What's the leading cause of the rise in food prices?

[Geolibertarian]

Since Austrian Schoolers are running around insisting that the rise in food prices is entirely (or at least primarily) the result of "too much money" being "printed" -- just as they do when giving political cover to oil speculators and artificial scarcity-creating oil barons -- I thought I'd devote a thread to this topic.

Before answering the above poll question, please read the following:

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http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

Johann Hari: How Goldman gambled on starvation

Speculators set up a casino where the chips were the stomachs of millions. What does it say about our system that we can so casually inflict so much pain?

independent.co.uk
2 July 2010

By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You're wrong. There's more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here's the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions."

Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. "My children stopped growing," a woman my age called Abiba Getaneh, told me. "I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died."

Most of the explanations we were given at the time have turned out to be false. It didn't happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn't because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren't enough on their own to explain such a violent shift.

To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world's stomachs ache.

For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he'll lose some cash, but if there's a lousy summer or the global price collapses, he'll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.

Then, through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. A market in "food speculation" was born.

So Farmer Giles still agrees to sell his crop in advance to a trader for £10,000. But now, that contract can be sold on to speculators, who treat the contract itself as an object of potential wealth. Goldman Sachs can buy it and sell it on for £20,000 to Deutsche Bank, who sell it on for £30,000 to Merrill Lynch – and on and on until it seems to bear almost no relationship to Farmer Giles's crop at all.

If this seems mystifying, it is. John Lanchester, in his superb guide to the world of finance, Whoops! Why Everybody Owes Everyone and No One Can Pay, explains: "Finance, like other forms of human behaviour, underwent a change in the 20th century, a shift equivalent to the emergence of modernism in the arts – a break with common sense, a turn towards self-referentiality and abstraction and notions that couldn't be explained in workaday English." Poetry found its break with realism when T S Eliot wrote "The Wasteland". Finance found its Wasteland moment in the 1970s, when it began to be dominated by complex financial instruments that even the people selling them didn't fully understand.

So what has this got to do with the bread on Abiba's plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops – and the speculators drove the price through the roof.

Here's how it happened.

[Continued...]


http://www.globalresearch.ca/food-speculation-people-die-from-hunger-while-banks-make-a-killing-on-food/22948

Food Speculation: 'People Die From Hunger While Banks Make a Killing on Food'

It's not just bad harvests and climate change, speculators are also behind record prices. And it's the planet's poorest who pay

by John Vidal



Global Research, January 25, 2011
Guardian - 2011-01-23

Just under three years ago, people in the village of Gumbi in western Malawi went unexpectedly hungry. Not like Europeans do if they miss a meal or two, but that deep, gnawing hunger that prevents sleep and dulls the senses when there has been no food for weeks.

Oddly, there had been no drought, the usual cause of malnutrition and hunger in southern Africa, and there was plenty of food in the markets. For no obvious reason the price of staple foods such as maize and rice nearly doubled in a few months. Unusually, too, there was no evidence that the local merchants were hoarding food. It was the same story in 100 other developing countries. There were food riots in more than 20 countries and governments had to ban food exports and subsidise staples heavily.

The explanation offered by the UN and food experts was that a "perfect storm" of natural and human factors had combined to hyper-inflate prices. US farmers, UN agencies said, had taken millions of acres of land out of production to grow biofuels for vehicles, oil and fertiliser prices had risen steeply, the Chinese were shifting to meat-eating from a vegetarian diet, and climate-change linked droughts were affecting major crop-growing areas. The UN said that an extra 75m people became malnourished because of the price rises.

But a new theory is emerging among traders and economists. The same banks, hedge funds and financiers whose speculation on the global money markets caused the sub-prime mortgage crisis are thought to be causing food prices to yo-yo and inflate. The charge against them is that by taking advantage of the deregulation of global commodity markets they are making billions from speculating on food and causing misery around the world.

As food prices soar again to beyond 2008 levels, it becomes clear that everyone is now being affected. Food prices are now rising by up to 10% a year in Britain and Europe. What is more, says the UN, prices can be expected to rise at least 40% in the next decade.

There has always been modest, even welcome, speculation in food prices and it traditionally worked like this. Farmer X protected himself against climatic or other risks by "hedging", or agreeing to sell his crop in advance of the harvest to Trader Y. This guaranteed him a price, and allowed him to plan ahead and invest further, and it allowed Trader Y to profit, too. In a bad year, Farmer X got a good return but in a good year Trader Y did better.

When this process of "hedging" was tightly regulated, it worked well enough. The price of real food on the real world market was still set by the real forces of supply and demand.

But all that changed in the mid-1990s. Then, following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, the regulations on commodity markets were steadily abolished. Contracts to buy and sell foods were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. In effect a new, unreal market in "food speculation" was born. Cocoa, fruit juices, sugar, staples, meat and coffee are all now global commodities, along with oil, gold and metals. Then in 2006 came the US sub-prime disaster and banks and traders stampeded to move billions of dollars in pension funds and equities into safe commodities, and especially foods.

