Sinking Ship

I was recently sent the link to the following video and asked what I think of it. I should tell you that, despite the fact that it deals with economics, this video could easily evoke a very emotional response -- even a deeply felt need to hoard as much non-perishable food as you possibly can. Please watch the video, and then read on…




Here's the link for my friends on Facebook, since this doesn't seem to be showing there...
www.youtube.com/watch?v=SXATSV8S3-M
You'll have to copy and paste since the Glorious FB won't even show the link!


Now, before any of you are tempted to give the same response that Thomas Edison gave when asked what he thought of Einstein's Theory of Relativity ("I don't think anything of it because I don't understand it!"), let me just say this:

“Dogs and cats, living together, mass hysteria!” – Ghost Busters

You have to ask why somebody providing a critical, factual assessment of the BDI is showing inflammatory pictures such as children standing in front of empty grocery store shelves and a cargo ship that capsized and/or sank in its harbor. What is the presenter really trying to accomplish? Why can he not accomplish that with the facts alone?

I think it is interesting that the presenter shows a portion of the BDI chart that primarily shows the build up and subsequent drop in the index, but even in what is visible you can see a fairly steady level until mid to late 2003. It then rises, drops a bit, really takes off in 2006, and then drops dramatically late in 2008. Why? I suspect the first clue lies in the announcer’s initial explanation of what the Baltic Dry Index is an index of – the COST of shipping, NOT the volume of shipping.

The announcer goes on to say that the index measures the demand for shipping capacity versus the supply of carriers. Fair enough -- everybody knows that supply and demand affect price. But are those the ONLY things affecting price? We learned that lesson during the 1970’s. Counter to classical economic theory, we saw that due to other influences prices can go up for a given item even when demand drops and supply increases. Thus spoke Stagflation.

The announcer asserts that the BDI cannot be manipulated by speculators. I would say it was – indirectly. We know that speculators ran the prices of future oil contracts up. What would that do to the cost of shipping? A few months ago the oil futures market collapsed, so what would one expect that to do to the cost of shipping? So, what would we see if we overlapped the BDI chart and the oil futures market prices for the same period? A pretty good correlation.

I'll admit that I may be wrong in all this. I may even be right, but for all the wrong reasons. Not to be facetious, but I have to ask; if all shipping is grinding to a halt even as we speak, why is ANYONE worried about the piracy crisis? Exactly what could they be pirating? There's some money in pirating passenger ships and a few have been, but the real and easy money is in huge cargo ships with crews of only six to ten people. The ratio of profit to the effort of overcoming only six people is mind-boggling, but we've just been told that such ships are... no longer sailing!

Even if we were to accept this person's conclusions, we would have to ask this: If this doomsday prediction is accurate, just how effective would a garden or a local food supply be at hedging against this? Such a global collapse would be economically analogous to a global nuclear war -- who can store more than a few weeks or months of food? How would local farmers (because a garden that supplies so much food would actually have to be a farm) get past the current season with no external supplies, including gasoline or diesel? The list of subsequent problems goes on and on. As with a global nuclear war, the real victims, the ones who would suffer most, would be those who survive the initial calamity (in this case, that's virtually everyone). Given all of that, I'd ask again, what is the presenter really trying to accomplish?