Globalism’s Achilles’ Heel

Efficient, yet Fragile Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Globalism’s Achilles’ Heel - “The supply chain is the global economy”… - “The nature of complex systems is that small causes have tremendous impacts to the point of total collapse”… - Then Jim Rickards shows you just how intricate supply chains are in today’s globalized world, and what can happen if they’re not repaired in time… Recommended Link [Energy Revolution Sweeping 32 States]( [Read more here...]( If you live in any of these 32 states — pay attention. There’s a good chance your monthly power bill may disappear in the next decade. For good. This could mean an extra $4,400 in your bank account each year — no matter what you do. And potentially a small fortune for those who buy into the technology that makes it possible. [Click Here To Learn More]( Portsmouth, New Hampshire December 13, 2021 [Jim Rickards]Dear Reader, Supply chain disruptions have not been resolved, and it’s not clear when they will be. You’re seeing the effects of these disruptions at the store in the forms of shortages and higher prices. Yet the supply chain is a subject that very few are familiar with beyond a superficial acquaintance. Most people think the supply chain is just part of the global economy. That’s not entirely true. The supply chain is the global economy. There isn’t a single good or service of any kind that does not arrive through a supply chain. Not one. If the global supply chain is broken, then the global economy is broken. That increasingly appears to be the case. The supply chain difficulties will grow worse. Even more troubling is the fact that the remedies will take years and sometimes decades to implement. The reasons for this have to do with long lead times in implementing onshoring. For example, the U.S. can cut its dependence on Asian semiconductor imports by building its own semiconductor fabrication plans (fabs). The problem is that these plants take from three–five years to build, and the scale needed is enormous. There are impediments to supply chain recovery that are not directly related to particular supply chains that nonetheless hurt the process of adaptation and substitution. For example, there’s already a labor shortage in America. The causes are complicated. There’s no literal shortage of potential workers, but many workers prefer to stay home because of some combination of government benefits, child-care responsibilities or inadequate pay offered by employers (who can’t afford to pay more themselves because they’ll go out of business). A lot of this labor shortage centers on lower-wage jobs such as waiters, store clerks, fast-food staff and office assistants. But there will be a labor shortage coming soon in more high-skilled areas such as engineers, pilots, machinists and medical personnel. This shortage will not be due to low pay, but to vaccine mandates. President Biden has ordered that all federal contractors must be fully vaccinated by Jan. 18, 2022. (That’s in addition to federal workers and the military who are already subject to vaccine mandates and have no choice). The vaccinated rate among federal contractors is actually lower than the country as a whole. The national vaccination rate is approaching 70%, while the federal contractor rate is closer to 60%. It’s even lower in some specialties such as avionics. These workers know the vaccine is available, understand the risks (both ways because of side effects) and have chosen not to be vaccinated. It’s almost impossible to change their minds at this point. Though the courts have blocked the mandate, the Biden administration is not backing off. The federal contractor workforce is huge, in the millions. We expect a massive wave of resignations and terminations among highly skilled workers if the administration gets its way. Professionals and high-value-added blue-collar workers from Boeing to Textron and hundreds of thousands of other firms will be fired or will quit. The U.S. economy is already weak. The supply chain is already in disarray. This mass termination of skilled contractors could put the economy into a recession. Some analysts have even suggested that the global supply chain is being sabotaged by major participants such as China to hurt Western economies for geopolitical reasons. It’s difficult to tell if the supply chain is being intentionally sabotaged or whether it’s just collapsing under its own weight. Possibly both. In a way, it doesn’t matter because anything as complex and as highly scaled as the global supply chain will always collapse; it’s just a question of when. For 30 years, the goal of supply chain management has been efficiency, usually defined as the elimination of redundancy, inventory and latency (more on that below). That’s fine in the short run but it results in a system that is brittle and has no tolerance for even small disruptions. The nature of complex systems is that small causes have tremendous impacts to the point of total collapse. It is possible that one or more parties chose to disrupt the system intentionally without realizing how vulnerable the entire system really was. This combination of intentional acts and unintended consequences is a staple of history, including the outbreak of World War I. Once the implosion begins, it’s very difficult to stop. Below, I show you just how complicated it is to produce even a single loaf of bread. When you extend that analysis to goods economywide, you see just how fragile today’s globalized supply chains are. What happens if we don’t repair them in time? Read on. Regards, Jim Rickards for The Daily Reckoning P.S. I advise you to pursue wealth-generating opportunities outside of the stock market that aren’t subject to the same dynamics that can bring the stock market crashing down. For example, there’s a massive [$6.6 trillion daily flow of capital that few investors know anything about.]