As we know, massive popular unrest has broken out against autocratic governments in North Africa and the Arab world. Egypt is the biggest story. But to varying degrees, the people have taken to the streets in Algeria, Jordan, Libya, Morocco, and Yemen.
But in addition to the apparent revolt against repressive governments, all the experts say the other main cause of unrest is record food prices. For example, former Bush advisor Dan Senor notes that Egypt is the world’s largest wheat importer. Because of skyrocketing prices, Egyptian inflation is now over 10 percent.
So I have to ask this tough question: Is Ben Bernanke’s ultra-easy QE2 money pump-priming partially to blame?
Commodities are priced in dollars, and the Fed has been overproducing dollars for more than two years. Consequently, emerging markets throughout the world — and the food sector in particular — are suffering from rising inflation.
The CRB food index is up an incredible 36 percent over the past year, including 8 percent year-to-date. Raw materials are up 23 percent over the past year. Inflation breakouts have occurred in China, various Asian Tigers, India, Brazil, and other Latin countries. Even Britain and Germany are registering higher inflation readings.
But food riots in the North Africa/Middle East area are bumping smack into long-time resentment over autocratic government. If food is in fact the trigger for what may be a revolution in Egypt, then U.S. monetary policy has to shoulder at least some of the blame.
Ultimately, as Senor argues, a region-wide revolt against the autocrats may be healthy if it leads to greater democratization and liberalization. But the protests may spread to Saudi Arabia and Iran, with huge implications for global energy markets. And that’s where the hoped-for transition to political liberalization — with a potential backlash from radical Muslim groups — makes the story even more unpredictable.
Sure...record population growth in emerging economies has NOTHING to do with price increases. In fact CNN recently reported Muslim population growth is nearly twice that of other cultures. For someone so keen on focusing on the "free market" supply and demand measures, I'm surprised you seem to exclude them from the equation here.
And for the record, if you listened to just one of the thousands of protestors, you would realize they are chanting for "democracy" not "lower food prices".
Reply to this commentLinkReport AbuseBerneke is responsible for the well being of the American economy, not Egypt’s.
Reply to this commentLinkReport AbuseLet's make our problems independent of their problems. Energy and food is not an issue assuming the right people return to office. There's a wide gap between between pre ww2 isolationism and our current global strategy.
Reply to this commentLinkReport AbuseI often see Kudlow as sort of a flake over the past couple of years, but he seems to be spot on in his commentary.
@ zstreb: The U.S. Dollar is the reserve on this planet. As already state, if you read the article, commodities are priced in U.S. Dollar. More Dollars printed creates higher inflation. Higher inflation pushes food costs higher. Not very hard to understand. Whatever policies Berneke puts into motion effects the world at large.
@ jensenalphamale: Muslim population growth does play a factor, but not big enough to start a revolution. Under normal free-market circumstances, increasing populations would increase the price of food due to the increasing demand. Then that demand would be reduced because food produces will instinctively increase supply in order to take advantage of higher prices. Prices would eventually fall due to the increase or excess in the food supply. Inflation under cuts all this due to the fact that there is more money in the system, and that money looses buying power. Our Dollar has lost buying power over the past couple of years. When this happens, in nations like Egypt, the exchange rate from U.S. Dollars to Egyptian pounds increases. As of right now (1/28/11) 1 US Dollar costs 5.88243 Egyptian Pounds. 1 Egyptian Pound is equal to 17 cents. I would riot to over this. Thank you Keynesian economics for continuing to ruin the world.
Reply to this commentLinkReport AbuseEthanol causes more pollution, damages car engines, and is less efficient gasoline. To make gasoline you need oil. You cannot eat oil. To make ethanol you need corn. Since the politicians in Washington DC decided to force ethanol on the America, food prices have been steadily going up. I do not claim that making ethanol is the cause the ever increasing number of food riots around the world, but I think the rioters would rather have us send them the corn then us it in our gas tanks.
