BEST OF BILL BUCKLER

May 1, 2008

A Flight Into REAL Goods:

This is what the Germans who lived through the Weimar experience of the early 1920s called it. The Privateer has the early signs that this is now starting to happen in parts of the US. Major retailers in New York, New England and on the west coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply! There are anecdotal reports that some US consumers are hoarding grain stocks.

This shows climbing American uncertainty as to whether the US economy will continue to supply its present volumes of basic economic goods. Right behind this lies the climbing fear that more money will be needed to buy the wanted economic goods in the future because of the now fast climbing prices.

The US economy is going down. The US financial system is going down. And the US Dollar is diving….

The Price Of Supply:

Crude wheat prices have risen 160.4 percent over the last year. Flour prices have risen 100 percent, pasta prices are up 30.8 percent and milled rice products have risen 34.8 percent. Noteworthy in real economic terms is that these are global prices. But in dealing with prices economically, whether local, national or global, one must always also look at MONEY. Prices are always paid in money. And here, if one again looks on a global scale, one finds the US Dollar – still the reserve currency for the rest of the world.

The US current account deficit from 2000 through 2007 now exceeds $US 4.9 TRILLION, almost all of it run up for oil imports or consumer goods. America - the world's food superpower - will divert 18 percent of its grain output for ethanol this year, chiefly to break its dependency on oil imports. It takes more than 240 kilograms of corn - enough to feed one person for a year - to produce 100 litres of ethanol. That is not enough to fill the tank of a SUV. BNP Paribas has reported that Asian surplus countries and commodity exporters have accumulated $US 1,160 Billion in reserves over the last year alone!

The US has withdrawn 18 percent of its corn crop for ethanol production and therefore from exports, and in the process, tightened the markets for all the global bulk grains. There is a huge and ongoing outflow of US Dollars which, as they arrive in other nations, are bought up by other central banks by literally printing new local money with which to "buy" these US Dollars. Economically, something has to give here. Bulk supplies of grains for human use have constricted and money has increased massively in its supply. What always gives under such circumstances are PRICES.

Tidal Waves Of Money Against Real Goods:

World stocks of bulk grains for human consumption (excluding the US withdrawal of corn for ethanol production) are not unnaturally low at the present time. The key is the other side of the global equation - the MONEY side - which is grotesquely distended by the huge outflow of US Dollars. This outflow has equally grotesquely pumped up the official reserves of other central banks. And these other central banks have built huge monetary inflations of their own on top of these $US "reserves". THIS is the cause.

Globally, TWO BILLION people earn 1 to 2 US Dollars a day and spend 40 to 60 percent of it on food.

Ó 2008 – The Privateer

http://www.the-privateer.com

capt@the-privateer.com

(reproduced with permission)

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