Food prices at record high - to stay high for extended period

[gouchobob]

I don't know where I read it, which is why I placed a question mark after the figure. Until I find the source, you will have to make do with a piece by Paul Craig Roberts:

[SIZE=-1]
[/SIZE]

Paul Criag Roberts considered by many as a cross between a right wing nut job and a conspiracy theorist.

 

[gouchobob]

The americans eat the chickens, the chinese eat the feet. For some reason, the chinese have yet to develop a chicken with more than two feet, and the americans have yet to develop a taste for chicken feet.

The dollar is constantly going up and down against world currencies- if you look at the dollar versus euro for the last ten years, while the general trend has been for the dollar to fall against the euro, there have been some big peaks and valleys along the way.

In the last 5 years, its been as low as $1.20 and as high as $1.60 per euro- thats a 40 cent range, and all due to a wide variety of circumstances that Bernanke only wishes he could control.

http://www.oanda.com/currency/historical-rates/

It has not been, and probably will not be, a simple predictable single line downward- it jumps all over the place.

The chinese have been doing a better job of keeping the yuan relatively stable against the dollar, but only because they routinely will dump $20 or $50 Billion into the market, buying and selling to support their state determined exchange rate. The USA does not have this luxury, being a net deficit economy, not a net surplus like the chinese.

Currently, the US is a pretty small portion of the chinese economy- exports in general are somewhere around 20% of the chinese economy, and, of that, the USA is only about 20% of chinese exports.

So, in total, the US exports only represent about 5% or so of the chinese economy.
The US needs them a whole lot more than the Chinese needs the US market.
Especially since the crash has weaned a lot of chinese industries of US customers- thousands of factories that made things like toys and christmas decorations closed in the last 3 years- and the chinese economy still is growing at over 10% a year- so all those jobs have been absorbed making things for china, and for export to their other customers.

The US is becoming less and less relevant to the chinese.
The dollar is a safe international currency- and when we see events like the recent unrest in Libya, that is reinforced- in the last couple of weeks, the interest rate the USA must pay to borrow money has gone DOWN- because the "invisible hand" of the world market finds the USA to be an even safer place to invest in troubled times.
Interest rates on T Bills are a direct result of consumer confidence- Norwegian pension funds, Chinese banks, Saudi Princes, Japanese grandmas- all buy T Bills and US bonds, and all are buying MORE of them, and thus lowering the rates, when trouble stirs around the world.

This is not a theory or my ideology- its a simple observation of real world events.

You hit on something that is important. Many people think that the Chinese economy is mainly export driven, it's not the actual figure I believe is around 30% of GDP. The balance or main part of their economy is construction of stuff. Apartments, factories, commercial buildings, many of which are empty or nearly empty. The reason for all this construction is to keep the fiction that they are continuing to grow rapidly. This can't go on much longer and there are signs the economy is slowing down and they trying very hard to keep the real estate bubble they have created from bursting. In their new 5 year plan they more or less recognize the problem saying now that they will emphasize consumption in their future growth. Easier said than done. I don't think its that easy. They are trying to go from a country that could barely feed itself to advanced economy in one generation without any slow downs, recessions, just straight line growth at 10% year after year. This is something it took the current advanced economies many decades or more to achieve with lots of problems, mistakes, and lessons learned. Don't drink the Chinese cool-aide, they are headed for some huge problems. The big news story this year is going to be the big problems in the Chinese economy that are going to come to light and the impact this will have on the world economy as a whole. We will come to realize that a lot of their growth was not real in the sense of putting up empty buildings that are not needed is really just a massive mis-allocation of resources.

Linked below is an article from a Canadian business magazine which addresses the coming problems with China.

http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20110314_10024_1002

 

[bigbadwolf]

This is old (2000) but I am looking for something more recent:

An analysis of U.S.-China trade and FDI data shows that:

• The rapidly growing U.S. trade deficit with China is directly linked to the growth of multinational firms operating in China. Of China's more than $200 billion in exports in 1998, over 40% had their source in multinational firms operating in China (Ministry of Foreign Trade and Economic Cooperation 2000).

• The activities of U.S. multinational firms, together with China's protectionist trade policies, have had a significant role in increasing the U.S. trade deficit with China.

 

[bigbadwolf]

Bingo. Something like this is what I was looking for:

China’s unique position as the region’s production platform for the export of final goods is highlighted by the fact that it is the only country in the region that runs a deficit in parts and components trade, and whose exports are overwhelmingly final products. It is this unique position that has enabled China to increase its share of world exports of ICT products from 3 percent in 1992 to 24 percent 2006, and its share of electrical goods from 4 percent to 21 percent over the same period. Of course, these are not truly Chinese exports, but rather exports produced in China. Approximately 60 percent of all Chinese exports are produced by foreign corporations; the share is 88 percent for high-tech goods.

