In 2005, someone asked me: “John, when can you ever be wrong? You’ve said that there’s going to be a financial crisis, but when it doesn’t occur, you just say that it hasn’t happened yet. So when can you ever be wrong?”
My response was: “Public debt has been increasing exponentially. If it starts to level off and fall significantly, then you can say that I’m wrong.”
FAO Food Price Index, June 2011
Well, here it is 2011, and public debt is still increasing exponentially. There has been what many pundits call “the worst financial crisis since the Great Depression.” I would say that with public debt continuing to rise, the worst financial crisis is going to get far worse.
Things like public debt can be compared to a person’s blood pressure, often called a “silent killer.” When a person’s blood pressure goes up to 250/150, you can’t be sure he’ll die right away, but there’s a good chance that he’ll die pretty soon.
So today we’re going to update three of these “blood pressure” type indicators.
On Thursday, the UN Food and Agriculture Organization (FAO) announced that the global food price index, already at historic highs, increased 1% from May to June, and is 39% higher than in June 2010. The price of grains fell slightly, but the price of sugar increased sharply, thanks to decreased production in Brazil, the world’s largest sugar producer, according to Bloomberg.
Around the world there are “megacities,” each containing tens of millions of people living in shacks or abandoned warehouses, with no access to farmland. Families in poverty in those cities often survive by foraging in large garbage dumps for scraps of food left over by people who can afford to buy food. As population continues to increase, these megacities multiply. These problems have gotten many times worse in the last two centuries because medical discoveries have lowered the infant and child mortality rate from 40-50% to 1-2%, leading to huge masses of young men needing to feed their families, and ready to fight wars. That’s why 20th century wars killed many times more people than 19th century wars.
Prices have been rising fairly steadily since 2000, after the Green Revolution petered out in the 1990s. When the price of food goes up, more and more people are pushed into these poverty categories.
Food prices are another “high blood pressure” type measure. If food prices even leveled off and started significantly falling, it would mean that something important has changed. As long as food prices continue to increase, the world can only be headed toward war.
European bond yields
European politicians are ABSOLUTELY FURIOUS at Moody’s Investor Service’s decision, announced on Tuesday, to cut Portugal’s credit rating to below investment grade. Even worse, Moody’s gave as one reason for the downgrade the dysfunction of European politicians.
Moody’s announcement cause an enormous spike in Portugal’s government debt bond yields (interest rates), and a smaller spike in Greece’s bond yields:
Portugal 2yr, Portugal 10yr, Greece 2yr, Greece 10yr bond yields as of July 7, 2011 (Bloomberg)
Yields for 10 year and 2 year bonds increased 3% and 4.5% respectively, to 12.9% and an astonishing 17.5%.
Even without these spikes, it’s been clear for months that Portugal’s bond yields are headed to “credit card rates,” just a few months behind Greece’s bond yields doing the same thing.
This spike was caused, in my opinion, because more people are beginning to understand that the “French plan” that we’ve been describing, that requires investors to take a “voluntary” loss of money, is completely phony and always has been.
I heard one analyst on Bloomberg TV on Thursday, with no one else contradicting him, say that the whole plan was a joke, and that it was purposely made as complicated as possible by the Europeans to hide the fact that it’s a joke. This is what we’ve been saying for a while, of course, but what’s different now is that this opinion is becoming mainstream. Investors understand this, and that’s why they’re pushing Portugal’s bond yields to the same astronomical levels as Greece’s.
Nonetheless, European politicians are furious, and hinting at some kind of retaliation. Deutsche Welle quoted German Chancellor Angela Merkel as saying,
“It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe. It is important that the troika (EU, IMF and European Central Bank) do not allow their ability to make judgments to be taken away. I trust above all the judgment of these three institutions.”
Like food prices, high bond yields are another “high blood pressure” type measure. Bond yields on all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) have been increasing, and unless they start to level off and fall significantly, then it’s a sign of an impending global financial crisis.
Worldwide increase in xenophobia
A number of web site readers of my recent article, “6-Jul-11 News — Denmark’s border controls called a ‘European crisis,'” indicated that they consider Denmark’s decision fully correct and justified.
I personally take no position on whether Denmark’s actions were “good” or “bad,” and almost anything is good for some people and bad for others, just as high food prices are presumably good for farmers.
I simply point out that the worldwide increase in xenophobia is just one more “high blood pressure” measure that’s been increasing steadily and significantly since the 1990s, and whether it’s “good” or “bad,” it still means that we’re headed for a world war, and that depresses me.
From the point of view of Generational Dynamics, what these three “high blood pressure” indicators have in common is that they’ve all been increasing substantially since the generations of World War II survivors all disappeared (retired or died) in the 1990s.
Stein’s law was formulated, in various wordings, by the late economist Herb Stein. It’s usually stated as follws:
Stein’s Law: If something cannot go on forever, then it won’t.
Each of these three indicators — food prices, bond yields, xenophobia — is increasing, and the increases cannot go on forever. It remains to be seen exactly what scenario will stop them.
Marine Le Pen’s populism polls well in France
French politician Marine Le Pen is attracting new voters to the National Front, the right-wing populist party founded by her father, by railing against immigration and globalization. With France’s elections a year away, Le Pen is already polling ahead of President Nicolas Sarkozy. Spiegel
Brazil’s halts corn exports after frost cuts harvest
Excessive frost has already reduced Brazil’s corn crop by 30%, and now a new cold snap is expected to lower it still further. This will present problems for Brazil’s livestock farmers in finding sufficent feed, and it will be a difficult year ahead for chicken and hog producers as well. The result is that all corn exports have come to a halt. AgriMoney