Notes

The Twin Menaces of Inflation
read more , a storm of bad news gave markets cold feet, resulting in Friday's 250-point loss. While this pattern of volatility has been the status quo for stock exchanges worldwide for the higher the main year-to-date, another factor has caused at the very least as much difficulties for a much larger percentage of the global population: the recent skyrocketing prices in energy and food. Wheat along with other cereal prices have more than doubled this season, causing widespread effects ranging from speculative overbuying, which exacerbates the problem, to food riots in lots of poor countries. An incredible number of children all over the world are likely to have problems with malnutrition in coming years if prices stay at or near current levels, in accordance with International Monetary Fund (IMF) estimates.

Part of this unfavorable price increase has been because of shifting ideas about energy consumption and the press towards the usage of alternative resources of fuel other than gasoline: namely, the subsidies issued by many governments of developed countries to change over to ethanol and other plant-based hydrocarbons, such as that created from palm oil (a particularly environmentally destructive process for ecosystems). Since these subsidies and programs have already been introduced, farmers tend to be able to make better returns by selling their crops to biodiesel companies than to food companies. Until economic incentives change, the supply end is unlikely to supply solutions. For many of the farmers, these developments mean they could create a decent living for the first time in years, plus they desperately desire to (even though it results in local food shortages sometimes).

While this widespread problem affects consumers across the world, these micro effects are only 1 / 2 of the story for gas-sensitive American consumers. Energy prices have taken headlines this year due to speculation and supply concerns from OPEC and South American countries after hitting the psychologically important $100 a barrel mark for the first time in the 3rd quarter of 2007. Crude prices remain stubbornly above historical trends, even as suppliers contend that output need not increase. Analysts also have projected US gasoline prices to climb above $4 a gallon during the summer, another equally unprecedented number which may be tough pill for consumers to swallow, after the one-two punch of a national housing slump and the global credit crunch.

Should oil suppliers continue to maintain current output levels, demand is eventually likely to contract. But they aren't the only links in this chain. If oil becomes a less attractive substitute for Americans, oil companies may eventually be priced out of the market. Many have been keeping an exceptionally low profile lately. Auto companies play a huge part along the way, but shrinking sales and looming layoffs will likely raise the pressure towards manufacturing lower-emmission vehicles. However the single biggest mover and shaker will be the government, which has the opportunity to regulate both inflation (through the FEDs influence on mortgage interest rates) and the move towards more sustainable technologies. Another US president can realize your desire to help regulate how long the lone superpower continues to expose its Achilles heel, but at some time all eyes will undoubtedly be on the Federal Reserve if inflation once more rears its ugly head.

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