International Investing: The land without subprime debt
Today's Financial News - Posted February 25, 2008
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"It was as if they had subjected the Japanese economy to waterboarding and forgotten to pull it up out of the water. The economy drowned. Even now, 18 years after the Nikkei Dow went under, the poor thing is still coughing up suds." — Bill Bonner |
by Bill Bonner, The Daily Reckoning
Baltimore – (TFN): Today's papers are full of inflation talk. In France, La Liberation says food prices have taken off in Europe – up nearly 50% in the last six months. Part of the reason, no doubt, is the high price of energy. We drove out to the country yesterday. Stopping for fuel, we found the price per liter of diesel was 1.30 euros. Let's see, there are a few less than 4 liters per gallon…4 times 1.30 = 5.20 euros, which converts to, say, about $7.50 for a gallon of diesel fuel. It adds up fast.
Energy prices work their way into everything – notably food, where the land must be tilled, planted and harvested with fuel-consuming tractors…and then, the tomatoes grown in the south of Spain have to be trucked all the way up to Northern Europe…and refrigerated…and sold in energy using stores, whose customers arrive in their energy-consuming cars to buy them.
But from the oil-producing nations comes news that there, too, inflation is hitting hard. In Saudi Arabia, for example, consumer price inflation was about zero for 10 years…but now is over 6% and rising.
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"Oil boom shows a dark side," says the headline in the International Herald Tribune . The dark side is that the oil exporters not only sell oil…they use it too. And while the sheiks and sultans may have the money to keep their harems hot, the average Abdul on the street is feeling left out in the cold.
"Now we have to choose: We either eat or stay warm," says Abdul Rahman Abdul Raheem.
Back in the U.S.A., inflation is just what the doctor ordered. The old quacks that run U.S. monetary policy prescribe inflation as an antidote to deflation. Better to let the fever rise, than let the patient die, they say.
The death that scares them is the kind suffered by the Japanese economy after 1989. It was as if they had subjected the Japanese economy to waterboarding and forgotten to pull it up out of the water. The economy drowned. Even now, 18 years after the Nikkei Dow went under, the poor thing is still coughing up suds. Read on to learn which markets won't suffer from the subprime collapse.
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