Wednesday, 7 September 2022 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[3 min read]

Dear Reader,

We understand by now that we are in an energy shortage. But what mightn’t be so apparent is that we could have another shortage coming…in food.

And in today’s issue, Jim Rickards outlines one key geoeconomic factor that has contributed to this: the war in Ukraine.

This could have massive impacts, both on you and your investments.

Keep reading to find out more…

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

By Jim Rickards Editor, The Daily Reckoning Australia

Dear Reader,

While energy is making the headlines in terms of the economic impact of the war, food supply is equally in jeopardy. It’s important to understand that food on your table is one end of a long and complex supply chain. The farmers who grow food and raise livestock and the butchers and food processors who prepare that output into meat, poultry, bread, and dairy products are not the source of the supply; they’re intermediaries. The source of the supply chain is fertilisers made from chemicals, especially nitrogen and phosphate. So the complete agricultural supply chain runs as follows:

Chemicals -> farms -> processors -> distribution centres -> grocery stores -> consumers.

Any break or bottleneck anywhere in this supply chain will result in higher prices or empty shelves at the consumer end. These breaks are already occurring. Russia and Ukraine provide more than 25% of the wheat supply in world trade and 20% of global corn sales. Ukrainian exports are already in disarray because of the war, and Russian exports will be handicapped by the financial sanctions imposed by the West.

This summary from Foreign Policy, 22 January 2022, explains the importance of Ukrainian wheat production both regionally and globally:

‘With some of the most fertile land on Earth, Ukraine has been known as Europe’s breadbasket for centuries. Its fast-growing agricultural exports — grains, vegetable oils, and a host of other products — are crucial to feeding populations from Africa to Asia. And it so happens that a substantial part of Ukraine’s most productive agricultural land is located in its eastern regions, exactly those parts most vulnerable to a…Russian attack…

‘Ukraine is a top exporter of corn, barley, and rye, but it’s the country’s wheat that has the biggest impact on food security around the world. In 2020, Ukraine exported roughly 18 million metric tons of wheat out of a total harvest of 24 million metric tons, making it the world’s fifth-largest exporter. Customers include China and the European Union, but the developing world is where Ukrainian wheat has become an essential import. For example, about half of all wheat consumed in Lebanon in 2020 came from Ukraine, according to data from the Food and Agriculture Organization (FAO)…

‘Should [an] attack on Ukraine turn into a Russian land grab from where Russian-supported separatists have already established their so-called republics, it could mean sharp declines in wheat production and a precipitous fall in wheat exports as farmers flee the fighting, infrastructure and equipment are destroyed, and the region’s economy is paralyzed. Whoever controls the land will ultimately extract its riches, but if conditions in the Russian-controlled eastern parts of Ukraine are any guide, instability and paralysis may lie over the region and seriously impact production far beyond the initial invasion.’

As noted above, the disruption to agriculture and the upward pressure on food prices is not limited to direct export customers of Ukraine and Russia. Many of the inputs in farming, especially nitrogen fertiliser, are traded on world markets and have a world price. If Russian nitrogen exports are diminished and prices soar, that has a global impact, including on US farms. The impact of higher fertiliser prices doesn’t stop with grain. Most grains aren’t used for direct consumption by humans but as feed grains for livestock. That means the fertiliser price increase will flow to meat, poultry, eggs, and dairy products.

There’s also a multiplier effect in terms of higher energy prices and the food supply chain. Food has to be transported by truck or train, both of which require diesel fuel or electricity generated with oil or natural gas. The higher transportation costs are added to the higher food production costs to result in much higher retail prices once the food makes it to the grocery store.

The war in Ukraine is a triple whammy in terms of food costs. Ukrainian output is diminished because of the war. Russian exports are diminished because of sanctions. And Ukraine is a major export route for both Ukrainian and Russian output. Those transportation channels are now mostly closed. The food shock coming from the war in Ukraine could be as severe as the oil shock coming from the Middle East in the 1970s.

Fed monetary policy will not stop inflation because the coming inflation is not ‘demand-pull’ inflation from consumers, it’s ‘cost-push’ inflation from the supply side, which the Fed can’t control. In the end, we may have 1970s-style stagflation that includes both weak growth (due to monetary tightening) and higher prices (because of supply disruptions). That’s literally the worst of both worlds.

Regards,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

As I write this, it is Labor Day in the US. But here at our headquarters in France, Argentina, England, and Laramie, Wyoming, our labours continue uninterrupted.

Last week, it was announced that maths scores for nine-year-olds had suffered their biggest drop in 30 years. Two decades’ worth of progress had been erased (presumably by lockdowns…statistically, the children were never at risk from COVID anyway). White House press secretary Karine Jean-Pierre illustrated the problem:

‘We have created nearly ten thousand million jobs since President Biden took office, which is the fastest job growth in history.’ 

10 thousand million is, of course, 10 billion, more than there are humans on planet Earth. An amazing performance by the Biden Bunch. But now, even arithmetic is infected by claptrap. Activists claim that numeracy, or how it is taught, is soaked in white supremacy and that the schools need to squeeze it out by aiming for ‘maths equity’, whatever that is.  

Like language and money, maths is a way of condensing and transmitting information. Our numbers came to us from the Arabs. Much of the early development work in mathematics and geometry was done in Egypt or Mesopotamia. And today, mathematicians from all over the world add and subtract in the same way; neither race, culture, height, gender, eye colour, nor any distinguishing birthmarks matter. It is just as absurd to say that maths is racist as to say that language is sexist because it recognises different genders or that money is prejudiced in favour of snow since so much of it ends up in Switzerland.  

But such is the state of the world in 2022 that you can say any fool thing you want, and half the world will agree with you. The other half will think you are a jackass.  

Hee haw

And so it came to pass, last week also, that Mr Biden made the headlines. After so much venom directed at Mr Trump, much of it justified, it was difficult to imagine how any subsequent president might be worse. And in 2020, the genial geriatric, Joe Biden, seemed to offer a safer, more agreeable alternative. 

But there he was, last Thursday, making what might have been the most divisive and uncivilised speech by a US president in history. In short, POTUS went off the deep end, practically declaring war. But not on some hapless foreign nation. Instead, he was declaring war on the half of the nation that didn’t support him.  

Mr Biden has a long history of plagiarism. He was almost kicked out of Syracuse law school for it. Instead, he was allowed to repeat his first year. And here he was rehearsing almost the exact ‘us versus them’ themes made famous by dictators and scalawags throughout the centuries:

‘I will not stand by and watch the most fundamental freedom in this country, the freedom to vote…be taken from you.

‘We are not powerless in the face of these threats…we are not bystanders…it’s within our power…to stop the assault on…democracy.’

The MAGA faction — probably a third of the country — was ‘a threat…to the very soul of this country’, he claimed. Their ‘extremism…threatens the very foundations of our Republic’, and constitutes ‘dangers around us we cannot allow to prevail’.

The last time we heard such ‘fightin’ words’ from a US president they came from the mouth of George W Bush and led to waterboarding, droning, murdering, perhaps a million dead and 37 million refugees…along with US$8 trillion down the drain. These fightin’ words of Joe Biden are likely to be even more costly. For, as we guessed 20 years ago, the words and weapons of the War on Terror are now being trained on ‘domestic terrorists’, (aka…the people who might defeat Mr Biden and his bunch in the next election).

So throw away the US Constitution! Eight centuries of jurisprudence — going back to the Magna Carta — has been tossed out the window. As in the overseas, boondoggle wars, the ‘terrorist’ label excuses everything. People are arrested with no charges ever filed. They are tortured. Their property is taken away. And they are killed. Even American citizens were held in custody for years…and sometimes murdered. Why not give the same treatment to political enemies at home? The logic of it is irresistible.

Biden recalled the words of a federal judge, who said MAGA Republicans were a ‘clear and present danger’. This is a loaded phrase, reminding us of the feds’ power to override the First Amendment (free speech) if the threat is imminent. If Trump supporters really do represent a ‘clear and present danger’, the Biden Bunch has not only the right, but the duty, to lock them up as soon as possible. No trial necessary.

