Saturday, October 1, 2011

Debt vs. Salt

First of all, why salt?

January 14, 2010
Salt sellers

1. Salt is not traded on any exchanges, there is no derivatives market and there is not much international trade.

2. Demand for industrial salt is steady and predictable.

Salt would seem to have rational pricing based mostly on fundamentals. Salt bubbles would therefore seem rare.


Click to enlarge.

I'm comparing the total credit market debt owed to the world's annual production value of salt. I've added a few exponential trend lines. That's one crazy "trickle-down" chart!

Is this exponential trend failure that began in 2000 deflationary? Well, yes and no.

From 2000 to 2009:

1. Salt production rose 4.1% per year.
2. Total credit market debt owed rose 7.9% per year.
3. Salt prices rose 6.0% per year.

From 2008 to 2009:

1. Salt production rose 6.1%.
2. Total credit market debt owed rose 1.6%.
3. Salt prices rose 13.9%.

What are/were we planning to do with all that salt?

December 2, 2010
Snow transport chaos to be reviewed

We took urgent action during the summer which means we're better prepared for severe weather than last year - a national strategic salt reserve exists for the first time.

Derek Turner, director of operations at the Highways Agency, said there was no shortage of salt: "At this stage I don't think the country has a salt shortage at all. Certainly the Highways Agency has more salt than it had last year, and we have supplies coming from overseas to create a national stockpile should the weather continue."

Way to go UK!

September 29, 2011
Salt Stockpiles Now Larger Than Historically Needed

If the winter is mild, the salt will not go to waste as the village has a new salt storage facility built last year near Oakton Street and Lively Boulevard that would be able to hold any excess salt until the winter of 2012-2013.

Way to go Illinois!

September 26, 2011
Mekong Delta salt farmers in despair over drop in prices

Presently salt farmers are in a dilemma as thousands of tons of salt is still lying in stock with them as they have been unable to sell, with traders refusing to purchase after the drop in retail pricing.

Farmers need to sell their stock urgently before the start of the next season in November and have requested the government to move in to take action to resolve this issue, as they need immediate capital to begin the next season.


Get with the program Vietnam! You need to start building more storage facilities! Our appetite for salt is insatiable!

Source Data:
USGS: Historical Mineral and Materials Statistics
St. Louis Fed: Total Credit Market Debt Owed

16 comments:

Troy said...

Your blog is so much better than CR's.

He just posts the same 10 data dumps over and over again.

People railing about "Pelosi" and "Obama" running up debt are fecking idiots.

The deed was done before "Nobama" was first elected to office.

http://research.stlouisfed.org/fred2/graph/?g=2xo puts things in perspective. . .

The Arthurian said...

Mark, I don't think I ever saw a graph of salt before. Interesting, inventive approach. I like it.

Troy, I showed a graph like yours to a conservative friend at work. He immediately pointed to the lower right corner and started talking about the big problem there.

Troy said...

He immediately pointed to the lower right corner and started talking about the big problem there

which makes sense since if you are out of debt that's the part you're on the hook for.

The blue line is total debt so the private economy is deleveraging by the amount of public debt take-on.

If the austerians get into power and walk their talk, things are going to get pretty dicey here.

I think we can adapt, but the adjustment period is going to be brutal. Rents falling, home prices collapsing, every national bank going poof, S&P 500 at 500, property crime skyrocketing, etc etc.

Stagflationary Mark said...

Troy,

If not for CR I probably wouldn't even have a blog. Here's the very first sentence from my very first post.

First off, I want to thank Calculated Risk for insipiring me to do this.

It figures that my first sentence would have a typo, lol. Insipiring? Good grief. (Apparently I did not find the spell checker that first day.)

Stagflationary Mark said...

The Arthurian,

I like to think that all my charts should be taken with a grain of salt. ;)

He immediately pointed to the lower right corner and started talking about the big problem there.

Doesn't that just figure.

Stagflationary Mark said...

Troy,

I think we can adapt, but the adjustment period is going to be brutal. Rents falling, home prices collapsing, every national bank going poof, S&P 500 at 500, property crime skyrocketing, etc etc.