"We first became aware of this [food speculation] in 2006. It didn't seem like a big factor then. But in 2007/8 it really spiked up," said Mike Masters, fund manager at Masters Capital Management, who testified to the US Senate in 2008 that speculation [.pdf] was driving up global food prices. "When you looked at the flows there was strong evidence. I know a lot of traders and they confirmed what was happening. Most of the business is now speculation – I would say 70-80%."

Masters says the markets are now heavily distorted by investment banks: "Let's say news comes about bad crops and rain somewhere. Normally the price would rise about $1 [a bushel]. [But] when you have a 70-80% speculative market it goes up $2-3 to account for the extra costs. It adds to the volatility. It will end badly as all Wall Street fads do. It's going to blow up."

The speculative food market is truly vast, agrees Hilda Ochoa-Brillembourg, president of the Strategic Investment Group in New York. She estimates speculative demand for commodity futures has increased since 2008 by 40-80% in agricultural futures.

But the speculation is not just in staple foods. Last year, London hedge fund Armajaro bought 240,000 tonnes, or more than 7%, of the world's stocks of cocoa beans, helping to drive chocolate to its highest price in 33 years. Meanwhile, the price of coffee shot up 20% in just three days as a direct result of hedge funds betting on the price of coffee falling.

[Continued...]

--------------------------

[Geolibertarian]

http://stephenleahy.net/2011/02/28/rampant-speculation-inflated-food-price-bubble-wall-stgrain-traders-pushing-price-rises/

Rampant Speculation Inflated Food Price Bubble – Wall St./Grain Traders Pushing Price Rises

By Stephen Leahy
stephenleahy.net
Jan 28, 2011



Billions of dollars are being made by investors in a speculative “food bubble” that’s created record food prices, starving millions and destabilising countries, experts now conclude.

[This is the second of a multi-part series investigating what is driving food prices higher]

Wall Street investment firms and banks, along with their kin in London and Europe, were responsible for the technology dot-com bubble, the stock market bubble, and the recent U.S. and UK housing bubbles. They extracted enormous profits and their bonuses before the inevitable collapse of each.

Now they’ve turned to basic commodities. The result? At a time when there has been no significant change in the global food supply or in food demand, the average cost of buying food shot up 32 percent from June to December 2010, according to the U.N. Food and Agriculture Organisation (FAO).

Nothing but price speculation can explain wheat prices jumping 70 percent from June to December last year when global wheat stocks were stable, experts say.

“There is no food shortage in the world. Food is simply priced out of the reach of the world’s poorest people,” said Robert Fox of Oxfam Canada in reference to the estimated one billion people who go hungry.

“Hunger is not a food production problem. It is an income problem,” Fox told IPS.

The conditions that created the 2007-08 price hike and food riots have not changed, he said. It is no surprise to see record-high food prices and riots again in Egypt, Algeria, Jordan and elsewhere.

Weather used to be the big determinant of food prices, but not anymore. Trillions of dollars have been pumped into food commodities markets in the last few years thanks to deregulation of commodities trading in the U.S., reports Olivier De Schutter, the United Nations Special Rapporteur on the Right to Food.



In an analysis of the food price crisis of 2007-08, De Schutter documents how the U.S. government passed legislation in 2000 deregulating the food commodity markets and for the first time permitted speculation on speculation.

Here’s how it used to work. In January, Farmer Brown would sign a contract to sell his 2011 future crop to a grain trader like industry giant Cargill for 100 dollars a tonne. In the fall, Cargill would then sell Farmer Brown’s grain at whatever price they could get to a bakery or feedlot company for cattle. These “futures” contracts insulated both the farmer and the grain trader from wild price fluctuations.

Now, after the passage of the U.S. Commodity Futures Modernisation Act in 2000, Cargill could sell Farmer’s Brown “futures” contract to an investment bank on Wall Street for 120 dollars a tonne, who could in turn sell it to a European investment company for 150 dollars a tonne and then sell it to a U.S. public pension fund for 175 dollars a tonne and so on. Add in some complex financial instruments like ‘derivatives’, ‘index funds’, ‘hedges’, and ‘swaps’, and food become part of yet another highly-profitable speculative bubble.

A deeply-flawed global financial system was largely responsible for the 2007-08 food crisis, concluded De Schutter in a September 2010 briefing note.

“Speculators increasingly entered the market in order to profit from short-term changes in price,” wrote agricultural economist Jayati Ghosh, in a more recent analysis of the 2007-08 food price spike.

With the pending implosion of “the U.S. housing finance market, large investors, especially institutional investors such as hedge funds and pension funds and even banks, searched for other avenues of investment to find new sources of profit,” said Ghosh, a professor at Jawaharlal Nehru University in New Delhi in the Journal of Agrarian Change.

Food commodity speculation became the “hot ticket” and unregulated trading zoomed from 0.77 trillion dollars in 2002 to seven trillion dollars in 2007. Food prices shot upwards until the speculators took their profits in the first half of 2008 to cover their losses in the U.S. housing and other markets, she concluded

[Continued...]

