Inflation in prices is becoming
widespread, and Adrian Ash of bullionvault.com,
writing at WhiskeyandGunpowder.com, notes that,
"When unlimited money supply growth crashes into
rising demand for limited-supply essentials - such
as natural gas, copper, soybeans, and cocoa - the
result is sure to be price inflation as violent as
the monetary inflation that preceded it."
The use of the word "violent" is highly
instructive, as the Guardian.co.uk reports of,
"Food riots in West Bengal and
Mexico. Empty shelves in
Caracas. Warnings of hunger in Jamaica, Nepal, the
Philippines and sub-Saharan Africa. Soaring prices
for basic foods are beginning to lead to political
instability, with governments being forced to step
in to artificially control the cost of bread,
maize, rice and dairy products."
Indeed,
horrifying inflation in prices is everywhere, as
inflation in prices is caused by central bank
inflation in the money supply, and central bank
inflation in money supplies is everywhere, too,
with the result that "Record world prices for most
staple foods have led to 18% food price inflation
in China, 13% in Indonesia and Pakistan, and 10%
or more in Latin America, Russia and India,
according to the UN Food and Agricultural
Organisation (FAO). Wheat has doubled in price,
maize is nearly 50% higher than a year ago and
rice is 20% more expensive, says the UN. Next week
the FAO is expected to say that global food
reserves are at their lowest in 25 years and that
prices will remain high for years."
For
years? Indeed, because "fears for even tighter
conditions revolve around deepening climate
change, which generates worsening floods and
droughts, diminishing food supplies. If the price
of oil rises further it will make fertilisers and
transport more expensive, and at the same time
make it more profitable to grow biofuel crops."
And from Breitbart.com we surmise that,
like America, a war would be just the thing to
distract their unhappy proletariat masses, as they
report that "Iran's new central bank governor has
warned the government of President Mahmud
Ahmadinejad over money supply growth, urging
measures to prevent a further rise in inflation.
At the end of May 2007, the central bank said
money supply had grown by a colossal year-on-year
rate of 39.4%. Iran's year-on-year inflation is
currently 15.8%, according to the central bank."
And even increasing production is not much
of an option, either, as "Supply will be further
restricted if fish stocks continue to decline due
to overfishing, and if soils become exhausted and
erosion decreases the arable area."
The
inflation rate in Spain jumped to 3.6%, and
Bloomberg.com says, "Singapore's consumer prices
rose 2.7% from a year earlier", "Australia's core
inflation rate advanced 3.1% from a year earlier",
and that "French annual inflation accelerated to
1.6% last month".
The November 2 issue of
Business Week magazine says that the World Food
Price Index has risen 19.8% between June 2006 and
September 2007, and at Economist.com we read "The
world's most vulnerable who spend 60% of their
income on food have been priced out of the food
market," which is the alarming warning from
Josette Sheeran, head of the United Nations' World
Food Program (WFP).
But as far as
"surprising rates of inflation" go, the Economist
magazine says that in Kazakhstan, "Bread prices
have gone up by 30%. And the price of sugar, flour
and sunflower oil doubled or even tripled within
days recently."
And for other inflation
news, orange juice is up 19% in the last 12
months, and corn up15%. And corn, I hear, is
actually 40% more than it was four years ago!
Wheat is up a whopping, eye-popping, traffic
stopping, cow-flop plopping 61.7% since last year!
Hell, the price of eggs is up a brain-scrambling
33.7% in the past 12 months! Milk is up 21% over
the same period! How in the hell can there be no
inflation?
And it is not just food, as
Agora Publishing's 5 Minute Forecast reported that
the US Energy Department revealed that "The
average retail price of electricity rose 9% last
year - the biggest leap in 25 years. According to
a report released yesterday, electricity prices
rose the fastest rate since 1981, thanks largely
to the lifting of retail price caps."
To
make it worse, "This winter, the report estimates
a 4% hike in electricity costs."
John
Brown in his Financial Intelligence column at
Newsmax.com understates the problem and says that
inflation statistics are somewhat misleading, as
"Just two major components of the consumer price
index (CPI), housing and autos, comprise a massive
58% of the inflation index and are falling in
effective, 'street' price. Meanwhile, the prices
of regular household items - things one really
consumes every day such as food (15%) and heating
oil (0.3%) - are rising rapidly in price, yet they
comprise a very small part of the index."
Well, rising prices for commodities is not
news to everybody, as John Fearon, director of
Oceanic in Sydney, says, "The thirst for some
exposure to commodities markets is growing all the
time."
And sure enough, Reuters reports
that "An army of structured credit experts is
studying products such as collateralized commodity
obligations, or CCOs, tied to the performance of a
portfolio of underlying commodities, such as
precious metals or energy prices."
So what
in the hell is a CCO? It is explained that "The
issuer sells protection on the underlying
commodity portfolio to the swap counterparty under
what is known as a 'trigger swap agreement'. To
fund its obligations under the swap, the issuer
sells notes in the amount of the protection sold,
according to Fitch [Ratings]. Proceeds from the
notes then serve as collateral for the issuer's
exposure under the swap until it matures. At
maturity, the issuer liquidates the remaining
asset and returns the proceeds to noteholders."
Hahahaha!
Let me make sure I got this
right: I create and sell some debt, and I use the
money that I get from these idiot noteholders as
collateral for the notes? Hahaha!
Look at
me! I am suddenly in the trigger swap business! I
get to charge you a fee to float a dollar's worth
of bonds backed up by a dollar's worth of your own
money? Hahaha! And there are investors who will
voluntarily do this? Hahahaha! What a racket!
The article says that stupid people with
too much money have not learned anything from the
subprime mortgage mess, and "most likely the bulk
of investors about to start buying CCOs have no
idea quite what these products are, either. All
they'll see, instead, is a steady stream of
potential income. Provided, of course, that the
CCOs pay out at maturity." Hahaha! Just like
subprime!
But like all scams like this, it
works like a charm in the early stages, and "In
other words, bond managers and fixed-income
traders whacked by the collapse of mortgage-backed
debt can now put commodities into their portfolios
- and just in time, too, for the runaway inflation
about to hit thanks to monetary oversupply and
heavily geared financial buying."
We never
learn. I sigh. But we can make a lot of money on
it, as this commodities bubble is in the early
stages yet. But everybody else pays a huge,
society-destroying price for such inflation. I
sigh again. I weep. Ugh.
Mogambo sez:
Those who sought gold and silver to protect
themselves are also waxing rich as their prices
zoom, zoom, zoom, which is caused by, almost
literally, everyone in the whole freaking world
trying to get away from the inflationary idiocies
of their own governments creating so much
excessive money and credit.
And petroleum,
our oily chum? Up, too, just like you'd expect.
And next week, and next month, and next
year when they are all up even more, it will be
just like you'd expect, too, and then you'll be
much wealthier, just like you'd expect, and then I
will be calling, calling, calling you, day and
night, asking to borrow money from you, just like
you'd expect, too, but you didn't, which shows you
don't think things all the way through, to your
dismay.
But you will be wealthier, thanks
to owning gold, silver and oil, which will take
some of the sting out of it, and with all your new
wealth you can pay to have my calls blocked, which
will take the rest of the sting away, too.
Ahhh! Is there no end to the benefits of
real assets?
Richard Daughty is
general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
Republished with permission from The Daily Reckoning.
Copyright 2007, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
