Twenty years ago—in 1991—bankers at Goldman Sachs invented a new kind of investment product (i.e., a derivative) that tracked 24 raw materials, including food produce, as part of a single mathematical formula, and christened it the “Goldman Sachs Commodity Index” (or GSCI). This was hailed as a very creative and innovative financial investment product.
Eight years after—in 1999—the Commodities Futures Trading Commission deregulated futures markets, to allow bankers to take as large a position in grains as they pleased… previously forbidden to all except those who were actually involved in food production since the Great Depression.
The catch is this: Derivatives do not require physical delivery of the commodity(ies) involved. Warehousing costs do not exist. Spoilage is a non-issue.
The result: An artificial UPWARD PULL has been created on the price(s) of grain (and other commodities) futures. Imaginarywheat now dominates the price of real wheat. Speculators now outnumber producers and buyers FOUR-TO-ONE!
Wonder not, and expect, food prices to continue rising – fed by Bernanke’s Quantitative Easing.
Speculation—not inflation—is the culprit.
The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.