A story from Reuters here. As governments in the west continue to implement the fiscal policies of austerity, the violence and nationalism will continue to increase also, both inside and now outside the west.
These North African states posses sizable petroleum resources for export to the west. Even though the price of petroleum has been strong, apparently it is not high enough to provide an external surplus to result in satisfactory economic outcomes for this region of the world and the disaffected are lashing out.
31 comments:
What the heck do austerity measures have to do with N.Africa, Mike?
You blamed austerity measures for Britain's anemic growth just a few days back when the austerity measures haven't even been started yet there. They had only been ANNOUNCED last quarter.
The straw that finally broke the Egyptian camel's back was rapid food price increases. This should be expected given the incredible amount of monetary inflation by the governments of the world in the wake of the debt crisis. Those countries who are pegged to the U.S. dollar have seen expecially high price inflation. See China's double-digit price increases which have sparked social unrest.
The avg. American spends less that 10% of his income on food, but in places like Egypt they spend about 40-50% of their low wages on food. These people are on the verge of starvation because of monetary debasement.
Our status as reserve currency has enabled us to export much of our inflation overseas. We, too, will see double-digit price inflation before the end of the year.
I still remember that some of you were claiming that is was deflation that we had to fear. Care to amend that?
WWS,
It is speculative demand and the Oil Cartel price setting that are the forces at work wrt food/commodity prices.
Egypt is not one of the oil producers so they can become a victim also.
Resp,
Oops! Just noticed that this post was yours Matt. Oh, well, Mike thinks the same thing. It's food price inflation that is causing the rebellion Matt. "Quantitative easing" has consequences.
I'm wondering whether welfarewarfare state has any clue about anything he's posting here? The food riots in Egypt were in 2008. Instead like a parrot he delivers his nonsensical currency debasement fantasies.
Stephan,
You seemed to be suggesting that because food riots occurred in 2008 in Egypt that this can never occur again.
Urban price inflation in Egypt was estimated to be 23% last year, while in rural areas it was estimated at 19.5%.
The price increases were especially concentrated in food. The monetary inflation has affected commodities traded on a world market first.Vegetable prices were up 70% yoy, fruit was up 40% yoy, while sugar and sweets were up 25%. Meat and pultry increased 15% yoy.
Many of these people live on $2 a day. Much of their meager incomes are consumed by their food purchases.
Given this, of course these people are rioting. The human animal will learn to abide his master's whip as these people have for the last 30 years. They have long feared the state more than anything else--until now. They are responding primally to the greater fear driven by their need for food/survival.
Matt and Mike Norman think that all of this is driven by "specualtive demand." The speculators are bidding up the prices of these contracts because they see all of the new money that has been created by the world's governments. They would be fools not to account for this in futures contracts. The speculators are simply responing to "quantitative easing."
@welfarewarfare state
Do you read something else beside Austrian economics propaganda? I know you people are obsessed with the subject money, have some obscure ideas like going back to Gold or Free Banking and it is a waste of time to argue otherwise because I can't and won't change the quasi-religious commandments of true Austrian believers.
Nevertheless. According to the IMF inflation 2010 was 11.7% and the mean hourly wage in Egypt is US$ 2.45. The World Bank classifies Egypt in the lower middle income category.
In regard to speculation and food prices: have you ever heard about Commodity Index Funds? Obviously not. The movement of index funds is driven by the price of oil, itself a highly speculative market with some 70% of futures investments coming from non-commercial speculators. Under such institutionalized structures, the price of oil drives the movement of the index funds and pushes up the prices of agricultural commodities, no matter what is happening to the fundamentals of supply and demand for soybeans or corn. Worse, the index funds are mandated to keep the value of their commodities in strict proportion, so that when the prices and value of energy products go up the funds have to buy more corn and soybean futures to maintain the mandated proportions. This represents yet another institutional impetus to buying agricultural futures regardless of the market fundamentals.
QE: Sorry to inform you. Just because of QE there's no new Cent in the economy. QE is just a swap of financial assets. Instead of treasuries the banks have reserves on the asset side of their balance sheet. That's it.
Your claim: "We, too, will see double-digit price inflation before the end of the year." Do you know a good betting platform in the US where we can bet on that? I prefer people who put their money where their mouth is.
