Busted: Bankers and The Global Economy

September 24, 2010

U.N. Says World is at the Brink of Food Crisis through Speculation

Environmental disasters and speculative investors are to blame for volatile food commodities markets, says UN’s special adviser

The United Nations warned that the world is likely on the brink of a major new food crisis caused by environmental disasters and rampant market speculators today at an emergency meeting on food price inflation.

The U.N.’s Food and Agriculture Organization (FAO meeting in Rome, Italy, on September 24 was called last month after a heatwave and wildfires in Russia led to a draconian wheat export ban while food riots broke out in Mozambique, killing 13 people. U.N. experts heard that pension and hedge funds, sovereign wealth funds and large banks who speculate on commodity markets are likely to be responsible for inflation in food prices being seen across all continents.

In a new paper released this week, Olivier De Schutter, the U.N.’s special rapporteur on food, says that the increases in price and the volatility of food commodities can only be explained by the emergence of a “speculative bubble” which he traces back to early this decade.

“[Beginning in] 2001, food commodities derivatives markets, and commodities indexes began to see an influx of non-traditional investors,” De Schutter writes. “The reason for this was because other markets dried up one by one: the dotcoms vanished at the end of 2001, the stock market soon after, and the U.S. housing market in August 2007. As each bubble burst, these large institutional investors moved into other markets, each traditionally considered more stable than the last. Strong similarities can be seen between the price behavior of food commodities and other refuge values, such as gold.”

He continues: “A significant contributory cause of the price spike [has been] speculation by institutional investors who did not have any expertise or interest in agricultural commodities, and who invested in commodities index funds or in order to hedge speculative bets.”

A near doubling of many staple food prices in 2007 and 2008 led to riots in more than 30 countries and an estimated 150 million extra people going hungry. While some commodity prices have since reduced, the majority are well over 50% higher than pre-2007 figures – and are now rising quickly upwards again.

“Once again we find ourselves in a situation where basic food commodities are undergoing supply shocks. World wheat futures and spot prices climbed steadily until the beginning of August 2010, when Russia – faced with massive wildfires that destroyed its wheat harvest – imposed an export ban on that commodity. In addition, other markets such as sugar and oilseeds are witnessing significant price increases,” said De Schutter, who spoke today at The U.K. Food Group’s conference in London.

Gregory Barrow, of the U.N. World Food Program said: “What we have seen over the past few weeks is a period of volatility driven partly by the announcement from Russia of an export ban on grain food until next year, and this has driven prices up. They have fallen back again, but this has had an impact.”

Sergei Sukhov, from Russia’s agriculture ministry, told the Associated Press during a break in the meeting in Rome that the market for grains “should be stable and predictable for all participants.” He said no efforts should be spared “to the effect that the production of food be sufficient.”

“The emergency U.N. meeting in Rome is a clear warning sign that we could be on the brink of another food price crisis unless swift action is taken. Already, nearly a billion people go to bed hungry every night – another food crisis would be catastrophic for millions of poor people,” said Alex Wijeratna, ActionAid’s hunger campaigner.

An ActionAid report released last week revealed that hunger could be costing poor nations $450 billion a year – more than 10 times the amount needed to halve hunger by 2015 and meet Millennium Development Goal One.

Food prices are rising around 15% a year in India and Nepal, and similarly in Latin America and China. U.S.  maize prices this week broke through the $5-a-bushel level for the first time since September 2008, fueled by reports from U.S. farmers of disappointing yields in the early stages of their harvests. The surge in the corn price also pushed up European wheat prices to a two-year high of €238 a ton.

Elsewhere, the threat of civil unrest led Egypt this week to announce measures to increase food self-sufficiency to 70%. Partly as a result of food price rises, many middle eastern and other water-scarce countries have begun to invest heavily in farmland in Africa and elsewhere to guarantee supplies.

Although the FAO has rejected the notion of a food crisis on the scale of 2007-2008, it this week warned of greater volatility in food commodities markets in the years ahead.

At the meeting in London today, De Schutter said the only long term way to resolve the crisis would be to shift to “agro-ecological” ways of growing food. This farming, which does not depend on fossil fuels, pesticides or heavy machinery has been shown to protect soils and use less water.

“A growing number of experts are calling for a major shift in food security policies, and support the development of agroecology approaches, which have shown very promising results where implemented,” he said.

Green Party Parliament Member Caroline Lucas called for tighter regulation of the food trade. “Food has become a commodity to be traded. The only thing that matters under the current system is profit. Trading in food must not be treated as simply another form of business as usual: for many people it is a matter of life and death. We must insist on the complete removal of agriculture from the remit of the World Trade Organization,” she said.

