Who is benefiting from this?
From Business Week:
U.S. farmers are planting the fewest acres with rice since 1989 just as global demand surpasses production for the first time in four years, driving prices as much as 12 percent higher by December.
Plantings in the U.S., the third-biggest shipper, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers. Rice, the staple food for half the world, declined 4 percent last year, extending a 2.9 percent drop in 2009. The other crops jumped 34 percent or more.
“Why would you want to take that risk to plant rice, knowing that your income is going to be way down?” said Terry Hatley, a farmer in Marked Tree, Arkansas, who may not plant any rice this year after growing the crop for more than three decades. “Farming is a business, and you’ve got to look at the economics of it. Now, the economics on rice are very dim.”
Bangladesh, South Asia’s biggest buyer, doubled a target for imports in 2011 to curb prices, the Directorate General of Food said last week. The Philippines, the world’s largest importer, will probably start buying next month, according to the National Food Authority. While global stockpiles are predicted to be 26 percent higher this year than in 2007, consumption will gain 3.4 percent and harvests 2.6 percent, the U.S. Department of Agriculture estimates.
The Thailand export price, the benchmark in Asia, may climb as high as $600 a metric ton by December from $534 on Jan. 26, a gain of 12 percent, according to the median estimate in a Bloomberg survey of eight traders, exporters and analysts.
“The acreage war has begun,” said Dennis Delaughter, the owner of Progressive Farm Marketing Inc. in Edna, Texas, who expects futures traded on the Chicago Board of Trade to advance as much as 20 percent to a three-year high of $18 per 100 pounds by November. “Of all the futures markets in the agricultural sector, rice is the sleeper,” said Delaughter, who correctly predicted an 11 percent gain in prices last March.
Rice represents almost 50 percent of the food expenses of the poorest across the developing world, and 20 percent of total household spending, according to the International Rice Research Institute, based in Los Banos, the Philippines. In the U.S., 6 percent of incomes are spent on groceries, data from Euromonitor International show.
While the United Nations says global food prices climbed to a record in December, grain stockpiles have been replenished since 2007-2009, when the U.S. State Department estimates there were more than 60 food riots around the world.
http://www.businessweek.com/news/2011-01-31/rice-rebounds-from-two-year-drop-as-u-s-crop-shrinks.html
Monday, January 31, 2011
Wednesday, January 26, 2011
Is the Korean Economy Really Growing?: Reportedly, It Grew at 8-year High of 6.1%
The Bank of Korea announced on Wednesday that the Korean economy grew at an eight-year high of 6.1 percent last year. This is due to the Korean government’s heavy spending and record low interest rates.
The question remains: Is this growth sustainable?; Is it healthy?
There are many worrisome indicators regarding the current state of the Korean economy.
Food inflation is rife. The Korean middle class standard of living is getting lowered by inflated prices of their daily necessities.
Its debt at both national and household levels is mounting.
A stock market bubble is forming and it is bound to pop. Korea is also facing unemployment among the youth and internal RE bubble going.
The question remains: Is this growth sustainable?; Is it healthy?
There are many worrisome indicators regarding the current state of the Korean economy.
Food inflation is rife. The Korean middle class standard of living is getting lowered by inflated prices of their daily necessities.
Its debt at both national and household levels is mounting.
A stock market bubble is forming and it is bound to pop. Korea is also facing unemployment among the youth and internal RE bubble going.
Monday, January 24, 2011
Mish’s Retort to the WEF Report
From Mish’s blog:
The accompanying PDF entitled More Credit with Fewer Crises is 84 pages of economic claptrap. The main mission of the World Economic Forum appears to cram more credit down the throats of a world so stuffed with credit it cannot possibly be paid back.
Australian economist Steve Keen found three major flaws in the report. There are many others. Inquiring minds will certainly want to read Keen's WEF-mocking analysis entitled How I learnt to stop worrying and love The Bank.
The three flaws Keen spotted are:
• Poor starting year for the report
• Report ignores financial sector debt
• Report ignores Ponzi schemes
The WEF brags "To create a robust fact base for the study, a detailed global credit model was constructed to map credit volumes between 2000 and 2009, and to project potential credit demand to 2020. The model spans 79 countries representing 99% of world credit volume."
I would specifically like to point out the absurdity of calling a study "robust" that only encompasses only the last 10 years, ignoring the great depression, WWI, WWII, the Great Society, the rise and fall of unions, the effects of baby boomers moving through the economy, and the move from one to two wage earners in a family.
I also point out the study does not mention Bretton-Woods, Nixon closing the gold window, or how wealth has become increasingly concentrated in the hands of fewer and fewer people, while those in debt have become debt slaves for life.
It's important to understand that rampant credit expansion is in and of itself inflation. My precise definition is "Inflation is a net expansion of money and credit, with credit marked-to-market.
The primary beneficiaries of "inflation" are those with first access to credit: banks, government, and the wealthy. By the time credit filters down to those lowest on the totem pole, those who take credit are screwed. The housing bubble is proof enough.
Credit bubbles pop, they always do. Thus, the idea that the WEF can put in place procedures to identify bubbles while openly promoting the doubling of credit is simply preposterous.