( In my new blockbuster video, [I show you how you can tap this $6.6 trillion daily flow of capital for potentially explosive gains.]( It’s generated a lot of chatter on the internet. You’ll see why when you [click here]( to see it. [In this video I revealed my proprietary secret]( for profiting from this $6.6 trillion bonanza. At the heart of it is a new computerized [Tactical Operations Center]( my team and I have built to track this massive cross-border capital flow. It’s something you really need to see if you want to look to build wealth outside of the stock market. I think you’ll truly be amazed when you see it. [Click here now for details.]( Recommended Link [Attention! Before You Read Any Further…]( Before you read any further in today’s issue, an urgent situation needs your immediate attention. If you don’t plan on claiming this new upgrade to your Strategic Intelligence subscription, you’re missing out on a huge opportunity. Right now is your chance to grab one of the biggest (and most valuable) upgrades our company has ever made to a newsletter. I’m taking Strategic Intelligence to an entirely new level and I’d hate to see you left behind. [Click Here To Claim Your Upgrade]( The Daily Reckoning Presents: “If supply chains are breaking down, the economy is breaking down. If the economy breaks down, the breakdown of social order is not far behind”… ****************************** The Great Supply Chain Collapse By Jim Rickards [Jim Rickards]What’s at the root of the supply chain breakdown? That’s a critical question but the answer is almost irrelevant. The supply chain is a complex dynamic system of immense scale. It is of a complexity comparable to the climate as a system. This means that exact cause and effect cannot be computed because the processing power needed exceeds the combined processing power of every computer in the world. Most people have some notion of how supply chains work, but few understand how extensive, complex and vulnerable they are. If you go to the store to buy a loaf of bread, you know that the bread did not mystically appear on the shelf. It was delivered by a local bakery, put on the shelf by a clerk, you carried it home and served it with dinner. That’s a succinct description of a supply chain – from baker to store to home. Yet that description barely scratches the surface. What about the truck driver who delivered the bread from the bakery to the store? Where did the bakery get the flour, yeast and water needed to make the bread? What about the ovens used to bake the bread? When the bread was baked, it was put in clear or paper wrappers of some sort. Where did those come from? Even that expanded description of a supply chain is just getting started in terms of a complete chain. The flour used for baking came from wheat. That wheat was grown on a farm and harvested with heavy equipment. The farmer hires labor, uses water and fertilizer and sends his wheat out for processing and packaging before it gets to the bakery. The manufacturer who built the oven has his own supply chain of steel, tempered glass, semiconductors, electrical circuits and other inputs needed to build the ovens. The ovens are either hand crafted (engineered-to-order) or mass produced (made-to-stock) in a factory that may use either assembly lines or manufacturing cells to get the job done. The factory requires inputs of electricity, natural gas, heating and ventilation systems, and skilled labor to turn out the ovens. The store that sells the bread is on the receiving end of numerous supply chains. It also requires electricity, natural gas, heating and ventilation systems and skilled labor to keep the doors open and keep merchandise in stock. The store has loading docks, back rooms for inventory, forklifts and conveyor belts to move its merchandise from truck to shelf. Every link in these supply chains requires transportation. The farmer relies on trucks or rail for deliveries of seeds, fertilizers, equipment and other inputs. The oven manufacturer also relies on trucks or rail for deliveries of its inputs, including oven components. The bakery and the store rely mainly on trucks for deliveries of their inputs and the finished loaves of bread. The consumer relies on her automobile to get to the store and return home. These transportation modes have their own supply chains involving truck drivers, train engineers, good roads, good railroads, rail spurs and energy supplies to keep moving and keep deliveries on time. This entire network (farms, factories, bakeries, stores, trucks, railroads and consumers) relies on energy supplies to keep working. The energy can come from nuclear reactors, coal-fired or natural gas-fired power plants or renewable sources fed to a grid of high-tension wires, substations, transformers and local connections to reach the individual user. Everything described above sits somewhere in a complex supply chain needed to produce one loaf of bread. Now take everything else in the grocery store (fruits, vegetables, meat, poultry, fish, canned goods, coffee, condiments and so on) and imagine the supply chains needed for each one of those products. Then take all the other stores in the shopping center (home goods, clothing, pharmacy, hardware, restaurants, sporting goods) and imagine all the goods and services available from those vendors and the supply chains behind each and every one of those. In case you think I have exaggerated the components and steps in making a loaf of bread in the above example, I didn’t. The example above is a grossly simplified description of the actual supply chain. A full description of the needed supply chain would reach back further (where do the seeds for the wheat come from?) and branch off in tangential directions (where do the bread wrappers originate?). Recommended Link [Don’t Buy Any Crypto Until You Read This New Book!]