Shortages! Is The World Really Running Out Of Food, Water And Oil?

Everywhere you look today the mainstream news is talking about shortages. Authorities all over the globe are boldly proclaiming that the world is rapidly running out of food, water and oil. So are these doomsayers right? Well, it must be noted that some of the most famous "prophets of doom" of the past several decades have seen their predictions fail spectacularly. For example, in his infamous 1968 book entitled "The Population Bomb", Paul Ehrlich made the following statement: "I don't see how India could possibly feed two hundred million more people by 1980."  Well, India is now feeding well over twice the number of people than they had when Ehrlich originally wrote his book.  But that doesn't mean that major shortages won't happen in the future.  It just means that we should be careful not to look incredibly ridiculous like Ehrlich did.  The truth is that there are good reasons why we should be watching global supplies of food, water and oil very closely.  Life as we know it would cease to exist if we had severe shortages of any of them.

So will we actually be facing serious shortages of food, water or oil in the coming years?

Well, let's take a look at oil first.

Oil Shortage?

Right now oil is absolutely essential to almost everything that we do.  We require oil to drive our cars, we require oil to produce our food, a large percentage of our homes use energy that is derived from oil and most of what we buy at the stores comes in packaging that is made up at least partly of oil.

So if we run out of oil that is going to be a really huge deal.

So are we going to run out of oil?

Well, right now advocates of the "peak oil" hypothesis are getting a lot of attention in the mainstream media.

Basically the idea behind "peak oil" is that the world has reached (or almost reached) the maximum amount of oil that it can produce and that from here on out the amount of oil that will be produced will begin to decline.  Meanwhile, the demand for oil is only going to continue to increase.

So is there evidence that this is actually happening?

Well, it depends on who you ask.  But what is undeniable is that there are some very powerful interests that are doing their best to hype a coming oil shortage. In recently released report entitled "Signals & Signposts", Shell Oil warns that global demand for energy is going to be three times as large in 2050 as it was in 2000.

So where will all of that extra energy come from?

Can the world possibly produce two or three times as much oil as it does today?

The Shell Oil report forecasts that the global supply of oil will continue to rise but that the rise in supply will not be fast enough to keep up with the rise in demand.  According to Shell, this is going to cause rapidly rising oil prices which will cause the gross domestic products of all nations to fall.

So just how high could oil prices go?

Well, the truth is that the price of oil is very highly manipulated.  The market for oil is not exactly what you would call a "free market".

However, it is alarming that almost everyone is forecasting much higher oil prices at this point.

For example, Weeden & Co. oil analyst Charles Maxwell recently stated that he believes that the price of oil will eventually hit $300 a barrel by the end of this decade.

If that were to happen, it would be absolutely disastrous for the global economy.  Yeah, those in the oil industry would make a killing, but for the rest of the world it would be a complete and utter nightmare.  Unfortunately, what most Americans don't understand is that there are lots of alternative energy technologies out there that have been repressed by the big oil companies and by the big oil producing nations because they threaten hundreds of billions of dollars in profits.

For example, did you know that it is possible to run a car entirely on water?  One Japanese company hopes to start mass marketing them....But I wouldn't count on seeing water-powered cars sold on every street corner any time soon. Why? Because of greed.

Our entire system of energy is based on making as much money as possible for those who have all the oil.  So if the world has a shortage of energy in the coming years, it is not because that is how it inevitably had to be.  Rather, it will be all about pure, unadulterated greed.

There are plenty of alternative energy technologies out there that are incredibly promising, but those that are getting incredibly wealthy off of our oil-based society are not going to quietly step aside for the good of mankind.

Food Shortage?

So what about food? Is the world running out of food?

Well, as we have seen so many times in the past, the earth can support far more people than most of the "experts" ever imagined.  In fact, if weather patterns were perfectly stable and we removed human greed out of the picture, the earth could most likely support a whole lot more people.

Unfortunately, weather patterns are becoming increasingly bizarre and human greed is always a problem.  In particular, this year extreme weather all over the globe is causing many to be concerned that we may soon see some very serious food shortages.  In Australia and Brazil, flooding of Biblical proportions has absolutely devastated crops.  Some of China's most important agricultural areas are experiencing the worst droughts that they have seen in 200 years.  Authorities are warning that two-thirds of China's wheat crop could be in danger.  A recent cold snap that hit northern Mexico wiped out entire harvests and has sent prices for many fresh produce items in the United States soaring.  But these bizarre weather patterns will hopefully settle down eventually.  What is of even greater concern is that we have been seeing a long-term trend of rapidly rising food prices over the last couple of years that is putting an extreme amount of strain on the 3 billion people in the world that are trying to survive on the equivalent of 2 dollars or less per day.

Most Americans can still handle rising food prices, but for millions upon millions of poor people all over the world a significant increase in the cost of food can mean the difference between life and death.  That is why the sudden rise in price of so many agricultural commodities is so disturbing.  Just consider some of the shocking price increases that we have seen over the past year or two....

*The price of corn has doubled over the last six months and recently hit a new all-time high.

*The price of wheat has more than doubled over the past year and hit a 30-month high on Monday.

*The price of soybeans is up about 50% since last June.

*The price of cotton has more than doubled over the past year.

*The commodity price of orange juice has doubled since 2009.

*The price of sugar is the highest it has been in 30 years.

If prices continue to go up like this we are going to see a lot more food riots all over the globe.

But perhaps that is what those in positions of power actually want.  The truth is that the global elite don't always have the best interests of the rest of us at heart.

Water Shortage?

So what about water? Is the world running out of water?

Well, yes, many areas of the world are rapidly running out of fresh water and this is perhaps one of the biggest problems we are facing.

Without oil, most of us could survive for quite some time.

Without food, most of us could survive for a number of weeks.

Without water, most of us would die within a matter of days.

Fortunately North America still has a decent supply of fresh water, but as I have written about previously, in many areas of the globe the situation is quickly becoming absolutely dire....

*Worldwide demand for fresh water tripled during the last century, and is now doubling every 21 years.

*According to USAID, one-third of all humans will face severe or chronic water shortages by the year 2025.

*Of the 60 million people added to the world’s cities every year, the vast majority of them live in impoverished slums and shanty-towns with no sanitation facilities whatsoever.

*It is estimated that 75 percent of India's surface water is now contaminated by human and agricultural waste.

*Not only that, but according to a UN study on sanitation, far more people in India have access to a mobile phone than to a toilet.

*In northern China, the water table is dropping one meter per year due to overpumping.

*But there are few places where the water shortage is as severe as it is in the Middle East.  

Saudi Arabia had been producing enough wheat to be self-sufficient for most of the past 30 years, but in 2008 authorities there realized that the non-replenishable aquifer they had been pumping for irrigation purposes was nearly depleted.  So in response Saudi Arabia made the decision to reduce their wheat harvest by one-eighth every year thereafter.  Wheat production in Saudi Arabia is scheduled to cease entirely in 2016.

In some of the most populated areas of the planet the water situation can only be described as catastrophic.

For example, did you know that a new desert the size of Rhode Island is created in China because of drought every single year?

Did you know that in China 80% of the major rivers are so polluted that they don't support aquatic life at all?

Did you know that the women of South Africa collectively walk the equivalent distance to the moon and back 16 times a day for water?

Thankfully the water situation in the United States has not gotten that bad yet, but the truth is that even we could be facing serious water shortages in the years ahead.

According to a recent report released by the Natural Resources Defense Council, more than one-third of all counties in the lower 48 states will likely be facing very serious water shortages by the year 2050.

So, yes, there are some really good reasons to be concerned about earth's dwindling resources.

If the global elite were not so incredibly greedy and if we managed our planet better we would not have problems to this degree.

But here we are.

So what is the solution?

Well, it would be really great if the global elite would just share some of their wealth.  A study by the World Institute for Development Economics Research discovered that the bottom half of the world population owns approximately 1 percent of all global wealth.

But the global elite aren't about to change the rules of the global economy.  After all, they spent a whole lot of time and effort rigging the game so that virtually all wealth eventually gets funneled into their hands.

Rather, most among the global elite seem to believe that radical population control is the answer.

After all, they argue, if there are half as many people around then we will only be using half as many resources, right?

Well, as alluring as that may sound, the truth is that the world has always had a huge problem with poverty.  Even when the global population was down around 100 million people there was rampant poverty.

The number of people is not the problem.

The problem is the insatiable greed of the elite.

The global elite have systematically exploited the poor all over the planet, they have gobbled up the resources of the world wherever they have found them and now they are hoarding their wealth as millions upon millions suffer desperately.

Well, in the end the global elite will have to answer to a higher power.

According to the most recent "Global Wealth Report" by Credit Suisse, the wealthiest 0.5% control over 35% of the wealth of the world.  That qualifies as hoarding wealth.  Other estimates put the concentration of wealth at the very top of the food chain much higher than that.

But sadly, the problem of greed is not going to be solved any time soon. Global supplies of food and fresh water are going to continue to diminish. The world economy is going to continue to become increasingly unstable.  If it was always your desire to live in "interesting times", then you are about to get your wish.  

Things are about to get extremely "interesting" on this planet.

Inflation in China - Remain High but Not Hyper

Though we see the current inflation is high, but China is not in hyper inflation, and the public seems to hold confidence on the government being able to regain control. While the government targets at 4% in CPI, we forecast CPI to reach 4.3% on average, characterized high in 1H and trend down in the second half.

• Inflation stays the high level. China NBS estimates Jan CPI up by 4.9% with food price rose 10.3% and non-food price edged by 2.6%. This inflation figure is slightly lower than the market expectation of 5.2%. Food price is the highest since Aug 2008, and non-food price is the highest in our record back to Jan 1999.
• Foods would take a weight of 30.1%. Despite NBS argues the change in CPI weights has minimal impacts on CPI level, we see the CPI weight change could have lowered overall CPI by 0.19 ppt. Although NBS detailed the changes in CPI weights, but refuse to publish CPI weight in detail. If based on 10.3% food price, and 2.6% non-food price, coming out 4.9% in CPI, then food weight should be 29.9% in Jan 2011, and should be 32.1% in 2010. Based on 10.3% increase in food price, and 2.6% up by non-food price, coming out 4.918% in CPI, then food weight should be 30.1% in Jan 2011, and should be 32.3% in 2010 while NBS told food weight is slushed by 2.21 ppts.
• Non-food price should be largely underreported. Though non-food price has reached the highest in our record (back to Jan 1999), we still have doubt onto the statistics such as garment and clothing, transportation and telecommunication, housing and others. For instance, clothing price decreased by 0.2%. Though minimal, it is very contradictory to common feeling. In fact, ex-factory prices of clothes under PPI rose 3.8% y-y or 0.5% m-m in January also in NBS statistics. This should be largely attribute to price samples.
• Food prices would remain at high level. While vegetable and some special fruit price would face a downward adjustment after CNY, grain price, which surged 15.1%, would be hard to set back before the summer grain harvest. China officially reported to have experienced 7 consecutive years bump harvest of grains, but market does not see to have a large amount of surplus supply of grains. High food prices would be hard to go down as 8 provinces in China have been suffering from serious drought in the past more than 3 months.  
• Labor costs undergo a large increase. Media covers widely about short supply in labor force both in coastal areas and hinterland areas after CNY. Labor market in Guangdong and Zhejiang reports labor costs have increased by 10-30% in the past a month. While tens of million of migrant workers return to their rural homes for their family reunion, labor costs for households, retails, restaurants and other service institution in cities cross the country surged. This is partly reflected in CPI under prices of family services, which is up by 11.4% in January.
• Higher-than-expected PPI suggests stronger cost-push inflation going forwards. January PPI rose 6.6%, higher than market expectation, the highest since May 10. Taking domestic and international factors into consideration, it is hard to see PPI to lower anytime soon.

Monetary authorities exercised tight control over fund-raising

• January new renminbi loans ended up Rmb1.04t, some 20% less than market expectation. This outcome confirmed once CBRC once warned that it wanted January new loans no more than Rmb1t, while PBOC tended to allow some RMB1.2tr. Because of this tight control, M1 growth slowed to only 13.6% from 21.2% in last Dec and 39% in January 2010. While household deposits increased by Rmb1.42t, corporate deposit decreased by Rmb1.27t. Apparently, corporate liquidity has been largely tightening up. As a result, short supply in corporate cash-flow have largely boosted interbank lending market. While overnight interbank rate once exceed 7%, the weighted interbank market lending rate reached 3.7% and repo rate surged to 4.29% in January, 218 bps higher than the same period last year.
• Monetary policy implementation seems to have been a bit too tight. Monetary authorities have been made accountable to the high housing prices and the current high inflation. Both PBOC and CBRC have been under pressure to normalize the social fund-raising. From PBOC Quarterly Report (4Q2010), aggregate fund-raising (including loans, stocks, treasury bonds and corporate bonds) was Rmb11.11t in 2010, 14.3% less than 2009. CBRC warned to take another 10% cut into new loans from last year's incremental.
• It is hard to continue such a tough tightening. January new loans operation gives us two information. First of all, the monetary authorities are able to control credit loans if they determine to and if they are allowed to. Second, how much fund-raising through credit loans should be made depends on the political bargain between the central and local governments. We expect the credit financing to local projects would be a hot debate during the incoming NPC (March 5-15). The monetary policy operation may have to repeat "stop and go" cycle after the NPC in March.
• As a result, economic growth would remain strong and inflation would have to tolerate high.

Egypt's Next Crisis: The Economy

by PEDRO UGARTE/AFP

Summary

Until just a few years ago, Egypt’s ruling military elite was able to “borrow” money from Egyptian banks with no intention of paying it back. President Hosni Mubarak’s son Gamal changed all that, reforming and privatizing the system in order to build an empire for himself. For the first time in centuries, Egypt’s financial position was not entirely dependent upon outside forces. Now, Mubarak and his reform-minded son are out of the picture and Egypt has a budget deficit and a government debt load that are teetering on the edge of sustainability.

Analysis

Foreign Minister Ahmed Abul Gheit called on the international community Feb. 15 to help speed Egypt’s economic recovery. Such foreign assistance will certainly be essential, but only in part because of the economic disruptions caused by the recent protests. Even more important, the political machinations that led to the protests indicate Egypt’s economic structure is about to revert to a dependence upon outside assistance.

Egypt is one of the most undynamic economies of the world. The Nile River Delta is not navigable at all, and it is crisscrossed by omnipresent irrigation canals in order to make the desert bloom. This imposes massive infrastructure costs upon Egyptian society at the same time as it robs it of the ability to float goods cheaply from place to place. This mix of high capital demands and low capital generation has made Egypt one of the poorest places in the world in per capita terms. There just has not been money available to fund development.

As a result, Egypt lacks a meaningful industrial base and is a major importer of consumer goods, machinery, vehicles, wood products (there are no trees in the desert) and foodstuffs (Egypt imports roughly half of its grain needs). Egypt’s only exports are a moderate amount of natural gas and fertilizer, a bit of oil, cotton products and some basic metals.

The bottom line is that even in the best of times Egypt faces severe financial constraints — its budget deficit is normally in the range of 7 to 9 percent of gross domestic product (GDP) — and with the recent political instability, these financial pressures are rising.

The protests have presented Egypt with a cash-crunch problem. At $13 billion in annual revenues, tourism is the country’s most important income stream. The recent protests shut down tourism completely — at the height of the tourist season, no less. The Egyptian government estimates the losses to date at about $1.5 billion. Military rule, tentatively expected to last for the next six months, is going to crimp tourism income for the foreseeable future. Simultaneously, the government wants to put together a stimulus package to get things moving again. Details are almost nonexistent at present, but a good rule of thumb for stimulus is that it must be at least 1 percent of GDP — a bill of about $2 billion. So assuming that everything goes back to normal immediately — which is unlikely — the government would have to come up with $3.5 billion from somewhere.

