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

[Ries]

You are wrong that no one wants to hold dollars.
There may be some diversification- but every treasury auction still sells out, at the lowest possible interest rates.

If no one wanted dollars, the Fed would have to RAISE interest rates they pay. But, instead, they are going down. And they are already essentially zero. In fact, people still buy T Bills that pay Zero.

If nobody really wanted dollars, how the hell would that happen?
You have a choice- you can buy Brazilian government bonds that pay 12%, or US bonds that pay .023 %- and yet the US bonds sell out every time.

And your food explanation doesnt hold water- foreign produced foods are priced in a wide variety of currencies, which is then exchanged for dollars- so if the dollar goes down some food inevitably becomes cheaper, and other foods become more expensive.

Futures may be priced in dollars- but thats an entirely different market, which has some overlaps with retail food prices, and is, in other ways, completely removed from them.

Again- if the dollar goes down against the Euro, your Euro buys MORE US grown food. All US food prices are not going up to match the dollar's drop. Some are, some arent.

If the dollar goes up against the Euro, Euro priced food becomes more expensive in the USA- and local american producers grow more crops because their sales prices have gone up.

In my area, a High dollar has resulted in hundreds of acres of apple orchards being ripped up, and potatos being planted instead.
If the dollar drops enough, the apples become cheap enough to the Japanese and Chinese that we will replant apple orchards, and grow more- I have seen this cycle happen several times in the last 40 years.

You are trying to make an extremely complicated system fit a very simplistic predetermined ideological mold- and it never will..

 

[bigbadwolf]

You are wrong that no one wants to hold dollars.
There may be some diversification- but every treasury auction still sells out, at the lowest possible interest rates.

You don't know what you're saying. I refer you to a recent article in BusinessWeek:

The Fed announced in November that it would buy $600 billion of Treasuries through June in a bid to boost the recovery and reduce an unemployment rate lingering near a 26- year high. The program, known as QE2 for the second round of so- called quantitative easing, followed $1.7 trillion of asset purchases that ended in March 2010.

"Quantitative easing" refers to the Fed printing money, which it then uses to buy Treasuries with. More here:

A mortgage industry vet wrote, “Now, here I am printing money out of thin air, creating electronic entries for specified amounts on my own balance sheet. I then, on my own wire, aka Fed Wire, send that amount over to the US Treasury Department’s operating account. At exactly that same moment I simultaneous enter an asset entry on my own balance sheet which is identified by a specific CUSIP number for that particular U.S. Treasury bill or note that I just purchased with my magic money. Voila – I am making interest on money that didn’t exist 30 days ago.

If no one wanted dollars, the Fed would have to RAISE interest rates they pay. But, instead, they are going down. And they are already essentially zero. In fact, people still buy T Bills that pay Zero.

I reiterate: try to understand what "quantitative easing" is, and why it's there.

If nobody really wanted dollars, how the hell would that happen?
You have a choice- you can buy Brazilian government bonds that pay 12%, or US bonds that pay .023 %- and yet the US bonds sell out every time.

Ever wondered why? Ever wondered what would happen if the Fed stopped buying its own Treasuries with money it manufactures? How do you think the US is now funding its fiscal deficits?

And your food explanation doesnt hold water- foreign produced foods are priced in a wide variety of currencies, which is then exchanged for dollars- so if the dollar goes down some food inevitably becomes cheaper, and other foods become more expensive.

You're either not reading what I've written or it is not sinking through. Agri commodity prices are denominated in dollars, whether they're produced in USA, Europe, or Russia. We're talking of those dollar prices. This notion does not seem to be sinking in.

 

[barnaby33]

You are trying to make an extremely complicated system fit a very simplistic predetermined ideological mold- and it never will..

Well at least on this I think we can partially agree. Humans function on simplistic models. However I think you are also trying to ascribe to market forces that which is directly attributable to non-market (albeit very complex ones.)

So you didn't really answer either of my questions, the peg and zero interest rates. The peg may have been a good decision for the Chinese in the past, but why now? I challenged your assertion that America isn't the most important Chinese trade partner by asserting that if that weren't true the peg would be an expensive anachronism. While I agreed with you that the Fed doesn't control where the money goes. It's printing and its going somewhere. and I use zero percent interest rates + QE as my exhibits of proof. It feeds into your assertion that people still want dollars. Central banks do, people probably not so much. Oh and why food has monolithically increased in price to me is yet another outgrowth of QE in that the money is printed in dollars, and then "swapped" for all sorts of other currencies. Not to mention that most of the other governments in the worlds are printing to play the competitive devaluation game. As you stated and I agree, its very complex, with many moving parts.

I don't believe I ever said that the Fed was the only reason that food prices were increasing, however the rate of increase pretty much across the board in the last two years is what renders your argument about complexity moot.

 

[bigbadwolf]

It feeds into your assertion that people still want dollars. Central banks do, people probably not so much.

