Chinese Supermarket Riot As Food Inflation Soars
Bill Bonner - Thu 15 Nov, 2007
Officially, prices are rising at a 6.5% annual rate in China. Even at the official rate, the Chinese have not seen so much inflation in nearly 11 years. But food is rising faster at a 17.6% rate. "This past Saturday in Chongqing", reports the New York Times, "people began lining up before dawn when a Carrefour store offered a discount on large jugs of cooking oil, an essential for a lot of Chinese cooking. When the doors opened, a stampede ensued, killing 3 people and injuring 31. China's commerce ministry responded on Monday by ordering a ban on limited-time sales promotions."
Inflation is not supposed to be a problem. If it is not under house arrest it is at least wearing an ankle bracelet. But there is growing evidence that it is on the loose.
As to why it is supposed to be under control, the usual explanation is that the entry of Asia into the world economy has reduced labour costs. Since labour is such a big part of both manufactured goods and services, it is reasonable to think that lower wages will lead to lower prices.
As to why inflation may now be at large, we offer the following: the Asians have to eat too.
Wages in mainland China are said to be going up at nearly 20% per year. In other words, the cheap labour is not as cheap as it once was…and getting more expensive each year. And now that these wage-earners are coming up in the world, they want a little more meat in their soup.
Money, as we all knows, practically grows on trees. But food does not. (Readers can try to fix that metaphor on their own time.) And putting more Asians to work does not automatically increase the supply of farmland…or what grows on top of it…or what lies underneath of it. So, what we’ve been seeing is just what you’d expect. While increased industrial output has managed to hold prices down for manufactured goods, the rising supply of money has forced up prices for things that don’t come out of factories. Gold, contemporary art, land, and cooking oil come to mind.
Cooking oil comes to mind because it was in the news this week:
“…this past Saturday in Chongqing,” reports the New York Times, “people began lining up before dawn when a Carrefour store offered a discount on large jugs of cooking oil, an essential for a lot of Chinese cooking. When the doors opened, a stampede ensued, killing 3 people and injuring 31. China’s commerce ministry responded on Monday by ordering a ban on limited-time sales promotions.”
Officially, prices are rising at a 6.5% annual rate in China. Even at the official rate, the Chinese have not seen so much inflation in nearly 11 years. But food is rising faster…at a 17.6% rate. This is a big problem in China. Because people don’t earn much money; they have to spend a lot of it on food. That’s why people got killed trying to get a good deal on cooking oil.
We recall that Jacques Diouf, director general of the UN’s Food and Agriculture Organisation had predicted only weeks ago: “If prices continue to rise, I would not be surprised if we began to see food riots.”
Well, there you are, Mr. Diouf. You were right.
Meanwhile, let us turn back to the big picture.
"The mortgage black hole is, I think, worse than anyone saw,” said Tony James, president of Blackstone, the big private equity firm. “Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don’t have a clear picture of how this will play out and confidence is low."
It looks to us as if there has been a big sea change in the world’s markets. Yesterday brought more evidence….
Housing prices in Southern California have now fallen back far enough to erase the last 2½ years of gains, says the LA Times.
In Atlanta, 5,244 houses on going on the auction block next month…already, 53,365 houses have been auctioned this year…a total that is rising at about 36% per year.
“…this past Saturday in Chongqing,” reports the New York Times, “people began lining up before dawn when a Carrefour store offered a discount on large jugs of cooking oil, an essential for a lot of Chinese cooking. When the doors opened, a stampede ensued, killing 3 people and injuring 31. China’s commerce ministry responded on Monday by ordering a ban on limited-time sales promotions.”
Officially, prices are rising at a 6.5% annual rate in China. Even at the official rate, the Chinese have not seen so much inflation in nearly 11 years. But food is rising faster…at a 17.6% rate. This is a big problem in China. Because people don’t earn much money; they have to spend a lot of it on food. That’s why people got killed trying to get a good deal on cooking oil.
We recall that Jacques Diouf, director general of the UN’s Food and Agriculture Organisation had predicted only weeks ago: “If prices continue to rise, I would not be surprised if we began to see food riots.”
Well, there you are, Mr. Diouf. You were right.
Meanwhile, let us turn back to the big picture.
"The mortgage black hole is, I think, worse than anyone saw,” said Tony James, president of Blackstone, the big private equity firm. “Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don’t have a clear picture of how this will play out and confidence is low."
