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| David Stockman |
Crude
oil is not the only commodity that is crashing. Iron ore is on a similar
trajectory and for a common reason. Namely, the two-decade-long economic
boom fueled by the money printing rampage of the world’s central banks is
beginning to cool rapidly. What the old-time Austrians called “malinvestment”
and what Warren Buffet once referred to as the “naked swimmers” exposed by
a receding tide is now becoming all too apparent.
This
cooling phase is graphically evident in the cliff-diving movement of
most industrial commodities. But it is important to recognize that these are
not indicative of some timeless and repetitive cycle—–or an example merely
of the old adage that high prices are their own best cure.
Instead, today’s
plunging commodity prices represent something new under the sun. That is, they
are the product of a fracturing monetary supernova that was a unique and
never before experienced aberration caused by the 1990s rise, and then the
subsequent lunatic expansion after the 2008 crisis, of
a cancerous regime of Keynesian central banking.
Stated
differently, the worldwide economic and industrial boom since the early
1990s was not indicative of sublime human progress or the break-out of a newly
energetic market capitalism on a global basis. Instead,
the approximate $50 trillion gain in the reported global GDP over the
past two decades was an unhealthy and unsustainable economic deformation
financed by a vast outpouring of fiat credit and false prices in the
capital markets.
For
that reason, the radical swings in commodity prices during the last two decades
mark the path of a central bank generated macro-economic bubble, not
merely the unique local supply and demand factors which pertain to crude
oil, copper, iron ore, or the rest. Accordingly, the chart
below which shows that iron ore prices have plunged from $150 per ton in early
2013 to about $65 per ton at present only captures the tail end of
the cycle.
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