Note that McKinsey interviewed all the people who benefited from the bubble. CEOs, rating agency executives, central bankers, and regulators all were beneficiaries of the credit expansion. Of course they are going to agree on the need for more of it even if they cannot come up with a precise definition.
Report bias is even more basic than interview bias. The study's mission seems to be to determine how much credit is needed to achieve desired GDP growth. What if the desired GDP growth is flawed?
I can easily define "sustainable credit" conditions. All it takes is a 100% gold-back dollar and no fractional reserve lending. Heck, abolishing fractional reserve lending alone would do it.
I have to laugh at the ridiculous question the report asks: Will Credit Growth Be Sufficient to Meet Demand? In short, there will be significant challenges in channelling credit to where it is needed.
In a fractional reserve lending system with credit priced too cheaply and central bankers willing to act as lenders of last resort, the last worry anyone should have is whether credit growth will be sufficient to meet demand.
By the way, did you catch the flaw in the question itself? There is unlimited demand for credit if credit is cheap enough. As I pointed out before, the article forgot to address "the price of credit" and that silly question highlights the flaw.
Bear in mind that in a deflationary environment the price of credit might have to drop to zero, perhaps even negative, before any credit worthy borrowers want it, but priced right, there will unlimited demand for credit.
The financial crisis not only shook the foundations of the world economy, it also suggested to many observers that overall credit levels were unsustainably high and would need to be scaled back. The analysis in this report provides a different perspective: credit demand will grow strongly in the decade ahead, and meeting this demand is not only sustainable in principle, but also essential if the world is to meet its economic development goals.
Flaws after flaws after flaws mount up. The paragraph above shows the authors do not know the difference between real growth (production and output), vs. "economic development goals" as measured by arbitrary measures of GDP and government spending.
Government spending, no matter how ridiculous, adds to GDP by definition. Note that it has taken fed balance sheet expansion by $2 trillion and deficit spending of $1.5 trillion just to get a GDP rising at a 3% clip.
Also note that taxpayers bailed out the banks but still hold the debt. That situation holds true in the US, Ireland, and Spain (places where the housing bubble popped). The housing bubble is bursting in Australia right now and will burst in Canada, the UK, and China at some point.
Every one of those bubbles was caused by credit expansion yet the report's conclusion is we need more credit. The report's major worry is credit expansion will be insufficient.
Summary of Flaws
1. Failure to understand the role of Fractional Reserve Lending
2. Failure to consider the price of credit
3. Failure to discuss the beneficiaries of inflation and credit expansion
4. Interview bias
5. Report bias
6. Failure to encompass sufficient economic history
7. No consideration of credit expansion as a cause of the Great Depression
8. No discussion of the role of Bretton Woods or central bankers on credit bubbles
9. Participants do not understand inflation
10. Report did not properly factor in wage growth or taxes
11. Report did not consider global wage arbitrage as a limiting factor in Western economies
12. Report did not consider income inequality
13. Report does not understand the infeasibility of perpetual compounding at 6% annualized
14. Report has no concept of valid human rights
15. Report fails to consider wealth effect
16. Poor starting year for the report
17. Report ignores financial sector debt
18. Report ignores Ponzi schemes
http://globaleconomicanalysis.blogspot.com/2011/01/world-economic-forum-endorses-fraud.html
The accompanying PDF entitled More Credit with Fewer Crises is 84 pages of economic claptrap. The main mission of the World Economic Forum appears to cram more credit down the throats of a world so stuffed with credit it cannot possibly be paid back.
Australian economist Steve Keen found three major flaws in the report. There are many others. Inquiring minds will certainly want to read Keen's WEF-mocking analysis entitled How I learnt to stop worrying and love The Bank.
The three flaws Keen spotted are:
• Poor starting year for the report
• Report ignores financial sector debt
• Report ignores Ponzi schemes
The WEF brags "To create a robust fact base for the study, a detailed global credit model was constructed to map credit volumes between 2000 and 2009, and to project potential credit demand to 2020. The model spans 79 countries representing 99% of world credit volume."
I would specifically like to point out the absurdity of calling a study "robust" that only encompasses only the last 10 years, ignoring the great depression, WWI, WWII, the Great Society, the rise and fall of unions, the effects of baby boomers moving through the economy, and the move from one to two wage earners in a family.
I also point out the study does not mention Bretton-Woods, Nixon closing the gold window, or how wealth has become increasingly concentrated in the hands of fewer and fewer people, while those in debt have become debt slaves for life.
It's important to understand that rampant credit expansion is in and of itself inflation. My precise definition is "Inflation is a net expansion of money and credit, with credit marked-to-market.
The primary beneficiaries of "inflation" are those with first access to credit: banks, government, and the wealthy. By the time credit filters down to those lowest on the totem pole, those who take credit are screwed. The housing bubble is proof enough.
Credit bubbles pop, they always do. Thus, the idea that the WEF can put in place procedures to identify bubbles while openly promoting the doubling of credit is simply preposterous.
Note that McKinsey interviewed all the people who benefited from the bubble. CEOs, rating agency executives, central bankers, and regulators all were beneficiaries of the credit expansion. Of course they are going to agree on the need for more of it even if they cannot come up with a precise definition.
Report bias is even more basic than interview bias. The study's mission seems to be to determine how much credit is needed to achieve desired GDP growth. What if the desired GDP growth is flawed?
