The Looming Shortages

One of the only things I have walked away from the study of economics with is the law of supply and demand.  It may not be as cut and dry as the books teach, but the over all theory works to find an equalibrium concerning price.

This summer we have seen some very important goods fall prey to shortages of supply.  The first was corn and other food staples.  Because of this many farmers slaughtered their animals because feed was high priced.  So soon we will see shortages of meat.

Another supply concern is that of precious metals.  Platinum miners went on strike in South Africa and were followed by gold and silver miners.  This will create a supply crunch down the road.

As for precious metals, investment demand has been quelled by paper products.  This will not help industrial demand.  If there is ever industrial shortages the price will rise.  This is one reason rising investment demand may help create price appreciation - it could squeeze industrial demand.

Food products are not so easily created.  People can eat less meat if the price rises too high, but since everyone eats the inflation will be obvious to the status quo.  Precious metals can rise and not everyone cares.  Many people think gold is a barbarious relic; they don't understand that it is being used to shore up Central Bank balance sheets across the world.  They don't understand that in every cell phone there is fifty cents worth of silver.  They don't understand there is platinum in every catalytic converter.  They don't understand that gold is in every computer's mother board.

With rising costs due to monetary policy, with rising costs due to peak resources, a major supply crunch will throw a wrench into the system.  I expect the above two examples (meat and metals) to do just that next year.