Month: October 2021

Global central bankers have been out and about continuing to promote a narrative that inflation is “transitory.” We’ve seen it from the likes of Powell, Lagarde, Bailey, and Kuroda. Logically, these monetary wonks are right, inflation caused by supply chain bottlenecks will resolve itself, but these officials have yet to provide a timeline because they don’t know.

For more insight on when global supply chain bottlenecks will subside, Dubai’s DP World, one of the biggest international port operators, Chairman and CEO Sultan Ahmed Bin Sulayem spoke with Bloomberg TV at the Dubai Expo 2020 on Friday and said disruptions could last for another two years. 

“The global supply chain was in crisis at the beginning of the pandemic,” Bin Sulayem said. “Maybe in 2023 we’ll see an easing.”

He pointed to skyrocketing container rates and said price increases are due to shortages and the accumulated delays. “Freight rates will continue to increase, and the shipping lines are having an amazing time,” he added. 

For some context on DP World’s operations, it manages the Port of Jebel Ali, also known as Mina Jebel Ali, a deep port located in Jebel Ali, Dubai, United Arab Emirates. The port is the world’s ninth busiest port. 

The world’s largest shipping line, A.P. Moller-Maersk, recently warned bottlenecks might last longer than expected, and some shippers have pledged to cap spot rates. DHL and UPS have also warned supply chain disorder will not only persist into next year but could leave a permanent scar. 

Before global supply chains splinter further and lead to more shortages worldwide, the question is: How can supply-chain bottlenecks be resolved? 

Since the crisis was created by surging demand putting strain on container capacity, suppliers, and logistics companies as they struggled to deliver goods. The easiest way to break this vicious cycle is for consumer demand growth to wane. That solution is something countries aren’t willing to embark on because it will disrupt their economic recoveries from the virus pandemic lows. 

Mohamed El-Erian, former PIMCO CEO and chief economic adviser at Allianz, also see these disruptions “will be with us for a while,” prompting producer pries to continue soaring around the world that eventually push up consumer prices. 

El-Erian warns supply-side troubles could last for one to two years, if not more, which translates into stagflationary winds for the global economy unfamiliar to those who did not live through the 1970s.

While industry leaders continue to warn about continued supply chain woes, central bankers live in an alternative world of denial that will ultimately crush any credibility they have left. 

Authored by Mitch Nemeth via The Mises Institute,

Prior to the global pandemic caused by SARS-CoV-2 or covid-19, many looked to the United States as a beacon of freedom and liberty. When viewed in comparison to the harsh realities of the world, this may seem rather true. After all, one’s perception of freedom and liberty is skewed by perspective. In recent weeks, the Biden administration has escalated its increasingly authoritarian approach to “managing” the threat of the virus. Even President Biden himself stated that safety takes precedence over freedom. Examples of the Biden administration’s overreach include: its extension of the eviction moratorium through the Centers for Disease Control and Prevention, vaccine mandates through the Department of Labor, and its investigations into states that refuse to adhere to the federal government’s preferred public health guidelines.

Over the past eighteen months, countless commentators have declared that the pandemic should be treated akin to warfare, often using military analogies. During a prior pandemic, the nation’s predominant civil liberties defender, the American Civil Liberties Union, released a report that warned of the government imposing national security measures to clamp down on an “invisible enemy.” An ACLU report from 2008 stated the following:

“Coercion and brute force are rarely necessary. In fact they are generally counterproductive—they gratuitously breed public distrust and encourage the people who are most in need of care to evade public health authorities.”

The past eighteen months have demonstrated that the public health institutions view their role as part and parcel of the nation’s broader national security apparatus.

As if the ACLU had predicted the government’s response to covid-19, their report notes the following:

“Too often, policymakers are resorting to law enforcement and national security–oriented measures that not only suppress individual rights unnecessarily, but have proven to be ineffective in stopping the spread of disease and saving lives.”

During the early stages of the pandemic, governors of all political persuasions instituted similar shutdown measures throughout their respective states. After a period of weeks, conservative-leaning governors slowly withdrew these executive edicts as more was learned about the transmissibility and lethality of the threat. Progressive-leaning governors have been more reluctant to withdraw these executive edicts.

