Speculation

“Control oil and you control nations; control food and you control people”, Henry Kissinger, 1970

Speculation causes unexpected, unpredictable and undesirable price fluctuations and, in general, hikes up prices. It’s happened in oil and it’s happened in food.

Europe and others have invested billions of dollars in buying farmlands in poorer countries, especially in Africa, since around 2008.

The basic resources for human life — food, energy and water — are now known in financial circles by the acronym, FEW.

Read the following article published recently in the UK Guardian and see my links following:

Food Speculation: ‘People Die From Hunger While Banks Make a Killing on Food’

It’s not just bad harvests and climate change, speculators are also behind record prices. And it’s the planet’s poorest who pay

by John Vidal, 2011-01-23

Just under three years ago, people in the village of Gumbi in western Malawi went unexpectedly hungry. Not like Europeans do if they miss a meal or two, but that deep, gnawing hunger that prevents sleep and dulls the senses when there has been no food for weeks.

Oddly, there had been no drought, the usual cause of malnutrition and hunger in southern Africa, and there was plenty of food in the markets. For no obvious reason the price of staple foods such as maize and rice nearly doubled in a few months. Unusually, too, there was no evidence that the local merchants were hoarding food. It was the same story in 100 other developing countries. There were food riots in more than 20 countries and governments had to ban food exports and subsidise staples heavily.

The explanation offered by the UN and food experts was that a “perfect storm” of natural and human factors had combined to hyper-inflate prices. US farmers, UN agencies said, had taken millions of acres of land out of production to grow biofuels for vehicles, oil and fertiliser prices had risen steeply, the Chinese were shifting to meat-eating from a vegetarian diet, and climate-change linked droughts were affecting major crop-growing areas. The UN said that an extra 75m people became malnourished because of the price rises.

But a new theory is emerging among traders and economists. The same banks, hedge funds and financiers whose speculation on the global money markets caused the sub-prime mortgage crisis are thought to be causing food prices to yo-yo and inflate. The charge against them is that by taking advantage of the deregulation of global commodity markets they are making billions from speculating on food and causing misery around the world.

As food prices soar again to beyond 2008 levels, it becomes clear that everyone is now being affected. Food prices are now rising by up to 10% a year in Britain and Europe. What is more, says the UN, prices can be expected to rise at least 40% in the next decade.

There has always been modest, even welcome, speculation in food prices and it traditionally worked like this. Farmer X protected himself against climatic or other risks by “hedging”, or agreeing to sell his crop in advance of the harvest to Trader Y. This guaranteed him a price, and allowed him to plan ahead and invest further, and it allowed Trader Y to profit, too. In a bad year, Farmer X got a good return but in a good year Trader Y did better.

When this process of “hedging” was tightly regulated, it worked well enough. The price of real food on the real world market was still set by the real forces of supply and demand.

But all that changed in the mid-1990s. Then, following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, the regulations on commodity markets were steadily abolished. Contracts to buy and sell foods were turned into “derivatives” that could be bought and sold among traders who had nothing to do with agriculture. In effect a new, unreal market in “food speculation” was born. Cocoa, fruit juices, sugar, staples, meat and coffee are all now global commodities, along with oil, gold and metals. Then in 2006 came the US sub-prime disaster and banks and traders stampeded to move billions of dollars in pension funds and equities into safe commodities, and especially foods.

“We first became aware of this [food speculation] in 2006. It didn’t seem like a big factor then. But in 2007/8 it really spiked up,” said Mike Masters, fund manager at Masters Capital Management, who testified to the US Senate in 2008 that speculation was driving up global food prices. “When you looked at the flows there was strong evidence. I know a lot of traders and they confirmed what was happening. Most of the business is now speculation ? I would say 70-80%.”

Masters says the markets are now heavily distorted by investment banks: “Let’s say news comes about bad crops and rain somewhere. Normally the price would rise about $1 [a bushel]. [But] when you have a 70-80% speculative market it goes up $2-3 to account for the extra costs. It adds to the volatility. It will end badly as all Wall Street fads do. It’s going to blow up.”

The speculative food market is truly vast, agrees Hilda Ochoa-Brillembourg, president of the Strategic Investment Group in New York. She estimates speculative demand for commodity futures has increased since 2008 by 40-80% in agricultural futures.

But the speculation is not just in staple foods. Last year, London hedge fund Armajaro bought 240,000 tonnes, or more than 7%, of the world’s stocks of cocoa beans, helping to drive chocolate to its highest price in 33 years. Meanwhile, the price of coffee shot up 20% in just three days as a direct result of hedge funds betting on the price of coffee falling.

Olivier de Schutter, UN rapporteur on the right to food, is in no doubt that speculators are behind the surging prices. “Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets,” he says.

“People die from hunger while the banks make a killing from betting on food,” says Deborah Doane, director of the World Development Movement in London.

