The U.S. Strategic Stockpile Is Gone…Now What?
by BWK ~ March 6, 2008
One of the lessons of World War II was the vulnerability of international trade. The Germans almost starved Britain with submarine attacks on British and Allied shipping. And the U.S. broke the back of the Japanese economy by sinking over 90% of the Japanese merchant fleet.
So during the Cold War, from the 1940s to the 1980s, the U.S. government was pretty worried about keeping the national economy running in case of a war with the Soviet Union. Thus the U.S. government built up what it called a “strategic stockpile.”
The Strategic Stockpile
The strategic stockpile was a large amount of metals, minerals and other items. Planners believed these things were critical for the national economy to function. The government just plain hoarded up metals and minerals in warehouses, and open camps out in the desert.
It was like a squirrel stocking up on food for a long winter. The stockpile included all sorts of things. There was helium to indium, chrome and cobalt, germanium and beryllium, diamonds, molybdenum and much more. This constituted the U.S. “war reserve.”
In hindsight, it is fair to say that the planners had their basic facts straight. The items in the stockpile were – and remain – the backbone of a modern industrial economy. Without these metals and minerals, you can hardly keep the lights on, let alone build advanced systems like power plants, or war machines like jet aircraft and submarines.
But the Cold War ended in the early 1990s, right? (Well, maybe not. But we can discuss that another time.) So in the post-Cold War euphoria of the 1990s and early 2000s the U.S. government just sold off almost all of the strategic stockpile material. (The Russians sold a lot as well, but not all of it – characteristically.)
The Strategic Stockpile is Gone
So today, the U.S. strategic stockpile is gone. It has been sold off. There is just about nothing left. The warehouses are empty. (Heck, the U.S. government even sold off many of the warehouses.) And maybe it seemed like a good idea at the time. Selling the stockpile raised a bit of cash for the federal coffers.
But in the broad picture, selling off the stockpile was a strategic blunder for the U.S.
The selloff had two big effects:
– First, it depressed world prices for most of these commodities. This worked against new investment in mines, mills and factories. And few firms were hiring and training new workers.
– Second, the selloff forced many former producers out of business. Think about it. When you are competing against government sales from a stockpile, how can you afford to keep running a mine, or mill, or processing factory? So the mines closed. The mills closed. The factories shut down. The skilled employees moved on to other jobs.
Peak Everything
And guess what? Here it’s 2008 and the stockpile of many minerals and goods is depleted. Yet we are now experiencing worldwide shortages of many of these critical metals and minerals. At our Agora Financial editorial meeting we discussed it in terms of “Peak Everything.”
Peak Everything? This means that almost everywhere you look, demand exceeds supply. And supplies are constrained for reasons of geology and politics – that is, below-ground reasons and above-ground reasons.
So prices for almost all of these strategic goods are climbing. And as I just noted above, the mines are closed. The mills are shut down. The factories are shuttered. The workforce has moved away. And what happens now?
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