At least 20,000 people were out on the streets to demonstrate as anger grew at printers of fake money and unscrupulous traders whose preference for US dollars over the Somali shilling is helping to push inflation to record levels.

“The simple fact of the matter is the world’s resources are dwindling faster than Britney Spears’ career,” says commodities expert Kevin Kerr.

“As investors, we must look at this situation as an opportunity for our portfolio. First of all, I suggest if you have some extra land (condo developers and house flippers, listen closely), grow a vegetable garden, and if you are ambitious, raise some sheep and cows, because they will come in handy. A little more practical and with less bunker mentality is to add stocks of some of the key agricultural companies that help support the industry, like those dealing with equipment making, fertilizer, irrigation and transport.”

What a mess!

In England, as in America, consumers are caught between the hammer of inflation…

“Prices soar at the fastest rate for 17 years,” says a Daily Express headline.

…And the anvil of deflation…

“House prices fall at fastest rate since 1978,” proclaims the Guardian, with the BBC adding that U.K. housing gloom is “the worst in 30 years.”

Meanwhile, over in the financial sector, the Globe and Mail says the financial industry in London “could lose 40,000 jobs.”

But here at The Daily Reckoning headquarters in London – in the building with the golden balls on the roof, just over Blackfriars Bridge, famous as the spot where Italian banker Roberto Calvi hung himself – we can step back and take the long view.

Prices rise. Assets fall. But what really hurts this time is that the price of an hour of Anglo-Saxon labor (which is all most Americans and Englishmen really have) is going down. (More about that later in the week…)

Do Americans care what happens to the Brits? Not particularly. Unfortunately, the two countries are both in the same boat…both had been sailing along so happily in the sloop: the “Anglo-Saxon” Economic Model. Now, they’re taking on water. It’s all hands on the pumps!

That is to say, both Americans and Brits borrowed too heavily. Now, the time has come to pay back…and no one is very happy about it.

Foreclosures in the United States were up in March, as expected. Bloomberg tells us they rose 57% “as homeowners walk away.”

They’re sure not driving away…they can’t afford to!

Oil hit a new record yesterday. At $114 it has never been more expensive. This is another way of saying that Americans and Englishmen have to work longer to buy a gallon. Gasoline is about $2.88 in New York. In old York, it is more like $10 a gallon.

“We’re not producing enough oil,” says Gordon Brown, Britain’s CEO.

In fact, we’re producing more than ever before. We’re producing so much…we may never again be able to produce so much. And still the price is rising.

“Russian oil production is peaking,” says our man on the case, Byron King. His source is the Financial Times, reporting:

“Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.

“Leonid Fedun, the 52-year-old vice-president of Lukoil, Russia’s largest independent oil company, told the Financial Times he believed last year’s Russian oil production of about 10m barrels a day was the highest he would see ‘in his lifetime’. Russia is the world’s second biggest oil producer.”

Bryon elaborates: “He wears the Red Star, I suppose. So you can trust him, right?”

“Most of the Western Siberia oil fields were discovered in the 1950s, 1960s and 1970s. Those fields are now in terminal, irreversible decline even with all the able assistance of the likes of Schlumberger and Baker Hughes. So maybe there was another reason that Putin stepped down as President? There are no coincidences, comrade. Old Russian saying goes, ‘Quit while you are ahead.’

“The genius behind much of USSR oil production was Nikolai Baibakov, who just died on March 31 at age 97. His post-WWII leadership of the Soviet oil industry led to discoveries that fueled the USSR, and later Russian Federation.

“Sic semper petroleos Russkoye.”

But let’s not get distracted. So what if oil output is falling?

Ah, dear reader, you’re torturing us with questions like that.

Don’t you know that the whole machinery of Western industrial civilization depends on cheap oil? And don’t you know that we now have to compete for every drop – with the communist Chinese, for example. Yes, their demand for the black goo is rising nearly 5% per year. And now that we’re not actually producing more and more each year, this extra demand…combined with monetary inflation…works on the price like a booster rocket – sending it into orbit.

