When China opened its economy to the world in the 80s and the Soviet Union collapsed in the early 90s, the world's labor supply became plentiful, causing the price of global labor to get cheap fast.
As macroeconomic analyst Lyn Alden reports, this allowed American corporations to offshore a large percentage of their workforce, reduce operating expenses, and increase profits for executives and their shareholders.
"Lean manufacturing" and "just-in-time inventory" became modus operandi across our manufacturing industry.
While hundreds of millions of people in developing countries rose out of poverty, America's working class fell into it.
Short-Term Gratification vs. Long-Term Discipline
We traded away resilience for efficiency.
We naively assumed global cooperation would remain the same forever.
Why worry about secondary manufacturing and shipping facilities when Russia can supply us with nickel, Chile can supply us with copper, Brazil with soybeans, Russia and Ukraine with wheat, Taiwan with semiconductors, and China with labor?
The problem with trading resiliency for efficiency is supply chains fall apart once macroeconomic goals are no longer aligned.
It's all good...until it's not.
An over-levered and fragile system like ours is not designed for the shocks of a global pandemic, let alone one followed by a kinetic war designed to unseat the U.S. petrodollar.
What Now?
It's hard to predict what a global pandemic and commodity war mean for the economy, but if we use history as a guide...our future isn't exactly filled with rainbows and unicorns.
According to Chamath Palihapitiya, every time energy prices have spiked 50% or more in the last 30-40 years, a recession followed.
According to Sven Henrich, the last time wheat prices were this high, a global financial crisis ensued.
Adding insult to injury, our allies in the Middle East aren't taking our calls.
They're even threatening to considering accepting yuan for China's oil purchases.
With friends like these, who needs enemies?
A New Monetary Order?
A white paper recently published by Credit Suisse's Global Head of Short-Term Interest Rate Strategy, Zoltan Pozsar, minced no words when describing what we are experiencing:
