Friday, January 21, 2011
Quantitative Easing Is Causing Food Prices to Skyrocket
As I've previously noted, interest rates have risen both times after the Fed implemented quantitative easing.
Graham Summers points out that food prices have also skyrocketed both times:
This isn't really unexpected.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.
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.
7 comments:
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This is really a test comment, but, for the record, has the entire world been turned into France 1789?
ReplyDeleteIn India the vegetable production is a RECORD,still the,prices are too high.More so,as in winter vegetables are very very cheap. UPA Government is under tremendous pressure from the USA, to push GMO foods and seeds.The Minister responsible,Mr Pawar,even strongly endorsed GMO for India,very recently.
ReplyDeleteHence as far as India is concerned the high prices are NOT due to US QE2,but a False Flag for the introduction of US GMO. .
I agree that we are in an inflationary environment, but the inflation you suggest, that of dilution of the money stock due to increased printing has YET TO IMPACT food prices. The inflation we are seeing, and which also correlates nicely to your graph, is the inflation that comes from malinvestments. The Dot.com bubble, the housing bubble, the private debt bubble, and the dicretionary spending bubble are all good examples of what happens when interest rates are artificially lowered by the 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 devistation. 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.
ReplyDeleteThe major reason that other nations are experiencing food price inflation is because of US monetary policy. Our over-printing of money hasn't flooded their economies, but our cheap money, money that is borrowed at 0% interest is flooding into their economies, since they are considered economic "hot" spots where an investor can take a slightly higher risk but where the rewards are the highest in the world right now. China. Indonesia. Singapore. Brazil. Their inflation is due to zero percent interest rates set by Central Bankers. And the money that is flooding those economies is coming from the big banks in the US and Europe. When the really nast inflation of TOO many DOLLARS chasing TOO FEW goods kicks in, the inflation these countries (and the US later this year) will feel like the good old days.
ReplyDeleteOMG!! WHY ARE OUR GOVERNMENTS PUTTING SUCH FEAR INTO US AS A HUMAN RACE? FOR CONTROL!! PLAIN AND SIMPLE!! GROW A FRIGGIN GARDEN!! GO HUNTING AND SHOOT A DEER ...GOD KNOWS THERE ARE PLENTY OUT THERE!! SO UNTIL WE HAVE NO GARDENS COWS CHICKENS PIGS, DEER CROPS ETC....THERE IS NO FOOD SHORTAGE!!!! STOP DEPENDING ON YOUR LOCAL GROCERY STORES AND GOVERNMENT TELLING YOU THERE IS A FOOD SHORTAGE!!! I KNOW THERE ARE COUNTRIES OUT THERE TRUELY STARVING( PROBABLY DUE TO SOME GLOBAL ELITE GOVERNMENTAL GLOBAL AGENDA) WHO HAVE A REASON TO RIOT, ARE THEY, NO! THEY TRUELY NEED THE HELP!
ReplyDeleteQuantitative easing most certainly will increase political pressures on the Fed.
ReplyDeleteQuantitative easing in US
How long have you been vegan and what is your favorite food?
ReplyDeleteThank-you
Raw Vegan