As vaccines became widely available, individuals across the country slowly warmed to the idea of lifting the covid-19 mitigation measures. Some progressive-leaning American cities like New York City, San Francisco, and New Orleans have chosen to do so while introducing a digital health pass, often referred to as a vaccination passport. Other cities have been more skeptical of this concept; the mayor of Boston, Kim Janey, compared the concept to the slavery-era freedom papers.

The vaccination passport was only an abstract idea in the early days of the mass vaccination campaign. The urban elite and the managerial class have fully endorsed the idea of requiring vaccination or proof of a negative covid test to participate in daily life. It is unlikely that the vaccination passport will ever be fully adopted by the United States government as policy. It is also unclear what is the end goal of our covid-19 containment policy. The conflicting public health messaging has led to fears of a “permanent pandemic,” whereby emergency powers are invoked indefinitely.

The Vaccine Passport Idea Grows

Along with much of the global establishment—e.g., the World Health Organization—in November 2020, Chinese president Xi Jinping endorsed a concept similar to the vaccination passport:

“a global mechanism on the mutual recognition of health certificates based on nucleic acid test results in the form of Internationally accepted QR codes.”

While President Xi’s idea is related explicitly to a negative covid test versus proof of vaccination, the underlying concept of “showing your papers” remains. Other regimes soon pushed similar ideas. 

Similarly, the Chinese state was an early proponent of using digital QR codes to help the country navigate through the pandemic. Digital QR codes are a simple and efficient means of tracking one’s movement and verifying proof of identity for those with a smartphone. Digital QR codes are now frequently used at restaurants and other venues to replace paper menus and to provide further information on products. Few could have predicted that prominent progressives in the United States would openly embrace proof of identity upon entry into nearly any venue. The thought of being required to scan a personal digital QR code upon entry to any venue is reminiscent of “Your papers, please.” Given that America has been effectively governed by the flip-flopping public health diktats of Dr. Anthony Fauci, I assume that vaccination passports are merely the icing on the cake.

Dr. Fauci provided an eyebrow-raising endorsement on September 13; on cable television, he endorsed the idea of requiring vaccination in order to travel domestically by aircraft. Dr. Fauci’s proposal comes nearly a year after a Department of Defense joint study with United Airlines that said “the risk of COVID-19 exposure onboards its aircraft is ‘virtually non-existent’ … when masks are worn.” Despite the cheaper, less intrusive option of universal masking in certain situations, Dr. Fauci’s neurotic endorsement of mandatory vaccinations for air travel continues to propel America’s descent toward an authoritarian nightmare.

Australia Abandons Liberalism

No Western country has so embraced the despotic lockdown ideal as Australia. The Atlantic’s Conor Friedersdorf writes, “the government of South Australia, one of the country’s six states, developed and is now testing an app as Orwellian as any in the free world to enforce its quarantine rules. Returning travelers quarantining at home will be forced to download an app that combines facial recognition and geolocation. The state will text them at random times, and thereafter they will have 15 minutes to take a picture of their face in the location where they are supposed to be. Should they fail, the local police department will be sent to follow up in person.” In ordinary times, such a government application would be considered a police state’s control mechanism; however, the government of South Australia apparently feels no remorse for subjugating its citizens to highly intrusive measures under the guise of public health.

In late July, the BBC reported that Australian Defence Force soldiers would be deployed to help enforce covid lockdowns. The soldiers would “join police in virus hotspots to ensure people are following the rules.” In late August, Australian police arrested hundreds of protesters participating in “unauthorised protests” against the government’s draconian lockdown measures. When questioned about the police response to the protesters, Victoria Police chief commissioner Shane Patton warned against participation and added “that it was ‘just ridiculous to think that people would be so selfish and come and do this.’” Friedersdorf contends that Australia’s prolonged police state methods are a product of its failure to significantly invest in a large supply of vaccines. In closing his argument, Friedersdorf presents the poignant question specifically for the supposedly liberal, democratic government of Australia: “[H]ow much time must pass before we must regard Australia as illiberal and unfree?”