[Amos]

food speculator are the product of government regulations

[Geolibertarian]

food speculator are the product of government regulations

On the contrary, they're the product of government DE-regulation:

-------------------------

"In an analysis of the food price crisis of 2007-08, De Schutter documents how the U.S. government passed legislation in 2000 deregulating the food commodity markets and for the first time permitted speculation on speculation."

-- http://stephenleahy.net/2011/02/28/rampant-speculation-inflated-food-price-bubble-wall-stgrain-traders-pushing-price-rises/

"So what has this got to do with the bread on Abiba's plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops – and the speculators drove the price through the roof."

-- http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

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But those who've become emotionally wedded to the presumed infallibility of Austrian School dogma would rather turn reality on its head than admit to this.  

[Geolibertarian]

If anyone wonders why I get so disgusted with Austrian Schoolers, it's because they're continually giving political cover to the very ruling-class oligarchs they laughingly profess to oppose.

When, as a result of DE-regulation (see the articles posted above), food speculators drive up the price of food, who or what do they blame?

They blame either government regulation, the printing press, or both.

When, as a result of DE-regulation (see this and this), Wall Street speculators create a quadrillion-dollar derivatives bubble, who or what do they blame for the resultant financial meltdown?

They blame either government regulation, the printing press, poor people, or a combination of all three.

And when oil barons shut down domestic refineries -- not because they were forced to by government regulators -- but for the express purpose of raising prices through artificial scarcity, and when oil speculators drive up fuel prices even further, who or what do they blame?

They blame either government regulation, the printing press, or both.

And why do they continually get away with shilling on behalf of the overprivileged speculators and robber barons who are price-gouging us to death?

Because they incessantly and shamelessly wrap their ideological snake-oil in both the American flag and the flag of "liberty."

Time to wake up, folks!

"For the first years of [Ludwig von] Mises’s life in the United States...he was almost totally dependent on annual research grants from the Rockefeller Foundation.”
 

-- Richard M. Ebeling, “The Life and Works of Ludwig von Mises,” The Independent Review, Summer 2008

[Geolibertarian]

I can't even read this shit without crying. I read how hard that woman's life was because people like me have it so easy here.

It's not because people like you or I have it so easy, but because ruling-class parasites have it so easy, thanks in part to the political cover afforded them by the Austrian School propaganda machine.

[hardrain77]

It's not because people like you or I have it so easy, but because ruling-class parasites have it so easy, thanks in part to the political cover afforded them by the Austrian School propaganda machine.

What's your solution then? MORE regulation? We already have heavy regulation all the way around. You think giving even more power to the FDA is gonna stop Goldman Sachs and Monsanto's out of control Austrian nightmare?

[jofortruth]

"Food Shock" - Off the Grid Document:
http://www.mediafire.com/?32fn4v1sm9u7z3p

[Geolibertarian]

What's your solution then?

Please read the following and you'll know exactly what my solutions are:

       http://forum.prisonplanet.com/index.php?topic=162212.0
       http://forum.prisonplanet.com/index.php?topic=198869.0
       http://forum.prisonplanet.com/index.php?topic=160459.0
       http://forum.prisonplanet.com/index.php?topic=81509.msg1207810#msg1207810

MORE regulation? We already have heavy regulation all the way around.

Not on Wall Street speculators we don't!

       http://www.counterpunch.org/kaufman09192008.html
       http://www.globalresearch.ca/global-financial-meltdown-sweeping-deregulation-of-the-us-banking-system/10588

Yet Austrian Schoolers, as always, would rather turn reality on its head than admit to this.

You think giving even more power to the FDA is gonna stop Goldman Sachs and Monsanto's out of control Austrian nightmare?

Did I ever imply I thought that? No. So stop trying to erect straw men in place of my clearly stated views.

[hardrain77]

 Touche 

[Geolibertarian]

THE EGYPTIAN TINDERBOX: HOW BANKS AND INVESTORS ARE STARVING THE THIRD WORLD

Ellen Brown
February 2nd, 2011
www.webofdebt.com/articles/egyptian_tinderbox.php

     “What for a poor man is a crust, for a rich man is a securitized asset class.”--Futures trader Ann Berg, quoted in the UK Guardian

Underlying the sudden, volatile uprising in Egypt and Tunisia is a growing global crisis sparked by soaring food prices and unemployment. The Associated Press reports that roughly 40 percent of Egyptians struggle along at the World Bank-set poverty level of under $2 per day. Analysts estimate that food price inflation in Egypt is currently at an unsustainable 17 percent yearly. In poorer countries, as much as 60 to 80 percent of people's incomes go for food, compared to just 10 to 20 percent in industrial countries. An increase of a dollar or so in the cost of a gallon of milk or a loaf of bread for Americans can mean starvation for people in Egypt and other poor countries.

Follow the Money

The cause of the recent jump in global food prices remains a matter of debate. Some analysts blame the Federal Reserve’s “quantitative easing” program (increasing the money supply with credit created with accounting entries), which they warn is sparking hyperinflation. Too much money chasing too few goods is the classic explanation for rising prices.

The problem with that theory is that the global money supply has actually shrunk since 2006, when food prices began their dramatic rise. Virtually all money today is created on the books of banks as “credit” or “debt,” and overall lending has shrunk. This has occurred in an accelerating process of deleveraging (paying down or writing off loans and not making new ones), as the subprime housing market has collapsed and bank capital requirements have been raised. Although it seems counterintuitive, the more debt there is, the more money there is in the system. As debt shrinks, the money supply shrinks in tandem.

That is why government debt today is not actually the bugaboo it is being made out to be by the deficit terrorists. The flipside of debt is credit, and businesses run on it. When credit collapses, trade collapses [.pdf]. When private debt shrinks, public debt must therefore step in to replace it. The “good” credit or debt is the kind used for building infrastructure and other productive capacity, increasing the Gross Domestic Product and wages; and this is the kind governments are in a position to employ. The parasitic forms of credit or debt are the gamblers’ money-making-money schemes, which add nothing to GDP.

Prices have been driven up by too much money chasing too few goods, but the money is chasing only certain selected goods. Food and fuel prices are up, but housing prices are down. The net result is that overall price inflation remains low.

While quantitative easing may not be the culprit, Fed action has driven the rush into commodities. In response to the banking crisis of 2008, the Federal Reserve dropped the Fed funds rate (the rate at which banks borrow from each other) nearly to zero. This has allowed banks and their customers to borrow in the U.S. at very low rates and invest abroad for higher returns, creating a dollar “carry trade.”

Meanwhile, interest rates on federal securities were also driven to very low levels, leaving investors without that safe, stable option for funding their retirements. “Hot money” – investment seeking higher returns – fled from the collapsed housing market into anything but the dollar, which generally meant fleeing into commodities.

New Meaning to the Old Adage “Don’t Play with Your Food”

At one time food was considered a poor speculative investment, because it was too perishable to be stored until market conditions were right for resale. But that changed with the development of ETFs (exchange-traded funds) and other financial innovations.

As first devised, speculation in food futures was fairly innocuous, since when the contract expired, somebody actually had to buy the product at the “spot” or cash price. This forced the fanciful futures price and the more realistic spot price into alignment. But that changed in 1991. In a revealing July 2010 report in Harper’s Magazine titled “The Food Bubble: How Wall Street Starved Millions and Got Away with It,” Frederick Kaufman wrote:

The history of food took an ominous turn in 1991, at a time when no one was paying much attention. That was the year Goldman Sachs decided our daily bread might make an excellent investment. . . .

Robber barons, gold bugs, and financiers of every stripe had long dreamed of controlling all of something everybody needed or desired, then holding back the supply as demand drove up prices.

As Kaufman explained this financial innovation in a July 16 interview on Democracy Now:

Goldman . . . came up with this idea of the commodity index fund, which really was a way for them to accumulate huge piles of cash for themselves. . . . Instead of a buy-and-sell order, like everybody does in these markets, they just started buying. It’s called "going long." They started going long on wheat futures. . . . And every time one of these contracts came due, they would do something called "rolling it over" into the next contract. . . . And they kept on buying and buying and buying and buying and accumulating this historically unprecedented pile of long-only wheat futures. And this accumulation created a very odd phenomenon in the market. It’s called a "demand shock." Usually prices go up because supply is low . . . . In this case, Goldman and the other banks had introduced this completely unnatural and artificial demand to buy wheat, and that then set the price up. . . . Hard red wheat generally trades between $3 and $6 per sixty-pound bushel. It went up to $12, then $15, then $18. Then it broke $20. And on February 25th, 2008, hard red spring futures settled at $25 per bushel. . . . The irony here is that in 2008, it was the greatest wheat-producing year in world history.

. . . The other outrage . . . is that at the time that Goldman and these other banks are completely messing up the structure of this market, they’ve protected themselves outside the market, through this really almost diabolical idea called "replication" . . . . Let’s say, . . . you want me to invest for you in the wheat market. You give me a hundred bucks . . . . What I should be doing is putting a hundred bucks in the wheat markets. But I don’t have to do that. All I have to do is put $5 in. . . . And with that $5, I can hold your hundred-dollar position. Well, now I’ve got ninety-five of your dollars. . . . What Goldman did with hundreds of billions of dollars, and what all these banks did with hundreds of billions of dollars, is they put them in the most conservative investments conceivable. They put it in T-bills. . . . Now that you have hundreds of billions of dollars in T-bills, you can leverage that into trillions of dollars. . . . And then they take that trillion dollars, they give it to their day traders, and they say, "Go at it, guys. Do whatever is most lucrative today." And so, as billions of people starve, they use that money to make billions of dollars for themselves.

Other researchers have concurred in this explanation of the food crisis. In a July 2010 article called “How Goldman Sachs Gambled on Starving the World’s Poor – And Won,” journalist Johann Hari observed:

Beginning in late 2006, world food prices began rising. A year later, wheat price had gone up 80 percent, maize by 90 percent and rice by 320 percent. Food riots broke out in more than 30 countries, and 200 million people faced malnutrition and starvation. Suddenly, in the spring of 2008, food prices fell to previous levels, as if by magic. Jean Ziegler, the UN Special Rapporteur on the Right to Food, has called this "a silent mass murder", entirely due to "man-made actions.”

