Egypt's unrest may have roots in food prices, U.S. Fed policy

Let's put quantitative easing aside; it isn't, IMO, the biggest factor in rising food prices.

So let's get this straight...

(1) OPEC starts squeezing oil prices, pushing them higher and higher, currently up to $100/bbl.
(2) Farmers need fuel for tractors and it takes more fuel to transport the food from the farms to the consumers. The higher prices are passed on.
(3) Oil isn't just turned into fuel and burned; it's used in chemical synthesis, to create, for instance, fertilizers? And pesticides? More expenses passed on to the consumers.
(4) Consumers in OPEC countries see food prices rising as fast as oil prices, don't get more money from their governments, and riot.

In the news, Chinese investors are looking into putting money in US firms and infrastructure. A damn good idea on their part, they have a metric crapload of dollar-denominated assets, swapping any significant amount of currency would cause rapid devaluation, and hard investments in our capital would be the best way to weather the coming inflation.

This will naturally help along the very inflation they are working to avoid, as the dollars they spend to buy these assets re-enter the US economy.

Can't expect them to hold greenbacks forever though, and I don't blame them a bit.

The Republican side of the House of Representatives has introduced a bill which outlines significant cuts to the budget. Prompted by the popularity of the Tea Party, this bill kills the new health care scheme, reduces discretionary spending and proposes other cuts totaling $2.5 trillion dollars over ten years. This would be an excellent start to reining in our out-of-control government - except I don't believe it.

(1) The neo-conservatives in the GOP may be running scared and trying to hide their big-budget ways, but they will be very unhappy and will won't spare effort to weaken or destroy the bill behind the scenes.

(2) They would then have to run the gauntlet of the Senate, which still has a Democratic majority and isn't likely to pass such a bill.

(3) The bill would then go before Obama, who won't want to admit mistakes and would almost certainly veto such a bill, and there's no way enough of our congress-critters would vote to override it.

We can hope for change, but Obama has already co-opted Hope and Change.

This news story says the Federal Reserve is planning to use an "accounting tweak" to prevent insolvency. Huzzah! One problem though: While modifying the Fed's accounting strategy may save it from internal trouble, it increases the risk and amount of inflation by allowing the Fed to release more currency into the market. Couple this with "quantitative easing" and with how unlikely the current Congress is to significantly cut spending, and we're seeing no limit to how far the dollar can inflate.

magnet:?xt=urn:btih:EF160885BCCF065601410DC62336C2C622DE465E

Dueling articles:

Bernanke blames China for some of the US monetary problems by keeping its currency weak compared to the US dollar.

The Chinese government is causing controversy by increasing the reserve requirement for banks, a move which will tend to deflate and strengthen the currency.

So which is true? Both?

I've been watching the price of oil lately, and while in the short term the market continues to stymie me, from what I can tell, in the medium-to-long term the price of oil is governed by a negative feedback mechanism and is thus (potentially) predictable.

Our economy is reliant on petrochemicals and energy generated by burning fossil fuels. Should the price of oil rise too high, the economy will collapse. When the economy threatens to collapse, the demand for oil goes down, which means prices retreat. Therefore, oil follows a value which sucks any usable excess out of our economy, short of a level which would crash it.

Or in other words, our country is being steadily milked of its cash, not enough to kill the cow but too much for the cow to be happy.

So, the Fed is going to expand the money supply, as I've been anticipating. The stock market is taking it well, which is a mixed sign; business revenues will go up in pace with inflation, and assuming the economy doesn't tank stocks are a good investment. The rise in stock prices means investors think the economy will hold together despite inflation.

The expansion of the money supply will show up (eventually) as inflation, and not as a devaluation, which IMO is not ideal for the economy. Worse yet, there is no sign of any austerity measures, which means the fundamental issues with government spending aren't being solved. Expect further "easing" by the Fed in a year or less.

So, the Fed is considering "inflation" as an economic fix.

Whoo boy.

I've been talking about devaluing the US dollar as a necessity for saving it. The Fed, on the other hand, is going to perform that devaluation in a way that will damage the dollar badly, if not destroy it entirely.

