Healthy soil and sustainable growing

["Tradingpost" <tradingpost@lobo.net>]

Finally, here is the real story. Connect the dots, and it's not hard to see 
around the curve. This is why food and oil are going to keep going up and 
inflation is soon going to be our number one problem.

     "What are the world's investors doing with the trillion dollars a year 
they used to invest in American securities, including subprime derivatives 
and various forms of collateralized obligations that turned out to have more 
obligation than collateral? They aren't buying American companies because 
they are not permitted to. They are buying food and other stores of value 
instead. ... China is exchanging its depreciating reserves of US dollars for 
things of value, notably rice, with frightening consequences for dependent 
countries, and deadly consequences for American foreign policy. .. The chart 
below shows the price of 100 pounds of rice against the euro's parity against 
the US dollar during the past 12 months. The regression fit is 90%. There is 
an even tighter relationship between the price of rice and the price of oil, 
another store of value against dollar depreciation."

Apr 22, 2008
Rice, death and the dollar
By Spengler
http://www.atimes.com/atimes/Global_Economy/JD22Dj01.html

The global food crisis is a monetary phenomenon, an unintended consequence of 
America's attempt to inflate its way out of a market failure. There are 
long-term reasons for food prices to rise, but the unprecedented spike in 
grain prices during the past year stems from the weakness of the American 
dollar. Washington's economic misery now threatens to become a geopolitical 
catastrophe.

Months ago, I offered that China, Russia and other cash-rich nations held the 
antidote to the incipient credit crisis: "If the US wants to remain the 
magnet for world capital flows it became during the 1990s, it will have to 
allow the savers of the world to become partners in the US economy, that is, 
to buy into its first-rank companies."(Western grasshoppers and Chinese ants, 
AsiaTimes Online, September 5, 2007.)

No such thing occurred, of course, as Washington has made it clear that it 
would not allow sovereign funds to own the likes of Citicorp. What are the 
world's investors doing with the trillion dollars a year they used to invest 
in American securities, including subprime derivatives and various forms of 
collateralized obligations that turned out to have more obligation than 
collateral? They aren't buying American companies because they are not 
permitted to. They are buying food and other stores of value instead.

Washington has weakened the value of the dollar as a palliative for the 
credit crisis, so much so that "nobody seems to doubt that the US dollar will 
lose its status as the world's reserve currency", as journalist Amity Shlaes 
wrote in an April 9 Bloomberg News column entitled "Monks may hold clue to 
dollar's future".

"Perhaps the dollar won't surrender its anchor role so soon," Shlaes 
continued. "And perhaps that loss, if it comes, will happen because of events 
that take place nowhere near men in suits at a central bank. Maybe the answer 
to the dollar's riddle can be found in the cellphone photo image of a Tibetan 
monk in crimson and orange squaring off with a Chinese soldier ... China 
might recede into years of ethnic chaos. In any of these cases, the new 
Chinese government won't be forced to deliver the same growth, and therefore 
won't spend commensurate energy tending the dollar ... The flash of orange in 
the robe of the monk is important enough to change the picture for the 
greenback."

Misguided is not the word for this sort of thinking. However unlikely it 
might be, one cannot exclude the possibility that "ethnic chaos" will afflict 
China at some future point. The one thing that can be stated with certainty 
is that long before chaos reaches China, it will have shattered a great deal 
of the rest of the world.

China is exchanging its depreciating reserves of US dollars for things of 
value, notably rice, with frightening consequences for dependent countries, 
and deadly consequences for American foreign policy.

The chart below shows the price of 100 pounds of rice against the euro's 
parity against the US dollar during the past 12 months. The regression fit is 
90%. There is an even tighter relationship between the price of rice and the 
price of oil, another store of value against dollar depreciation.

Rice price vs Euro/US$ rate, April 15, 2007 to April 15, 2008

As the chart makes clear, the ascent of the cost of rice to $24 from $10 per 
hundredweight over the past year tracks the declining value of the American 
dollar. The link between the declining parity of the US unit and the rising 
price of commodities, including oil as well as rice and other wares, is 
indisputable. China has bid aggressively for rice all year, and last week 
banned rice exports, along with Vietnam and several other producers.

Euro/US$ rate vs rice and oil, April 16, 2007 to April 16, 2008


For developing countries whose currencies track the American dollar and whose 
purchasing power declines along with the American unit, this is a 
catastrophe, as World Bank president Robert Zoellick warned the Group of 
Seven industrial nations in Washington last week. Food security suddenly has 
become the top item on the strategic agenda.

Never before in history has hunger become a global threat in a period of 
plentiful harvests. Global rice production will hit a record of 423 million 
tons in the 2007-2008 crop year, enough to satisfy global demand. The trouble 
is that only 7% of the world's rice supply is exported, because local demand 
is met by local production. Any significant increase in rice stockpiles cuts 
deeply into available supply for export, leading to a spike in prices. 
Because such a small proportion of the global rice supply trades, the 
monetary shock from the weak dollar was sufficient to more than double its 
price.

It is not only rice, of course, that the cash-rich countries of the world are 
buying as a store of value; the price of wheat, soy and other grains has 
risen almost as fast. This might deal the death-blow to America's hapless 
efforts to stabilize the Middle East, where a higher proportion of 
impoverished people eat off state subsidies than in any other part of the 
world. Egypt has been the anchor for American diplomacy in the Arab world 
since the Jimmy Carter administration (1977 to 1981), and is most susceptible 
to hunger. Food prices have risen by 145% in Lebanon and by 20% in Syria this 
year. Iraqis depend on food subsidies financed by American aid.

Reduced to essentials, America's foreign policy sought two unattainable 
objectives: to stabilize the Middle East and destabilize China. That is an 
exaggeration, of course, for Washington hoped not to sow instability, but 
only to put China in its place over the Tibetan affair.

The George W Bush administration might as well have used the State Department 
as a set for the Jackass reality show. American arrogance has eroded the 
ground under many of the governments on which its foreign policy depends. It 
is hard to characterize what will come next, except, like the stunts on 
Jackass, that it is going to hurt.