@welfarewarfare state
I've found one: http://www.quorumbet.com/ So are you willing to enter a bet? I will place a private bet that CPI will be below 9.99% at the end of 2011. I would suggest 5.000 US$ We're are grown ups aren't we?
Stephan,
I obviously do go to non-Austrian sites--I'm here. Maybe you should read reports other than those issued by the IMF. Even if they are correct, they claim a 12% rise in food prices for Egypt. I found sources that claim it is higher. Either way it is very high. Perhaps it is you who needs to get outside of your comfort zone and venture on to sites that are different from your own. You don't seem to be able to handle contrary opinions very well given your acerbic posts.
Of course food prices are affected by oil prices. This will affect transporatation costs, but what is the primary factor driving up energy prices? The demand for energy is a little higher than a year ago but no enough to account for the spike in prices. Have you ever considered for just a second that it is the supply and demand for money that is the largest factor at the moment? You imagine that it is just a natural law that these prices should go up in unison. They don't all rise at the same rate anyway. Given the incredible improvements in agriculture technology over the years, prices should be falling. Our prodcutive capacity is so much greater than it has ever been. The prices are rising primarily because the money is being debased.
You guys are the ones that were claiming that deflation was the world's biggest fear. I knew you guys would blame speculators, businessmen,the weather, and everything but the real source of the price inflation when it came. I even said as much on this blog not more than four months ago.
Of course QE means a higher money supply. The banks do have higher reserves which were provided with credit money created out of thin air by the central bank. What is it that you imagnine that those banks are going to do with those reserves? They are going to pyramid debt on top of them of course. Those reserves are not technically money until loans are pyramided on them so people like you can resort to sophistry by claiming the money supply hasn't increased. Yes, it has. That is what is driving higher prices. All of the major central banks of the world have resorted to printing money.
OK. I get it. You make ridiculous claims but do not have the cojones to put your money where your mouth is. This discussion is a waste of time and I won't continue it. I'm indeed not such a patient and polite fellow like Matt. Please excuse me for ignoring your rants in the future.
Stephan,
I'll take the bet so long as we don't use the government's phony CPI. Is the site you are referncing relying on the govt.'s phony measure? If so then I won't take the bet. It's full of subjectivity like liberal substitutions, hedonics, and owners equivalent rent.
We can use a private source that isn't incentivized to fudge the real price inflation rate as with the U.S. govt. Shadowstats.com (check them out) is a good site. They don't allow for hedonics and liberal substitutions. We could also price goods and services in terms of real money like gold or silver to determine the rate of dollar debasement if you like. I am open to suggestions. At any rate, I don't even need any of these sources to tell me my money is losing value. I go into grocery and department stores and experience it firsthand every weekend.
go to the basic triangle of growth - prosperity - surplus
Our finanical system is designed on infinite never ending supply of surplus, that is surplus of drinking water, food, shelter, energy, and with all this fantasy surplus not only will the surplus provide for infinite growth but with plenty to be left over for prosperity (IE. nice homes, tv's easy work hours and no manual labor, and entertainment and leisure.)
Reality check the surplus is limited, and we have reached the end point. With exponential population growth, not enough energy surplus, the existing monetary fiat system which perpetuates ever increasing interest payments on the newly printed money has reached a critical mass end point. We need to change our monetary system from fiat and not to a gold standard but something similar but a cap and trade system. Base value on the ability of a country to balance the distributing out of it's surplus available to an equitable sharing bewteen growth and prosperity. The world has limits of surplus, each year mining companies mine less yield, each year there is less easily gotten oil. Paper money represents human labor and therefore the way to control the system is to make sure whatever currency you use reflects a safe ratio to human labor that the PEOPLE WILL TRUST IN. At this point I would say all on this website agree there is not much faith in the US dollar as compared to 100 years ago.
The avg. American spends less that 10% of his income on food, but in places like Egypt they spend about 40-50% of their low wages on food
That's a good point, when the Federal Povery Level metric was developed in the 1960s, Americans spent one-third of their income on food. So the FPL is simply cost of food times three. However in the decades since, food has become relatively cheaper and other necessities of life (such as housing) have become relatively more expensive but the government has never adjusted the basket of goods, it simply increases by CPI each year. Which means the poverty rate in our country is understated.
