Bill Bonner

The Dow rose another 29 points on Friday. Gold lost $4.

Which is to say, nothing much happened one way or the other. Unemployment data came out, moving the unemployment rate down to 9%. But there were suspicious adjustments in the numbers. From the reports we read, nobody really knew if the numbers were good or bad.

The more interesting news continues to come from America’s central planners. At least, they are entertaining…in roughly the same way that TV shows such as 1000 Ways to Die or Jackass are entertaining.

Maybe it’s just human nature. But it’s fun to watch people do stupid things – sometimes, even when they’re fatal.

And now comes Ben Bernanke, chairman of the US Federal Reserve, former chairman of the Princeton Economics Department, with a claim so dumb that we don’t what to think. What’s the matter with Princeton? What’s the matter with economics? What’s the matter with the Fed? What’s the matter with Ben Bernanke?

The Telegraph has the report:

Ben Bernanke…has dismissed the idea that the central bank’s policies are to blame for the rise in global food prices to a record high…

Now, let’s see. The Fed adds $2 trillion to the world’s supply of “hot money.” Maybe that has no effect? What do you think? The Telegraph continues:

Mr. Bernanke said that the rapid growth of developing economies was behind the increase in food prices, rather than the Fed’s decision to embark on a second, $600bn (£371bn) round of printing money. “Clearly what’s happening is not a dollar effect, it’s a growth effect,” Mr. Bernanke said in a rare question and answer session with journalists at the National Press Club in Washington on Thursday.

The United Nations Food and Agriculture Organization (UN FAO) has warned that high prices, already above levels in 2008 which sparked riots, were likely to rise further.

The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar, and is widely watched by economists and politicians around the world as the first indicator of whether prices will end up higher on shop shelves.

The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. The index highlights how food prices, which throughout most of the last two decades have been stable, have taken off in alarming fashion in the past three years. In 2000, the index stood at 90 and did not break through 100 until 2004.

Well, how do you like that? It’s growth that it driving food prices to records. Not money printing.

But wait…hold on…is the emerging world growing faster now than it was two or three years ago? Nope. Hmmm… Is the growth a big surprise? Did something happen to make investors and traders suddenly realize that…well…hey…the world is growing!


Then, how come prices are shooting up now? Why didn’t they shoot up 4 years ago? Or 2 years ago? Or last year? What has changed?

Well… How about the $1.5 trillion of brand spanking new money that the Fed put into the world’s money supply in 2009-2010? And how about the $600 billion more it’s pumping in now?

That’s new, isn’t it? So, here’s a wild and crazy idea. Maybe…just maybe…the fundamentals of supply and demand really do work. Maybe…just maybe…if you increase the world’s hot money supply (hot money does not come from an increase in real wealth or consumer demand…but from central banks’ low interest rates and money printing)…well, maybe prices on global, auction-priced goods – such as food – go up.

Just look at what is happening to other global, auction-priced goods. Oil, for example, soared above $100 over the weekend. And look at gold. Put oil and food in terms of gold and what do you find? That they haven’t gone up at all! What does that tell you? That the “growth” hypothesis is nonsense.

In other words, yes…the developing world is growing. It has been growing at a high rate for the last 20 years. Nothing new there.

What’s new is that central banks are printing money at a record pace. They are creating more bubbles.

Isn’t this going to end badly? Why would governments play such a dangerous game? Aren’t they putting their own credibility, currencies and solvency in jeopardy?

Yes, of course they are…

But there is something you have to understand. Governments always look out for the elite groups that control them. They’re not necessarily concerned with the betterment of humankind…or even the best interests of their own people.

Here’s an example, from The New York Times:

Public deficits and debt relative to gross domestic product have ballooned in the last three years for one simple reason – the big banks at the heart of our financial system blew themselves up. On this point, the conclusions of the Financial Crisis Inquiry Commission, which appeared last week, are very clear and utterly compelling.

No one forced the banks to take on so much risk. Top bankers lobbied long and hard for the rules that allowed them to behave recklessly. And these same people effectively captured the hearts, minds and, some would say, pocketbooks of the regulators – in the sense that a well-regarded regulator can and often does go work for a bank afterward.