It looks to us as if there has been a big sea change in the world’s markets. Yesterday brought more evidence….
Housing prices in Southern California have now fallen back far enough to erase the last 2½ years of gains, says the LA Times.
In Atlanta, 5,244 houses on going on the auction block next month…already, 53,365 houses have been auctioned this year…a total that is rising at about 36% per year.
And the Chicago Tribune reports on a study by the Center for Responsible Lending that predicts a “foreclosure hit” equal to $223 billion.
A hundred billion here…a hundred billion there…pretty soon you’re talking real money.
Americans are the world’s biggest spenders – with a 20% share of total global consumption. They are the world’s biggest users of oil. They are also the most indebted people in the world. And now, Americans are running out of money. Their houses are sinking in value. Their wages are stagnant or falling. Their dollar is so depressed it can’t get out of bed in the morning.
Again, yesterday, the buck took a beating. When is it going to get a break?
A hundred billion here…a hundred billion there…pretty soon you’re talking real money.
Americans are the world’s biggest spenders – with a 20% share of total global consumption. They are the world’s biggest users of oil. They are also the most indebted people in the world. And now, Americans are running out of money. Their houses are sinking in value. Their wages are stagnant or falling. Their dollar is so depressed it can’t get out of bed in the morning.
Again, yesterday, the buck took a beating. When is it going to get a break?
On Tuesday, it looked like a correction had begun…gold and oil were going down…stocks and the dollar were going up. But then, Wednesday came. The Dow went down 93 points. Oil rose nearly $3. And gold added more than $15…putting it back over $800.
Not much of a correction, in our opinion…not enough of a correction. We would expect a bit more…
Not much of a correction, in our opinion…not enough of a correction. We would expect a bit more…
*** The poor middle class is on the rack, stretched out in every direction. On one side, falling house prices pull down the typical homeowner’s major (and often, only) asset. On the other side, the falling dollar reduces the value of his wages. Tuition, health care, food, and energy are all becoming much more expensive… while earnings actually fall.
Over the past decade, lenders dangled such easy credit terms, he couldn’t resist. Now, the typical middle class American owns a bigger house that is located farther from his work – just as the price of oil nears $100 a barrel.
Creditors tug his arms practically out of their sockets (the American middle class owes more money to more people than any race ever did)... Employers yank away benefits that his father’s generation took for granted. And his government empties out his pockets, spending his money without asking, without scruple, and without a lick of sense.
Martin Hutchinson adds detail and statistics:
“The declining share of low and moderate income workers in the American pie is undeniable; the relative share of such workers peaked as long ago as 1973. For those with only high school qualifications or less, their absolute earnings peaked in 1973 and have declined substantially since then. From 1973 to 1995, this appeared to be a simply a case of the rewards for skills increasing, with low skilled workers suffering increasingly in terms of earnings and job losses compared to those with a bachelor’s degree or better. Since 2000, however, the paradigm has changed, with all sectors of the workforce losing ground in absolute terms, except for the top 1% who have gained essentially all of the modest gains in employee incomes under the George W. Bush administration.”
“A Center for Economic and Policy Research study released this week shows that the share of “good jobs” in the US economy has fallen substantially during the 2001-07 business cycle, where a “good job” was defined as one that pays at least $17 an hour (the median wage rate in 1979) and offers employer-provided health insurance and a pension. While most of this deterioration has arisen from employers’ increasing failure to provide health care and a pension, the share of “bad jobs” with pay below $17 per hour and neither healthcare nor a pension has also increased in this business cycle, by 1.6 percentage points. “
“These statistics are pretty clear, and cannot be ignored, whatever one’s policy disagreements with the left-leaning CEPR. Blue collar workers lost bargaining power catastrophically following the peak of the 1973 cycle, and since 2000 their failure has been accompanied by a more generalised loss of bargaining power by white collar workers and all toilers below the level of top management. Employers no longer feel compelled to offer their workforce either a decent wage or the most basic of healthcare benefits, benefits which were considered sacrosanct in the social contract of 1945-73.”
Surely, the impoverishment of the American middle class will be the biggest political issue of next year’s campaign…says Hutchinson.
Over the past decade, lenders dangled such easy credit terms, he couldn’t resist. Now, the typical middle class American owns a bigger house that is located farther from his work – just as the price of oil nears $100 a barrel.
Creditors tug his arms practically out of their sockets (the American middle class owes more money to more people than any race ever did)... Employers yank away benefits that his father’s generation took for granted. And his government empties out his pockets, spending his money without asking, without scruple, and without a lick of sense.
