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Speaker 1: Now here's a highlight from Coast to Coast AM on

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Speaker 1: iHeart Radio and welcome back to Coast to Coast George

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Speaker 1: nor with James Rickards as we're talking about his book

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Speaker 1: that just came out called Sold Out. How broken supply chains,

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Speaker 1: surging inflation and political instability will sync the global economy. James,

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Speaker 1: nineteen seventy three, the air of boiling bargo. That was

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Speaker 1: a premeditated supply chain issue. But we got through that,

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Speaker 1: didn't We We got through it, but at a very

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Speaker 1: high cost. And George, you just put your finger on

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Speaker 1: one of the key issues not only of the nineteen

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Speaker 1: seventies economy, but about what's going on today and the

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Speaker 1: supply chain. So just to make it is thinking you're

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Speaker 1: right in nineteen seventy three as a result of the

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Speaker 1: Arab is really worth the time the Arabs in Opec

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Speaker 1: embargoed oil to the US prices quadruple. They went from

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Speaker 1: sounds funny today, but from three dollars at barrow to

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Speaker 1: twelve dollars a barrel, but going up by four times.

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Speaker 1: It was a shock and to the economy into a

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Speaker 1: recession at the time, and also kicked off a round

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Speaker 1: of inflation But the problem is you people. Everyone knows

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Speaker 1: what inflation is. You know, I go to the guest station,

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Speaker 1: I go to the grocery store, I see it, and

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Speaker 1: we all do. But the question is where does inflation

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Speaker 1: come from? And it can come from two places. One

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Speaker 1: is exactly what we just described. It can come from

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Speaker 1: the supply side. There's a supply chain disruption, there's an embargo,

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Speaker 1: there's a strike, a raboat strike, whatever it may be.

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Speaker 1: Supply gets messed up and prices go up because people

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Speaker 1: are bidding for a fewer and fewer goods. But the

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Speaker 1: other place inflation comes from is the demand side. And

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Speaker 1: this is when consumers have these expectations. So maybe you're

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Speaker 1: thinking of buying a new refrigerator or whatever, and you Harry,

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Speaker 1: I'll get it in three months. But if the prices

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Speaker 1: are going up, you say, hey, I better go out

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Speaker 1: and buy it right now, because I'm going to pay

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Speaker 1: a higher price in three months when I actually go

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Speaker 1: to buy it, So I go buy it now. Let's

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Speaker 1: call it demand pull inflation. You're pulling all that demand

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Speaker 1: forward now, But that's mainly psychologically. Just get in your head.

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Speaker 1: The prices are going up, now, what happened in the seventies,

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Speaker 1: we started out with supply chain inflation. They are boil

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Speaker 1: embargo exactly what you said. But in the late seventies

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Speaker 1: it morphed into the demand inflation. The consumers just said

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Speaker 1: I gotta get everything. That's when you know gold went

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Speaker 1: from thirty five dollars announced to eight hundred dollars announced.

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Speaker 1: I was starting my career at the time, basically just

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Speaker 1: hand out raiss, we give us a twenty thousand dollars race.

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Speaker 1: It's a lot of money back then. Yeah, absolutely, yeah,

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Speaker 1: because they were afraid you you're going to quit or

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Speaker 1: leave your job or whatever. And then you know, Paul

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Speaker 1: Boker came in took interest race to twenty percent and

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Speaker 1: crushed it. So that's the whole kind of history of

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Speaker 1: the seventies in the early eighties. Now here we are today.

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Speaker 1: We have the same supplies change chops. Some of it

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Speaker 1: is coming from energy because of the embargo and Russian

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Speaker 1: oil and natural gas cutting off Russian natural guests to

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Speaker 1: do Western Europe. The UK Special Forces with the US

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Speaker 1: permission blew up the North Stream pipeline. It's just a

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Speaker 1: lot going on. So we're getting that supply side inflation

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Speaker 1: and it's real. But the question is has it morphed

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Speaker 1: into the demands inflation have consumers changed their attitude So far,

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Speaker 1: we don't see that. People see the higher prices for sure.