You can read this article by Guardian environmental editor John Vidal, with reporting by various news agencies, in context here: http://www.guardian.co.uk/environment/2010/sep/24/food-crisis-un-emergency-meeting-rome

November 4, 2008

Bad Economic News on Election Night

Filed under: economy, money, politics — Tags: , , , , , , , , , — digitaleconomy @ 4:13 pm

The Economic Cycle Research Institute in New York doesn’t have good economic news, but are sharing that news before U.S. elections close this evening. A fairly strong industrial sector, propelled by a formerly cheap dollar and strong economies overseas, helped to keep the U.S. recession mild. According to the experts that compile the Journal of Commerce data, that situation has collapsed with the likelihood for a more severe and protracted recession in the United States. The data indicates a recession on at least the same scale as when Ronald Reagan took office back in 1980. Indications are that the current recession will be much worse.

The sharp decline in commodities such as oil and metals are a trouble sign rather than a positive one. Some say this is caused by hedge fund investments being dumped on the open market. Who care? This is part of the cycle. Investments in commodities are no longer in vogue because of downward trends.

Coupled with sales declines and corporate stalls in around the globe, predicting a global recession is “tricky” according to some experts. This expert votes that we get the bad news out of the way so that we can focus on better news down the road instead of debating the obvious. We need to consider the process of rebuilding. Obviously, this is not immediate. However, the sooner stronger minds prevail, the sooner the nation can start to see a notable improvement of business prospects, perhaps as early as the summer of 2010. What the U.S. government and world leaders do in the meantime will dictate the speed and breadth of any improvement. Government policy can also spur new growth, especially in the small business sector. Let’s get crackin’. Real people are doing too much suffering already. ~ E. Manning

August 23, 2008

Economic Gale Force Winds Blow in the States

Another Friday passed with the closing of The Columbian Bank and Trust of Topeka, Kansas. Ben Bernanke is speaking in an amazing feat of poetry, comparing the economic storm in the United States to gale force winds that have not subsided. This is an almost startling admission from a man so conservative in his explanations. Bernanke is feeling confident about his strength and position.

The appearance of the economy has weathered well so far without truly significant collateral damage for the public to see. Bernanke admits to being challenged with the “softening in economic activity and rising unemployment.” He readily admits that commodities boom is partly responsible for the dramatic rise in inflation instead of simply blaming inflation on energy futures.

The Fed is weathering the gale force storm by hanging tough and hoping for stability. Even “the experts” admit that the inflation outlook is uncertain, but will be a major concern through next year. If the Fed could find a way to control commodity prices, they would probably think they had it made. Bernanke hasn’t devised a way to harness the commodities market yet. Undoubtedly, that is in the works soon.

The Fed continues to work with other central bankers to provide plenty of liquidity for needy banking institutions that are still fearful of interbank lending. Banks continue to use Fed auctions liberally, with demand in excess of supply.

Bernanke admits the need to somehow strengthen the financial system beyond the sustenance that has already been provided. Suddenly, Bernanke is speaking about thorny issues “raised by the existence of financial institutions that may be perceived as ‘too big to fail’ and the moral hazard issues that may arise when governments intervene in a financial crisis.” In other words, Bernanke is expecting some large financial failures. Whether he is alluding to Fannie Mae and Freddie Mac or holding banks like Citi isn’t being admitted. He is sounding warning by his comments as the gale force winds blow. He also defended the need to cover for Bear Stearns almost six months ago. He apparently expects to do so again.

Bernanke has also admitted that the Fed is involved in finding a way to protect bankers from their own financial politics through automation and standards rather than avoiding the risk altogether. In other words, the Fed is seeking to minimize risk by continuing to engage in what has been discovered to be risky banking conduct. Hey, it’s good for business.

Bernanke even discusses covering pools of securitized bonds while seeking more power from Congress to settle a crisis without government intervention. That is good for the Fed’s business as well as the corporate oligarchy takes ever more responsibility for monetary policy and legal oversight from the hands of government. That is the idea in the eyes of the Fed.

Bernanke believes that the more power that the Fed has, the less risk that there is to the system. He is convinced that by having more regulatory power to monitor individual institutions, he can eliminate moral hazard and promote financial resistance, perhaps by increasing capital requirements for banking. He wants to conduct “stress tests” to monitor liquidity, risk exposure and adverse circumstances. He wants to build a new financial regulatory empire operated by corporate global banking. Who is watching the Federal Reserve while all this wonderment is going on? Not a soul is watching the Fed. The Fed monitors itself and as far as the government and Congress are concerned, is “above reproach.”

The reality is that politicians have become thoroughly dependent on the International Society of Bankers. Fear should be firmed rooted in the hearts of politicians. World bankers have the nation of sheep by the private parts and are leading it down the primrose path of banking for sheering.