Which brings us to financing the deficit, and here we get into some of the political intrigue that toppled former Egyptian President Hosni Mubarak.

One cannot simply walk out of Egypt, so since the time of the pharaohs the Egyptian leadership has commanded a captive labor pool. This phenomenon meant more than simply having access to very cheap labor (free in ancient times); it also meant having access to captive money. Just as the pharaohs exploited the population to build the pyramids, the modern-day elite — the military leadership — exploited the population’s deposits in the banking system. This military elite — or, more accurately, the firms it controlled — took out loans from the country’s banks without any intention of paying them back. This practice enervated the banks in particular and the broader economy in general and contributed to Egypt’s chronic capital shortage. It also forced the government to turn to external sources of financing to operate, in particular the U.S. government, which was happy to play the role of funds provider during the final decade of the Cold War. There were many results, with high inflation, volatile living standards and overall exposure to international financial whims and moods being among the more disruptive.

Over the past 20 years, three things have changed this environment. First, as a reward for Egypt’s participation in the first Gulf War, the United States arranged for the forgiveness of much of Egypt’s outstanding foreign debt. Second, with the Cold War over, the United States steadily dialed back its economic assistance to Egypt. Since its height in 1980, U.S. economic assistance has dwindled by over 80 percent in real terms to under a half-billion dollars annually, forcing Cairo to find other ways to cover the difference (although Egypt is still the second-largest recipient of American military aid). But the final — and most decisive factor — was internal.

Mubarak’s son Gamal sought to change the way Egypt did business in order to build his own corporate empire. One of the many changes he made was empowering the central bank to actually enforce underwriting standards at the banks. The effort began in 2004, and early estimates indicated that as many as one in four outstanding loans had no chance of repayment. By 2010 the system was largely reformed and privatized, and the military elite’s ability to tap the banks for “loans” had largely disappeared. The government was then able to step into that gap and tap the banks’ available capital to fund its budget deficit. In fact, it is this arrangement that allowed Egypt to weather the recent global financial crisis as well as it did. For the first time in centuries, Egypt’s financial position was not entirely dependent upon outside forces. The government’s total debt load remains uncomfortably high at 72 percent of GDP, but its foreign debt load is only 11 percent of GDP. The economy was hardly thriving, but economically, Egypt was certainly a more settled place. For example, Egypt now has a mortgage market, which did not exist a decade ago.

From Gamal Mubarak’s point of view, four problems had been solved. The government had more stable financing capacity, the old military guard had been weakened, the banks were in better shape, and he was able to build his own corporate empire on the redirected financial flows in the process. But these changes and others like them earned the Mubarak family the military’s ire. Mubarak and his reform-minded son are out of the picture now, and the reform effort with them. With the constitution suspended, the parliament dissolved and military rule the order of the day, it stretches the mind to think that the central bank will be the singular institution that will retain any meaningful policy autonomy. If the generals take the banks back for themselves, Egypt will have no choice but to seek international funds to cover its budget shortfalls. Incidentally, we do not find it surprising that now — five days after the protests ended — the banks are still closed by order of the military government.

Yet Egypt cannot simply tap international debt markets like a normal country. While its foreign debt load is small, its total debt levels are very similar to states that have faced default and/or bailout problems in the past. An 8-percent-of-GDP budget deficit and a 72-percent-of-GDP government debt load are teetering on the edge of what is sustainable. As a point of comparison, Argentina defaulted in 2001 with a 60-percent-of-GDP debt load, and it had far more robust income streams. Even if Egypt can find some interested foreign investors, the cost of borrowing will be prohibitively high, and the amounts needed are daunting. Plainly stated, Cairo needed to come up with $16 billion annually just to break even before the crisis and the likely banking changes that will come along with it.