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Speaker 1: But I'll give very concrete example. So let's say you've

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Speaker 1: got a four to f one fifty pickup truck and

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Speaker 1: used to cost you seventy five dollars to fill up

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Speaker 1: your tank. Well now it's one hundred and fifty dollars

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Speaker 1: because the price of guestline has perfically doubled over the

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Speaker 1: course of the past year. Well that's called inelastic demand.

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Speaker 1: You got to put that guess in your truck because

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Speaker 1: you've got to get to work or school or whatever

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Speaker 1: it may be. But it means that the seventy five

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Speaker 1: dollars you're you're not going to spend on something else.

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Speaker 1: So it might mean you don't go out for dinner,

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Speaker 1: you don't go to a concert or a sporting event,

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Speaker 1: or you don't buy a new suit or a new

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Speaker 1: dress or whatever it may be. And so that's actually

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Speaker 1: dragging the economy down here. So here's the difference. Supply

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Speaker 1: chain inflation tends to snuff itself out. It's real, no,

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Speaker 1: no denying it. But because of what I'm describing, you know, restaurants,

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Speaker 1: those businesses fail, unemployment goes up. We're getting very close

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Speaker 1: to that tipping point stage. We're getting very close to

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Speaker 1: a recession. You know, as an old saying in economics,

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Speaker 1: the cure for high oil prices is high oil prices

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Speaker 1: because it destroys a lot of demand us for an economy. Now,

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Speaker 1: has it morphed into the consumer side, not yet, and

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Speaker 1: the Fed's going to make sure it doesn't. The Federal Reserve,

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Speaker 1: I mean, going back to Captain Fish or prior guests,

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Speaker 1: the Federal Reserve is raising rates systematically to destroy demand.

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Speaker 1: But here's you know, you raise mortgage rates enough, the

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Speaker 1: monthly payment goes up and all of a sudden, housing

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Speaker 1: prices come down. And we're seeing that right now, and

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Speaker 1: we're saying, you know, a lot of job losses as well,

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Speaker 1: layoffs announced everyone. So we're seeing that side of things.

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Speaker 1: But the question is if the problems coming from the

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Speaker 1: supply side. The Federal Reserve can't do anything about the

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Speaker 1: supply side. They don't drill for oil, they don't plant crops,

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Speaker 1: they don't drive trucks, they don't refine diesel fuel. They

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Speaker 1: can't do anything about it supply side. They can only

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Speaker 1: destroy demand. But how much demand do you have to

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Speaker 1: destroy to snuff out inflation coming from the supply side.

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Speaker 1: The answer is a lot. And that's going to throw

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Speaker 1: us into a very severe recession. We're getting into it

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Speaker 1: right about now. And so a lot of investors and

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Speaker 1: everyday Americans they're not ready for this day. They're kind

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Speaker 1: of ready for inflation. I go by you know, by

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Speaker 1: real estate, or maybe by gold or you know, other bonds. Actually,

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Speaker 1: if you want, if you want to prevent inflation or

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Speaker 1: make money during inflation, I should say, but they're not

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Speaker 1: ready for disinflation and deflation, and that's coming very soon.

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Speaker 1: The most recent supply chain Israel was the baby formula

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Speaker 1: shortage caused by that plant that had some contaminations, and

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Speaker 1: I think they shut the plant down. But yeah, that

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Speaker 1: was a disaster, and I'm they're still wounded by that,

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Speaker 1: aren't they. Yes, And that was a complete disaster. And

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Speaker 1: that's a really good example of what you said earlier,

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Speaker 1: George about the domino fact. So the supply chain problem

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Speaker 1: is already there. That started in mid to late twenty

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Speaker 1: twenty one, and we saw it in you know, I

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Speaker 1: tell the story. It was a famous place in New

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Speaker 1: York called Junior's Cheesecake. It's kind of a well known brand.

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Speaker 1: They couldn't make cheesecake because they couldn't get cream cheese.

