More for Less OR Less for More

The perennial economic problem of limited resources and unlimited wants bites us once again as food prices worldwide have climbed up to become the object of the obscenely wealthy. A private jet or a fleet of Bentleys, I’d say the guy has the money. A plate of rice? Only for the rich? Something has to be very wrong here. The blame has been shouldered for a long while on the shoulders of a huge surge in demand (rising middle class in China and India) and also on the failed crops of Australia and America. Of course, converting our food (corn) into fuel for cars (to appease the global warming cult) hasn’t been helping either. So now we are faced with pricier food, pricier oil and pricier just about everything else.

For a look into how bad, read this paragraph, taken from an article on CounterPunch, “Food inflation is at its worst in more than 17 years today, with prices having risen nearly 5 percent in the past year. The price of staple products is climbing event faster–milk and dried beans are up more than 17 percent; cheese is up 15 percent; rice and pasta 13 percent, and bread 12 percent.” I keep telling people here they ain’t seen nothin’ yet. Wait a few more days. The reason I say so is based on a rather well-known but overlooked facet of the capitalist economic system, the futures markets.

In a nutshell, a futures market is where a bunch of people (with mathematics or economics degrees) sit and bid on the FUTURE prices of anything under the sun. Why would anyone bid on the future price? For profit of course! Like you need to be told that! Betcha YOU thought of entering the stocks market atleast once and wondered, “Hmm, if I buy those shares and hold onto them, I could sell them for more when their price shoots up when the company turns in an awesome performance.” THAT is the essence of futures trading, betting that a price change will occur in the short term and seeking to profit from it. That also happens to be, I feel, a very dangerous face of the “free-for-all” economy.

The other name, less uttered for it betrays the true horror that it is, of futures trading is speculative trading. Wise guys go “hmm, oil…yeah…oil…let’s get oil…I mean the price is rising innit?” and they all go and buy BILLIONS of dollars worth of crude oil, hoping to sell them later for a fat profit. Here is the sucker punch, basic economic theory that is widely accepted, is that a sudden surge in demand for any good leads to a noticeable, perhaps even significant, price increase of that good. To the best, or worst, of my knowledge, oil is not exempted from the list of goods that follow this simple assumption. Gold and other metals fall into the same category as well. The price of gold has been rising, but not really due to speculative trading; it is much harder to sell than oil after all. Other metals have followed gold upwards as well, we don’t notice simply because we aren’t looking.

What does this have to do with food? Everything. I never said that food is the holy good whose price speculators won’t bid up. In fact, right at this moment, speculators at every stage of the economy, starting with corporations and ending with you, are feeling the pulse of the world’s food markets. Make no mistake, there is plenty of food produced even now, but locked up in some container, waiting till the price is right. If you think this is not possible, then you definitely are NOT holding any gold or precious metal in your house or in ownership whatsoever, as bar or jewellery, as a means of store of value. You have gold in your house? Only for adorning your neck? Gold is less of an ornament and more of a fail-safe protection against a sudden loss of wealth. Since, unlike money, gold retains value better. That gold is used as jewellery came from man’s (and woman’s) desire to show-off that they are awash with money. So if gold, a commodity in strong demand, can be used by speculators for their “Guess the price” games, why not food? It makes better sense to bet on food. I mean, everyone needs food. So a small bet can net a big profit.

A lot of people will be quick to point out that the chief reason in rising prices has been the rising price of oil, the supply of which has been constrained deliberately by the ‘Arab’ oil cartel, OPEC. Too far off the mark; OPEC is producing at close to maximum capacity. Perhaps it is all well and good we have a cartel, if not for the higher price, we probably would have exhausted a lot more of the extractable reserves. On the other hand, let’s look at the demand side. America has been at war for about five years now. Funnily, oil was not quite so pricey when the war began. Pretty soon after, the price of oil began rising and rising and reached where it is today. War cartel at work folks. It would be very safe to say that the war very close to the oil producers background has made the market jittery and led speculators to speculate the price up. Everytime something happened in or near an oil producing nation, the price of oil shot up, even though there was absolutely nothing done to the supply chain to justify the price rise. That was speculation. The Iraq war saw production drop around 4 million barrels a year, significant enough to have caused the price to just about double. Now there you have an actual supply chain disruption.

Looking at all the nonsense from the West about “lack of supply” is getting annoying. Other than the Iraq war, very little has actually changed in the producers’ backgrounds. They are still turning out those barrels of oil, non-stop, for the entire world to devour. If the supply is continuing, why the price rise? Strong demand could be a factor, but the existence of the futures markets, atleast in my mind, has to be the prime suspect. Seeing all the action in Iraq, the speculators simply could not resist the urge to bid up the price of oil on the pretext of ‘supply jitters’. Speculative trading has, at the end of the day, served only to protect the interests of the imperialistic powers while depriving the poor any decent shot at improving their economic condition by consistently keeping the wages at just above subsistence level.

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