I can easily define "sustainable credit" conditions. All it takes is a 100% gold-back dollar and no fractional reserve lending. Heck, abolishing fractional reserve lending alone would do it.
I have to laugh at the ridiculous question the report asks: Will Credit Growth Be Sufficient to Meet Demand? In short, there will be significant challenges in channelling credit to where it is needed.
In a fractional reserve lending system with credit priced too cheaply and central bankers willing to act as lenders of last resort, the last worry anyone should have is whether credit growth will be sufficient to meet demand.
By the way, did you catch the flaw in the question itself? There is unlimited demand for credit if credit is cheap enough. As I pointed out before, the article forgot to address "the price of credit" and that silly question highlights the flaw.
Bear in mind that in a deflationary environment the price of credit might have to drop to zero, perhaps even negative, before any credit worthy borrowers want it, but priced right, there will unlimited demand for credit.
The financial crisis not only shook the foundations of the world economy, it also suggested to many observers that overall credit levels were unsustainably high and would need to be scaled back. The analysis in this report provides a different perspective: credit demand will grow strongly in the decade ahead, and meeting this demand is not only sustainable in principle, but also essential if the world is to meet its economic development goals.
Flaws after flaws after flaws mount up. The paragraph above shows the authors do not know the difference between real growth (production and output), vs. "economic development goals" as measured by arbitrary measures of GDP and government spending.
Government spending, no matter how ridiculous, adds to GDP by definition. Note that it has taken fed balance sheet expansion by $2 trillion and deficit spending of $1.5 trillion just to get a GDP rising at a 3% clip.
Also note that taxpayers bailed out the banks but still hold the debt. That situation holds true in the US, Ireland, and Spain (places where the housing bubble popped). The housing bubble is bursting in Australia right now and will burst in Canada, the UK, and China at some point.
Every one of those bubbles was caused by credit expansion yet the report's conclusion is we need more credit. The report's major worry is credit expansion will be insufficient.
Summary of Flaws
1. Failure to understand the role of Fractional Reserve Lending
2. Failure to consider the price of credit
3. Failure to discuss the beneficiaries of inflation and credit expansion
4. Interview bias
5. Report bias
6. Failure to encompass sufficient economic history
7. No consideration of credit expansion as a cause of the Great Depression
8. No discussion of the role of Bretton Woods or central bankers on credit bubbles
9. Participants do not understand inflation
10. Report did not properly factor in wage growth or taxes
11. Report did not consider global wage arbitrage as a limiting factor in Western economies
12. Report did not consider income inequality
13. Report does not understand the infeasibility of perpetual compounding at 6% annualized
14. Report has no concept of valid human rights
15. Report fails to consider wealth effect
16. Poor starting year for the report
17. Report ignores financial sector debt
18. Report ignores Ponzi schemes
http://globaleconomicanalysis.blogspot.com/2011/01/world-economic-forum-endorses-fraud.html
Sunday, January 23, 2011
Who Has been Benefiting Most from Making Products in China?
China is not the cause of America’s downfall.
As we all know, many of big American corporations have moved their manufacturing operations to China. Who has been the ultimate beneficiary?: the low wage Chinese workers?; MNCs?
The U.S. based corporations have profited most from Chinese based production.
MNCs are seeking the maximum profit. They are looking for savings more than ever in an environment of razor thin profits.
Of course, global wage arbitrage issue has played a part. The Chinese workers’ wage is lower than that in the U.S.
Yet, who let the outsouring happen in the first place? The U.S. congress have given the U.S. platform companies special tax treatment.
It is necessary to look at what has been going on before blaming China for its currency manipulation and trade surplus.
As we all know, many of big American corporations have moved their manufacturing operations to China. Who has been the ultimate beneficiary?: the low wage Chinese workers?; MNCs?
The U.S. based corporations have profited most from Chinese based production.
MNCs are seeking the maximum profit. They are looking for savings more than ever in an environment of razor thin profits.
Of course, global wage arbitrage issue has played a part. The Chinese workers’ wage is lower than that in the U.S.
Yet, who let the outsouring happen in the first place? The U.S. congress have given the U.S. platform companies special tax treatment.
It is necessary to look at what has been going on before blaming China for its currency manipulation and trade surplus.
GE CEO Immelt’s Job Creation Skill
From Market Talk:
Interesting to hear GE CEO Jeff Immelt will chair a new White House jobs panel tasked with finding ways to grow private-sector jobs. He runs a big company, but Immelt has shown more skill at cutting jobs, frankly, than creating.
GE finished 2009 with 18,000 fewer US workers than it had at the end of 2008, and US headcount is down 31,000 since Immelt’s first full year in 2002. During his tenure, GE workers based in the US as a percentage of total employees has fallen to 44% from 52%.
http://newswires-americas.com/markettalk/?p=14910
Interesting to hear GE CEO Jeff Immelt will chair a new White House jobs panel tasked with finding ways to grow private-sector jobs. He runs a big company, but Immelt has shown more skill at cutting jobs, frankly, than creating.