Mollie Orshansky, who devised the original goods basket and methodology to measure poverty, used by the U.S. government, in 1963-65, updated the goods basket in 2000, finding that the actual poverty threshold, i.e. the point where a person is excluded from the nation's prevailing consumption patterns, is at roughly 170% of the official poverty threshold.
http://en.wikipedia.org/wiki/Poverty_in_the_United_States
Thanks for raising this important issue.
Beowulf,
They have adjusted the basket of goods to allow for liberal substitutions. This was done in the early 80's. If you mean the ratio of food in relation to other other goods then what you wrote is correct. The poverty rate (a subjective measure to begin with) is higher relative to 30 years ago. Americans are getting poorer.
If the old 1970's price inflation measure with a fixed basket of goods and no hedonics subjectivity introduced then Social Security checks would be about 40% higher than they currently are. S.S. is indexed to the govt.'s phony CPI. The government is paying for some of its liabilities with inflation. Seniors are getting ripped off.
It's interesting to note that "government statistics" used to be called "political math" instead. It's too bad that the latter term fell out of use given the truth it reveals.
Several weeks ago, somebody in the comments of this blog said that we will be having hyperinflation sometime during 2011.
WWS, was that you?
how does Singapore acheive it's success ?
what currency do they use and how do they manage it ?
are they using gold standard austrianism ?
are they using MMT elasticity ?
anybody ???
Seething,
Nope, not me. I don't think hyperinflation will happen unless the govt. responds to the bond market implosion this year or next with QE3 and then QE4. In that event hyperinflation could be here by 2015 or 2016. We are just going to have double-digit price inflation over next three to four years--not hyperinflation. That comes later depending on the fed. govt.'s response to the next crisis.
@wws
Sorry for my late answer. Too much good snow in the alps. Did not want to miss the opportunity to test drive again my All Mountain Skis.
Now about the bet. In principal fine. My understanding of http://www.quorumbet.com/is: this is a clearing house for private bets. We can set our own terms (better be very specific) and they simply ensure that funds from both parties are available plus do some arbitrage in case opinions differ once the bet is due.
In principle I have no problem with shadowstats. It is a good site! But in economic terms the cost of living is a very different thing from inflation. This biases the bet very much in your direction ;-) I will think about a compromise. So we have something measuring both: inflation and cost of living. OK?
WWS: "...there will be double digit inflation by fall of 2011."
Laura,
The price inflation rate is already 4-6% according to private sources. This dovetails nicely with my own personal experience much more than the govt.'s phony meausure. I think you live in Canada, right? If not then my bad. Everyone I talk to thinks the price inflation rate is greater than the CPI indicates. The govt. weatherman can tell me it is sunny outside all he wants, but if I look outside and see stormclouds, I'm taking an umbrella.
Some further info:
"Dubbed ‘the Pharaoh’ for his 30-year iron rule, President Hosni Mubarak is said to have amassed a fortune of £25 billion for his family. Mubarak, 82, his half-Welsh wife Suzanne and sons Gamal and Alaa are seen in Egypt as symbols of nepotism and corruption with properties and business interests worldwide, including London."
WWS, That is some serious scratch even in nominal terms!
Link_for_more_info_http://www.dailymail.co.uk/news/article-1351826/Egypt-protests-U-S-advises-Americans-leave-30-000-Brits-stranded.html
WWS, what you said back in September was:
"I think hyperinflation which I measure at over 20% price inflation per year will be on us at some point in the next 2 to 3 years."
But now you say: "I don't think hyperinflation will happen unless the govt. responds to the bond market implosion this year or next with QE3 and then QE4. In that event hyperinflation could be here by 2015 or 2016."
So what is it? 2012-2013, or 2015-2016? Or is hyperinflation defined differently now? I'm not busting your balls here. I'm just trying to figure out when hyperinflation is going to get here so I can get ready to survive in the post-apocalyptic world.
I'm trying to plan ahead.
WWS,
Personal experience is subjective. To what standard of measurement were you referring to when you said in November that "we'll be experiencing double digit inflation by the fall of 2011" ?
http://mikenormaneconomics.blogspot.com/2010/11/quantitative-easing-explained-badly.html
What is it that you imagnine that those banks are going to do with those reserves? They are going to pyramid debt on top of them of course. Those reserves are not technically money until loans are pyramided on them so people like you can resort to sophistry by claiming the money supply hasn't increased. Yes, it has. That is what is driving higher prices. All of the major Tcentral banks of the world have resorted to printing money. This is false. Since loans precede reserve levels as has been told to you at least 5 times on this site, and since reserves must be provided by the central bank when needed by the private sector (as a whole ) QE does not increase the money supply. And since as a matter of fact the money supply has not been increased due to QE you cannot state that this has caused inflation. Increased demand due to speculation has caused commodity inflation. Why is the inflation limited to commodities traded on futures markets? Why no wage inflation? Think Occam's razor.