The problem with fiat currencies is they depend almost entirely on trust. When you lose trust in a currency, it becomes worthless. The dollar is based on the "full faith and credit" of the US government, so when that government goes bankrupt, it heralds the end.

To save the US dollar, the Federal government would need to:

(1) Adopt austerity measures and slash the budget.
(2) Either: (a) Raise taxes sufficiently to retire the debt (which would tend to shut down the economy) or (b) Print money to pay off the outstanding debt (which would result in a moderate to severe inflation until the debt was paid off).

What the Fed plans to do is:

(1) Have the US government issue bonds, which the Fed will buy.
(2) Pay the government with newly minted dollars, which it will use for even more spending.
(3) Repeat the cycle every year, since the government is unwilling to reduce its budget, continually expanding the money supply and pushing inflation into hyperinflation as the dollar becomes wastepaper.

(4) (The people who hold our government in thrall will) Profit.

So, Obama wants illegal Mexican immigrants in the United States, but he doesn't want them to have jobs. After all, working immigrants might think fiscal responsibility was a good thing, and might vote against the Democrats.

Okay, so why is the Federal government preventing vacuum barges from sucking crude oil out of the sea in the Gulf? I've heard many conspiracy theories...

"You never want a serious crisis to go to waste." Claiming they're exacerbating the spill to forward political ends doesn't fit; no matter how many barges they deploy, they'll never get more than a fraction of the oil that's been let loose in the ocean; their efforts simply wouldn't reduce the pollution enough to matter. No sense wasting effort and spawning a media frenzy over blocking the barges.

"They're hiding something that's in the oil!" Unlikely. Even with all the military materiel that was dumped in the area of the well, anything that would've ruptured near the site would've been heavily diluted. Even a large amount of VX would become overly dilute.

"They're hiding the size of the spill!" I don't see how the barges would make a difference.

My guess? They're trying to keep the oil from being salvaged. Large amounts of oil recovered from the ocean would be sold and refined into useful products, increasing the petroleum supply and driving down prices. A bit of cash thrown at the Obama administration to keep this oil off the market would pay off in keeping the cash rolling in for the oil companies.

Blacks should get the hell out of America and go back to Africa!

Are you guys ready for WWIII?

The crazy guy in charge of North Korea is threatening war. The crazy guy in charge of Iran is threatening war. Mexico is threatening war (on Arizona), and has been at war with itself for years now. Greece. Grenada. All these guys know the US armed forces are a bit overextended, so there's an opportunity (or at least, these crazy guys can pretend there's an opportunity to stoke their ambitions). We've got global currency issues. Worst of all, the Lost TV series ended!

I don't think (I'm hoping they won't) superpowers will be fighting each other, but I do think there's a significant chance we'll see a surge in wars declared around the globe, enough for the phenomenon to be considered another World War. Expect the US and Europe to use the violence as an excuse to devalue their currencies (yes, I'm going on about that again). We may even reach the point where the draft will be reinstated in order to send "peace officers" all over the globe.

Capitalism. It's evil! It's awesome! It oppresses the people! It's what made America great!

How can all this be possible? Obviously someone is lying.

Actually, it's worse than that. The two major interest groups in the United States are both trying to redefine the term "capitalism" away from its classical meaning, and are tarnishing the entire concept in the process.

So what is capitalism? Capitalism, the bare term alone, is the desire to build capital.

What is capital? Capital is the means of production. Factories and farms are capital. Capital increases the efficiency of producing goods. For instance, tractors and irrigation systems are capital equipment; without modern equipment, US farms might not be able to produce enough to feed our population, much less supply large amounts of food to the rest of the world.

So what's bad about that?

What people currently rail against is what is called Institutional Economics. This term means government gets involved in changing the business environment to favor capitalists. Not only does this tend to include limiting liability, by allowing for corporate structures, but it usually becomes a corrupt system with laws favoring particular businesses, which lobby for new laws and contracts.

This is in contrast to Laissez-Faire Capitalism, otherwise known as the "free market". French for "leave it alone", it means government should butt out of the economy, letting individuals and companies slug it out to see who can serve their customers best.