GE finished 2009 with 18,000 fewer US workers than it had at the end of 2008, and US headcount is down 31,000 since Immelt’s first full year in 2002. During his tenure, GE workers based in the US as a percentage of total employees has fallen to 44% from 52%.
http://newswires-americas.com/markettalk/?p=14910
Saturday, January 22, 2011
“Where can I hide from your spirit? Where can I flee from your presence? If I rise to the stars, you are there; if I fall to the depths, you are there. If I fly on the wings of the dawn, if I settle on the far side of the sea, even there your hands will hold and guide me… For you created my inmost being; you knit me together in my mother’s womb. I praise you because I am fearfully and wonderfully made; your works are transcendent, and I know that full well.” Psalm 139
Friday, January 21, 2011
The WEF(World Economic Forum) Report: Total Global Debt Will Need To Double To Over $200 Trillion By 2020
From Zero Hedge:
A brand new study released by the World Economic Forum (WEF) in collaboration with McKinsey (which is a must read if only for its plethora of charts which we are certain will be used and reused in thousands of posts and articles over the next year), finds that while global credit stock doubled from $57 trillion to $109 trillion in just 10 years (from 2000 to 2010), it will need to double again to an incredible $210 trillion by 2020 in order to provide the necessary credit-driven growth (in a recursive way, whereby credit feeds growth, and growth requires additional credit issuance) for world GDP to retain its current growth rate. And while the goal seeked conclusion is obviously nothing but propaganda for the banking syndicate meant to facilitate the need for endless credit issuance spin (after all how on earth can world GDP growth occur based on something productive like manufacturing when there is only $100 trillion of free cash chasing worthless and rapidly amortizing assets), the study did warn (timidly) that leaders must be wary of new credit "hotspots" of excess lending, as the world emerges from a financial catastrophe blamed in large part "to the failure of the financial system to detect and constrain" these areas of unsustainable debt. In other words: credit doubling blew up the world financial system, but if you promise to behave this time, go ahead and double the world debt again.
Where does the WEF see the bulk of the credit growth coming from? Why Asia of course.
Rapid credit growth is forecast in developing markets, which will add almost US$ 50 trillion to their credit stock by 2020. China’s credit demand will lead global credit growth: it will require US$ 20 trillion more credit in 2020 than in 2009, with 80% of that growth going to the wholesale segment. In developed markets, including the large Western economies, most of the growth will come from the government segment. In North America alone, the value of government bonds is expected to grow by US$ 12 trillion to 2020. Deleveraging in overheated retail and wholesale segments of the developed world will be significant.
$20 trillion more credit in 10 years in China? That may, just may, lead to a slight pick up in food prices...
On the topic of hotspots, or areas where credit growth may be problematic, the WEF basically says that virtually every area that needs to double (or more) its credit in the next decade, could go boom.
Even though some economies will deleverage over the coming decade, the analysis projects a significant number of credit hotspots across the world in 2020 – including retail credit hotspots in countries representing almost half of global GDP. Government credit hotspots are projected for countries representing 13-14% of world GDP – although Western Europe will be more vulnerable. In wholesale credit, Asia and Western Europe will be the main drivers of hotspots in 2020 (Exhibit iv).
http://www.zerohedge.com/article/total-global-debt-has-double-over-200-trillion-2020-preserve-economic-growth
A brand new study released by the World Economic Forum (WEF) in collaboration with McKinsey (which is a must read if only for its plethora of charts which we are certain will be used and reused in thousands of posts and articles over the next year), finds that while global credit stock doubled from $57 trillion to $109 trillion in just 10 years (from 2000 to 2010), it will need to double again to an incredible $210 trillion by 2020 in order to provide the necessary credit-driven growth (in a recursive way, whereby credit feeds growth, and growth requires additional credit issuance) for world GDP to retain its current growth rate. And while the goal seeked conclusion is obviously nothing but propaganda for the banking syndicate meant to facilitate the need for endless credit issuance spin (after all how on earth can world GDP growth occur based on something productive like manufacturing when there is only $100 trillion of free cash chasing worthless and rapidly amortizing assets), the study did warn (timidly) that leaders must be wary of new credit "hotspots" of excess lending, as the world emerges from a financial catastrophe blamed in large part "to the failure of the financial system to detect and constrain" these areas of unsustainable debt. In other words: credit doubling blew up the world financial system, but if you promise to behave this time, go ahead and double the world debt again.
Where does the WEF see the bulk of the credit growth coming from? Why Asia of course.
Rapid credit growth is forecast in developing markets, which will add almost US$ 50 trillion to their credit stock by 2020. China’s credit demand will lead global credit growth: it will require US$ 20 trillion more credit in 2020 than in 2009, with 80% of that growth going to the wholesale segment. In developed markets, including the large Western economies, most of the growth will come from the government segment. In North America alone, the value of government bonds is expected to grow by US$ 12 trillion to 2020. Deleveraging in overheated retail and wholesale segments of the developed world will be significant.
$20 trillion more credit in 10 years in China? That may, just may, lead to a slight pick up in food prices...
On the topic of hotspots, or areas where credit growth may be problematic, the WEF basically says that virtually every area that needs to double (or more) its credit in the next decade, could go boom.
