G-20 Governments Taking (The Wrong) Actions to Curb Food Inflation

There has been quite a media storm surrounding rising food prices lately. It’s become so apparent that even mainstream media is now discussing the concerns shared by millions of Americans and citizens of other countries regarding what seems to be out of control price inflation in essential commodities like wheat, rice, and cotton.

From the standpoint of governments, the threat is that the rising price of food may potentially lead to catastrophic economic consequences the world over. When the general population needs to spend 25% to 100% more on food at grocery stores, that means less money is spent on iPhones, HD TV’s, GM cars and other consumer goods. This global shift in capital from non-essential discretionary spending to basic survival goods could wreck havoc on an already frail economy and have dire consequences for the many corporations who depend on mindless spending to sustain shareholder profits.

Not only is there a real and present threat to the stability of the economic system, but rising food prices will put pressure on the social and political systems around the world, as we have recently witnessed in isolated incidents in places like Tunisia, Algeria and Mozambique.

As is typically the case, the leading governments of the world have waited until the threat is at its precipice before taking action. And, just as with the financial crisis, economic ministers of the G-20 nations, either voluntarily or due to ignorance, have proposed drastic global action to stem the rise in prices by directing regulatory control at the symptoms of the disease, as opposed to the disease itself:

Agriculture ministers gathered in Berlin said they were “concerned that excessive price volatility and speculation” in international markets for agricultural commodities may threaten the security of the world’s food supply.

The ministers from 48 countries called on the G-20 nations to “fight the abuse and manipulation of prices” in agricultural markets, according to a joint statement handed out at a press conference in the German capital today.

France presides over the Group of 20 this year, and the country’s agriculture minister, Bruno Le Maire, has said world agricultural markets require more regulation. German farm minister Ilse Aigner, who hosted the meeting, said today that price and position limits should be among measures considered.

“All the member countries in the G-20 have to oppose this price volatility,” Le Maire said in a press conference. “With this text we already have a good starting point.”
Source: Bloomberg

The primary proposal from the G-20 suggests that regulatory agencies in the developing world must take actions via the financial markets, that is, the commodity exchanges on which food, metals and energy are traded. If we understand this correctly, the French et. al. suggest that we create stability through price controls and restrictions on the trade of food – essentially centralized planning for the global agricultural markets. Blame the speculators seems to be the soup du jour, once again, as it was before the crash in 2008.

While one cannot argue that speculation is partly to blame for the rise in commodity prices (and stock markets), it is only a symptom of the underlying, fundamental issue.

Mainstream media and governments would have us believe that the speculators are day traders initiating buy/sell orders on their laptops in their local coffee shops. While they certainly play a role in the volatility of prices, they are likely not responsible for the mega moves we’ve seen in commodity prices as of late.

The real problem, the disease that politicians and world leaders refuse to talk about, are the governments and central banks that they purport to control. We’re not talking about just the Federal Reserve, but the European and Asian central banks as well.

In case you haven’t noticed, the central banks around the world are printing (or digitally conjecturing) their currencies ad infinitum. This money ends up in the hands of, either governments, or banking conglomerates. While banks are continuing to lend money on a limited basis, most of the cash they have is supposedly sitting in reserves. The reality, however, is that all of the excess magic money has found its way into financial markets (via organizations like the Plunge Protection Team), resulting in price inflation that runs the gamut of financial assets, including equities, food, oil, and precious metals.

So yes, there is speculation in financial markets that is leading to yet another commodity bubble, one that threatens catastrophic consequences on a number of different levels. The solution, however, is not to target the speculators, but rather, to target the out of control monetary policies of the world’s central banks and the transfer of all that excess liquidity to the shadow banking system.

Price controls and more regulation in the “free market” are not the answer. We need to control the people who control the money, or get rid of them altogether in their current form.