March 17, 2008

Heading towards Global Famine

In case you are new here or are wondering - NO, I don't agree with this article.

He does not understand GLOBALIZATION or the role of transnationals in the global economy . he also does not understand human NEED nor the fact that unfettered capitalism leaves only the Big Fish with an assured diet ..

Veeger

Truth is Treason in the Empire of Lies

Are we Heading Towards Global Famine?

Posted in Uncategorized by freemarketman on March 16th, 2008

I came across this interesting article by MSN Finance, Could we really run out of food?

Biofuel production, poor harvests and emerging nations’ growing appetites are emptying the world’s pantry, sending prices soaring. It’s a good time to invest in agricultural stocks.(My emphasis: See Jim Rogers on CNBC: Abolish The Federal Reserve and Bernanke)

As if a bear market, U.S. credit crunch, energy crisis and city financing emergency were not enough for one year, experts say the world is now facing down the barrel of the worst catastrophe of all: famine.

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The very idea that the modern world could run out of food seems ludicrous, but that is the flip side, or cause, of the tremendous recent increase in the cost of raw wheat, corn, rice, oats and soybeans. Food prices are not escalating because speculators have run them up for sport and profit. Food prices are escalating because accelerating demand in developing nations, biofuel production and poor harvests in some areas have made basic foodstuffs truly scarce.(My emphasis)
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In energy circles, folks who warn about the beginning of the end of cheap fossil fuels talk about “peak oil” as a point we have dangerously and expensively crossed. Likewise, you can now add “peak wheat” to your political and investment lexicon. And it’s a lot worse.
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It’s good to see the MSM reporting some thruth. The old line always sold to people is that the “bad capitalists” are driving food prices up through speculation and just “raising prices” for a fat profit. As the author correctly points out, accelerating demand from developing nations, stupid government socialist policies for biofuel production and crop failures (which is normal) are all factors coming together that facilitate rising prices. But, it’s not the real cause.

There is one issue the author doesn’t touch on, and it is the biggest, but least visible factor. It is called Monetary Inflation. This world has been flooded with cheap money by Central Banks since the beginning of the new millenium. So what has cheap money and food shortages got to do with each other?

I’m going to try and make this as easy as possible. First, have a look at this image of the Nile Delta. Keep the window open. Now read this (from Henry Hazlitt’s, “What You Should Know About Inflation“) :

“…it is contended that the increase in commodity prices often occurs before the increase in the money supply. This is true. This is what happened immediately after the outbreak of war in Korea. Strategic raw materials began to go up in price on the fear that they were going to be scarce.

Speculators and manufacturers began to buy them to hold for profit or protective inventories. But to do this they had to borrow more money from the banks. The rise in prices was accompanied by an equally marked rise in bank loans and deposits. From May 31,1950, to May 30,1951, the loans of the country’s banks increased by $12 billion.

If these increased loans had not been made, and new money (some $6 billion by the end of January 1951) had not been issued against the loans, the rise in prices could not have been sustained. The price rise was made possible, in short, only by an increased supply of money.”

And this…

One of the most stubborn fallacies about inflation is the assumption that it is caused, not by an increase in the quantity of money, but by a “shortage of goods.”

It is true that a rise in prices (which, as we have seen,should not be identified with inflation) can be caused either by an increase in the quantity of money or by a shortage of goods—or partly by both.

Wheat, for example, may rise in price either because there is an increase in the supply of money or a failure of the wheat crop. But we seldom find, even in conditions of total war, a general rise of prices caused by a general shortage of goods.

Yet so stubborn is the fallacy that inflation is caused by a “shortage of goods,” that even in the Germany of 1923, after prices had soared hundreds of billions of times, high officials and millions of Germans were blaming the whole thing on a general “shortage of goods”—at the very moment when foreigners were coming in and buying German goods with gold or their own currencies at prices lower than those of equivalent goods at home.

And lastly, this…

Inflation, to sum up, is the increase in the volume of money and bank credit in relation to the volume of goods. It is harmful because:

  • it depreciates the value of the monetary unit,
  • raises everybody’s cost of living,
  • imposes what is in effect a tax on the poorest (without exemptions) at as high a rate as the tax on the richest,
  • wipes out the value of past savings,
  • discourages future savings,
  • redistributes wealth and income wantonly,
  • encourages and rewards speculation and gambling at the expense of thrift and work,
  • undermines confidence in the justice of a free enterprise system,
  • and corrupts public and private morals.

Now let’s go back to that image of the Nile Delta. From the bottom you’ll notice the main artery flowing north, and then split up into smaller arteries before flowing towards the sea. That is the way money flows.

First, you have the major vein of money (savings) flowing towards the market (sea). However, before it can get to the market, it is allocated towards different investments by the owners of that savings, depending on the needs of the market. Under normal circumstances, the delta represents investments in agriculture, technology, capital goods, property, pharma etc., i.o.w. savings are allocated proportianally.

And this is where cheap money distorts the picture. What happens under a regime of cheap money and credit? Consumers start spending money on capital goods like plasmas, cars, furniture, more eating out, luxury goods, property speculation etc. And that is where savings/investments starts flowing to.

Thus, if you look at the delta, it would mean that the agriculture vein is busy drying up because there were little savings/investments flowing in its direction. As a result, production of agriculture declines because it can not compete with capital goods. But now we are reaching the end of the credit cycle and the markets in capital goods, property etc. is going bust because cheap credit and money has dried up.

At the same time, your paper money has devalued because of the monetary inflation. Lew Rockwell uses a very good analogy:

The monetary issue can be understood by analogy to orange juice. The more water you add, the less substance it has. If you keep adding, eventually you come to the point when you can no longer tell that it was ever orange. This is the same with money. If you print enough — literally or electronically through the credit markets — it will continue to lose value. If money grew on trees, it would be about as valuable as autumn leaves.

Remember, that an increase in the money supply doesn’t result in an immediate rise in prices. It takes time to flow through the market. We are now starting to see the results of the monetary decadence of the last 7 years.

Expect to see prices of commodities continue to rise rapidly during the next couple of years. Expect to see government idiots trying to fix prices and cause more shortages. Expect to see more money/investments starting to flow towards the commodity markets. Expect to see poor people suffering the most.

And expect the demagogues to blame free market capitalism for this mess. At least you now know the truth.

1 comment:

Freemarketman said...

Mmmm...

I appreciate criticism. Please tell me what I don't understand. ;-)

Thanks

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