Retiring the American dollar

Off into history’s sunset, like the cowboy. This image (modified) is called ‘Dollar Green’ by the artist mancaalberto (http://mancaalberto.deviantart.com/)

Seventy years ago, to the very month, a man named Henry Morganthau celebrated the creation of a “dynamic world community in which the peoples of every nation will be able to realise their potentialities in peace”. It was the founding of what came to be called the Bretton Woods institutions (named after the venue for the meeting, in the USA) and these were the International Bank for Reconstruction and Development – better known as the World Bank – and the International Monetary Fund.

None of the lofty aims that seemed so apposite in the shattering aftermath of the Second World War have been achieved, although what has been written are libraries of counter-factual history that claim such achievements (and more besides) commissioned by both these institutions and their web of supporting establishments, financial, academic, political and otherwise. Instead, for the last two generations of victims of ‘structural adjustment’, and of ‘reform and austerity’ all that has become worthwhile in the poorer societies of the world has been achieved despite the Bretton Woods institutions, not because of them.

Now, seventy years after Morganthau (the then Treasury Secretary of the USA) and British economist John Maynard Keynes unveiled with a grey flourish a multi-lateral framework for international economic order, the Bretton Woods institutions are faced with a challenge, and the view from East and South Asia, from Latin America and from southern Africa is that this is a challenge that has been overdue for too long.

Let’s get the de-dollarisation of the world started.

It has come in the form of the agreement between the leaders of five countries to form a development bank. Russia’s President Vladimir Putin, China’s President Xi Jinping, India’s Prime Minister Narendra Modi, Brazilian President Dilma Rousseff and South Africa’s President Jacob Zuma made formal their intention during the sixth summit of their countries – together called ‘BRICS’, after the first letters of their countries’ names – held this month in Brazil.

What has been set in motion is the BRICS Development Bank and the BRICS Contingency Reserves Arrangement. Both the new institution and the new mechanism will counter the influence of Western-based lending institutions and the American dollar, which is the principal reserve currency used internationally and which is the currency that the IMF and the World Bank conduct their ruthless business in (and which formulate their policies around, policies that are too often designed to impoverish the working class and to cripple labour).

At one time or another, and not always at inter-governmental fora, the BRICS have objected to the American dollar continuing to be the world’s principal reserve currency, a position which amplifies the impact of policy decisions by the US Federal Reserve – the American central bank – on all countries that trade using dollars, and which seek capital denominated in dollars. These impacts are, not surprisingly, ignored by the Federal Reserve which looks after the interests of the American government of the day and US business (particularly Wall Street).

In the last two years particularly, non-dollar bilateral agreements have become more common as countries have looked for ways to free themselves from the crushing Bretton Woods yoke. Only this June, Russia’s finance minister said the central banks of Russia and China would discuss currency swaps for export payments in their respective national currencies, a direction that followed Putin’s visit to China the previous month to finalise the gigantic US$400 billion deal between Gazprom and China National Petroleum Corporation (CNPC). It is still early, and the BRICS will favour caution over hyperbole, but when their bank opens for business, the sun will begin to set on the US dollar.

Advertisements

Durban drama? Unlikely, but what do the Brics really want?

The excellent and stoutly independent Pambazuka news has issued a package of thought-provoking material in advance of the annual meeting that brings together the heads of government of Brazil, China, India, Russia and South Africa. These five countries have been, without permission from their citizens and much to the annoyance of said citizens, been insensitively condensed into a ludicrous acronym that will, I am sure, given the momentum of stupidity, make it into the Oxford English Dictionary one day.

And so it has come to pass that South Africa is this year the host of the fifth BRICS Summit, on 26 and 27 March 2013, in Durban (which has a lovely cricketing ground, sadly lost upon the B, R and C members of the grouping). As a way to spend lots of money in an embarrassingly short time, summits such as these are hard to beat, and it is expected that we are fed some balderdash as to why the jamboree has been inflicted upon the poor citizens of Durban.

