Friday, April 18, 2008

Food Riots, Some Causes

Some good sense coming out of Vincent Reinhart in this article in the Wall Street Journal today.

[Thanks to for the image.]

He blames four phenomena:

1. Loose monetary policy, with our Federal Reserve setting the interest rates at 2.25%, which is lower than the CPI, thereby encouraging price inflation. [And I'll add, the Fed about to lower it some more, according to market perceptions.]

2. Resulting dollar weakness being coupled with unbalanced exchange rate intervention by certain countries like Saudi Arabia, China, India, Korea, and Taiwan, all holders of huge quantities of US dollars in their reserve accounts and all witnessing the corresponding inflating of their own currency and prices. As an aside, their dollar intervention also forces the other currency market players to play with the currencies that can be played with, like the Canadian dollar, the euro, and the Japanese yen, increasing the value of these currencies and upsetting the respective export markets, adding insult to injury. Fortunately, these latter players can take advantage of their improved currency's buying power vis-a-vis dollar-priced commodities.

3. Government intervention in the marketplace, this time involving ethanol and poorer-nation reactions to increasing food prices with subsidies of foodstuffs and restrictions of their export markets--always counterproductive.

4. Exploding demand for food and oil by China and other parts of Asia, coincidental with the increase in prices and dollar devaluation.

Net result? Food fights.

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