But is this cycle over? Has the price of oil – which has gone from under $40 in 2001 to over $100 in 2008 – run its course? Is the bull market over?

*** “It doesn’t look like the party is over just yet,” says colleague Chris Mayer. “Since January 2001, you can explain the move in the price of oil largely as a function of the increasing money supply. As the amount of money grows, the price of oil rises. In fact, almost 87% of the move in the price of oil can be explained by the increase in money supply….”

As we’ve been saying – and we aren’t the first – inflation is a monetary phenomenon. Inflation that pushed the price or rice to another record high yesterday…and sent gold back up over $930.

But what does this imply about the price of oil going forward?

“Given that we are still in the midst of a credit crisis of sort, is seems unlikely the Fed will tighten money in any way at all,” Chris continues. “That leaves a clear path for the price of oil and commodities to continue to rally in nominal terms…”

As governments with grain surpluses tighten their grip on reserves, countries reliant on imported staples “are scrambling to secure supplies”. The increases have sparked food riots in Asia and Latin America.

What’s behind the rise?

Two main factors are underpinning rising food prices, noted John Greenwood in The Sunday Telegraph. Governments in the US, EU and elsewhere have set legally binding targets for producing biofuels, while increased demand for protein-rich foods from emerging markets such as China, India, Russia and Brazil is squeezing traditional agriculture.

Producing a kilo of meat takes many times the number of acres needed for a kilo of rice, added James Moore in The Independent. The weak dollar, which has seen long-term speculators entering agricultural markets “alongside the usual band of speculators”, weather problems and suspected hoarding have all compounded the damage.

And the consequences?

The UN’s top humanitarian official, Sir John Holmes, warns escalating prices and resulting food riots threaten to destabilise weak governments, said David Adam in The Guardian. The crisis means consumers and governments no longer take rice – the staple food in half the world – for granted, said Thomas Fuller in the IHT, and it could speed up the adoption of genetically modified strains.

Don’t count on a lasting relief from the crisis any time soon. While rising prices should ultimately improve supply, global cereal demand will expand 2.6% this year.

Source:http://www.moneyweek.com/file/45238/world-heads-towards-food-crisis.html

There was more volume on the Comex on Wednesday than there had been in a while, but still nothing major. It’s interesting to note that the price rallies in both metals appeared to have been capped before the 50-day and 20-day moving averages were violated to the up-side. As I mentioned earlier this week, these are the magic moving averages that the tech funds like to use as long-side buy signals.

We also had a key reversal day to the up-side in both metals. The boys have never allowed this technical indicator to stand….squashing the price of both metals during the following trading session. Let’s see if that happens again this time. If it doesn’t, and prices continue to rise, then the tech funds will certainly show up…and the trading day could get real interesting.

As far as Tuesday’s open interest numbers, gold was up a scant 534 contracts and silver o.i. fell 761 contracts…both on very low volume. With more activity on yesterday’s strong rise in both metals, it’s pretty much a given that both o.i. numbers for Wednesday will be positive…and much larger. I’m sure there was a tech fund or two on the prowl yesterday as well.

A couple of stories today. During the last week, rice has been in the news a lot, and I have a bunch of them in my in-box. Seems like the price of rice have been climbing quite a bit…to the point where riots and strikes are breaking out in some third-world countries. Governments are becoming concerned…and some are taking action. Here’s a story out of London’s Financial Times entitled “Rice jumps as Africa joins race for supplies.” Click here.

The main feature is commentary from Michael Kosares over at usagold.com. MK puts a very positive spin on gold’s future. I’m sure his comments would encompass silver was well. The essay is entitled “Golden Gut Check” and it’s linked here.

Today should be another interesting day. Equities should continue to levitate. Now that the PPT is stalking the land, it’s hard to know what’s real and not real, as they’ve done everything in their power to thwart the pricing mechanism of our supposedly free markets. But they can’t do it forever.

— The Great Greenspan Reputation Rehab tour is officially under way.

“I was praised for things I didn’t do,” Greenspan said this morning in The Wall Street Journal. “I am now being blamed for things that I didn’t do.” Not that he spoke up when Bob Woodward hailed him as the “Maestro” …or when Time magazine featured him on its cover as the head of the “Committee to Save the World,” of course.

