Friday, November 20, 2009

Inflation hasn't died, it's just in hiding for the moment.

Many people on fixed incomes such as social security have been incredulous to hear that they are not getting any cost of living increases because supposedly, there is no inflation this year. They're wondering what planet the administrators of SS are living on, because out here in the grocery stores of this country, food costs continue to climb. It's true that in a broad range of markets (housing being the most obvious) a serious deflationary trend is in play. But inflation isn't dead. It has merely been, so far, seemingly surgically selective in its effects.

It is debatable whether this is a result of inflation per se, or simply the underground effects of peak oil percolating under the surface. But even if it is the price of oil underlying agricultural production, that will change in 2010, because with or without peak oil, old-fashioned inflation in the agriculture is set to make a big comeback.

National Inflation Association
U.S. Inflation to Appear Next in Food and Agriculture
October 30, 2009

While most mainstream economists such as Nouriel Roubini are warning of deflationary threats to the U.S. economy, it is our belief that massive price inflation has already begun. The Federal Reserve's policy of massive monetary inflation in 2009 has caused the Dow Jones to bounce over 50% from its low, oil to rise 100% from its low, and gold to surge to a new all time nominal high. One NIA co-founder just saw his health insurance premium rise 16% over a year ago; and the average tuition for a four-year public college increased this year by 6.5%...

That's just an average, of course. As was recently reported, UCLA is proposing a 32% tuition increase. At that price, university as we know it ceases to exist - most families will be priced out of the market for college completely, with or without student loans.

...Prices are rising all around us, yet agricultural commodities have for the most part been left behind and remain at historically depressed levels. Fundamentals for agriculture are improving on a daily basis. A worldwide shortage of farmers combined with food inventories falling to record lows is setting up the perfect storm for an explosion in agriculture prices. There is a huge opportunity today to invest at the ground-floor into what will likely be one of the biggest boom industries of the next several decades.

Wheat is currently down 60% from its all time nominal high set in 2008 and 80% from its inflation adjusted high set in the 1970s. Corn is currently down 50% from its all time nominal high set in 2008 and 75% from its inflation adjusted high set in the 1970s. Wheat and corn have only bounced 13% and 26% from their 52-week lows this year respectively. While sugar has faired much better and is now at a 28-year nominal high, sugar is still down 70% from its inflation adjusted high set in the 1970s.

With crude oil back above $80 per barrel, we will soon see a renewed interest in alternative energy. This will create increased demand for wheat, corn and sugar which are used to make ethanol and other biofuels. A massive rise in agriculture prices is just around the corner...

Of course, we have sufficient animal farm waste and harvest biomass waste to produce plenty of fertilizer for American farms - but the giant agribusiness industry is built on peteochemical inputs and has no intention of giving up those cushy profits. There's not much money in composting, you know. It's very low tech. It could be done reasonably profitably, however, in local and regional marginal agricultural zoned land where transportation costs to clients would be minimized. But as things are, nobody is working on building such a business - instead, they continue to rely on the petrochemical industry instead of local land and resource conservation.

...No longer will Americans eat more than most other countries, yet spend less of their income on food. When Americans are forced to pay more for food, it will take away from what they can spend on rent.

The average American consumer today spends approximately 30% of their income on housing and only 10% of their income on food. We expect these numbers to reverse in the years ahead as the U.S. dollar loses its purchasing power. In Germany during hyperinflation, rents fell from 30% to less than 1% of the average households' expenditures while food rose from 30% to a high of over 91%.

The U.S. is currently the world's largest exporter of wheat and corn and the fifth largest exporter of sugar. When American consumers purchase food at their local supermarket, they are competing against consumers from all around the globe. As the Federal Reserve prints trillions of dollars out of thin air and causes our currency to lose its purchasing power, Americans won't be able to afford to eat as much and farmers will be forced to increase their exports to countries with stronger currencies.

Due to the wage stagnation of American households (a direct result of the globalization scam), people in the US will be reduced to the fate of people in third world countries right now - watching the best agricultural land be used for food exports to rich people in other countries, while we ourselves go lacking.

...While Americans will eat less in the years ahead, Chinese citizens will be able to afford to eat more. Despite China's rapidly growing economy, there are major food shortages in China. Chinese agriculture companies have a chance of becoming the market's biggest gainers of the next decade.

So, China will not only have control of our banks, they have a sufficient manufacturing base to enjoy rising wages for their population, which will gleefully buy up our food at prices we can't afford. Hope you've got that "victory garden" started already, because you're going to need it.

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