Wednesday, July 20, 2011

Control the Food, Control the People (Part 3)

Speculation in Agricultural Commodities: Driving up the Price of Food Worldwide and plunging Millions into Hunger
CFTC treads water on world hunger
By Edward Miller
Global Research, October 5, 2011
The Commodity Futures Trading Commission (CFTC) has again delayed the introduction of position limits required under the Dodd-Frank Act. These limits are intended to prevent speculation in (among other things) agricultural commodities, speculation which, many critics argue, have driven up the price of food worldwide and plunged millions into hunger.
In late 2006, the price of food and other commodities began rising precipitately, continuing throughout 2007 and peaking in 2008. Millions were cast below the poverty line and food riots erupted across the developing world, from Haiti to Mozambique. While analysts initially framed the crisis in terms of market fundamentals (such as rising population, increased demand for resource-intensive food, declining stockpiles, biofuel and agricultural subsidies, and crop shortfalls from natural disasters), a growing number of experts have tied the massive spikes to financial intermediation. As economist Jayati Ghosh explains:
“It is now quite widely acknowledged that financial speculation was the major factor behind the sharp price rise of many primary commodities , including agricultural items over the past year ... Even recent research from the World Bank (Bafis and Haniotis 2010) recognizes the role played by the “financialisation of commodities” in the price surges and declines, and notes that price variability has overwhelmed price trends for important commodities.”
Trading Regulation for Financialisation
This kind of speculation was made possible by deregulation in the US financial sector, in particular the
Commodity Futures Modernization Act 2000 (CFMA), exempting commodity futures trading from regulatory oversight. Crucially for our narrative, this removed limits on the number of contracts that could be held at any one time (called position limits) from the equation. Firms like Goldman Sachs, Morgan Stanley and Barclays began developing index funds (collective investment schemes) based on these commodities, specializing in buying futures contracts in the belief that the future price will be higher than the present price. Journalist Fred Kaufman eloquently stated this in his Harpers article ‘The Food Bubble’:
“Goldman Sachs envisioned a new form of commodities investment, a product for investors who had no taste for the complexities of corn or soy or wheat, no interest in weather and weevils, and no desire for getting into and out of shorts and longs - investors who wanted nothing more than to park a great deal of money somewhere, then sit back and watch that pile grow.”
All manner of institutional investors began dumping capital into these funds, driving prices, and profits, through the roof:
“As the global financial system became fragile with the continuing implosion of the US housing finance market, large investor, especially institutional investors such as hedge funds and pension funds and even banks, searched for other avenues of investment to find new sources for profit. Commodity speculation increasingly emerged as an important area for such financial investment.”
Traditionally, futures contracts play an important role in price discovery, reducing the price risk of the commodity itself. However without a limit to the number of commodity futures contracts that could be held, investors were able to withhold huge amounts of food from entering the market. When combined with the real supply and demand factors mentioned above, this spelt volatile price spikes; between 2005 and 2008 the price of maize nearly tripled, wheat prices increased by 127%, and rice by 170%. Throughout the crisis, at least 40 million people went driven into hunger, and the number of people driven into extreme poverty rose from 130 to 150 million.
And worse, this speculation wasn’t limited to the 2007-2008 period. While commodity prices fell again in 2009, the latter half of 2010 saw them again skyrocket, reaching an all-time high at the end of that year, and remaining high into this year. Today, over a billion people remain hungry, while wealthy investors continue to reap huge profits by gambling on the stomachs of the world’s most vulnerable.
Dodd-Frank Reform
Following the global financial crisis, Representative Barney Frank and the Chairman of the Senate Banking Committee Chris Dodd proposed legislation to boost US financial stability. The Dodd-Frank Act provided sweeping financial reforms to the US financial sector, including reforms to commodity futures regulation. Section 737 (4) requires the CFTC to ‘establish limits on the amount of positions, as appropriate, other than bona fide hedge position, that may be held by any person with respect to contracts of sale for future delivery or with respect to options on the contracts or commodities traded on or subject to the rules of a designated contract market.’ These limits should, ‘to the maximum extent practicable ... diminish, eliminate, or prevent excessive speculation ... [and] deter and prevent market manipulation, squeezes and corners...”.
So far so good right, problem solved? Think again. The legislation provided a 270-day window in which position limits were to be put in place, meaning that by the 17th of April this year, this problem should have been solved, or, at the very least, ameliorated. However that date came and went, and the CFTC failed to reach agreement. A new date was set for the 4th of October, however that date also came and went with no further advance. CFTC Chairman Gary Gensler responded, saying “We’re not trying to do this against a clock. We’re trying to do this in a way that gets it right. So a few more weeks is a small thing for us to be concerned with if we’re going to get it thought through in a better way.” The rules have now been delayed until October 18.