Even though some economies will deleverage over the coming decade, the analysis projects a significant number of credit hotspots across the world in 2020 – including retail credit hotspots in countries representing almost half of global GDP. Government credit hotspots are projected for countries representing 13-14% of world GDP – although Western Europe will be more vulnerable. In wholesale credit, Asia and Western Europe will be the main drivers of hotspots in 2020 (Exhibit iv).
http://www.zerohedge.com/article/total-global-debt-has-double-over-200-trillion-2020-preserve-economic-growth
Tuesday, January 18, 2011
Simon Black: The Canary in the Inflationary Coal Mine Is in the Southeast Asia
From Sovereign Man:
Laos is a small, landlocked economy in Southeast Asia that’s often overlooked in favor of its neighbors: Thailand, China, and even Cambodia. But there are a few important factors that set Laos apart and lead me to believe that, when it comes to inflation, the country is the canary in the coal mine.
First, Laos is one of the most sparsely populated countries in Asia; with just 6.3 million people, its numbers pale in comparison to regional neighbors such as Burma (50 million), Thailand (67 million) and Bangladesh (162 million).
The other thing that’s important about Laos is that the country is home to some of the most fertile soil in the world: more than 20% of its land mass is ripe for agricultural use. This is an astounding number, and it’s no wonder that agriculture makes up the preponderance of the Laotian economy.
Put another way, Laos, with its vast resources and small population, might loosely be considered an agricultural version of Kuwait. But Laos is nowhere near as wealthy, since oil is much pricier than rice, soy, and fish.
Given its resources, it certainly seems ironic that the prices of staple foods in Laos, including rice, have soared in recent months, and that the Laotian government is now under intense pressure to “do something” about it.
You expect this sort of thing to happen in Algeria, where the population is 35 million, where only 2% of the land is cultivated, and where agriculture makes up but a tiny percentage of the economy… but in Laos? This is akin to finding Kuwaitis unable to afford filling up their cars due to high gas prices. It’s unthinkable.
Thing is, it’s not that there are food shortages in Laos; this isn’t an issue where supply has failed to keep up with demand (thus resulting in rising prices). The price hikes are simply another indicator of monetary inflation causing severe price inflation, particularly in the developing world.
How does this happen? The trillions of new currency units being compulsively manufactured by central bankers are finding their way to developing countries. This surge heats up local markets, causing prices to rise.
This effect is compounded when developing markets fight to keep their currencies artificially depressed against the dollar. When the price of milk goes up by a dollar in the developed world, people grumble about it, but they can afford it. In Laos, where the minimum wage is about $65/month, an extra few dollars for groceries is unfathomable.
The government in Laos will most likely raise the minimum wage. The figure that’s being discussed is about a 40% increase from today’s level, which itself is nearly double the minimum wage in 2009.
Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on. Wage hikes are always playing catch-up with rising prices, and the end result is a reduced standard of living. No amount of monetary wizardry can prevent this.
I saw a similar case when I was in Sri Lanka a few months ago: the government there keeps the rupee fixed to the US dollar at an artificially low rate in order to support exporters… yet the weak rupee has hit the locals hard, causing soaring prices of 30% or more for staple foods such as rice and coconuts.
When I was in Zimbabwe recently, the locals told me similar stories about their days of hyperinflation: everyone was constantly getting a “raise” to keep up with inflation, but prices were adjusting so rapidly, their living conditions would constantly deteriorate.
Needless to say, banks do just fine in this situation. All the freshly printed money circulates through the banking system, generating greater volume and higher profits. It’s no coincidence that Laos’ largest commercial bank (BCEL) is expecting its net income to surge 27% this year, and I’ll be curious to see what happens to the Laotian stock market (which just had its inaugural session last week).
Bottom line: if this sort of thing can happen in Laos, where there’s about 2.5 acres of lush, fertile, arable land for every man, woman, and child in the country, it can happen anywhere… and I’ll be watching this situation very closely to see if any civil unrest develops as a result.
Regardless, inflation is here. And the more you see politicians and central bankers denying it, the more you should be preparing for what may come. More to follow.
http://www.sovereignman.com/expat/the-canary-in-the-coal-mine-is-in-southeast-asia/
Laos is a small, landlocked economy in Southeast Asia that’s often overlooked in favor of its neighbors: Thailand, China, and even Cambodia. But there are a few important factors that set Laos apart and lead me to believe that, when it comes to inflation, the country is the canary in the coal mine.
First, Laos is one of the most sparsely populated countries in Asia; with just 6.3 million people, its numbers pale in comparison to regional neighbors such as Burma (50 million), Thailand (67 million) and Bangladesh (162 million).
The other thing that’s important about Laos is that the country is home to some of the most fertile soil in the world: more than 20% of its land mass is ripe for agricultural use. This is an astounding number, and it’s no wonder that agriculture makes up the preponderance of the Laotian economy.
Put another way, Laos, with its vast resources and small population, might loosely be considered an agricultural version of Kuwait. But Laos is nowhere near as wealthy, since oil is much pricier than rice, soy, and fish.
Given its resources, it certainly seems ironic that the prices of staple foods in Laos, including rice, have soared in recent months, and that the Laotian government is now under intense pressure to “do something” about it.
You expect this sort of thing to happen in Algeria, where the population is 35 million, where only 2% of the land is cultivated, and where agriculture makes up but a tiny percentage of the economy… but in Laos? This is akin to finding Kuwaitis unable to afford filling up their cars due to high gas prices. It’s unthinkable.
