[THS] Mike Whitney: Global Famine? Blame the Fed

[Peter Webster]

http://www.informationclearinghouse.info/article19809.htm

    Global Famine? Blame the Fed

    By Mike Whitney

    25/04/08 "ICH" -- - The stakes couldn't be higher for Ben Bernanke. If
the Fed chief decides to lower rates at the end of April, he could be
condemning millions of people to an agonizing death by starvation. The
situation is that serious; there's no room for error. 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 soya 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  it 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. This doesn't mean that oil depletion, biofuel production, over-
population, and giant agribusinesses don't add to the problem. They do.
But the catalyst is the Fed's monetary policies; that's the domino that puts
the others in motion. Here's Otto Spengler's summary in his recent article in
Asia Times, "Rice, Death and the Dollar":

      "The global food crisis is a monetary phenomenon, an unintended
consequence of America's attempt to inflate its way out of a market failure.
There are long-term reasons for food prices to rise, but the unprecedented
spike in grain prices during the past year stems from the weakness of the
American dollar. Washington's economic misery now threatens to become a
geopolitical catastrophe....The link between the declining parity of the US
unit and the rising price of commodities, including oil as well as rice and
other wares, is indisputable.

     Never before in history has hunger become a global threat in a period
of plentiful harvests. Global rice production will hit a record of 423 million
tons in the 2007-2008 crop year, enough to satisfy global demand. The
trouble is that only 7% of the world's rice supply is exported, because local
demand is met by local production. Any significant increase in rice stockpiles
cuts deeply into available supply for export, leading to a spike in prices.
Because such a small proportion of the global rice supply trades, the
monetary shock from the weak dollar was sufficient to more than double its
price." ("Rice, death and the dollar", By Otto Spengler, Asia Times)

       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? The Fed has gummed up the
entire financial system with its low-interest credit scam; now it's on to
commodities where the real pain is just beginning to be felt. What a mess!
      This is what happens when there's too many dollars sloshing around
the system; they all need a place to rest, and when they do, they create
equity bubbles. Sound familiar? Indeed. This is Greenspan's legacy in a
nutshell; the dark specter of Maestro will continue to haunt the world until
all the hyper-inflated asset-classes (real estate, bonds, stocks, commodities)
return to earth and all the red ink is mopped up. That'll take time, but
Bernanke could make things a lot easier if he accepted some responsibility
for the current turmoil and raised rates by 25 basis points. That would show
speculators that the Fed was serious about defending the currency which
would send the commodities bubble crashing to earth. Prices would go
down overnight; guaranteed.

     But Bernanke won't raise rates because he doesn't really give a hoot
about the people in Cameroon who have to scavenge through garbage-
dumps for a few morsels to keep their families alive. Nor does he care about
the average American working-stiff who gets cardiac-arrest every time he
pulls up to the gas pump. What matters to Bernanke is making sure that his
fat-cat buddies in the banking establishment get a steady stream of low
interest loot so they can paper-over their bad investments and ward off
bankruptcy for another day or two. Its a joke; it was the investment banks
that started this downward spiral with their rotten mortgage-backed
securities and other debt-exotica. Still, in Bernanke's mind, they are the
only ones who really count.

    And don't expect Bush to step in and save the day either. The "Decider"
still believes in the unrestricted activity of the free market; especially when
his crooked friends can make a buck on the deal.

      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, a 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"?!?

        Prices have doubled, people are starving, and the Bush troop is still
parroting the same worn party-mantra. Its maddening.

        The US has been gaming the system for decades; sucking up two-
thirds of the world's capital to expand its cache of Cadillac Escalades and
flat-screen TVs; giving nothing back in return except mortgage-backed
junk, cluster bombs, and crummy green paper. Nothing changes; it only
gets worse. But this is different. The world is now facing the very real
prospect of "completely avoidable" famine because twelve doddering old
banksters at the Federal Reserve would rather bailout their sketchy friends
and preserve their spot at the top of the economic food-chain then save the
lives of  starving women and children. Bernanke now has an opportunity to
do more damage than Bush with one swipe of the pen. If he cut rates; the
dollar will fall, commodities will spike, and people will starve. It's as simple
as that.