The Speculators Fight Back
The CFTC isn’t so much concerned with world hunger as its reason for regulating commodity futures, and
has hardly addressed the issue in public statements. However futures trading also affects other commodities such as oil, gold and silver, all of which have risen sharply over the past few years. Robert Pollin and James Heintz of the Political Economy Research Institute at the University of Massachusetts calculate that,
“...the average US consumer paid a 83-cent-per-gallon premium in May for their gasoline purchases due to the huge rise in the speculative futures market for oil. Considering the US economy as a whole, this translates into a speculation premium of over $1 billion for May alone. Of the May price were to hold for a year, that would mean that the speculative premium would total $12 billion.”
The price of oil seems to be the CFTC’s main focus regarding position limits. And its something that is hotly contested, as speculative investors recoil in horror at the idea of their profit blade being diminished. Their effect is indeed being felt, as Reuters reported in mid-September that internal strife at the CFTC had slowed
the progress of the position limits rule, and they were struggling to harmonise it with other regulations required under Dodd-Frank.
Leaked documents give us a picture of what the final regulation might look like. The CFTC has proposed a limit of 25% of the deliverable supply of the underlying commodity, a pitifully weak threshold that would allow four financial entities to dominate an entire commodity market. Indeed these limits might even encourage speculation, while other proposed rules would allow companies to avoid aggregating positions in different trading accounts, provided accounts are independently controlled and firewalls are imposed between trading desks. This would be very difficult to regulate, and provides banks with a set of loopholes big enough to drive a Wall Street bailout or bonus through. Traders who exceed futures limits would also be able to use swaps (derivatives that allows parties to exchange benefits of their respective financial instruments) to reduce their net position.
Asleep at the Wheel? Let’s see who’s driving...
Still, it should come as no real surprise that the limits being toyed with by the CFTC fail to address the problem of excessive speculation. CFTC Chairman Gary Gensler himself spent 18 years at Goldman Sachs,
had made partner by the time he was 30, and eventually became the company’s co-head of finance. He subsequently worked as the undersecretary for domestic finance at the Treasury Department during the Clinton era, during which time he advocated the passage of the CFMA mentioned above. Commissioner Jill E Sommers also worked closely with congressional staff on the drafting of the CFMA, while another Comissioner, Scott D O’Malia, lobbied for the repeal of the Public Utility Holding Company Act, legislation that was directed at curbing speculation by energy and water utilities.
These viewpoints dominate the CFTC, and they represent the extent of regulatory capture that the finance industry holds over Washington. In light of this, it is little wonder that the proposed limits leaked from the CFTC do little to rein in excessive speculation. Added to this is the fact that the CFTC’s funding hangs in the balance. While the Senate Appropriations Committee recently approved a bill raising the CFTC budget (from $202 million to $240 million for 2012), it is unclear how this will be reconciled with a House bill that cuts the CFTC’s funding to $171.9 million.
Still, all is not lost. Within the CFTC, the other camp is headed by Commissioner Bart Chilton, a vocal supporter of position limits, who has spoken out strongly against speculation in commodity markets, especially the silver market (in late 2010 he revealed that a single trader controlled 40% of the market).
Anti-Excessive Speculation Act 2011
More promising is the Anti-Excessive Speculation Act of 2011, intended to “prevent excessive speculation in commodity markets and excessive speculative position limits on energy contracts...” Democratic Senator Bill Nelson of Florida and Representative Peter Welch introduced matching bills in late September 2011 to cap position limits at a level that reflects market fundamentals of supply and demand.
Section 5(7) of that Act defines an excessive speculative position as a position that affects “more than 5 percent of the estimated deliverable supply of the same commodity,” a drastic reduction on the amount of a commodity than can be gambled on than under either the present scenario or the leaked regulations from the CFTC. While a number of Democrats support the initiative, the massive support the Democratic Party has received from the finance industry would likely mitigate its passage in the Senate, or in the Republican-led House of Representatives for that matter. Indeed, it is would be unlikely that Congress would bother intervening while the CFTC, a supposedly expert, non-partisan body, is still busy delaying in this area.
And all the while as Washington and Wall Street bounce back and forth on this issue, commodity prices hover just below their all-time high and over a billion people continue to starve.
While the zombie bankers and blood-sucking speculators mightn’t realize it, food is a human right, and we need to recognize that the rights of humanity are far too important to be left to the market.
The Tax Man Cometh…For Your Fridge?
Federal government should crack down on consumption of fries, chips, soda, and other snack foods while promoting healthier fare like vegetables
Center for Consumer Freedom
Monday, July 25, 2011
“Freedom fries” might be making a comeback—and this time, it’s not because of the French. Writing in The New York Times this weekend, foodie pundit Mark Bittman declares that the federal government should crack down on consumption of fries, chips, soda, and other snack foods while promoting healthier fare like vegetables. And he argues the feds should do this by using the tax code to make you pay for buying food that’s not government-approved.