The UN Food and Agriculture Organisation remains diplomatically non-committal,saying, in June, that: “Apart from actual changes in supply and demand of some commodities, the upward swing might also have been amplified by speculation in organised future markets.”

The UN is backed by Ann Berg, one of the world’s most experienced futures traders. She argues that differentiating between commodities futures markets and commodity-related investments in agriculture is impossible.

“There is no way of knowing exactly [what is happening]. We had the housing bubble and the credit default. The commodities market is another lucrative playing field [where] traders take a fee. It’s a sensitive issue. [Some] countries buy direct from the markets. As a friend of mine says: ‘What for a poor man is a crust, for a rich man is a securitised asset class.’”

© Copyright John Vidal, Guardian, 2011

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[1] The $2.5 trillion global oil scam

[2] There Is No Gas Shortage

[3] There Is No Gas Shortage, Part 2

[4] Leading Global Warming Crusader: Cap and Trade May INCREASE CO2 Emissions

[5] Copenhagen’s Hidden Agenda: The Multibillion Trade in Carbon Derivatives; Architect of Credit Default Swaps behind the Development of “Carbon Derivatives”

[6] Global Poverty, Food Riots, and the Economic Crisis

Monopoly

“Judge a man by his questions, not his answers”, Voltaire

As the preface of a classic book on meteorology for aviators put it, “all weather is caused by uneven heating of the earth by the sun”.

I sometimes like to ponder whether all politics similarly results from our uneven circumstances.

Long ago, my mother, arch-conservative, was fond of making the pithy statement, “if, one Monday morning, we divided everything up equally between us all, by Friday it would all be back the same way again”.

She was, of course, rendering judgement upon Communism. But the same statement makes an equally pithy critique of Capitalism, don’t you think?

We’ve all had first-hand experience with the concept of Monopoly: one happy, beaming kid and the rest of us in tears.

The card game, Canasta, is similar. A player’s drawing power is based upon the contents of his or her hand. Mistakes or bad luck early in the game decide the outcome and the remainder of the game is just a dreary handing over of cards to the eventual winner.

Likewise, money confers advantages — particularly the ability to make more money.

I am not an expert on Karl Marx; I have not read Das Kapital. People who despise Communism delightedly dismiss Marxism in toto — in its entirety.

But whatever you think of the idea of socialism or communism as a solution to the problems of capitalism, Marx’ insight and critique of the flaws of capitalism is, as I understand it, his greatest and lasting contribution to knowledge. In particular, he deemed capitalism susceptible to monopoly, the inexorable concentration of wealth. Just as we see unfolding exponentially in the USA today.

And indeed, internationally, there is now a growing awareness of the related, Ponzi nature inherent, particularly in the debt-based form of capitalism.

Last year, a very bright friend of mine extolled the virtues of a particular political philosophy to me; a philosophy that has enjoyed far too little familiarity and support throughout history, yet one that made a strong contribution to the founding and nature of the American republic.

I asked him, “how does this system deal with and prevent the rot of monopoly?”. His answer was simply, “it doesn’t”.

Well, that’s OK. Because I have come to the conviction that every system of political organization suffers from this same defect: lack of a mechanism to fight monopoly and prevent it growing like weed in a waterway that chokes all traffic, commerce and, eventually, freedom.

The asymptote for monopoly in society is feudalism, or some modern-day, financial equivalent of it. At one time during the twentieth century, just about everyone in the West enjoyed a lifestyle more comfortable than the most powerful Chinese emperor of millenia ago, (when you include factors like health care, education, technology, travel). But all that is fast going by the wayside.

So think about this. If people lived as peasants and their rulers lived 100 times better by dint of power, would those rulers choose a world in which everyone lived 1000 times better than (the peasants) before, at the cost of sacrificing their own power to an egalitarian system, (yet still being ten times better off themselves); or would they choose to continue the status quo — to remain “on top”?

That is to say, does the rule of our masters, the oligarchic elite, bring us the most efficient economy and best quality of life possible? Or does it only maintain their power, privilege and luxury?

So what political system, do you, alert reader, favor? How does it combat the virus of monopoly?

How does it not, in the end, succumb to power, just as do all other systems?[1] And do you, in favoring your preferred system, overlook the “mote” of monopoly that inevitably corrupts it?

After thousands of years of human political experience, is periodic revolution the only recourse available to man, finally, to alleviate monopoly?

I have no answers to these questions.

From: The Monday Morning Quarterback

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[1] About the US constitutional system, its boosters will say that it contains checks and balances upon government. Yes, it does.

But its Founders themselves did not believe these to be adequate, and expected that only periodic bloodshed would maintain its balance.

And even so, checks on government do not address the subject of private monopoly, the existence of which implies a distinct threat to the public and its system of government, no matter how perfectly balanced.

[2] Here’s a good term to know for the future: FEW. Food, Energy, Water.

