A Vale of Dollars
“It all comes back to commodities,” as Alan Knuckman, editor of Resource Trader Alert, likes to say. From a trader’s perspective, Mr. Knuckman is absolutely right. One need only look at events unfolding around the world, and the commodity price action precipitating them, for supporting evidence.
According to data released by the World Bank, food prices rose a stunning 15% from October through January. The World Bank’s own food index now sits just 3% below its 2008 record. (Though a separate index maintained by the UN’s Food and Agriculture Organization has already surpassed 2008 levels.)
The price spike prompted World Bank chief Robert Zoellick to note: “Global food prices are rising to dangerous levels and threaten tens of millions of poor people.”
From food riots across the Middle East and North Africa to food stamp programs across North America (Uncle Sam is now reportedly feeding some 43 million mouths in the homeland!), it is plain to see that global political stability largely rests (or fails to rest) on the affordability of everyday resources.
In other words, full bellies seldom take to the streets in protest. Governments know this, of course, which is why the surreptitious “bread and circuses” scheme persists as the preferred method of crowd control for states all over the world. A little reality television and a few crumbs from the political classes’ tables is more than enough to sate the riotous impulses of most would-be freedom fighters.
To be sure, there is more than a little “Hanky Bernanke” going on with the world’s supply of non-intrinsically valuable resources, too. We’re referring here to the temporarily disruptive advent of fiat monies. “The Bernank” would like us to believe that his policy of flooding the world with dollars has nothing to do with the escalating price of commodities priced in those very same dollars.
“As to where the blame should fall,” observed Eric Fry in a recent Daily Reckoning, “that’s open to dispute. Bernanke has already presented his defense, pro se, before the court of public opinion. On the other hand, the nifty little chart below testifies persuasively for the prosecution.
Bernanke first entered the bond-market-manipulation business back in March of 2009, right around the second “dip” on the prosecution’s chart, above.
“The stock market was on its back,” recalls Eric, “economic conditions were deflationary and fear was palpable. He announced that the Fed would buy $750 billion of mortgage-backed bonds, $100 billion of Fannie Mae and Freddie Mac securities, and $300 billion of long-term Treasury securities…
“With every step down this slippery slope toward dollar debasement,” continues Eric, “the commodity markets reacted ever more violently.”
“Bernanke says the soaring prices of agricultural commodities are a ‘growth effect,’” Eric concludes. “We say they are a ‘dollar effect,’ or rather, a ‘dollar debasement effect.’”
As to the omniscience of central bankers and the omnipotence of the monetary policies in their employ, your editors would profess less fence-sitting agnosticism than outright atheism. Don’t be fooled, Fellow Reckoner. Here on earth, at least, a printed dollar is just another tear in the vale.