Twofish's Blog

April 19, 2008

Subprime mortgages and food prices

Filed under: china, finance, wall street — twofish @ 12:31 am

In economics everything is connected with everything else, and the difficulty is to figure out the connections.

Right now I’m trying to figure out

subprime mortgage collapse -> **** -> rising global food prices

One problem here is that I’m not a farmer so I know nothing about the economics of agriculture.  In particular, I don’t know how a farmer interacts with the credit markets.

Michael Pettis has argued that the inflation in China is due to monetary policy, but the one thing that makes me suspect that there is much more to the story is that it isn’t obvious why RMB exchange rates should increase food prices in Haiti.

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4 Comments »

  1. I think the food prices are more related to the quest for al;ternative energy. This drove up the price of corn, and with corn, so goes the food chain. (Oil prices add cost to most everything as it costs more to ship.) Sub Prime just adds insult to injury. It’s my paycheck telling me “I won’t buy you as much, and you’re an idiot!”
    Joe

    Comment by joetaxpayerblog — April 19, 2008 @ 1:53 am

  2. Tao Dong of CSFB has several good entries about the current inflation. It’s in Chinese, though. http://blog.sina.com.cn/s/blog_467a66b001008lz1.html

    Comment by caoshiren — April 19, 2008 @ 2:26 am

  3. Let’s embrace the classic economics and pretend that inflation is all about numbers not fundamentals, and pretend that the current inflation is not worthy of consideration in the long-term sense.

    Comment by Non-Keynesism — April 19, 2008 @ 8:18 am

  4. I have to agree with Joe. When one third of this year’s corn crop in US will be used for ethanol, it leaves that much less for animal feed and human consumption. Recent export control in Argentina and Indonesia is not helping either. Oh, yeah plus Saudis finally throwing in the towel on their ‘let’s make our desert bloom with wheat production’ idea. As with rest of the commodities story, what we have here is a supply problem. It’s not likely we can cut back drastically on the demand side.

    Currently China is still largely self-sufficient in food supply, so I doubt increasing RMB appreciation (a policy that I strongly support) will bring down the food prices in China. Michael Pettis produce some interesting read but he is too much of an academic despite his Bear Stern stint. Listen to Jim Rogers, there is a man who made real money in the last commodities bull run in the 70’s and have been spot on since 1998 on predicting the current commodities bull market.

    Brazil is probably only major food producing country in the world that is in the position to expand arable land (Burn, Amazon, Burn!)AND has enough water to go around right now.

    If what we are going thru right now is anything like what happened back in the 70’s, we have a long way to go before food prices peak.

    Comment by Cao Meng De — April 20, 2008 @ 4:04 am


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