Argentina just passed a bill putting export tariffs on grains and oilseeds. They did this despite the fact that Argentinian farmers had spent 3 months striking against the bill.
Of all the stupid things that people say about commodities like oil and food, the BS about global markets and fungibility ranks near the top. Markets acted as if they were global and fungible for a long time, in both, because there was surplus capacity. There was so much surplus food capacity, in fact, that huge amounts of food used to rot in US and Canadian grain towers, with no one to sell it to who could even afford the shipping price.
But as there are scarcities what we’re going to find out is that these things aren’t exactly fungible. Sometimes that they’re really not fungible. And that the price can be set locally, not globally, by governments which are net exporters by simply choosing to raise internal tariffs or even just manage the amounts exported and the amounts kept for domestic markets. Note that Argentina did this despite huge protests. Why? Because while farmers are powerful in Argentina, every Argentine has to eat, and there are a lot of poor Argentinians. More than there are farmers.
Food and oil are created in specific countries. Those countries, as food and oil become scarce, will tend to take care of their own needs first. This is especially true in states that are democratic, where the rulers can’t just say "let them eat cake". Specific long term contracts will matter. The world market will become less and less of a fact as more and more oil and food is sold based on bilateral arrangements.
Likewise, in democracies, there will be a real temptation to take commodity resources that are necessary for manufacturing and use them at home. Why sell the raw stuff when you can do the value add yourself? Sure, it may cost a bit more than if it was done in some cheaper or more productive country, but when there’s an absolute scarcity of key resources, that doesn’t matter. You have pricing power and you can extract the extra money. It gives your population more and better jobs, which gives you a better tax base. And it gets you reelected.
Global markets are based on surplus situations without strong incentives for nations to horde or make bilateral deals. Those circumstances are ending and we are coming to an end of this era of "free" trade.
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Hi Ian.
Leaves me pondering if that includes the United States or not.
Hence the Chinese rush for africa.
Not democratic
Mineral Rich
Can be food rich (Zim before Mugage’s best efforts)
Couldn’t happen to a nicer policy.
The US should be able to feed itself. There may be a period where bad land use policies, foolish trade policies, and stupid subsidies combine such that it can’t, but when it gets serious, it is a continental power with a relatively low population.
Gotta figure that transportation costs also hurt global movement of goods.
Seems to me that there is a fair chance that the US will suffer at least a moderate downward adjustment to it’s standard of living for a while…Won’t kill anyone as long as it’s managed and not precipitous. That will require govt which is willing to accept reality.
IF you have ever been to Iowa, Kansas, South Dakota, Central California, or almost anywhere in the US that isn’t a desert or a mountain range, it would be impossible to think that America would ever not be able to feed itself. That is if you don’t mind eating wheat, corn, cattle, hogs and fruits and vegetables.
Sorry for the early OT – but Hardballs just announced that ex-Hillary-guy Howard Wolfson has taken a new job – with FoxNews.
Food shortages are very rarely because there is not enough food physically.
Now if we can just kill the companion myth of “free markets.”
Watched Hardly Balls today– Tweety is in love with the “Iraqis kickin the US out” story….In his defense- it’s NOT a bad story- although it’s probably bullshit.
Tweety is love with Tweety.
Thanks Ian.
Off Topic:
Attention Firepups!
Netroots Nation is in Austin this year (next week!)and the Central Texas Firepups would like to offer a bit of our southern hospitality to those of y’all not fortunate enough to be with us year round. *cough*
At least two of us have sofa beds, guest beds and/or kids’ bunk beds available for firepup use, and anyone still in Austin on Sunday the 20th is invited to swim with us and/or have guided tours of our area. Wangdangdoodle, who won’t be attending the conference itself, wants to hang out with visiting pups in the evenings during the conference.
Airport rides might be possible.
For more info on any of this, contact Tex Betsy at g mail. Please include your FDL screen name.