Thing is, it’s not that there are food shortages in Laos; this isn’t an issue where supply has failed to keep up with demand (thus resulting in rising prices). The price hikes are simply another indicator of monetary inflation causing severe price inflation, particularly in the developing world.
How does this happen? The trillions of new currency units being compulsively manufactured by central bankers are finding their way to developing countries. This surge heats up local markets, causing prices to rise.
This effect is compounded when developing markets fight to keep their currencies artificially depressed against the dollar. When the price of milk goes up by a dollar in the developed world, people grumble about it, but they can afford it. In Laos, where the minimum wage is about $65/month, an extra few dollars for groceries is unfathomable.
The government in Laos will most likely raise the minimum wage. The figure that’s being discussed is about a 40% increase from today’s level, which itself is nearly double the minimum wage in 2009.
Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on. Wage hikes are always playing catch-up with rising prices, and the end result is a reduced standard of living. No amount of monetary wizardry can prevent this.
I saw a similar case when I was in Sri Lanka a few months ago: the government there keeps the rupee fixed to the US dollar at an artificially low rate in order to support exporters… yet the weak rupee has hit the locals hard, causing soaring prices of 30% or more for staple foods such as rice and coconuts.
When I was in Zimbabwe recently, the locals told me similar stories about their days of hyperinflation: everyone was constantly getting a “raise” to keep up with inflation, but prices were adjusting so rapidly, their living conditions would constantly deteriorate.
Needless to say, banks do just fine in this situation. All the freshly printed money circulates through the banking system, generating greater volume and higher profits. It’s no coincidence that Laos’ largest commercial bank (BCEL) is expecting its net income to surge 27% this year, and I’ll be curious to see what happens to the Laotian stock market (which just had its inaugural session last week).
Bottom line: if this sort of thing can happen in Laos, where there’s about 2.5 acres of lush, fertile, arable land for every man, woman, and child in the country, it can happen anywhere… and I’ll be watching this situation very closely to see if any civil unrest develops as a result.
Regardless, inflation is here. And the more you see politicians and central bankers denying it, the more you should be preparing for what may come. More to follow.
http://www.sovereignman.com/expat/the-canary-in-the-coal-mine-is-in-southeast-asia/
Monday, January 17, 2011
America’s Transformation Process
The U.S. has been undergoing a transformation process.
Wealth can only be generated through production. The solid industrial base and the middle class used to keep the U.S. wealthy, free and prosperous.
Perhaps the U.S. crisis started when the financial sector began to substitute for other industries in the late 1980s. The U.S. has squandered its real wealth in the pursuit of paper wealth.
The U.S. has got themselves into a debt-induced economic crisis through this transformation process.
The greatest lesson of all from the U.S. downfall may be what lacking productive investment and hollowing out its industrial base can do to the health of the nation.
Wealth can only be generated through production. The solid industrial base and the middle class used to keep the U.S. wealthy, free and prosperous.
Perhaps the U.S. crisis started when the financial sector began to substitute for other industries in the late 1980s. The U.S. has squandered its real wealth in the pursuit of paper wealth.
The U.S. has got themselves into a debt-induced economic crisis through this transformation process.
The greatest lesson of all from the U.S. downfall may be what lacking productive investment and hollowing out its industrial base can do to the health of the nation.
Saturday, January 15, 2011
“At that time many will turn away from faith and will betray and hate each other, and false prophets will appear and deceive many people. Because of the spread of wickedness the love of most will grow cold, but whoever stands firm to the end will be saved. And this gospel of the kingdom will be preached in the whole world as a testimony to all nations, and then the end will come.” Matt 24: 10-14
지난 주에 지적장애와 신체장애가 심해 말도 못하는 정현이가 많이 아파 아주 힘들어 하는 것을 보고 와 이번 주 내내 정현이를 위해 특별 기도를 드렸다.
나의 기도에 응답해 주시는 크신 하나님의 사랑.
지난 주에 지적장애와 신체장애가 심해 말도 못하는 정현이가 많이 아파 아주 힘들어 하는 것을 보고 와 이번 주 내내 정현이를 위해 특별 기도를 드렸다.
나의 기도에 응답해 주시는 크신 하나님의 사랑.
Thursday, January 13, 2011
Food Price Shock Coming
We saw this coming.
From the FT:
The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.
The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.
While officials are drawing comfort from stable rice prices, key for feeding Asia, they warn that a sustained period of high prices, especially in grains such as wheat, would hit poorer countries. Food price hikes have already led to riots in Algeria and Mozambique.
“Stocks of corn and soyabean are at incredibly tight levels ... and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.
Dan Basse, president of AgResource, a Chicago-based forecaster, added: “There’s just no room for error any more. With any kind of weather problem in the upcoming growing season we will make new all-time highs in corn and soy, and to a lesser degree wheat futures.”
Agricultural traders and analysts warn that the latest revision to US and global stocks means there is no further room for weather problems. The crops in Argentina and Brazil, to be harvested soon, look fragile due to dryness.
Traders are particularly concerned about the cost of vegetable oil, key for developing countries such as China where an emerging middle class is buying more frying oil. The US Department of Agriculture said the ratio of global stocks-to-demand would fall later this year to “levels unseen since the mid-1970s, reflecting an accelerated pace of vegetable oil” consumption for food and fuel.
