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How Goldman Sachs Created the Food Crisis

Don't blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street and The Fed are at fault for the spiraling cost of food.

Frederick Kaufman
Foreign Policy

Bankers recognized a good system when they saw it, and dozens of speculative non-physical hedgers followed Goldman's lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. The scene had been set for food inflation that would eventually catch unawares some of the largest milling, processing, and retailing corporations in the United States, and send shockwaves throughout the world.

The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities -- including food -- seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture told me. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.

The money flowed, and the bankers were ready with a sparkling new casino of food derivatives. Spearheaded by oil and gas prices (the dominant commodities of the index funds) the new investment products ignited the markets of all the other indexed commodities, which led to a problem familiar to those versed in the history of tulips, dot-coms, and cheap real estate: a food bubble. Hard red spring wheat, which usually trades in the $4 to $6 dollar range per 60-pound bushel, broke all previous records as the futures contract climbed into the teens and kept on going until it topped $25. And so, from 2005 to 2008, the worldwide price of food rose 80 percent -- and has kept rising. "It's unprecedented how much investment capital we've seen in commodity markets," Kendell Keith, president of the National Grain and Feed Association, told me. "There's no question there's been speculation." In a recently published briefing note, Olivier De Schutter, the U.N. Special Rapporteur on the Right to Food, concluded that in 2008 "a significant portion of the price spike was due to the emergence of a speculative bubble."

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Speculators, Cartels and Myths of Scarcity: How War Pushes up the Price of Oil

Oil Wars/Wikimedia image

Dean Henderson
Global Research

Last week, as if to justify his Libyan crusade, President Obama echoed the prevailing “peak oil” myth, stating that “we must accept the new reality that from here on out, demand for oil will always exceed supply”.  It was music to the ears of the Rockefeller/Rothschild energy cartel and tax-dodger oil traders in Zug, Switzerland alike.  Both know full well that oil companies pay around $18/barrel to get crude out of the ground.

Big Oil rings up its usual quarterly record profit, speculators led by Goldman Sachs and Morgan Stanley tack on another $50/barrel and people get gouged at the gas pump.  Governments “tighten their belts”, economies contract and the myth of scarcity (root word: scare) encourages a race to the bottom for the global masses, alongside an historical concentration of power and wealth by the well-fed and fueled global elite.

A day after Obama’s endorsement of concentrated corporate power and casino capitalism, the US Department of Energy reported that the main US oil stage depot at Cushing, Oklahoma was holding 41.9 million barrels of crude oil, very near its capacity of 44 million barrels.  In other words, the US is awash in crude oil.

Oil price shock; you ain't seen nothing yet

Wiki Commons

Jeremy Warner
Telegraph

The most common cause of a spiking oil price is supply shock. We may be seeing just such a phenonenon right now with the effective shut down of Libyan oil. But sometimes it’s excessive demand that does the damage.

Forget the present turbulence, which may or may not be temporary. You don’t have to look far into the future, perhaps as little as a year to 18 months, to see that a major demand challenge is looming which even assuming no further disruption to existing production, will challenge the present supply base to breaking point.

As it is, it’s fair to assume the world is closer to full capacity than producers care to admit. Rewind to the last oil price shock in the summer of 2008, and Saudi Arabia, pumping out oil at the rate of around 9.5 million barrels a day, was having to draw on inventories to meet demand. It’s therefore reasonable to assume that 9.5 million bpd then represented maximum capacity.

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Leaked cables confirm Pope’s distance from GMO debate and limited stance on bioethics

Rady Ananda, Contributing Writer
Activist Post

A leaked June 2009 cable from the US Vatican Embassy confirms the Pontiff’s refusal to take a stance on genetically modified foods. The Pope’s refusal to reject GM foods creates a vacuum in light of his condemnation of human genetic manipulation and his promotion of environmental stewardship.

Last month, at least one news source falsely reported that the Pope approves genetically modified foods. Vatican officials immediately denied such claims, but did admit there is debate within the Pontifical Academy of Sciences.  The cable confirms:

The Vatican has not taken a formal position on genetically modified (GM) crops — some Church leaders oppose them because GM technology is mostly in the hands of multinational corporations, while others support their use as an element in a larger strategy to address world hunger.

