Green Shoots of Price Inflation
By Staff News & Analysis - March 18, 2011

US food price rise is steepest in decades … Food prices in America soared at their fastest rate since the 1970s last month, a sharp reminder of the pressures facing the majority of consumers in the US. The cost of producing finished foods jumped 3.9pc last month from a year earlier, as harsh winter weather exacerbated the already increasing price of many basic ingredients used in food. The increase was the steepest since November 1974. – UK Telegraph

Dominant Social Theme: Price inflation? Where?

Free-Market Analysis: In an article entitled "Ben and Barry's Inflation Problem" we pointed out the inevitability of price inflation in America and that it might well upset Barack Obama's plans for a second term. We indicated that we thought price inflation was likely sooner rather than later, but we didn't expect our predictions to be fulfilled within a day. But, gee, looky here …

Just yesterday, two articles appeared in the UK Telegraph reporting on higher prices. (See article excerpt above.) The first one, "US food price rise is steepest in decades," discusses what it considers to be the root causes of "inflation" (really price inflation). Of course, we are well aware that inflation is a monetary phenomenon, but mainstream media in its collective wisdom doesn't see it this way – or perhaps more accurately stated, refuses to properly explain the monetary system they have been complicit in supporting.

The second one discusses the impact of shrinking energy resources (and resultant, inevitable higher prices) in light of the Fukushima nuclear disaster.

During times such as these there will be a constant barrage of alternative reasons advanced for rising prices that have nothing to do with central banking's rash money printing. From our perspective this is surely a power-elite dominant social theme. The Anglosphere wants nothing to do with any discussion of central banking's role in higher prices, especially when it comes to energy and food.

It is true of course that exogenous factors can play a role in influencing prices, sometimes considerably; but such ups and downs tend to be transitory. The underlying issue is the volume and value of modern currency. Too much printing of paper-ticket money inevitably swells the volume of circulating currency, depressing its perceived value. But this is not what the mainstream will report – NEVER. No, the mainstream media, a critical pillar in the spread of the fiat disease, will wait until there is an "event" that safely can be pointed to as the cause of such higher prices. It will not be accurate, but it will be emphasized, historicized and turned into misleading curricula for eager, little minds to imbibe.

Compare fiat-money to weather; pretend it causes drought. Now someone lights a match and the media attributes the consequent conflagration to the match itself when in reality it was, of course, the lack of rain. Oil prices, we are informed, have spiked on the political upheaval in North Africa and the Middle East. "Higher costs are both squeezing profit margins and consumers' spending power," Nigel Gault, an economist at IHS Global Insight is reported as saying. Meanwhile, as might be expected given that there is no "real" recovery in America, only an illusory paper-stimulated one, new home construction was said to have moved down some 22.5 percent in February. The drought: ignored. The match illumed.

And now, stagflation … This is actually a Keynesian phenomenon, in that when countries tumble into recession, governments inevitably rev up their printing presses. Eventually some of this currency circulates, mostly via institutions and multinationals that put it to work in depressed equity markets. For this reason, stock markets often lead the way to a "recovery." But when times are especially tough, and the economy especially distorted, printing money-from-nothing merely inflates paper assets without having a positive impact on the "real" economy. The paper economy and the real economy then diverge, with jobs and prosperity lagging even as stock markets and corporate profits (due to "efficiencies") begin to rise.

The reactions of central bankers to this phenomenon are predictable. Seeing no significant backlash from the mainstream media controlled minds of the public at large from their fraudulent paper-money printing, they celebrate and print even more! The Telegraph informs that, "The squeeze of rising costs and a still depressed housing market will worry policy makers at the Fed, which on Tuesday left interest rates at a record low level." Of course, there is apparently a bright lining to all of this: "Unlike the Bank of England, the Fed is not facing the same pressure to increase interest rates that were slashed to combat the financial crisis – a move that is likely to jeopardize the recovery's momentum."

And yet the Telegraph warns us that, "this will change if the higher food and energy prices seen in yesterday's report are beginning to spread across the economy." Another Telegraph article leaves little doubt that prices will NOT change. In an article entitled, " World energy crunch as nuclear and oil both go wrong," we learn that falling supplies of oil will have an inevitable and perhaps long-lasting effect on energy prices. Libya's supplies alone have eroded by over one million barrels, and the Saudis just sent troops to Bahrain to crush a Shia rebellion. Shias and Sunnis are historically at odds, though Sunni is the predominant Muslim sect with nearly a billion believers.

It is unclear how Iran, the cynosure of Shia'ism, will respond to this overt provocation. But the Middle East is surely politically unstable and no doubt this will continue to put pressure on prices. Russia's finance minister Alexei Kudrin, we learn, has issued a warning that oil could run to $200 a barrel, a violent spike that might send the world spinning back into a global recession. (Peak oilers rejoice!)

It could be that Iran begins to arm Shias, especially in Bahrain, a development that might risk further instability in Saudi Arabia itself and threaten the Saudi's massive Ghawar oil field, which the Telegraph informs us would be "a global game-changer." Oil prices have actually moved down recently, but the combination of Middle East instability and the recent nuclear crisis in Japan threaten to reverse that trend. Japan is already in the markets buying additional oil. Germany, too, is backing away from nuclear power as are other countries in the West. Germany's solution will be gas and thermal coal; global warmists worry about the effect on CO2 greenhouse targets. (Maybe EU officials will legislate that citizens of member states hold their collective breath for 30 seconds each day to offset Germany's expected rise in CO2 emissions?)

According to the Telegraph, the world has 442 reactors, with 65 under construction; but after Japan's Fukushima reactor meltdown some or even all of these new reactors may be under threat. Meanwhile, world energy demand continues to rise and estimates are that it will double over the next 20 years. Nuclear reactors were supposed to play a core role in allaying shortfalls; and they were widely seen as the "solution" to climate change concerns as well. Now all eyes are on shale oil and natural gas.

After Thoughts

Endless central bank printing of money-from-nothing has parched the global credit scene, and no country has suffered more than America itself. Now the twin scourges of food and energy scarcity have provided the match. It is too soon to know if it is a false alarm or if we have entered into next predictable phase of the current Keynesian economic slump – the one where prices begin to climb rapidly while the economy itself remains depressed. But it has to happen sooner or later, and if it is beginning now then Ben Bernanke – and ultimately Barack Obama – are going to be faced with hard choices even sooner than expected.

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