In Chicago, the price of soyabeans rose as much as 5.2 per cent to $14.20½ a bushel, the highest since late 2008. The USDA said that domestic stocks-to-demand would drop to the lowest point in nearly half a century.
Corn prices jumped 5 per cent to $6.37 a bushel, the highest level since July 2008.
http://www.ft.com/cms/s/0/a2aa510a-1e89-11e0-87d2-00144feab49a.html#axzz1AxdogIyu
From the FT:
The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.
The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.
While officials are drawing comfort from stable rice prices, key for feeding Asia, they warn that a sustained period of high prices, especially in grains such as wheat, would hit poorer countries. Food price hikes have already led to riots in Algeria and Mozambique.
“Stocks of corn and soyabean are at incredibly tight levels ... and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.
Dan Basse, president of AgResource, a Chicago-based forecaster, added: “There’s just no room for error any more. With any kind of weather problem in the upcoming growing season we will make new all-time highs in corn and soy, and to a lesser degree wheat futures.”
Agricultural traders and analysts warn that the latest revision to US and global stocks means there is no further room for weather problems. The crops in Argentina and Brazil, to be harvested soon, look fragile due to dryness.
Traders are particularly concerned about the cost of vegetable oil, key for developing countries such as China where an emerging middle class is buying more frying oil. The US Department of Agriculture said the ratio of global stocks-to-demand would fall later this year to “levels unseen since the mid-1970s, reflecting an accelerated pace of vegetable oil” consumption for food and fuel.
In Chicago, the price of soyabeans rose as much as 5.2 per cent to $14.20½ a bushel, the highest since late 2008. The USDA said that domestic stocks-to-demand would drop to the lowest point in nearly half a century.
Corn prices jumped 5 per cent to $6.37 a bushel, the highest level since July 2008.
http://www.ft.com/cms/s/0/a2aa510a-1e89-11e0-87d2-00144feab49a.html#axzz1AxdogIyu
Bank of Korea Hikes the Key Interest Rate to 2.75%
From Yonhap News:
South Korea's central bank unexpectedly raised the key interest rate by a quarter percentage point on Thursday in an apparent bid to contain growing inflationary pressure.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers hiked the benchmark seven-day repo rate, dubbed the base rate, to 2.75 percent. It marked the third rate increase since the onset of the global financial crisis.
http://english.yonhapnews.co.kr/business/2011/01/12/0503000000AEN20110112008800320.HTML
South Korea's central bank unexpectedly raised the key interest rate by a quarter percentage point on Thursday in an apparent bid to contain growing inflationary pressure.
Bank of Korea (BOK) Gov. Kim Choong-soo and his fellow policymakers hiked the benchmark seven-day repo rate, dubbed the base rate, to 2.75 percent. It marked the third rate increase since the onset of the global financial crisis.
http://english.yonhapnews.co.kr/business/2011/01/12/0503000000AEN20110112008800320.HTML
Wednesday, January 12, 2011
Sunday, January 9, 2011
How the U.S. Has Lost Its Manufacturing Sector?
From Zero Hedge:
The Economic Collapse blog has compiled this handy list of 19 fact that demonstrate the deindustrialization of America in all its glory.
#1 The United States has lost approximately 42,400 factories since 2001.
#2 Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.
#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November. Approximately 900 jobs will be lost.
#4 In 2008, 1.2 billion cellphones were sold worldwide. So how many of them were manufactured inside the United States? Zero.
#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.
#7 The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.
#8 According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.
#9 In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.
#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford's new "global" manufacturing strategy.
#11 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.
#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.
#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.
#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.
#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.
#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.
http://www.zerohedge.com/article/reminiscences-american-industrial-nation
The Economic Collapse blog has compiled this handy list of 19 fact that demonstrate the deindustrialization of America in all its glory.
#1 The United States has lost approximately 42,400 factories since 2001.
#2 Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.
#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November. Approximately 900 jobs will be lost.
#4 In 2008, 1.2 billion cellphones were sold worldwide. So how many of them were manufactured inside the United States? Zero.
#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.
#7 The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.
#8 According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.
#9 In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.
#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford's new "global" manufacturing strategy.
#11 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.
#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.
#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.
#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.
#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.
#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.
http://www.zerohedge.com/article/reminiscences-american-industrial-nation
Saturday, January 8, 2011
“Do not lie to one another, since you have put off the old and have put on the new, renewed in knowledge according to the likeness of him who created you. There is neither Greek nor Jew, barbarian, slave nor free, but Christ who is all and in all. Therefore, put on his tender mercies, kindness, humility, meekness, patience; bearing with one another, and forgiving one another. As Christ has forgiven you, so this also you must do.” Col 9:9-13
Friday, January 7, 2011
Why Massive Inflation around the Globe?