We now return you to your regularly scheduled thread.
Doodle, there’s a garden tour happening elsewhere.
Turns out that dead doctors have been prescribing lots of stuff that medicare pays for…..oughta be a law!
I have seen estimates (I cannot vouch for their validity) that the US produces enough food each year to feed the entire world. The problem there is not with supply in any absolute sense, but in distribution. Much of what we produce is funneled into animal feed rather than feeding humans (there is something like a 10:1 ratio for the amount of grains needed to produce meat). Likewise ethanol production has also diverted large amounts of grains away from feeding people. Then there is the problem of price, which in capitalist markets often exceeds the ability of people to pay. Something like 20% of households in the US are reportedly forced to miss at least one meal a week because of financial considerations.
Just stopped by…
Can I mention that Monsanto is evil and their approach to land use is short sighted? If not downright suicide.
The US used to. I’m not sure it is anymore. Also, I expect a dust bowl and drought again, within a decade. Within 2 decades about a third of India will be unable to produce food anymore. China and Africa are already turning into dustbowls. Global warming estimates show that losses of good cropland exceed gains significantly.
We could see actual physical shortages. However, even without shortages, as you point out, it’s distribution that matters. An extensive study of famines years ago found out that in all 20th century cases there was enough food, it just didn’t get where and to who it was needed. In many cases it even got where it was needed, but was then horded.
In the old days the calculus in India was this – an oxen driven cart could haul enough produce to feed an ox for about 3 days. So you couldn’t haul food further than 3 days from where it was produced if there wasn’t a waterway.
The calculus today is cost+cost — cost of the food, plus cost of transporting it. Both parts of the equation are going to go up, and as a result a lot of people will be priced out.
It is not an accident that the huge spike immigration to the US coincided exactly with the end of the great commodities depression in 97/8.
Hmmm, I think that’s the stub of a post, actually. LOL.
True enough, Ian. But we also have an extensive transportation system and vast storage facilities. If there were to be a food shortage here, it would be from political, policy and economic causes.
That’s precisely what I thought, Ian.
It is insights such as your last sentence, which always makes the coherence of your overarching perspective so pratically useful and informationally priceless, Ian.
Thank you.
You, quite single-handedly, are restoring credibility to a murky and deservedly ‘dismal’ discipline.
;~D
I do not disagree at all about likely future shortages globally and possibly even in the US. Global warming is going to be a bear and it is going to devour a lot of productivity. In areas like here in Montana and elsewhere in the western Great Plains where agriculture already is really marginal, farming is probably doomed, though cattle raising may continue with grazing.
Ian, I meant, of course, your last sentence @ 20.
Truth. And yet, if mismanaged, I can see actual physical shortages. Grain supplies, iirc, are currently at the lowest level in decades, for example – enough to make half a loaf per American.
What I’m seeing is that a lot of areas that are productive are going to become a lot less productive or in some cases essentially completely unproductive (no water = no food and people have been very stupid about aquifers), and that transportation costs are going to rise at the same time.
Still, I agree that any shortages, physical or not, will be because America’s elites just don’t care enough.
I knew we were doomed when I read a line from a New York Times article reprinted in Fort Lauderdale Sun-Sentinel around the end of 2003:
“Self-sufficiency in food is neither realistic nor desireable….” I’ve been ‘twirling’ ever since. I did try to track down the article without success. It sounded a lot like George Will.
If the US isn’t essentially self-sufficient in food, what country would be? It’s a continental power with a low population, not Japan or Great Britain.
Yes, but other countries actually FOCUS on their citizens’ welfare.
There speaks a man who’s never heard of a Victory Garden, evidently.
Sounds startlingly like Ari Fleischer, who said that gas-guzzlers are intrinsically American, and you (us) are in peril for deriding them.
ephemera: Rachel Maddow, filling in for KO, is wearing jeans.
In the days (years) ahead, many will be honiing gardening skills which they had not idea that they possessed.