The cable, released by WikiLeaks, also confirms the Pope’s view that world hunger is more about failings in the distribution infrastructure and as a result of commodity food trading that drove up food prices:


In his World Food Day message in October 2008, the Pope noted that the world can produce enough food to meet increasing needs, but said factors like speculation in foodstuffs, corrupt public officials, and growing investments in weapons prevented food from reaching the hungry.

In this Democracy Now interview, Frederick Kaufman, a contributing editor at Harper’s Magazine, detailed how a speculative food bubble increased the number of those going hungry by 250 million.

Wall Street investors like Goldman Sachs, AIG, Bear Stearns, Lehman Brothers, and JPMorgan Chase bought “futures” on commodities, refusing to sell them. This created a false shortage, causing prices to skyrocket.

Another leaked cable discusses a Papal visit to Spain in July 2009 when Pope Benedict XVI condemned genetic research. Embassy official Peter Martin described the speech this way:

Benedict did not shy away from comments on same-sex marriage, abortion, and genetic research, but the comments were not so much finger-wagging at the Spanish government, as a message aimed at the Western world in general.

In a June 2008 Doctrinal Instruction concerning bioethics, Pope Benedict XVI clarifies the Catholic Church’s opposition to genetic engineering on the grounds of a “eugenics mentality.” His argument about protecting the dignity of human life can be equally extended to all life. Indeed, in the June 2009 leaked cable, the Pope’s concern for the environment is well noted:

The Pope speaks frequently about the importance of caring for God’s creation…. The Holy See is an active observer at the UN Environment Program, Food and Agriculture Organization and other international for a.… The Pope has even joined with other religious leaders … to issue moral appeals to their faithful on humanity’s responsibility to be good stewards of nature. The Vatican’s environmental message is consistent: nature is a gift from God, so human beings have a responsibility to care for and not to abuse it.

If the integrity of the human person needs to be maintained, and if humans should care for the environment, shouldn’t the integrity of all life forms be maintained?

While recognizing advances in biomedical science, the 2008 Doctrinal Instruction fails to consider the burgeoning agriceutical industry, which amounts to mass drugging the population thru a genetically modified food supply. This scheme falls squarely outside Papal and Hippocratic protectionism toward humans.

Though the Church condemns genetic manipulation only as far as humans go, Papal arguments on the sanctity of natural life can easily be applied to genetically engineered foods, as well. It’s not that far of a stretch to oppose GM foods after opposing other forms of genetic manipulation.

Rady Ananda’s work has appeared in several online and print publications. She holds a B.S. in Natural Resources from The Ohio State University’s School of Agriculture. Using years of editorial experience and web publishing, Rady now promotes the ideas and work of a select group of quality writers and artists at Food Freedom and COTO Report. 

Related Article by Rady Ananda:
New Scientist Magazine Plants False Story That Pope Approves GM Crops

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Banksters Inflate Speculative Food Bubble 


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Remember $4 gasoline? Oil speculators are back

Kevin G. Hall
McClatchy Newspapers

WASHINGTON — Despite weak demand in the U.S. and Europe, oil prices climbed this week to near $90 a barrel and gasoline prices have passed $3 a gallon on the West Coast and parts of the Northeast.

Why? If demand is down and supplies are plentiful — and they are — why would prices be going up?

Because Wall Street speculators are driving up oil and gasoline prices again — just in time to dampen holiday cheer.

"It's all about investor optimism, and that's been the story about 2010 ... that's the primary reason why we're seeing oil prices at $90 (a barrel) and gasoline making an uncharacteristic climb in December towards $3 a gallon," said Troy Green, a national spokesman for the AAA Motor Club, which monitors gasoline prices.

AAA's Fuel Gauge Report shows the nationwide average for a gallon of regular unleaded gasoline stood at $2.968 on Wednesday. That's up 11 cents a gallon from a month ago and 33 cents a gallon over one year ago. That means it costs about $1.65 more per fill-up than a month ago and $4.95 more than a year ago.


It's even worse on the West Coast, where this week prices have averaged higher than $3.15 a gallon, according to Energy Department data.

If oil prices keep climbing beyond $100 per barrel, as Goldman Sachs projects for 2011, higher fuel prices may blunt efforts by the Obama administration and the Federal Reserve to stimulate the weak economy.

"I think we're at that point. With (nearly) 10 percent unemployment, it's a much more impoverished consumer that can't afford it. It's almost a bludgeoning instrument in terms of what it will do to consumer sentiment," said John Kilduff, a veteran energy analyst and partner in the hedge fund Again Capital. "What might have been a very bright shopping season could get the wind taken out of its sails by these high prices."