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Speaker 1: Cheesecake is eighty three percent cream cheese. So that was,

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Speaker 1: you know, maybe mildly humorous. They're upset somebody's cheesecake. That

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Speaker 1: was real. But when you got to the baby formula

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Speaker 1: situation that was really in April twenty twenty two and

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Speaker 1: still persisting, much more cute. That was self inflicted. Now sadly,

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Speaker 1: there were a couple of the infant dusts and they

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Speaker 1: have to be investigated. And so the FDA looked at

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Speaker 1: this one baby formula plant, which makes a very large

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Speaker 1: percentage of all the baby formula in the US, and said, well,

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Speaker 1: we're shutting you down until we get to the bottoms.

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Speaker 1: By the way, there never was a linkage proved. I

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Speaker 1: followed up on that case. There was the dust or

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Speaker 1: sad but it was never linked to that formula plant.

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Speaker 1: But they shut it down without realizing what was that

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Speaker 1: going to do to all the all the mothers and

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Speaker 1: all the infants and caretakers in the country. When you

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Speaker 1: couldn't get the baby formula. And then it was worse

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Speaker 1: than that because there's a government program called WC which

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Speaker 1: basically it's not welfare, but it basically gives you subsidies

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Speaker 1: to buy baby formula, which you know, we were rare

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Speaker 1: poor parents. That's a big help. But because it's a government,

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Speaker 1: of course, there were regulations and they specified which kind

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Speaker 1: of baby formula qualified for this supplemental payment. Well, the

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Speaker 1: answer was it was it was the same formula that

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Speaker 1: they shut down. So now it was not just the

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Speaker 1: supply chain issue, which it was, but you know, poor

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Speaker 1: low income mothers couldn't get the financial assistance they needed

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Speaker 1: to buy formula at all because they couldn't switch to

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Speaker 1: another brand because it didn't qualify for the subsidy. So,

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Speaker 1: without kind of getting too deep in the weeds, there's

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Speaker 1: one bureaucratic decision by the FDA. I'm sure they weren't

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Speaker 1: thinking about the supply chain. They were just going by

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Speaker 1: the book in terms of what you do when you

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Speaker 1: have to investigate the matter, and okay, but nobody in

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Speaker 1: charge could an exception or think it through or say

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Speaker 1: well what does this really mean? So that was self

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Speaker 1: inflicted damage on top of an already bad situation. But

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Speaker 1: it shows how these supply teams were so interconnected. When

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Speaker 1: you mess up one piece, you're going to mess up

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Speaker 1: a lot else that you don't even realize. Jim, is

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Speaker 1: the Russian Ukraine situation contributing to supply chain issues in

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Speaker 1: a huge way and ways that. By the way, George,

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Speaker 1: that's a topic I happened to know a lot about.

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Speaker 1: I worked for the intelligence community for ten years and

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Speaker 1: one of my specialties was exactly that. Now there's a

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Speaker 1: government agency called SCIPIOUS, and when you say that, people go,

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Speaker 1: there's a burner. It's you know, but it's it's an

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Speaker 1: acron having stands for a Committee on Foreign Investment in

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Speaker 1: the United States, where you look at when foreign companies

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Speaker 1: are buying US companies. You look at it from a

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Speaker 1: national security perspective, is there are we giving away technology

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Speaker 1: to the Chinese or whatever? And I was part of

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Speaker 1: a team in the intelligence community that did the background

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Speaker 1: work on that. We didn't make the decision, but we

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Speaker 1: would do the elections from various sources and then report

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Speaker 1: in was this a threat or not? So, you know,

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Speaker 1: kind of doing that kind of work, it got very

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Speaker 1: familiar with the economic sanctions in economic warfare. Actually teach

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Speaker 1: that at the US Armory War College. So the answer

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Speaker 1: is yes. But now you've got the Treasury, I promise

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Speaker 1: you Johnny Yellen knows nothing about what we're talking about

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Speaker 1: right now. She's you know, she's the Secretary of the Treasury,

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Speaker 1: but she's kind of a statistics geek, labor economists from Berkeley.