As a society, we are not so well positioned, knowledge-wise, as we were for the last Depression …
Nor are we, generally, as close to the land.
Hi Newt. We solved our computer connection problem.
South Florida used to be known as the winter vegetable market of the world; all that land has been converted to condos and “gated-communities.” The sole source of water is the Biscayne Aquifer and it has been tapped by the huge population increase in the past 20 years.
All the land that has been paved over contributes to preventing the aquifer from recharging via the decreasing rainfall of the past few years. Meantime, all the phosphorus run-off from the tax-payer subsidized sugar industry has damaged the surface water of Lake Occechobbee.
They may remember food riots better. Someone here pointed out that a lot of leaders seem to have forgotten the lesson of Marie Antoinette. Wish I could remember who, but it’s a great line.
Nice! You found the WEP key, no?
nope. found a website that let us translate her “word” password into hex.
What is the level of ‘consciousness’ among Floridians, regarding the realities you have laid out?
Yep. Called a “WEP key”, and the base station software will display it if you know where to look.
There are estimates that the massive Oglala Aquifer which waters nearly the entire Great Plains south of the Dakota may be dry within 25 years. This is the result of essentially stupid agricultural decisions (growing corn in western Nebraska for instance) which wasted tons of water.
Yes. I learned how to do that later, after I’d left her house.
o/t Jonathan Turley on KO
Floridians are more worried about losing their jobs and homes now. My friend just reported that her son in law said that 200 co-workers were missing at the Miami Herald yesterday. My neighbor across the street has had his Fed-Ex delivery hours cut to 30 a week even filling in for workers on vacation. My neighbor 2 doors down in drug sales said Mondays are now occupied with emailing to see who’s still employed. 2 neighbors that do physical therapy have fewer patients due to cutbacks. That’s just the quick ones I can think of.
OT — Just now on KO (Rachel Maddow, actually today) I just saw a commercial paid for and featuring T. Boone Pickens calling for an alternative energy program. Pix of solar collectors and windmills, text about natural gas. He says in a few days he’s unveiling a plan to start us down the road to energy independence. Surprised me…
Here is a link to a T.Boone Pickens article; he’s got a new energy company.
http://www.cnn.com/2008/TECH/s…..kens.plan/
ot-sorry ian
hey egreg—-i;m in ‘h’, said hello to ‘m’ for you last night and friday!! tried to get a photo of a ‘go ___’ sticker on a vw bug for ya, didn’t turn out….
and jayt–yesterday took my dog for a spin–looking for cows, and was 60 miles from indianapolis…….i’m 10 miles from the border right now…
at best friends house was just cruisin’ by…watchin’ olberman in person for once, thanks for all the times you all blogged it for me.
adios
T. Boone Pickens calling for an alternative energy program.
Purpose -> find a cheaper way to power SwiftBoats.
aww – too bad you couldn’t spin through…
Distribution of food is the key…both Indonesia and Malaysia are also talking about restricting export of rice (which actually makes them more money if exported). They fear inflation and food riots domestically. The ruling party in Malaysia is under tremendous pressure due to food and petrol inflation (and food has to be shipped by, not only truck, but by airplane to some parts of the country). That makes food products very expensive in some regions. This causes population dislocation eventually….i.e. both internal and external migration.
And any local set-back in either production or distribution (i.e. Typhoon Nargis in Burma) can result in massive famine and disease as families are made homeless and encamped in unsanitary conditions.
Wars have been fought over lesser issues.
Meanwhile our media (and some members of the public) obsesses over why Obama is not a pet-owner. Does it show that an undivorced man with two children has the”responsibility” to really be President?
Did whoever put together this poll ever consider that non pet-owners are those who are not abandoning their pets offspring when they have puppies or kittens? Or that many may be younger voters currently in college in group living situations that disallow pets (dorms or apartments? Or that they may be more urban, where having a pet in a small apartment actually stresses the pet…especially if they voters are single and working-people. Or that they may be living in rentals where the lease insists on “no pets”, especially dogs? Or that they simply don’t have the resources to carry an extra “mouth to feed” in the household? Wouldn’t not having a pet actually BE the more responsible choice in such a case?
When T. Boone disses oil, I listen.
I know he is investing in wind, so has a vested interest.
But he know something.
O/T. Watching Rachel Maddow (what a sweet woman, I relly like her)host for KO. A commercial came on, T. Boone Pickens talking about renewable energy and reducing our dependence on oil. I about gagged. He probably paid for the spot himself. Good idea, reducing oil dependency, but T. Boone Pickens?
Or that he has higher priorities and knows he doesn’t have the time required to devote to the well-being of this pet?
Fork. The MSM is so fucking shallow.
Just commented on the same thing. You’re fast, Marion, you beat me to it.
And, I can tell you that there are people raising things in Upstate New York on a fairly large scale that have not been done in about one hundred fifty years. During the days of the Erie Canal..prior to the railroads and the rise of the Midwest…Upstate NY was the breadbasket of the nation, esp. between Buffalo and Syracuse(Buffalo’s first moniker was “The Flour City”). I saw an article from last year about a group of farmers in Tompkins County who had banded together to raise organic grains of all kinds and had built a flour and feed mill. They are also doing dried beans. This will diversify New York’s ag base, which in the Upstate area had gone highly dairy concentrated. But, hauling liquid milk costs a whole lot; grazing animals and growing grains for human consumption is a better deal.
Or that someone in the family may be allergic to animals? Our priest’s wife is so allergic to cats that she carries an Epi-Pen.
ya think?
Not bad. How about burnishing his image/strengthening his position for the water fights to come?
Does Argentina subsidize its farmers in any way? Aren’t subsidies anti-free-market? (No free market blow hards seem to be bothered by them.
How can you see Rachel Maddow’s pants? Did she stand up from behind the desk?
He’s also working on privatizing water. Here’s his quote in the WSJ from 7/00 about BushLegendary legendary oil trader T. Boone Pickens is more optimistic. “We should expect several military conflicts in the Middle East under President Bush, and while this may not be great for the economy it will be terrific for my energy holdings.” If Bush gets elected, Pickens plans on opening a new oil based hedge fund, and is forecasting 100% increase in the price of oil to $40. “I’m an Oil, George is an Oil man, and his VP DIck Cheney is an Oil man. I expect energy returns to significantly outperform equity markets over the next eight years” he said.”
Marion – T. Boone is all about making money in the energy bidness…he’s no dope; pretty soon there won’t be any oil to pump or sell, so he’s getting into another energy line. That is all.
When I first moved to Rome, I had no idea that NY was such a large food producer still. I went to the Great NY State Fair with my cousins in Syracuse most of the summers I was up there where I found out that NY is still something like the second largest producer of food in the country, it just gets consumed in state for the most part.
And Cornell as the agriculture Ivy if you will.
I found it interesting that the right-wing Diaz-Balart brothers are actually facing a single digit race for their Congressional seats for the first time in decades. Neither has cracked the critical 50% support level either.
Diaz-Balarts’ Facing Challenges
Makes one wonder what is happening in other “locked-in” Republican districts in Florida. The harsh economy, the changes in the Cuban-American demographic make-up, and changes in the Hispanic composition generally are making these districts far more competitive…but is the depressed housing-and-foreclosure conditions, the issues of off-shore drilling, water quality, etc. having an impact elsewhere? Wonder iff polling is even occurring in many of these other districts because it’s assumed they are solidly Republican.
on Rachel/KO, James Moore just said that McSame is smart about making reporters “earn” their spots on the ‘Straight-Talk Plane” (or whatever it is) because the McSame people “know the reporters are under pressure to show their “access” to JohhnyMac.