In the face of an “invisible enemy,” many Western nations have implemented emergency measures that were once considered dystopian and wholly incompatible with liberal democracy. The adoption of such intrusive and draconian measures would not be possible without the constant fear-mongering drumbeat of the news media, which has led to many so-called liberals devaluing the meaning of freedom and liberty in order to ensure their own “safety.” To be sure, freedom and liberty do not require one to abandon safety, and safety does not require the abandonment of freedom and liberty. 

The problem with the Western adoption of vaccination passports, enforced universal masking, and draconian lockdowns is that mass protests in opposition to those policies have sprung up in nearly every Western country. Here are just a few examples:

• Governors of two of the largest states in the United States have waged a full-on assault on the perceived overreach of the Biden administration’s public health edicts, specifically President Biden’s recent executive order on mandating covid-19 vaccines.

• A group of truck drivers in Australia threatened to strike against public health restrictions in late August; the truck drivers urged “Australians to stock up on groceries and other supplies before the protest disrupts the supply chain.”

• In France, mass protests against vaccination passports have raged for months as the “unvaccinated” worry about a two-tier society.

• In Canada, the Provinces of Quebec and Ontario have announced the development of vaccination passport applications, which have resulted in some small protests.

As everyday life begins to adjust back to its precovid normal, it is of paramount importance that everyday individuals push back against government attempts to maintain emergency powers despite the absence of a raging pandemic. Similarly, it is past time that we demand clear goals from public health experts on what level of “herd immunity” is necessary to emerge from the officially recognized pandemic. If both tasks fail, it is not clear that the West will emerge from the pandemic as anything remotely resembling liberal.

Christmas came early for some users of decentralized finance platform Compound this week, when a software bug resulted in $90 million in crypto being sent out randomly.

The company’s CEO was left “begging users” to send it back, according to Bloomberg.

DeFi platforms, which have made it part of their perceived mission to try and deplatform traditional banks, will likely draw regulatory scrutiny and lose some favor in the court of public opinion due to the ordeal, which was widely publicized. 

While advocates for DeFi cite code as the word of law, skeptics are quick to point out that this isn’t much of an assurance when the code contains mistakes. 

Andrew Park, a senior policy analyst for Americans for Financial Reform, said: “There are reasons to criticize the existing banking system, but there are a lot of safeguards in place to prevent these kinds of things from happening. If I have my money in Compound, how much faith am I going to have in that system now?”

Another gaping hole in a DeFi project was exposed back in August, when $600 million in tokens was stolen before being returned by the hacker responsible.

Compound allows “users to lend out cryptocurrencies and earn interest”. It’s run by a distributed network of users that use smart contracts. Its token, COMP, gives users a say on how the protocol works and trades at about $319 per coin.

On Wednesday of last week, users approved an update to Compound’s platform. CEO Robert Leshner then said on Twitter the bug had caused too much COMP to go to some users. He had no way of stopping or pausing the distribution of the tokens due to the decentralized nature of the platform.

The excess tokens distributed were worth about $90 million.

Leshner defended the platform after the incident: “This is not an event that calls into question whether DeFi can be operated safely. It’s a wake up call for decentralized, community-run protocols to improve the processes by which changes are introduced.”

“Open source, decentralized protocols are early & hard. But every hiccup leads to a more anti-fragile system,” he concluded.

Authored by Per Bylund via The Mises Institute,

The state strives for power, and what grants power is fear and dependence. The state is making people dependent on it, both as means for control and as an outcome of many policies intended to provide relief.

We have seen a lot of fear and dependence in this pandemic. Fear has been the message that has propelled types of repressive policies that were not possible before. Had anyone suggested only over a year ago that whole countries, democratic European countries, would close down and quarantine people in their homes most of us would have thought him crazy. But it happened. Because fear was drummed up, many populations went along with it. Even though they later protested and resisted, it was too late. Much of the damage was already done. And of course, many feared not only the virus but also the police, which sometimes with enormous brutality cracked down on those seeking a breath of fresh air after weeks stuck in their homes.

