Monday, April 28, 2008

The Long, Hot Summer

In a post today, Rafael Martel sounds a warning bell about the summer to come, a scenario of continually increasing gas and food prices, shortages, etc.... It is a subject meriting some worry and much anger.

Let's stipulate that there is increasing demand for commodities from countries with developing economies. The question, though, is why has it come to a head now? Much as Sebastian Junger's "Perfect Storm" was the conjunction of three separate systems, the present difficulties with food and fuel are the result of the confluence of a number of current trends.

Start with the Global Warming idiocy. I do not maintain that there is no such thing. I do, however, maintain that this headlong and mindless rush to eco-cool without thought to consequence is partially to blame for the present dire straits of economies the world over. Take for instance, corn ethanol. From the beginning, it has been apparent that the US could not grow enough corn, that using corn is not energy efficient. Yet, and here I have to blame our leaders, it has been pushed to the point where the price of corn has risen dramatically, causing a rippling effect on other crops, as well as substantial price increases at the supermarket on everything from milk to chicken to cakes.

Then factor in the housing debacle. No longer able to leverage themselves in the credit markets, speculators, who have long been bidding up the prices on oil, have turned their attentions to commodities-everything from soybeans to rice. Under normal circumstances, having bid prices up to unrealistic levels, at some point they would have their heads handed to them. Unfortunately in this case, they not only have a pretty much captive market, but they will cause a great deal of suffering before this run-up is all over. The hedge funds in particular are a blot on the economic landscape.

In the meantime, it is the poor who will pay the freight. So where are our leaders? You know, the ones who worry about universal healthcare and factory closings. Well, while they are whistling "Dixie," Senator Kay Bailey Hutchinson is the only politician I've seen address the situation in a piece entitled "Undoing America's Ethanol Mistake." Her solution of freezing the required ethanol production levels would seem to be a good, if insufficient, answer. Many more are needed.


Ms Calabaza said...

Great post. An easy to read explanation for this "perfect storm".

Ms Calabaza said...

just linked you.