I call bullshit. Any reporter denied seating on McLame’s plane should write at least one column a week to the effect that “I’m still banned from McLame’s plane because I printed the truth” – and spend the rest of the time ignoring him altogether and write about Obama.
Freeze his sorry ass out of the news cycles…
He did go on to say that the “Straight Talk Express” would have to be renamed the “Suck-Up Express.” I think we should jump all over that name immediately!
Ileana Ros-Lehtinen, Super Mario and Hot Rod Lincoln Diaz-Balart are the Miami Terra Drum Thumpin’ Machine.
Yep..NY is huge. I think it’s number two or three in terms of bulk milk. And you are right — If you can think of a plant that gets eaten by anything or anybody, there is at least one high level person at Cornell who has specialized in it. I remember when I was doing economic development for NYSEG, I had to find someone who could tell me if there was a base of farmers in Upstate NY who were growing the right kind of potato for a company that wanted to do frozen potato products. When I finally got to the potato guy and asked him about frozen, he told me that even THAT question was not specific enough. “Are they going to do french fries or tater tots? It makes a huge difference in terms of what potatoes are best in terms of the amount of starch and moisture.” They’ve got a guy who specializes in setting up kosher and halal slaughterhouses. I had to call and find the dent corn specialist to see if the types grown in Upstate were any good for producing anhydrous citric acid. It’s amazing. If you want to produce a process food product of any sort, you can go with it to them either in ithaca or geneva and they will analyze it for you, come up with the bulk recipes for it, run it through their labs, put you in touch with producers who can manufacture it for you and so on. They are amazing.
I get to be Mr. moderate again. Oh boy. I am not sure that the current price increases means we are hitting a permanent wall on everything. With oil and minerals, we are at the end of one of those 20 to 30 year investment cycles. It just didn’t pay to invest in new capacity with prices so low. There is a shortage of everything needed to expand mineral and energy capacity -equipment, skilled labor and engineers, you name it wrt to expanding mines and big oil fields, there is a shortage. Companies are eager to expand but have to begin new projects and expansions in sequence rather than in parallel. The current water scarcity in CA is as much do to courts deciding to abide by environmental protection as the current drought. I guess agriculture is most worrying -recent bad weather is a big cause of that, but we don’t know if it will pass or not due to global warming.
But I think peak oil will be more gradual than what we see now.
That is not to say that FDL-style thought is not more or less correct on conservation, etc. My fear is that if we do not concentrate on home truths about conservation, and reform of actual beneficial and honest free trade in commodities, and national security benefits of good energy policy, we might lose an opportunity. As soon as the current crisis passes, people in the US will forget about it, and go back to the recent awful polciies, with help from the GOP and their corporate masters.
But, one interesting question, in the US, with all the energy subsidies and helps for big oil, why are there such shortages for expansion by big oil? Haven’t they been using most of the goodies to expand production these last 8 years, for the benefit of the US? (Ans: NO. I think less than 20% of their loot has gone to that. The rest has gone to financial shenanigans to increase their oligopoly power, reduce shareholder meddling, tighten oiligopolistic grip on refinery industry, and generally make piles of money in other ways)
I forgot to mention that, in my opinion, ethanol subsidies are an example of recent awful energy polcies that contribute to current agricultural commodity price increases.
That glacial soil, Toby, north to the lakes is a treasure which the nation will soon value, once again, so long as there is water enough.
That is one reason I find that part of the nation, your ‘neighborhood’ quite attractive.
Actually, I have been calling for and am still calling for a significant oil price pullback. Probably this year, if not, first half of next year.
And I think a lot of the current food shortage is a result of short term policy. But current weather disruptions are probably the leading edge of global warming, which shows up first not as warming, but as instability.
Oil companies haven’t been expanding that much, really. They’re taking money out, not putting it in.
I likewise /think/ that with ethanol subsidies off, and with a worldwide recession, food prices will subside. However, as with oil, I think that will form a new floor higher than the old one, and then start rising again.
