Posted on 04/21/2008 7:49:15 AM PDT by BGHater
The global food crisis is a monetary phenomenon, an unintended consequence of America's attempt to inflate its way out of a market failure. There are long-term reasons for food prices to rise, but the unprecedented spike in grain prices during the past year stems from the weakness of the American dollar. Washington's economic misery now threatens to become a geopolitical catastrophe.
Months ago, I offered that China, Russia and other cash-rich nations held the antidote to the incipient credit crisis: "If the US wants to remain the magnet for world capital flows it became during the 1990s, it will have to allow the savers of the world to become partners in the US economy, that is, to buy into its first-rank companies."(Western grasshoppers and Chinese ants, Asia Times Online, September 5, 2007.)
No such thing occurred, of course, as Washington has made it clear that it would not allow sovereign funds to own the likes of Citicorp. What are the world's investors doing with the trillion dollars a year they used to invest in American securities, including subprime derivatives and various forms of collateralized obligations that turned out to have more obligation than collateral? They aren't buying American companies because they are not permitted to. They are buying food and other stores of value instead.
Washington has weakened the value of the dollar as a palliative for the credit crisis, so much so that "nobody seems to doubt that the US dollar will lose its status as the world's reserve currency", as journalist Amity Shlaes wrote in an April 9 Bloomberg News column entitled "Monks may hold clue to dollar's future".
(Excerpt) Read more at atimes.com ...
Sounds like it was written at the Communist Party HQ in Beijing.
Or New Jersey.
There's merit in the analysis of the problem. Then again it's always easy to identify a problem - much harder to come up with rational solutions.
Why do you say that? You don’t think the the rapid inflation being caused by the Federal Reserve is contributing to the spike in food prices?
He should of written the story from the angle of how “global Warming” is causing the food prices to rise. LOL Would have been more believable.
We are a net exporter in a broad spectrum of food products and a drop in the dollar's value actually makes our products cheaper! However, since ethanol is now used in fuel and this is mandated (15% in you normal fuel) plus E85 which is subsidized, you have the cost of corn exploding, and with it also the cost of livestock which is fed corn etc. Everything from sweeteners in Soda (Corn syrup) to beef will feel the inflationary pressure not because of a weakening dollar, but because of a substitution of corn as a fuel and the extreme pull this is having on the demand side.
A bushel of corn has gone from ~ 1.90 (2005) to around $4.00 (present) and this makes feeding the cow more expensive, it makes sweetening the soda more expensive.............. But there are tertiary effects as well. Fields normally growing wheat today are growing corn and the total supply of certain crops is net decreasing. The problem isn't at all the dollar, which actually makes exported agricultural products cheaper, it's a friggen “good idea” to cut fuel with ethanol!
http://www.ers.usda.gov/AmberWaves/February08/Features/CornPrices.htm
Bottom line, this is largely a government created mess which is based on some activist theory of energy independence and sustainable fuels. Instead of a free market and supply and demand curves, you have laws mandating fuel be cut with ethanol, subsidies for fuels, and other incentives which have largely created this rise in cost of food. ALMOST NEVER, does government meddling in free markets pay off for society, despite some “feeling” people have because of “the children, ecology, or energy independence.”
The “gubberment” had this bright idea where we're going to copy Brazil (We sent numerous "experts" there to study how to do this - although they use a different crop) and become more energy self sufficient by pushing ethanol. Eventually the corn prices would “stabilize” and the the effect will be minimized because corn output will increase. Well, they're right. The problem is that the output of other agricultural products will decrease, and we're more or less burning our food in our cars. Great idea from a “compassionate conservative,” i.e. someone tough on defense but with social and economic liberal ideas.
The run up in commodity prices is the financial world telling the worlds’ governments currency values aren’t what’s advertised.
There are too many little pieces of paper floating around.
This is oversimplified, but a pound of cement or copper is always worth a pound of cement or copper. What changes daily is the value of currency due to government manipulation.
The market is telling the world that governments have screwed up.
Call it a wild hunch, but I’d bet if we were willing to arrest, try, convict and hang George Soros, most of this trouble would just go away.
