Thursday, July 12, 2012

Year of the Protester: It's not over 'til it's over

You can't eat the paper T-bonds are printed on

The world is a fine place and worth fighting for. - Ernest Hemingway,  For Whom The Bell Tolls

Washington – The PIIGS (Portugal, Ireland, Italy, Greece, Spain) won this battle, if not the war.

Ten-year bonds from that nation were auctioned at a record low yield of 1.36 percent this week - the lowest on record.

But the Earth abideth forever, and weather conditions in the midwest – torrential rains and torrid heat – is both keeping farmers out of the fields to plant - and causing a predictable low yield in grains.

Government forecasters are calling for a resulting 12% reduction in production of that high-calorie, low nutrition staple – shelled corn – for a predicted yield of 13 billion bushels, down from an expectation of 13.5 billion bushels, and way, way down from the June estimate of 14.79 billion.

Futures prices are hovering between $7 and $7.50 – in the same notch they occupied during the July crunch of 2008, when the people of the western world rioted in the capitals of the republics, just the same as they did in the streets dominated by the despots and dictators.

Banking houses turned into orphanages - and the safe and solid Republican world of high finance turned into a crime scene.

That figure, $7.50, represents a 33% rise in price over the past month.

Everything from the price of a can of Coca-Cola to a plate of ham and eggs is going up, up, up – and the sky is the limit when you're hungry.

Unlike government paper, food prices – and corn futures are a bellwether predictor of the category – have a huge influence on the way your friends and neighbors behave.

The common man is not like executives, whose behavior is completely unpredictable until the moment of crisis occurs; the common man will always fight like hell when he gets hungry, and he's powerless to do anything else when the price of what it takes to feed the women and kids is climbing higher and higher.

High food prices bring down governments. Look it up.

Governments go down when the cost of credit and the cost of food cross on a rising curve, and men begin to feel that first unreasoning, unyielding pang of hunger. When they look into the eyes of their lovers and see fear - listen to their children as they cry - they become as savage as their Creator made them, as tough as the tooth, claw and hide with which they are endowed.

Brian Hunt wrote in “Daily Wealth,”… one of the great fears of dictators around the world is a big spike in food prices. After all, the average Joe – whether he lives in Madrid, Mumbai, or Mexico City – will willingly march to war for the craziest reasons. He will endure punitive tax rates. He will cheer on the dumbest government actions. But should his food become expensive, he'll be rioting tomorrow…alongside every one of his neighbors.

The smart money in the commodities pits says it best. If bad corn weather persists, “the people of the world will riot like crazy as food prices continue to climb.”

That's their bet, and money - no matter its relative worth - talks.

Depend on it. So mote it be.

- The Legendary

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