This was all so contrary to the spirit of civilised, consensual American democracy that we had a hard time believing it was true. We had to watch it ourselves; and it was almost more unbelievable than we imagined. There he was, the nation’s chief executive, in front of a red-lit background more appropriate to a ‘Tales from the Crypt’ video than a presidential address, giving a speech that might be compared to Hitler’s famous ‘Nuremberg Speech’ of 1936. Hitler’s target, the Bolsheviks, were a clear and present danger to Germany:

‘I cannot come to terms with [bolshevism]…It turns flourishing countrysides into sinister wastes of ruins.’

It was the old ‘us versus them’:

‘…these antagonisms cannot be bridged. Here are really two worlds which do but grow further apart from each other and can never unite.

‘Bolshevism has attacked the foundations of our whole human order, alike in State and society, the foundations of our conception of civilization, of our faith and of our morals: all alike are at stake…[bolshevism]…intends to equip its army so that it may with violence, if necessary, open the gate to revolution amongst other peoples…’

Clearly, if the terrorists aren’t stopped…

…then Europe will sink into a sea of blood and mourning...

Fightin’ words

Hitler’s ‘fightin’ words’ were greeted with wide approval and led to the Second World War. So too, after Biden’s call to action, many educated adults, who should have known better, immediately enlisted: 

‘One of the most important [speeches] I’ve seen a president give’, said Hillary Clinton. ‘Biden’s core claim about the foundational threat posed by Trump and MAGA is undeniably correct’, wrote Greg Sargent. And here’s Dean Obeidallah: ‘It’s long past time that MAGA be designated a domestic terrorist group. Period.’

Terrorists? MAGA forces have not set fire to the Capitol. They have not shot dead any archdukes…stormed no Bastilles nor put any heads on pikes. They have burned no shops…destroyed no newspaper offices…and hung no Jews, no communists, no homosexuals, no blacks, no Mexicans, no Washington Post columnists, no cross-dressers or self-mutilators, no virtue-signalling celebrities, no referees, no knee-taking sports heroes, no squeegee kids, no rap stars, no Green Energy hustlers, no Fed governors, no senators, no Baltimore mayors, no prison guards, no BATF agents, no IRS agents, no FBI agents, no TSA agents, no Indian agents, no PR agents, and no travel agents. Neither Hillary Clinton nor her insufferable daughter have been molested. Hunter Biden is still a free man. And Paul Krugman still gets a check from The New York Times. All things considered, the MAGA aficionados have showed remarkable restraint…or incompetence.  

Have they set up secret training camps in the Ozarks? Have they had secret meetings with key generals, admirals, CIA chiefs, and Homeland Security bureaucrats? Have they assassinated key Biden supporters, politicians, and traitors to their cause? While lone wolf nutcases howl at the Moon and gun down people from time to time, not a single murder can be fairly attributed to organised Trump followers. Instead, the MAGA enthusiasts are typically middle aged, law-abiding, and simpleminded. They are not revolutionaries. And Donald Trump himself may be able to rouse the rabble; but organise a genuine threat to the republic? Not likely.

Even their unlawful entry (?) into the US Capitol was hardly an attack on democracy; every one of the trespassers thought he was there to fulfill the promise of the Constitution, not destroy it. They may not be terribly bright, but if MAGA Republicans are terrorists…they are the dullest and least threatening bomb throwers in world history.    

Extremists of the world, unite!

But it was left to the redoubtable Karine Jean-Pierre to make sense of it. Who are these extremists? She explained:     

‘When you are not with where the majority of Americans are, then, you know, that is extreme. That is an extreme way of thinking.’

Again, it was maths that tripped her up. The majority may be as slim as 51%, with the swing vote swaying one way or another like a ‘for sale’ sign in a hurricane. That means that 49% — or about 125 million American adults, including us, and millions of people who voted for Biden but who are now fed up with his policies — are all ‘extremists’. 

The feds are said to be naming Russia as a ‘terrorist state’. Next, it will be Florida.

Regards,

Bill Bonner,
For The Daily Reckoning Australia