850 million is the UN number of starving people and starving due to price not shortage of food.
>There's merit in the analysis of the problem
No, there isn't, because the entire train of logic starts with that predicate.
>You don’t think the the rapid inflation being caused by the Federal Reserve is contributing to the spike in food prices?
This article is true. The U.S. is now exporting inflation. Of course, every American is also paying for the failed monetary policy as well in this fashion through higher prices on imports, in other words oil to fuel every essential we live on.
The writer is wrong only at the end to claiming the globalization goal was to cause dissent in China or have China be on top of Tibet. That is anti-Bush nonsense.
Solutions:
1) Decouple Central Banks from government.
2) Repeal ‘fairness’ laws passed from Congress, such as the ‘Fairness in Lending Act’ which then spurred greed in the banking system coupled with market manipulation on rates from the FED to cause unstainable housing prices and American’s using homes as ATM’s. What your seeing is massive market collapse, but being contained and unwound in slow motion.
3) Hold government officials and corporate managers in the financial system accountable for this behavior. This recent short-term loan to Bear Stearns was reprehensible, even if it did allow the slow unwinding of a market collapse I mentioned in point 2. In other words, NO MORE BAILOUTS. Allow Survival of the Fittest which is how we are made to fix the problems, not more Socialism/bailouts which created the problem in the first place.
4) Abolish the FED or at least DO NOT ALLOW IT TO GAIN MORE POWER TO FURTHER SOCIALIZE OUR BANKING SYSTEM. While Bernanke is well-meaning and educated in the Great Depression, he is applying the same socialist remedies that kept the Great Depression going for over a decade. What brought America out of depression? World WWII. Thank you Adolph and Hirohito! But I assume we don’t want another world war in the nuclear age, now do we?
5) Declare an energy crisis and subsidize through Treasury nuke plants, biodiesel, solar, coal liquification and for God’s sake, DRILL EVERYWHERE!!! The subsidies from Treasury would create millions of jobs, lower petroleum through competing product and create new investment opportunity domestically and globally. Give the global consumer what it wants in other words, or face sharp contraction and fuming tempers fueling the next world war. I am troubled as most of you are by Washington politics and disconnet from Main St. Such an idea of declaring an energy crisis is more then possible, but does Washington have the will? Call me a doubting Thomas they will do it anytime soon. Our American history shows we wait until we are over a cliff before we act. So what does that mean? It means the citizens will likely be demanding heads on pikes before it acts on this point to solve the problem.
6) Every empire needs cheap labor, in our times we call this ‘outsourcing’. Our key to success has been a great melting pot. But it is also because we patriated these immigrants. Every empire who failed to patriate faced massive civil unrest over time. We are just starting to see real anger and backlash to allow Mexicans to receive full American benefits where only the very few profited. In this respect, this was the real problem with globalization policies, we didn’t get back nearly what we needed as a culture and instead, only the top 1/10 of 1% profited while we exported our real wealth abroad. America should increase legal immigration dramatically, as 78 million mainly educated boomers leave the work force. We can outsource our labor for the energy policy I describe in point 5 but after legalized Americans get jobs first and while we increase and filter legal immigration to fill the boomer whole later.
Yes, it’s when a currency loses it’s value. It occurs when the money supply increases, which it has under current Federal Reserve policy. As a result, everything becomes more expensive. That is the general gist of this article. I don’t agree with every word of the article, and it fails to mention the added strain that ethanol subsidies are putting on the food supply, but the overall point is accurate. What do you find to be a flaw in the analysis? More specifically, what do you find “Communist” about it?
The gubmint plan was to subsidize 5% of our alternative energy needs using corn/ethanol. The gubmint reached this goal the way this was spun is not the real issue. The real issue of inflation is horrible monetary policy created from Socialists on one side (everyone should be able to afford a home dammit!) to MultiNational Corporate Capitalists selling out for the short term where we exported our real wealth overseas, with the assumptions that the corrupt Mexicans and Chinese would comply to all the lofty and arrogant goals/trade agreements the U.S. gubmint set up in globalization policy.
