Which Came First, The Inflation Or The Shortages?

In good economic times, thinking people have extra time on their hands. As such, perhaps while these budding philosophers squirt some mayonnaise from a pretty little disposable package onto a freshly fried, crispy chicken sandwich, spicy, of course, people can contemplate whether the chicken came first, or the egg, people can ponder whether it’s weird to spread something that contains eggs onto a piece of chicken, or people can wonder whatever, because when economic times are good, life is good.

The question is, in what kind of economic times are we living right now?

As I have written many times before, I argue that we are shifting beyond the US dollar hyperinflation, and that we are entering the crack-up boom on Main Street, an event which will, and maybe sooner than later, affect all of the available commodities and nearly all of the finished goods on the entire planet. The crack-up boom is basically a mad shopping spree, kind of like the good old days of shopping on Black Friday, only, not getting the item does not mean so much as not watching the latest release of Super Duper Heroes on an extra thin mega-widescreen in ultra-high definition, but rather, not eating. It’s not so much that the stakes are high. It’s a matter of survival. People will try to get rid of their currency just as quickly as they get it because the currency is rapidly losing purchasing power, and prices are going up so fast that holding on to the currency is a losing proposition that has real world consequences. Potentially catastrophic consequences, I might add, and in my opinion, we’re not that far off from the time when the US dollar is losing real purchasing power by the day.

When economic times are like these, life is challenging, to put it lightly.

Gone are the easy days for the budding philosopher, and here are the challenging days for the entire world. Inflation has been a hot topic for some time, with a lot of people talking about it, and quite frankly, a lot of people feeling the sting of it, but like our poultry in that you can't have your chicken unless you have your egg, in our case, you can’t have your inflation unless you have your shortages, or you can’t have your shortages unless you have your inflation, or let’s just say that it doesn’t really matter which came first, because they’re both here, and unlike tasty yard birds, inflation and shortages feed on themselves in a kind of feedback loop that climaxes with the complete and total destruction of the currency. Sadly, for most people, this means economic misery and financial ruin, but for some people, this means opportunity and a chance to help with the rebuilding. But no matter what, we’re all forced to participate in these challenging economic times. This is not some grand conspiracy, some Chicken Little, or even an indestructible can being kicked down an infinite road. This is simply the basic mathematical result of having an unbacked, debt-based fiat currency system dependent on exponential, unsustainable growth, and we're fast approaching that result.

We have inflation all around us, but what about shortages?

The shortages are here. Shortages are in both raw materials and finished products. For now, the shortages are confined to certain geographical regions and certain sectors of the economy, with the key phrase being “for now”. Since this is a negative feedback loop of inflation begetting shortages begetting inflation begetting shortages begetting inflation begetting so on, and so forth, the US Dollar’s death spiral, if I may, or the US Dollar’s final move to its intrinsic value of zero, if you will, the shortages will only worsen from here with increasing frequency and severity. Therefore, now would be a good time to think about some of the shortages and their broader implications.

There is a shortage of microchips (computer chips).

I have several college degrees, including an Associate of Science in Information Systems & Security. I mention that because I am tech expert, a computer hobbyist and a PC enthusiast, so among other things, I naturally began following the microchip shortage in the Fall of 2020, around the time the latest versions of the Microsoft Xbox and Sony PlayStation video game consoles were released, when computer graphics cards (GPUs) skyrocketed in price to well above their MSRP’s. Moreover, for several reasons, GPUs became very difficult to find, and to this very day, graphics cards are generally only available on reseller sites such as Amazon, Ebay or Newegg, and the GPUs that are available are offered for ridiculous prices by third-party sellers. To give an example, there is a graphics card I purchased a few years back for one of my PCs, an 8GB AMD RX 580, and I paid approximately $150 for it at the time, yet last night, I saw the same card for sale at one of the major online retailers for the sky-high price of $999!

Lately, there has been a ton of news about how manufacturers around the world are unable to manufacture today’s high-tech cars & trucks because of a shortage of microchips, and all things considered, the problem of the microchip shortage looks to be intensifying as opposed to getting resolved. Of course, when we have over 9,000 cryptocurrencies, including the many forked derivatives of Bitcoin, crunching increasingly complex mathematical algorithms on computer hardware, when we can brighten, dim, or change the color of our landscape lighting which is connected to our home’s WIFI, when our BBQ grills alert us via Bluetooth that it’s time to throw on the burgers, when our vehicle’s rear-view mirrors with built-in digital screens adjust themselves automatically to the outdoor lighting, in addition to being able to open multiple gates and garage doors, order a pizza and more, and when myriad devices and gadgets contain evermore embedded chips, all things considered, including ongoing supply chain disruptions, microchip shortages are pretty much a given.

Here’s the point: In our high-tech, modern day lifestyle, a shortage of microchips can quickly turn into a shortage of all kinds of smart devices, with contagion spilling over into legacy devices, and as these shortages develop, people and businesses will do whatever they can to front-run the shortages, stock-up, or keep-up, and as such, people and business will be paying up. In other words, inflation is shortages is inflation is shortages is inflation.

There is a shortage of gasoline in many parts of the world, including parts of the United States.

From the lack of available gasoline and other oil-based derivatives in ironically oil rich, arguably failed states, such as Venezuela, to Governors in several states in the eastern United States currently declaring states of emergency because of ongoing supply chain disruptions that have led to gasoline shortages covering huge swathes of the country, suffice it to say the shortages are getting very real. If the people can’t roll, and even more so, if the trucks can’t roll, that’s a huge problem, and that’s putting it lightly. Furthermore, long before the widely reported cyber-hack on the Colonial Pipeline, the mainstream media was full of stories covering a so-called “trucker shortage”, such as this one published in the last week of April reporting on a shortage of credentialed truckers who are capable of transporting fuel to gas stations, airports and other places.

Here’s the point, and I’ll ask it as a question: If the shortage of truckers in the United States has led to a shortage of readily available gasoline, and if disruptions to one of the most important pipelines in the United States has also led to a shortage of readily available gasoline, all the while the price of crude oil has been steadily rising for many months, and making matters worse, or better, depending on perspective, of course, we find ourselves at a time when a “fear premium” could enter into the price equation in a big way because of escalating conflict in the Middle East, including outright military attacks to oil infrastructure, something that happened just yesterday, what is going to happen to the price of gasoline, diesel and oil-based products going forward, what kind of ripple effects will this have on the broader economy in general, and what does this mean for our feedback loop specifically?

But wait, there’s more (inflation & shortages)!

That’s right folks, because I haven’t even written about the lumber shortages, the metal shortages, the water shortages, and more importantly, the current and coming food shortages. Nor have I talked about curveballs and black swans, such as bad weather, disease, war, and other disasters, both natural and man-made. That, however, is the topic of some other article for a different day, but the point is one in the same: Inflation begets shortages begets inflation begets shortages begets inflation begets so on, and so forth. Last week, I said the time to come up with a plan for this inflation is over, and I said now is the time to be executing that plan. This week, since Inflation’s evil twin brother Shortages showed up, the situation has worsened, and procrastinators will be lucky to not get financially obliterated, at best.

And now, let’s go over some charts.

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill...