CFR: Ben Bernanke Is Innocent

The Council on Foreign Relation's Senior Fellow for Global Health, Laurie Garrett, has provided an absurd analysis of the current commodity price inflation.

She states the drivers of rising global food prices, are increasing demand for meat, biofuels, price speculation, and severe weather events. Yet, she never mentions the role of the Federal Reserve (and other central banks) as a result of their money printing, playing any role at all in the price increases. Ben Bernanke is innocent in the eyes of Garrett, with no proof of such.

As for her argument that more demand for food exists in the world, this is accurate. With biofuels, she fails to mention that it is only because of government subsidies that the biofuel business actually exists and that the land used now for biofuels could be used for other agriculture purposes if the subsidies were removed. Her attack against speculators is typical and wrong. In reality, speculators don't cause volatile markets. They flock to such markets to provide liquidity and absorb risks. Even in the trading of basketball cards, there are many more speculators trading LeBron James cards then there are those trading Timofey Mozgov. It's not because basketball card speculators sat down, had a meeting and decided to trade James' cards over Mozgov cause. They go where the action is. It's the same with commodity speculators, they are attracted to the action that is already there.

Garrett's charge, that speculator caused volatility causes problems for farmers and purchasers of foodstuffs, has the situation upside down. The speculators provide the liquidity and are willing to take on the risk so that it makes things easier with farmers and purchasers of foodstuffs. Since they can hedge because of the speculators and work with fixed costs.

As for her comments on weather, I have no idea how accurate her charge is on volatile weather. There is always some volatility in weather, which can provide havoc with some crops, but not the overall price to spikes across the commodity spectrum.

But, the big story here is her total avoidance of Federal Reserve and their money printing as a factor in causing the price inflation.