Rising prices could erase the stimulus coming from the 2 percentage point reduction in payroll taxes proposed this week by President Barack Obama and Republican congressional leaders. This would hit the working poor particularly hard.

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Crude jumps above $90 on cold snap, dollar

Reuters

NEW YORK - U.S. crude oil futures prices rose sharply on Tuesday, pushing above $90 a barrel for the first time in 26 months as cold weather boosting fuel demand and the dollar's weakness kept oil lifted.

Optimism that Ireland will pass an austerity budget on Tuesday helped lift the euro against the dollar.

U.S. stock futures were boosted by a deal struck by U.S. President Barack Obama with Republicans to extend Bush-era tax breaks for two years.

Northwest and northeast Europe are expected to continue to have below normal temperatures and above normal energy demand the next several days.

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Global food crisis forecast as prices reach record highs

Cost of meat, sugar, rice, wheat and maize soars as World Bank predicts five years of price volatility

John Vidal
Guardian

Rising food prices and shortages could cause instability in many countries as the cost of staple foods and vegetables reached their highest levels in two years, with scientists predicting further widespread droughts and floods.

Although food stocks are generally good despite much of this year's harvests being wiped out in Pakistan and Russia, sugar and rice remain at a record price.

Global wheat and maize prices recently jumped nearly 30% in a few weeks while meat prices are at 20-year highs, according to the key Reuters-Jefferies commodity price indicator. Last week, the US predicted that global wheat harvests would be 30m tonnes lower than last year, a 5.5% fall. Meanwhile, the price of tomatoes in Egypt, garlic in China and bread in Pakistan are at near-record levels.
"The situation has deteriorated since September," said Abdolreza Abbassian of the UN food and agriculture organisation. "In the last few weeks there have been signs we are heading the same way as in 2008.

"We may not get to the prices of 2008 but this time they could stay high much longer."

However, opinions are sharply divided over whether these prices signal a world food crisis like the one in 2008 that helped cause riots in 25 countries, or simply reflect volatility in global commodity markets as countries claw their way through recession.

"A food crisis on the scale of two or three years ago is not imminent, but the underlying causes [of what happened then] are still there," said Chris Leather, Oxfam's food policy adviser.

"Prices are volatile and there is a lot of nervousness in the market. There are big differences between now and 2008. Harvests are generally better, global food stocks are better."

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Oil could hit $100 a barrel soon, JP Morgan predicts

China's economy was quick to recover from the global downturn and has been growing at a spectactular pace, resulting in rampant demand for oil

Julia Kollewe
Guardian

Chinese demand could push crude to $100 a barrel soon, according to JP Morgan, with the weaker dollar and restocking of French oil inventories once strikes end also helping to drive up oil prices.

China's economy was quick to recover from the global downturn and has beengrowing at a spectactular pace, resulting in rampant demand for oil. Growth has slowed slightly to an annual rate of 9.6% in the third quarter from 10.3% in the second.

JP Morgan raised its forecast for US crude futures to an average of $81 a barrel in the fourth quarter, from $75 a barrel.

"The key risk is that we are being too cautious and that the threat of $100 per barrel oil that is implicit in our fourth quarter 2011 oil forecast arrives much sooner than we expect – driven by not only a weak dollar, but also by rampant Chinese and emerging market demand and the rebuilding of French strategic stocks," said Lawrence Eagles of JP Morgan.

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Oil, gold, corn...oh my! Commodity prices on a tear

Blake Ellis
CNN

NEW YORK (CNNMoney.com) -- Commodity prices are surging across the board as the U.S. dollar remains under pressure from building speculation that the Federal Reserve is about to take action to aid the stumbling economy.

Oil and gold prices have been on a tear this month. After jumping 1.5% last week, crude prices spiked more than 1% again Wednesday. And gold continued it's record-breaking streak, surging nearly 2% to settle at a new record high of $1,370.50 an ounce.

Meanwhile, the Reuters-Jefferies CRB index, a key benchmark for global commodities, surged to its highest level since 2008.

Grains and soft commodities like corn, sugar, cocoa, coffee and cotton were also in the thick of the buying frenzy, with prices continuing to hover at yearly highs. (Track commodity prices)

"I really haven't seen prices like this since the early 1980s," said Dan Flynn, an energy trader at PFG Best. "A real cause and effect is trickling down into the markets based on low supply, high demand and a weaker dollar."

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