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Speaker 1: She doesn't really get what we're talking about. She has

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Speaker 1: a Deputy Treasury Secretary. While they AUDIAMO, he's in charge

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Speaker 1: of these sanctions. Brilliant lawyer. I don't take anything away

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Speaker 1: from him as a lawyer, but doesn't know anything about

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Speaker 1: the real world, the real economy. So they're slapping all

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Speaker 1: these sanctions on Russia. We're not buying Russia can't get semiconductors,

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Speaker 1: we're not buying the oil and gas. But it's worse

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Speaker 1: than that. It goes to strategic medals, aluminum, titanium, you know,

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Speaker 1: a fertilizer, etc. And then Russia of course shot back

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Speaker 1: with their own sanctions. We're not going to export those things.

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Speaker 1: Well time out. Boeing makes aircraft in the United States

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Speaker 1: and thirty five percent of the aluminum and titanium comes

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Speaker 1: from Russia a lot of of course oil, natural guests.

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Speaker 1: We all know about that. Very few people realize that

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Speaker 1: twenty five percent of all the wheat exports in the world,

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Speaker 1: all of them in the world come from Ukraine and Russia.

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Speaker 1: And of course for the war like this, that's a

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Speaker 1: lot of that shutdown. The ports are shut down. The

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Speaker 1: Black Sea is a pretty dangerous area right now. And

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Speaker 1: so there's so many things that lithium cobalt. Everyone's tiding

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Speaker 1: electric vehicles, Well, how do they run well? And how

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Speaker 1: about these computer chips out of what China? Well, yes, China,

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Speaker 1: Well that's a very good point. Now when we say China,

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Speaker 1: let's be supecific, we're talking about Taiwan. Of course, China

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Speaker 1: says that's ii Wan as part of China. But the biggest,

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Speaker 1: most sophisticated manufacturer semiconductors in the world is called Taiwan

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Speaker 1: Semiconductor Manufacturing Corporation TSMC. So they just announced that they

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Speaker 1: were spending twenty billion dollars to build two new plants

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Speaker 1: they called semiconductor fabrication plants fabs. For sure, they're spending

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Speaker 1: twenty billion dollars to build two fabs in Arizona. So

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Speaker 1: wait a second, why is a Taiwan based company building

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Speaker 1: their fabs in Arizona. Well, the US military has a doctrine.

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Speaker 1: It's called the broken nest doctrine. When interestingly, the broken

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Speaker 1: nest comes from a Chinese proverb, and the proverb is

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Speaker 1: if the nest is broken, how can the eggs exist?

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Speaker 1: And the answer is they can. And what that means

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Speaker 1: is if China invades Taiwan, the United States are going

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Speaker 1: to burn Taiwan semiconductor facilities to the ground, but you know,

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Speaker 1: probably bomb them, but whatever, They're going to destroy those

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Speaker 1: facilities because they don't want the Chinese to get them. Well,

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Speaker 1: Taiwan Semiconductor know that, so they're going to build plants

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Speaker 1: in Arizona. So this is an example of the new

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Speaker 1: supply chain where actually a lot of I think the

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Speaker 1: US will be one of the winners here because a

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Speaker 1: lot of these high paying jobs will come back to

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Speaker 1: the United States. It is the whole situation is bizarre.

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Speaker 1: You've talked about how the airline industry suffered with the

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Speaker 1: supply chain issue. What happened to them? Well, that's another

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Speaker 1: great version of again, know what we've been talking about

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Speaker 1: the cascade effect of the Domino. So a couple of

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Speaker 1: things were happening at once, actually three separate things. So

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Speaker 1: there's something called avionics. Abionics is just you know, aviation electronics.

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Speaker 1: So all the fancy stuff you see in the cockpit

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Speaker 1: of a plane that's well backed by abonics for historic

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Speaker 1: reasons going back to World War Two, and you know,

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Speaker 1: other reasons that are hard to explain. A lot of

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Speaker 1: the avionics industry is based around Wichita, Kansas. Now, you know,

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Speaker 1: it's not unusual a silicon valleys all out in the the

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Speaker 1: San Jose. They're big medical research centers near Raleigh, North Carolina.

