Food Riots

Recently there have been food riots in various nations because of the shrinking food supply of wheat and rice.  The International Monetary Fund estimates that food prices have risen 60% in these countries in the last three years.  Foord prices in the U.S. have risen 5% in the last year.

Cost

The cost of the U.S. economic meltdown is estimated to be 1 Trillion dollars.  $550 Billion in U.S. home mortgages, $240 Billion in commerical real estate such as office buildings, $129 Billion in corporate loans and $20 Billion in consumer loans.

Neil Irwin, Washington Post, April 9, 2008, p D1

 

The principle means of absorbing these losses and debts is to inflate the economy around a shrinking dollar.  The question is, will it take a Trillion dollars of inflated and worhtless currency to pay off these bad debts?  Who’s pocket will get picked if we allow this to happen?

 

Fed Chairman Ben Bernanke

   Fed Chairman Ben Bernanke has abandoned any semblance of caring about inflation, and decided that the real concern is fighting deflation by any means necessary, including slashing interest rates to as little as – 12.55%

 

   In my opinion, you should put your money in investments (like) gold and other commoditites or TIPS.

 

 Mike Weiss, www.moneyandmarkets.com

Saudi Inflation

Inflation has hit a 27 year high in Saudia Arabia.  Their rate in Feb. was 8.7%.  As the price of oil rises, the Gulf economies are experiencing inflation such as a one month increase of 25% for the Saudis.  The Gulf economies’s currencies are pegged to the dollar, and have followed the U.S. example of interest rate cuts.  They appear to be thinking over the option of cutting their currencie’s ties to the dollar.

 

“Inflation will rise,” said John Sfakiankis, a chief economist with the Saudi British Bank.  “Saudi will keep its dollar peg, as if they revalue, they will be getting less money for their oil revenues.”

 

(Wall Street Journal, Tahani Karrar, March 24, 2008

South Korea’s Inflation

Inflation is an international problem that afflicts successful economies and 3rd world banana republics.  Korea is on the asian tiger economies that is very prosperous.  It’s monthly inflation rate recently exceeded the Korean Bank’s goal of keeping inflation between 2.5% and 3.5%.

The new president of South Korea, Lee Myung-bak, in March, 2008 announced that the top economic goal of his government was to control inflation. This removed an apparent conflict with the Bank of Korea, which also wanted to control inflation more than it wanted economic growth.  To do so, the bank raised interest rates twice in 2007. As a result, the South Korean won strengthened almost 1% against the dollar.

The bank was trying to curb speculative prices of fast rising assets and real estate, producing the desired affect.

Is inflation worse than we think?

Last year we were told that inflation was in the 2% range.  Then in Feb. it was announced that inflation was 4.2% annually.  That is something like a doubling of the inflation rate.  4.2% inflation may not sound like much, unless you explain it’s dramatic impact on your purchasing power.  With 4.2% inflation, if you make$100,000 over 9 years, the purchasing power of your salary would drop to $70,000.  After 17 years your purchasing power would be cut in half.  In 30 years your purchasing power would drop by 70%.  Now that we have your attention, let’s look at some even worse news.

 

Inflation could be worse than 4.2%.  One commentator, John Williams,  thinks the rate is actually in the 12%-13%. Another way to analyze inflation is to chart its effects on hard assets such as gold.  Over the last eight years, the price of gold has risen 225%.  Using this measurement, inflation appears to be closer to 6% than 4%.

HT: Wall Street Journal, David Ranson, Feb. 27, 2008