Tuesday, February 15, 2011

Prices jump

Remember this post? Here? The title in question was: Countries most at risk in case of a Food Shortage

It seems someone could see the future. Did you see country #6 on the list? Egypt. Or #18? Tunisia. Both have overthrown their governments in the last little while. There have also been rumblings in #3. In part, these have been due to rising food prices.

So, what causes food prices to rise? There are a few things which tend to do that - 1.increased demand, 2.reduced supply, and 3.the decreased worth of money. While there hasn't been much of an increased demand, the other two are certainly factors.

Why is food so much? Because there are additional uses for it - government-subsidized uses (think Ethanol). With the competition of demand (vehicles here act as additional mouths to feed), the price goes up - or the reverse, that Ethanol siphons some of the food supply away so there is reduced supply. Either way, it puts upward pressure on food prices.

The other factor in this is the debasement of money. Do you remember when a candy bar cost 25 cents? or less? What about a gallon of gasoline? When we put more money into our closed system, we lessen the value of each dollar. The flip side of that is that the price goes up. If each dollar can buy less, it takes more dollars to buy the same thing. Once again upward pressure on the food prices. Think Quantitative Easing (QE). Think billions and billions of dollars added to the system of the last 2 years. This factor is going to be true for pretty much every commodity. Guess what has happened to the price of cotton? Guess what will happen to the price of clothes?

So, for the people who cannot afford the new food prices, maybe they will be saved by the price in clothing - if they happen to have lots of clothes to sell.


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