Meanwhile, Barry Ritholtz says the feds are using Fannie and Freddie as another way to shovel taxpayer money to Wall Street. As you know, the Fed already plays Sugar Daddy to the bankers. If the bankers have some trash mortgage-backed security that they lost money on, the Fed buys it from them at an inflated price. Of course, just having the Fed in the market buying MBSs inflates the markets.

But it turns out, the Fed isn’t the only one. The US Treasury also gave Fannie and Freddie a blank check to save the housing industry. But they let the housing industry go bust. Instead, they took the money and saved the housing industry’s creditors. The big banks, in other words. Wall Street. The richest of the rich.

Why should taxpayer money be used to bail out the rich?

Well, they’re not just rich. They’re powerful. They’re the people the government was set up to protect. Give the feds a break; they’re just doing their jobs.

The private sector innovates. Government procrastinates…hesitates…and vegetates.

That’s just the way it works. That’s what government has always been for. The government of ancient Egypt protected the pharaohs. The government of the Ottoman Empire protected the Ottomans. The government of Genghis Khan looked out for Genghis.

And who does the US government look out for? Naturally, it looks out for the elite groups that control it. Who’s that? The big banks, of course.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • The InvestorsFriend

    Okay Bill, you claim food inflation is due to the increase in money supply of some $1.5 or $2 trillion.

    But you were too lazy to give us any context. Was that a 100% increase in the money supply or 1%? You leave us in the dark.

    Now you point out that the food index is up from 100 in 2004 to 206 in November to 223 ib December to 231 now. (over 100% increase since 2004)

    You blame that on the new money supply. But you don’t explain why food has inflated over 100% while houses have gone down and most things like cars and cloths are reasonably stable.

    Why should the market decide that (say) 100 tons of potatoes is worth the same as two cars today whereas before it was worth the same as one car? (answer is below)

    Why should an increase in money cause one item of wealth (food) to increase 1005 while others barely budge? (it shouldn’t and didn’t)) Your argument is weak and lazy and reflects the (self-admitted) fact that you write each day even when you have nothing to say.

    Food inflation looks to me to be caused by shortage. As soon as food or any essential commdity goes into shortage of course its price can rise rapidly. If just corn were short we could substitute other food. But you say food in general is up in price. Well that makes perfect sense if there is a general shortage of food its price can rise very rapidly.

  • The InvestorsFriend

    Bill said:

    “Put oil and food in terms of gold and what do you find? That they haven’t gone up at all! What does that tell you? That the “growth” hypothesis is nonsense.”

    No Bill, it tells me nothing since the coin of the realm is dollars, not Gold.

    You see, Bill, Gold is priced in dollars and so is everything else. Prices are measured in dollars Bill, ’cause that’s the currency we actually use to buy everything in the world.

    We don’t measure food prices in terms of the price of oil, Gold, Babe Ruth rookie cards, or Gold. We measure price rises in dollars.

    You may not have noticed but average inflation is low, meaning the dollar has been stable. Cherry pick all you want about inflation in Gold and oil prices. But some prices are up some are down (houses computers) and by ANY BROAD measure, inflation is low (in recent years).

    That is fact. You know it, I know it and God knows it.

  • phelps who cant swim

    Wouldn’t food prices be the first to inflate since people buy food more often than they do anything else? Wouldn’t speculation of inflation drive food prices higher since it is based upon need and not want?

    I have no idea, but seems plausible to me.

  • not_harry

    Investors Friend must be suffering from cabin fever. He/she acts like a jilted teenage lover to anything BB writes. Must of been something that happened at that Florida seminar a couple of years ago.

    “…Your argument is weak and lazy and reflects the (self-admitted) fact that you write each day even when you have nothing to say…”

    Pot, calling Kettle.

    I.F. might wonder why commodities other than foodstuffs are rising, when he’s not busy missing the forest for the trees.

  • Bill Bonner’s Biggest Fan (really, i am)

    TheInvestorsFriend – you are WRONG WRONG WRONG – but please keep thinking what you are thinking because it is one less person trying to buy gold and silver which will keep the demand low which will keep the price low so that i can keep buying more more more

    whats that?? you are asking how you are wrong?? here’s how: the price of food (like wheat & corn) and oil is priced in the futures markets which is where speculators put all their new hot money hoping to make a quick buck… houses are priced in the real market with buyers & sellers where the M3 money supply is crashing which deflates the price

    so… new money is rising which inflates commodities like food… M3 is crashing which deflates house prices

  • The Investorsfriend

    Actually, there is no money “in” any market. Money passes from buyers to sellers and tends to go back “into” the bank.

