China Subsidizes Food

[Jay]

Re: China Subsidizes Food

In the spring of 1789 the French Assemblee decreed the issuance of 400 million livres of notes, called assignats, secured by the properties which had been confiscated from the Church during the revolution. By the fall of 1789 the Assemblee approved the issuance of 800 million of noninterest-bearing notes and decreed that the limit on such notes was to be 1.2 billion livres. Despite this stated limit, nine months later another 600 million livres was approved and in September 1791 another 300 million. In April of 1791 another 300 million was approved.

Prices rose, but wages didn't keep up and in 1793 a mob plundered 200 stores in Paris. Price controls were imposed (Law of the Maximum). Output decreased and rationing had to be implemented. To force acceptance of its money the French government imposed a 20 year prison sentence on anyone selling its notes at a discount and dictated a death sentence for anyone differentiating between paper livres and gold or silver livres in setting prices.

By 1794 there were 7 billion livres (assignats) in circulation. In May 1795 this total reached 10 billion livres and by July 1795 it had gone up to 14 billion livres.

When the total reached 40 billion livres the printing plates for assignats were publically destroyed. A new type of note, called a mandat, was issued, but within two years these also lost 97 percent of their value. The printing plates for mandats were also publically destroyed. In 1797 both assignats and mandats were repudiated and a new monetary system based upon gold was instituted.

San José State University
Department of Economics

The link didn't work for me. I assume it is from Fiat Money Inflation in France by Andrew Dickson White, which should be on the must read list for all itulipers.

[thunderdownunder]

Re: China Subsidizes Food

As Fred has indicated, Those who fail to learn from the mistakes of their predecessors are destined to repeat them.
Released today Australian Inflation rate M/M has increased to 0.4% in November from 0.3% in October from 0.1% in September. (Source -http://www.forexfactory.com/calendar.php - This a handy bookmark page) At a time when their interest rates have risen sharply and their Dollars purchasing power is rising, Does not bode well for Mr Bernanke and ZIRP. He will be eaten from the inside. The US is in for a torrid time stuck between a rock and a very hard place. I am not surprised that Mr Ben B had quivering lips in his 60minutes interview. He Knows its coming and the only effective tool he has, against it, is going to be blunt and bloody.

[ThePythonicCow]

Re: China Subsidizes Food

The link didn't work for me.

The current link seems to be: San Jose State University Department of Economics: Episodes of Hyperinflation, an article by Thayer Watkins.

[ThePythonicCow]

Re: China Subsidizes Food

stuck between a rock and a very hard place

I just had a vision of being trapped on the beach of a tropical island, as a tsunamai rolls in, and a volcano erupts behind me, lava rushing toward me and hot ashes falling on me.

[touchring]

Re: China Subsidizes Food

Now to get some insight into how bad it MUST be to have to resort to this.
No other comments by me would highlight how precarious this has become other than to say it may be coming to a Walmart near you.
http://www.bloomberg.com/news/2010-1...-update1-.html

Price controls and subsidies are part of life in Asia. In Singapore, there are even wage subsidies - whereby the government pays for part of wages.

[ggirod]

Re: China Subsidizes Food

The US is in for a torrid time stuck between a rock and a very hard place. I am not surprised that Mr Ben B had quivering lips in his 60minutes interview. He Knows its coming and the only effective tool he has, against it, is going to be blunt and bloody.

Things alway seem to go full circle. First, peak oil, then recession, then inflation. Fortunately, we can print these neat buttons - the approved design is already 36 years old... to Whip Inflation Now!!!

Heck, we can even reuse the whole program - here is the speech which appeals to an ineffective congress/government to take the initiative and fix the problem...

We can only speculate what wonderful things will come from our new attempt. Back then, price controls led to everybody putting product prices high and issuing rebates like mad. Before the price controls I don't remember many rebates at all; afterwards it became an industry. Inflation led to credit card companies raising rates to 18% after eliminating usury laws. Heck, lots of good stuff happened!

Oh, wait ... in 1974 the country was not in huge debt. Most of our oil was still produced domestically. The overheated economy might be cooled a bit by encouraging people to save rather than spend. Hmmmmm

Gee, maybe this time it will be harder?

[ST]

Re: China Subsidizes Food

richard nixon tried wage and price controls in the u.s. didn't work too well

I consider the mantra "wage and price controls don't work" be another myth repeated by virtually everyone. You have to put into context what exactly the goal is whenever such a policy is implemented. The goal is to break the momentum of spiraling wage and prices in the short term - there is usually a reset; it's sort of like the argument that what the Fed does buying bonds hasn't produced any effect on yields and the dollar - but one has to consider where they would be if the intervention didn't happen; that is not so easy to imagine.

