Agflation, Stagflation and Crony Capitalism - Egyptian Lessons for India

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Jan 31, 2011, 6:41:47 AM1/31/11
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Agflation, Stagflation and Crony Capitalism - Egyptian Lessons for
Dear All,
Tony Blair, the much discredited, archaic but stubbornly emphatic,
retired, longest serving British Prime Minister, has been taking to
the TV waves in a big way to attempt to second guess the direction of
Egypt after Tunisia and Wikileaks took the western diplomatic world by
surprise and forced it to change its daily bread and butter routine
act of fostering Western style democracy in oil rich Middle East
Tony Blair is also a recent convert to Catholicism and having thus
seen both sides of Christian values, in domestic politics as well as
international diplomacy, yet sees an undiminished role for Christian
diplomacy in the Middle East.
The complicating factor of course is that he is now out of No 10
Downing Street and George Bush is out of Capitol Hill.
To a question as to whether the need for caution that he is suggesting
for orderly transition in Egypt, is a lesson he learnt from the Iraq
war, the man certainly looked taken aback and discomfited at how his
own Iraq and Afghanistan record, cropped up during his prescriptions
for change, and the nature of "desirable" political change, in Egypt.
Pat came his answer, Mubarak is not a Saddam Hussein.
This response left me wondering whether the misplaced megalomania of
Western politicians of 20th century like Tony Blair, will still be
with us in a Christian garb in 21st century, even as more sober Egypt
events analysts and current politicians pointed out the need for the
Egyptians to make their own choices regarding their transition process
and whether they need a secular credentials certificate from the likes
of Tony Blair.
Students of Gandhi and Dharampal, would always see in the responses of
Western politicians a world view of violence and dominance cloaked in
soft diplomacy. Undoubtedly in Tony Blair's mind, Saddam was Iraq and
Mubarak is Egypt. Saddam was evil, Mubarak is a deal maker.

For the current day Indian politicians, I think the events of Tunisia
and Egypt point to a more painful scenario 21st century scenario of ag-
flation, and imported inflation, due to massive amounts of currency
printing aka Quantitative Easing in USA.
One wonders if serious Indian political analysts are deliberating on
and evolving proactive policy measures, to see through the sweet
poison of imported inflation due to massive flooding of currency, as a
tool to emerge from stagflation and rising unemployment, in Western
democracies of 21st century.
The young turks of the UPA seem blissfully unaware of global economic
truths even as they complain about falling levels of capital inflows
for Indian infrastructure and profess an admiration for Western cash
which does not really translate into long term capital.
It would be a tragedy for Bharat if 19th century economists, at the
helm of UPA-2, and some even awarded with Padma Vibhushans, continue
to spout 18th century economic and political theories in the 21st
century post Davos and post globalisation world.