I think we might eventually get there regardless of what we do. Sigh.

The S&P 500 at 500 could be in inflation adjusted terms though. In other words, the S&P 500 could still be at 1200 in a few decades, at least in theory. Why not? It's been there for nearly 13 years already. Sigh.

The same goes for inflation adjusted rents and inflation adjusted home prices.

getyourselfconnected said...

I agree with Troy re CR, but yes that blog was an ispiration for me as well a long time ago. Gotta tweet this salt chart, awesome!

fried said...

I am honestly addicted to CR, but I am developing a similar habit here...your take on things is singular and interesting.
Kudos.

Stagflationary Mark said...

I tend to mostly agree with CR but we do seem to diverge on two major points.

I think he sees our problems as mostly cyclical. I would point to his belief that real housing prices should rise over time (and we therefore must be near a bottom).

I see our problems as mostly structural. Stick a fork in us. We're about done.

It would therefore make sense that he continues to point to nearly proven indicators of the past.

In sharp contrast, it would also make sense that I am always looking for new trends that are permanently breaking.

I see a nearly infinite supply of interesting exponential trend failures to dwell on. I still have to look to find them though and it is the looking that I find most interesting. The chart of this post was an especially amusing find for me. I didn't know what to expect until I charted the data. I thought I'd see something breaking though and I was right.

"A fact in itself is nothing. It is valuable only for the idea attached to it, or for the proof which it furnishes." - Claude Bernard

I can prove beyond any shadow of reasonable doubt that various long-term exponential trends are failing, but it is only because I keep looking for them to back my illusion of prosperity theories. Generally speaking, they are not hard to find! Scary!

It is a fact that employment will NEVER return to the trend line in the following chart. How sure am I? I would bet my ENTIRE life savings on it at 1-100 odds (meaning I would only win 1/100th of my life savings if I am right).

The second point that CR and I seem to differ on is the topic of gold. He rarely even mentions it and when he does it is not taken all that seriously. Since gold has been in a bull market for a decade you'd think he'd offer at least one chart with a serious opinion to match. Is it a bubble? Is it not? What's a fair price? Anything? Bueller? Is gold the "crazy aunt in the attic" that he doesn't want to talk about? Why?

Right or wrong, I mention gold a lot. As a former precious metal hoarder, I find it very interesting and I make every effort to take it seriously. How can I not? It surely deserves some mention. I can't say all my opinions are right (far from it) but at least I have some and I'm willing to discuss them publicly (as I hide semi-cowardly behind my Stagflationary Mark name, lol).

Audrey said...

Mark,
Great post. I'm not going to pretend like I understand it, but it looks serious.
Thanks.

Stagflationary Mark said...

Audrey,

For each year...

Take the total debt that is owed in the United States (add it all up, including government debt). Put it into a giant debt pile.

Now take the total salt produced by the world in a given year. Put it into a giant salt pile.

Now divide the total price of the giant debt pile by the total price of the giant salt pile.

That's the chart.

If the debt pile grows faster than the salt pile then the ratio rises in the chart. We saw this from 1980 to 2000.

Put another way, if you believe what this chart is trying to say then we borrowed the prosperity of 1980s and 1990s. The prosperity wasn't real. It was a credit-based illusion.

Audrey said...

Mark,
Thanks.
This morning at the grocery store I noticed they are still playing canned music from the 80's.
We have been living on borrowed prosperity since the 80's and are listening to borrowed music from the 80's.
Lol.

AllanF said...

After reading this thread, I think I need a little extra love for finding an exponential that has not failed. :-)

It sounds like that's the challenge these days, no?

dearieme said...

Salt - excellent. Now can you do it for bananas?

Stagflationary Mark said...

Audrey (& AllanF),

Don't stop believing!

Stagflationary Mark said...

dearieme,

I can find banana consumer price data but I'm not sure I'll be able to find production dat. Maybe I'll make a banana chart of some kind though.

Perhaps a silver to banana ratio would be interesting, since investors have gone bananas over silver. ;)