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Speaker 1: So it's some unusual. When you have expertise, the experts

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Speaker 1: want to be with other experts. But a lot of

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Speaker 1: the people who do this happen to be you know,

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Speaker 1: in their forties and fifties. You know, largely white. Is

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Speaker 1: a conservative demographic that didn't want to get vaccinated, but

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Speaker 1: they were all subject to Biden's vaccine mandate. They were

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Speaker 1: told they had to get vaccinated, so they started leaving

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Speaker 1: or quitting their jobs or starting small companies that weren't

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Speaker 1: subject to the regulations, etc. So you had this disruption

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Speaker 1: in the avionics industry at the same time, we're rolling

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Speaker 1: out five G five G seguent networks and this is

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Speaker 1: AT and T and Verizon. They're putting up all these

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Speaker 1: towers and all this stuff. It turns out that five

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Speaker 1: G interferes with the avionics and existing aircraft existing aircraft,

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Speaker 1: so it's not an impossible problem. You've got to adjust

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Speaker 1: the avionics so the interference doesn't occur. But what does

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Speaker 1: that mean. It means you've got to go to these

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Speaker 1: folks in Wichita and get the changes made. But they

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Speaker 1: were all out of work or quitting or starting new

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Speaker 1: businesses because of the vaccine mandate, so they couldn't keep

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Speaker 1: up with it. It was so bad that Transportation Secretary

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Speaker 1: winta Judge, and the head of the Federal Aviation Administration

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Speaker 1: had to send a joint letter. So why does that

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Speaker 1: transtation Secretary the FAA sign a letter. Sorry, it was

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Speaker 1: the Federal Federal Community Federal tele Communications Agency. Sorry, Why

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Speaker 1: are Telecommunications and Transportation sending a letter to A T

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Speaker 1: and T and Verizon telling them to slow down the

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Speaker 1: rollout of five G near airports because they couldn't get

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Speaker 1: the avionics? What was that? What caused that they didn't

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Speaker 1: want to take the vaccine. So all the cancelations of people,

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Speaker 1: I think people recall with the horror, you know, less

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Speaker 1: December January, thousands of flights canceled. Then you know, the

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Speaker 1: airlines are like, oh, it's the weather. It's always the weather,

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Speaker 1: you know. But the real reason was they couldn't get

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Speaker 1: these avionics fixed. But now slowly they're working their way

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Speaker 1: through it. Maybe it's a little better now. But again

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Speaker 1: a good example of somebody in Washington throws on the

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Speaker 1: vaccine mandate and next thing you know, you can't get

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Speaker 1: your aircraft off the ground because they're not adjusted for

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Speaker 1: five G rollout and you had to tell at AT

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Speaker 1: and T to slow down. So again it just shows

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Speaker 1: how complex these things are. And you make one little

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Speaker 1: rule and it breaks down the whole supply chain. Jim,

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Speaker 1: is this supply chain issue fixable or is it going

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Speaker 1: to be a problem. It's going to persist as a problem.

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Speaker 1: It will be fixed in the long run. And George

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Speaker 1: I spoke to an individual, the CEO of a fortune

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Speaker 1: time company, and he is a single individual most responsible

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Speaker 1: for building out modern supply chains. Now, of course there

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Speaker 1: were millions of people all over the world involved, but

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Speaker 1: his company in their technology really drove this process, and

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Speaker 1: he said to me, Jim, you have to understand, it

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Speaker 1: took us thirty years to build this. We blew it

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Speaker 1: up in about three years. It's going to take ten

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Speaker 1: years or more to rebuild it in a new form.

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Speaker 1: It's not going to be overnight. So right now we're

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Speaker 1: in a messy, kind of messed up, muddling through period

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Speaker 1: where things don't work quite right. Yes, stuff still gets delivered.

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Speaker 1: It's not like you go in to supermarket and every

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Speaker 1: shelf is bear. It's not like East Germany in the

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Speaker 1: nineteen fifties. But there'll be something missing. It could be

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Speaker 1: paper goods or hot sauce or bread or whatever it

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Speaker 1: may be. But I'm sure all of your listeners have

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Speaker 1: curious just today, not even a year ago, going around

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Speaker 1: and finding out this isn't here, something else is missing.

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Speaker 1: So it is going to persist. Listen to more Coast

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Speaker 1: to Coast AM every weeknight at one am Eastern and

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Speaker 1: go to Coast to Coast am dot com for more