Nope. Totally wrong.
Actually, currency is like everything else with a supply and demand curve. In the dollar’s case it’s the “demand” that has changed. Internationally the Euro is on the stage, and many countries that use to keep large supplies of dollars as reserve currency no longer do so to that extent.
The inflationary pressure is primarily on imports since they were made and are priced in a foreign currency to which the dollar now has less purchasing power. However, when you deal with the “dollar zone” you’re dealing with a market so broad, so deep, and so large that everything from Alfalfa sprouts to Zithromax antibiotics are made with it. Those products made within the dollar zone don’t feel this inflationary pressure as a general rule. Of course there are commodities such as oil which have a broad economic impact, we do need, and where the dollars weakness will push the cost up, but this is the extreme far end of the spectrum. As a general rule, a weaker dollar is actually a good thing for us. It pushes manufacturing, R&D to the US and discourages imports while encouraging exports. May it be stuff built here for export or those foreign companies that wish to sell their products here like BMW, a low valued dollar favors the US as a base of production even in such service sectors as IT. In a smaller economic zone, such as in Japan, because of their much larger dependence on imports even for their domestic and export products, they are much more impacted by a devaluation of currency. The loss of purchasing power of the Yen also adds to the cost of everything else. A dollar in the US pretty much would buy what a dollar did yesterday, even if the dollar were to devalue more internationally. The major cost increases you see today in food is in part because of the increases in costs for energy, but primarily because of the bright idea in cutting fuel with ethanol. When a government mandates 15% of your fuel will come from ethanol, and we consume 320,500,000 gallons 1,217,900,000 (Liters) per day, you’re talking about a lot of damn corn. It is a situation that generally is favorable for export and unfavorable for imports when the dollar devalues, and it was during the era of the hyper powerful dollar under Reagan when our trade deficit exploded and many manufacturing jobs went to Asia and Europe.
http://publications.iowa.gov/5126
http://www.dra.gov/media/article_detail.aspx?articleID=1606
http://www.ok.gov/~okag/cps-ethanol.htm (This one is funny – “we should see small changes in prices.” LOL)
They kinda knew what was going to happen, but they never expected the extent!
Bottom line – Supply and demand curves exist. **** Ignoring the forces driving an economy and human nature will not make them go away, it will only bankrupt you!**** When some time back our politicians pushed for this great idea and everyone hopped on board, this like CO2 emissions (To save the planet) was sold as something that will have no substantial impact economically to us, B.S. You saw the prices for food begin rising BEFORE the dollar dropped in value as of recent. Already in early 2007 prices were skyrocketing at the local grocer and at that time the barrel of oil was hovering at a much lower cost with the dollar having more purchasing power than present. Those who argue that the high food prices are because of the dollars weakness either don’t know what they’re talking about or they have an agenda. The ethanol experiment (Something I’ll admit I thought was a good idea at the time) is a total disaster of epic proportions. This mess belongs in a textbook as a case study in regards to supply and demand curves and commodity substitution. -IMHO
Ironically when I posted this and went back into the new posts, this is one of the first ones that popped up: http://www.freerepublic.com/focus/f-news/2004855/posts
We need to build a lot more nuke plants. We then need to build plants to convert coal to gasoline (which is competitive when oil costs $60/barrel)
And that is NOT what this article is about.
This article is a political hit piece on the perceived US intent in allowing free market FOMEX to float free from hindrance.
And if you do not see the Communist slant then there is little reason for a debate on the subject.
Thank you for your questions. - bill
I agree.
BS, plain and simple. The dollar was near lows looooooooong before anything that a hardcore leftist would call a "market failure."
Viet Nam has a larger share than we do in fact.
Just an ordinary famine condition. Nothing to worry about because there's nothing you can do to change it.
The reason you haven't heard about this is that it runs contrary to the Global Warming doctrine.
Sorry, the cost of a pound of cement depends directly on the cost of a pound of coal. They burn coal to fire the limestone used to make cement.
This is a negligible amount anyway, and on a world scale, infinitesimal!
