Amy Goodman is Wrong About Food Price Inflation

If the competition between Activists and Big Business were played out as a baseball game, we would see the Activists lineup featuring a fantastic infield and pitching staff, but no outfield, probably because the brawn needed to throw from center field to home plate is missing in left wing circles.

Big Business does not have nearly the same talent and brain power, but they do have a decent outfield so when these two teams play, Big Business hits loopy inside-the-park home runs that win ball games while Activists agonize and bicker over strategy.

Amy Goodman's recent comments regarding the current food crisis is a case in point.

http://www.alternet.org/story/84130

The recent surge in food prices, and commodity prices across the globe is not caused by the actions of speculators, as she suggests. Sure, speculators play a part, but blaming speculators for this surge in food prices is like blaming looters for the food shortages and riots in Haiti. Speculators and looters are just grabbing what they can grab while the grabbing is good; they don't cause the problem.

The deeper problem, the problem that Activists need to talk about correcting, but never do, because, in their mind, it means (erroneously) eliminating jobs -- is the problem of extremely low interest rates and too much money in circulation -- not too little. That's right. Too much money, not too little. Keep in mind that when people talk about money, they falsely think they are talking about something with limited availability whose value ebbs and flows based on supply and demand. No. None of that kind of asset backed money is used by any government in the world today. Today's global money supply is actually just trillions worth of interest bearing IOU's that people, companies and countries swap with each other in a global game of fiat currency chicken. The one holding the biggest stash of fiat currency loses. This is something German banks just discovered. They thought they were holding U.S. AAA mortgage backed paper. Ooops.

The fact that virtually all of the problems identified by Activists as threats are actually the result of there being too much of these IOU's instead of there not being enough of them goes against every bone in Activist's bodies. And yet, there it is. The current food crisis a prime example.

The Right Wing knows, but isn't saying because they do not want to kill the golden fiat currency goose, that the systemic problem underpinning the food crisis is the inability of American and various world central banks to allow for the price of money to be set by the market instead of the cheap money loving Politburo of America's Federal Open Market Committee (FOMC). To allow the markets to set interest rates would mean less fiat currency and less fees for bankers, so they naturally override the system and make money artificially cheap to pay for mergers and acquisitions and pay themselves really fat year-end bonuses.

If the price of money, or interest rates (the more familiar term), were set by the supply and demand of the market; the dot-com boom and bust, housing boom and bust, and now agricultural boom (the bust has yet to be written) would not have inflated the global commodity markets the way that it has.

Activists need to get their head around this and address this problem with a degree of financial literacy that is currently lacking. When Amy Goodman had Alan Greenspan on her show recently, neither Amy Goodman nor guest Naomi Klein touched on the issue of money supply. It was actually Jon Stewart in his interview with Alan Greenspan who scored a solid home run against the former Fed Chairman when he rightly made the connection between money supply and price inflation.

To remedy the 'hole in center field,' (to keep my baseball analogy going) the Left needs to argue for higher interest rates. Additionally, a study of how interest rates are set needs to be commissioned, followed by a discussion of whether or not America wants to be a a free market economy or continue as it is now - a command and control communist-like Corporate Union without a free market price discovery mechanism setting interest rates.

Additionally, the Left in America must not be suckered into falling into the trap of believing what the Right tells them -- that raising interest rates means economic doom and job loss. Nonsense. Sure, raising the price of capital adds cost but so what? It also adds stability, reduces volatility, increases returns on savings and pensions, cuts inflation, discourages rogue traders and reckless speculation and supports the dollar. Plus, if interest rates were set by market forces instead of government fiat the playing field would be level and encourage more entrepreneurs of whatever party affiliation to start more companies and create more jobs -- way more than would possibly be lost by an increase in interest rates. Conversely, low rates encourage monopolies that results in fewer jobs.

The Left in America needs to beef up on its macro-economics understanding of money and credit before leaping into the fray of discussing global food prices or be left to stare perplexed as another inside-the-park home run hit by the Right and Big Business who add more runs the score board virtually unopposed.

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Comments

[Rule Of Law]

Max, no doubt that monetary policy affects the prices of all things, raw materials, finished goods and commodities. But if this were a case of just low interest rates and over-availability then we would have seen the prices for all products surge relative to each other, and that hasn't been the case.

That leaves, in mine and Amy Goodman's minds--and the minds of many American farmers and their organizati­ons--marke­t manipulation as the more powerful force at work here in the so-called food crisis or shortage and resultant spike in prices.

I'm not giving short shrift to the effects of money on a sector--the infamous subprime debacle was fed by record low interest rates and a pumped up money supply that created a false boom in home valuations. But when market makers take an active hand in manipulating commodities then we get the quadrupling of prices in the space of a year or year and a half that even real estate couldn't match. I've included a link to the only article to make it into the MSM re this market manipulation and I give it much credence as the complaintants in this story are farmers and producers who understand better than any of us the mechanisms of the market they are in.

[maxkeiser]

we are seeing prices surge across the board - as Keven Phillips on these pages points out, the true rate of inflation in US is now close to 12% - any suggestion otherwise is usually just statistical lying.

...and this is a monetary event going back 20 years with the beginning of greenspan's massive increase in money supply that led to the dot-com boom and crash - to bail out the dot-com stocks a massive bubble was inflated in real estate - that is now crashing - and that money is flowing into 'stuff'' like commodities. Speculators as such, really don't have to do with this as I mentioned.­.. it is wrong to point the finger at speculators as they are a pimple in size when compared to the Fed - and their actions can be minimized with a responsible Fed.

[RoloTomassi]

I agree at least with the premise of cheap money, and the need for higher interest rates; how can the value of anything be gauged realistically when currency is multiplying like TRIBBLES [one for the Trekkies!].

But you're Friedmanite Prayer Cloth is showing when you venture off into defending the traders, who behaving in distinctly criminal fashions these days; true, they are merely being opportunistic, but when the gross opportunitists drive down the overall economy for the sake of driving up food and fuel stock prices [all for the sake of personal gain], we are supposed to attribute that to the completely bogus socio-economic darwinist theories that propose these situations arise as an indisputiable force of nature? That ultimately, all of this will self-correct to the betterment of all if we just let the free-market beast run wild?

HOGWASH. We're not buying it anymore.

[maxkeiser]

The Fed can eliminate most of all perceived volatility by raising the margin requirements for leveraged trading in stocks, bonds, futures, currencies, etc. They don't for the same reason they keep overall rates too low...

[WIpatriot]

And when the Fed gets complete control of the economy as Paulson has surrendered, what do you think will happen??

[Henry]

It might be a good idea to look at the CAP (Common Agricultural Policy) of the European Union. There is no market in Europe for corn wheat oats etc. The Ministers of Agriculture set annual prices for farmers in the Union. These prices, looking back, have far surpassed (sometimes tripling U.S. market prices) world prices, yet any export to Europe must be assessed a tax which when added to the exported commodity neutralizes the gain or the difference of the prospective sale. This keeps a lot of small farmers in Europe. It is a way of life. However, the rest of the world is screwed.
The Reagans, the Bushes, and the Clintons have done nothing about this unfair trade with Eurpoe even though we spent 100s of billions protecting them from the red bear! (what a miserable joke we are)
The point is one similar to oil. Why should world commodities be denominated in dollars? Why not Yen, Euro, Rouble? The free market (you know, the one we hear so much about) requires a meeting in the market place of competing currencies to trade their respective commodities. Yen, Euro, Ruble, Baht, Real, Kroner, Rupee etc. Yet the hegemony of the USA requires commoditiy prices denominated in U.S/. dollars. This skews the value of the dollar because the demand is greater than it would otherwise be. A free world would debunk the monopoly of the dollar. And I for one... think it's coming.

[RoloTomassi]

"A free world would debunk the monopoly of the dollar. And I for one... think it's coming."

Indeed; OPEC, I believe, intends to start the trend eventually, but only if they see the opening to deliver the economic "Death Blow" to the US. BushCo has defended the interests of the Saudis as valued business partner, and as with many illogical US policies, it makes no sense, given the overall national animosity towards the US [which is, realistically, true for the entire region, and rightly so]. This may actually be the one objective that Shiite and Sunni Muslims can agree on: use the oil industry and the devalued dollar to knock the legs out from under a longstanding oppressor.

[Henry]

There is a notion in economics that: The historical real interest rate in a functioning capatilist economy "needs" to be 6.0%. (real rate is Prime minus inflation) This is the resolution to the problem that you identify.
When "easy" Al Greenspan had the Fed Funds rate at 1.0%, Prime was at 4.0% (or thereabouts). Subtract inflation from that 4.0% and you get a borrowing at 0.0% or below (depending on your definition of inflation). Add to that the fact that interest rates for deposits will hover at 3 to 4 hundred basis points below Prime and you notice there is no incentive to save. We have been through a strange flight with Capt Alan Greenspan in charge of the flight. Funny money at nearly ad infinitum, Wall Street speculators thrilled, and republican politicians stating that "supply - side" economics is the salvation of human kind.
If it is true, and the "real" rate of interest should be 6.0%, then you are looking at PRIME of 9.0% today in order that the market forces make the enlightened moves of the invisible hand as described by Adam Smith. Alan Greenspan is certainly well educated enough to know the lightening involved in a Fed Funds rate of 1.0%.
Now, imagine the housing debacle with rates for mortgages at 9.0% and feel some sympathy for uncle Ben. (We are still experimenting with money... there is no solution, free market or otherwise)

[maxkeiser]

...what would be great is if the US gov't reported truthfully the true CPI, productivity, and employment numbers. Garbage in, garbage out... having said that, as I mention, if the interest rates were set by supply and demand capitalism, as that word is understood, would have a shot at working. Critics who shoot down capitalism are not seeing capitalism in the US so are critical of something other than capitalism. As i mention, in the US we have something closer to soviet era communism; price fixing, no free price discovery for money, huge military, domestic spying, etc.

[Henry]

Ahh, Max. But we have nothing close to the soviet communist era! You say there is no free price discovery for money. That is true, but it is not a shortcoming, indeed, it is a necessity. Think of a republican hiway system with no traffic lights or rules of the road. (scoundrels are over the place)
Remember back in the 1800 when local banks issue "bank notes" as the funding issuance at the booking for loans? The problem was that this money had no univerality as legal tender. It is a necessity to have the Fed run the clearing system and "target" the fed funds rate for the governance of liquidity in the system and also for the floor above which competition exists for loan rates. Remember when a bank funds a loan it creates a deposit. Deposits are money, they spend like money, and when that loan is repaid, it extinguishes the same amount of money it once created. This is in the hands of the banker and the applicant. This separates us from the soviet system completely.
We've come through a reckless easy money period and now the abuses must be atoned for. We are still experimenting with money.

[boogieandjive]

Right on.

Commodity price rises don't cause inflation. Inflation causes commodity prices to rise.

I notice that other than Bloomberg news, very few media outlets are asking the next logical question as to these speculators driving commodity prices higher . . . obviously part of the problem is that there is too much money and everyone demands a 20% annual return on their cash . . . just to keep even with inflation. If the Fed stopped printing so much money and the government stopped printing so much money via 'stimulus checks' and no bid military and surveillance contracts and banks stopped printing so much money through 30 x leverage and consumers stopped printing so much money by their own persona 30 x leverage . . . well then, food prices wouldn't rise.

[mjasper]

Thanks Max, I live and invest in a whole different world now thanks to you.

[tinyrooster]

I'm surprised by many of these comments, which take strenuous issue with what Max has to say and yet don't seem to marshal many real facts or much in the way of argument to dispute him. Amy Goodman may be right about many things, but it's also possible that she's wrong on this one matter. I think it's good to have a dialog between thinkers on the left--that's one of the strengths of the left after all--that we have thinkers. It does nobody any good to turn the debate into high-minded name calling ("snake oil," "corporate journalism"). Personally, I appreciate that Max makes an effort to reach people with humor, but I suppose that is a question of taste.

[dadw5boys]

Most of what is written here come from a book on production control that suggest it is better to produce less and profit more. Better to have employees sitting around than working, not carrying any stock in the warehouse and do not turn the raw materials into finished goods until there is an order for them.
Tighter control on price with instant increases and no worry about the competition because they are doing the exact same thing.

[MenopausalMick]

Peak oil will mean inflationary gas prices from now on, particularly with India and China beginning to compete as consumers of this finite energy. The ever climbing price of oil translates down into almost all of our economy.

This is WHY the warmongers keep taking us to the Middle East. They're not stupid, well with one obvious exception.­..but the power behind the Power wants the last final twenty years of an oil based economy.

The problem is,...we don't have twenty years...no­t fiscally..­.not environmen­tally...no­t even oil supply, considering the new markets for consumption that are opening up in Asia. The Chinese are bidding for the world's limited oil supplies and at the SAME time they hold much of the American debt.

Seriously, everybody.­..in all political walks... better start looking at some realities and move off of whatever dogma their affiliations spew out.
pt2

The author says leftist must push for higher interest rates. Nobody will have to push anything because the Fed is just about out of the ability to lower rates in an attempt to stall what is going to happen if we don't wake up as a nation and right bygawd now.

Anybody remember how the Soviet Union fell as a world power? Reagan outspent them on military purchases and the Soviet debt took them down. But, Reagan's budget deficit isn't even on the same planet with what the last seven years of Bush has done.

Menopausal Mick

[maxkeiser]

in case you missed it, here's my film on Peak Oil

peaked part 1
http://www.youtube.com/watch?v=KrjX4Nf_wGM

peaked part 2
http://www.youtube.com/watch?v=-sYLFqg2e3I

[MenopausalMick]

Yep...saw it. I've been researching this topic some. I think your film is correct and the energy specialists in this country are way off on how much time they have left to keep the status quo with wars.

People are dying for oil so the warmongers can have what will only be another four or five years until peak (my optimistic guess).

That's very little time to convert mainstream to alternative, especially when the economy continues to tank while we try and do a ballet maneuver on that fence of nasty budget deficit.

We've been very spoiled in this country but we're going to get a taste of how the rest of the world lives if we don't wake the heck up.

Where are all the hippies??? Come on, my brothers and sisters...­get active! We must have alternative energy NOW. OH, and fix the voting machines while you're at it.

Menopausal Mick

[MenopausalMick]

The author is right. I think the only thing holding it together right now is the world waiting to see what our November elections produce. If we elect another McBush, we signal to the world that we will continue to create record breaking unbelievable national debt with no national move to focus on alternative energy...a­nd the belief in the value of the American dollar will go even further in the tank than it already is.

Alternative energy production is like a mini Industrial Revolution waiting to happen world-wide. If we continue to let our economy be oil consumption driven we lose the race to gain the financial advantages of being the leader in creative energy sources AND we'll be basing our economy on an energy source that is currently edging towards peak production. (not enough space or time to go into what that means ....just google it.)

(dadgum post is too long...hav­e to break it up)

Menopausal Mick

[MenopausalMick]

I hate computers. I split that post up into two and of course, they posted out of order. Oh well, read the second one first, I guess.

Or have a shot of scotch and it wlll all be clearer.


Menopausal Mick

[tompoe]

Interesting stuff. Keiser claims Amy Goodman is wrong, that she claims speculators are driving the bus that is running over the world community. He then treats Wall Street economy as if it is the real economy. He infers that commodities are real, are reflections of economic reality. Florida monitors traffic along its roadways. There's been a significant drop in traffic flow over time. Were we able to access the data from the oil companies, chances are excellent that we would find a drop in demand. Yet, what do we see? Rising prices, as if desperation were setting in, as one country after another, removes the neocons from office, and in a matter of months, so will America. Speculators are absolutely certain that their days are numbered. Keiser is an operative, without enough common sense to fill a thimble. His need to please the corporate thugs, to be a wannabe corporate journalist, has driven him to write one of the silliest articles, yet. I encourage everyone to visit the site of Democracy Now! and decide for themselves, who offers substance on the subject, Keiser, or Amy Goodman.

[maxkeiser]

the Wall St. economy is 'our' economy; close to 25% of US corporate 'earnings' come from financial transactions, manufacturing less than half of that. Sure, florida is driving less, but the world is driving more; oil being a world commodity. But again, the 'demand' side of this can be addressed most expediently by raising rates as i mention.. on the topic of corporate favoritism, search me and you'll find that I am not exactly currying favor with the corporate world. check it out

[FearlessFreep]

An equally important objective is balancing the budget. Which means getting out of Iraq and raising taxes, mostly on the rich.

[WASanford]

II think that the baseball analogy is totally inappropriate. There are lives in the balance and it's much more serious than you let on. This is not a game.

A country that is experiencing inflation has too much cash* in its economy or too few goods and services. It is much more likely that both of these conditions are at fault. The immediate response should be to take some cash out of the economy by taxing it from those who have it and throw it into the furnace, yes I said throw it into the furnace.

If the government has control of its Federal Reserve Bank, the creation of cash can be slowed by raising the reserve banks must hold against their assets, making it more difficult for them to create cash by making loans.

But what is a nation to do when it has stupidly papered the world with its money, as the United States has, and surrendered its control over it? The formula is the same except this time it means tariffs on incoming goods and a much needed turning around of a negative balance of trade. The object again is to remove the excess cash from the economy.

If you are rich, then I’m sorry to tell you there will be more taxes. It’s that awful Willie Sutton effect; you tax the rich because that’s where the money is.

* I’m using the word cash for all the different forms of money, including credit.

[bgregs]

I'm gonna have to say that the baseball analogy is a reasonable use, even with lives at stake, since it makes it easier for people to understand­......

[oldpotsmuggler]

Since when does "macro economics" mean conditions that benefit the American people at the expense of some 6.5 billion other people that we share the planet with?

Dude, I'm willing to admit that I can't get my mind around the whole planet as it exists today, but I'm sure that you would have written a very different piece if you were able to. Billions of people today are better off than they would have been if "the system" were not throwing prosperity about in ways that your thinking does not appear to have taken into consideration. Sure, the rich have gotten richer, but so have many of the folks in the lowest 85 per centile of the population of Earth. I see no acknowledgement of this reality in your thoughts.

Are "Americans" the only people who matter?

[racom]

Smells like a snake oil sales spiel to me. Must be a student of greenspan, kinda like speaking in tongues, nobody knows what the hell you are saying but your soapbox means we are supposed to listen and applaud as though this is deep and meaningful. I'll pass!