By Maxwell Strachan
Today, rising food prices are wreaking havoc in the developing world. While some blame overpopulation, and others ethanol, another culprit has emerged of late: banks and the role of speculative commodity indexes.
The primary danger of the indexes, according to a new article by Frederick Kaufman in Foreign Policy, is that they fundamentally alter the food market by transforming key stapes into a financial asset that performs more or less like a stock. So while billions worldwide scramble to find money pay for food, food prices are often subject to intensified distortions of supply and demand from speculative markets.
Since 1999, when the government first deregulated the commodities market, Kaufmann explains, investors have flocked to investing in food. The basis for that excitement is a Goldman Sachs-developed innovation known as the commodity index. Today, Kaufmann says, it's a tool that has been replicated throughout the banking industry.
The excitement over commodities trading has only picked up in the years since the financial crisis first brought the world economy -- and the U.S. housing bubble -- to its knees. That, Kaufmann says, was when this really kicked off:
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