Kicking the can down the road only makes the can bigger

In Argentina, the government fined nine economic research companies the peso equivalent of $122,000. Their crimes? They reported the actual inflation rate. The Argentine government annual wage hikes of 20 to 30 percent, but holds that the inflation rate is still in the nine percents.

Has this tactic slowed the actual inflation rate? We think not. The truth cannot be stopped, but it can be muffled for a while with tactics like these.

If you are starting or operating a business on Planet Earth, you should have a strategy for dealing with potential inflation. Buying futures, or stockpiling inventory, or locking in low interest rates, or some other plan would be prudent to at least consider.

Whither the economy?

Here at the Nauvoo Commuter, we are still monitoring the economy. We don't know any more than you do.

Recently I've talked to Wall Street investment bankers, prop traders, global hedge fund managers. They don't know more than you do.

One group believes the U.S. is headed for hyper-inflation, with dire consequences for the planet. The other group is convinced that we are headed for deflation, as the current recession continues. They are nearly opposite scenarios.  And yet both groups have compelling stories to prove the accuracy of their predictions.

Does it matter? You need to move forward with faith in the future. Hedge, but don't procrastinate because of the stock market levels.

The True Price of Coke

Readers of this blog may have noticed that sometimes the First Person pronoun is "I" and sometimes "we." Is it an ego thing? Or is it a grammatical error tendency?

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At the beginning of the last Great Depression, Americans spent 23.4% of their income on food, even though the long farm depression had driven down agricultural prices. That ratio has steadily fallen until it is now, even including meals eaten out (where the markup is considerable), the number is UNDER 10%.


Some analysts from various ideological leanings are beginning to agree that the percentages might increase. Part of the relative cost reductions have come from productivity improvements, but it is increasingly coming from fillers. In other words, if a product's price decreases relative to inflation, that might seem beneficial, but we need to compare apples to apples. If manufacturers replaces food such as sugar, with pseudo-foods such as high fructose corn syrup, then the product is different (you can't say a Corolla costs less than a Rolls Royce, because they are fundamentally different concepts.) 


But we are reaching the limit on how much cheaper we can make food before it stops being food. Maybe that's okay. Maybe we've been paying artificially low prices by eating artificial food. And the cost of inputs, such as transportation, could increase sharply. So perhaps we will begin paying the full costs of food. 


How this affects society is yet to be seen, but the topic is certainly more relevant to rural entrepreneurs than to those plying trades in the cities. 

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In August this year, Time Magazine quoted an HSBC analyst:


"World agricultural markets have become so finely balanced between supply and demand that local disruptions can have a major impact on the global prices of the affected commodities and then reverberate throughout the entire food chain. As a result, prices for staples such as wheat, rice, soybeans, and pork, have risen on a trend basis since around 2004 and, more importantly, have become extremely volatile over the years."

Volatility is a separate issue from inflation. But in any case, it will be interesting to see how this movie ends. In the meantime, please pass the cheap popcorn.