Transcript
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Welcome to Get Appened here, a podcast about things falling apart and although not today, putting them back together again. Today we are going to be talking about some of the ways in which the world is falling apart and the ways that they've been invisibilized. Now, there are obviously a wide and broad variety of ways in which the world is coming to pieces, but one of them is the impact of the continued dual blockade now of the Strait of Hormuz. The sense you get reading the papers, if you were looking at the economic reality of the situation, is that everything is broadly fine. The economic impacts have been less bad than expected. The economy is proving more resilient. Economies, particularly in East Asia, are hanging on better than predicted. China has been resilient. America has been resilient. Trump will eventually back down, which will head off the worst case scenario, long range forecasting of material shortages. Now, the rest of you, I'm assuming if you're listening to this podcast, you live in reality and not the distorted mirror world of the stock market. Stock market, as I think everyone has been able to see by this point, is increasingly unmoored, if it ever was moored to begin with, from the reality of how the global economy is actually functioning. Trump has been able to play a game by which he makes the appearance of backing down every time the stock market seems to be actually tanking. And the markets have simply come to believe as an axiom that that if they simply bet that Trump will eventually back down, it will simply happen. No, it hasn't. The war is continuing apace. And it seems to have no signs of slowing down. But the markets are behaving as if they know that it's going to happen. And this has created a kind of paradox where on the one hand, there is us living in this world, and on the other hand, there are the markets living in a world where everything is going to be fine. And in the world that we live in, things are not good, but they are breaking, I think more slowly than people tended to expect. Now, part of this, and we will go over this in this episode, is that the impacts of this have been worst felt, obviously in Iran itself and then across south and East Asia, which are markets that are incredibly. And economies that are incredibly reliant on not just oil, but things like naphtha and also fertilizers that pass through the Strait of Hormuz. But if the markets are Wile E. Coyote hovering in the air through the sheer power of not looking down, the rest of the economy is a kind of slow moving train wreck. It isn't collapsing all at once, but the more you poke through and the more you go past the first page of the newspaper and start looking at the later ones, and the more that you look at the press in other countries, the more you begin to realize that things are going quite, quite badly. Now, in the west, the sign of this has been $5 a gallon gasoline in vast portions of the United States. We are quite frankly, seeing the better side of it. There have been widespread shutdowns of transportation across south and East Asia, but buses simply aren't running, both public and private. There have been strikes and protests over high gas prices by people who normally drive buses. Even in the US you can talk to people who try to do Uber deliveries. And it's becoming effectively impossible even to do that simply because gas prices are so high. But they are simply nowhere near as bad here as they are in places like the Philippines. Now, the interconnected nature of the global economy means that there are things that are being broken right now that are going to break more things later down the line and are continuing to break things down and cross the supply chain. But the ripples are moving slowly. Transportation costs are something that we tend to think about in terms of moving people around. Right? We kind of think about it in terms of buses, in terms of cars. However, one of the very significant issues that we are running into across particularly Southeast Asia, also Southeast Asia, to combining all sort of, I don't know, three of the regions, a bunch of the island nations in the Pacific are dealing with this Too, to various extent. Sri Lanka has been one of the worst hits to the extent that we're seeing a bunch of these countries are doing kind of like miniature government shutdowns. And obviously there's a bunch of different versions of this. Pakistan, for example, is going into more debt in an attempt to sort of keep the economy running. But returning to transformation costs for a moment, it is important that we also understand that goods are transported and increases in the price of gasoline to the point where it's simply impossible to afford also affects shipping and in particular affects things that are delivered on trucks. I'm going to read this quote about Vietnam and rice production in Vietnam. In today's abnormal times, rice buyers are hesitating. Shipping delays of 10 to 15 days have become common as carriers slow steam to conserve fuel. Basmati rice from India bound for the Middle east has been unable to get through the Strait of Hormuz in the Philippines. Wholesalers are not sure when there might be enough diesel to move imports around the country. That means rice has been piling up across Asia, creating a short term paradox. Wholesale prices declining as production costs rise after a year of healthy harvests. Traders are paying farmers less right now to hedge against future risk. So this is a really complicated fucking mess, right? What the New York Times is saying here is that buyers aren't buying the massive amount of rice that has already been planted, right? But on the other hand, there's also. Now we're running into fertilizer shortages because of a bunch of elements for fertilizers that is used in a lot. I mean, this is also affecting the United States too, but it's significantly worse in places like the Philippines and places like Vietnam. Some of the important elements needed to create fertilizer past the trade of farmers, they're not getting through. And this means that on the one hand, farmers are facing enormous rising production prices. But production is a process that takes place over and through time, right? And this is something that very importantly, most economic models are really, really bad at dealing with. Conventional macroeconomic models assume time and space don't exist to a large extent. Like this is like a real issue for a, for a lot of large scale economic models. Unfortunately, they exist here. And so what we're dealing with, right, is that there has been production that's already happened because there's already have been harvests. But now farmers can't sell the stuff that they've harvested because the transportation costs are so high that the buyers don't want to buy it. But that means also on the Other hand, food is still getting more expensive on your end because even though the people making the food can't get enough money for the food they are selling because, again, the buyers won't buy it because it's too expensive, you're now also paying. Like people in the region are now paying increased rice prices because they have to pay the shipping cost. So even though, on the one hand, right, the actual price that consumers are paying is going up, right, and the cost to produce the rice is also going up, the actual price at which these people can sell the rice is going down. And this is a fucking nightmare. It means that crops are getting planted. It means that crops are also just rotting in the fields because there's. There's no way to sell and move them. This is causing really, really significant concerns that we are going to be, you know, like, we are looking over the coming months at a kind of agricultural catastrophe where you're. You're starting to see sort of projections of people going, oh, God, like, hey, what if people simply stop exporting food? There's a great quote in, in this New York Times article from a guy who's a senior fellow in food security at Singapore's IS EAS where he says, quote, complex systems have a habit of creating wicked problems. The way that, like, capitalist markets interact with food shortages is a complete fucking nightmare. And this is something that we have seen that has caused famines all over the world, is that once you get into the point where food genuinely becomes scarce, which is not quite the point where we're at now, we're in the beginning of the process by which this could happen, right? The part of the process we're in right now is, is these farmers who also, by the way, and this is also very important, these rice farmers are not operating on particularly high margins, right? They are not very wealthy. When I say low margins, right? They are not making all that much money. And so, you know, being unable to sell your rice or being forced to sell it at an extremely low price and then having your production costs rise because your cost of fertilizer is skyrocketing is how these things effectively go under if this stuff continues. This is how you get waves of people being forced off their land because they simply can't afford to do the farming anymore, right? But then, you know, you also have sort of, in some sense, you have the reverse of this in other places where, if you look at what's happening in India, we talked about this on an executive disorder a few weeks back, you know, like a bunch of the ceramics industry is just like shut down and like 400,000 people are out of work from this. And this is causing those people to, okay, like what do you do when you can't get work in sort of urban industrial centers as you go back to a lot of the rural places where these people are from. But you know, the thing about oil, right, is that oil price increase is something that hits people across the board. It hits both rural and urban economies because they both are heavily oil dependent. This is something that New York Times mentions when you're talking about like rice problems in Vietnam, right. Part of the other thing that's been making rice harder to farm is that their irrigation system is powered by diesel engines. It's pump driven diesel stuff. And so because of that, there's sort of broad scale shortages in Vietnam. And you have to choose whether you're using the limited amount of diesel that you have in cities or in rural areas. And so these things are just kind of rapidly becoming a nightmare now. You know what isn't a nightmare? It's the products and services that support this podcast.