( [Read more here...]( Do not… I repeat… Do NOT buy a single cryptocurrency until you read this new book. This could be the biggest opportunity of your life, but only if you act now. [Get Your Copy Here]( A full description of the loaf of bread supply chain with choice of vendor analysis, quality-control tests and bulk purchase discounts among other decision tree branches could easily stretch to several hundred pages. Now consider all of the supply chain links and possible bottlenecks described above are purely domestic. But very few supply chains are actually that local. CEOs, logistics engineers, consultants and politicians have spent the past 30 years making supply chains global. You’ve heard discussion of globalization since the early 1990s. What one may not have realized is that the process that was being globalized was the supply chain. You know your iPhone comes from China. Did you know that the specialized glass used in the iPhone comes from South Korea? Did you know the semiconductors in the iPhone come from Taiwan? That the intellectual property and design of the iPhone are from California? The iPhone includes flash storage from Japan, gyroscopes from Germany, audio amplifiers, battery chargers, display port multiplexers, batteries, cameras and hundreds of other advanced parts. In total, Apple works with suppliers in 43 countries on six continents to source the materials and parts that go into an iPhone. That’s a quick overview of the iPhone supply chain. Of course, every supplier in that supply chain has its own supply chain of sources and processes. Again, supply chains are immensely complex. Once the global perspective is added, we have to expand our transportation options from trucks and trains to include ships and planes. That means ports and airports are additional links in the chain. Those facilities have their own links and inputs including cranes, containers, port authorities, air traffic controllers, pilots, captains and the vessels themselves. And to our list of trucks, trains, ships and planes we can add pipelines that transport liquids such as petroleum, gasoline and natural gas. You get the idea. Supply chains may be hidden but they are everywhere. They are interconnected, densely networked and unimaginably complex. The touchstone of these efforts was the idea of just-in-time inventory (JIT). If you’re installing seats on an automobile assembly line, it is ideal if those seats arrive at the plant the same morning as the installation. That minimizes storage and inventory costs. The same is true for every part installed on the assembly line. The logistics behind this are daunting but can be managed with state-of-the-art software. All these efforts are fine as far as they go. The cost savings are real. The supply chains are efficient. The capacity of this system to keep a lid on costs is demonstrable. The supply chain revolution since the early 1990s has been about cost reduction, which gets passed to consumers in the form of lower prices. That practically explains the entire phenomenon. There’s only one problem. The system is extremely fragile. When things break down, everything gets worse at the same time. One missed delivery can result in an entire assembly line shutting down. One delayed vessel can result in empty shelves. One power outage can result in a transportation breakdown. In a nutshell, that’s what has happened to the global supply chain. There’s a lack of redundancy. The system is not robust to shocks. The shocks have occurred nevertheless (pandemic, trade wars, China-U.S. decoupling, bank collateral shortages and more) and the system has broken down. The failures have cascaded. Delays in receiving commodity inputs in China have resulted in manufacturing delays for exports. Energy shortages in China have resulted in further disruption of steel production, mining, transportation and other basic industries. Port delays in Los Angeles have resulted in component and finished goods delayed in the U.S. Semiconductor shortages have halted production of electronics, appliances, automobiles and other consumer durables that rely on automated applications. You’ve seen how complex the system is. The bottom line is if supply chains are breaking down, the economy is breaking down. If the economy breaks down, the breakdown of social order is not far behind. And the costs of social disorder are far higher than any possible savings from supposedly efficient supply chains. Regards, Jim Rickards for The Daily Reckoning P.S. I advise you to pursue wealth-generating opportunities outside of the stock market that aren’t subject to the same dynamics that can bring the stock market crashing down. For example, there’s a massive [$6.6 trillion daily flow of capital that few investors know anything about.]( In my new blockbuster video, [I show you how you can tap this $6.6 trillion daily flow of capital for potentially explosive gains.]( It’s generated a lot of chatter on the internet. You’ll see why when you [click here]( to see it. [In this video I revealed my proprietary secret]( for profiting from this $6.6 trillion bonanza. At the heart of it is a new computerized [Tactical Operations Center]( my team and I have built to track this massive cross-border capital flow. It’s something you really need to see if you want to look to build wealth outside of the stock market. I think you’ll truly be amazed when you see it. [Click here now for details.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. If you are having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox [by whitelisting The Daily Reckoning.]( [Paradigm Press]© 2021 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Email Reference ID: 470DRED01