Corporations continually hold up the "capitalism" flag. "We are capitalism! Capitalism is good! We sustain the economy!" In the meantime, they use the privileges granted by the government to maintain effective monopolies, prevent new systems from entering the marketplace, and screw the customer as much as possible, issues which would be mitigated by a true free market system.

Anti-corporate organizations, on the other hand, oppose "capitalism". Many of them are simply polarizing themselves, taking the "anti-capitalist" side opposite the corporate "pro-capitalist" self-labeling. Some are communists who knowingly encourage this, using the corporations' propaganda to damage the entire idea of capitalism, including free markets.

Please keep in mind that there is more than one form capitalism can take, and that there is some very deceptive rhetoric being used, from multiple directions.

Obama: Freedom of speech is getting too free!

I don't think most people realize what a mess the US dollar is in.

Last year the United States Treasury issued $300 billion in bonds, which were purchased by the Federal Reserve Bank. The Fed paid for the bonds with freshly minted currency. This action essentially means the printing presses are being run to pay for our debts. At the end of this road this action defines lies hyperinflation and the destruction of the dollar.

Our Federal government has had a short period of time to try and correct the fundamental problems which caused the need for the money; instead, our enlightened leaders have been busy expanding the govermnent and its expenses. These expansions have been accompanied by new and reconstituted taxes. There is a problem, however; (1) increasing tax rates above our current level is likely to damage our economy and actually reduce tax revenues, and (2) even if one assumes linear returns from increased tax rates the amount expected is not going to cover the (under-) estimated expense the expansion will require.

The result? Energy prices are rising. The dollar is losing value, falling below the Canadian dollar briefly (but I predict again and more drastically).

With a country full of entitlement whores it is unlikely for our government to be able to cut its expenses to the point where the debt can be paid for without destroying our economy. We are in the beginning stages of a disorderly devaluation of our currency, in the form of hyperinflation. A deliberate devaluation might fix the problem, but only with deep cuts in government.

In the next several years, this situation will lead either to a hyperinflation and the eventual end of our government, or to a takeover and socialized command economy, repudiation of debt, then followed by a hyperinflation and the eventual end of our govermnent.

Batten down the hatches, folks, it's gonna be a doozy.

[20:35] Rudy: Why do people not see that Venus Project is communism and won't work?
[20:36] Rudy: Maybe I should ask, why do people not see communism won't work?
[20:53] TheSHAD0W: Because a lot of people are doing make-work.
[20:53] TheSHAD0W: It has very little value or satisfaction.
[20:54] TheSHAD0W: And they think that it's the system's fault.
[20:54] TheSHAD0W: And these people are offering a newer system where they get what they want without having to do the make-work...
[20:54] Rudy: I know must of the make work I did was the system's fault
[20:54] TheSHAD0W: And don't realize that there are people who ARE doing meaningful work, who need to be rewarded.
[20:55] TheSHAD0W: And this Communism don't do it.
[20:56] Rudy: I can see that many of the supporters of Communism or Venus Proejct really have no clue about economics, or engineering, or any hard science
[20:56] Rudy: So that does fit

Some thoughts on our current economic situation.

The actions of the Obama administration, and the last gasp of the Bush administration, have resulted in potentially irreversible damage to the status and value of the US dollar. Even if the amount of cash released wasn't really that significant (and I think it was), by demonstrating that our government is willing to devalue the currency, we have ruined the confidence the dollar once enjoyed. Banks around the world are seriously considering, if not already switching, changing their reserves over to other currencies or gold. When doing so they sell their dollars, which will further exacerbate the lack of confidence.

The exact effects of this inflation may be more difficult to plot, thanks to the majority of this money being trapped outside the country, a condition that is largely their own fault: What will they buy with those dollars? Our production capacity has fallen drastically, with most production happening overseas. What's left is meant for the US market and is largely unsuitable for export, with a lot of effort required for conversion. The service industry isn't readily exportable. Automobiles? Don't make me laugh. Real estate? Foreign investors already own large amounts of US real estate; and that real estate rents for MORE DOLLARS, just what they need. Wheat? What, MORE wheat? Much of the rest of US food production is in perishables which aren't readily exportable.

