Growth or Hot Money: What's Really Affecting Food Prices
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.