The price of copper has hit an all-time high. This represents a signal about the world economy. The euphemism on Wall Street for the implications of the price of copper is called Doctor Copper.
If the price of copper is moving higher, then Doctor Copper is diagnosing economic growth, or possibly an artificial economic boom. If the price of copper is moving lower, then Doctor Copper will diagnose an economic contraction, or economic bust, or even an economic crisis, brought on by the previous artificial economic boom.
The reason why people listen to Doctor Copper is less than obvious to most of us. However, historically, copper is a key ingredient in the construction of new buildings for pipes, electrical wiring, etc. on the inside and the extension of the electrical grid and infrastructure on the outside, as well as all the tools and machinery involved. It’s also important for a wide variety of electronic and computing goods and services so the fortunes of copper’s price are tied to all the things typically involved with economic growth and artificial economic booms.
The conundrum here is that the world economy seems weak for most people. The consumer is said to be weak and economic growth is either down or low in places such as Japan, China, Europe, the US and elsewhere. The majority of people, companies, industries, and countries are not experiencing high rates of growth and prosperity, boomtime conditions, or unrivaled growth rates. So, what gives? Why is the price of copper at an all time high? Are we actually in a boom?
The conundrum is actually a predictable implication derived from the Austrian Business Cycle Theory which—briefly—holds that when central banks artificially lower the rate of interest, that investment goes into the production of “higher order goods.” This is a fancy way of saying that more advanced goods and production techniques will seem more profitable in the short term. In laymen’s terms what it refers to is “advanced technologies.”
Advanced technologies sound good and typically are good, but not when they are artificially stimulated by either government or central banks.
In terms of artificial government stimulation, President Biden’s “Inflation Reduction and CHIPS Act” provides artificial protection for the production of computer chips done in the US, to the determent of foreign production. This stimulates the production of computer chip factories in the US. Whatever its supposed merits, it means higher prices for computing technology and electronics, including cars and appliances of all sorts, and in effect a waste of resources for the world economy.
Now what about artificial stimulation from the Fed, the US central bank? Well, back to Doctor Copper. The world experienced a tsunamic monetary policy because of the COVID response in 2021 when central banks, led by the FED, reduced the interest rate down to near ZERO, supposedly to help us survive Covid. That set off another artificial boom in a variety of areas, the first of which was streaming services and cardboard boxes.
It also set off or further stimulated things like electric vehicles, cloud computing services, data centers, solar power generation, and finally artificial intelligence and especially the chips that made it run. All of these investments have been running full tilt, but are being done behind the scenes, out of sight, unless you are directly involved. All of these investment expansion plans are projected out into the future as far as the accountants’ eyes can see. All these industries use tons of copper and most of them use enormous amounts of electricity and want to run their operations on renewal energy. Renewable energy sources use tons of copper too! Not surprisingly the stock prices for all of the companies have been booming to all-time highs although many, especially the smaller ones, are already in retreat. This explains why the price of copper has reached an all-time record high while the average person is experiencing economic stagnation, high inflation, and economic deterioration.
That is why my “Skyscraper Curse” is so important today. For the first time ordinary people could see, conceptualize, and understand what central banks were doing behind the curtain and what was actually happening as a result to ruin their economy through artificial stimulation.
You can get a free copy of my book, The Skyscraper Curse: And How Austrian Economists Predicted Every Major Crisis over the Last 100 years by clicking this link. It’s available in HTML, PDF, and ePub or you can order a paper copy here.
Doctor Copper is alive and well and is much smarter than people give him credit for!