Think through the logic: Why would anyone (including central banks) want to augment their holdings of the currency of a country which is racking up persistent current account deficits? Ordinarily people fly from such a currency, thus causing it to devalue, and (hopefully) thus correcting the trade imbalance. No-one wants to hold dollars. This is a big chunk of the reason why gold and silver have been appreciating and why there's been a move towards safe-haven currencies like the Swiss franc.

 

[steveinbsas]

I've read all of the posts in this thread. I have a degree in economics, but I know that means squat, especially when it comes to survival: there are no jobs for economists in a dog eat dog world.

My "fixed" dollar income is shrinking (it buys less food each month). I have little faith in the dollar and I know that gold isn't any more edible than dollars. I already have at least a one year supply of food (mostly rice and beans). I have the ability to grow more where I live now (especially citrus fruits and potatoes). I spent the day rebuilding the chicken coop.

Unfortunately, my half Chinese friend (from San Francisco) who taught me how to cook did not teach me anything about the correct preparation of chicken feet. Nonetheless, l still expect to be able to "scratch" out a living and survive here, even if the dollar collapses and Walmart shuts down.

At the least, I hope I will always be able to trade home grown food with my neighbors, regardless of the price in stores (until they're looted).

 

[John.St]

Think through the logic: Why would anyone (including central banks) want to augment their holdings of the currency of a country which is racking up persistent current account deficits?

The usual reason why you keep a bad debtor afloat is, if you don't he/she/it will go bankrupt and your holding will drop to zero. Keeping the debtor afloat you can still pretend it has full value.

 

[bigbadwolf]

The usual reason why you keep a bad debtor afloat is, if you don't he/she/it will go bankrupt and your holding will drop to zero. Keeping the debtor afloat you can still pretend it has full value.

But at some point you throw your hands up in disgust and decide to cut your losses. Which for the Chinese will be over a trillion.

 

[bigbadwolf]

I've read all of the posts in this thread. I have a degree in economics, but I know that means squat, especially when it comes to survival: there are no jobs for economists in a dog eat dog world.

My "fixed" dollar income is shrinking (it buys less food each month). I have little faith in the dollar and I know that gold isn't any more edible than dollars. I already have at least a one year supply of food (mostly rice and beans). I have the ability to grow more where I live now (especially citrus fruits and potatoes). I spent the day rebuilding the chicken coop.

Unfortunately, my half Chinese friend (from San Francisco) who taught me how to cook did not teach me anything about the correct preparation of chicken feet. Nonetheless, l still expect to be able to "scratch" out a living and survive here, even if the dollar collapses and Walmart shuts down.

At the least, I hope I will always be able to trade home grown food with my neighbors, regardless of the price in stores (until they're looted).

Can't quibble with that and if I had the know-how I would be doing exactly the same thing myself.

 

[Ries]

As I understand it, you seem to be saying that ONLY the fed is buying treasuries, and that QE is, in and of itself, responsible for the fact that treasuries are still selling.

But QE purchases have been around $300 Billion since mid fall, when this round started.
Monthly sales vary, but are usually well over $100 Billion- which means even with the QE sales, somewhere around another $300 Billion in bonds and T bills have been bought by non-Fed buyers in the last six months.

I dont know about you, but to me, $300 billion does not indicate complete distrust and "no one" wanting dollars.

You also seem to be inferring there is a direct linear relationship between increasing food prices and your mysterious decline in the value of the dollar- again, I ask- the dollar declining against which currency?

I maintain that the dollar dips and rises constantly, at differing rates, against different currencies.
And that food prices are much more dependent on energy prices and demand, as well as weather.

I know that the food producers where I live do not get to raise or lower their prices depending on the dollar exchange rate- and I live in ag country, and own 30 acres of prime farmland myself.
Often my buddies who export herring roe, for example, are completely helpless to raise or lower prices, and often their price FALLS with the declining dollar. They are going up to Alaska in the next few weeks, and we shall see what herring prices do- but there is definitely no direct relationship in any of the prices at the wholesale, producer level, around here.

 

[John.St]

But at some point you throw your hands up in disgust and decide to cut your losses. Which for the Chinese will be over a trillion.

As long as you can find an idiot seller, all is well

China buys up the world
http://www.economist.com/node/17463473

China buys Greek when no one else will
http://money.cnn.com/2010/06/18/news/international/China_investments_Greece.fortune/index.htm

China Buys Australia On the Cheap
http://www.time.com/time/business/article/0,8599,1879866,00.html

China Buys More Japanese Debt Than Ever Before
http://www.businessinsider.com/china-buys-more-japanese-debt-than-ever-before-2010-9

etc., etc. - guess which currency they are paying in.

Try this google search:
http://www.google.com/search?q=%22china+buys%22+OR+%22chine+bought%22&hl=en&num=10&lr=&ft=i&cr=&safe=images&tbs=#q=%22china+buys%22+OR+%22chine+bought%22&hl=en&lr=&prmd=ivns&ei=bil0TZvwHMeftwekroSvCQ&start=10&sa=N&bav=on.2,or.&fp=eda1291fdd569703