Behind Libya: rising food prices and US debt(Read article summary)
Behind the popular discontent in the Arab world is food. And behind soaring food prices is Ben Bernanke.
Cereal Warsâ€¦and Zombie Warsâ€¦
Seems like every time we pick up the paper another dictator is toppling over. Where does it lead, we wonder? What would a world be like without dictators? Without them, who will the CIA and the State Department give our money to?
Waitâ€¦ Is this guy a friend or an enemy? We canâ€™t remember. Wasnâ€™t he a bad guy a few years ago? But recently weâ€™ve heard that he is a good guy. Heâ€™s helped with the War on Terror. And he sells oil.
Friend or foe, we donâ€™t knowâ€¦but whatever he is, heâ€™s beginning to look past tense. As of this morning, reports say heâ€™s lost control of Libyaâ€™s second largest city. His troops are firing on protesters in the capital, where he and his loyal guards are holed up in a few government buildings.
His son vows to fight back. He says there will be â€śrivers of bloodâ€ť before he gives up.
That â€śrivers of bloodâ€ť image was used by Enoch Powell in Britain fifty years ago. It came from Virgilâ€™s Aeneid, in which a character foresees â€śwars, terrible wars, and the Tiber foaming with much blood.â€ť
Powell was referring to the effects of immigration into Britain from Africa and elsewhere. He thought he saw race wars and power struggles coming as a result.
But the younger Gaddafi uses the language as a threat, not a prophecy.
Still, it didnâ€™t do Powell much good. Maybe Gaddafi will have better luck with it. Most likely, heâ€™ll high tail it out of the country before the blood is his own. That will bring to three the number of regime changes in the last few weeks. Which leads us to ask: whatâ€™s up?
The answer comes from our old friend, Jim Davidson. He pins the revolutions on Ben Bernanke. Behind the popular discontent is neither the desire for liberty nor the appeal of elections. Itâ€™s food. And behind soaring food prices is Ben Bernanke.
The Arab world is a model Malthusian disaster, says Davidson. Populations have ballooned. Food production has not. Which makes Arab countries the biggest importers of cereals in the world. And when the price of food goes up, the masses rise up too.
From Jimâ€™s latest newsletter, Strategic Investment:
Food prices hit an all-time high in January. According to the UNâ€™s Food and Agricultural Organization (FAO) â€śthe FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4 percent from December 2010 and the highest in both real and nominal termsâ€ť since records began. Note that prices have now exceeded the previously record levels of 2008 that sparked food riots in more than 30 countries. â€śFamine-styleâ€ť prices for food and energy that prevailed early in 2008 may also have helped precipitate the credit crisis that Federal Reserve Chairman Ben Bernanke described in closed-door testimony â€śas the worst in financial history, even exceeding the Great Depression.â€ť
This time around, the turmoil surrounding commodity inflation has taken center stage with more serious riots and even revolutions across the globe. Popular discontent is not just confined to â€śbasket caseâ€ť countries like Haiti and Bangladesh as in 2008. High food prices have roiled Arab kleptocracies with young populations and US backed dictators such as Tunisia, Egypt, Bahrain and Yemen. Even dynamic economies have been affected. Indeed, all of the BRIC countries, except Brazil, have witnessed food rioting.
Well, how do you like that, Dear Reader? All those billions of dollars spent propping up dictators â€“ $70 billion was the cost of supporting Hosni Mubarak in Egypt alone â€“ and then the Fed comes along and knocks them down.
The Fed lowers the cost of money so speculators can borrow below the rate of inflation. And then it prints up trillions more â€“ just to top up the worldsâ€™ money supply.
Is it any wonder food prices rise? Imagine youâ€™re a farmerâ€¦or a speculator. You can sell food. Or you can hold it in storage. You know the food is valuable. You know the world has more and more mouths to feed everyday. You know food production is limited. And you know Ben Bernanke can print up an unlimited number of dollars. What do you do?
Do you sell immediately? Or drag your feetâ€¦holding onto your valuable grain as the price hits new highs?
While Mr. Bernanke modestly declines the credit for de-stabilizing much of the world, close analysis confirms that he played an informing role. His QE2 program of counterfeiting trillions out of thin air has helped ignite a raging bull market in raw materials with food and commodities â€“ up 28% in the past six months. The fact that the US dollar has heretofore been the worldâ€™s reserve currency means that almost all commodity prices are denominated in dollars. As a matter of simple math, when the dollar goes down, the prices of commodities tend to go up.
Today, Libya. Tomorrowâ€¦Yemen? Or Saudi Arabia.
In North Africa, Cereal Revolutionsâ€¦
In North America, Zombie Warsâ€¦
Itâ€™s â€śnot about the budget. Itâ€™s about power.â€ť
He thinks it is a battle between the rich and powerful, whom he calls the â€śoligarchy,â€ť and the decent lumpenproletariat on the other. Wisconsinâ€™s governor is trying to bust the union, says Krugman, so that the elite can ride roughshod over poor government workers, cut their pay, and reduce their benefits (thereby downsizing the stateâ€™s budget deficit).
Itâ€™s not about money, says the New York Times columnist. Heâ€™s wrong, as usual. The Zombie Wars are always about money. There is less money available and more zombies who want it.
In the present case, rather than hire honest people to work at market ratesâ€¦Krugman wants the state to be forced to deal with a privileged union. Union zombies should bargain with government zombies, he says. Together, in cooperation, not in conflict, they should figure out how to rip off the taxpayer.
Stay tunedâ€¦the Zombie Wars are just beginning.
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