Reply to this commentLinkReport AbuseThe big problem is the population explosion in the middle east. I was looking at projected 2050 populations for the nations of the world, and I was utterly shocked by the massive growth projected for Saudi Arabia. I don't recall looking specifically at Egypt but I'm sure it is following a similar trajectory.
Tens of millions of people on pieces of land suitable to support only a handful of nomads.
A guaranteed recipe for something along the lines of a World War 3.
Reply to this commentLinkReport AbuseAs a very small farmer, I predict that food inflation is going to get much worse in the next two years.
Why?
Because of the incredibly stupid "Food Safety Act" that was pushed through as part of the Lame Duck Congress. The reporting requirements that the bureaucrats ultimately demand will kill farm productivity.
Does food production really need to be under the guidance of Homeland Security? Really?
It should be repealed along with the Obamacare legislation.
Reply to this commentLinkReport Abuse5 years ago when I drove across the Southern US to Florida, there were cotton fields, today it is all corn for making ethanol. While some folks complain about the wasted food converting corn to beef, the real problem is the ethanol political mafia.
Reply to this commentLinkReport AbuseEgypt's TFR (total Fertility Rate) has been falling for decades. In 1970 it stood around 6 children per female. Today it is near 2.5 per female. So, this revolution has nothing to do with "overcrowding", as there are far less children today than in 1980.
And yes, food prices have much to do with this situation. Inflation always hits poorer nations first. And since the US is one of the leading wheat producers, and the dollar is falling. Nations like Egypt are getting hammered. Poor families must either spend more money to feed themselves or go without. And when there is nothing left to lose you become desperate.
This will not end well. Within a few years Egypt, Lebanon, and perhaps Jordan could be under Iran's thumb. And Bernecke's policies are partly responsible
Reply to this commentLinkReport AbuseFinally Kudlow is getting it!!!!! What does Bernanke may be thinking about this mess????? Egypt, Tunsia, Yemen..... Bernanke will be forced to tight sooner than you think.......... his ASS too !!! :)
Reply to this commentLinkReport Abuse@ theYiffer: You are correct that is not very hard to understand. What I should have said is that Americans are responsible for the well being of Americans, and Egyptians are responsible for that of Egyptians; and of course Berneki is an American. You may have noticed that we have our own unemployment problem. If Egypt concentrated on its own food production, then couldn’t Egyptians buy more food without having to convert their currency to dollars?
I believe that inflation is to a large degree a function of population growth, unlike animals we humans have been able to increase the carrying capacity of our environment. But how long can that continue? Particularly if most of the production is concentrated in a few select areas.
Egypt (the canal) is of course important to our stability and I hope that we continue to be an important to world stability. But we must remain strong to maintain our dominant role. What does it do to our sovereignty, when all our actions are determined by the shortcomings of other governments and peoples?
Reply to this commentLinkReport AbuseI was inclined to think Kudlow had some real insight, until this:
"...may be healthy if it leads to greater democratization and liberalization."
Oops. Do we really want democracy in places like this? We seem to have a tough enough time with it ourselves, with people who, when given a choice between abstract concepts like private property rights and "free stuff" choose the latter.
If the Egyptian people were given a choice, something tells me the regime they elect will resemble Iran's. How's that working out for us?
Reply to this commentLinkReport AbuseFood prices, yes, but due to Ethanol, not QE2. QE2 may eventually be a cause, but the inflation from it really hasn't started to hurt yet.
US Ethanol mandates, on the other hand, have been having a huge impact on food prices in the third world for years.
Reply to this commentLinkReport AbuseGlobalization is to blame. The "globocrats" as the CFR calls the ruling elite are looking for their assets to remain high(main reason for QEx), except by definition globalization is a deflationary concept(cheap labor arbitrage). Can't have both. All the MNC move wealth around the planet so quickly that emerging economies can't catch up and then discontent and violent malaise rear their ugly head and people like Larry are baffled as to why?!
History has documented this same playbook time and time again and the outcome is the same. Localized violence leaking into a world war. Way to go globalists. The new BRIC = MENA(Middle East North Africa) is already going down the tubes.
International banksters have been the bane of mankind for thousands of years -- but wait, it's different this time.
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