Commodity price surge sets stage for global food crisis in new year

Barry Grey
The price of traded food staples such as wheat, corn and rice soared 26 percent from June to November, nearing the peaks reached during the global food crisis of 2008, according to the Food Price Index kept by the United Nations' Food and Agriculture Organization.

The price surge has continued in December, with foodstuffs and basic commodities hitting new highs and expected to climb further in 2011.

The new explosion in commodity prices is being fueled by the cheap credit policies of governments and central banks in Europe, Japan and, above all, the United States, where core short-term interest rates remain near zero. These policies, most critically the renewed turn by the US Federal Reserve to so-called “quantitative easing,” are designed to boost national stock markets and business profits by providing the banks and corporations with virtually free credit.

The Federal Reserve in November announced that it would purchase $600 billion in US Treasury securities by, in effect, printing dollars. This cheap-dollar policy has the effect of debasing the world’s primary trading and reserve currency, thereby fueling inflationary tendencies around the world and increasing the flow of hot money to emerging economies with faster growth and higher interest rates.

The impact is vastly destabilizing and exacerbates global economic imbalances. It also provides banks, hedge funds and corporations with wide vistas for speculation on commodity prices.

In the US alone, corporations and banks are sitting on some $3 trillion in cash which they refuse to invest in production and hiring. A good portion of the global surfeit of cash is being used to ramp up the prices of commodities―from oil, copper, cotton, gold and silver to food staples such as wheat, corn, rice and soybeans. More...