Corporations are striving now to corner these resources in the world. Browse the following assorted links for a taste of the fruits of monopolistic capitalism:

• Doomed From The Start: The Myth of Limited Constitutional Government in America
• The Elephant In The Room: Debt Grows Exponentially While Economies only Grow In An S-Curve
• The 2.5T$ Global Oil Scam
• Ending the Monopoly of Ideas: Compulsory Licensing in Intellectual Property
• The American Workplace: Sweatshop USA
• Water Heist: Corporations are Targeting Cash-Strapped Cities For Control of Their Public Water
• Pathocracy in Action: How Goldman Gambled on Starvation
• Food Fascism in the Land of the Free
• Unsafe Genetically Modified Food
• Worldwide Corporate Control of Agriculture: The New Farm Owners
• Monsanto Draws Antitrust Scrutiny
• While We Were Sleeping… Genetically Modified Food and the Brink of No Return
• Judge Strikes Fear into Biotech Industry with Nullification of Patents on Human Genes BRCA1
• They’re trying to control the entire food chain: Monsanto claims it invented meat

Capitalism in the USA Today

Is Obama a socialist?

Has he already ruined America?

To choose a single quintessential that characterizes the esprit de corp of the United States, that quality that defines it uniquely, I think I would nominate Capitalism.  [I also considered "freedom", "the US Constitution", "democracy" (American-style), "college football", ...]

Regardless of political stripe, Americans believe that the American vision is the product of hard work, ingenuity and free enterprise, largely unfettered by government interference.

Indeed recently, when a clear majority of Americans wanted the deplorable situation with health insurance fixed, the efforts to do so were easily thwarted simply by raising the spectre of Socialism.

Even with a Democratic President and Congress and a large mandate for change, no change has been able to overcome this charge of socialism.

But as the Republican division desperately accuses Obama of being the Anti-Capitalist and having ruined the country in just one short year, its bewilderment and disarray is most palpable.

The grand failure of Ponzi Capitalism, embodied in the current financial crisis besetting the USA (and the world), has shocked Americans, and particularly Republicans, to the core.  "How did this go so badly wrong?".  "Where is The Invisible Hand of Adam Smith?", to discipline the market.  Even the Maestro, Alan Greenspan, claims to be shocked…

The Corporation

Now we come to what I believe is a fundamental disconnect in the political discourse: the capitalists themselves do not believe in free enterprise [freedom for their competitors and consumers].

The free market makes the best decisions and gets the job done, so people believe.  Competition not only weeds out the bad ideas and managers, but it holds prices down to cost plus a reasonable profit, as well as stimulating the search for continuous improvement.  Thus, free enterprise is good for consumers (the public) and provides incentive to companies to be responsive to and satisfy their customers.  And companies provide jobs as well as goods.  It is thus a win-win situation and everyone prospers.  This is the theory.

Capitalists, however, believe in only three principles: 1) profit, 2) lots of profit, and 3) unregulated, unlimited and unreasonable profit.

Competition and the free market are a brake and a limit on the amount of profit that can be made, benefiting the numerous customers, and only hardly the companies.  But corporations are driven to make profit and nothing else drives them.

(Here I want to express a novel thought.  Inasmuch as Americans define their country in terms of free enterprise, competition and freedom, then the wealthiest, monopolistic capitalists who work against those principles should be considered to be saboteurs and traitors.  Indeed, David Rockefeller candidly admitted in his 2002 auto-biography, Memoirs, to having spent a lifetime "working against the best interests of the United States" (and in favor of globalization).)

Now let's consider a corollary of the notion that capitalism does not actually favor free enterprise.

People view Big Business and Big Government as adversaries; incompatible; mortal enemies even.  That they are believed to be at odds with each other is precisely why the charge of socialism works so effectively in American politics.  In the simplistic view, governmental control runs counter to free enterprise.  (It does, but the deep question is, "whose side is Business on?": freedom or regulation…)

What if Big Business is no friend at all of Freedom and if instead favors techniques of coercion?  Then government becomes seen as a powerful tool for control. And since it so evidently may be bought with large enough sacks of gold, the situation suddenly hearkens back to the entrepreneur who liked the product so much that he bought the company!  For enforcing its monopolies, Big Business is so fond of Big Government that it might have invented it.  (And indeed: I think it did.)

Now one may consider anew why it is that corporations donate to candidates of both parties simultaneously.  They don't care whether a candidate is Republican or Democrat, as long as he or she is going to be successfully elected and — with their backing — beholden.

Obama is not a socialist.  He is a pawn.  Carefully chosen and groomed.  Just like Bush before him.

And the drive to ruin the United States (for the majority of its inhabitants) was started before Obama.  Before Bush.  Before Clinton.

These Presidential Commandos-in-Chief are just agents of the one enemy, the Plutocracy, its fifth column; no change, no change, no change.

From: The Monday Morning Quarterback