— Yesterday, we noted fiery comments Greenspan directed at critics in the Financial Times. Today, The Wall Street Journal trots out the results of not one, not two but three recent interviews.

The Maestro’s Last Defense: Look deep into his eyes. When his hand closes into a fist, 18 years of easy money policies will vanish from your memory. Poof!

“Omniscience is not given to us,” Greenspan told the WSJ, dodging one bullet. “There is no way to predict how innovative markets will develop. All you can do is set a general strategy. The choice is between a lightly or tightly regulated economy. The former is highly competitive, innovative and dynamic — but periodically visited by wrenching crises. The latter is more stable, but slower growing.”

“Monetary policy is process based on probabilities,” he continued, dodging another, “I don’t remember a case when the process by which the decision making at the Federal Reserve failed. Events often did not proceed as we anticipated, but that resulted from a lack of foresight, not from a flawed decision making process.”

Nearly 300 years ago, John Law, a Scottish gambler and womanizer, conducted the first modern experiment with paper money in early 18th-century France. While the party raged, Law became the richest man in the world and was hailed a hero by king and court. Before it was all over, Law barely escaped France with his life after having his carriage smashed by an angry mob. We recounted the story in Financial Reckoning Day in 2002, at the height of Greenspan’s Maestro-ness.

The fabulous destiny of Alan Greenspan awaits…we’ll keep you posted.

— Likewise, the sunny optimism breaking over Wall Street — thanks to the Washington Mutual rescue plan — turned cloudy yesterday. Traders are getting jittery about first-quarter earnings announcements.

Perhaps, rightfully so.

Alcoa, the first Dow component to report, did so yesterday after the close. It came in at 44 cents per share… analysts were expecting 48. But we don’t expect the aluminum producer will have much of an effect. Most of the financials begin reporting next week. That’s when the fireworks will begin.

For the day yesterday, the Dow and S&P each lost a skosh. The Nasdaq dropped about a quarter percent…down 0.26% Otherwise, trading was quiet.

— We’re detecting a theme in much of the day’s news. Something you might call “Peak Everything.” Oil, food, water — you name it — supplies are falling and prices and tensions are rising. The world appears to be entering one of those phases in history that will take generations of library-sequestered historians inventing new theories to explain.

— But let’s dive in, starting with oil. It’s approaching record levels again. Light, sweet crude closed up nearly $3 yesterday, at $109.09. One reason for the rise: a decline in production from Russia — the world’s second biggest oil exporter.

“Production has been flat the last three months,” explains our Byron King, citing an obscure report from oil analyst Aram Mäkivierikko, “and it’s still below the maximum of under 10 million barrels per day set last October. That’s putting a strain on global supply, despite what OPEC ministers say.”

In a worst-case scenario, the study says, Russian production has already peaked. And even in the best-case scenario, production can’t increase by more than 5-10%. Should this report bear scrutiny, the implication of “Peak Oil” in Russia will be dramatic.

On the home front, Byron’s keeping his eye on a company that claims it can transform used tires into fuel…and it’s going into commercial service no later than May 31. Down the road, the same technology could be used to breathe new life into American oil wells that have been abandoned for decades.

And it has a one-of-a-kind leg up on all competing technologies when it comes to extracting oil shale — the hard-to-extract stuff in the Rocky Mountains that’s estimated to total three times Saudi Arabia’s proven reserves. We’ve reserved details for paying members of Byron’s Energy and Scarcity Investor — on sale this week. If you’re interested in learning more, you can do so here for a limited time.

— Just days after Robert Zoellick, president of the World Bank, warned 33 countries are at risk of riots because of food prices — the risk is already becoming a reality in several of them.

Four people have been killed in Haiti, where the prices of rice, beans and fruit have risen 50% in the past year.

Food riots were reported in four West African nations yesterday, and a nationwide strike was called for today in a fifth. Plans for a general strike in Egypt to protest rising food prices have been squelched, but only because police arrested more than 200 people.

“I think what we are facing is a perfect storm,” comments Bettina Leuscher from the World Food Program. “More and more people are going hungry and need food aid. At the same time, we’ve got the lowest food reserves in some 30 years on the markets. And prices have gone up tremendously, sometimes doubled in the last few months and you’ve got climate change with less harvest, droughts, floods.”

No riots in New York — not yet, anyway — but food pantries report major shortages because donations are way down.

– “We need to be concerned,” U.N. Secretary-General Ban Ki-moon commented yesterday, “about the possibility of taking land or replacing arable land because of these biofuels.” This, two years after the United Nations Food and Agriculture Organization forecast that biofuels would wipe out hunger and poverty for up to 2 billion people.

“I’ve heard from at least a dozen farmers,” counters Kevin Kerr, who has been on the biofuel beat for years, “in Illinois, Minnesota, Iowa, Wisconsin and Indiana. They’re all telling me the same stories of either ethanol plants under construction that have ceased operations or plants that are declaring Chapter 11. Looks like the ‘dream’ of the new gold rush in corn-based ethanol is starting to unravel, and fast.”

— How about the outlook for U.S. crops this spring? Says Kevin: “Not great.”

“The wet, muddy conditions and continued rain make it next to impossible to get equipment in the fields,” Kerr writes. “Also, farmers run the risk of putting seeds in too early and, basically, losing the crop. The situation is pretty grave this year, as demand for all the grains is very high, as are the costs to plant them. The hope seems to be that we will have another year like last year and Mother Nature will be kind. It may not end up that way.”

Kevin heads out next week for his annual trip to the upper Midwest. “I knew corn would be going to $6 three years ago largely because of what I found out by visiting farms and seeing what was going on long before the ethanol boom landed on the front page of Barron’s.” We’ll keep you posted on Kevin’s travels.

Oh…some angry farmers respond to our coverage of the ethanol boom, too, below.

In a Chart of the Day installment back on December 28, 2007, I noted the price of rice at 20-year highs. (You can view that Chart of the Day here.) The reasoning was given as follows:

The relentless rise in agricultural prices shows how all markets are connected. The high cost of oil has encouraged a politically subsidized ethanol boom; this in turn has led to record corn acreage in the United States. But more acreage for corn means less acreage available for other crops. When acreage goes down, supply goes down. When supply goes down and demand stays strong, prices go up. The United States is the fourth-largest exporter of rice in the world, so that makes a difference.

Big economic strides in the developing world are also taking their toll on food prices. As hundreds of millions of new laborers aspire to a middle-class lifestyle, meat consumption rapidly rises. Meat is very grain-intensive — you have to feed the cows and pigs — and that puts an even bigger demand on crop acreage. As rice shows, the unfortunate reality is that the world’s poor may be the hardest hit by energy and food inflation.

That was all a mere 14 weeks ago. The price of rice has gone up 60% since then.

That is alarming news when you are talking about the main food staple for 3 billion people. The credit crunch is no small thing, but house-poor Americans are not starving. With the price of rice where it is, starvation is a real concern. Not just tens of millions, but hundreds of millions of families are at risk.

The headlines are getting worse as desperation turns to anger. “Food Riots Rock Yemen” is a recent example. The World Bank has declared 33 nations at risk for “social unrest” due to the high cost of getting something to eat.

So why the deadly acceleration of this long-running trend? Is it all down to biofuels and increased meat consumption in China? Unfortunately, no. Things have entered a much more disturbing phase.

Credit Crunch Redux

What we have here is a looming market failure with no small resemblance to the credit crunch. The global grain markets are caught up in a vicious cycle, not unlike the one that gripped global financial markets.

As the subprime crisis unfolded, and news of toxic balance sheets spread, it became clearer that lending to one’s fellow bankers was a dangerous proposition. And so the banks began to hoard their capital, keeping it to themselves for fear of getting burned.

The banks’ refusal to lend touched off a self-fulfilling prophecy of downward-spiraling credit conditions, to the point where leveraged financial institutions began to fail. As the financial system “seized up” like an engine in vapor lock, it took massive cash injections from a lender of last resort, the Federal Reserve, to get things going again.

