The US and other western countries including Canada, have devalued and are intentionally devaluing their currencies in a vain attempt to remain competitive in the world market.
China is now buying up pecans, about a quarter the North American production, causing the price to shoot up by about 50%. The Globe and Mail reports:
China bought about 100 million pounds (45 million kg) of pecans in 2009. That was about one quarter of the total pecan crop in the U.S. and Mexico, the world’s largest producers. And it compares with less than 5 million pounds roughly five years ago. The strong demand has sent prices for some pecan varieties soaring to $6.50 (U.S.) a pound, from $4.25 in January, according to Mr. Zedan.
Imagine when China raises the value of yuan against the dollar. When that happens all commodities will shoot up in price as there will be suddenly a billion consumers with significantly increased buying power. Meanwhile, forget about those pecan and chocolate cookies we used to eat as kids. That will become a luxury item. Food is skyrocketing in price and the Federal Reserve calls this “deflation”.
What if we made nuts the bellweather of inflation? They are certainly a better indicator than the CPI.
A couple of days ago, Diane Francis of Canada’s National Post wrote a disgusting column in which she advocated the world-wide application of China’s one-child policy. She of course is completely ignorant of the consequences that this policy has had on the psychology of China. One such consequence is as follows:
One of my very best friends is Chinese. A young man studying engineering in a Canadian university, he has informed me that no girl would ever be interested in a poor man. Apparently, this notion is widespread amongst young men in China. Why? There are now many more young men in China than women, because if you are allowed only one child, you will abort a baby girl. This has led to an imbalance in the Chinese population. What this means is that girls can be extremely selective in whom they will marry. So when there is parity in the population, a girl would choose sometimes a poor person, because she would otherwise be left a spinster. But now, if every girl has two or three boys from which to choose, she will naturally pick one who is better off financially. The result is that poor young men have much less chance of finding a suitable partner.
Another reason that one-child favors the rich is that the poor depend on their children in their old age, not upon a retirement portfolio. Poor people with one child are in great danger of complete abandonment in old age because their one child may die or rebel against them, and they will be left destitute. But also, upon a single married couple falls the burden of four elderly parents (in 60s), and potentially eight elderly grandparents if they survive into their 80-100s. This is more than any couple can handle, unless they are wealthy. One child favors the rich.
A debate is waging between the deflationists and inflationists. It will come as no surprise to those who’ve read my previous posts on the subject that I fall into the latter camp. I have indicated numerous times that I’ve put my money where my mouth is. In January, I was so convinced that there would be inflation, that I eventually decided to implement a strategy of holding little cash but rather oil and gas and gold mining stocks. I’ve also shorted the US dollar. This strategy is paying off handsomely so far. Besides the inflationists have many decades of contemporary monetary history to back their point of view, and the knowledge that government deficits generally feed inflation. The current Obama deficit is profligate and never seen in the US before Obama. In Bloomberg, David Reilly asks whose face should go on the $1,000,000 bill, but never suggests Obama, apparently because he is afraid to be put on the President’s enemy list.
It is true that the credit bubble was popped last Autumn, and this caused deflation. But this has been reversed. Consumers don’t see it yet because consumer goods haven’t increased in price yet. But rising prices is not the definition of inflation. One mustn’t confuse the symptom with the cause. Inflation is caused by an expansion of the money supply without a corresponding growth in real wealth (i.e., goods and services). When the supply of money is inflated, prices will rise to accommodate it. This is what is already happening to gold, oil, and the stock market. In Canada, there is an increase in real estate prices. Next, consumer prices will catch up and everyone will feel the pain when their pay cheque won’t go as far. Witness that oil is already back above $80 per barrel, gold is above 1050, and the Canadian dollar is almost en par with the dollar. These are all symptomatic of the re-inflation of the US money supply. Meanwhile, the Koreans are buying Harvest Energy Trust, a sign that the Asian, creditor nations are abandoning the dollar for hard assets in commodity interests around the world, including Africa.
Which puts the ball right back in the Fed’s court. Unless Bernanke drains liquidity from the financial system, and shrinks the Fed’s balance sheet by winding down $2 trillion in support programs — and does so precisely when the recovery takes hold so as not to cause a relapse by moving too early — the dollar’s decline will accelerate, shattering confidence in its long-term value. One well-respected expert tells me that in two-to-five years the dollar will no longer be considered safe enough to be the currency in which the world does business. Its replacement: separate deals in local currencies — the Chinese paying for Brazil’s oil in renminbi, which the Brazilians use to purchase stuff made in China — and the International Monetary Fund’s drawing rights, bits of paper backed by a basket of currencies, including but not limited to the dollar. That would mark the end of an era that has seen world trade flourish and millions emerge from poverty. Sad.
Obama has slapped a 35% tariff on Chinese tires. They are retaliating with other small measures. Obama better be careful. If he angers the Chinese too much they may decide to stop buying US debt: the Chinese are one of the major financiers of the US government’s 1.8 trillion dollar deficit this year. The one who depends on another’s money is not ultimately in control of the relationship.
The following video is available from Techticker: Vodpod videos no longer available.
Pento says that we need China’s contribution to our debt, and if they don’t buy it, we will be in trouble. This is exactly my point here, where I say that if we don’t borrow the money for the US budget deficit, we will be looking at hyper-inflation.
I have personally taken positions against the dollar by borrowing US currency to invest in a Canadian Oil Company (ERF) and a Caribbean utility company in Grand Caymen (CUP.U, Toronto).
Of course, Beijing’s not worried that the United States government will default on its bonds. Rather, the concern, now being expressed openly for the first time, is that the United States will adopt the time-honored debtor’s remedy of inflating its currency and paying back its debts in shrunken dollars.
Hindraker’s article was first posted at Powerline.