The Great Depression Online




Great Depression Online Archive Issue:

Feeling Aggraflated

Great Depression Online
Long Beach, CA
April 18, 2008

Inside This Issue You Will Discover…

*** Nearly Double
*** Feeling Aggraflated
*** The Answer is Yes
*** And More

Nearly Double

Food prices, like gas prices, are going up.  Steve Erlanger, for the International Herald Tribune, reports…

“Wheat prices have risen by 130 percent since March of last year, and soy prices have risen 87 percent, the United Nations said, with food now representing 60 percent to 80 percent of consumer spending in developing countries.  In general, the World Bank has said that food prices have climbed about 83 percent worldwide over the past three years.”

Eighty-three percent…that means food prices have nearly doubled in just three years.  It’s called agflation.  And Investopedia.com defines it as…

“An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource.  While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed, the price increases that agflation causes are largely passed on to the end consumer.  The term is derived from a combination of the words ‘agriculture’ and ‘inflation’.”

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Investopedia.com also adds that…

“Interest in alternative energies contributes to agflation.  In order to produce biofuel (such as biodiesel and ethanol), manufacturers need to use food products such soybeans and corn.  This creates more demand for these products, which causes their prices to increase.”

“Unfortunately, these price increases spread to other non-fuel related grains (such as rice and wheat) as consumers switch to less expensive substitutes for consumption.  Furthermore, agflation will also affect non-vegetative foods (eggs, meat and dairy) as the price increases for grain will make livestock feed more expensive as well.”

Seems that burning food for energy may not be such a practical idea…especially when it leads to aggraflation.

Feeling Aggraflated

When food prices rise, people living in developing countries are severely affected.  And unlike other non-essential items, having food is a must.

So when 60 to 80 percent of your budget goes to purchasing food, and its price has nearly doubled in just three years, you feel aggravated.

More accurately, you feel aggraflated.

Steve Erlanger reports on the effects of feeling aggraflated…

“The prices of basic food like rice, wheat and corn have been rising sharply, setting off violent popular protests in countries including Haiti, Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Uzbekistan, Yemen, the Philippines, Thailand, Indonesia and Italy.  The unrest has resulted in tens of deaths and helped lead to the dismissal on Saturday of the Haitian prime minister, Jacques-Édouard Alexis, and the increasing cost of subsidizing bread prices is a major worry for key American allies like President Hosni Mubarak of Egypt.”    

The Answer is Yes

Yes, increasing food demand – both for consumption and biofuels – is resulting in higher food prices.  But that’s only part of what’s driving the higher food prices.

World money supplies are rapidly increasing.  And all this new money dilutes its overall value.

Quantity and quality are inversely correlated.  When you increase the quantity of money…its quality suffers.  Hence, prices appear higher.

But in this instance of higher food prices, is it because of increased demand?  Or has the unit that measures the price of food been debased?

The answer to both questions is “yes”.

Plus it won’t just be individuals in developing countries that have their budgets consumed by agflation.  As the dollar wanes while demand waxes, agflation – and its resulting aggraflation – will show up more and more at a supermarket near you.

Fortunately, here in the U.S., food only represents about 12 percent of consumer spending.

Still we’re not happy about it.  But there are three things you can do about it. 

You can…

Anticipate it.  Expect it.  And get use to it.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  If you really want to know what you can do about the dollars rapid devaluation, you’re in luck.  One of our favorite financial authors, Addison Wiggin, just released a 2nd edition follow-up to his 2005 best seller.  It’s called The Demise of the Dollar…And Why It’s Even Better for Your Investments.  You can pick up a copy here: The Demise of the Dollar…And Why It’s Even Better for Your Investments.

 

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