The Ever Given is one of the world's largest container ships, owned by a Japanese shipbuilding firm and sailing under a Panamanian flag. The 1,300-foot-long apparatus carries approximately 200,000 tons of cargo between Asia and Europe. Right now, the ship is causing the planet's heaviest traffic jam in the Suez Canal after being run aground from heavy winds and dust storm-induced low visibility. And this is producing pandemonium in the global economy.
Suez Canal Blues
Egyptian authorities confirmed that an older section of the canal is being utilized to divert some of the ships that were paralyzed on both sides for 24 hours. But while this has spawned a tidal wave of memes, the incident in one of the globe's busiest waterways has affected international trade.
According to Lloyd's List, a shipping and news company, the blockage is costing $400 million in trade per hour. The company values westbound traffic at a little more than $5 billion a day and eastbound traffic at about $4.5 billion per day. This might have caused a mild headache in any other economy, but it is producing a migraine in today's marketplace. The global supply chain has been immensely strained as demand is skyrocketing worldwide. From agricultural products to energy commodities to apparel to furniture, everybody wants everything simultaneously, and the Suez Canal facilitates the transportation of these goods.
Bernhard Schulte Shipmanagement, the ship's technical manager, confirmed that recent efforts to re-float the ship were unsuccessful. The next step is to allow "for high-capacity pumps to reduce the water levels in the forward void space of the vessel and the bow thruster room." The U.S. government has also offered assistance to Egypt to help reopen the canal. But most conservative estimates say it could take weeks before the Ever Given returns to its route and the Suez Canal is freed up again.
This should initiate a broader discussion about the unfolding shipping container crisis. Because demand is surging across the globe, there are not enough shipping containers to meet the needs of foreign markets. Companies have gone as far as paying premiums for these cargo carriers. Even if new shipping containers were constructed, they would be more expensive since steel prices have soared 151% over the last 12 months.
Oh, and get ready for another toilet paper shortage? That is quite the cliffhanger!
BoC No Longer Loonie for QE?
The Great White North might be the first major industrial nation to taper its quantitative easing (QE) efforts. As other nations consider maintaining or building upon their accommodative monetary policy endeavors to support and stimulate their economies, Canada is heading in the other direction.
The Bank of Canada (BoC) announced that it would begin tapering its $4 billion-a-week emergency liquidity programs initiated last year. The central bank will wind down its purchases of federal and provincial government bonds and corporate debt. The institution will also suspend its main short-term financing facility in May. Since March 2020, the BoC's ownership of the outstanding bond market has climbed to more than 35%, and officials fear that if holdings increase to 50%, the market could experience distortions.
Does this mean a rate hike is on the way? Not quite, says BoC Deputy Governor Toni Gravelle, who told CFA Society Toronto that the policy tightening process would be performed in "gradual and measured steps."
“We will eventually get down to a pace of QE purchases that maintains — but no longer increases — the amount of stimulus being provided,” Gravelle said. “It won’t necessarily mean that we have changed our views about when we will need to start raising the policy interest rate."
If the central bank is curtailing its ultra-aggressive monetary policy, the economic recovery must be accelerating. The national economy is being held together by a roaring real estate market that has seen record-setting sales activity and prices from British Columbia to Nova Scotia, from major urban centers to rural communities. In the broader economy, the gross domestic product (GDP) growth rate has been anemic. Consumer and producer prices are rising. Manufacturing has been disappointing. But the labor market is beginning to show signs of new life. That said, it should be interesting watching Ottawa take the lead among G7 nations and taper.
The Road is Paved with High Taxes
Transportation Secretary Pete Buttigieg, who was appointed to his position because he took a couple of trains and proposed to his husband at Chicago’s O'Hare airport, is looking at new revenue streams to fund President Joe Biden's ambitious and expensive infrastructure spending plan.
According to the 2020 presidential candidate, the administration is exploring a vehicle mileage tax. This would penalize travelers based on the distance of the journey rather than how much gasoline they consume. Whatever you call it, Buttigieg says, the concept could be a workable mechanism to help fund the multi-trillion-dollar infrastructure proposal. He added that there is "a lot of appetite" for "sustainable funding streams" and a mileage penalty coincides with the user-pays principle of funding roads based on how much you drive. Buttigieg told CNBC:
"When you think about infrastructure, it’s a classic example of the kind of investment that has a return on that investment. That’s one of many reasons why we think this is so important. This is a jobs vision as much as it is an infrastructure vision, a climate vision and more.
A so-called vehicle-miles-traveled tax or mileage tax, whatever you want to call it, could be a way to do it."
The White House is also thinking about Build America Bonds, a special category of municipal bonds with interest costs financed by the Treasury Department. This was first introduced by the Obama administration. No matter what, Americans will face higher taxes in some form to cover this so-called generational investment. The country better get prepared to open up its collective wallets – if there is any money left inside.
~
Read more from Andrew Moran.
