily turn to take out and delivery service during the pandemic.
The individual packets, which often accompany delivery orders, over the last year have effectively replaced the use of the classic glass or plastic bottles frequently seen on restaurant tables – even in dine-in environments, where customers are wary of touching l items someone else has touched.
In response to that demand, Heinz said it has added multiple new production lines in its factories which should allow the company to increase manufacturing by 25 per cent – to total 12 billion ketchup packets produced in a year.
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That is a lot of ketchup- and you may be thinking that is really no big deal undefined a nothing story or a nothing burger.
But even though you may put this on the list of stories you can ignore, I am thinking that what this may indicate is that the pandemic may trigger supply and demand problems in the future and that the food supply chain will see shortages in many areas that are a heck of a lot bigger than some sachet that carries ketchup.
It’s a luxury easily taken for granted in the developed world – that we can expect diverse, healthy and safe food on our supermarket shelves. But this is only possible thanks to the complex global supply chains capable of rapidly and safely growing, processing, and transporting food by land, sea and air from fields around the world.
The scale of these systems is staggering. About 23% of the food globally produced is traded internationally, and countries worldwide import food at a value of approximately $1.5 trillion annually. It’s no surprise then that the global food system accounts for 10% of the world’s GDP and employs as many as 1.5 billion people.
However, as governments around the world take measures to prevent the spread of COVID-19, the food system faces extraordinary disruption. Social distancing measures, travel bans, border closures, restricted transport channels and the temporary shutdown of much of the food service industry are significant hurdles to overcome.
From farmers and field workers, to food processors and retailers, the global pandemic is causing problems at every stage of the supply chain. For now at least, many sectors in the developed world have shown enough flexibility to ensure the delivery of food to consumers by adapting to new conditions.
However little surprises like the ketchup shortages are just part of an even bigger picture.
I remember when I took economics in High School, I had a teacher who once told me that you can pretty well figure out which way the economy is going by watching the price of movies, Big Macs, and beer.
He said that these items are relatively inexpensive and when you see the prices go up on these rather abundant items you should be ready for high inflation and a struggling economy.
The Big Mac is like a microcosm and it’s price always shifts in the supply and demand for money.
The supply and demand for Big Macs are influenced by many factors. Any change in supply or demand will indicate how money values change and how inflation will become a factor.
Supply is not swayed by price, but instead, it shifts on the Fed and banks’ actions. Shifts in the demand line (monetary velocity) are based on interest rates and the change in spending and saving habits.
However, the price of money does not change, so any change is reflected in higher aggregate prices for all goods and services. Remember, “cheapening” of the dollar does not mean it has a lower price. Instead, it shows up as higher prices of goods and services.
The dollar is always worth a dollar but we need to understand why more dollars will have to be spent when there is a short supply of Big Macs.
Since a dollar is always worth a dollar, a Big Mac’s price adjusts- the Big Mac or all goods supply/demand lines shift upwards in a similar fashion. The result is inflation.
Food chain disruption can become a Black Swan event.
A “Black Swan” is best defined as an unforecastable, low-probability, high-impact event. They may include more prosaic natural disasters, like earthquakes, but are more generally understood to be unforeseeable economic, financial and political calamities.
While Black Swan events are, by this definition, unforecastable, the trends building up to them can often be observed, like Heinz not being able to keep up with the demand for Ketchup packets undefined or the rise in the cost of a Big Mac.
For example, lately it has been possible to observe the buildup of pressure in volcanos. This does not guarantee an eruption, naturally, but it provides an indication that such an event could occur.
The same principle applies to political, economic and financial events.
One of the most worrying trends contributing to the development of potential Black Swans has been the increasing fragility of the economy.
Recently, the fragility of the global economy has been aggravated by lockdowns and the ill-advised “support policies” of governments and central banks worldwide.
This has only accelerated the zombification of the global corporate sectors, while creating an intrinsic asset bubble, which keeps on expanding—and now an inflation shock lurks on the horizon. All these increase the likelihood of an economic “eruption”. However, political shocks may also be approaching.