Well, here we are, now what’s for lunch? A BRICS “Think Tank meeting” (said the official caption) held at the University of Durban in March 2013. Photo: BRICS flickr photostream

There are two views. Here is one, the official line from the BRICS secretariat:

“These summits are convened to seek common ground on areas of importance for these major economies. Talks represent spheres of political and entrepreneurial coordination, in which member countries have identified several business opportunities, economic complementarities and areas of cooperation.”

And here is the other, from the sharp-eyed and fearsomely astute bunch who write for Pambazuka.

In ‘Are BRICS ‘sub-imperialists’?‘ the argument is that BRICS offer some of the most extreme sites of new sub-imperialism in the world today. They lubricate world neoliberalism, hasten world eco-destruction and serve as coordinators of hinterland looting. The BRICS hegemonic project should be resisted. (By Patrick Bond.)

‘BRICS: a spectre of alliance‘ has explored the weaknesses and obstacles confronting the BRICS. However, the elites of the BRICS exist comfortably within the prevailing global world capitalist system and remain more of a spectre rather than a real alliance. (By Anna Ochkina.)

We are told, in ‘Will SA’s new pals be so different from the west?‘, that the debate on BRICS is polarised between pro and anti-BRICS elements represented in the South African government and left-leaning civil society activists and academics. It is uncertain South Africa’s new partners in BRIC will treat the country differently. (By Peter Fabricius.)

Although at this early stage the BRICS partnership raises more questions than answers, engaged citizens should help shape its agenda, is the idea posited in ‘BRICS as potential radical shift or just mere relocation of power?‘. The bloc may well turn out to be one of the single biggest developments of our era. (By Fatima Shabodien.)

There’s more on the Durban curiousity from Pambazuka, and a close reading I am sure will discuss a good deal about the race for resources in Africa.

The year the GM machine can be derailed

In the Uttara Kannada district of Karnataka state in India, farmers heap harvest residue, accompanied by a cow, a cattle egret and a dog (yes he’s there, behind the stack!).

It is looking like a good start to a year in which GM foods and GM crops can be further purged from our fields, shops and pantries. Through 2012 November and December, there were reports from the continents of Africa and South America that such crops and seeds were either being banned or that decisions concerning their use were being discussed, and pending those decisions the use of these crops and seeds would not be permitted.

Writing in The Guardian, John Vidal has barracked the UK government’s enthusiasm for GM and has said this enthusiasm (in Britain’s official, corporatised, retailed decision-making circles) is not matched in developing nations. Vidal has written: “Across the world, countries are turning their backs on GM crops; perhaps the coalition in the UK could learn something from them”.

Early morning in the Uttara Kannada district of Karnataka state in India, and a farmer leads his cattle to fields.

What is remarkable, Vidal’s article has said, “is not that GM crops have, after 20 years and so much money spent, now reached 19 out of more than 150 developing countries, but that most nations have managed to keep out a rapacious industry, and that only a handful of GM food commodity crops like oilseed rape, soya and maize are still grown, mainly for animals and biofuels”. Well, yes and sadly a bit of ‘no’ too.

Although Vidal is right about the more rapacious elements of the GM/GE/DNA-manipulation industry (aren’t they all that way though?) may have been kept out of direct markets, the arguments about labelling and about monitoring (independently, which needs civic capacity, which is hardly there in the South, for instance in India) are taking place while food with GM material can be found on shop shelves. Cottonseed oil for example, which is pressed out of GM cotton, is said to be used as an alternative to other edible oils for cooking.

There’s no doubt left whatsoever that the role of genetically modified food in our food chain is a highly contested political issues. In a long, carefully argued and copiously referenced article, the Soil Association’s Peter Melchett dismantles the pro-GM lobby’s staking of the ‘scientific high-ground’. In the essay, intriguingly titled ‘The pro-GM lobby’s seven sins against science’, Melchett has said this lobby has been good at “simultaneously positioning itself as the voice of reason and progress, while painting its opponents as unsophisticated ‘anti-science’ luddites, whose arguments are full of dogma and emotion, but lack scientific rigour”.

