US national debt meets globalisation: The rice and Dollar crises

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I just read a most depressing article, by Spengler, about the world food crisis and the weak dollar. Iirc yesterday, the dollar reached a new record low of 1 € buying $ 1,60.

What Spengler reads in that is disturbing:

But read for yourself.

The huge deficits and the corresponding burden for the US economy he generated from what was a surplus when he entered office are part of Bush's unflattering legacy. If he thinks the US can inflate their way out of their debt crisis, he errs. His debtors will invest their dollars in oil, rice and other commodities - they will not sit by idle and allow the US to cheat them. If they can't get their money back from the US government, they'll happily take it from the US consumer or the world market. There is no such thing like a free lunch on the world market (pun inevitable).

National debt is immortal. Iirc an old Wallstreet wise man made a lot of money after the end of the Soviet Union around 1990. He bought old Tsarist debt certificates, that the commies had refused to pay for for 60 years, but that Russia after the collapse of Communism had to accept to do so because they were the legal successors of Tsarist Russia.

 

That may be true. However, I believe the world food crisis is more the fault of "Ethanol" production. Farmers are finding it more profitable to sell their excess capacity to make Ethanol then to sell it/give it away to poor nations. Yet another example of the law of unintended consequences.

 

It is quite likely that Ethanol production has some influence there, as well. However, I am skeptic about whether it can account for such a sharp, and pronounced, increase in prices of all foodstuffs as there has been in the last year - it is still something of 87 m. tons out of a total of 2.316. Climate problems (there was a serious drought last summer, which impaired the harvest in many European countries and probably beyond), economic problems and probably some market speculations play a greater role imo. The possibility that investment in foodstuff - speculation, essentially - has driven prices up is conceivable, but I would prefer to see more concrete evidence of it.

Ideally, I'd suggest using natural gas instead of ethanol for fuel, but the fact is that with the current economy, any fuel would pose its own problems. Well, maybe outside of controlled cold fusion.

 

Good points Shaman.

TGS,
it ain't that simple. A nation that is dependent in imported food, maybe because it was once cheaper (subsidies everyone?) to import than to produce it yourself - allowing you to 'invest' your excess agricultural capacity in stuff like ethanol, would have been lauded for such brilliant, profitable and innovative economic measures would have been the IMF, the world bank (led by a genius like Wolfowitz), the US government and probably the Europeans as well. That this would be good for those nations was common wisdom among the neo-liberal and neo-conservative wizards alike. Long live the free, globalised market!

The declining dollar, and the food prices pull the rug away under such strategies.

Most food commodities are internationally being traded in dollar. The declining value of the dollar reduces your purchasing power per dollar. Because of that, and because of demand, prices rise. Worse, if your currency is linked to the dollar, with a fixed exchange rate, you're double screwed - first you lose through the devaluation of your currency - which would damage you already with stagnant prices - and then again through the increasing prices. And to get that you didn't even do anything wrong.

 

That depends on if you mean that the over-inflated price of gasoline is "intentional" or not. There is not a shortage of oil, yet there always seems to be a shortage of gasoline. I guess it's just bad luck. Where are those "hurricanes in the Gulf" when you need them?

 

Amen to that, Blackthorne. No matter how hard people try, sometimes life works out to a zero sum game.

I've always thought that the US should try to slowly regain control of its economy and money supply -- I'm not very skilled at economics but I've heard that the Chinese government holds a lot of the US debt. If this is true, given that the US will be competing with the Chinese more and more over the next several decades, they should remove the club the Chinese have over them. Perhaps one of you economics majors could clarify this for me, as I once again admit I am not skilled in Macroeconnomics.

 

Americans (and other western countries) need to stop spending more than they earn. That's the root of all these problems and is completely unsustainable. I've been saying that on these Boards for years and I will stand by this overly simplistic analysis of mine.

 

If you're talking about credit card debt, I agree. But some debt is unavoidable. I pay off my credit card bill every month, but I still have a mortgage payment and a student loan. If I had not borrowed the money (in other words had I not decided to spend more than I earned) I would have had to forego a university education, and I'd still be living in an apartment.

I think that the reason that your view is overly simplistic is that just because many Americans spend more than they earn, it does not follow that this causes the US federal government to spend more than it earns. While the two problems are not completely independent, the causes of each have different primary sources. There were a lot of people in the 1990s that spent more than they made, and that was at a time when the federal government was paying down its debt.

 

But, Aldeth, this is the time when US consumer debt falls together with US government debt, and rising commodity prices. Now that's a combination that goes beyond the normal dollar course fluctuations. To pay for all that debt, the Fed prints.

Maybe one day the Euro will have a similar impact, but thus far the US dollar is the world's currency. What is clear, and what all the eye-rolling ignores is that a global currency has a global impact. That is a fact, and stating it is not 'blaming America'.

If you have national debts, and try cheat yourself out of it by inflating the currency the debt is calculated in, be prepared for a reaction. The deflation the US dollar has taken is pretty crass, and it is pretty obvious that the Fed is intentionally trying to inflate the US out of their debt. Dependency, schmependency, the Chinese are not going to take this.

 

Spending too much for unnecessary consumer goods is what causes trouble. My beloved ex-wife taught me that right before bailing on me and causing my bankruptcy.

That doesn't explain the government's overspending, though! But I would chalk that up to

1: overexuberance with the public purse to gain votes
2: Overconfidence in the power of the free market (I'm thinking of the stock market crash)
3: Corruption -- awarding government contracts to unsavory types or friends.

 

I have already said that consumer and national debt are not independent. However, the source and cause of consumer debt and national debt are totally different. For example, the current housing crisis (consumer debt) would likely still be here, even under a Democratic administration. However, a Democrat likely would not have given out massive tax cuts and started a war in the Middle East that has caused our national debt to explode.

My point is simply that consumer and national debt do not have to move in the same direction (and have not historically). You can have one without the other. The sources of each are different, and the solutions to each are different. The reason HB's view is overly simplistic is a solution to one can have no effect - or actually contribute to the problem - of the other.

 

Oh, I wasn't so much in disagreement Aldeth. I merely wanted to say that these factors exacerbate each other, irrespective of their causes.

 

Here is an interesting article on this very issue:

http://www.nysun.com/news/food-crisis-eclipsing-climate-change


Some excerpts: