Food prices skyrocketing...

Global food prices soared by 10 percent in July from a month ago, informed the World Bank. The main reason for this is "unprecedented summer of droughts and high temperatures in both the United States and Eastern Europe". If we look back a year ago, we will see again soaring prices and again any good sounding excuse. In 2011 guilty for price jump was the poor crop in Russia. Next year something new will be invented as a price pumper - why not the phases of the Moon.

But let me tell you who is the real reason of skyrocketing prices. It is Obama, Bernanke, Trichet, Draghi, Merkel, Sarko, Hollande... and all other heroes of money print era. Heroes that decided to resolve the economic problems by issuing new and uncovered money.

There was no instance in history of an uncontrollable increasing the quantity of money not to lead to an inflation. No such case. Much politics has tried this and all finished in an inflation. No exceptions.

When inflation comes, some products are more sensitive. Food, fuel and Gold are the first to become more expensive. Exactly this is what we are seeing now.

If really the droughts were the reason of soaring prices then there would not be a change in Oil and Gold. Why they also are going up?

The answer is very simple -  the markets are over flooded with money that kick the prices up. There is enough money for all markets. And much more money will be added soon as the debt crisis is far from its end. The most inflexible markets are energy and food ones as the consumption of these products can not be so easily reduced. So the increase of the price due to more money on markets will not lead to less consumption to press the prices down. In addition the quantity of these products on markets is stable and can not be easily increased. So when more money appear the prices simply go up.

Similar is situation with Gold. Its quantity is almost fixed. So when more dollars and Euros appear on market, the price is up.

Inflation is a very dangerous phenomenon. It can lead to hunger in some countries and even to wars and revolutions. So called "Arab spring" was inspired mostly by rising food prices, and not so much by a hate to dictators and aspiration for democracy. Such scenarios are to repeat and the consequences can escalate.

The main guilt for this lays on our own politicians that we elect and that look for an easy and magic decision of the crisis. No easy decisions. Easy is only the way to the catastrophe.

Dobri
August 31st 2012

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