The failure of contemporary politics to understand and correctly address this complex set of economic policy issues is one of the main reasons we are heading for disruptions in the food supply chain and budget crushing inflation.
We can determine that the eliteundefineds strategy is to collapse the world economy in order to reset it.
Supply line problems and bouts of strong demand due to fiscal stimulus can and will create very short-term bursts of higher prices. However, there is little from a macro perspective to persuade us that long-term inflation is in our future.
Things of course, may stabilize but it appears that this situation is now inevitable.
There are two things that I want to point out now, in order for you to prepare for later.
First is White House memo I want to share with you that certainly is a warning that high inflation is coming and disruptions in supplies will also be something that we will be seeing more of.
A memo that was released on April the 13th from the White House written by Jared Bernstein and Ernie Tedeschi warns that due to the Pandemic there will be food chain disruption and high inflation.
The memo opens with this statement:
undefinedThe COVID-19 pandemic has caused an unconventional recession, and we do not expect the recovery will be typical either. While the paramount policy goals are to control the virus, get to full employment, and make the necessary investments for a more resilient and inclusive recovery, economic uncertainties and risks demand careful attention going forward. One risk the Administration is monitoring closely is inflation.
Inflation—or the rate of change in prices over time—is not a simple phenomenon to measure or interpret. Inflation that is persistently too high can hurt the wellbeing of households, especially when it is not offset by comparable increases in wages, leading to reduced buying power. But inflation that is persistently too low leaves monetary policy with less scope to support the economy and can be a sign the economy is below its capacity, thus with room to expand jobs further.undefined
Further the memo says:
undefinedPandemics of the magnitude of COVID-19 are, thankfully, rare, but that also means few historical parallels exist to inform policymakers. The United States experienced short bursts of inflation in some prior periods of pandemics or large-scale reallocations of economic resources, such as in 1918—driven by the Spanish Flu and demobilization from World War I—as well as the demobilization from World War II after 1945 and the resurgence in defense spending due to the Korean War. But history is not a perfect guide here. The 1957 pandemic, for example, which coincided with a nine-month recession, saw inflation weaken, with no large resurgence even when the pandemic was over and the economy was growing again.undefined
The authors report that in the next several months you can expect measured inflation to increase somewhat, primarily due to three different temporary factors: base effects, supply chain disruptions, and pent-up demand, especially for services.
Now keep in mind this is a White House memo undefined and I am sharing with you the warning that we may see this as a Black Swan event.
The monthly consumer price index, released Tuesday morning by the Bureau of Labor Statistics, showed a 0.6 percent inflation increase in March, the largest one-month increase in nearly a decade. Over the past year, prices have increased by 2.6 percent overall.
Gas skyrocketed by 9.1 percent last month. Since February, prices of fruits and vegetables have risen by nearly 2 percent, and the index for meats, poultry, fish and eggs has risen by 0.4 percent, according to the government figures.
The spike comes on the back of prices that had already risen during last yearundefineds pandemic stockpiling and supply chain disruptions and never went down. Consumers are noticing their inflating receipts.
Before the pandemic began, the national average for a pound of bacon in January 2020 was $4.72. By last month, the price had soared to $5.11, according to exclusive supermarket point of sale data from NielsenIQ. Ground beef is up to $5.26 a pound, from $5.02. Bread is up to $2.66 a loaf, from $2.44.
The hikes are more acute in certain areas. Boston and Philadelphia are paying nearly a dollar more per pound of bacon, while in Chicago it is up by about 70 cents. Several items spiked by over 5 percent at once in Dallas, including eggs, chicken breast, fresh ground beef and sandwich bread.
Changes at the checkout are also pressuring grocery profit margins. Manufacturers have cut back on promotions and coupons to moderate demand since the stock-up period in March last year.