In this new and deadly “food crunch,” grain exporting countries play the role of frightened banks.

With the price of grains going through the roof, government officials in grain-exporting countries have become alarmed by rising food costs at home. Their natural response has been to artificially limit grain exports, through the use of expensive tarriffs and outright quotas.

With normal supply lines cut short — or in some cases, cut off completely — the global grain markets have been tipped into a panic. Suddenly, the marginal suppliers are no longer there. If you think of grain availability like financial liquidity in a time of crisis, the picture becomes clear.

No Luck for Farmers

Farmers everywhere (except, perhaps, in Europe and the United States) are furious at these export restrictions. The seizing up of the global grain trade has denied them an ability to profit.

After many years of struggle, when it looked like their hard work would finally be rewarded, many developing world farmers have discovered that they still can’t win. The export profits that would have come their way in a free market system have been diverted or destroyed instead, thanks to emergency measures from the local government.

The global food crunch is a “market failure” in the truest sense of the term. No one is really benefiting from this turn of events. The restrictive actions of grain-exporting governments are reminiscent of the Smoot-Hawley Tariff Act of 1930. Instead of a “beggar thy neighbor” policy, we are seeing the results of a “starve thy neighbor” policy. These tragic results are not intentional — but then, Reed Smoot and Willis Hawley probably didn’t intend to kick off the Great Depression, either.

Do countries have the right to punish their farmers in the name of national food security? A good question, but not one we are interested in here. Export restrictions are a driving factor in the global food crunch, whether anyone likes it or not. And so it becomes more vital to understand the effects than to debate the merits of the cause.

Hoarding Mentality

The anger of the farmers and the shutting down of grain supply lines has fueled a “hoarding mentality” that only intensifies as grain prices rise. Vertical price trends and scary headlines only reinforce the hoarding instinct.

As a result of all this, there is no simply no telling how high the price of rice and other food staples could go. In economist terms, food is the ultimate “inelastic good”; people have to eat, or they will die. Countries that are net importers of grain have to pay up, no matter the price.

So what can you and I do about all this? Unfortunately, not much.

It wouldn’t hurt for America to lay off the insanity of biofuel subsidies… burning up corn and taxpayer dollars in our gas tanks as the world wrestles with mass hunger. But that’s a problem of political will, a gigantic aircraft carrier that could take many years to turn around.

One thing we can do is recognize the importance of the agricultural supercycle. We will ultimately get through this global food crunch, one way or another. Somehow a long-run solution will be found.

As a result of the price hikes Egypt, Cambodia, India and Vietnam have restricted export restricted the export of rice.

The price of grains — corn, wheat, and rice — has been rising since 2005 under pressure from farmers who would rather plant crops for biofuels than for food, the lack of technological breakthroughs in crop yields, and drought and disease. The sharpest increase has been this year, with the price of Thai rice, a world benchmark, nearly doubling since January, to $760 per metric ton. Some analysts expect that price to reach $1,000 in the next three months

Read on at washintonpost.com.

Tom Dyson is bullish on agriculture.

“Grain markets are a little frothy right now, but the long-term argument is solid. If you’d like to invest in grains, PowerShares has a sugar, corn, soybean, and wheat ETF (DBA). In October, iPath created JJA, traded on the NYSE. It tracks corn, wheat, soybeans, sugar, coffee, cotton, and soybean oil. Elements has come out with an instrument that tracks the 20 commodities in the Rogers International Commodities Index (RJA). Finally, market Vectors has an ETF of agribusiness stocks (MOO).”

Things are getting weirder and weirder out there, and I am getting weirder and weirder in the semi-gloom of the Mogambo Bunker Of Ultimate Paranoia (MBOUP), like when I (for some reason) weirdly thought that if I called 911 to report the emergency of a rampant 20% monetary inflation that is going to lead to unbelievable consumer price inflation which will lead to food riots and societal breakdown, it might do some good!The reason I did that was that I am just about to give up using the Mogambo Method Of Societal Change (MMOSC), variously called “crazy drunkard screeching and writing hate mail to the Federal Reserve, Congress, the Supreme Court, the United Nations and all the other lying, thieving, scumbags of the world, most of them Marxist trash who depend on the damned Federal Reserve and their own central banks to create so much money so that they can finance their loathsome socialist/communist agenda”. It did not, obviously, work.

