Posts filed under “Currency”

Is the Fed Causing a Global Food Crisis?

Harpers_cover_3
The Federal Reserve’s irresponsible bailout of Wall Street’s most reckless players is having very significant repercussions, both in the US and abroad.

It starts with the US dollar, now off 40% from its highs earlier this decade. This has had a huge impact on commodity prices, and is the prime reason so many countries are considering dropping their peg to the US Dollar.

Overseas, price spikes in basic foodstuffs has led to riots and political unrest. Considering that in many regions of the world most of a family’s income goes to basic survival purchases such as food shelter and energy, it doesn’t take much in the way of price rises to lead to significant turmoil. According to Bloomberg, the average household in India spent 32% of its income on food last year. Compare that with 6% in the U.S., and 43% in Indonesia, or 36% for the Philippines.

Hence, the 50% rise in the price of rice in recent months is leading to increasing turmoil.

In the US, the results aren’t nearly so dire. With Sam’s Club and Costco limiting rice purchases to four 20 pound bags per visit, starvation isn’t an issue. But the Government’s credibility is, as more and more folks come to the realization that the official statistics are nonsense. And, the absurd Fed focus on the core rate of inflation has people shaking their head in wonder over how out of touch our Central bankers are. Consider this recent San Diego Union Tribune column:

Bizinflate430"For the Federal Reserve, the core inflation rate amounts to a green light to continue its policy of lowering interest rates in order to keep the economy from falling into a deep recession. A higher inflation rate could conceivably make the central bank freeze or raise interest rates.

But many economists say the core rate does not show how inflation is affecting the typical consumer. Because salary raises for most people are not keeping pace with the rising cost of living, people are using a greater percentage of their wages to buy a smaller amount of goods."

That’s typical of the sort of coverage that is gaining traction — and it only took $120 Oil and $5 milk to get some attention focused on the issue.

We’ve been beating the drum on this for years now. The cat is out of
the bag, and we will have to see if any of the candidates have the
stones to step up and address the issue.

Gr2008041800213Digging deeper into this situation is the cover story of the May 2008 edition of Harpers is titled "Why the Economy is Worse than We know" (pdf) (print).  It contains a review of the myriad ways the government has corrupted the way official statistics are reported for jobs, inflation, GDP, etc. (I have a brief mention in it).

The article is by Kevin Phillips, the author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.

Meanwhile, more and more people are recognizing the reality beneath the
spin. The President and members of congress seem genuinely perplexed at
the public’s negativity. (Public’s View of Economy Takes Fast Turn Downward).
They keep blaming the Iraq war for this, despite the fact media
coverage has dropped significantly (and completely disappeared from Fox
News).   

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The Fed meets again next week, and the expectation is for "only" a quarter point rate cut. That is how distorted our perspectives have become — parts of the world is having food riots, and merely taking rates down another 25 bps is somehow perceived as a moderate action.

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Previously:
Inflation ex-inflation
http://tinyurl.com/4qaek6

Agflation !
http://bigpicture.typepad.com/comments/2007/06/agflation.html

Sources:
Asia Risks `Silent Famine’ as Food Soars, WFP Warns

Jason Gale and Paul Gordon
Bloomberg, April 21 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axuenSYeMBJU

The Fed’s inflation gauge isn’t realistic, critics say   
Dean Calbreath
San Diego UNION-TRIBUNE, April 17, 2008  http://www.signonsandiego.com/news/business/20080417-9999-1n17inflate.html

Public’s View of Economy Takes Fast Turn Downward
Jennifer Agiesta and Jon Cohen
Washington Post, Friday, April 18, 2008; Page A07
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/17/AR2008041703769.html

Related:
Era of cheap food ends as prices surge
Steve Hawkes, Greg Hurst and Valerie Elliott   
Times Online, April 23, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article3799327.ece

Moms’ new battle: The food price bulge
Parija B. Kavilanz,
CNNMoney.com, April 21, 2008: 10:33 AM EDT
http://money.cnn.com/2008/04/21/news/economy/moms_foodshopping/index.htm

Category: Currency, Economy, Federal Reserve, Inflation, Politics, Psychology

U.S. Dollar Euro Position

Category: Currency, Trading

O’Neill: Strong Dollar Policy Is ‘Vacuous Notion’

Former U.S. Treasury Secretary Paul O’Neill discusses the U.S. economy and global financial markets, the performance of the U.S. dollar versus other currencies, and the Federal Reserve’s response to the mortgage and credit crisis.

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click for crappy windows media video
Oneill_41608

Former Treasury Secretary Paul O’Neill"

The "strong dollar” policy that he and every other Treasury chief since 1995 endorsed is "a vacuous notion.”

"It implies in it that somehow we have the ability to manage the relationship between the value of the U.S. dollar and other currencies around the world,” O’Neill, now a special adviser to Blackstone Group LP, today said in an interview with Bloomberg Television.

O’Neill roiled currency markets when he was in office from 2001 to 2002, at one point with comments in an interview with a German newspaper that the U.S. pursued a policy of a strong economy, rather than currency. The current Treasury Secretary, Henry Paulson, has repeatedly stated that he is a "very strong” supporter of the "strong dollar” policy.

"When I was Secretary of the Treasury I was not supposed to say anything but ‘strong dollar, strong dollar,”’ O’Neill said today. "I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.”

The U.S. currency today fell to a record low against the euro, and has declined 15 percent against its European counterpart in the past year.

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Sources:
O’Neill Says U.S. `Strong Dollar’ Policy Is `Vacuous Notion’
Rhonda Schaffler and John Brinsley
Bloomberg, April 16 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ackYQhodd4Nk

O’Neill Says Strong Dollar Policy Is `Vacuous Notion’
Bloomberg, April 16 2008
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vwyrSX9M2QsQ.asf

Category: Currency, Economy, Video

Jobless vs. Unemployed

Category: Currency, Economy, Employment

Fantasy-based Economics

Category: Currency, Markets, Psychology, Taxes and Policy

Gold/Dollar Correlation

Category: Commodities, Currency, Technical Analysis

Faber Says Bernanke Policy Will `Destroy’ U.S. Dollar

Category: Currency, Federal Reserve, Inflation

Saving the House!

Category: Currency, Real Estate

Oil = All Time (Inflation Adjusted!) High

Category: Commodities, Currency, Energy, Technical Analysis

Dollar Submerged

Category: Currency