Much of the increase in corn output is at the expense of other crops, and the cost of the bushel of corn has doubled over the last two years. Corn is one of those base agricultural outputs which has a broad application in food, commercially in other products, fisheries, and affects other things like livestock. On a global scale we produce near half the worlds corn output, so when you talk of the 'rest of the world' it's not like they who many are starving, can add that much to the equation.
http://www.extension.iastate.edu/agdm/articles/others/HartJune04fig1.gif
I guess it's just really coincidental that as corn ethanol capacity in the US increases the cost of corn began skyrocketing, even “before” the dollar lost much of its value, even "before" the cost of fuel was as high as it is today.
http://www.willisms.com/archives/corncraze.gif
http://iftf.typepad.com/photos/uncategorized/2007/03/29/ethanol.png
Sorry, I don't buy it. You're giving me the big pie in the sky hand wave. Give me something that makes sense. I'm willing to listen to a good argument, but the shoulder shrug and talk of 'the big picture' isn't one. IMHO, and I'm not in this market, this appears to be a classic case of where demand is pulling up the cost, where it's about guns or butter in so far of corn output vs. other crops, and where subsidies are creating artificial market supplies at a net expense to the tax payer though they are indirect and not obvious to him. Another market inefficiency is built into the system based on some activist agenda, in this case from the right which was bent on ending our 'addiction to oil.'
What you're finding at the moment is that several major grain producers, e.g. China, India, Vietnam, Thailand ~ are RESTRICTING EXPORTS.
Their normal export volumes vastly dwarf our own.
When they do this the price of grain in import markets rises.
The reason these countries have done this is actually quite simple. Noting that they've all dealt with famines in the past they recognize that a cool dry season in the Southern hemisphere that results in a loss of the grain crop there is usually followed by a cool dry season in the Northern hemisphere that will also result in a loss of the grain crop.
Rather than face famine the Chinese have simply stopped grain exports.
The net effect has been that crop failures have reduced global wheat on hand from a 60 day supply to a 30 day supply.
Recognizing the problem I've laid in 200 pounds of rice for the coming few months and will probably make a major investment in that product shortly. Definitely gonna' be ready to make sushi Fur Shur.
http://en.wikipedia.org/wiki/Production_possibility_frontier
There is only so much arable land. You can only use this land for certain crops and often have to cycle it. Certain areas and land is better for certain crops....... you get the picture (Resources are limited). The idea that as corn demand increases the supply will follow and this won't impact any other crops is unreasonable. The fact that others aren't exporting corn was a point I attempted to make and plays into my argument.
When more corn is grown, less of something else is grown. At some point you reach a dead end, where even as the cost per bushel of corn goes up, the output will remain constant because you’re at full capacity. When the demand for corn exceeds the supply at a given price point, the cost of corn increases, and this is indeed what we are seeing with the prices for corn which has more than doubled in two years! Corn is not comparable to Asian Pears. If the cost of the Asian Pear goes up, no big deal; when corn inflates, it’s a big deal. Corn is used as feed for livestock (hogs, cattle, and poultry), fisheries, sweeteners; the starch is used in paper, and even plastics. When the cost of corn goes up, so will the cost of meat at the grocer. That simple. The trend with ethanol is not a free market function. It's artificial, propped up by laws mandating fuel is cut with ethanol and subsidies that that hide the real costs. You have near 1/3 of the US corn output of many states being processed into fuel today, Iowa is a good example: http://www.iowacorn.org/cornuse/documents/HowisOurCornCropUsed-0607.pdf (Over 1/3 in their case.) When I say that corn doubled in price per bushel, I was being conservative (i.e. not using some peak value); the actual cost right now is over $6! In other words the cost of corn has risen by nearly 300% in two years! http://biz.yahoo.com/ap/080403/corn_at_6.html And next year the output for corn is expected to ‘drop’ by 8%, not increase.