It is possible to roll back these policies. However, many of them will need to be rolled back for society to function again. To be clear, it is not possible for the state to keep everybody locked in their homes for long. This is an overreach and points to the limit of the state’s power. When the people rise in opposition, as we’ve seen in this pandemic, the state has no power.

Much more troublesome is the other side of the lockdown and the damage caused to the economic system. Not only were people locked down, but society and therefore practically the whole economy was forcefully paused. The problem here is that there is no “Pause button” for the economy. It may sound easy for politicians, who have no conception of how the real world works. But you cannot simply pause a business. You also cannot pause the supply chain. If you have ever run a business you know that being an entrepreneur is not a steady state but a changing process. It is a constant struggle to get money to come in so that you can cover costs that you’ve assumed long ago. That’s what entrepreneurs and businesses do. They assume costs and imagine they will be paid for their efforts later, and paid more than the cost they already assumed.

In other words, if you “pause,” a business, the costs remain but you get no revenue. How are you going to pay those bills when everything is on pause? You cannot. This is perhaps easy to understand … so easy that even some politicians grasp the concept. So many countries like the United States have offered relief in the form of loans to businesses. Of course, such schemes come with the usual cronyism and favoritism. The loans often do not end up in the hands of those intended. They also shift power and influence away from the market to the bureaucrats in government. Or to put it differently, businesses survive or go under as decided by bureaucrats, not by consumers.

There is more than simply money. Imagine food processing and the beef farmer when the politicians press Pause, which stops businesses from dealing with slaughtering, cutting, processing, and shipping meat. But it doesn’t stop the farming. The farmer’s animals will not stop growing and will not stop eating because the economy is paused. The farmer will go bankrupt because he needs to cover their food, water, and care without being able to sell any beef. Even if he has savings to cover the expense, the meat will lose quality and value as the cows grow older than their prime. At the same time, no meat is reaching the shelves in the stores. So while the farmer is stuck with costs he cannot cover because he cannot sell the meat he produces, consumers cannot find meat in stores. Consequently, we experience a shortage of food, while at the same time farmers and other producers have surpluses that they cannot afford to keep and are unable to sell. What a ludicrous situation.

The effect of this is of course that the farmer will not be able to rise again as the politicians press Play on the economy and beef processing is resumed. He will not have been able to make those continuous investments in his business in order to meet future demand for meat. After all, he was stuck with additional costs and no revenue. So pressing Play will not solve the food shortage.

The same story can be told for other types of businesses as well. You cannot stop the freighter that is on its way around the world. You cannot store logs of timber waiting for the sawmill. You cannot pause mines and smelting plants. And if one task can be paused, it affects the other task in the supply chain. The longer the lockdown, the more businesses would have failed and the supply chains lain in shambles. This is an enormous loss. While it can be rebuilt, it can only be so at an enormous expense. And it still requires that there are people with the know-how and willingness to start such businesses again. Can we rely on them to rise and try again, even after they have been crushed?

The long-term effects of this madness have yet to be seen. Even if the virus disappears tomorrow, these problems will remain. They take time to be resolved and it takes lots of work to piece things together again even if it is all possible. The issue here is that this would be a very bad situation if it were a sudden shock to an otherwise free market economy.

This is not the case. These Western nations were hardly free market havens. Rather, they were welfare states to varying magnitudes. In the case of the United States, a welfare-warfare state. In other words, these societies and economies were already burdened by large and very costly states which were usurping what the market was allowed. What this means is that the market that existed was already burdened by financing the nonmarket.

The state costs money, but the greater burden is loads of people that it relieves from the discipline of the market. In the purely free market, you are paid in accordance with your contribution to the value facilitated to the consumers. To put it bluntly, if you produce lots of value you get paid a lot. But if you produce nothing, that nothing might be your wage.

Of course, there would be systems and institutions in place to care for those in temporary unemployment and those with lesser fortune. But they would be the exception to the rule. Most people would be able to find a job but would be paid what is not called a living wage. Prices are overall much lower when we are all producing, which means our wages can buy many more goods and services. It would be an easy burden to carry and to care for those who are in need when most people can care for themselves. It can be done and voluntarily. And this used to be the case. With cooperative unemployment insurances and collective sick pay funds, where workers share their risk, that was the case. When the state monopolized these services, it also made them more general, and offered them for “free.”