Forgive me if the following have been posted at FDL before, but I thought these were interesting and useful economics pieces.
The GOP’s December Surprise
NEWS: Is the GOP cooking the books to avoid recession till after Election Day?
By James K. Galbraith
Mother Jones
July/August 2008 Issue
http://www.motherjones.com/new…..prise.html
——-
The end of neo-liberalism?
By Joseph E. Stiglitz
Daily News, Egypt
First Published: July 7, 2008
(Have to reload page thrice to get the text, not sure what the problem is)
The above are via Economists View
http://economistsview.typepad.com/
(You can read most of the Stiglitz piece at Economists View if you cannot load the Daily News Egypt page)
Economists view also has a nice rundown of the current McSame campaign fiscal policy farce, which is nicely titled ‘Continuous Flip-Flopping’
http://economistsview.typepad……-flip.html
The venerable “Muck Farms”. I had a compatriot at GE in Syracuse whose family had been one of the largest onion growers in the upstate area at one time. They use big diesel pumps to pump off the water in the swamps and plant in the rich peat, “muck” as it known. It is great for a lot of crops such as potatoes and onions. Really mean horseradish, too (he said from personal experience).
forgot to put in URL for Stiglitz piece in daily news.
http://dailystaregypt.com/arti…..leID=14905
The ‘old’ notion of ‘economies of scale’ has reached the end of its tether.
Perhaps the ideas of E. F. Schumacher will gain ‘ground’ again?
I got the Galbraith piece the other day, it is pretty illuminating, isn’t it? You know it is exactly what those low lifes are doing to, given that they always quietly revise the economic figures a couple of months after the fact and it invariably for the worse. I have absolutely no problem believing they are setting the next Administration up for a little March/April surprise!
btw, mojo is a superior mag & they have a great website, too.
Rapposadi? I see those onion and garlic trucks all the time. And yes, those soils up there north of Syracuse are quite something.
Oy…! Just reading the word “horseradish” makes my sinuses drain!
Like this?
thanks. I have not had time to read internet lately, but looks like you have not talked about the speculation angle on oil. Do you have any thoughts on that?
The direct speculation induced inventory story does not seem to be the culprit. Observable fossil fuel inventories are so small compared to flow consumption. And I haven’t seen the trader types who claim there is unobservable hording produce any data for it in the last few weeks.
ENRON style manipulation could work in markets with no inventories (they did it with electricity generation) but how could they do without controlling production, as they were able to do indirectly with power plant closures? And even so, how could speculators keep the price up for so long without increasing inventories? There are rumors of unobservable oligopolistically manipulated swaps in the unregulated portion of the market that might do something.
Do you have any thoughts? My current favorite tin foil hat theory is that the Gulf Oil producers would like to see the Bush-Cheney GOP gone. I guess we will see whether that is crazy or not after the election.
Just saw Malia Obama (oldest daughter) on Abrams saying she is looking forward to redecorating her bedromm and getting a dog when they move into the White House.
So.
I have never given much credence to allegations of macroeconomics data manipulation by federal agencies, since so many people pore over them. I thought any funny business would be quickly exposed in an undeniable and humiliating way for whoever attempted such nonsense. Part of my job is to pore over them.
But Galbraith is a reputable economist and rigorous math and stat person, so I found the article ivery interesting.
May the Heavens forfend such a heinous thing coming to pass!
If we hadn’t seen Katrina with our own lying eyes, we might have more confidence in the ability of our government to respond appropriately.
McCain, I guess, would deficit spend to get us food/water and use the savings thereby generated to pay down the deficit, thus solving the problem… (have I got that right?)/s
Countries with enlightened energy policies would have used that biomass for alternative fuels. If Jimmy Carter had won a second term, we would have been that country, and the White House would be producing more energy than it consumed. (What ever happened to those solar panels, anyway?)
We should leave the 10 year olds out of this.