We alone export more corn than all other major corn producers on this planet ‘combined!’ http://www.ers.usda.gov/briefing/Corn/trade.htm a nice graphic: http://www.ers.usda.gov/briefing/Corn/gallery/CExports.gif
We are burning our food in our cars not because a free market dictates this is the most economical use of this resource, but because we need to get off ‘our addiction to oil’ and have a gumbermint that is thinking for the market. Screw supply and demand, screw consumerism, long live the state managed economy, and since we don’t directly see the cost (Like many other save the planet efforts) the sheep are willing to accept this nonsense since it also fits into a very vogue fear in oil dependence and anti-Arab perception. Get rid of the laws and stop the subsidies and this nonsense would vaporize quickly because it’s not an economic self carrying system. It’s something essentially others (self carrying economically viable firms and markets) will pay for; and we all already are, in the form of higher food prices.
Do we even disagree? LOL not sure. My point is simple, the ethanol push has ended in a disaster and the gumbermint right about now is eerily quiet on the subject. I wonder why? -IMHO
Secondly, arable land for one crop is simply not arable land for another. Two cases in point ~ jojoba bean grows best in what otherwise looks like barren desert. Rice, at present, requires flooding. You can't grow jojoba beans in rice country, nor can you grow rice in the desert without water.
Even corn can be variable. Types grown to produce the maximum amount of starch have a different range than those grown to produce the maximum amount of sugar.
Arable land is not a zero sum game.
If land isn’t substitutible for all other uses (something well known) then all that dose is add even more pressure to the cost long term and limits total output because of the entry barriers. When output of given corn yield is pushed to ethanol, you have less potential to increase total output even if you wanted too, and that creates a ‘long term’ problem. Land stays unused intentionally and that too has to be factored in. There is a reason why you have CREP and other programs, and stating that land sits idle is like saying you sleep. Land will never run at 100% utilization and stating that we simply increase output by increasing utilization is like demanding people to no longer sleep since they could work during those hours. You’ll destroy cropland if you over utilize it. Nonetheless some of the land that was used for other crops is already being used for corn or am I wrong? http://www.ers.usda.gov/Briefing/Baseline/gallery/gallery2008/AreaCWS.gif
http://www.ers.usda.gov/Data/FeedGrains/StandardReports/YBtable16.htm (Why do you think the cost for feed is increasing? Maybe that word used in economics called- ‘demand’ could be behind this?) 1/3 of our nations corn is going into our gastank.
“Arable land is not a zero sum game.” Zero sum: A gain or loss is exactly balanced by the losses or gains of the other participant(s). Yes, that definition would be valid. This is indeed a zero sum game and the price of corn exploding kind of proves that.
Yup, it's all Algore's fault. People are going to be dying because of his propaganda.
You'll notice that "W" "came 'round" to the GW stuff just in time to forget that if a crop loss occurs we probably ought to tend our resources a bit to prevent inflationary price increases.
In the end this is only going to get worse as the world's climate cools down and dries out as we rush headlong into the next glaciation cycle. We will be roasting and toasting the Liberals before it's over.
as 78 million mainly educated boomers leave the work force
Not when they find out their retirements funds have been raided by the government's inflationary policies. I've been theorizing for some time that the goobermint was going to go after that pot of money in the retirement portfolios - I just didn't realize how audacious (and brilliant! - they didn't get ANY on them) their method was going to be.
I thought they'd have to do something stupid like taking a 5%, 10% cut right out of the money pot. This way, they didn't do a thing...
I am not anti-American. I am pro-American. I supported the invasion of Iraq (but not the nation-building disaster). I have argued for a pre-emptive strike against Iran. However, when America shoots itself in the foot, I will say so. As for ethanol, drought, and rice: there is very little substitution between rice and other grains. To the extent that the weak dollar pushes up oil prices, that will also affect the price of ethanol and hence corn, etc. There is no rice shortage. Thailand, the largest producer, had a record crop, and (as I said) world price production is at a record. Thailand, the US, and other producers easily can augment production. Thai farmers can if needed produce three crops a year; the state of Louisiana alone probably could feed the world. That is what makes this situation so alarming. It is the first global food shortage in the midst of plenty.
Good points also!
I actually thought your article was a good one, and brought up some good points to be reflected on.
Thanks for the info on world rice production, BTW.
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