Notes

The Twin Menaces of Inflation
This week, a storm of bad news gave markets cold feet, leading to Friday's 250-point loss. While this pattern of volatility has been the status quo for stock exchanges worldwide for the better portion of the 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 and other cereal prices have significantly more than doubled this season, causing widespread effects which range from speculative overbuying, which exacerbates the problem, to food riots in lots of poor countries. check here of children around the world are likely to suffer from malnutrition in coming years if prices stay at or near current levels, in accordance with International Monetary Fund (IMF) estimates.

Section of this unfavorable price increase has been because of shifting ideas about energy consumption and the press towards the usage of alternative sources of fuel apart from 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 are often 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 provide solutions. For many of these farmers, these developments mean they are able to make a decent living for the very first time in years, plus they desperately desire to (even if it results in local food shortages sometimes).

While this widespread problem affects consumers worldwide, these micro effects are only 1 / 2 of the story for gas-sensitive American consumers. Energy prices have taken headlines this year because of speculation and offer concerns from OPEC and South American countries after hitting the psychologically important $100 a barrel mark for the very first time in the third quarter of 2007. Crude prices remain stubbornly above historical trends, even while suppliers contend that output need not increase. Analysts also have projected US gasoline prices to climb above $4 a gallon through the summer, another equally unprecedented number that 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 steadily to maintain current output levels, demand is eventually more likely to contract. However they aren't the only links in this chain. If oil becomes a less attractive substitute for Americans, oil companies may eventually cost out of your market. Many have been keeping an exceedingly low profile lately. Auto companies play a huge part in the process, but shrinking sales and looming layoffs will probably increase 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 determine how long the lone superpower continues to expose its Achilles heel, but at some point all eyes will be on the Federal Reserve if inflation once more rears its ugly head.

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