Powerful forces in Western society have been promoting genetic engineering (now usually genetic modification – GM) in agricultural crops since the mid-1990s, Melchett has written. I would have added that these “powerful forces” are in no small measure aided and abetted by potentially more powerful forces in the countries of the South (like India) that are interested in the same – vast and detailed control over the cultivation of primary crop and the consumption of industrially processed and retailed food.

Spanking new agricultural machinery on the highway, southern India. A government-industry answer to the loss of cultivation labour that is chivvied into the cities by adverse economics.

These forces, Melchett has written, “have included many governments, in particular those of the USA and UK, powerful individual politicians like George Bush and Tony Blair, scientific bodies like the UK’s Royal Society, research councils, successive UK Government chief scientists, many individual scientists, and companies selling GM products”. They have ignored the views of citizens, he has added, and most sales of GM food have relied on secrecy – denying consumers information on what they are buying. Very true. If there is ignorance to be found in the ‘western’ consumer (let us say the consumer in the western European OECD countries) concerning GM foods and GM crops, then the ignorance quotient is far higher in the consumers of let’s say the BRICS and ASEAN countries – which of course works to the advantage of the alliance of powerful forces.

Despite the efforts of the ag-biotech, industrial agriculture and processed and retailed food sector worldwide (with its dense financial and political inter-linkages), there are 20 states in the USA which are currently embroiled in fierce battles over GM labelling, strenuously opposed by the GM combine. GM cotton is widely grown in India and China, but GM foods are largely limited to the USA and South America. Brazil grows 29 million hectares of GM soy and maize, and Argentina slightly less, but Mexico has delayed the introduction of GM maize until this year, Peru has approved a 10-year moratorium on the import and cultivation of GM seeds, and Bolivia has committed to giving up growing all GM crops by 2015. In Central America Costa Rica is expected to reject an application from a Monsanto subsidiary to grow GM corn.

Global trends to 2030 and the confusion of alternative worlds

The National Intelligence Council of the USA, earlier in 2012 December, released the latest Global Trends report, which is titled ‘Global Trends 2030: Alternative Worlds’. The Global Trends project is described as bringing expertise from outside (the American) government on factors of such as globalisation, demography and the environment. In the USA, the Director of National Intelligence serves as the head of what in America is called the ‘intelligence community’, overseeing and directing the implementation of the American National Intelligence Program and acting as the principal adviser to the President, the National Security Council, and the Homeland Security Council for intelligence matters related to national security. Specifically, the goal of the Director of National Intelligence is described as “to effectively integrate foreign, military and domestic intelligence in defense of the homeland and of United States interests abroad”.

With that background, ‘Global Trends 2030: Alternative Worlds’ is the fifth installment in the National Intelligence Council’s series aimed at providing to the ruling regime of the USA “a framework for thinking about the future” by “identifying critical trends and potential discontinuities”. This 2012 report distinguishes between ‘megatrends’ (factors that will likely occur under any scenario) and ‘game-changers’ (critical variables whose trajectories are far less certain). Finally, to better explain the diversity and complexity of various factors, the 2012 report sketches out scenarios or alternative worlds.

From our Asian point of view, ‘Global Trends 2030: Alternative Worlds’ has a most interesting section describing the middle classes, which the report says almost everywhere in the developing world are poised to expand substantially in terms of both absolute numbers and the percentage of the population that can claim middle-class status during the next 15-20 years. “Even the more conservative models see a rise in the global total of those living in the middle class from the current 1 billion or so to over 2 billion people,” said the report.

All the analyses reviewed by the authors of the ‘Global Trends 2030: Alternative Worlds’ suggest that the most rapid growth of the middle class will occur in Asia, with India somewhat ahead of China over the long term. According to the Asian Development Bank, if China “achieves the new plan target of increasing household expenditures at least as rapidly as GDP, the size of its middle class will explode” with “75 percent of China’s population enjoying middle-class standards and $2/day poverty will be substantially wiped out”.

The report does not make an attempt to link the impact of the rise of this middle-class with either one of the ‘mega trends’ described or two of the ‘game-changers’ described, which speak in a halting manner about the effects of over-consumption and galloping resource grabbing.