The incentive became to exploit the system as much as possible rather than contribute to but otherwise stay out of it out of respect of your peers. People were trying to stay away from burdening others. Now it is the other way around. This has increased the burden and therefore the cost, and also taxation. Then, the state hires more people to administrate these systems. This was in the beginning, but it has been going on for many decades. The state is an enormous enterprise throughout Europe and the West and much of what it does is to undermine the market by creating incentives to not work, to not produce, and not contribute to joined welfare. The result is that big parts of the population do not actually contribute to the wealth of the nation. This does not only include the sick, elderly, and those exploiting the system because they can. It also includes everybody working for the government, who are in fact living off the production that takes place in the market. The government does not produce any value.

While the cost of the state is typically counted towards the county’s GDP, it would make more sense to subtract it from the value created in the market. That will give us a good idea of the soundness of the economy. How many economies in the West do you think create more value than they use up? With this enormous burden on the economy, the chances of entrepreneurship to be at all successful diminish. Even to start a business that puts enough food on the table is very difficult. It is made much more difficult because of the levies, taxes, licenses, regulations, and so on that politicians and bureaucrats force onto the entrepreneur and private businesses.

In other words, many opportunities are simply not valuable enough to cover the extra burden placed on entrepreneurship by the state. So they remain unexploited or underexploited. This reduces the number of jobs in businesses, which leaves even more people without the possibility to make a living. And so, they seek help and therefore become embedded in the state system. The only way out is to find a job in one of those businesses that are unlikely to be started because the state has made it all too burdensome to run a business.

For every person who no longer works and makes a living, and thereby no longer contributes in the economy, there is a loss of one in production and an increase of one in burden. For every person who loses their job and becomes dependent on the unemployment benefits and other subsistence, the economy both loses production and must carry a heavier load. As a result, the economy becomes less lively and exuberant. There is less entrepreneurship, there is less production, which means there are fewer opportunities for people to find jobs. They become ever more dependent on the state.

This dependence is a problem for many reasons, especially when people become dependent on the system in the long term. As a brief stop to get on one’s feet, the system would do only little harm. It would do what private systems used to do. But that is not how these systems work, especially when the state becomes an ever-increasing burden on value creation and the market. People get stuck in the system because there is rarely a way out and because the systems have been designed to be generous. They are not punishments after all.

Politicians pride themselves on promising that you will not need to lower your standard of living much when you lose your job. It is a great way to get votes and it makes you look generous and caring, but it is utterly destructive to pay people as much for not working as for when they contribute to our society’s overall well-being. When people get stuck in these systems it affects their self-esteem. The longer they remain in these programs, the smaller the chances they have a skill or value, a means to contribute, that they can do something that is still of value. They lose hope, they lose confidence, they become fully dependent on the state, and not only financially. When they start believing that they cannot make a living on their own, that they cannot take care of themselves and their families, and when they conclude there are no jobs for people like them, that’s when they become lost and stop trying. After all, what is the point?

People in this terrible situation are much more likely to be hostile toward those who are not giving them a chance, that is, businesses, entrepreneurs, the market. They are more likely to use their votes to benefit themselves, for which you can hardly blame them. The burden of the economy rapidly increases, which causes greater problems and more people dependent on the state, and even fewer in positions in which they actually contribute. Add to this situation, which existed before the pandemic, the mass death of businesses following the disastrous policies adopted to “fight the virus.”

The farmer in my example will not be able to rebuild his business. Even if he could afford it, why would he choose to build again what was once destroyed? No one will thank him. And it may be destroyed again. Why would he put in all that effort and shoulder that risk when there is little to no gratitude for what he does? There might not even be much profit. So, resentment builds, the burden increases, it becomes harder to start and run businesses. More people become dependent on the state and thereby add to the burden to those who are not. This is a recipe for disaster because it leads us down only one path, which Hayek referred to as “the road to serfdom.” The state grows like a disease in a body that is not healthy enough to withstand the attack. Politically, this is a path to the all-encompassing state—totalitarianism.