And since you don't get "reserve accounting", the basis for your arguments on this web site are groundless. What bugs me is that I do think you mean well and are not a troll, because you put so much into it. If you don't understand the basics, the abc's of government finance and reserve accounting, you can't make credible counterarguments.
I say dump Bernanke and Geithner than revoke the Central bank charter and put the responsibility back to the US treasury before it is too late.
Super Bowl I was the only Super Bowl in history that was not a sellout in terms of attendance, despite a TV blackout in the Los Angeles area. Days before the game, local newspapers printed editorials about what they viewed as a then-exorbitant $12 USD price for tickets, and wrote stories about how to pirate the signal from TV stations outside the Los Angeles area.
Source Wilkepedia.
I checked the prices on line for this super bowl and got price shock. The tickets start at 2,000.00/each and go up to 24,000.00/each.
Even if you give allowance for improper pricing of the first super bowl ( sold out means didn’t ask enough for the tickets).
This is a perfect example of inflation and loss in spending power of the average working family. You are paying to see a football game,
But the cost rose from 12. USD to 2,000.00 USD. Unless you’re a wall street or congressional millionaire you are in the hurt locker.
If you took a suit case and put 12.00 dollars in it and buried it in 1967. Than you dug it out of the ground, the fact you couldn’t buy a ticket for next weeks game is an understatement.
Don’t tell me the other investments and wages made by the average working family have kept up with this rise in prices. Wages are stagnant, unless you work for the government.
House values are in the toilet, and the 401 K’s and retirement funds have been looted by both political parties their appointees and wall street.
We need to get rid of the Fractional reserve system. In my opinion the country should have a system that places a value on how well the available surplus of a country is apportioned out to a division between growth and prosperity. The present system is designed for infinite growth, assuming there is infinite available surplus (energy, food, shelter, water). With exponential population explosion in the world there are limits of surplus, which are on a shortage collision path with the growth of economy and prosperity (nice things, vacations, cars, TV’s, cell phones, movies, easy work week).
I say dump Bernanke and Geithner and revoke the Central bank charter and put the responsibility back to the US treasury before it is too late.
A gold backed currency doesn’t work, and the present fractional system doesn’t work to help the common good of the people of this country. We need something else.
Though history shows there were severe boom and busts when the central bank was removed by Jackson, I believe the present system is corrupt and co-opted by the investment banks
And the sovereign wealthy. Tear it down and start over with something that reflects limited surplus.
I will close this rant with a quote from President Andrew Jackson , made against the Central Bank in 1832:
When you read this does it sound like an article you read 15 minutes ago?
Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.
Bob, although your Superbowl example doesn't prove anything because I think its more about supply and demand in that particular case, I get the spirit of what you are saying. Also, its not that the Fed is doing 'bad things' per say. Its more about leadership(or lack thereof) and ineffective policy centered around trying to force the private sector back into debt. Getting rid of the Fed and putting the treasury in charge is not a problem for me so long as the leadership in the treasury knows what how to formulate policy that leads to full employment and price stability. Also, take note that fractional reserve banking is not in effect in the US today. Its a giant myth and is easy to disprove when examining the accounting operations that take place within the banking system and Fed.
Seething,
Do not worry about busting my balls. If you read through this thread, it is clear that others have no such qualms. I can handle it.
You make a good point, and I will concede that what I wrote before isn't consistent. It is because I've done much more reading about the definition of hyperinflation in the interim.
I had previously read sources that defined hyperinflation differently. I have come to a new understanding of what constitutes hyperinflation. International Accounting Standards Board's defines hyperinflation as a cumulative price inflation rate over three years approaching 100% (26% per annum compounded for three years in a row) while Cagan's (1956) defines hyperinflation as inflation exceeding 50% a month. There are others who define it differently.
