Food Riots: Is Bernanke Partially to Blame?

CNBC ^ | January 28,2011 | Larry Kudlow

[Hojczyk]

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.

[palmer]

Misdirected capital forces increases in resources and commodities which leads to food prices increases along with a cycle of speculation (demand increases due solely to anticipation of more demand). Then at some point it all unravels, the prices overshoot and then drop. At the same time the unwind kicks in and dollars quickly rise in demand which forces further price increases on particular commodities (e.g. wheat) with large U.S. sources. A slower effect of the carry trade and unwind is the unavailability of capital for ordinary uses such as increasing food production by investing in equipment or even borrowing for seasonal planting.

[Toddsterpatriot]

Misdirected capital forces increases in resources and commodities which leads to food prices increases along with a cycle of speculation

But that's not a carry trade.

A slower effect of the carry trade and unwind is the unavailability of capital for ordinary uses such as increasing food production by investing in equipment or even borrowing for seasonal planting.

So dollar carry trades mean no money is available to finance agricultural production?

You should probably find the real definition of carry trade and try again.

[palmer]

It is the result of carry trade. The money that flows overseas for higher rate returns is loaned out there for short term speculation. The carry trade itself is more narrowly defined as borrowing low, loaning high, by going overseas. But I am looking at the direct effects, not just the textbook definition.

[Texas resident]

Didn’t the govt try to pass the food safety act recently?

That should help us.

[Toddsterpatriot]

The money that flows overseas for higher rate returns is loaned out there for short term speculation.

You could make the case that easy money leads to "excess speculation" or it leads to inflation fears that cause prices to rise. You'd have a harder time making the case that cheap money here flows over there to speculate in dollar denominated commodities. World wide capital is flowing into the US, not out of the US, net-net.

The carry trade itself is more narrowly defined as borrowing low, loaning high, by going overseas.

Or borrowing low, loaning high, staying here. More importantly, you're buying higher yield and wheat futures have no yield.

But I am looking at the direct effects, not just the textbook definition.

That's good, because your definition was wrong.