The Egyptian Tinderbox: How Banks And Investors Are Starving The Third World
Web Of Debt
February 2nd, 2011
“What for a poor man is a crust, for a rich man is a securitized asset class.”
–Futures trader Ann Berg, quoted in the UK Guardian
Underlying the sudden, volatile uprising in Egypt and Tunisia is a growing global crisis sparked by soaring food prices and unemployment. The Associated Press reports that roughly 40 percent of Egyptians struggle along at the World Bank-set poverty level of under $2 per day. Analysts estimate that food price inflation in Egypt is currently at an unsustainable 17 percent yearly. In poorer countries, as much as 60 to 80 percent of people’s incomes go for food, compared to just 10 to 20 percent in industrial countries. An increase of a dollar or so in the cost of a gallon of milk or a loaf of bread for Americans can mean starvation for people in Egypt and other poor countries.
Follow the Money
The cause of the recent jump in global food prices remains a matter of debate. Some analysts blame the Federal Reserve’s “quantitative easing” program (increasing the money supply with credit created with accounting entries), which they warn is sparking hyperinflation. Too much money chasing too few goods is the classic explanation for rising prices.
The problem with that theory is that the global money supply has actually shrunk since 2006, when food prices began their dramatic rise. Virtually all money today is created on the books of banks as “credit” or “debt,” and overall lending has shrunk. This has occurred in an accelerating process of deleveraging (paying down or writing off loans and not making new ones), as the subprime housing market has collapsed and bank capital requirements have been raised. Although it seems counterintuitive, the more debt there is, the more money there is in the system. As debt shrinks, the money supply shrinks in tandem.
That is why government debt today is not actually the bugaboo it is being made out to be by the deficit terrorists. The flipside of debt is credit, and businesses run on it. When credit collapses, trade collapses. When private debt shrinks, public debt must therefore step in to replace it. The “good” credit or debt is the kind used for building infrastructure and other productive capacity, increasing the Gross Domestic Product and wages; and this is the kind governments are in a position to employ. The parasitic forms of credit or debt are the gamblers’ money-making-money schemes, which add nothing to GDP. more
Food prices triggering global unrest: UN
ROME — United Nations food agencies on Friday warned that record-high prices for basic commodities are helping generate unrest around the world and contributed to the ousting of the Tunisian president last month.
"Not only is there a risk, but there have already been riots in some parts of the world because of rising prices," Jacques Diouf, head of the UN's Rome-based Food and Agriculture Organisation (FAO), told reporters.
"Some governments have found themselves in difficult situations and there is even one that has fallen," he said -- a reference to the toppling of Tunisia's veteran ruler Zine El Abidine Ben Ali in a popular revolt on January 14.
The FAO on Thursday said food prices have reached their highest level since the UN agency began measuring them in 1990.
The FAO's index of monthly variations for a variety of staples rose 3.4 percent from December 2010 to reach 231 points.
The World Food Programme, another UN agency, said: "The events unfolding across the Middle East these past few weeks serve as a warning to us all about the important role that food security plays in calming public anger."
"Across the region, we have seen civil protests driven by a complex array of different factors but all sharing one thing in common -- growing anxiety about rising food prices and concern about access to food," it said in a statement.
Prices add "stress to the carefully calibrated systems in place to bring enough food into countries to feed hungry populations, and to provide the subsidies that ensure it is sold at prices that are accessible to the poor."
France, which has promised to stamp out food price volatility as the current head of the G20 group of leading world economies, warned of "hunger riots". more