The state needs and is granted more power as more people become dependent on it. That is the sad truth and that is what we are seeing. Those depending on it are all too willing to grant a little more to get the system fixed. The problem, however, is not the inability of the state. The state never has such ability. The problem is a lack of market, and this lack becomes more present the more the state grows. This is the reason for pushing harder against the state, but for most the incentives are exactly the opposite, to ask for more. This is what we are dealing with and why we must break people’s dependence on the state.

Leading producers of silicon metal in China have been forced by the Chinese Communist Party (CCP) to reduce production by 90% below August levels from September through December amid a nationwide power crunch. Production declines may spark tighter supplies in the metal, threatening everything from computer chips to solar panels to medical implants to concrete to glass to automobile parts, furthermore throwing another wrench in chaotic global supply chains.

Bloomberg data shows silicon metal prices have jumped more than 350% since the beginning of July. This comes as power supply disruptions have become more intense over the last couple of months as CCP curbs power to energy-intensive industries because lower than the expected output at power plants has strained the country’s grid. 

The ripple effects are alarming for chemical manufacturers who convert silicon metal into silicone-based products. “If you have silicon supply constraints, then you’ve got a problem,” Keith Wildie, head of trading at aluminum alloy-maker Romco Metals, told Bloomberg. “There is still some supply out there, but it’s trading at a clearing price that is obviously very high.”

This week, more than half of China’s provinces experienced their worst power-supply disruptions in more than a decade. There’s a confluence of factors for CCP’s clampdown on energy-intensive industries, such as carbon emission targets set by the central government, thermal coal supply constraints, and lower than expected output by power plants.

The Yunnan province in southwestern China is the second-largest producer, accounting for more than 20% of the country’s output, has experienced power curbs in recent months. Sichuan is third at 13% is also facing power disruptions. The top producer, Xinjiang, has yet to face significant power issues. 

Along with higher prices for aluminum, copper, and crude, the silicon shortage is feeding into a squeeze that may continue to worsen the great computer chip shortage. 

The damaging effects of China shuttering factories because of power constraints are raising bets that rising inflation and slumping growth have already sparked global stagflation forces.

By TheLocal Italy,

Household electricity bills will rise by 29.8% for the typical family and gas bills will go up by 14.4%, Italy’s energy regulatory authority Arera confirmed in a press release last week. The new national tariffs came into effect on Friday, the start of the fourth quarter of 2021. The increase comes amid surging energy costs across Europe, and beyond.

The price rise passed on to Italian consumers could’ve reached 45 percent, Arera said, if the government had not stepped in to cap the new rise in rates.

The Italian government last week announced measures costing three billion euros aimed at limiting a steeper rise in energy prices for consumers.

As well as keeping the cost to most families below 30 percent and 15 percent, the government measures will keep additional costs at zero for those least well-off, including households with an income under 8,265 euros, families with at least 4 dependent children with an income of less than 20,000 euros, those who receive a state pension or unemployment benefit, and people who are seriously ill, Sky TG24 reports.

The measures also cut the ‘general charge’ from gas bills for all throughout the last quarter of 2021, and on electricity for families and some small businesses.

Last quarter, the retail cost of electricity rose by 9.9% and gas by 15.3% from July 1st. The government also stepped in that time to cap costs, with 1.2 billion euros in state aid.

Italian Prime Minister Mario Draghi said last week that many of the reasons for the energy price increases were temporary but called for long-term action, including at a European level, to address the problem, including through diversifying supplies.

Italy is highly dependent on imports and consumes a large amount of gas. Some 40% of its primary energy consumption is gas, compared with about 15 percent in France, according to official statistics for both countries.

Europe is facing soaring power prices as its economy recovers from the coronavirus pandemic, while natural gas reserves are at a worrying low level as winter approaches.

Italian consumers are now paying some of the highest electricity prices in Europe, with the average cost already at 145.03 euros per mw/h (megawatt hour) according to newspaper Corriere della Sera.

This means the cost is higher than in Portugal and in Spain, where electricity costs have soared to 141.71 euros per mw/h, reaching an all-time high on September 9th after significant price rises across much of Europe over the past 12 months.