Friday, 28 January 2011


The global currency war widely being discussed a couple of months ago might seem like mere scrape compared to the major economic global war which may be currently (Unrest) brewing. Civil unrest has begun to surface in a number of "minor" economic powers. These disturbances could easily bubble over to bigger and larger economies if their citizens find basic daily life a struggle due to food and energy prices moving to unaffordable peaks. Compared to the 15%-20% of average disposable income that goes towards food and energy costs in developed nations, more than 50% of income is devoted to food and energy in many emerging nations today. Most notably in places such as China and India.

Low interest rates engineered by the developed world's central banks have, as we all now know, re-inflated asset and commodity prices, which supports the champagne lifestyles of the very wealthy owners of those assets, makes life uncomfortably expensive for the middle income earners, and unaffordable to the rest. With the "rest" comprising the majority in emerging nations.

Wealth and income disparity continues to widen to unsustainable levels post the financial crisis. The owners of capital have got off painlessly, whilst the rest are being forced to pay for mistakes largely not of their own doing.

If the fire of civil unrest spreads, the triple fork of Bernanke, Trichet and King will be remembered in the history books mostly for stoking it vigorously.

High oil prices not only make our energy bills higher but also raise food prices. This is mainly because high oil prices cause greater substitution towards alternative fuels. One of those is bio-fuels, which uses up valuable agricultural land, thereby reducing its availability to grow food and reducing its supply . This perceived supply bottleneck is the primary mechanism which has caused the world's speculators to bet on higher grain prices.

OPEC neither wants substitution away from oil, nor to raise the price for a commodity which they produce little of (food). They want least, civil unrest, which seems to be affecting the poorer nations, including prominently many of their Muslim neighbours, to spread.

Just as China cannot afford to bet its future on an old and overpriced fossil fuel, of which they produce very little, neither in the fuller analysis can OPEC. Indeed, the spare capacity in oil production of the most powerful OPEC country, Saudi Arabia, may be the most powerful counter measure available to blunt the unpleasant war that Bernanke and his misguided allies are waging against the poor. We may have to pray, this time in the direction of Mecca, that they use it wisely.

No comments:

Post a Comment