Mother of all bubbles prepares to burst Food report: Analysis by Iain MacWhirter WHAT HAS the food crisis got to do with Northern Rock? Quite a lot, actually. The rocketing price of wheat, soya beans, sugar, coffee etc is all part of the credit crisis which has caused panic in financial markets and encouraged investors to take their money out of risky mortgage bonds and shaky equities and put it into commodities as "stores of value". Put another way, the Western banks are exporting their debts to the third world.
The phenomenal increases in food prices are only in part a consequence of climate change and population. Most of the recent rises have been the result of speculation and the collapse in the value of the dollar. This is being tacitly encouraged by the central banks, such as the US Federal Reserve, who are trying to ignite another asset bubble to replace the real estate and dotcom bubbles which have burst in spectacular fashion. It's the third bubble and it's hitting the third world hard.
Desperate for quick returns, trillions of dollars are being taken out of private equity and financial derivatives and ploughed into food and raw materials. The financial websites call it the "commodities super-cycle". It ranges from precious metals at one end, to corn, cocoa and cattle at the other - speculators are even placing their bets on water prices.
The collapse in the price of the dollar means that most international commodities are more expensive for poor people. The dollar's decline is a result of the low interest rate policy of the Federal Reserve. When rates are set below the rate of inflation, investors have to keep moving their massive funds from sector to sector in search of higher returns.
They piled into the internet stocks in the 1990s as the boom in dotcoms got under way. Then they shifted into real estate and complex financial derivatives such as collateralised debt obligations based on sub-prime US mortgages. Now, with the collapse of the property bubble across the world, investors are on the move again, and the only place left is commodities.
Of course, long-term factors such as the depletion of oil, population and the changing eating habits of Southeast Asia are putting long-term pressure on agricultural resources. But the Fed has thrown fuel on the fire by dramatically cutting interest rates, even as inflation grows, in a desperate race to revive the American economy on the back of a commodities boom. The people who suffer most will be on the other side of the world.
Will it work? In the short term, possibly. But the US may be cutting its own throat. Once speculative prices get out of control, there is no knowing when they will stop. Oil is over $100 a barrel, which is causing gas prices and fertilisers to rocket in the US.
They depend on these as much as sub-Saharan Africa. This might be the bubble to end all bubbles.
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Posted by: jet on 6:51am Sun 9 Mar 08
Commodities are a combination of Vegas style gambling and a Ponzi scheme.
Serves no useful economic purpose - it is just screwing up the world economy by messing with the feedback signals.
Is anyone in charge? Someone needs to put a stop to this pathological anti social and very destructive activity.
Maybe companies should not be allowed to buy and sell stuff unless they actually have some use for it and can take physical delivery.
The Real estate bubble was the biggest Ponzi scheme in history. In the US the FBI is now looking into "what happened" - Heads will roll just like Enron.
The US already has rules against these things. If it seems too good to be true - don't get involved.
The penalty for a big enough Ponzi scheme is and should be life in prison.
Commodities will self correct and prices will collapse soon on their own. There are no physical shortages of anything - including energy. Technology has and will continue to deliver lower prices and higher living standards to more people.
There are rules against gambling and there should be more restrictions on gambling disguised as investing.
Commodities are a combination of Vegas style gambling and a Ponzi scheme.
Serves no useful economic purpose - it is just screwing up the world economy by messing with the feedback signals.
Is anyone in charge? Someone needs to put a stop to this pathological anti social and very destructive activity.
Maybe companies should not be allowed to buy and sell stuff unless they actually have some use for it and can take physical delivery.
The Real estate bubble was the biggest Ponzi scheme in history. In the US the FBI is now looking into "what happened" - Heads will roll just like Enron.
The US already has rules against these things. If it seems too good to be true - don't get involved.
The penalty for a big enough Ponzi scheme is and should be life in prison.
Commodities will self correct and prices will collapse soon on their own. There are no physical shortages of anything - including energy. Technology has and will continue to deliver lower prices and higher living standards to more people.
There are rules against gambling and there should be more restrictions on gambling disguised as investing.
Posted by: Rob, Isle fo Wight on 9:01am Sun 9 Mar 08
What a refreshing article. But, with the backing of central *ankers, it's amazing how long a bubble can inflate before the big bang.
Property is a case in point - government distortions on 'supply and demand' when, in fact, it was a credit bubble, not a housing bubble. And yet the mass media swallow the spin hook, line and sinker. Are they able to think for themselves? One wonders.
You will undoubtedly be right - but are you right now or right in 12 to 36 months?
What a refreshing article. But, with the backing of central *ankers, it's amazing how long a bubble can inflate before the big bang.
Property is a case in point - government distortions on 'supply and demand' when, in fact, it was a credit bubble, not a housing bubble. And yet the mass media swallow the spin hook, line and sinker. Are they able to think for themselves? One wonders.
You will undoubtedly be right - but are you right now or right in 12 to 36 months?
Posted by: J, UK on 9:25am Sun 9 Mar 08
I'm glad that the media are starting to report on issues like this, but it's been left very late!
I wish younger people would wake up to what's happening as it's almost certain to affect them, but they seem to be sleepwalking. I don't mean that in a patronising way - the majority of people over a certain age don't have a clue because their cognitive structures were formed in yesterday's paradigm; our hope is that the young will wake up and demand that we stop this destruction. We are so close to the tipping point but it may not yet be too late.
I'm glad that the media are starting to report on issues like this, but it's been left very late!
I wish younger people would wake up to what's happening as it's almost certain to affect them, but they seem to be sleepwalking. I don't mean that in a patronising way - the majority of people over a certain age don't have a clue because their cognitive structures were formed in yesterday's paradigm; our hope is that the young will wake up and demand that we stop this destruction. We are so close to the tipping point but it may not yet be too late.
Posted by: I'm no really here on 11:50am Sun 9 Mar 08
As I've said before, I'd be an Anarchist, but I can't find an organisation to join - and if I did find one, I don't join things.
As I've said before, I'd be an Anarchist, but I can't find an organisation to join - and if I did find one, I don't join things.
Posted by: Carolyn Meehan, Edgewood, NM, USA on 12:44pm Mon 10 Mar 08
I find it hard to believe that no one these days seems to think of overpopulation as a big contributor to this problem.
Personally I think the carrying capacity of this planet was reached a long time ago. Greed is also a major factor.
I find it hard to believe that no one these days seems to think of overpopulation as a big contributor to this problem.
Personally I think the carrying capacity of this planet was reached a long time ago. Greed is also a major factor.
Posted by: Concerned citizen, Califonia on 4:43am Sat 10 May 08
Greed has taken over in the United States of America. Something needs to change. I believe we are headed for a major disaster. This government is soo screwed up!!! The priorities all in the wrong place. The blue collar working class of this country always have and will continue to suffer on the backs of the greedy corporate leaders. When will american's stand up and say enough is enough.[quote]quote[/quote] [quote]quote[/quote]
Greed has taken over in the United States of America. Something needs to change. I believe we are headed for a major disaster. This government is soo screwed up!!! The priorities all in the wrong place. The blue collar working class of this country always have and will continue to suffer on the backs of the greedy corporate leaders. When will american's stand up and say enough is enough.
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