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Will a Food Bubble Be the Next Phase of Financial Chaos?

Is a “food bubble” the next financial crisis on the horizon?  Some of the same sinister forces that brought down stocks and housing seem to be aligning to push the price of food products into the danger zone for nations and consumers around the globe.

Food prices soared 21% in Egypt and 17% in India last year.  The UK has experienced a 22% increase in the past three years.  Wheat and corn prices have gone up 57% over the past six months, with sugar rising 55% and rice not far behind at 45%.  Food riots in Mozambique recently killed twelve people.  Every nation will be affected by steep increases in these fundamental dietary necessities of the world’s food supply.

It seems that the financial bubbles are not really bursting at all—they’re just getting pushed farther up the snake.  When the dot-com and tech bubble “collapsed” it shifted the scared money into the broader market.  When that stagnated and suffered setbacks, the dollars were transferred to the “safe” and tangible real estate sector, because “housing prices never go down.”  When housing blew up, the only markets left to exploit were precious metals and commodities.  Of course, a “gold bubble” is “impossible”…right?  It’s hard to say if it will always be a great investment, but it will always be a good defensive strategy if you’re worried about the bottom falling out, because it will always be worth something.

The danger for the world’s food supply is that it is now the premier item on the craps tables of the investment casinos, just as housing and mortgage instruments were a few years ago.  Nothing is sacred.  The problem is that when you get the billionaires deeply involved, they don’t simply invest their dollars; their huge fortunes drive the markets up and their influence stacks the deck by controlling political policy.

Complicating matters, we find ourselves in a world that is coming of age.  Nation after nation is crawling out of the sea of squalor, standing up on its hind legs, and urbanizing.  This drives industrialization, which steals millions of acres of agricultural land every year.  Estimates indicate that 50 to 100 million acres are lost to industrialization every year worldwide.  Many emerging nations are not yet capable of self-sufficiency in basic food grains, and they don’t properly manage soil life and fertility.

To make matters worse, nearly as many acres are lost to environmental degradation.  Floods decimated the harvest in Pakistan this year, and tons of Russia’s crops were destroyed by a heat wave.  Additionally, tons of agricultural products are being used to produce biofuels, which means we are foolishly burning a greater percentage of our dwindling food supply.  Add to that cool Pacific waters, which bode poorly for a bumper crop around the world in the next two years.

Whether it’s speculators, politicians, or bad weather that is driving the food problem, they all lead to confusion, a lack of confidence, and panic—all of which make any bad financial situation even worse.  Lessons and fear from the global economic downturn that won’t seem to go away all project more gloom into the outlook for food, oil, and other commodities.  Everything is interconnected.  Stocks, mortgages, food, as well as the global dialogue on climate, war, and nuclear weapons all seem to merge into one all-encompassing tale these days.

The only question is whether or not we can keep level heads, keep rioters off the streets, and find real solutions to our domestic situation.  As always, the best advice would seem to be to hope for the best, but prepare for the worst.

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