Thursday, March 17, 2011

Malmgren: The Food Crisis Will Get Worse

I have profiled Phillipa Malmgren before, a top insider who has worked at Treasury and with the Plunge Protection team, she early on warned about rising food prices. She's still warning about food prices and unrest it may bring to even more parts of the world.  Here's what she told the Australian:
We've got worldwide food inflation that's hitting the emerging markets harder than anywhere else. It is a really serious problem and it explains the violence we've seen in North Africa.

Food prices drive politics. Half the income of an emerging market worker is spent on food and energy. This drives people into the streets where they elevate their old grievances. It tests the social fabric. This means that places like North Africa where that fabric is weak descend into coups and violence. In other places like Bangladesh it appears in the form of massive wage demands.

We've been talking about this for the past 2 1/2 years. During the financial crisis lending to farmers stopped, so they didn't plant. We've had a supply-side shock for most things we extract from the planet, agriculture, mining and oil. I think we are going to continue to see very tight food supplies. Capital is not being put to work in farming around the world.

The pressure is severe in China. Everybody talks about China's 10 per cent growth rate. But the inflation rate is now 6 per cent and unofficially it's 10 per cent and that's not a sustainable environment. So you've got a serious problem. India has a similar problem. China's ability to suppress civil unrest is powerful. But I think Vietnam looks very vulnerable and some argue it's the next Tunisia. In Bangladesh we've seen textile workers striking and threatening to destabilise politics

Pakistan, like Egypt, is massively susceptible to food inflation. The point is this price phenomenon is broad based. It is manifested in different ways but it is important to realise this is not just an Arab street phenomenon.


  1. Anonymous said...

    All well and fine from all you eggheads out there. My wife and I are on a fixed income and are heading to FRY's to get groceries. INFLATED groceries. Bust and Boom, yea right. With all the flying Ben has been doing, the cash is not here. By the way Stephen, no money for poker here either. Any ideas on how to survive the increased cost of living.

    March 17, 2011 11:29 AM
    Stephen Williamson said...


    I understand your concerns. When I get the latest numbers on Friday I'll write something on the Fed and inflation. Though I don't think Ron makes any sense, I'm a Fed critic too. No sense ending the institution, but it can indeed work better.

  2. Stephen... if you think that Ron Paul doesn't make sense, it means that you don't know much about the real economic science. Which is, pretty much, Austrian. The rest of economics is B.S. of varying degrees of ridiculousness - and a long track record of being falsified by the real world events.

  3. Stephen:

    Saying that a govt. institution should be reformed to work better is the tired and endless retort from timid, poorly educated pundits who exacerbate problems. Such people fail to realize that the very problems they want to fix by "reforming" a govt. institution are inherent in that institution.

    Because most people are too pusillanimous to call for the outright abolition of destructive govt. institutions, the problems inherent in these institutions' existence persist forever.

    The Fed causes the problem by creating an unsustainable boom that results in an inevitable bust and rising prices. These problems are inherent in the Fed's existence. Therefore, it cannot be "reformed." How can you review the Fed's miserable track record and think that it can be "reformed"? (the 21 depression, the Great Depression, multiple recessions in the late 40s and throughout the 50s, the stagflation of the 70s, the stock crash of 87, the recession of 91-93, the tech. bubble and its crash in 2000, the Panic of 08, and the current incipient stagflation)

    And please don't counter that panics occurred in the nineteenth century without the Fed. Those panics were caused by the same problem the Fed creates -- artificial govt. expansions and reductions in the money supply, as well as virtual bank bailouts in the form of suspension of specie payments.