I define hyperinflation as a price inflation rate of at least 25% per annum. I see no reason why it has to be for three successive years. I know this is subjective, but so are all other definitions. It may be akin to the Supreme Court justice (forget which one) who remarked on the difficulty of defining pornography by quipping that a person "knows it when he sees it." It could be that a person knows hyperinflation when he experiences it.
At any rate, I am pleased to see that many who not too long ago were scoffing at the notion of mere high inflation are now fearful that those of us who have been warning about a currency collapse might have a point.
bubbleRefuge,
Glad to see you back.
As for your post though, why do banks need reserves at all if they aren't used for pyramiding debt? What is the point of increasing reserves or decreasing/increasing reserve requirements if they are not tangential to the ability to create new credit money? If loans can be made in the absense of any reserves then why have reserves at all? An increase in reserves that is provided by credit money created out of thin air by the central bank allows the member banks to create new credit money on top of the newly expanded reserve base. This is the whole point of increasing reserves. That you have "told me five times" how you imagine things work shouldn't be confused with absolute truth.
Speculators are just responding to the increased money supply. I'm not a commodities speculator, but if I were to purchase a futures contract for orange juice, I would certainly factor in the Fed's past and projected future actions. The competent ones certainly do. Speculators are simply responding to the policies of the Federal Reserve and other central banks. You are confusing cause and effect.
I believe not more than three or four months ago you were saying that the threat was price deflation. Why didn't you project that scheming speculators were going to be the cause of future and present price inflation then? Are you not searching for reasons and new justifications for price inflation after the fact? Will foreigners, businessmen, unions, and the rest of the rogue's gallery of people and institutions that we are taught to hate be blamed for price inflation as well in the future? Will speculators also be blamed for the bond market collapse when it comes?
Matt,
That certainly is some scratch even by authoritarian ruler standards.
I saw a headline early this morning that read "Pharoah in the FuhrerBunker!"
Some think that Mubarek, like Hitler, may be aware that his days are numbered, but he may decide to take down Egypt with him before he is deposed.
Laura,
Stop stalking me! :)
WWS,
It's like the west is the modern version of the Roman Empire that it is.
btw, there is a show rotating on the Nat Geo TV channel about the Roman Empire that I saw just a part of and it looked pretty interesting I'm going to try to catch all of it on re-broadcast.
One of the points that the historians made on the show was how the Romans would seduce the leadership of the invaded territories to comply with the Roman rule and the elites would be able to enjoy all of the luxury/material gain that would bring. Back then it was wealth, foods, wines, baths, prostitutes, slaves, etc...
I see an exact modern parallel with Egypt/Mubarak. He has done very well via his western relationships and will probably give up at some point and fly up to Brittan for good once he thinks all of his people are ok..... and the wealth is secure., etc...
Then western leadership will attempt to make a new relationship and the game may just go on now with new players... it depends on the Egyptian citizens at this point....
Hi WWS, gotta new job. Hard to find time. Anyway. The fact that I've repeated this five times is my failure. Not yours.
As for your post though, why do banks need reserves at all if they aren't used for pyramiding debt?
Great question. First reserve requirements are irrelevant and arbitrary in the current fiat money system. In the US Federal Reserve System, Reserves are used for interbank settlement. So if I write a check for 100 bucks to you ,WWS, my bank sends your bank 100 bucks in reserves via the federal reserve system. Your bank then credits your account by a hundred bucks. Banks do not make loans based upon ability to obtain reserves to match reserve requirements. Banks make loans based upon ability to make a profit from the loan. This is what we are saying here that QE doesn't work.
What is the point of increasing reserves or decreasing/increasing reserve requirements if they are not tangential to the ability to create new credit money? Bingo.
Welcome to MMT! Since you're a pretty smart guy I knew eventually you'd come around. If loans can be made in the absense of any reserves then why have reserves at all? 1) Again. Interbank payments. 2) Possibly gold standard anachronism/relic? Reserve requirements are zero in Canada, I believe
An increase in reserves that is provided by credit money created out of thin air by the central bank allows the member banks to create new credit money on top of the newly expanded reserve base. No this is key. Loans can be made prior to reserves existing. The needed reserves are borrowed in the following accounting period. And the Fed must provide the reserves one way or another or else the Fed loses control on interest rates.
at this This is the whole point of increasing reserves. That you have "told me five times" how you imagine things work shouldn't be confused with absolute truth.
Do this help at all? Do you still believe that QE creates new money?
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