‘Global Trends 2030: Alternative Worlds’ has conceded that “establishing the threshold for determining when someone is middle class versus climbing out of poverty is difficult, particularly because the calculations rely on the use of purchasing power parity”. In India the debate about who is poor is 40 years old and remains intractable – thanks mostly to the intransigence of central planners who still refuse to link the current cost of basics with current low levels of real income.

Instead, ‘Global Trends 2030: Alternative Worlds’ has forecast that most new members of the middle class in 2030 will be at the lower end of the spectrum. “Their per capita incomes will be still rated as ‘poor’ by Western standards even though they will have begun to acquire the trappings of middle-class status. Growth in the number of those living in the top half of the range of this new middle class — which is likely to be more in line with Western middle-class standards — will be substantial, rising from 330 million in 2010 to 679 million in 2030.

Much of the future global leadership is likely to come from this segment,” said the report, raising a number of worries. Firstly, I would be loath to see any kind of leadership – political, economic or social – come from this segment as such leadership will strengthen, not diminish, the consumption patterns destroying our environment. Second, it is less the chasing of ‘Western’ per capita incomes we need and more the re-education of the middle-class to emphasise the virtues of ‘less’ and ‘small’ that is urgently needed.

More to the point, ‘Global Trends 2030: Alternative Worlds’ has forecast that with the expansion of the middle class, income inequalities — and the report says these “have been a striking characteristic of the rising developing states” — may begin to lessen in the developing world. This is astonishingly misread. Approximately a generation of economic liberalisation (which has gone under various names in different large countries) in India, China, Russia, South Africa, Brazil and Indonesia have proven the opposite.

The report goes on in this befuddled vein: “Even if the Gini coefficients, which are used to measure inequalities, decline in many developing countries, they are still unlikely to approach the level of many current European countries like Germany and Finland where inequality is relatively low”. Again, a decade of ‘austerity’ under various guises (longer in Britain in fact, under Thatcherism) in Europe has created inequalities approaching the true levels seen in the BRICS and similar countries, and these have been camouflaged by welfare measures that are fast-disappearing and by community action. So this ‘Global Trends 2030: Alternative Worlds’ is flat wrong on these matters.

However, the report has made an attempt to infuse some social science into what is otherwise good news for the global consumer goods multinationals (and of course for the fossil fuel barons). “That said, a perception of great inequality will remain, particularly between urban- and rural-dwellers, motivating a growing number of rural-dwellers to migrate to the cities to seek economic opportunities. Their chances of becoming richer will be substantially greater in cities, but the increasing migration to urban areas will mean at least an initial expansion in the slums and the specter of poverty,” said the ‘Global Trends 2030: Alternative Worlds’ report. More interesting is the warning the report has issued, which is that if new middle-class entrants find it difficult to cling to their new status and are pulled back toward impoverishment, they will pressure governments for change. “Rising expectations that are frustrated have historically been a powerful driver of political turmoil.” Hear, hear. Remember the 99 per cent.

Making sense of India’s credit rating palpitations

The financial media in India and the mainstream English newspapers are sparing no effort to announce their alarm over the feint by a credit rating agency, Standard and Poor’s, to lower India’s sovereign credit rating. Standard and Poor’s (no, I don’t like the ampersand) is one of the three large agencies which the movers of global capital rely on to tell them where to move illusory money, the other two being Moody’s and Fitch.

As you can see from the tone and tenor of India’s craven business press – all of which are beholden to the country’s big corporations (cross-holdings are common) and which cheer every new sally in the direction of share bazaar capitalism made by the Ministry of Finance and Department of Commerce – their writers and columnists, their reporters and correspondents seem immobilised by rating fear.

The Business Standard reported: Global rating agency Standard & Poor’s on Monday cautioned India might become the first BRIC (Brazil, Russia, India and China) country to lose its investment-grade rating, unless growth issues were addressed immediately. The credit rating agency cited slowing GDP growth and political roadblocks in economic policy making as some of the factors that could lead to such an action.

