Monday, April 21, 2008

Mmmmm Food

Food shortages in California to go along with the food riots throughout the rest of the world. All that combined with oil at $117 and a mini rally on Wall St.

How is all this related? The MSM surely won't spell it out, so allow me.

About 6 months ago it started dawning on the powers that be in NY and DC that the economy was FOOKED and FOOKED hard. The cause was the easy lending of the past 5 -7 years. The lending that people making $20K a year took and bout $700K houses, $25K Harley Davidson bikes and $70K Hummer H2s, fully pimped with spinners and all.

Well the only way the government knows how to "fix" a problem is by making it Even worse. So the solution to solving an issue caused by lax lending was solved by making lending even more attractive. The Fed started printing money by lowering interest rates. It did that over and over and over. As any econ 101 student will tell you, when that happens, a country's currency is devalued. The US dollar is down 15% so far this year alone. In 2000 1 US dollar bought $1.60 Canadian. Today USD$1 will get you CAD$1. Same with the Euro. Today 1 Euro will get you $1.60. Less than 10years ago USD$1 would get you about 1.20 Euro.

But that doesn't matter to the Fed. Its only concern is satisfying Wall St. And Wall St loves a rate cut. And stocks are on a mini rally these days as the Fed is well on its way to cutting rates to 0%.

So what does all this have to do with food riots and oil at $117? Well oil as well as other commodities like wheat, rice, beans, etc are priced in dollars. Devalue the dollar the price of everything goes up. The Haitian - as well as most 3rd world - currency is tied to the $US directly or indirectly. So as the dollar as been flushed down the toilet everything bought with $USD or currencies linked to it is more expensive.

Now for the typical American, gas going from $2 to $4 is a bitch. But it's not life or death. However for a Haitian the price of wheat doubling is a life or death situation...literally.

Think about all this next time you hear some idiot on CNBC cheer another rate cut. Think of this next time you hear someone cheer the fact their VISA interst rate has been cut from 21.99% to 21.74%. While you save $1 a month in interest costs, your good buddy Mr. Hedge Fund manager makes an extra $100M a year and another couple of million people around the world go hungry.

But it's all worth it to keep the American consumer spending right Ben Bernanke?

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