Williams Inference

The developing nations' appetite for commodities continues to grow.

Anomaly

The original anomaly in our March 2004 probe, Chronic Grain Shortage stated, "China has refused to buy wheat grown in the Pacific Northwest since 1974 because of a fungus. This February, China bought $54 million worth of wheat in the Pacific Northwest, signaling a major shift in trade policy. "

Currently, India joins the grain shortage. India's decision to import wheat, announced on June 14, 2006, came as a shock. The total India food grain production has fallen from a peak of 213 million tons in 2003 to 204 million tons in 2005. The latest NSS survey states that nearly 40 percent of farmers have said they want to move away from farming. "Food grain shortage is a real prospect" reports M.S. Swaminathan, Chairman, National Farmers Commission.

These examples are significant because India and China combined comprise one third of the people on earth.

Currently, the world has about a 69-day supply of grain — the second-lowest since 1975.
 

Free enterprise is beginning to flourish in Communist China.

Poor

China has a split economy-rich and poor. The poor in China's heartland are angry and are growing violent against local authorities. Violent local protests are convulsing the Chinese countryside with ever greater frequency. By the government's own count, there were 87,000 "public-order disturbances" in 2005, up from 10,000 in 1994.

Affluent

Housing privatization in Chinese cities, which only began in the early 1990s, has proceeded at an amazingly fast pace. More than 80 percent of Chinese urbanites now own their dwellings.

New research from McKinsey Global Institute highlights the emergence of the urban middle class, whose spending power will soon redefine the Chinese market - despite accounting for just 1 percent of the total population. They consume globally branded luxury goods voraciously.

Kids from this growing middle class are using the Internet to see what their counterparts in the U.S. and Europe are listening to and what sports they play. These Chinese children want to be part of a global tribe.

Less Deflationary Pressure

The shortage of workers is pushing up wages and swelling the ranks of the country's middle class. This could make Chinese-made products less of a bargain worldwide.
 

The biggest problem of the U.S. economy is the sky high level of consumer debt.

Government Debt

Projected U.S. government debt will grow more than the gross domestic product.

This is the U.S. Federal Government's own projection. They have every incentive to accent the positive. If this is the best the government can do, then you know things are worse than bad - they are calamitous.

Corporate Debt

The mountain of high-yield debt is growing faster than the stock market. Even though the aggregate value of stocks has stagnated in the past five years, the volume of outstanding high yield debt has grown almost without interruption since 1995. High-yield debt now represents approximately 25 percent of all corporate bonds in the U.S.

Mortgage Debt

In the United States, Fannie Mae and Freddie Mac are Government Sponsored Enterprises which buy residential mortgages and repackage them to sell on as mortgage-backed bonds. Although these bonds are not backed by the US government, most believe they would never be allowed to fail. But, analyst Dan Denning reports on how a U.S. Treasury report has warned that this mistaken belief and the illiquid nature of property means that an "interest rate shock" could topple the U.S. mortgage market.

Personal Debt

Between 1980 and 2003, real per capita personal income in the U.S. grew by 59 percent. Meanwhile, real outstanding consumer debt per adult over age fifteen grew from $712 in 1980 to $3,261 in 2003. This is an increase of a staggering 358 percent.

Meanwhile, Americans' personal savings fell to -0.5 percent last year, the first time since the Depression that the savings rate has been negative for a year.
 

A wave of resource nationalism is created as oil prices have more than doubled since the start of2004.

More Nationalism

On July 4th, Americans reveled in their nationalism. The recent news events suggest that the nationalist impulse is not limited to the United States. Certainly, in the economic sense, the rush toward globalization has slowed and "economic patriotism" is on the rise.

For example, wading into oil politics for the first time, Iran's president said that crude oil prices—now at record levels—still are below their true value. In other words, Iran, for the first time, plays the oil card.

Brazil's state-controlled energy company said it would not spend another cent investing in Bolivia after the nationalization of the energy section there. Brazil has been raising its profile in the U.S. where it recently bought a refinery.

Nationalism is not confined to oil. In the Doha Round negotiations, it was impossible to overcome the longstanding disputes between rich and poor nations over agricultural subsidies and trade barriers. President George Bush keeps the agricultural subsidies and trade barriers as he approaches midterm elections.