Some economists said the hikes were caused by increased demand by Chinese and Indian middle class population booms and the growing use of corn for ethanol. But according to Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi, demand from those countries actually fell by 3 percent over the period; and the International Grain Council stated that global production of wheat had increased during the price spike.

According to a study by the now-defunct Lehman Brothers, index fund speculation jumped from $13 billion to $260 billion from 2003 to 2008. Not surprisingly, food prices rose in tandem, beginning in 2003. Hedge fund manager Michael Masters estimated that on the regulated exchanges in the U.S., 64 percent of all wheat contracts were held by speculators with no interest whatever in real wheat. They owned it solely in anticipation of price inflation and resale. George Soros said it was "just like secretly hoarding food during a hunger crisis in order to make profits from increasing prices."

An August 2009 paper by Jayati Ghosh [.pdf], professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Dehli, compared food staples traded on futures markets with staples that were not. She found that the price of food staples not traded on futures markets, such as millet, cassava and potatoes, rose only a fraction as much as staples subject to speculation, such as wheat.

Nomi Prins, writing in Mother Jones in 2008, also blamed the price hikes on speculation. She observed that agricultural futures and energy futures were being packaged and sold just like CDOs (collateralized debt obligations), but in this case they were called CCOs (collateralized commodity obligations). The higher the price of food, the more CCO investors profited. She warned:

[Continued...]

[Geolibertarian]

http://www.prisonplanet.com/is-there-a-financial-scam-behind-the-rise-in-oil-and-food-prices.html

Is There a Financial Scam Behind the Rise in Oil and Food Prices?

Danny Schechter
Global Research
April 19, 2011

The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices.

Gas at the pump is up, and going higher. Food prices are following.

The consequences are catastrophic for the global poor as their costs go up while their income doesn’t. It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions).

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading.

Why is it happening? Why all the volatility? Is oil getting scarcer, leading to price increases? Is the cost of food, similarly, a reflection of naturally increasing commodity prices?

While it’s true that natural disasters and droughts play some role in this unchecked price inflation, it also seems apparent that something else is attracting increasing attention, even if most of our media fails to explore what is a political time bomb while most political leaders shrug their shoulder and ignore it.

President Obama recently said there is nothing he can do about the hike in oil and food prices.

Critics say the problem is that government and media outlets alike refuse to recognize what’s really going on: unchecked speculation!

Not everyone buys into this suspicion. In fact, it is one of more intense subjects of debate in economics. Princeton University economist Paul Krugman pooh-poohs the impact of speculation counter posing the traditional argument that oil prices are set by supply and demand.

The Economist Magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.”

Others, like oil industry analyst Michael Klare of Hampshire College in the US see demand outdistancing supply:

“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.”

Usually you hear this debate in scholarly circles or read it in political tracts where orthodox views collide with more alarmist projections about the oil supply “peaking.”

But officials in the Third World don’t see the subject as academic. Reserve Bank of India Governor Duvvuri Subbarao charges “Speculative movements in commodity derivative markets are also causing volatility in prices,” he said.

The World Bank is meeting on this issue this week because it is seen as a matter of “utmost urgency.”

“The price of food is a matter of life and death for the very poorest people in the world,” said Tom Arnold, CEO of Concern Worldwide, the international humanitarian agency, ahead of his participation at The Open Forum on Food at World Bank headquarters.

He adds, “…with many families spending up to 80% of their income on basic foods to survive, even the slightest increase in price can have devastating effects and become a crises for the poorest.”

Journalist Josh Clark argues on the website “How Stuff Works” that much of the oil speculation is rooted in the financial crisis, “The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you’ll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much interrelated. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.”

The debate within the industry is more subdued, perhaps to avoid a public fight between suppliers and distributors who don’t want to rock the boat. But some officials like Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out.

He argues, “Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.”

Now, a prominent and popular market analyst is throwing caution to the wind by blowing the whistle on speculators.

Finance expert Phil Davis runs a website and widely read newsletter to monitor stocks and options trades. He’s a professional’s professional, whose grandfather taught him to buy stocks when he was just ten years old.

His website is Phil’s Stock World, and stocks are his world. He’s subtitled the site, “High Finance for Real People.”

He is usually a sober and calm analyst, not known as maverick or dissenter.

When I met Phil the other night, he was on fire, enraged by what he believes is the scam of the century that no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.

He studies the oil/food issue carefully and has concluded, “It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.”

[Continued...]

[Geolibertarian]

http://www.opednews.com/articles/Speculating-with-our-Food-by-Dr-Stuart-Jeanne-B-110705-853.html

Speculating with our Food

By Dr Stuart Jeanne Bramhall
OpEdNews
July 5, 2011

In 2011, "food derivative" speculation has replaced financial derivatives as the hot new investment promoted by major investment banks like Goldman Sachs and JP Morgan. According to new research from the World Development Movement, the same banks that caused the 2008 economic crash are also responsible for skyrocketing food prices (see this and this). They estimate that in 2010 Goldman Sachs made $1 billion in profits from speculating on food. The really scary news is that in addition to speculating heavily on food commodities, these same private equity funds are also buying up huge tracts of land in the third world.