Well, the 911 operator is, I am sorry to say, just as stupid as the rest of the people around here, and she did not think that an explosive 20% growth in the money supply was an “emergency” either, even after I explained to her, like I patiently explain it to my neighbors, how she was beyond stupid if she didn’t think that zillions of dollars being jammed into the economy was an “emergency” – because it is! We’re going to be murdered by inflation! And murder is an emergency!

“Hell,” I told her, “Get up off of your lazy fat butt and look around you! Inflation in consumer prices is already zipping along at terrifying levels!”

I even told her how even the laughably low “official” government estimate of inflation is a terrifying 4%, and the new “official” government Gross Domestic Product Deflator (used to wring out the effects of inflation from raw GDP data) is 2.4%!

Well, apparently calling her “stupid fascist moron worthless lowlife goon-squad trash” was violating a half dozen or so laws, and after being reminded of it, I knew that the 911 emergency system was just another government agency in league with those Federal Reserve and Congressional devils, and I hung up in rude dismay.

So now you know how weird things are getting, and thus you are primed for a recap of the Insane Economic News Of The Day (IENOTD), such as Total Fed Credit, the magical ultimate source of credit, which turns into debt and literally into money if someone borrows from a bank, being down a whopping $9.3 billion last week! Zounds!

And as more Insane Economic News Of The Day (IENOTD), the Fed’s personal stash of U.S. government debt is down another gigantic $48 billion last week! $48 billion! In one week! One freaking week! In fact, the Fed’s stash of U.S. Securities Bought Outright is down a whopping $151 billion in the last 12 months alone, and this mighty drawdown leaves them with only another $629 billion!

If you want a little MORE of some hold-onto-your-hat IENOTD, how about the fact that last week total reserves in the banks was $44 billion, and of that, a negative $62 billion was “non-borrowed”! Does that make them “borrowed”? Hahahaha! What? Hahaha!

I have to admit that I never was much good with negative numbers, and so I am having a Very Hard Time (VHT) getting my faltering few functioning brain cells around the concept that “free reserves” in the banks are a sudden, staggering negative $75 billion! Total reserves are only $44 billion, but “free reserves” are a negative $75 billion? What in the hell is going on here? It feels like we are going backward through a time warp or something!

I mean, the banks should be loaded with money, as Rick Ackerman of Rick’s Picks says, “Since August, the U.S. has thrown more than a trillion dollars of rescue money at the banking system in a desperate attempt to restore confidence.”

And as more Insane Economic News Of The Day (IENOTD), gold went down! Hahaha! This is truly, truly insane, because if there was ever a time when gold should be soaring, this is it! But it ain’t! Yet.

All of this is taking a toll on the dollar, and Bill Bonner here at The Daily Reckoning writes, “In terms of what a dollar will buy in the United States, a dollar is down around 25% so far this century. In terms of what it will buy in Europe, it is down by about 50%.”

Please notice the way the two sentences seem so well written, so informative, yet non-threatening. Now, notice that since this century is only eight damned years old, this makes the sentences seem even more grotesque if they are emended to, “In terms of what a dollar will buy in the United States, a dollar is down by around a whopping 25% in the last eight short freaking years, and in terms of what it will buy in Europe, the dollar is down by a staggering 50 freaking percent in the last stinking short eight years, too!”

Naturally, I think that this is a good opportunity to remind the viewers at home that gold, as a store of value, has gone up in price to compensate for the loss of buying power of the dollar, which is only one of the beauties of gold!

Apparently in response, Mr. Bonner then said, “In terms of gold, it has shrunk 75%”!

Naturally, my computer-like brain instantly deduces that since the dollar has lost 25% of its buying power for a market basket of goods in the last eight years, but the dollar has lost 75% of its value against gold, then gold is not only a store of value; sometimes you can actually make money on it! Like now! Whee!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.