What Capitalism Really Looks Like

Wall Street loves food — and I'm not talking about expense-account dinners at Manhattan's culinary temples.

When the the dot-com bubble burst in 2000, investment cash began to trickle into an area that had for decades seemed stodgy and boring: food commodities like corn, soy, and rice. And after the housing market started to unravel in 2006-'07, that trickle turned into a gusher.

According to the UN FAO's most recent report, global food prices are hovering at all-time highs, and have risen dramatically over the past year. The FAO's Cereal Price Index is up 36 percent from last year; overall food prices are up 26 percent. The most recent spike is part of a multi-year trend, FAO reports. Inflation-adjusted food prices have tripled since 2004.

To hear Wall Street tell it, the bull market for food reflects the fundamentals of supply and demand. Global population is rising, emerging middle classes in India and China are demanding more grain-intensive meat, and government-backed biofuel schemes in the US and Europe divert ever-larger amounts of food crops in into car fuel. While demand rises quickly, supply — the amount of food grown by farmers — is stagnant: hence, a rapid rise in prices.

That's the story, anyway, and Wall Street is sticking to it. Jeffrey Saut, chief investment strategist at Raymond James, reiterated it it in a note to investors on Monday. Making the case for investments in agriculture, Staut declared:

With per capita incomes rising rapidly in emerging countries, the burgeoning food demand has left global grain consumption exceeding production; and over the next few decades the situation is likely to get worse because food production needs to expand by some 50% just to meet the estimated demand.

It turns out, though, that Wall Street's food pitch, like its previous ones about tech stocks and residential real estate, is so much hot air puffing up a bubble (along with the profits of a few big banks and hedge funds). While the housing bubble caused plenty of misery—hundreds of thousands of foreclosures, the worst recession since the Great Depression—the current bubble is even more catastrophic: millions of people globally priced out of food markets.

In an outstanding recent article, Der Spiegel reporters Horand Knaup, Michaela Schiessl and Anne Seith sketched out the line between Wall Street speculation and rising hunger among low-income slum dwellers in the global south.

Their case is simple: while demand for food crops is indeed rising, the massive recent price hikes go far beyond supply-and-demand fundamentals. Instead, they reflect speculative bets that push prices into the stratosphere, drawing in yet more speculative money and new price hikes. To anyone who witnessed the US internet and housing booms, the situation will be startlingly familiar.
~ from How Wall Street Fuels Global Hunger by Tome Philpott ~

It really is impossible to candy-coat news of this nature -- it's despicable!! In order to fatten the wallets of the niggardly few, millions of people must go hungry.

For those of you out there who think that capitalism can somehow be restrained through legislation and regulation, how's that been working out lately? The corporate world not only is bigger and more powerful than many national governments but they control the rest.

At some point the "food bubble" will burst and millions will needlessly suffer. The hedge fund managers won't cry any tears for the people suffering throughout the world; they will cry because the easy money has dried up. They will keep sobbing...until they figure out a new financial instrument to exploit, a new bubble created. They will milk it for everything they can get their grubby hands on.