Trading in Commodities Futures

Individual investors have always had the ability to trade in commodities futures (i.e. buy a 2012 bushel of corn at a fixed price before it's produced). However the commodities market has always been so unreliable that serious investors have viewed it in the same category as roulette and horse racing. Recently, however, Goldman Sachs, JP Morgan and other investment banks have used factors that appear to threaten food security -- extreme weather events, water shortages and increasing demand due to the Asian economic boom -- to aggressively pitch "agri" funds in a big way to investors. The ultimate effect of massive trading in food futures is to drive up the current cost of food, in the same way the subprime mortgage bubble massively inflated the cost of real estate prior to the 2008 economic crash.

The difference here is that high food prices are a life or death issue for billions of people around the world. Yet, as usual, the issue is virtually invisible in the US media.

The Great Land Grab

A 2009 research project by the Oakland Institute (The Great Land Grab [.pdf]) reveals startling facts about the corporate land grab in the third world -- another major factor in skyrocketing food prices. The Spain-based non-governmental organization GRAIN first drew attention to the land grab issue in its October 2008 brief, Seized! The 2008 land grabbers for food and financial security. The International Food Policy Research Institute (IF PRI) has reported that foreign investors sought or secured between 37 million and 49 million acres of farmland in the developing world between 2006 and the middle of 2009. In addition to the role played by major investment banks, multilateral institutions like the International Financial Corporation (the private sector branch of the World Bank) are also major players in the "corporatization" of global agriculture. The IFC plays a dual role in increasing private investment in the third world -- via direct investment and by lobbying developing countries to create "business enabling environments." Another World Bank agency, The Foreign Investment Advisory Service (FIAS ), also plays a role in pressuring third world governments to improve their "investment climate," by relaxing environmental, tenant rights and food security laws and abolishing tax and duties on foreign investments.

[Continued...]

[Overcast]

Had to vote 'other'.

I think it's market manipulation.

[Geolibertarian]

Had to vote 'other'.

I think it's market manipulation.

Dude, that makes absolutely no sense. How is manipulating the price of food via speculation not a form of "market manipulation"?

What next -- are you going to claim oil speculators aren't manipulating the market either?

[Overcast]

Dude, that makes absolutely no sense. How is manipulating the price of food via speculation not a form of "market manipulation"?

What next -- are you going to claim oil speculators aren't manipulating the market either?

Yeah, suppose you are right there..

I guess I missed that one somehow, lol, but either way - didn't really mean to 'claim' anything...

It just me or has this whole board been real hostile lately? Hmm, might be time for a long break you all

[Kilika]

Dude, that makes absolutely no sense. How is manipulating the price of food via speculation not a form of "market manipulation"?

What next -- are you going to claim oil speculators aren't manipulating the market either?

Indeed, in fact it is their primary means of manipulating all commodities. Supply and demand don't apply in the traditional definition. Dumping the dollar hasn't helped either.

[Femacamper]

Food speculation coupled with government and corporate hoarding.

If they stopped these practices, and the IMF forgave debt and left, the whole of Africa would be reborn in a month.

[Femacamper]

Speculation Drove Wheat Prices Up While Supply Expanded



http://www.youtube.com/watch?v=0o0CIMZHyvQ

[Geolibertarian]

http://www.independent.co.uk/news/world/politics/the-real-hunger-games-how-banks-gamble-on-food-prices--and-the-poor-lose-out-7606263.html

The real hunger games: How banks gamble on food prices – and the poor lose out

In the last decade, financiers have speculated billions of pounds in food, helping to make prices dearer and more volatile

Grace Livingstone
The Independent
01 April 2012

Speculation by large investment banks is driving up food prices for the world's poorest people, tipping millions into hunger and poverty. Investment in food commodities by banks and hedge funds has risen from $65bn to $126bn (£41bn to £79bn) in the past five years, helping to push prices to 30-year highs and causing sharp price fluctuations that have little to do with the actual supply of food, says the United Nations' leading expert on food.

Hedge funds, pension funds and investment banks such as Goldman Sachs, Morgan Stanley and Barclays Capital now dominate the food commodities markets, dwarfing the amount traded by actual food producers and buyers. Purely financial players, for example, account for 61 per cent of investment on the wheat futures market, according to the World Development Movement report Broken Markets.

Speculative investment in agricultural commodities in 2011 was 20 times the amount spent by all countries on agricultural aid. Goldman Sachs, the largest player in the agricultural commodities market, earned £600m from food speculation in 2009, and Barclays Capital, the world's third-largest player and largest British bank in this market, earned up to £340m in 2010, according to the report. Goldman Sachs and Barclays Capital declined to comment.

Before it was deregulated in the year 2000, the agricultural commodities futures market was used mainly by farmers and food buyers seeking to insure themselves against changes in the prices of products such as wheat, maize and sugar. When George W Bush passed the Commodities Futures Modernization Act 12 years ago, there was an influx, led by Goldman Sachs, of purely financial players who had no interest in ever buying food, but who sought solely to profit from changes in food prices, says Olivier De Schutter, the UN special rapporteur on the right to food.