The only definitive work I have come across with respect to prices throughout history is "The Great Wave: Price Revolutions and the Rhythm of History" by David Hackett Fischer - should be req'd reading - he goes all the way back to the 12th century and the appendix, much farther back then that to Roman times. In 1994 he claimed that in the very large cyclical view we were in the end stage of another price wave which would continue to play out over the next 15-25 years. This significant break in the momentum during Nixon's move is touched upon in the book along with supporting data.

That work is a fascinating, seminal study of prices throughout history and the political ramifications in some cases and I can't recommend it enough.

[ThePythonicCow]

Re: China Subsidizes Food

The only definitive work I have come across with respect to prices throughout history is "The Great Wave: Price Revolutions and the Rhythm of History" by David Hackett Fischer - should be req'd reading - he goes all the way back to the 12th century and the appendix, much farther back then that to Roman times. In 1994 he claimed that in the very large cyclical view we were in the end stage of another price wave which would continue to play out over the next 15-25 years.

In the "Preface to the Third Printing", viewable for free on Amazon (click to Look Inside), Fischer wrote:

The period from 1996 to 1999 is deeply interesting to an historian of prices. The long inflation of the twentieth century has given way to a new disinflationary trend, and in some sectors to actual deflation. We have been living through an era of "deep change", when one "change regime" yields to another.

To understand these new economic movements, one must look beyond the boundaries of economics itself. The world-disinflation of the 1990's was driven mainly by demographic events: most of all by sustained deceleration in rates of population growth. In many nations, fertility rates have fallen nearly to the replacement level, or even below it. Demographers believe that the leading cause is a change in the status of women, though other factors are clearly involved.

The economic consequences of decelerating population growth are slowing demand and downward pressure on prices throughout the world, which lead in turn to severe financial crisis in economies that are organized on expectations of very rapid growth.

Social and cultural consequences have been positive. In that respect, this new era in price history appears to be similar to periods of price equilibrium in the 15th, late 17th and 19th centuries. It is marked by rapid declines in internal violence, family disruption, and consumption of drugs and drink. Many leaders take personal responsibility for these new trends.

In other ways the new era of the late 1990s is entirely without precedent. A novel tendency in a period of disinflation is a very powerful inflation of asset values, and especially in the price of common stocks on many exchanges. Here again the cause is to be found outside the conventional frame of economic analysis, in social and cultural tendencies that have caused investments in certain classes of assets to increase more rapidly than the supply of assets themselves. We might have a major problem here, in what an historian would call a shearing effect, created by countervailing price movements.

Another problem operates on an entirely different level. In periods of deep change, understanding lags behind the movement of events. The world changes faster than our thoughts about it. For example, in the late 1990s, central banks in many countries continued to think of themselves as inflation-fighters in a new era when greater dangers rose from disinflation or even deflation. Economists in the 1990s (monetarists especially) predicted that large increases in the money supply would cause inflation to pick up again, as would have happened a generation ago. But other factors have been more powerful.

In the United States problems of economic understanding have been compounded by the effects of economic prosperity. The Japanese in World War II spike [sic] ruefully of shoribyo or "victory disease." The Greeks called it hubris, and thought that it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave makers, at the moment when the great wave breaks and begins to gather its energy again.

Wayland Massachusetts        D.H.F.
June 1999

Bold emphasis above added by ThePythonicCow.

I read this as suggesting that in just the four years, 1996-1999, after Fisher published this book, he was seeing events occur that were difficult to explain. We might indeed have a major problem here, aggravated by the United States suffering from a nasty case of victory disease.

[Mashuri]

Re: China Subsidizes Food

I consider the mantra "wage and price controls don't work" be another myth repeated by virtually everyone. You have to put into context what exactly the goal is whenever such a policy is implemented. The goal is to break the momentum of spiraling wage and prices in the short term - there is usually a reset; it's sort of like the argument that what the Fed does buying bonds hasn't produced any effect on yields and the dollar - but one has to consider where they would be if the intervention didn't happen; that is not so easy to imagine.

The only definitive work I have come across with respect to prices throughout history is "The Great Wave: Price Revolutions and the Rhythm of History" by David Hackett Fischer - should be req'd reading - he goes all the way back to the 12th century and the appendix, much farther back then that to Roman times. In 1994 he claimed that in the very large cyclical view we were in the end stage of another price wave which would continue to play out over the next 15-25 years. This significant break in the momentum during Nixon's move is touched upon in the book along with supporting data.

That work is a fascinating, seminal study of prices throughout history and the political ramifications in some cases and I can't recommend it enough.

At best, price/wage controls are a band-aid for symptoms of more significant root causes that should be addressed instead. BTW, all they accomplish is a surplus or shortage of the products being controlled as their respective prices deviate from their true market values.