There Will Be Food Riots

Think this is no biggie, think again, this is how food riots begin.

More lenders are tightening their restrictions for agricultural loans in the Midwest at the same time that repayments on loans have dropped, The Federal Reserve Bank of Kansas City says.

The Federal Reserve reported Friday that its quarterly survey found that the percentage of lenders raising collateral requirements reached another record high in the Tenth Federal Reserve District. The rate of loan repayments also fell for the second straight quarter.

Turbulent agricultural conditions contributed to the tightened farm credit, the agency said.

"The thing to take away from all of this is ... farmers are positioning themselves to get through turbulent times," Federal Reserve economist Brian Briggeman said.

The fact that the Federal Reserve is in charge of things tells you that the foxes are really in charge of the hen house.

The fact that a single entity, the Federal Reserve, engages in and has a monopoly on monetary policy has detrimental effects on the economy. As long as we try to keep up this fiction, that the Federal Reserve has a long-term focus, that attempting to fix interest rates will not distort the economy, and that the Fed can end a recession by injecting liquidity, we will never free ourselves from the booms and busts of the business cycle.

The problem with Ponzi finance is that companies become so dependent on short term credit, that without it they can't do business. It's just like becoming depended on credit cards to pay your bills. A good example the shipping companies it is shipping companies which routinely finance their very next shipment by selling short term bonds.

In a non the Ponzi finance economy the shipping company would use its prior profits to ship food from say Los Angeles to Russia. The free market would set a rate allowing the company to earn a profit, and the people in Russia would eat.

In our Ponzi finance economy they load the boat first, then sell short term bonds to finance the shipment. The company makes a profit and repays the loan and interest from the profits. Crazy you say, because in addition to the shipping expenses the company now has to pay the finance charges out of the same profit. Sure,but only if you are sane.

Here's where we wave a magic wand of Ponzi finance. Management at the shipping company says to itself, let's pay back the bonds by issuing new bonds. Stupid!

Management might think that it's been cool, but it's just like you using MasterCard to pay Visa. It works, but only for while. And it doesn't just stop working it crashes.

Well done agricultural companies in a Ponzi finance economy play the same game, but it's you who will be caught in the food riots.

This is why it is so crucial to understand that up till now the Obama administration has done everything right to create food shortages. There's no doubt about it, unless the government gets out of the way of the free market there will be food shortages. The only question is where and how hungry will you be.