Food riots have broken out across the globe destabilizing large parts of the developing world. China is experiencing double-digit inflation. Indonesia, Vietnam and India have imposed controls over rice exports. Wheat, corn and soy beans are at record highs and threatening to go higher still. Commodities are up across the board. The World Food Program is warning of widespread famine if the West doesn’t provide emergency humanitarian relief. The situation is dire. Venezuelan President Hugo Chavez summed it up like this, “It is a massacre of the world’s poor. The problem is not the production of food. It is the economic, social and political model of the world. The capitalist model is in crisis.”
Right on, Hugo. There is no shortage of food; it’s just the prices that are making food unaffordable. Bernanke’s “weak dollar” policy has ignited a wave of speculation in commodities which is pushing prices into the stratosphere. The UN is calling the global food crisis a “silent tsunami”, but its more like a flood; the world is awash in increasingly worthless dollars that are making food and raw materials more expensive. Foreign central banks and investors presently hold $6 trillion in dollars and dollar-backed assets, so when the dollar starts to slide, the pain radiates through entire economies. This is especially true in countries where the currency is pegged to the dollar. That’s why most of the Gulf States are experiencing runaway inflation.
The US is exporting its inflation by cheapening its currency. Now a field worker in Haiti who earns $2 a day, and spends all of that to feed his family, has to earn twice that amount or eat half as much. That’s not a choice a parent wants to make. Its no wonder that six people were killed Port au Prince in the recent food riots. People go crazy when they can’t feed their kids.
Food and energy prices are sucking the life out of the global economy. Foreign banks and pension funds are trying to protect their investments by diverting dollars into things that will retain their value. That’s why oil is nudging $120 per barrel when it should be in the $70 to $80 range.
According to Tim Evans, energy analyst at Citigroup in New York, “There’s no supply-demand deficit”. None. In fact suppliers are expecting an oil surplus by the end of this year.
“The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world’s top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration.” (“Bears Baffled by Oil Highs” gregory Meyer, Wall Street Journal)
There’s no oil shortage; that’s another ruse. Speculators are simply driving up the price of oil to hedge their bets on the falling dollar. What else can they do; put them in the frozen bond market, or the sinking stock market, or the collapsing housing market?
From the Washington Times:
“Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher. Meanwhile, some Americans are stocking up on staples such as rice, flour and oil in anticipation of high prices and shortages spreading from overseas. Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy. Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry.”
(Patrice Hill, Washington Times)
The Bush administration knows there’s hanky-panky going on, but they just look the other way. It’s Enron redux, where Ken Lay Inc. scalped the public with utter impunity while regulators sat on the sidelines applauding. Great. Now its the Commodity Futures Trading Commission (CFTC) turn; they’re taking a hands-off approach so Wall Street sharpies make a fortune jacking up the price of everything from soda crackers to toilet bowls.
“A hearing Tuesday in Washington before the Commodity Futures Trading Commission starts a new round of scrutiny into the popularity of agricultural futures, once a quieter arena that for years was dominated largely by big producers and consumers of crops and their banks trying to manage price risks. The commission’s official stance and that of many of the exchanges, however, is likely to disappoint many consumer groups. The CFTC’s economist plans to state at the hearing that the agency doesn’t believe financial investors are driving up grain prices. Some grain buyers say speculators’ big bets on relatively small grain exchanges, especially recently, are pushing up prices for ordinary consumers.” (“Call Goes Out to Rein In Grain Speculators”, Ann Davis)
The agency doesn’t believe financial investors are driving up grain prices!
MIKE WHITNEY lives in Washington state. He can be reached at: firstname.lastname@example.org