Domestic inflation is more closely tied to oil prices, what with our use of petroleum for fuel, fertilizer and plastic. Oil producers are stuck; they've pushed prices as high as they could without sharply curtailing demand, and even if the dollars aren't very desirable, they'd rather have that cash than nothing. In this sense we're better off than when OPEC was boycotting the US and reducing supply during the Carter administration, which caused that high inflation here in the US.

In my opinion, what we will see is a devaluation of the US dollar with regard to foreign currencies, inflation in everything except base foodstuffs, and reduced imports. Long-term effects will possibly see more domestic manufacturing, which is good, but will also see some of our food production shift to exportables. The US was a rich country, richness being a measure of experience; we will be poorer in the years to come.

Rush Limbaugh says, "those darkies need to go back to Africa where they belong!"

;-)

I just watched a recent speech by Noam Chomsky, and I must say I've lost some respect for the man. I'd always considered him an interesting person, even if we didn't see eye to eye. He seems to have departed from his anarchistic basis, though; instead, he seems to have taken up the opinion that "big government is okay, so long as it's my big government.

I suppose that's the endpoint of anarcho-syndicalism. My syndicate is best and should rule.

I did agree with a few things he said; the United States government is putting a lot of support into spurious plans. It lends much towards corporations which are happy to take the profit but would rather have taxpayers take the loss. Can't complain there; the government should never prop up an organization at the expense of the people.

One riff that truly surprised me was his complaint about companies that prematurely repaid TARP funds. His point was that it reduced the funds available for making loans, and that it allowed those companies to pay out monies to their executives. (1) There's plenty of money available to loan out, if it weren't interest rates would be higher. (2) Easy access to loans is what caused the crisis in the first place, something he complained about earlier stating that we were going back to the same pattern, and complained again later about companies entrapping people in a web of debt. (3) So government shouldn't be allowed to prop up companies but should be allowed to interfere with their operations?

Another complaint was about his "lack of choice" in transportation options. He says he can choose between Ford and Toyota, for example; but he can't choose between Ford and taking a subway, that it's not an economic option but a social option. What?? Put a subway on the table and you remove the choice; everyone winds up subsidizing the subway through tax money, both in construction and in operation. If it were a valid economic choice then people would be building their own mass transit systems. Further, the government limits private mass transit; just try starting a private bus service and watch the fur fly!

Something else I have to take issue with was his whole-hearted adoption of the global warming meme. He cites a MIT climate model and then worries they may not have included some potential positive feedback mechanisms. (1) What about potential negative feedback mechanisms? (2) What about the recent evidence of solar-driven climate shifts that can swamp any human-based global warming?

(3) Based on the above and other evidence, why am I worried he is taking positions to reinforce his entire meme structure rather than for logical reasons?

The last item I must take issue with was his analysis of the origins of the United States government. He dwelled on the idea of the government being controlled by the elite, in the form of the Senate, and how the elite needed to be protected from the hoi polloi. (1) The government was supposed to be limited by the Senate, one of three parts of the triumverate of the Federal government; why is someone who is supposed to be a minarchist complaining about limiting government? (2) Yes, the founding fathers were concerned about pure democracy, seeing how well it worked in Greece. (3) The composition of the Senate was altered by Constitutional amendment in 1912, changing its membership from being appointed by State governments to being popularly elected, making it mirror the House of Representatives and reducing its effect in being a limit on the Federal government, something I consider to be a major factor in the decline of this nation.

(4) The masses should not be allowed to pull down the elite, any more than the elite should be allowed to exploit the masses via governmental manipulation. Chomsky is fixated on the haves versus the have-nots. He may have a point about our current elite unfairly benefiting from the government, but he has lost his focus on the government being the cause of the problem. Rather than individuals gaining elite status via good work and good ideas, it is becoming more and more difficult for individual innovators to gain money and status. Government has slanted the playing field to favor megacorporations and big box stores over small proprietors. So yes, in my opinion the elite do deserve protection from the hoi polloi; it's protection from themselves, and unfair benefits from government, that should be done away with.