Oh…yeah, too frikin late with Dean, Brazile, McCain and Tweety all mixin’ in.
Took ‘em to the landfill and paid hazardous waste fees to get rid of ‘em.
What else.
Declaring that he will ‘win’ two wars (count ‘em: two!) on schedule within four years, that are largely due to civil insurgencies, is not the most reliable spending reduction plan.
McCain hasn’t had time yet to mention what he considers to be winning. I am not sure whether that is a feature or a bug in his plan.
I’m not sure on the speculation front. There is some hoarding (for example, watch for tankers being held at see. Iran had, about a month ago, 20 large ones). And just in general it seems to me that so much money is flooding into commodities that I have a hard time believing that it isn’t having an effect. One of my readers is a quant who works directly in the energy field and he agrees, but of course, there are plenty who disagree.
So, the evidence is skimpy — but cash flows say to me that there should be some effect…
I come down on “it does matter and I just don’t know enough to pinpoint the numbers to prove it”, but I confess I sure can’t prove it and could be full of it.
In general, however, I favor slowing down speculation anyway, so I see no real downside in throwing some cold water on the futures and options markets anyway.
Feature as he can define it as he sees fit.
And if Obama continues flip-flop and fly it may very well work.
ian 2 flights upstairs with a new post
More than a few of the economics blogs I visit say that speculation is playing a noticeable role. No agreement on actual percentage impacts tho.
I think most of the manipulation is build in, like changes in the definition of unemployed, or (now removed) hedonics, and so forth.
I did, back in like 2003, construct my own seasonal adjustments for labor force figures by using a very simple year on year weighted average system, adjusted for population changes.
And I found that that very simple system actually wound up finding more people employed that the BLS system.
I’ve never really looked at the population model, however, which is where people make their claims these days. But I tend to assume that most of the manipulations are baked in, not done adhoc.
Hi Ian- always enjoy your posts, and especially compliment you on the way you engage with commenters on the threads.
I have a niggle tho- imo “global climate change” is a better framing/ phrase than “global warming”.
‘true ‘nough.
I would have to agree since the models actually predict greater climate instability and more severe climatic events, including cold spells. There is a global average rise in temperature, but some regions may become, at least seasonally, colder than at present.
I tend to agree with Ian Welsh on macro manipulation. The BLS population adjustment model is iffy, my honstly very humble opinion. So much action is regional in employment turning points, and the census bureau’s regional population estimates are not strong enough to support very reliable regional analysis.
If Galbraith is correct, and they are now trying their hand at some ad hoc monkey business, I think they will be called on it quite soon. They were called on it when they tried to massage social security forecast assumptions to give the impression of crisis. A combination of very much stronger than expected improvement in social security books, and inability or disintrest of press in reporting it meant public was not well informed about the deviltry.
Excellant! Noted, framed and henceforth ‘the’ words.
Hat tip!!!
;~D
My guess? Ten years from now, landfills are going to very valuable properties.
I’m going to start buying them up now – I’ll be the J. Paul Getty of landfills!!!!1!
Or maybe I should say I’ll be the T. Boon Pickens of landfills…
I always enjoy the line, “let them eat cake,” especially as no one really knows which contemporary American liberal invented that line. Many want to attribute it to Queen Marie Antoinette leading up to the French revolution. But the actual quote many attempt to leverage for political posture is, ” Qu’ils mangent de la brioche,” which means, “let them eat brioche.” If you have ever traveled to France and indulged in this delicacy, you know brioche is an egg based bread that is rich in calories and high in cholesterol. The quote in French comes from Rousseau’s “Confessions” that was written about the time Marie Antoinette was a pre-teenager, and some attribute it to a previous French queen 100 years before the French Revolution. Some historians even believe Rousseau just made the whole thing up.
