Thursday, September 6, 2012

Global Food Shortage Propaganda and a Prediction of a Wall Street Trading Disaster

Every week, it seems, there is a new analysis or report calling for a global food shortage in the near future. These reports keep coming even though any serious analysis would reveal no basis for such a prediction.

The excuse is the U.S. corn crop, which may come in one third smaller than average because of extreme weather in about 15 states. But only a small fraction of this corn is meant to feed people in the first place. Besides, globally, larger crop failures have occurred every year in at least the last six. Not all analysts can grasp this disconnect because of the inherent difficulty of seeing things in proportion.

Some of the food shortage predictions are made out of habit and are merely meant to alarm. I have some sympathy for the alarmists, because I realize as well as anyone that global climate change will eventually bring about one food crisis after another. But it is not happening this time.

Alarmism and ignorance, though, can explain only a small fraction of the global food shortage reports. In general, as I come upon them, these reports carry the signature of something more sinister: a Wall Street trading strategy that uses the perception of a shortage to create an actual shortage, in order to profit from the resulting market turmoil. Traders attempted this a few years ago with a hint of success, and I fear they might be desperate enough to try it again now, even though the fundamentals of food distribution will not support such a trade this time.

Trading on the turmoil of a contrived global food shortage is a version of cornering a market. It can be highly profitable if you guess right, but must be done on a massive scale, resulting in financial disaster if you come up short. If the food shortages do not materialize — and based on everything we know so far about the world’s agricultural production, they will not — tens of billions of dollars in Wall Street money could be wiped out. That would be enough to take down multiple hedge funds along with a Wall Street bank or two.

If you think about it, there could be no more ignominious way for a respected financial institution to collapse. It is bad enough to bet wrong and go down in flames. If you must also manipulate a financial market in the hope that actual families and neighborhoods go hungry, in order to trigger a food panic — there could be no sharper illustration of moral bankruptcy than that. Reputations of centuries could be erased in a matter of months.

This is just speculation at this point, obviously, and I am going out on a limb by predicting a Wall Street disaster based merely on the unfolding shape of a propaganda campaign. I won’t have anything more to say on this subject until there is news of a more concrete nature. But there is one thing I can say that is not speculation: there is no basis in fact or economic theory for the widely repeated prediction of a global food shortage at the end of 2012 or in the first half of 2013. These reports are just worry and propaganda.