An interesting article on engineered agflation and political risk,
that may be of relevance to Congress party political strategicians.
Egypt and Tunisia usher in the new era of global food revolutions :
Political risk has returned with a vengeance. The first food
revolutions of our Malthusian era have exposed the weak grip of
authoritarian regimes in poor countries that import grain, whether in
North Africa today or parts of Asia tomorrow.
By Ambrose Evans-Pritchard 7:30PM GMT 30 Jan 2011 - 157 Comments
If you insist on joining the emerging market party at this stage of
the agflation blow-off, avoid countries with an accelerating gap
between rich and poor. Cairo’s EGX stock index has dropped 20pc in
nine trading sessions.Events have moved briskly since a Tunisian fruit
vendor with a handcart set fire to himself six weeks ago, and in doing
so lit the fuse that has detonated Egypt and threatens to topple the
political order of the Maghreb, Yemen, and beyond.
As we sit glued to Al-Jazeera watching authority crumble in the
cultural and political capital of the Arab world, exhilaration can
turn quickly to foreboding.
This is nothing like the fall of the Berlin Wall. The triumph of
secular democracy was hardly in doubt in central Europe. Whatever the
mix of aspirations of those on the streets of Cairo, such uprisings
are easy prey for tight-knit organizations – known in the
revolutionary lexicon as Leninist vanguard parties.
In Egypt this means the Muslim Brotherhood, whether or not Nobel
laureate Mohammed El Baradei ever served as figleaf. The Brotherhood
is of course a different kettle of fish from Iran’s Ayatollahs; and
Turkey shows that an ‘Islamic leaning’ government can be part of the
liberal world – though Turkish premier Recep Tayyip Erdogan once let
slip that democracy was a tram “you ride until you arrive at your
destination, then you step off."
It does not take a febrile imagination to guess what the Brotherhood’s
ascendancy might mean for Israel, and for strategic stability in the
Mid-East. Asia has as much to lose if this goes wrong as the West.
China’s energy intensity per unit of GDP is double US levels, and
triple the UK.
The surge in global food prices since the summer – since Ben Bernanke
signalled a fresh dollar blitz, as it happens – is not the underlying
cause of Arab revolt, any more than bad harvests in 1788 were the
cause of the French Revolution.
Yet they are the trigger, and have set off a vicious circle.
Vulnerable governments are scrambling to lock up world supplies of
grain while they can. Algeria bought 800,000 tonnes of wheat last
week, and Indonesia has ordered 800,000 tonnes of rice, both greatly
exceeding their normal pace of purchases. Saudi Arabia, Libya, and
Bangladesh, are trying to secure extra grain supplies.
The UN’s Food and Agriculture Organization (FAO) said its global food
index has surpassed the all-time high of 2008, both in nominal and
real terms. The cereals index has risen 39pc in the last year, the oil
and fats index 55pc.The FAO implored goverments to avoid panic
responses that “aggravate the situation”. If you are Hosni Mubarak
hanging on in Cairo’s presidential palace, do care about such
France’s Nicolas Sarkozy blames the commodity spike on hedge funds,
speculators, and the derivatives market (largely in London). He vowed
to use his G20 presidency to smash the racket, but then Mr Sarkozy has
a penchant for witchhunts against easy targets.
The European Commission has been hunting for proof to support his
claims, without success. Its draft report – to be released last
Wednesday, but withdrawn under pressure from Paris – reached exactly
the same conclusion as investigators from the IMF, and US and British
“There is little evidence that the price formation process on
commodity markets has changed in recent years with the growing
importance of derivatives markets”, it said.As Jeff Currie from
Goldman Sachs tirelessly points out, future contracts are neutral. For
every trader making money by going long on wheat, sugar, pork bellies,
zinc, or crude oil, there is a trader losing money on the other side.
It is a paper transfer between financial players.
You have to buy and hoard the vast amounts of these bulk commodities
to have much impact on the price, which is costly and difficult to do,
though people do park crude on floating tankers sometimes, and Chinese
firms allegedly stashed copper in warehouses last year.
But that is not what commodity index funds with $150bn are actually
doing with food, base metals, and energy. Only governments have
strategic petroleum and grain reserves big enough to make a
The immediate cause of this food spike was the worst drought in Russia
and the Black Sea region for 130 years, lasting long enough to damage
winter planting as well as the summer harvest. Russia imposed an
export ban on grains. This was compounded by late rains in Canada,
Nina disruptions in Argentina, and a series of acreage downgrades in
the US. The world’s stocks-to-use ratio for corn is nearing a 30-year
low of 12.8pc, according to Rabobank.
The deeper causes are well-known: an annual rise in global population
by 73m; the “exhaustion” of the Green Revolution as the gains in crop
yields fade, to cite the World Bank; diet shifts in Asia as the rising
middle class switch to animal-protein diets, requiring 3-5 kilos of
grain feed for every kilo of meat produced; the biofuel mandates that
have diverted a third of the US corn crop into ethanol for cars.
Add the loss of farmland to Asia’s urban sprawl, and the depletion of
the non-renewable acquivers for irrigation of North China’s plains,
and the geopolitics of global food supply starts to look neuralgic.Can
the world head off mass famine? Yes, with leadership. The regions of
the ex-Soviet Union farm 30m hectares less today than in the
Khrushchev era, and yields are half western levels.
There are tapped hinterlands in Brazil, and in Africa where land
titles and access to credit could unleash a great leap forward. The
global reservoir of unforested cropland is 445m hectares, compared to
1.5 billion in production. But the low-lying fruit has already gone,
and the vast investment needed will not come soon enough to avoid a
menacing shift in the terms of trade between the land and the urban
We are on a thinner margin of food security, as North Africa is
discovering painfully, and China understands all too well. Perhaps it
is a little too early to write off farm-rich Europe and America.
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