    All commodities are up for the same reason – world growth re China etc. causing shortage, not some probaly small increase in the money supply.


    I demand that only Bill respond to my posts from now on.

  • mark

    there is a correlation between the price of oil and food, and we know who is responsible for the rise in oil and why, speculators, thus like wise with food.

  • Roland

    World growth plays a role, sure, esp. in growing meat demand by those consumers with newly disposable income in the developing world.

    But as Bonner points out, that trend doesn’t explain the huge spike in food prices in the last few years.

    As for expansion of world money supply, it starts with the US Fed, but it doesn’t end there! All the developed countries’ central banks have been on a printing binge. Japan’s been at it now for nearly 20 years, and they now have a planet full of admirers–it’s a bigger global hit than manga.

    Even the mini-me’s such as Canada are busily printing away (Canada now has its own funny little housing bubble about to burst).

    And of course by pegging the yuan to the US dollar, China’s been compounding the flood of hot money. Forty days and forty nights, Mogambo ain’t gonna be the only one out there who’s measuring cubits!

  • The InvestorsFriend

    Arguments about money supply causing increased food prices fail to address why it only affects a few items instead of general inflation.

    When a commodity into into shortage the price can go parabolic until supply responds. That is the more likely explantion.

    Supply and Demand People, Supply and Deamnd… and cost of supply…

    P.S. Buy a farm…

  • Richard

    It might have something to do with the huge crop failures this year in Russia, and other places. Wasn’t Pakistan under water for most of the summer? More mouths to feed, and less food. When people see crops failing, they scramble to buy supplies, to the point of hoarding.

    Who is Bernanke giving this freshly printed money to? Bankers, and what are they doing with it? Buying stocks, the market is up, buying commodities, those are up too. As for food, I think it has more to do with shortages, than freshly printed money. When are world leaders going to get serious about population control, hopefully a voluntary one?

  • steverino

    all i know is i really need a freaking haircut.
    anybody else?

    then, i’m gonna have a LBT
    on toast!

  • steverino

    if somebody gave me a coupla $$ tril, i wouldn’t spend one cent. i’d hide it in my mattress [HUGE bed] for 98 years…

    …and save the entire world!


  • Worried1

    Great article, Bill.
    As usual, some folks just miss the big picture. Don’t even think of responding to the idiots. It might delay your next article, and that would be a shame.

  • Tundra Monkey

    The whole world is printing. Can’t deny.
    Maybe the fastest printer is still on the other side of the planet. Please identify.

    Maybe the theory of relativity is in play.
    One pulls the other’s legs, the other snatch the opposite’s moustache. That makes all the currencies floating on a sea of bubbles, with no early signal of submerging.
    Maybe dollar is still relatively firm, still room for breather.

  • phelps who cant swim

    steverino, I need a haircut so bad I am having trouble seeing what I’m typing. Global warming has caused the tempature here in my part of the south has a caused a mini ice age and brought tons of snow and ice with it. Well, tons for us here anyway. Don’t even want to leave the house. I’m ready to go back to West Palm Beach!

  • Laaaughiiing

    Oh! just go back. Need not report to anyone. Thanks for the joke.

  • CT

    who needs to buy a farm when we all can sneak in at night and take all your crops. No. Guess what it happens all the time.

  • jawvmm

    The premise is wrong in the first place – the FAO food index was on its way up long before August when Bernanke made his announcement, not to mention before the policy went into effect in November – it didn’t suddebly shoot up.

    It dropped suddenly after the 2007-08 spike and has climbed at only a slightly less steep pace since the drop.

  • Ormond Otvos

    I’m sort of not surprised at the low level of commentary, since it’s a really important subject, and an educated public might cost the rich some of their wealth. (See George Monbiot in the Guardian.)

    The world is running short of food. It’s official, from those whose job it is to make the surveys.

    Shortages mean the price will go up in the future, so the new money is chasing commodities.

    You want supply and demand?
    OK. Ethanol is subsidized, so corn is going into that. Corn is also food.

    Jeez. Gold bugs!

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