But what did happen during Queen Marie’s time was to force selling bread at the same price regardless of type or quality. During the revolution, the edict in effect incented bakers to stop making quality bread and to make only cheap bread since “price controls” were put in place. The result? As any rational person can predict, a lot of people went hungry as expensive bread was too cheap to produce and cheap bread was too expensive to buy.
So today, when people shout, “let them eat cake,” what they really mean is “let them pay living wages,” or “let them provide health insurance,” and “let them provide gasoline!” Perhaps Marie was just a liberal who wanted to do good with other peoples’ bread.
Here is a guy saying there is an impact, and offering a mechanism.
Naked Capitalism has a couple of posts on the matter, saying that speculation is a problem, here and here.
The comments on Naked Capitalism are pretty thoughtful.
thanks for those links!
Seems to me the following passages are key
” When it comes time for the speculators to roll the contracts forward, they have to sell their existing contracts either to someone who is willing to take delivery, or to a producer who sold the oil forward and can now clear that liability without actually producing the stuff. Given relatively high spot demand and tight supply, these rolling transactions have worked fine to this point, without driving prices lower. “
–from first Naked Capitalism link
” [T]he futures market has grown to become not only a market that allows producers and refiners to hedge their risks and speculators to take positions, but is also at the heart of the current oil-pricing regime. Thus, instead of using dated Brent as the basis of pricing crude exports to Europe, several major oil-producing countries such as Saudi Arabia, Kuwait and Iran rely on the IPE Brent Weighted Average (BWAVE).11…
[11] The BWAVE is the weighted average of all futures price quotations that arise for a given contract of the futures exchange (IPE) during a trading day. The weights are the shares of the relevant volume of transactions on that day. Specifically, this change places the futures market, which is a market for financial contracts, at the heart of the current pricing system.
JD concludes:
As you can see, Krugman and Birger are profoundly confused about the way the international oil markets actually function. Futures aren’t a paper bet on the direction of prices determined by some independent process. Futures themselves *determine* the price of most physical oil traded today. The futures price (+ or – the differential) literally *is* the price of oil.
“
–from second Naked Capitalism link
—-
In this story, seems to me, producing countries buying open long futures positions to tie futures prices into pricing system. I’m not an futures market expert, and will follow discussions in those links.
From link in second Naked Capitalism article:
” Biofuels have forced global food prices up by 75% – far more than previously estimated – according to a confidential World Bank report obtained by the Guardian. “
Another quote from Guardian article:
‘ “Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate,” says the report. The basket of food prices examined in the study rose by 140% between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15%, while biofuels have been responsible for a 75% jump over that period.
It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher. ‘
link to Guardian article is
http://www.guardian.co.uk/envi…..ableenergy
I assume the story is on the level. Too bad the report is “secret”.
Thanks for those links, masaccio, definitely appreciated.
D
That’s very interesting, and makes sense. Thank you. Read through that and I may even understand it enough to write an article on it.
My instincts have been saying it has to be having an effect, but I didn’t know enough about how it works to know the mechanical linkages.
My only comments on the links Masaccio presented are that
1) it is not a conspiracy theory
2) the mechanism is very unlikely to work unless the prices are rising due to fundamentals anyway -this is the kind of process that does not cause commodity prices swings, but makes them larger
3) the argument that it can’t work because ‘for every seller there is a buyer’ confuses accounting identities with how short run equilibira are formed.
4) seems like some participation by oil producers is needed. Some one needs to be buying long positions and not taking delivery. Or there is very funny business going on in the unregulated, and essentially unobservable, portion of the futures market (which is large),
5) I think Keynes dictum is relevant, concering the required actions of short sellers to keep a bubble down: “The market can remain irrational longer than you can stay solvent.”
Still, hard to estimate how much premium the futures market would add to the fundamental supply deamdn imbalance. A reputable congresspeople (forget his name -something like Van Patten) are saying upt to 25% (though he was not clear whether he meant price level or of recent price increases). If he meant price level, could it be that much? Oil should really be $3 and futures speculation makes it $4?