Martin Hutchinson adds detail and statistics:
“The declining share of low and moderate income workers in the American pie is undeniable; the relative share of such workers peaked as long ago as 1973. For those with only high school qualifications or less, their absolute earnings peaked in 1973 and have declined substantially since then. From 1973 to 1995, this appeared to be a simply a case of the rewards for skills increasing, with low skilled workers suffering increasingly in terms of earnings and job losses compared to those with a bachelor’s degree or better. Since 2000, however, the paradigm has changed, with all sectors of the workforce losing ground in absolute terms, except for the top 1% who have gained essentially all of the modest gains in employee incomes under the George W. Bush administration.”
“A Center for Economic and Policy Research study released this week shows that the share of “good jobs” in the US economy has fallen substantially during the 2001-07 business cycle, where a “good job” was defined as one that pays at least $17 an hour (the median wage rate in 1979) and offers employer-provided health insurance and a pension. While most of this deterioration has arisen from employers’ increasing failure to provide health care and a pension, the share of “bad jobs” with pay below $17 per hour and neither healthcare nor a pension has also increased in this business cycle, by 1.6 percentage points. “
“These statistics are pretty clear, and cannot be ignored, whatever one’s policy disagreements with the left-leaning CEPR. Blue collar workers lost bargaining power catastrophically following the peak of the 1973 cycle, and since 2000 their failure has been accompanied by a more generalised loss of bargaining power by white collar workers and all toilers below the level of top management. Employers no longer feel compelled to offer their workforce either a decent wage or the most basic of healthcare benefits, benefits which were considered sacrosanct in the social contract of 1945-73.”
Surely, the impoverishment of the American middle class will be the biggest political issue of next year’s campaign…says Hutchinson.
*** “You are either a contrarian, or you are a victim,” we said to Elizabeth, quoting our old friend Rick Rule.
Rick uses the expression to describe how the resource markets chew up trend-following investors. We use it in a broader sense. What follows seemed like such an interesting conversation; we decided to pass it along:
“The average person spends, votes, invests, and signs up for military service driven by the same impulse…” we said, “…to do his duty…to take his place in the great mass of his brethren…to fit in…to go along. Typically, he spends money he doesn’t have on things he doesn’t need – just because everyone else is doing it. He wastes his time in the voting booth, because the candidates are usually as hollow as an empty jug; and the odds that his vote will determine the outcome are vanishingly small, anyway. Then, investing along with everyone else, he is a chump for the financial industry, the insiders, and the hustlers. He comes too late, stays too long, and pays too much. But it is in war where he really suffers. England [we were watching the old veterans go by] hasn’t faced a serious threat of foreign invasion for 1,000 years. But millions of English, Scottish, Welsh and Irish soldiers have served and died in countless wars…all pretending to protect the homeland. Everyone would have been better off if they had stayed home and delivered the milk. But to do that, they would have had to be real contrarians… And even if you don’t pay with your life…you pay with your time, your money, your attention, your emotion. Either in war, or in the investment markets, or in trivial consumption…you get caught up in the spirit of the thing…and pretty soon, you’re in it. It is you; you are it. You’re wearing a Che tee-shirt and standing in line at the polling station. You care. It’s a part of your life…”
“I see your point,” said Elizabeth. “But I also see the danger you are running. By alienating yourself from what you consider the fads and fashions of group thinking, you are alienating yourself from the group itself…from feeling like a part of it…from being a part of it. I understand; you don’t want to buy a Ralph Lauren shirt because you don’t want to be a victim of the fashion industry…or pay more than you have to for a brand name. Maybe you don’t bother to vote. You invest as a contrarian, of course…doing the opposite of what everyone else does. And you don’t want to get caught up in some great, patriotic war that you think is a fraud. Of course, some of that may be commendable. But you run the risk of alienating yourself too much…of becoming a victim of your own contrarianism…a man without a country…without a people…without a vote…without a say in how things work out…a man without a home. You run the risk of becoming marginalised…a permanent outsider…an outcast… Maybe it makes sense intellectually. But we were not meant to live that way. We have instincts and emotions, not just a brain. And those instincts and emotions are what make us what we are. They make us part of a group, not solitary animals. You can deny those emotions and instincts…but you can’t escape them.”
