Three hungry guys walk into a bakery during a currency crisis, each hoping to buy the shop’s remaining bread. One has paper money, one has some crypto-currency, and one has gold. Who gets the bread?
– With apologies to Friedrich Hayek
Big screen TVs with good streaming services and vacation getaways are pretty nice things to have. But in any hierarchy of human needs, they don’t rank up there with indispensables like food.
Famines have been a part of the human story from the beginning. Especially tragic are those not authored by an act of nature but those engineered by human beings.
The famine orchestrated by Josef Stalin in Ukraine a century ago was deliberately cruel. Millions starved, in part to punish any resistance to Soviet collectivization. It wasn’t as though there wasn’t enough food to meet the people’s caloric needs. Millions of tons of grain were sold by the USSR to provide luxuries for the nomenklatura, communist party officials, and their cronies.
China’s repeated starvations under communist rule were just as needless. To take but one cause, Mao Zedong introduced spurious agricultural innovations. Instead of being tested in a few localized experiments, they were mandated. They were universalized. When they failed to produce, consequent crop failures were experienced across China.
Today, people are beginning to take note of the precariousness of our own food supplies. It is a problem much less likely in the presence of sound currency and free exchange. But roaring inflation and trade restrictions rule the day.
“Zero Inflation”
Just last week, President Joe Biden was criticized after he claimed that there was “zero” inflation for July. “Today we received news that our economy had 0% inflation in the month of July,” he said. According to Newsweek, data shows that from June to July, across urban areas, prices didn’t change. However, when compared to last year, prices were up 8.5%.
On the same day that Biden made his 0% claim, we learned that the price of eggs had risen 47% over the past year. Butter was up 26.3%. Coffee was up $1.50 a pound.
What happened to zero inflation?
Biden was engaged in a little statistical legerdemain. It is safe to say that almost all politicians jump to the podium to claim credit for anything they can, but the people would be better informed and perhaps our policies would improve if they didn’t. And in this case, consumer prices were actually up 8.5% from a year earlier.
Biden was quick to his feet because the Consumer Price Index was flat, unchanged, during the month of July. Although still in nosebleed territory, gasoline prices backed off somewhat from their summer highs, offsetting other price increases.
Perhaps we should ask why gas prices moved lower. They moved lower because price shocks forced many Americans to radically adjust their lifestyles and cut back on their time behind the wheel. Oh, and energy consumption falls in a recession.
Meanwhile, we are duty-bound to explain that producer prices rose 9.8% for the 12 months ended in July. Producer prices grow to become consumer prices.
So, for now, gas is down and food is up.
What’s Going on With Food?
A few bullet points:
- According to the Bureau of Labor Statistics, the same people who provide the CPI reports, food prices climbed 10.9% over the last year. That is the fastest since 1979.
- Although the fertilizer shortages that were the source of grave concern earlier this year have ameliorated somewhat, prices remain well above historic norms as shown on the following chart:
- Droughts and heatwaves in Europe, especially in Italy and France are severe. France’s corn harvest this year is expected to fall by 18.5%. A European Commission researcher calls it the worst drought in 500 years.
- The World Bank reports “high inflation in almost all low- and middle-income countries; 92.9% of low-income countries, 92.7% of lower-middle-income countries, and 89% of upper-middle-income countries have seen inflation levels above 5%, with many experiencing double-digit inflation. The share of high-income countries with high inflation has also increased sharply, with about 83.3% experiencing high food price inflation.
- News sources in Idaho are reporting on an emerging potato shortage that has its beginnings in heat waves last year.
- A widely-reported new study by Rutgers climate scientists finds that five billion people would die of starvation in the aftermath of a United States–Russian nuclear exchange. The smallest scale hypothetical nuclear scenario in the study, a limited exchange between India and Pakistan, resulted in global average caloric production decreasing by 7% within five years of the conflict.
While we are not predicting conditions of famine, at least in the United States, we are watching the unfortunate coincidence of environmental stresses on the food supply and, at the same time, policies from inflation to trade restrictions are also driving food prices higher. The lesson we would like to leave our friends and clients with is that if money is becoming worth less and food is becoming more scarce, there is the time-tested strategy of making sure to have real money that is not being eroded by the governing classes and inflationary policies.
Here is but one anecdote of the role of sound money in crisis conditions. It comes from the childhood experience in Austria of economist Ewald Nowotny, a former European Central Bank governor:
I grew up in a purely urban family. We had no relatives in the country. I’m born in 1944. When I was a baby, my mother could only buy food because she still had some gold coins. Without gold, I would have starved. She always told me that. Therefore, this generation already has a certain gold affinity. In extreme times of crisis, this is one of the few things left to be accepted. Gold was the only thing left to the people of the city at that time. Before the silver cutlery was also traded at the farmer.
Our point today is the one Nobel prize-winning economist Friedrich Hayek sought to underscore by asking who gets the groceries in a competitive currency environment.
The answer is self-evident: he who has gold.
If you’re interested in investing in precious metals, let us provide you with a free one-on-one consultation.
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.
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