This is vomit-worthy material...
Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months.
So what’s the meaning of this surge?
Paul gets so close to getting it right, then, of course, he falls right into the trap.
He goes to assert that this is all about "a finite world" and that "we're just running up against the limits of supply."
Oh really Paul?
One response has been a proliferation of conspiracy theories, of claims that the government is suppressing the truth about rising prices. But lately many on the right have seized on rising commodity prices as proof that they were right all along, as a sign of high overall inflation just around the corner.
Notice the immediate appeal to class-warfare and partisan garbage.
As for conspiracy theories may I ask where? You mean like the government's PPI numbers, right? Those are some grand conspiracy?
Or how about the regional Fed indices? They have consistently shown a widening spread between prices paid and prices received for the last year or so. That, of course, means that the economic conditions do not support passing through cost increases.
The markets, for their part, seem to think this is grand - for now. Yet increasing materials cost can only do two things - it can show up in final prices (price inflation) or it can be absorbed (margin destruction.) Those are the only two possibilities.
It cannot "disappear", no matter how much you would wish it be so. There are no candy-crapping Unicorns in the real world and balance sheets always balance.
In particular, today, as in 2007-2008, the primary driving force behind rising commodity prices isn’t demand from the United States. It’s demand from China and other emerging economies. As more and more people in formerly poor nations are entering the global middle class, they’re beginning to drive cars and eat meat, placing growing pressure on world oil and food supplies.
That's true, but irrelevant.
Again, rising input costs can only do two things - raise final prices or destroy margins.
Pick one.
And be careful which you pick, because whether you like it or not, rising prices is exactly what happens when you have a weak currency and import far more than you should, especially when it comes to energy.
The real problem with imports is in the energy area. See, oil is in (literally) everything. The computer on your desk? The monitor has plastic in it - made from oil. Your cellphone? Oil. Your coozie wrapping your drink? Oil. Your synthetic rubber shoe-sole? Oil. The food you eat? Oil, oil and oil (to till, to plant, to cultivate, to harvest, and to move from place of growth through to place of consumption.)
We have spent 30+ years denying that we must develop our own energy infrastructure. We have lots of oil, both as actual oil and as things convertible to it (specifically coal.) Getting it and putting it in usable form*****es off the greenies, which includes Krugman. But the fact is this - high prices solve high prices, and when headline "inflation" is running 10%+ a year due to the push-through of high energy prices into collapsing demand due to the inelasticity of incomes, we will suddenly develop the will to convert coal to oil, to build nuclear plants, and to drill for oil everywhere we have it.
Bet on that, because it will happen. I'm certain of it. The problem is that it's likely to happen only when people are hungry enough to eat all the "Greenies."
The real problem is the claims of "pumping liquidity" being a positive for the markets in the intermediate term, and indicating "economic recovery." They do no such thing. Krugman says "it still feels like a recession in America."
That's because it is one, you jackass!
All we've done is charge up the credit card to post bogus numbers. The truth is evident in the statistics from our own Treasury and other government agencies - no "conspiracy theory" required.
But as we do this other nations (and some astute people in the US) are realizing that we're extending our credit as a nation without any credible plan to stop doing that, or (gasp!) pay any of it off. Rather, we're just running up the bill incessantly, with no evidence of any sort of fiscal constraint, restraint, or even recognition that what we're doing cannot go on forever.
Remember, we were told originally that all these "stimulus" spending-style measures and extraordinary deficits were a "temporary" thing. That was in 2007. We're now three years beyond that - into 2010 - and instead of "pulling back" we have instead added another $500 billion, roughly, to our structural deficit for each of the next two years.
Will some of what we have done up until now come out of the system and be reversed?
It had better, and we had better stop the ZIRP crap right now, because the data up above strongly implies that we're going to continue to play this game right up until every Senior Citizen who saved for retirement (and has gone from a 5% safe return to zero over the last three years) runs out of money and starves.
If we wait too long to do the right thing we will get to deal with a whole bunch of really angry - and hungry - Seniors.
Somehow, I suspect those who have promoted "liquidity forever!" as a "solution" will be the first ones on the BBQ if that time should come.
We'd be wise to make sure it doesn't.
