Economic Forecast 2011
By John Mauldin | January 8, 2011
Russia and the Roots of World Inflation
I hinted at something in Russia that threatens to cause inflation. No, it is not some nefarious scheme by Putin or Medvedev. It is Kamchatka, or more specifically volcanic activity in the Kamchatka Peninsula. There is a reason the weather is so harsh this winter, and a big part of that is Kamchatka.
I am a voracious consumer of information from a wide variety of sources. Most of it never gets into this letter, but it helps me understand what is going on in the background. As my friend Don Coxe says, it is what is on page 16 that will be important in the future. I read a lot of page 16s.
One of those “Outside the Box” sources is the Browning Newsletter on climatology, a completely different look at weather from the normal meteorological view we get in newspapers and on TV. Started some 36 years ago by Ibn Browning, famed and (then somewhat) controversial climatologist, it is continued today by his daughter Evelyn Browning Gariss. As an aside, I met Ibn many years ago, when he would regularly speak at the New Orleans conference. He was fascinating and brilliant.
Climate as a whole goes through cycles. If we look to the past, we can better understand the future. Evelyn Browning Garriss has succeeded with this idea for 20+ years. Each month, I get her letter on weather patterns. It is somewhat technical, and admittedly will take a few issues and some study to get your head around, but once you do, oh my. There is a reason Australia is undergoing severe rains and that the north of the US and Europe are experiencing serious winters.
First, the Pacific is going through a cooler period, called La Nina (with this one being particularly strong), and the Atlantic is going through a warmer period. This would normally change weather patterns in rather predictable ways. But then throw in the Kamchatka volcanoes, which are throwing massive amounts of dust into the air, causing the Arctic to be even colder and Arctic winds to push farther south, and you get a very drastic change in patterns.
Australia’s wheat crop is down by 10%, but the bulk of it has been so damaged by the worst rain in a hundred years (by far) that it is no good as human food and can only be used to feed animals. Throw in drought in Russia, severe drought in Argentina, floods in Brazil and Venezuela, odd weather in the agricultural parts of China, and you get rising food costs all over the world – all because Putin cannot keep his volcanoes under control. (But hey, he’s controlling everything else!)
If those volcanoes don’t back down, there is the real possibility that this year’s bad weather could repeat.
As Evelyn writes this month:
“Basically, both the Pacific and Bering plates are subducting (sliding beneath) under [the Kamchatka Peninsula] and each other. Just as fenders crumple during a car wreck, so the Kamchatka Peninsula surface is buckling with mountain ranges. When the ocean plates sink deep enough, portions are melted by the intense heat generated within the mantle, turning the solid rock into molten magma. The magma bubbles up through the crust, ultimately bursting to the surface and forming volcanic eruptions.
“As a result of all this geological activity, Kamchatka tends to be somewhat active – but recently it has been ridiculous! Since late November, Kizimen, Sheveluch, Karymsky, and Kliuchevskoi have been erupting almost constantly. Most of the eruptions have ranged from 2-10 km (1.2-6.2 miles) high. While the smallest eruptions have caused only minor local disruptions, the larger ones have entered passing fronts, cooling temperatures, altering air pressure, and increasing precipitation.
“Volcanic ash screens out incoming temperature, cooling the air below. This lowers air pressures which, in turn, changes wind patterns. In particular, in polar regions it appears to weaken the Arctic Oscillation winds. When the Arctic Oscillation turns negative, that is, when the winds weaken, the cold air normally trapped around the North Pole surges south.”
She was writing months ago about the weather that we see today, so when she tells us that it’s possible we’ll see a repeat next year, I pay attention. This could further exacerbate food costs and force emerging-market central bankers to fight inflation by allowing their currencies to rise.
Weather makes a difference.
