Forget Food Riots In Africa, Simon Black Says The Canary In The Inflationary Coal Mine Is In Southeast Asia

Tyler Durden's picture

While the bulk of 2011 food protests have focused around countries that are, to put it bluntly, in the periphery of the desert, and thus mostly irrelevant from a food supply perspective (their domestic issues are of no matter to America: after all they have no oil) the recent focus on surging prices has been largely geographically isolated for the time being. That said, in today's piece, "Sovereign Man" Simon Black takes a look at a far more critical country smack in the middle of Asia's breadbasket, Laos, which he believes may rapidly become the canary in the Southeast Asian coalmine, whose troubles could promptly spread to China and the rest of the continent, and from there, to the rest of the world. We would add that unless the central bank approach of pedal to the liquidity metal is reversed promptly in the next few months, which it certainly will not, he will most certainly be proven correct. And just as the deterioration of events in Africa, where the rapidity of protests took even us by surprise, despite first predicting food riots just one day ahead of their actual eruption, should anger spill over in Asia, the time until everything hits a boiling point will make even the recent revolution in Tunisia appear to have transpired at a snail's pace.

The Canary In The Inflationary Coal Mine Is In Southeast Asia, from Sovereign Man

Laos is a small, landlocked economy in Southeast Asia that's often overlooked in favor of its neighbors: Thailand, China, and even Cambodia. But there are a few important factors that set Laos apart and lead me to believe that, when it comes to inflation, the country is the canary in the coal mine.

First, Laos is one of the most sparsely populated countries in Asia; with just 6.3 million people, its numbers pale in comparison to regional neighbors such as Burma (50 million), Thailand (67 million) and Bangladesh (162 million).

The other thing that's important about Laos is that the country is home to some of the most fertile soil in the world: more than 20% of its land mass is ripe for agricultural use. This is an astounding number, and it's no wonder that agriculture makes up the preponderance of the Laotian economy.

Put another way, Laos, with its vast resources and small population, might loosely be considered an agricultural version of Kuwait. But Laos is nowhere near as wealthy, since oil is much pricier than rice, soy, and fish.

Given its resources, it certainly seems ironic that the prices of staple foods in Laos, including rice, have soared in recent months, and that the Laotian government is now under intense pressure to "do something" about it.

You expect this sort of thing to happen in Algeria, where the population is 35 million, where only 2% of the land is cultivated, and where agriculture makes up but a tiny percentage of the economy... but in Laos? This is akin to finding Kuwaitis unable to afford filling up their cars due to high gas prices. It's unthinkable.

Thing is, it's not that there are food shortages in Laos; this isn't an issue where supply has failed to keep up with demand (thus resulting in rising prices). The price hikes are simply another indicator of monetary inflation causing severe price inflation, particularly in the developing world.

How does this happen? The trillions of new currency units being compulsively manufactured by central bankers are finding their way to developing countries. This surge heats up local markets, causing prices to rise.

This effect is compounded when developing markets fight to keep their currencies artificially depressed against the dollar. When the price of milk goes up by a dollar in the developed world, people grumble about it, but they can afford it. In Laos, where the minimum wage is about $65/month, an extra few dollars for groceries is unfathomable.

The government in Laos will most likely raise the minimum wage. The figure that's being discussed is about a 40% increase from today's level, which itself is nearly double the minimum wage in 2009.

Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on. Wage hikes are always playing catch-up with rising prices, and the end result is a reduced standard of living. No amount of monetary wizardry can prevent this.

I saw a similar case when I was in Sri Lanka a few months ago: the government there keeps the rupee fixed to the US dollar at an artificially low rate in order to support exporters... yet the weak rupee has hit the locals hard, causing soaring prices of 30% or more for staple foods such as rice and coconuts.

When I was in Zimbabwe recently, the locals told me similar stories about their days of hyperinflation: everyone was constantly getting a "raise" to keep up with inflation, but prices were adjusting so rapidly, their living conditions would constantly deteriorate.

Needless to say, banks do just fine in this situation. All the freshly printed money circulates through the banking system, generating greater volume and higher profits. It's no coincidence that Laos' largest commercial bank (BCEL) is expecting its net income to surge 27% this year, and I'll be curious to see what happens to the Laotian stock market (which just had its inaugural session last week).

