Saturday, April 16, 2011

Scorn Inflation Now!

This is a followup to an earlier post that told us Bernanke is right to ignore the consumer price index.

Scorn is a synonym for ignore. Scorn also has "corn" in it. That makes it the perfect word for those who love burning our food in response to higher oil prices.

April 15, 2011
Commentary: Food vs. fuel heating up -- again

Of course, meat industry officials have been adamant that ethanol production is responsible, at least in part, for diverting significant quantities of feed corn and helping drive up food prices by escalating the cost of a key component of beef, pork and poultry production. Biofuel supporters, such as the pro-ethanol coalition Growth Energy, counter that the major drivers of increasing commodity and food prices are rampant Wall Street speculation that is fueling the soaring price of oil.

Why must I choose between the two arguments?

Of course, rampant Wall Street speculation would not be possible if there wasn't any money out there looking for a home. I'd therefore be tempted to blame
something else as well.

See Also:
Whip Inflation Now


Stagflationary Mark said...

Even Mish doesn't sound quite so deflationary today. His arguments also have their roots in our trade deficit.

Now imagine the shock in Congress were China to make an offer to buy Exxon-Mobile, Boeing, Apple and a basket of technology companies, and every toll-road and bridge in the country. If China wants gold, it could put in a bid for US mining companies.

At some point, such a shock will come. Mathematically it must.

What if China decides they want oil even more than they want gold? Then what?

At 85 million barrels per day and $110 per barrel, that's roughly $9 billion per day.

All things being equal, $3 trillion would therefore buy one year's worth of crude oil. That's it.

All things won't be equal though. You can clearly only get oil for $110 per barrel if you don't put in a bid for $3 trillion of it all at once.

Is it any wonder that there is rampant Wall Street speculation?

Stagflationary Mark said...

That's one year's worth of global oil production. Clearly China could make it last longer assuming that they did not follow the United States oil burning prosperity model in its entirety.

That said, we do use about 25% of the world's oil and only have about 25% of China's population. The math would seem to hold up for those who believe that China will recreate our level of prosperity. Let's just say that I am more than doubtful (unless we come down to meet them of course).