Economists say costs from rising gas prices, a spike in commodity prices, increased imports by China, heavy Midwest crop damage and other factors are all getting passed on to retail consumers.
Gas prices and transportation costs that get passed on to consumers, especially for items like bread, are only going up as driving increases faster than oil production. So grocery prices are likely to remain on the higher end of estimates for at least the rest of the year.
Now, back to the White House memo.
Both Bernstein and Tedeschi, are saying that The rate of increase looks faster when it rises from a lower level, while supply chains have been disrupted and demand for services has built up.
undefinedWe think the likeliest outlook over the next several months is for inflation to rise modestlyundefined and to fade back to a lower pace thereafter as actual inflation begins to run more in line with longer-run expectations,undefined increasing from undefinedhistorically low to more normal levels,undefined they wrote.
The price increases could stoke food insecurity at a time when more than 9 million people are out of work. The pennies can add up, week by week, family by family.
If the cost of the materials needed to produce a good or service rises (think of the lumber needed to build a house or the electricity needed to power a factory), a business may pass on these costs to consumers in the form of higher prices; economists call this cost push inflation. In most cases, this type of inflation is transitory: the price of lumber or energy rises, but then stabilizes at a higher level or decreases, with no further impact on future inflation. This example underscores an important distinction between price levels and inflation, with the latter being the rate at which levels move up and down.
We have already seen some supply chain disruptions due to the pandemic. For example, the production of parts for goods like automobiles has been curtailed at times, especially in factories in Asia that play an increasingly central role in the global supply chain. Transportation and warehousing costs—ground, air, and ocean—have also risen as cargo logistics have become more difficult.
As you may or may not understand all of this very well could be the excuse for restructuring of the world banking system.
You hear about how the World economic forum wants to reschedule debt as well as redefine the mechanisms of a new reserve currency.
It all seems to have a predictive flow to it.
Now couple this with the threat of a three-front war.
I’m sure a major false flag terror attack or some other cyber-dynamic disruption could contribute to the already fragile economy.
But obviously the US is in no fit position economically to respond militarily, and without a military response to a terror attack the US would fear looking weak.
Although Wars have been thought to resolve many an economic crisis, it is just as likely, in this instance, that a proxy war with Russia or a direct war with Iran would precipitate a dollar collapse, rather than create growth and a flight to ‘safety’.
China would no doubt gleefully humiliate the US during such a conflict. So I speculate that major wars, as an economic solution, are off the table but of course some form of war is most definitely on the horizon.
However, no matter what happens we will face in the brewing economic collapse, where financial contagion from the US would cause most western financial institutions to become insolvent, debt would remain unpaid, trade would cease, asset values would crumble, bank machines stop, riots start, martial law be declared, and in many ill-prepared, import-dependent countries food rationing could begin.
Does anyone remember that old nursery rhyme song we used to sing about the Little Old Lady Who Swallowed A Fly? It is a lesson in what can be called a cumulative problem that seems to increase and the solution is supposed to somehow quell the first problem until you have nothing more to change the situation.
Remember her problem started when she swallowed something as small as a fly – and then she kept swallowing other things to go after the small problem –
She swallowed a cow to catch a goat,
She swallowed a goat to catch the dog,
She swallowed the dog to catch the cat,
She swallowed the cat to catch the bird,
She swallowed the bird to catch the spider
That wriggled and jiggled and tickled inside her!
She swallowed the spider to catch the fly;
And finally she swallowed a horse undefined where she dies of course.
This dark little song has some amazing impact when you think of how an ounce of preparedness can keep you from running into cumulative problems.
Like a disruption in the supply of Ketchup packets.
If a consensus resolution is not found quickly for the transfer or sharing of the world reserve currency, as the dollar is about to collapse, I have no doubt we will be required to ‘swallow’ a more drastic intervention than just pardon the pun “catch up.”
And, as the rhyme goes, we will eventually swallow a ‘horse’… and be ‘dead of course’.
Small things and grow into bigger problems later.
