Saturday, January 22, 2011

QE2, and Skyrocketing food prices intimately linked...

Interest rates have risen both times after the Fed implemented quantitative easing...

Graham Summers points out that food prices have also skyrocketed both times:

In case you’ve missed it, food riots are spreading throughout the developing world Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and protests due to soaring food prices.

As Abdolreza Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO), put it, “We are entering a danger territory.”

Indeed, these situations left people literally starving… AND dead from the riots.

And why is this happening?

A perfect storm of increased demand, bad harvests from key exporters (Argentina, Russia, Australia and Canada, but most of all, the Fed’s money pumping. If you don’t believe me, have a look at the below chart:

[Summers shows the share price of Elements Rogers International Commodity Agriculture ETN as a proxy for food prices generally.]

As you can see, it wasn’t until the Fed announced its QE lite program that agricultural commodities exploded above long-term resistance. And in case there was any doubt, QE 2 sent them absolutely stratospheric.

This isn't really unexpected.

Last November, David Einhorn warned:
It is quite likely that QE2 will slow the economy by raising food and energy prices [because it is easier to generate these price increases]. [These price hikes] would act as a tax on consumers and businesses.
Also in November, Karl Denninger wrote:
We have a Federal Reserve that, in the last two years, has printed and debased the currency of this nation by more than 100%, taking their balance sheet from $800 billion to more than $2 trillion. They now threaten, today, to do even more of that. This has resulted in insane price ramps in soft commodities ....
("soft commodities" means food crops).

As the Wall Street Journal, Tyler Durden, the Economic Policy Journal and others note, inflation in food prices isn't limited to developing nations, but is coming to the U.S....

The utterly crumbling Empire in its last Death throws...

The inflation we are seeing, and which also correlates nicely to the graph, is the inflation that comes from malinvestments. The utter corruption in Government, in Politics/AIPAC etc., on Wall Street, the bubble, the housing bubble, ENRON/AIG/CIA..., the barbaric inside Job of 9/11, the utterly criminal and costly foreign wars, the Pentagon's missing Trillions..., the private debt bubble, and the discretionary spending bubble are all good examples of what happens when interest rates are artificially lowered by the criminal FED. We see malinvestment. Investors with access to this cheap money and buying up and HOLDING (or hoarding if you prefer) hard assets in agriculture, foods, corn, soybeans, wheat, oils, etc. That's causing a spike in demand and driving up food prices. There is no question that the FEAR of future money supply inflationary pressures will one day do their nasty price increasing devastation....ALL in a day's work for the CIA/MOSSAD/MI6 criminal planners of economic wars, Coup D'├ętats..., etc, But right now that money lies latent in large bank vaults, waiting to unleash its pricing power. The current food price increases are based on Malinvestment of cheap money and the FEAR of future increases in the money supply. This is phase I. When phase II kicks in (the increase in circulating currency) food inflation and food riots will give way to food hyperinflation and death by starvation....

Dylan Ratigan says that the Fed is printing money to cover enormous theft by the big banks, and that money printing is leading to food inflation worldwide. (Bad weather and speculation on commodities are obviously also contributing to rising food prices).

Bill Fleckenstein largely agrees, telling Ratigan:

  • Money printing correlates quite well to rise in commodity prices, but not precisely
  • When you "print money out of thin air", you know it will go mostly in utter speculation with 0% interest rates by the Fed....
  • Printing money turns the average person into a speculator (think Chinese farmers buying copper)
  • 80% of money in countries like Egypt goes to buying food (and that's for the lucky ones who have jobs)
  • 40% of political donations in the U.S. comes from giant banks ... so the banks own Washington
  • The Fed won't ever face it's mistakes, and always just wants to print more money.
Since the now-proven-to-be-failed trickle down theory was implemented, the balance in economic equality has been thrown off. Concentrated wealth destroys democracies. The wealthy are speculating in commodities now, driving the price up because the stock market has shown itself to be a con game due to lax regulations. There are many ways we can get back on our feet from removing completely the tax on the middle class and poor who have seen their incomes stagnate (actually reduced because of inflation) to a employer of last resort program among others. The simplest way to achieve balance is ending the fractional reserve system as proposed in HR 6550, the National Emergency Employment Defense Act but the government has been corrupted to the core and it appears our last hope for justice is with the law. Maybe when the coming crash in commercial real estate takes full force, we'll see the masses get fed up enough to do something about it.
Of course, the uncontrolled population growth of the world might have something to do with food inflation as well ...
Unlike absurdly naive economic models which rely on 'unbounded growth', the real world has physical limits beyond which any model will fail utterly.

Engineering knows this, why doesn't economics?

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