Notes

The Twin Menaces of Inflation
This week, 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 better part of the year-to-date, another factor has caused at least as much difficulties for a much bigger percentage of the global population: the recent skyrocketing prices in energy and food. Wheat and other cereal prices have more than doubled this year, causing widespread effects which range from speculative overbuying, which exacerbates the problem, to food riots in lots of poor countries. Millions of children around the globe are likely to have problems with malnutrition in coming years if prices stay at or near current levels, according to International Monetary Fund (IMF) estimates.

Section of this unfavorable price increase has been due to 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 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 want to (even though it results in local food shortages sometimes).

While this widespread problem affects consumers across the world, these micro effects are only half of the story for gas-sensitive American consumers. Energy prices took headlines this year due to 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 3rd quarter of 2007. Crude prices remain stubbornly above historical trends, even as suppliers contend that output do not need to increase. Analysts also have projected US gasoline prices to climb above $4 a gallon during the summer, another equally unprecedented number that could be tough pill for consumers to swallow, after the one-two punch of a national housing slump and the global market meltdown.

Should oil suppliers continue to maintain current output levels, demand is eventually more likely to contract. But they aren't the only real links in this chain. If oil becomes a less attractive substitute for Americans, oil companies may eventually be priced out of the market. website have been keeping an exceedingly low profile in recent months. Auto companies play a huge part along the way, but shrinking sales and looming layoffs will probably raise the pressure towards manufacturing lower-emmission vehicles. However the single biggest mover and shaker could be the government, which has the ability to regulate both inflation (through the FEDs influence on mortgage interest levels) 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 undoubtedly be on the Federal Reserve if inflation once more rears its ugly head.

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