From National Review:
It seems to me entirely plausible that what we are seeing is a giant, global vote of no confidence in the economic policies of the world’s major economies: Europe and the United States, sure, but China, too. I used to say that you could judge how seriously a man took his beliefs about the future by how much of his own money he was willing to bet on a given proposition. But there are things that people take even more seriously than money: things with real value, like food and fuel. Inflation happens when the money supply is increased, regardless of whether it shows up in the Consumer Price Index. CPI jumps are not inflation, they are a reaction to inflation. But don’t tell me that at a time when the market is putting high or record prices on everything of inherent value that everything is hunky-dory on the inflation front. When one country devalues its currency in a last-ditch effort to stave off crisis, it’s a banana republic. When the United States, Europe, Japan, and China do it in a coordinated fashion, we’re all part of the Banana Federation of Greater Bananastan.
http://www.nationalreview.com/exchequer/256396/massive-inflation-right-under-our-noses
It seems to me entirely plausible that what we are seeing is a giant, global vote of no confidence in the economic policies of the world’s major economies: Europe and the United States, sure, but China, too. I used to say that you could judge how seriously a man took his beliefs about the future by how much of his own money he was willing to bet on a given proposition. But there are things that people take even more seriously than money: things with real value, like food and fuel. Inflation happens when the money supply is increased, regardless of whether it shows up in the Consumer Price Index. CPI jumps are not inflation, they are a reaction to inflation. But don’t tell me that at a time when the market is putting high or record prices on everything of inherent value that everything is hunky-dory on the inflation front. When one country devalues its currency in a last-ditch effort to stave off crisis, it’s a banana republic. When the United States, Europe, Japan, and China do it in a coordinated fashion, we’re all part of the Banana Federation of Greater Bananastan.
http://www.nationalreview.com/exchequer/256396/massive-inflation-right-under-our-noses
Wednesday, January 5, 2011
Korea Weighing Anti-Inflation Measures
Many parts of the world including Korea are going through the process of stealth inflation. We understand what has caused this.
According to Yonhap News, “Korea’s consumer prices rise 2.9 percent overall in 2010, 3.5 percent in December.”
From Yonhap News:
South Korea will redouble efforts to keep prices in check in an effort to prevent inflationary pressure from building up and help the livelihood of low-income and ordinary people, officials said Wednesday.
Freezes on college tuition and other public service fees are among measures being discussed as part of the government drive to stabilize prices, according to the officials.
http://english.yonhapnews.co.kr/business/2011/01/05/0502000000AEN20110105004600320.HTML
According to Yonhap News, “Korea’s consumer prices rise 2.9 percent overall in 2010, 3.5 percent in December.”
From Yonhap News:
South Korea will redouble efforts to keep prices in check in an effort to prevent inflationary pressure from building up and help the livelihood of low-income and ordinary people, officials said Wednesday.
Freezes on college tuition and other public service fees are among measures being discussed as part of the government drive to stabilize prices, according to the officials.
http://english.yonhapnews.co.kr/business/2011/01/05/0502000000AEN20110105004600320.HTML
Korea’s National Debt Increasing Under the International Finance Statistics
Korea’s national debt will increase by more than 100 trillion Won under the international finance statistics standard that will be adopted in 2011.
The U.S. Job Losses in One Picture
The following chart posted on Jesses’Café American shows that the U.S. is undergoing a structural change in its labor market.
http://jessescrossroadscafe.blogspot.com/2011/01/us-economic-recovery-in-one-picture.html
http://jessescrossroadscafe.blogspot.com/2011/01/us-economic-recovery-in-one-picture.html
Monday, January 3, 2011
Who Is the Worse Currency Manipulator?
The U.S. keeps bashing China for manipulating their currency. And yet, who is the worse currency manipulator?
The U.S. lowered the value of its currency by 12.5% from March of 2009 to August of 2009. Its value is still waning.
G. Edward Griffin argues in his book titled “the Creature of Jekyll Island” that the U.S. Fed wants the weakest USD possible because the U.S. can’t pay its debt in present dollars.
The Chinese have raised their value of its currency 25% over the last five years. Yet Krugman and Bernake contend that the Yuan is undervalued compared to dollar.
As I pointed out on numerous occasions, China knows what has happened to Japan after the Plaza Accord. They don’t seem to let that happen to China.
The U.S. also continues to be critical of China for trade imbalance. Why does the U.S. have a trade imbalance with China to begin with. Mainly because the U.S. manufacturing firms have moved their operations to China. The U.S. firms have been given tax benefits for moving their operations out of the U.S. China is only one of many exporters to the U.S., although they are the largest. The U.S. has hollowed out its industrial base by policy choice.
The U.S. policy failure has mattered.
The U.S. lowered the value of its currency by 12.5% from March of 2009 to August of 2009. Its value is still waning.
G. Edward Griffin argues in his book titled “the Creature of Jekyll Island” that the U.S. Fed wants the weakest USD possible because the U.S. can’t pay its debt in present dollars.
The Chinese have raised their value of its currency 25% over the last five years. Yet Krugman and Bernake contend that the Yuan is undervalued compared to dollar.
As I pointed out on numerous occasions, China knows what has happened to Japan after the Plaza Accord. They don’t seem to let that happen to China.
The U.S. also continues to be critical of China for trade imbalance. Why does the U.S. have a trade imbalance with China to begin with. Mainly because the U.S. manufacturing firms have moved their operations to China. The U.S. firms have been given tax benefits for moving their operations out of the U.S. China is only one of many exporters to the U.S., although they are the largest. The U.S. has hollowed out its industrial base by policy choice.
The U.S. policy failure has mattered.
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