Inflation=Commodity/Labour Shortages=Price Increases... every major inflationary period is associated with shortages. That’s what inflation is. Price inflation occurs when the money supply goes up a lot more quickly than the supply of products and services. And specifically which products and services get price-constrained depends on where our weaknesses are, meaning where we lack abundance.
The inflationary 1940s decade had major commodity and labor shortages, which also pushed up the prices of most other things. It happened at a time when countries were monetizing massive government deficits to fight a global war, which radically increased the supply of money in the system. Interest rates were held near zero by central banks while inflation soared. Most countries had suspended their gold standards or devalued their currencies relative to gold starting with World War I, through the Great Depression, and into World War II.
The inflationary 1970s decade had major oil shortages, which pushed up the prices of everything else. US domestic oil production peaked and we became increasingly reliant on oil imports, at a time when for geopolitical reasons related to the Yom Kippur War, some of those exporters didn’t want to sell to the US. Importantly, it also happened shortly after the US defaulted on the gold standard and increased its money supply rapidly (as did other countries, who had until that time pegged their currencies to the dollar, which was supposed to be “as good as gold” but was now unbacked and devaluing). Apart from the war, why would oil exporters want to be paid with unbacked pieces of foreign paper, which the dollar had just recently become? It took some convincing, to say the least. Like the Godfather, we offered them some protection, and the petrodollar system was created.
The so-far inflationary 2020s decade has major supply chain shortages, which are pushing up prices across the board as well. And, like the 1940s and 1970s, it is happening at a time when governments are running large monetized deficits, and thus increasing their money supply faster than normal. Interest rates are once again below the prevailing inflation rate, meaning savers are not being compensated for their devaluing money.
... My base case is that as we head deeper into the 2020s, with various supply chain problems, de-globalization, and less new oil supply coming online, that another longer-run commodity bull market is setting itself up. It won’t be a straight line, of course, and we’ll need to monitor developments over time. And this comes at a time when tech/growth stocks are very highly-valued by historical standards.
https://www.lynalden.com/august-2021-newsletter/