Regards,
Bill Bonner
The Daily Reckoning
This article is from The Daily Reckoning. With over 500,000 readers every day The Daily Reckoning has become essential reading for anyone who’s interested in their money. If you think you'd enjoy witty, irreverent and often hilarious commentary on economics and investment - for FREE - then sign up today.
Interested in discovering the next sector set to blast off? How about learning the specific shares the experts see as the most profitable in 2008? Attend The World Money Show London and hear from 50+ investment experts as they reveal their profitable strategies and provide their specific stock picks. The World Money Show London is being held 30 November - 1 December at The Queen Elizabeth II Conference Centre and will feature 14 panel presentations and leading investment product and service providers. Call today to register for The World Money Show London at 00 800 1414 8888 (international free phone) between 10.30 am -10.30 pm EXCEPT from 28 October to 4 November when hours will be 9.30 am to 9.30 pm because of the daylight saving time difference. Don’t forget to mention priority code #009376. Or visit: http://www.worldmoneyshowlondon.co.uk/main.asp?scode=009376
Rick uses the expression to describe how the resource markets chew up trend-following investors. We use it in a broader sense. What follows seemed like such an interesting conversation; we decided to pass it along:
“The average person spends, votes, invests, and signs up for military service driven by the same impulse…” we said, “…to do his duty…to take his place in the great mass of his brethren…to fit in…to go along. Typically, he spends money he doesn’t have on things he doesn’t need – just because everyone else is doing it. He wastes his time in the voting booth, because the candidates are usually as hollow as an empty jug; and the odds that his vote will determine the outcome are vanishingly small, anyway. Then, investing along with everyone else, he is a chump for the financial industry, the insiders, and the hustlers. He comes too late, stays too long, and pays too much. But it is in war where he really suffers. England [we were watching the old veterans go by] hasn’t faced a serious threat of foreign invasion for 1,000 years. But millions of English, Scottish, Welsh and Irish soldiers have served and died in countless wars…all pretending to protect the homeland. Everyone would have been better off if they had stayed home and delivered the milk. But to do that, they would have had to be real contrarians… And even if you don’t pay with your life…you pay with your time, your money, your attention, your emotion. Either in war, or in the investment markets, or in trivial consumption…you get caught up in the spirit of the thing…and pretty soon, you’re in it. It is you; you are it. You’re wearing a Che tee-shirt and standing in line at the polling station. You care. It’s a part of your life…”
“I see your point,” said Elizabeth. “But I also see the danger you are running. By alienating yourself from what you consider the fads and fashions of group thinking, you are alienating yourself from the group itself…from feeling like a part of it…from being a part of it. I understand; you don’t want to buy a Ralph Lauren shirt because you don’t want to be a victim of the fashion industry…or pay more than you have to for a brand name. Maybe you don’t bother to vote. You invest as a contrarian, of course…doing the opposite of what everyone else does. And you don’t want to get caught up in some great, patriotic war that you think is a fraud. Of course, some of that may be commendable. But you run the risk of alienating yourself too much…of becoming a victim of your own contrarianism…a man without a country…without a people…without a vote…without a say in how things work out…a man without a home. You run the risk of becoming marginalised…a permanent outsider…an outcast… Maybe it makes sense intellectually. But we were not meant to live that way. We have instincts and emotions, not just a brain. And those instincts and emotions are what make us what we are. They make us part of a group, not solitary animals. You can deny those emotions and instincts…but you can’t escape them.”
Regards,
Bill Bonner
The Daily Reckoning
This article is from The Daily Reckoning. With over 500,000 readers every day The Daily Reckoning has become essential reading for anyone who’s interested in their money. If you think you'd enjoy witty, irreverent and often hilarious commentary on economics and investment - for FREE - then sign up today.
Interested in discovering the next sector set to blast off? How about learning the specific shares the experts see as the most profitable in 2008? Attend The World Money Show London and hear from 50+ investment experts as they reveal their profitable strategies and provide their specific stock picks. The World Money Show London is being held 30 November - 1 December at The Queen Elizabeth II Conference Centre and will feature 14 panel presentations and leading investment product and service providers. Call today to register for The World Money Show London at 00 800 1414 8888 (international free phone) between 10.30 am -10.30 pm EXCEPT from 28 October to 4 November when hours will be 9.30 am to 9.30 pm because of the daylight saving time difference. Don’t forget to mention priority code #009376. Or visit: http://www.worldmoneyshowlondon.co.uk/main.asp?scode=009376
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