Bottom line: if this sort of thing can happen in Laos, where there's about 2.5 acres of lush, fertile, arable land for every man, woman, and child in the country, it can happen anywhere... and I'll be watching this situation very closely to see if any civil unrest develops as a result.

Regardless, inflation is here.  And the more you see politicians and central bankers denying it, the more you should be preparing for what may come. More to follow.

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TruthInSunshine's picture

Hey, Simon Black: Bug off, wanker!

Bernanke told Scott Pelley that there is no inflation and that he's 100% confident that if there's ever inflation again, he can defeat it in 15 minutes!!!

So SCREW YOU, and the inflation-imaginary horse you rode in on, Simon Black!

 

Ben Bernanke: Inflation Levels Too low

 

 

Jon Stewart attempts to figure out if Ben Bernanke is printing money
goldfish1's picture
BREAKING NEWS: http://www.guardian.co.uk/world/2011/jan/18/tunisia-dissident-blogger-minister

 

Tunisian dissident blogger takes job as minister

Slim Amamou and his fellow bloggers circulated news and videos in the name of protesting against the repressive regime

 

Only last week, the dissident blogger Slim Amamou was handcuffed to a chair in the notorious interrogation rooms of Tunisia's interior ministry being psychologically tormented by the dictator's henchmen and led to believe that the screams he could hear from neighbouring rooms was his family members being tortured...

...Amamou is the CEO of a web development company and calls himself a "partisan of the neutrality of the net". A member of the Pirate party, inspired by the Swedish movement, he has been active on the underground blogger's circuit for many years. In a brutally repressive dictatorship, with the world's most advanced internet censorship technology, rivalling that of China or north Korea, Amamou and his fellow bloggers circulated news and videos in the name of protesting against the repressive regime.

More Critical Thinking Wanted's picture

 

This effect is compounded when developing markets fight to keep their currencies artificially depressed against the dollar.

Btw., that the Fed is weakening the dollar is one of those zombie right-wing lies.

Here's the strength of the dollar, for the last 20 years:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=lin...

 

Check the 1992-2000 portion where under the Clinton administration the US's economic health improved gradually and the US government produced the first surplus quarter in over 20 years after 3 deficit-ballooning republican administrations: the dollar strengthened by more than 30%.

Check the 2000-2008 portion where the Bush tax bonanza for the rich and two wars to protect the business interests of rich corporate donors happened: the dollar weakened by more than 30%.

Check the 2008-2009 portion where the financial crisis hit and everyone fled to the dollar: the dollar strengthened by 15%.

Check the 2009-2010 portion where the Fed was supposedly printing so many dollars that it weakened the dollar beyond measure and drove inflation everywhere else in the world: oh, it did not actually happen, the effect barely shows up in the graph ...

Trivia: how does a paleomonetarist screw in a light-bulb?

Answer: he does not believe that light-bulbs need screwing in, so he first redefines the laws of physics to include an auto-screwing equation, and failing to see the light-bulb screwing itself in he claims that there's a massive global anti-monetarist conspiracy.

Trivia: how does a paleomonetarist handle economic crises?

Answer: he does not believe that crises need government handling, so he first redefines the laws of economics to include an auto-balancing equation (a constant monetary base), and failing to see the expected results he claims that there's a massive global anti-monetarist conspiracy.

 

DutchZeroPrinter's picture

You should try to compare the dollar against gold, or another commodity for that matter. After that rewrite your post please.

More Critical Thinking Wanted's picture

 

Commodity prices are generally not very useful for long-term comparisons as their prices fluctuate heavily due to speculation, wars, weather, etc.

That's why the dollar strength index like the DXY was created, and that's why ZH articles use that metric very often when talking about the strength of the dollar. That's why the (IMO even more accurate) Trade Weighted Exchange Index was created as well, used in the graph I linked to.

(If you do not understand what I'm talking about then please read back older ZH articles, most of them are pretty good and they will help you getting started about the DXY.)

 

TruthInSunshine's picture

To those who may have not realized it, I was mocking Ben Bernanke; not Simon Black.

Bernanke couldn't be more ridiculous in his policy or his public statements, if he tried.