He added: "What we are seeing now is that these financial markets have developed massively with the arrival of these new financial investors, who are purely interested in the short-term monetary gain and are not really interested in the physical thing – they never actually buy the ton of wheat or maize; they only buy a promise to buy or to sell. The result of this financialisation of the commodities market is that the prices of the products respond increasingly to a purely speculative logic. This explains why in very short periods of time we see prices spiking or bubbles exploding, because prices are less and less determined by the real match between supply and demand."

[Continued...]

[eat5]

Food Cost is related with Oil prices. Oil Goes up Transportation cost goes up,

1 screw up, like gas rising above 6-7$ would cause no food really fast, could happen in a day.

[jofortruth]

http://z4.invisionfree.com/The_Great_Deception/index.php?showtopic=5390

[mouse]

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."
-Andrew Jackson

Speculation is nothing new.
What's being discussed is different regulations; not "deregulation". Regulation is what created the options market for commodities. It's controlled by the US Commodity Futures Trading Commission. It's through law that they created options trading; buying & selling futures contracts without ever actually taking possession. It's ludicrous to call new regulation "deregulation". It's still regulated, as a matter of fact, it's regulated in a way so the investment banks can make even MORE money through manipulation & market monopoly.

[DireWolf]

Voted other because it appears to be the combination of all the listed choices. We can and do manipulate the weather. Speculation on futures of all commodities is part of the problem, oil, grains, meat, lumber, metals, etc, play into the rise of food.

What I truly believe is the basis of the problem is human greed and the lust for power.

[Geolibertarian]

Speculation is nothing new.

No one ever said it was, but then I'm sure you knew that.

What's being discussed is different regulations; not "deregulation".

On the contrary:

"In an analysis of the food price crisis of 2007-08, De Schutter documents how the U.S. government passed legislation in 2000 deregulating the food commodity markets and for the first time permitted speculation on speculation."

-- http://stephenleahy.net/2011/02/28/rampant-speculation-inflated-food-price-bubble-wall-stgrain-traders-pushing-price-rises/

"So what has this got to do with the bread on Abiba's plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops – and the speculators drove the price through the roof."

-- http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

"When this process of 'hedging' was tightly regulated, it worked well enough. The price of real food on the real world market was still set by the real forces of supply and demand. But all that changed in the mid-1990s. Then, following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, the regulations on commodity markets were steadily abolished. Contracts to buy and sell foods were turned into 'derivatives' that could be bought and sold among traders who had nothing to do with agriculture. In effect a new, unreal market in 'food speculation' was born."

-- http://www.globalresearch.ca/index.php?context=va&aid=22948

Since you and the authors of the above articles cannot both be right, we'll just have to let readers decide for themselves, won't we?

Regulation is what created the options market for commodities.

See above.

[Markafeller]

One other problem in the USA is the use of the current weather situation in the USA for the removal of bio fuels by law. Important if you want control for future shortages, high prices and more legal acts past as what happened back in the 1970s. Farms and the public are finding out that Alcohol can be a gas. With car conversion kits or most cars can run of about 50% mix as is. A person can build a "terrorist" still for $10 and find out the cost difference off of yard clippings. Better yet just ask a hillbilly. Most food is trucked 1500 miles to your table. The idea that it would use up farm land for food production is fiction as you can use cat tails from swamps to wild mesquite pods of arid land where nothing else grows and is far more profitable than cattle that it is cleared for.

Also understand the term Kill Zone. A kill zone is a old well planned long term for military ambush. It is used when there is to many of them and to few of you. A place is set aside as in our case 25% of the (western seen Rev. 6: world to restrict travel,money,law,communications,information including history,any location one could hide,education and most important to disarm the public. A point they want with vets ASAP. *The poverty is set up to produce dependency*. Like the story of Sodom after looted in war. The king confiscated wealth and rubbed it in to the poor. The conditions being like abusive cults where one will not leave and if such will go right back as not being able to adjust to the difference outside. We have not seen how crazy they are going to take it. As the reason for a kill zone is to trap the victims. At the future weakest point. The object would be then as make the victim fight themselves. Then sit back a week as in the King riots as it brings out hidden weapons and uses up limited ammo. I do not agree with Alex. The zone is to large to really get at all the decent so they will murder under public law 102-14 inside and bio weapon empty cities,swamps and etc. first before they swing around outside after. Where you have a better chance of hiding there. Food prices are just apart of end game and depopulation.     

[gearhedchic]

I woke up to 3.49 a gallon in Tulsa Ok.!! Ridiculous!

