There seem to be stories about shortages everywhere.  Up until 2020, most Americans would think of supply shortages as being mostly a third-world problem.

Sure, we might have a few things every now and then where there are shortages because of a bad crop in a certain region or a supply problem in a foreign country.  But in the U.S., we are accustomed to having almost everything readily available, and most things don’t fluctuate much in price.

2020 and 2021 have been different.  In late March and April of 2020, there were definite shortages.  In the U.S., toilet paper was the one good in highest demand.  There were also shortages of meat, and even vegetables, in grocery stores.

This could easily be blamed on COVID or COVID hysteria.  Not only were there supply chain disruptions, but also the demand increased, as many people who frequently dined out in the past were getting most of their meals from the grocery store.  Due to government regulations, it wasn’t easy for food suppliers to deliver more food to grocery stores instead of to restaurants.

In 2021, more shortages are appearing.  While it is often blamed on COVID, it seems hard to blame a virus on this situation.  At the very least, let’s appropriately blame virus hysteria and state interference.

It is important to note that in the U.S., the federal government and state governments are still paying many people to not work with expanded unemployment checks and more leniency in looking (or not looking) for work.  If you have fewer people producing, then fewer things will get produced.  How’s that for an economics lesson?

I have heard of shortages in many things, ranging from computer chips, to chlorine, to raw materials, to flowers.

In the case of raw materials, like steel and lumber, prices have gone up to reflect the reduced supply or increased demand (or some combination of both).  Lumber has received a lot of attention, as the price has risen 2 to 3 times what it was just over a year ago.  For homebuilders, this has led to increased costs of tens of thousands of dollars per house.

I saw a story on my local news about a flower shop that was not taking orders for another 4 days (up until Mother’s Day) because they were out of flowers.  This tells me that they should have been charging higher prices.  If there is less supply or higher demand (or both), then you are going to run out of supplies if you keep charging the old price.  There would be a shortage of lumber if prices were held to what they were last year.  Perhaps it is understandable for a local florist to not want to raise prices too quickly, especially not knowing if the supposed shortage would last.

Central Bank Inflation

The curious thing about all of this is that in all of this talk of shortages, there is little discussion of monetary inflation.  They can blame COVID, supply chain disruptions, and everything else under the sun, but nothing comes out of the establishment media (which includes most local news) about the Federal Reserve’s balance sheet.

Maybe it isn’t that curious because they don’t want to blame the central bank for the current problems, and they certainly don’t want to blame the mass hysteria created by government with shutdowns and restrictions on businesses.

Shortages and inflation go hand in hand.  When a massive amount of new money enters the system without a corresponding increase in production, then prices are going to be bid up over time.  This is what happens when you have more money chasing approximately the same amount of goods and services.

This is what happens when the federal government spends trillions of dollars to bail out companies and individuals who were forced to shut down and stay at home.  It was governors and mayors across the country who adopted these anti-liberty policies, and they should have been the ones to deal with them and face the backlash.

Instead, the federal government largely bailed them out by handing out “free” money to the unemployed and to people just for existing.  Virtually all of this spending was funded by debt monetization.  In other words, the Fed created money out of thin air so that the federal government could go on an even bigger spending spree.

When you hand out thousands of dollars to people to stay unemployed, and then you hand out thousands of dollars to most people just for existing, is it any surprise that prices are going up at an accelerating pace?  Is it really supply problems that have caused the price of lumber to skyrocket?  It is the demand side, and the reason there is so much demand is because people have been flooded with “free” money.

When trillions of dollars enter the economy without a corresponding increase in production, then people are going to bid up prices.  This means prices on almost anything, which includes stocks, houses, cryptocurrencies, NFTs, food, lumber, and flowers.

Warren Buffett, at his annual shareholder meeting, said, “We are seeing very substantial inflation.”  Unfortunately, he failed to learn the lessons from his father, Howard Buffett.  If only Warren had listened to his father as a child instead of becoming something of a tool for the state.  He is going to talk about inflation without addressing the elephant in the room?  Is he really that dumb on this subject, or does he just think everyone listening to him is dumb?  When prices are rising, you might want to take a look at the one entity that controls the entire base money supply for the country.

As long as prices are allowed to adjust, there should be no long-term shortages.  There can be some short-term disruptions where the decreased supply or increased demand is unexpected, and sometimes it takes time for sellers to figure out that they need to raise their prices.

Most of us would prefer rising prices to shortages.  At least with rising prices, you have more options.  You can choose not to buy something, or to buy less of it.  If there are shortages, you may not have a choice at all.

As long as the Fed continues with its insane policy of mass monetary inflation, then these rising prices (regardless of how much they are reflected in the CPI statistics) will continue over time.

We are likely in a massive bubble right now.  I call it the “everything bubble”.  If and when it pops, asset prices are likely to go way down.  It is less clear what will happen with basic consumer goods.  We have to remember the 1970s when there was high price inflation with a stagnant economy.

The early 1980s, with Paul Volcker as chair of the Fed, were probably the last time we saw a true correction in the U.S. where there was a true cleansing.  The bad investments were permitted to fail, and resources were allocated more in alignment with consumer demand.

Unfortunately, since that time, every recession is met with massive Fed interference in the form of inflation and artificially low interest rates.  For this reason, higher price inflation looks to be the continued policy going forward.  It’s better than shortages, but a lot worse than the 1980s.