He is a lunatic, who appears hellbent on imploding the global economy, and creating the mother of all market/asset distortions everywhere.

My avatar is free to borrow.

More Critical Thinking Wanted's picture

 

Well, you are like the typical intellectually challenged right-wing commenter: you assert all sorts of scary sounding fantasies with no factual basis nor any rational explanation whatsoever.

It's either that you dont want others to follow your line of thought, or maybe you have no rational line of thought - it's just poorly thought out rambings and random emotions.

I can do that too: Elvis Presley, as we all know it, is the source of all evil. There, now you know the truth. Feel free to borrow my avatar too.

 

BigJim's picture

No, the reason commodities aren't generally useful for 'long term comparisons' between currencies isn't because their prices fluctuate heavily due to speculation, wars, weather, etc. It's because commodities are bought in the global marketplace, so as their prices change, their prices in all currencies will change in tandem.

However, when arrempting to gauge the long-term buying power of a currency, commodities are perfect, because they underpin the price of everything.

There's no point attempting to 'prove' that the dollar's 'value' has risen by 15% if it buys 20% less of a basket of commodities. That just means other currencies have lost even more buying power.

sushi's picture

Tunisian dissident blogger takes job as minister

 

Tyler: No matter what they end up offering you please do not go over to the dark side.

Cheers!

ElvisDog's picture

The reason printing money never works is exactly what was described in this article - there will always be a premium built into commodity prices to anticipate future inflation of the money supply. That is the reason that the wage increases never seem to keep up with the cost of living.

Oracle of Kypseli's picture

The S.E. Asian staple food is also a world wide commodity.

No escape. If the locals can export it for more money, then the locals will pay the same unless the government subsidizes it.

Rahm's picture

Buy the fuckin' biryani!

Salinger's picture

Laos is a poor, landlocked country with an inadequate infrastructure and a largely unskilled work force. The country's per capita income in 2010 will be $986 (est.). Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 75% of the population and producing 29% of GDP. Domestic savings are low, forcing Laos to rely heavily on foreign assistance and concessional loans as investment sources for economic development. In 2010, donor-funded programs accounted for approximately 8.5% of GDP and 90% of the government’s capital budget. In 2010, the country's foreign debt was estimated at $5.8 billion.

 

http://www.state.gov/r/pa/ei/bgn/2770.htm

Sudden Debt's picture

And yet, I've never seen more Hummers and big ass trucks all not older then a year over there in Laos.

Even not in America.

 

Cheesy Bastard's picture

Yeah, I heard somewhere that hummers are pretty cheap in Laos. :)

Hulk's picture

Yes, but nothing worse than laosy hummers....

Cheesy Bastard's picture

LOL. Holy crap that is funny.  And true; You can beat an egg and you can beat your dog, but you can't beat a good hummer.

Sean7k's picture

Debt is probably IMF hitman generated for projects that are unnecessary and infrastructure that pays huge bribes and special concessions.

Cheesy Bastard's picture

No, it's not cost push or anything like that.  It must be a new organization called "OFEC" fixing the price and causing food shocks around the world...

Sean7k's picture

I would suggest Simon check and see if all those agricultural commodities are being bought by other food starved countries with FX leaving a flood of currency and a limited commodity supply for the people in Laos. Just saying...

Steaming_Wookie_Doo's picture

Consider this tidbit:

http://tarpley.net/2011/01/16/tunisian-wikileaks-putsch/

Washington DC, January 16, 2011 – The US intelligence community is now in a manic fit of gloating over this weekend’s successful overthrow of the Tunisian government of President Ben Ali. The State Department and the CIA, through media organs loyal to them, are mercilessly hyping the Tunisian putsch of the last few days as the prototype of a new second generation of color revolutions, postmodern coups, and US-inspired people power destabilizations. At Foggy Bottom and Langley, feverish plans are being made for a veritable Mediterranean tsunami designed to topple most existing governments in the Arab world, and well beyond. The imperialist planners now imagine that they can expect to overthrow or weaken the governments of Libya, Egypt, Syria, Jordan, Algeria, Yemen, and perhaps others, while the CIA’s ongoing efforts to remove Italian Prime Minister Berlusconi (because of his friendship with Putin and support for the Southstream pipeline) make this not just an Arab, but rather a pan-Mediterranean, orgy of destabilization.

