Apr 28, 2008
Enormous price increases for raw materials – including oil, metals and food staples – have been blamed on growing consumption by people in India and China.
What nonsense! The price of coffee soared 22% in the first two months of the year on the New York Board of Trade, but people in China and India don’t drink coffee! Anyway consumption of coffee increased less than 2% last year.
We’re also told that demand for bio-fuels is driving up prices of many agricultural products. But even this development doesn’t explain the current considerable price increases of corn, wheat, sugar and palm oil. Speculation does.
Growing masses of capital seeking rapid profit are being bet on raw material price increases. Speculators sign a contract to buy a commodity at a given price and then sign another contract agreeing to sell it at a higher price and pocket the difference. The person who agrees to buy does the same thing. And so on. All these transactions are done on credit and the buyers and sellers are rapidly reimbursed, always at a higher price. The crop will be resold many times before it’s ever harvested and finally sold in the real world.
Those who have money no longer know what to do with it, and it’s been a long time since they chose to invest much in the production of useful goods. That’s why they speculated in real estate, causing the housing crisis.
The Central Banks put hundreds of billions of dollars at the disposal of banks to stem the financial crisis begun in real estate, but that money is then thrown immediately into more speculation. Today the big banks, insurance companies and investment funds are throwing themselves into another form of speculation – more profitable for the moment– in raw materials.
This dramatic and considerable movement of capital explains the brutal increases we see today. A million contracts are made on the Chicago Board of Trade every day, up 20% since the beginning of the year. While production is slowing, while the real exchange of goods is contracting, these purchases on paper keep multiplying, driving up prices.
The price of rice, for example, soared 31% in only one day, March 27. In six months, the price of rice increased 80%. According to the U.N.’s Food and Agricultural Organization, the poor countries are going to have to pay 56% more for their cereal bill in 2008, following an increase of 37% in 2007. Tens of millions of people can no longer eat.
But nothing is done to prevent those who own capital from causing harm. It would be necessary to restrain the whole capitalist class and its entire system based on sacrosanct profit. And governments in the capitalist countries aren’t going to do that.