~ E. Manning

August 1, 2008

Oasis Wealth & Fraud: Simply Unsustainable

Since World War II, the United States has been the center of global finance. It has used that position to virtually dictate the conditions under which many other nations get access to capital. Letting weak and mismanaged companies fail has been high on the list. As of late, this reality is no longer the case as bailout fever ensues to glorify national confidence.

Henry Paulson, the U.S. Treasury boss, has not reigned in criticism of other countries that have nationalized corporations in the past. Since March, he has been in the position of recommending the same ideal himself. How times change. Fascism has come home to roost in America.

The U.S. economy is a shambles for most, perhaps subsistence at best. However, this does not include the up-and-coming flank of investors and administrators that are tapped into commodities futures. Unhappily, this too is a desert vision of an oasis. Eventually, thirsty investors will be gobbling down sand in an effort to sate their thirst for money and profits. This has already happened with the mortgage crisis. As the environmentalists would say: “this is isn’t sustainable.” The multi-level marketing scheme will become oversaturated and lose its potency. Eventually, the poison of fraud takes hold of those that practice it.

The U.S. is now enjoying the reality of an economic hangover from unbridled credit, financing and speculation compounded by ignorance and mismanagement. Wages haven’t kept pace for what seems like an eternity for all but the wealthiest. This was conveniently ignored as long as the nation thought borrowing would sustain the national lust for the appearance of wealth. The desert vision wasn’t sustainable and now, like the Japanese, Americans are thirstily looking for the next oasis. Surely corporate wealth and the corporate oligarchy will sustain us. Most plans for unbridled wealth are unsustainable. Is yours? ~ E. Manning

July 3, 2008

Inflationary Fears Explode in EU

The European Central Bank is fearful of an inflationary explosion. Political pressure has been to ease credit pressures and lower interest rates. The central bank explains that if the bank is not “resolute”, inflation will explode. Jean-Claude Trichet believes that the economic situation can be mastered. Apparently, the central bank believes by exercising discipline, inflation can be tackled. What central banks around the world, including the Bank of England and the Fed, fail to realize is that printing money or issuing monetary credit to bankrupted banking institutions or for politically expedient funding is driving up inflation.

In the past thirty years, central bankers have conveniently refused to acknowledge the cost of food and energy into their economic calculations for inflation. Recently, the high cost of these commodities have forced them to admit rising and uncontrolled inflation as well as revising their mathematical formulas.

Apparently, the global economic community wants to believe that high oil prices are driving inflation up. While market speculation looks like the cause for rising energy costs, what is really going on behind the scenes? Is it possible that runaway inflation is driving oil prices up? That is food for thought.

June 6, 2008

Stability Over the Medium Term

Ben Bernanke, during an address at Harvard University, looked longingly and lovingly at the 1970s. He tried to make the case that monetary policy failed miserably during that time. The result was high inflation in the early 80s.

Bernanke then concluded that high inflation can seriously destabilize the economy and that the central bank must take responsibility for achieving price stability over the medium term. Strangely, the Federal Reserve, as the central bank of the United States, failed then, has failed since then and has failed during this last term during mortgage bubble and bust. While publicly admitting a yearly inflation rate of 2 to 3 percent, the reality holds an average inflation rate from 1980 through 2007 of 10%. Since then, the inflation rate has shot past 20%. Naturally, the authorities that run the country have denied this truth, sticking to the popular idea of a 3% inflation rate. So much for stability over the medium term.

Comparing today’s economy with 1970 is like comparing rotten apples and rotten oranges. Both were sweet while they were ripe and ready to eat. Beyond that, there is no real comparison.

To make a short point, government profiteering, corporate legislation, banking and financial conduct as well as the commodities and futures market put these two seasons in time into very different categories.

Bernanke seemed to gloat as he stated, “I would be remiss if I failed to mention the contribution of monetary policy to the improved productivity performance. By damping business cycles and by keeping inflation under control, a sound monetary policy improves the ability of households and firms to plan and increases their willingness to undertake the investments in skills, research, and physical capital needed to support continuing gains in productivity.”

The Federal Reserve has recently stepped in and completely short-circuited any natural cycle of business or economy by infusing huge amounts of credit into the system with the intent of reducing the pain. The results of the Federal Reserve magic pill so far have only served to put the banking and financial industry into a temporary state of suspended animation in an effort to avoid the perception of total collapse. Bernanke thinks that he has succeeded.

Whether the Federal Reserve is entirely responsible or not, Bernanke seeks to hold on to that responsibility. Since that is the case, the Federal Reserve has failed dismally.

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