BigJim's picture

Why would the US want to topple Mubarak in Egypt? He does exactly what they want him to do.

Sudden Debt's picture

2 years ago I was in Laos for 4 weeks.

ONE BIG DISNEY LAND!

I kid you not. Whiskey by the buckey for 5 dollars and crazy rides all over the country from Thailand to Cambodja.

A must do :)

velobabe's picture

well, i want to move to Laos. what language do they speak? it sounds beautiful. i bet they are Buddha based philosophy. i leaving. will you meet me?

where there's about 2.5 acres of lush, fertile, arable land for every man, woman, and child.

MGA_1's picture

Well, I thought the game could continue until we saw inflation and here it is !!

DeweyLeon's picture

Inflation?!

Who's going to break this to Mish?

Popo's picture

Sigh. Semantics.

Price inflation != expansion of the money supply

goldmiddelfinger's picture

Guess it's the Laotians monetizing gold to buy food which is cause of recent weakness in the metal?

tmosley's picture

4% off the all time high set two weeks ago is "weakness"?

Seriously, you're an idiot.

ColonelCooper's picture

You forget Mosley, we're bleeding so badly from the asskicking we've just taken that we can't see.  You know, like the forest for the trees. Or the paddy for the rice.

Pants McPants's picture

Unbelievable.  The cycle just repeats itself every so often - higher prices create a need for wage increases.  Sheesh.

This just in: it rained today because I carried my umbrella to work.

What morons.

Kaiser Sousa's picture

repost must c...

we all know what needs to be done...

we all know who is behind all that is occurring...

no amount of pleading or typical protest or appeals will ever be heard by these sociopaths...

as i said b4, i regret that a grenade was not tosssed....

http://www.youtube.com/watch?v=GFWzDFjBKUw&feature=player_embedded

 

Hondo's picture

Foreign governments need to do the right thing to save their own economies and people.  Forget about currency competitiveness with the USA......the USA and their populations are toast....if they do the right thing they will have a continuous flow of savings, resources and immigrants flood their shores bringing productivity with them.

AnAnonymous's picture

if they do the right thing

 

All these countries are entangled in a network of debt. They were processed by IMF (aka the US) style of economical plan.

They are already in austerity mode and must export in order to pay for their debt (cash crop and all)

They have no other option on the table. If they rebel, the US army will move ASAP to quell any threat to the US ponzi scheme. This warrants that the USD always buys something real and tangible.

If the US can emit so much credits, that is because all these countries have to export their goods in order to gather USD to pay back on their debts.

The US will extract to the last cent from this type of countries.

For them, it is over.

bronzie's picture

"Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on. Wage hikes are always playing catch-up with rising prices, and the end result is a reduced standard of living."

this got so bad in the Weimar hyper-inflation that the workers demanded, and got, daily payment of their wages - when paid, they or their relatives would desparately try to spend the day's pay on tangible goods because they knew that everything would cost more tomorrow

read "When Money Dies" by Adam Fergusson - pretty dry reading but fascinating insight into Germany's bought with central bankers running the printing presses 24/7

The Limerick King's picture

In Laos the farming was great

Until "Benny the Kid" screamed "inflate"

So their crops were bid higher

By a shrewd foreign Buyer

And their deaths will be chalked-up to fate.

The Limerick King's picture

Much appreciated............................just like the crops!

topcallingtroll's picture

Wrong. The laotians are parasitizing off of us with their peg. They can end food inflation instantly by depegging and playing fair.

The Profit Prophet's picture

You mean depeg so that corrupt bastards can bid-up their currency....that's a great plan!

topcallingtroll's picture

A whole bunch of third world corrupt bastards have been bidding up our currency to our detriment. We have to fight back. The loser in a mercantilist war is the free economy that plays fair and doesnt peg. Once they have our entire industrial base then they end the peg and play a standard oil trick straightfrom rockefellersplaybook. Once you are a monopoly then drive prices above market level.

The Profit Prophet's picture

Laos couldn't afford to buy the stale piss from Goldman's toilets to fertilize their crops, and you think they deserve to die???!!!  You're a complete scumbag and a moron!