The Mint commented: Some economists questioned the content and timing of the S&P report, titled Will India Be The First BRIC Fallen Angel?, which came some two months after the credit assessor lowered the outlook on India’s BBB- rating to “negative” from “stable”. The release of the report on Monday triggered a fall in the rupee and caused the benchmark index of BSE to slump. India was upgraded to investment grade in 2007. “In our view, setbacks or reversals in India’s path toward a more liberal economy could hurt its long-term growth prospects and, thus, its credit quality,” S&P analysts Joydeep Mukherji and Takahira Ogawa wrote in the research report dated 8 June.

The Economic Times commented: In an unusually direct reference to what it perceives to be poor quality of the nation’s political leadership, S&P has expressed concerns that ballooning government expenses, widening trade deficit and political vacuum could lead to protectionist policies. Prime Minister Manmohan Singh, whom the agency described as “unelected”, a reference to Singh’s membership of the Rajya Sabha, is battling more with party colleagues over policy than with cantankerous allies often blamed for policy paralysis, the rating agency said. It fears that government policies, which in some instances are aimed to benefit what the report refers to as “politically well-connected firms”, could result in a populist backlash against liberal economic policies. Heightened populism to counter the political fallout of corruption scandals could slow economic growth further, and weaken the already-battered fiscal position.

What do the credit rating agencies do for India? What do these three (and their counterparts in India) have remotely to do with the lives and well-being of the 800 million rural Indians (there are 355 districts whose populations are over a million), or the urban poor in India’s 53 million-plus cities? They are among the tools with which ‘reform’ is grafted onto a country in order to further immiserate the poor and annex natural resources for a global upper middle class whose ranks are being swelled by India’s new rich. They are among the staunchest advocates of ‘austerity’ in the belief (backed by kilogrammes of elegantly designed working papers from the International Monetary Fund and the World Bank, and yes the Asian Development Bank too) that such measures revive investor confidence. Credit rating agencies are the canaries of this intangible called investor confidence, and it ought to be seen as an intolerable affront to India that our people and our myriad economies are to be encapsulated – absurdly and so irrelevant – by the meaningless equations of Standard and Poor’s and its cousins.

“It is a hallmark of the crisis, that every effort the government makes to end it, within “neo-liberal” framework, will only succeed in worsening it,” said Prabhat Patnaik in ‘The End of the “Shine”‘ (People’s Democracy, 10 June 2012). The role of these agencies is to legitimise the enticement of finance back into an economy to keep its bubble spherical. Hence the worried tones of India’s business press, because far more worrying to them (as it is to the 5% of urban Indians who are the audience for this media, who control the flows of money and commodities and who exercise political power) is the spectre of a collapsed bubble being beyond recovery. That is why, every effort on the part of the government to tighten monetary policy in the belief that this would curb inflation and revive ‘investor confidence’ (currently viewed by the ruling alliance with more reverence than it accords to India’s Constitution) will hasten the economy’s downturn.

These are not uncoordinated gambits. In the latest issue of the IMF’s journal, Finance and Development, an article has discussed how “the relatively low-hanging fruit has been picked, and the harder, more exacting, job of addressing tougher problems lies ahead”. (The language sounds neutral but is loaded with violence.) The article goes on to outline an incomplete reform list: “identifying and building tools — still in the early stages of development — to mitigate systemic risk; improving the ability of the authorities to deal with the aftermath if the tools designed to prevent systemic events fail; and providing a framework for financial intermediation (the transfer of savings to investments) to assist in strong and stable economic growth, without overly prescriptive regulation.”

The IMF likes credit rating agencies; they are invaluable for the Fund’s agenda. Their work allows borrowers “to access global and domestic markets and attract investment funds, thereby adding liquidity to markets that would otherwise be illiquid”. The IMF’s Global Financial Stability Report 2010 (Chapter 3), ‘Sovereigns, Funding and Systemic Liquidity’ (2010 October), had said that these ratings “influence market prices, and that downgrades through the investment-grade barrier trigger market reactions… shows that their market impact is associated not only with new information, but also with a ‘certification’ role, though this is most evident through their use of ‘outlooks’, ‘reviews’, and ‘watches’ (pre-rating change warnings) rather than actual rating changes”.

