What Chicken Fingers Tell Us About the Banking Failures

Why Jerome Powell Is Thor… Without the Thunder.

I woke up last Sunday craving Raising Cane’s chicken fingers, which is a strange way of introducing our dispatch today on inflation and the banking crisis, but hang in there for a moment… we’re going somewhere with this.

Like me, the Raising Cane’s fast-food chain grew up in Baton Rouge, Louisiana. Though global now (I passed a Cane’s in Jeddah, Saudi Arabia last year), this chicken-finger joint will always be a hometown eatery to me.

I’ve grabbed chicken fingers from other fast-food joints all over the U.S. and in many parts of the world. Locals will inevitably tell me “these chicken fingers are the best!” And inevitably they’re not. On a scale of 1 to 10, Cane’s is a 23. The second-best I’ve had probably rates at a six, and I’m being generous there.

And so it was that I wanted/needed chicken fingers this past Sunday.

I shared this desire with my wife, Yulia—a Crimean who’s never heard the term “chicken finger.” So, she shrugged at her American husband and wandered off to do something else in the apartment.

There’s no Raising Cane’s here in Prague. So, I headed to Tesco, the local version of Super Target, to buy chicken strips and the sundry this-and-that I needed to recreate a Raising Cane’s chicken finger and the super-secret Cane’s sauce for dipping… which is where we now segue into the story of inflation.

I was stunned that half a pound of chicken strips cost me north of $5!

I don’t pay a whole lot of attention to food prices anymore because I’ve been living in Prague for five years now and I’m well past the “awe phase” of just how cheap Europe is compared to the U.S. However, I explicitly remember paying under $2 for the same quantity of chicken when I first moved here in 2018 because I was regularly texting friends back home about how ridiculously inexpensive the place is.

So, five bucks for chicken certainly stood out.

Back at the apartment, I hopped on Google because I was curious about chicken inflation… which sent me down a food-cost rabbit hole.

For nearly two years now, I’ve been writing to you in these dispatches about the new commodity super-cycle that’s underway. This super-cycle—a long-term spike in commodity prices—is a root cause of the inflation that is deeply entrenched globally. And it’s why the Federal Reserve is impotent at preventing price rises.

That rabbit hole led me to headlines such as these:

• Kansas Farmers Abandon Wheat Fields After Extreme Drought
  
  
• Global Rice Shortage Is Set to Be the Biggest in 20 Years
  
  
• Sticker Shock at the Grocery Store? Inflation Wasn’t the Only Reason Food Prices Increased

I came across many, many more just like that…

We’ve reached a precarious moment in the global food economy. Nowadays, it’s not like the wheat crop that fails in Kansas only touches Americans. The global food trade runs exceedingly deep.

China, for instance, relies heavily on the U.S., Brazil, Uruguay, and Argentina for food. Bad crops in those countries ripple through the Chinese consumer market because soymeal feeds China’s hog industry, and pork is such a Chinese staple that China actually runs a “strategic pork reserve.”

Similarly, India’s so-called “broken rice,” for which it has banned exports because of drought, feeds large swaths of Asia and Africa.

All these interconnections spider out in a million ways.

When supplies of soy, wheat, and corn shrink amid droughts and war (Ukraine and Russia are huge grain exporters), chicken-feed prices shoot higher, since those crops go into making the feed… which means chicken and egg prices rise because farmers are paying that much more for input costs.

Which means I have to pay $5 for half a pound of chicken strips just so I can get that Cane’s monkey off my back.

But my experience in Tesco, extrapolated across the planet, tells me the Fed isn’t having the effect it thinks it is.

Inflation has retreated a bit, but that’s not really the Fed’s doing. Fed Chair Jerome Powell thrusts his hands into the air and lightning strikes at that moment and he suddenly thinks he’s Thor when, in reality, it was all just coincidental.

Today’s inflation rate is lower, but that’s a mathematical fluke. Prices are still rising, and now, more than a year after inflation began, those prices are rising off a higher base. So, the increases don’t look as dramatic today as they did when inflation first arrived.

But they are just as bad because they’re still going up… which is going to force companies to raise salaries so that struggling workers can afford to live… which is going to lead companies to raise prices to maintain profit margins after increasing employee pay.

It’s a vicious cycle that the Fed really has no control over because Jerome Powell is not Thor.

Neither does the Federal Reserve Board of Governors that pushes and pulls on interest rate policy have a Bat Phone that connects directly to Mother Nature so they can tell her to knock it off with her climate shenanigans that are impacting rice and wheat and all kinds of other crop prices.

I wish they did, of course, because I wouldn’t have had to pay $5 for chicken to go full-on Raising Cane’s, which, by the way, came out pretty darn good. (Even Yulia is a chicken-finger fan now.)

I guess what I am saying is this: Prepare for food prices to remain high.

Prepare for inflation to remain entrenched.

Prepare for the Fed to either concede the L in its fight against inflation… or prepare for Thor to think he’s throwing lightning bolts as he continues to fight a losing battle.

And if lightning bolts are the path Powell & Co. choose, then prepare for more bank failures as the economy slows, housing prices fall, and as consumers and businesses struggle to repay their debts. (As I shared yesterday, the value of the loan portfolios at almost half of America’s banks is cumulatively $2 trillion less than their stated book value.)

That, in turn, would mean collapsing access to credit, and a very deep recession that leads us into a painful stagflationary environment.

The good news: The price of all that gold you own will keep going up.

You do own gold, right?