Boot Strapping The World Economy

“Boot strapping” is an electrical term used to perform a “black start” or a complete “cold start” of a complex electrical grid after a catastrophic failure.  The East Coast blackout of 1965 was one such occurrence.  Another was on the Gulf Coast after hurricane Rita.  More recently the complete electrical failure in Venezuela illustrates the difficulty.   It has been over a year and Venezuela’s power system is still struggling to provide power after their cold start.  When the crash happens everything is still connected and tries to restart all at once.  It can take up to six times the running power to start an electric motor.  When everything is trying to start at the same time the system is overwhelmed and the breakers trip out again.  The only way to restart a grid is to isolate everything and then bring up smaller substations one at a time slowly, carefully adding power while slowly, carefully adding load to match.  If done wrong the system trips out again or even worse the transformers and generators can literally explode!  This naturally causes even further delays.  Few people realize the delicate dance required to balance electrical power every day to keep things running smoothly.  Base-load  coal and nuke plants run 24/7, spooling generators run up and down to match loads and peaking plants come on line to help during short duration peak demand to keep the voltage balanced.  When everything is running full speed and it still cannot keep up then the power company must shed load or risk catastrophic failure.  A cold start is a worrisome, difficult and dangerous thing to try to accomplish.  That is why most power companies would rather shed load in an emergency by going to rolling blackouts (turning off power to maybe 10% or 20% of the system at a time and then every hour or so switching the power allocation around) when overloaded to avoid a compete shut down that would require a cold start.

The world economy is in a partial shutdown mode at present due to the C-virus.  Critical services are still up and running with utilities, grocery stores, sanitation and other vital services still operating.  However, the system has little reserve capacity.  The longer things stay partially shut down the more things slowly break and cannot be repaired in a timely manner.  Every garbage truck that breaks down during the partial shut down is one less truck collecting garbage and strains the collection system a little harder.  Every driver that gets sick and must be quarantined is one less crew working.  There simply are not several surplus trucks and crews on stand-by waiting to fill in and pick up the slack.  A few weeks of slow garbage collection is an inconvenience.  Many months of slow garbage collection becomes a major health hazard.  Multiply that by farms planting this Spring with broken tractors that cannot get necessary parts and attention; trucks and trains that require constant maintenance and crews to keep them running during normal times; etc. 

Not to mention the concept of credit (or trust to pay) in the supply chain.  Who is a credit worthy risk at this point of economic strain.  Would everything simply revert to normal or would everyone require payment up front before shipment?  Would the banks trust each other to clear payments?  Credit is the grease that drives the economic engine.  When credit or trust is lost between trading partners then everything slows down dramatically.  The list goes on and on endlessly with a cold start. 

While I am not questioning the wisdom of the partial economic shut down to stop or at least slow the spread of the C-virus it would be foolish to completely ignore the consequences that must be faced for every additional day or week or month that it continues.  What good would it do the world to save millions from the C-virus if hundreds of millions died of starvation?

The nightmare scenario would be a complete economic shut down and a cold start.  There would be no fuel for anyone to get to work to deliver fuel to service stations.  Much equipment would be broken and in need of repair with no supply system to supply the needed parts or deliver them.  Perhaps the grocery stores would open but would there be food available?  Would there be trucks available to deliver it?   Again the list goes on and on.

The economy is much more complicated than the electrical grid and it will be most difficult to restart it from a complete stop.  So far our economy is in a “rolling blackout” state where there are inconveniences here and there but we are still functioning and should be able to ramp back up slowly and eventually catch up.  The real danger is a complete prolonged shut down followed by a “cold start”.

So perhaps we all need to do our part and to quit fooling around and get serious and beat this thing quickly so we can get back to normal as soon as possible.  Stay home if you can.  If not, limit your trips out.  Don’t go out unless you are maintaining critical infrastructure.  Wash your hands frequently.   The sooner things get back to normal the better for everyone. 

The alternative of an economic “cold start” is much worse.

Larry LaBorde

Larry LaBorde owns Silver Trading Company, LLC (www.silvertrading.net) and has sold gold, silver, platinum and palladium around the world since 2001.  Larry travels the world meeting with customers, investors and interesting people from almost everywhere.  Contact him at [email protected].

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