Los Perros, Nicaragua
Mr Bernanke said that the rapid growth of developing economies was behind the increase in food prices, rather than the Fed's decision to embark on a second, $600bn (£371bn) round of printing money. "Clearly what's happening is not a dollar effect, it's a growth effect," Mr Bernanke said in a rare question and answer session with journalists at the National Press Club in Washington on Thursday.Well, how do you like that? It's growth that is driving food prices to records. Not money printing.
But wait...hold on...is the emerging world growing faster now than it was two or three years ago? Nope. Hmmm.... Is the growth a big surprise? Did something happen to make investors and traders suddenly realize that...well...hey...the world is growing!
Then, how come prices are shooting up now? Why didn't they shoot up 4 years ago? Or 2 years ago? Or last year? What has changed?
Well...how about the $1.5 trillion of brand spanking new money that the Fed put into the world's money supply in 2009 - 2010? And how about the $600 billion more it's pumping in now?
That's new, isn't it? So, here's a wild and crazy idea. Maybe...just maybe...that the fundamentals of supply and demand really do work. Maybe...just maybe...if you increase the world's hot money supply (hot money does not come from an increase in real wealth or consumer demand...but from central banks' low interest rates and money printing)...well, maybe prices on global, auction-priced goods - such as food - go up.
Just look at what is happening to other global, auction-priced goods. Oil, for example, soared above $100 over the weekend. And look at gold. Put oil and food in terms of gold and what do you find? That they haven't gone up at all! What does that tell you? That the 'growth' hypothesis is nonsense. In other words, yes...the developing world is growing. It has been growing at a high rate for the last 20 years. Nothing new there.
What's new is that central banks are printing money at a record pace. They are creating more bubbles.
*** Isn't this going to end badly? Why would governments play such a dangerous game? Aren't they putting their own credibility, currencies and solvency in jeopardy?
Yes, of course they are...
But there is something you have to understand. Governments always look out for the elite groups that control them. They're not necessarily concerned with the betterment of humankind...or even the best interests of their own people.
Here's an example, from the New York Times:
"Public deficits and debt relative to gross domestic product have ballooned in the last three years for one simple reason - the big banks at the heart of our financial system blew themselves up. On this point, the conclusions of the Financial Crisis Inquiry Commission, which appeared last week, are very clear and utterly compelling.Meanwhile, Barry Ritholz says the feds are using Fannie and Freddie as another way to shovel taxpayer money to Wall Street. As you know, the Fed already plays Sugar Daddy to the bankers. If the bankers have some trash mortgage-backed security that they lost money on, the Fed buys it from them at an inflated price. Of course, just having the Fed in the market buying MBSs inflates the markets.
But it turns out, the Fed isn't the only one. The US Treasury also gave Fannie and Freddie a blank check to save the housing industry. But they let the housing industry go bust. Instead, they took the money and saved the housing industry's creditors. The big banks, in other words. Wall Street. The richest of the rich.
Why should taxpayer money be used to bail out the rich?
Well, they're not just rich. They're powerful. They're the people the government was set up to protect. Give the feds a break; they're just doing their jobs.
The private sector innovates. Government procrastinates...hesitates...and vegetates.
That's just the way it works. That's what government has always been for. The government of ancient Egypt protected the pharaohs. The government of the Ottoman Empire protected the Ottomans. The government of Ghengis Khan looked out for Ghengis.
And who does the US government look out for? Naturally, it looks out for the elite groups that control it. Who's that? The big banks, of course.
More on that tomorrow, too.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.