Not content with the sophistication of the regime denoted by the alphabetic identifiers such as AAA, AA or BBB  and the pluses and minuses appended thereunto or removed therefrom – or more likely anticipating that the means used to ‘tend’ bubbles by the agencies was as likely to be used as political ammunition as it was to be cunningly exploited by the commodity traders and their money market partners – India’s Ministry of Finance this year developed an index of relative ratings of sovereigns. This it has called the Comparative Rating Index of Sovereigns. What will such an index serve? “Given that existing ratings do not give an idea of the inter se rankings of various economies with respect to the performance of the others, this index addresses an important conceptual lacuna,” the paper has explained. “The results reveal major changes in relative ratings of various countries, driven largely by the rapid downgrades of some European economies following the global financial crisis.”

And so we have the ‘Comparative Rating Index for Sovereigns (CRIS): A Report Based on “The Relativity of Sovereigns: A New Index of Sovereign Credit Ratings and an Analysis of How Nations Fared over the Last Six Years’ (2012 March). This is the ‘let’s pat ourselves on the back regardless of what the rating agencies say’ argument, and it is a sorry effort to lend an ephemeral shine to the old India Shining metaphor (insubstantial as that was, overused as it came to be). That is why the outcome of this indigenised index is that “India’s Comparative Rating Index for Sovereigns has improved over the six years from 2007 to 2012 by about 2.98% while its rank moved up from 61st to 55th… The US has gone from the top of the chart to the 13th position though it still improved its CRIS score by 2.12%… Some of the largest falls were among European economies and Japan. Greece fell by 71 positions, Ireland 68, Iceland 61, Portugal, 53, Spain 36 and Japan 21. BRICS economies show continuous improvement and the global financial crisis does not seem to have impacted them adversely in terms of CRIS scores”.

A counter index to nullify the unattractiveness of the credit ratings own indices – ratings that are meaningless to Bharat and its people. If we needed more evidence that our major ministries are populated by lotus-eaters – as is the Planning Commission and its opulent toilets – this is it.

BRICS, agricultural commodities, G20 and experiments with truth

There’s a flurry of activity around the start of the G20 and the IMF-World Bank meetings. Some of this activity has to do with food and agriculture, and with the agricultural commodity markets and its ties to the financial markets. While the G20 has a lot to do with the growing strength of the BRICS bloc and the IMF, what stands out is a trenchant and insightful commentary by Unctad’s Trade and Development Report 2011 on the matter of agricultural commodities and the markets (exchanges rather) which control them.

Financial investment in commodities as a proportion of global oil production, 2001–2010. Chart: Unctad Trade and Development Report 2011

It has attracted the attention of Emerging Markets, a periodical (online too) which talked about food price and agricultural commodities markets with Joerg Mayer, senior economic affairs Officer at Unctad. Emerging Markets has quoted Mayer as having said that the risk management strategies promoted by the World Bank “only make sense if you assume that exchanges are working well for hedging purposes – and our research shows that, when large numbers of financial investors are present, they don’t work well“. Hear, hear.

Mayer said that the World Bank’s approach would also be logical “if you assume that financial investors have no impact on prices, or that their presence improves [pricing]”. Of course to make such an assumption is to agree with an untruth, for Unctad’s Trade and Development Report 2011 has said quite plainly that strong investment across agricultural commodities markets mean that they have “followed more the logic of financial markets than that of a typical goods market”.

The chapter ‘Financialized Commodity Markets: Recent Developments and Policy Issues’ from the report is worth reading closely and in full. Here is an indicative paragraph:

“The commodity price boom between 2002 and mid-2008 and the renewed price rise of many commodities since mid-2009 have coincided with major shifts in commodity market fundamentals. These shifts include rapid output growth and structural changes, both economic and social, in emerging-market economies, the increasing use of certain food crops in the production of biofuels and slower growth in the supply of agricultural commodities. However, these factors alone are insufficient to explain recent commodity price developments. Since commodity prices have moved largely in tandem across all major categories over the past decade, the question arises as to whether the very functioning of commodity markets has changed.”