 

[tomedison]

A corollary of the main topic of this thread is how labor arbitrage affects prices and economic/fiscal policy. Here's a relevant piece by Robert Reich that describes how US jobs are paying lower wages than before. Reich doesn't speak much about the reasons, but the answer seems kind of obvious.
http://archive.truthout.org/the-real-news-jobs68236

 

[bigbadwolf]

A corollary of the main topic of this thread is how labor arbitrage affects prices and economic policy. Here's a relevant piece by Robert Reich that describes how US jobs are paying lower wages than before. Reich doesn't speak much about the reasons, but the answer seems kind of obvious.
http://archive.truthout.org/the-real-news-jobs68236

Lester Thurow anticipated this over fifteen years ago, if you look at his book, The Future of Capitalism.

Also, at the risk of going off-topic, you might want to take the employment figures Reich quotes with a pinch of salt. Here is a piece by Roberts:

The announcement on March 4 that 192,000 new jobs were created in February was greeted with a sigh of relief. But the number is just more smoke and mirrors, as I will show shortly. First, let’s pretend the jobs are real. What areas of the economy produced the jobs?

According to the Bureau of Labor Statistics, 152,000 of the jobs or 79% are in private services, consisting of: 11,700 jobs in wholesale trade, 22,000 in transportation and warehousing, 36,400 in administration and waste services (of which 15,500 are temporary help services), and 36,200 in ambulatory health care services and nursing and residential care facilities. Entertainment, waitresses and bartenders accounted for 20,000. Repair and maintenance, laundry services, and membership associations accounted for 14,000.

As one who has often reported the monthly payroll jobs breakdown, I am struck by the fact that these categories are the ones that have accounted for job growth for year after year. How can this be? How can Americans, who have had no growth in their real incomes and who are foreclosed from their homes and maxed out on credit card debt, car payments, and student loans, spend more every month in bars and restaurants? How can a few service areas of the economy grow when nothing else is?

The answer is that there were not 192,000 new jobs. Statistician John Williams estimates the reported gain was overstated by about 230,000 jobs. In other words, about 38,000 jobs were lost in February.

There are various reasons that job gains are overstated and losses understated. One is the BLS’s “birth-death model.”

 

[ptolemy]

A corollary of the main topic of this thread is how labor arbitrage affects prices and economic policy. Here's a relevant piece by Robert Reich that describes how US jobs are paying lower wages than before. Reich doesn't speak much about the reasons, but the answer seems kind of obvious.
http://archive.truthout.org/the-real-news-jobs68236

This article is so so at best. "The answer seems kind of obvious." You are right, the author does not prove any of the points he is making. If you have been around for a while, you know that any recession produces these results,..saw the same in the early eighties. And contrary to what this author says, people have and do price themselves out of a market. It occurs right before a recession,..seen that too.

 

[gouchobob]

This article is so so at best. "The answer seems kind of obvious." You are right, the author does not prove any of the points he is making. If you have been around for a while, you know that any recession produces these results,..saw the same in the early eighties. And contrary to what this author says, people have and do price themselves out of a market. It occurs right before a recession,..seen that too.

I don't think its at issue that a lot of manufacturing jobs have been moved to China due to lower labor costs. BBW is probably going to try to convince you this is the evil doings of big corporations with the connivance of the U.S. government. These are just business decisions people made to remain competitive. The Chinese have rigged the game by pegging their currency to the dollar and undervaluing it. I think this game is going to end fairly soon, the Chinese seem to want to hold on to it as long as they can, I think even they realize the jig is up when you look at their new 5 year plan. They have raising labor costs, salary increases there recently have been running 20-30% making their costs much higher, their days as the low cost producer are numbered. They face a very difficult transition from being the worlds low cost producer to something else. This is going to be difficult and they are going to have a lot of problems.

 

[bigbadwolf]

BBW is probably going to try to convince you this is the evil doings of big corporations with the connivance of the U.S. government. These are just business decisions people made to remain competitive. The Chinese have rigged the game by pegging their currency to the dollar and undervaluing it.

You just don't geddit. No-one was complaining about their exchange rate when multinationals hadn't set up shop there. When multinationals set up shop to take advantage of low wages (which indirectly means a favorable exchange rate) and were instrumental in creating the trade imbalance, then the powers-that-be hypocritically start shrieking that the Chinese have rigged things in their favor.

Instead of disparaging the links I give, try reading them. Particularly the one by Paul Craig Roberts. The corporate-controlled US government wants to eat its cake and have it too: the corporations get fat and sleek off labor arbitrage but China makes a convenient scapegoat and lightning rod. Ah, the stench of hypocrisy .... If the US government is serious about these imbalances, introduce tariff barriers.

 

[Aconcagua]

Another reason for record high food prices.