[Geolibertarian]

http://www.prisonplanet.com/goldman-sachs-made-400-million-betting-on-food-prices-in-2012-while-hundreds-of-millions-starved.html

Goldman Sachs Made $400 Million Betting On Food Prices In 2012 While Hundreds Of Millions Starved

Michael Snyder
Economic Collapse
Jan 24, 2013

Why does it seem like wherever there is human suffering, some giant bank is making money off of it?  According to a new report from the World Development Movement, Goldman Sachs made about 400 million dollars betting on food prices last year.  Overall, 2012 was quite a banner year for Goldman Sachs.  As I reported in a previous article, revenues for Goldman increased by about 30 percent in 2012 and the price of Goldman stock has risen by more than 40 percent over the past 12 months.  It is estimated that the average banker at Goldman brought in a pay and bonus package of approximately $396,500 for 2012.  So without a doubt, Goldman Sachs is swimming in money right now.  But what is the price for all of this “success”?  Many claim that the rampant speculation on food prices by the big banks has dramatically increased the global price of food and has caused the suffering of hundreds of millions of poor families around the planet to become much worse.  At this point, global food prices are more than twice as high as they were back in 2003.  Approximately 2 billion people on the planet spend at least half of their incomes on food, and close to a billion people regularly do not have enough food to eat.  Is it moral for Goldman Sachs and other big banks such as Barclays and Morgan Stanley to make hundreds of millions of dollars betting on the price of food if that is going to drive up global food prices and make it harder for poor families all over the world to feed themselves?
 
This is another reason why the derivatives bubble is so bad for the world economy.  Goldman Sachs and other big banks are treating the global food supply as if it was some kind of a casino game.  This kind of reckless activity was greatly condemned by the World Development Movement report…
 

“Goldman Sachs is the global leader in a trade that is driving food prices up while nearly a billion people are hungry. The bank lobbied for the financial deregulation that made it possible to pour billions into the commodity derivative markets, created the necessary financial instruments, and is now raking in the profits. Speculation is fuelling volatility and food price spikes, hurting people who struggle to afford food across the world.”

So shouldn’t there be a law against this kind of a thing?
 
Well, in the United States there actually is, but the law has been blocked by the big Wall Street banks and their very highly paid lawyers.  The following is another excerpt from the report…

"The US has passed legislation to limit speculation, but the controls have not been implemented due to a legal challenge from Wall Street spearheaded by the International Swaps and Derivatives Association, of which Goldman Sachs is a leading member. Similar legislation is on the table at the EU, but the UK government has so far opposed effective controls. Goldman Sachs has lobbied against controls in both the US and the EU.”

Posted below is a chart that shows what this kind of activity has done to commodity prices over the past couple of decades.  You will notice that commodity prices were fairly stable in the 1990s, but since the year 2000 they have been extremely volatile…

[Continued...]

[immanuelkant]

the economy needs to be revamped.  I have a whitehouse petition to create a new jobs creating industry. it uses magnetohydrodynamics to convert seawater kinetic energy directly to electricity.
get everyone you know to sign on!  http://wh.gov/dNkD

[LoudMcCloud]

This is my favorite forum.  I post all my articles and spent a lot of time here.

[Ricky Rasper]

Food speculators are the main reason I believe for the present rocketing prices for food. I personally think that food ought not to be traded on the stock market. It is morally reprehensible, but i have another theory, nay "belief". I believe that the climate is being controlled by the HARRP project in conjunction with Monsanto. If an area becomes to dry Monsanto will step in and offer drought resistant crops. If an area becomes to wet,hot,or cold they will have just the "right" little Frankenstein GMO to fulfill a countries needs at a cost!.Here in the UK the government and the Illuminate within it, are pushing for the right to grow GMO's! I live in Northern Ireland on the East Antrim coast. This April we had 20 foot snowdrifts!!!, a thing virtually unheard of. Thousands of sheep and spring lambs died, but Monsanto who supply the crop material for animal feed made a killing! I don't believe in these sort of coincidences especially when they start to happen all over the face of the earth! Do you? 

[Ricky Rasper]

the economy needs to be revamped.  I have a whitehouse petition to create a new jobs creating industry. it uses magnetohydrodynamics to convert seawater kinetic energy directly to electricity.
get everyone you know to sign on!  http://wh.gov/dNkD

Producing electricity at low cost is a good thing, but do you really believe that if an invention was made available to the industry that say, generated power at half the price of oil, that the customers power bills would drop by 50% or even 10%? Not a chance, 80% of the worlds taxes are either directly or indirectly linked to the market price of fuel, it has nothing to do with the availability or the cost of generating it! If it had to do with the cost of generating the power, customers receiving their power via a hydroelectric dam would be paying less for there energy than a customer receiving it from an oil powered power station, this is not the case! The cost of power has more to do with robbing world citizens of their incomes.     

[Anon27]

Great thread. One thing for sure is the inflation can only last so long and ends up being devastating.

I wonder how long folks can sustain themselves in this system.
The average family is living off a few thousand per month and barely making ends meet.

A rising cost of living continues while income's are either steady or declining.
That's coupled with the fact benefits are harder to obtain (classifying folks as part time or temporary) because competition for work is extremely high and employers don't need to provide as many perks.

Countries producing their own oil even pay absurd prices likewise to those importing it.

The way society's progressing is certainly a recipe for disaster.

As the decline continues in a seemingly unstoppable manner given systemic problems such as debt, the illusion of choice and corporate monopolization, the New World Order folks begin to appear brilliant.