Prices and net long financial positions, by trader category, selected commodities, June 2006–June 2011 (CIT = commodity index traders; PMPU = producers, merchants, processors, users). Chart: Unctad Trade and Development Report 2011

Unctad’s research on the subject has shown that investors are motivated by “factors totally unrelated to commodity market fundamentals”. This is as bald an assessment of the behaviour of investors as you can hope to see from an inter-governmental organisation (the World Bank and International Monetary Fund are incapable of stating truths like this one).

“Against this background, the French Presidency of the G-20 has made the issue of commodity price volatility a priority of the G-20 agenda for 2011, since excessive fluctuations in commodity prices undermine world growth and threaten the food security of populations around the world (G20-G8, 2011). These fluctuations are seen as being related to the functioning of financial markets and the regulation of commodity derivatives markets.”

Unctad’s Trade and Development Report 2011 has argued for tighter regulation of financial investors, including limits on the positions taken by individual market participants; a rule to prevent banks that have insider information about commercially based market sentiment undertaking hedging operations for clients; a similar rule to prevent physical traders betting on outcomes they are able to influence; and a transaction tax or a requirement to hold positions for a minimum amount of time.

Instead, the World Bank’s analysts have generally argued that price volatility is driven by fundamentals, such as input costs, which other economists have failed to include in their calculations. This is an argument that cannot stand up to the merest suggestion of an examination of the cost of cultivation for, while inputs do cost more from one year to another in high-input farming (in Asia and Africa and South America, even with smallholders who are held to ransom by industrial agriculture companies) these are not the “fundamentals” the Bank-IMF crowd insist are responsible. The trouble is, they won’t admit to any others. Worse, they have enfleshed this delusionary tack with the help of their old collaborators, such as JP Morgan, which now has a hedging business that works on agricultural commodities markets and this year joined the World Bank/International Finance Corporation to launch an Agricultural Price Risk Management Facility, “designed to fund small players to hedge more effectively” (nudge, nudge, wink, wink, etc).

Correlation between commodity and equity indexes, 1986–2011 (The data reflect one-year rolling correlations of returns on the respective indexes on a daily basis). Chart: Unctad Trade and Development Report 2011

Said the chapter ‘Financialized Commodity Markets: Recent Developments and Policy Issues’ from the Trade and Development Report, 2011:

“Indeed, a major new element in commodity markets over the past few years is the greater presence of financial investors, who consider commodity futures as an alternative to financial assets in their portfolio management decisions. While these market participants have no interest in the physical commodity, and do not trade on the basis of fundamental supply and demand relationships, they may hold – individually or as a group – very large positions in commodity markets, and can thereby exert considerable influence on the functioning of those markets. This financialization of commodity markets has accelerated significantly since about 2002–2004, as reflected in the rising volumes of financial investments in commodity derivatives markets – both at exchanges and over the counter (OTC).”

We think the G20 participants (finance ministers, central bank administrators and similarly high-powered persons) ought to have mentioned the matter. Instead, this is what they said.

“The BRICS countries, represent quite a big share of the global economy. In today’s crisis period, internal demand of each economy is important, and we should find a way to enlarge internal demand in our economy.” – China Central Bank chief Zhou Xiaochuan. “We represent a group of countries where there is (an) enormous amount of demand for resources at home for poverty reduction … so there is going to be big, big tension between giving money to a multilateral institution for the purpose of restoring global stability and meeting our own aspirations at home.” – Reserve Bank of India governor Duvvuri Subbarao.

“Enlarge internal demand” and “enormous amount of demand for resources at home”? Isn’t that exactly the sort of prognosis the World Bank, IMF and IFC will happily enlist as fundamentals of food prince index drivers? As for the rest of us, it’s back to promoting and practicing ecological economics.