We certainly have to hat-tip Bittman for his ambition. (Though “delusion” might be a more appropriate word.) Under his plan, federal bean counters will go through each one of the 38,718 items (on average) in a supermarket and assign a tax or subsidy value to them. They’d then have to monitor the market for new food products. And there’s more, writes Bittman:
We could sell those [healthier] staples cheap — let’s say for 50 cents a pound — and almost everywhere: drugstores, street corners, convenience stores, bodegas, supermarkets, liquor stores, even schools, libraries and other community centers.
It’s unclear who Bittman is referring to when he writes “we.” Presumably, “we” is a nicer way of saying “the federal government that will require everybody to follow my scheme.” But does he really think people will make sure to pick up a pound of spinach when buying a bottle of vodka or that farmers market produce would flourish at a drugstore?
Putting aside the impracticality of what Bittman supposes to impose, his assumptions themselves require logical leaps and bounds.
The idea that federal farm subsidies are leading to obesity is an oft-repeated myth. But University of California-Davis researchers concluded in 2008 that “even entirely eliminating the current [federal farm-support] programs could not be expected to have a significant influence on obesity rates.” (Raw-material costs and finished-goods costs are two entirely separate things.)
And the notion that simply decreasing the amount of soft drinks consumed will improve health remains unproven. There’s no credible scientific evidence that sugar-sweetened drinks are especially fattening to begin with since their calories are counted like any other food. And one study from December found a tax targeting soft drinks would lead to people switching to equally caloric untaxed drinks.
Even Kelly Brownell of Yale’s food-cop-harboring Rudd Center (which Bittman cites approvingly) admits about soda taxes that “nobody has been able to see how people will really respond under these conditions.”
Quickly, then, Bittman’s federal framework for reducing obesity would have to involve taxing the amount of calories people consume—taxing how much people weigh, really. That doesn’t seem too appetizing.
We could go on about the flaws in Bittman’s reasoning, but the heart of the to-tax-or-not-to-tax matter can be seen in his own arrogance. “It’s true that you don’t need to smoke and you do need to eat,” he writes. “But you don’t need sugary beverages (or the associated fries).”
Well, it’s comforting to know that humanity has omniscient Supreme Emperor Bittman to declare what each peasant needs and doesn’t need. But frankly, we’re confident that we can manage what’s on our plate better than a smug Times pundit whose claim to fame is cooking, not policymaking.
To Bittman his like-minded ilk: Give us potato chips, or give us death.
The Food Police
By Attorney Jonathan Emord
Author of "The Rise of Tyranny" and "Global Censorship of Health Information"
July 18, 2011
In many ways, President Obama and his allies in Congress believe they know better than you do what is in
your own best interest, but when it comes to policing the American diet, the Obama Administration takes the cake (quite literally). In an obscure provision of the 2009 Omnibus Appropriations Act, Congress ordered federal agencies to come up with a proposal for improving children’s diets and stemming the tide of childhood obesity. In pertinent part, Congress called for an Obama Administration working group “to conduct a study and develop recommendations for standards for the marketing of foods when such marketing targets children who are 17 years old or younger or when such food represents a significant component of the diets of children.” In short, Congress with the full support of the President, ordered federal agencies to propose to Congress a regulatory means for altering the American diet.
Regulators at the Federal Trade Commission, the Centers for Disease Control and Prevention, the Food and Drug Administration, and the United States Department of Agriculture convened an Interagency Working Group on Food Marketed to Children. They recently proposed measures that would deny consumers the freedom to access fattening foods and would deny producers of those foods the freedom to advertise their gustatory benefits. They invite the industry to adopt the measures voluntarily before the IWG makes its formal recommendations to Congress.
Typical of this Administration, the recommendations are not that parents be given more information to make their own decisions concerning how best to regulate their children’s diets, instead the regulators favor measures that would restrict the kinds of foods that could be sold to children, the quantities of nutrients in foods that could be sold to children, and the advertising of products to children.
All too typical of the Obama Administration and its allies in Congress, the recommendations depend on removing sovereignty from the individual and placing it in government. Not one word appears in the proposal stating a single concern that the measures, whether implemented through agency coercion or Congressional legislation, might deprive Americans of freedom of choice. Not one word appears questioning the authority of the government to violate individual rights to liberty, speech, and property in pursuit of a public objective. Not one word appears revealing whether some in the population of children would suffer caloric deprivation or be unduly restricted in accessing needed foods by the recommendations. Instead, the IWG proposal leaps from a presumption of a universal problem to a conclusion that government needs to coerce private companies to abide by a new food code for children.
In the words of the IWG, its proposed recommendations are “designed to encourage children, through advertising and marketing, to choose foods that make a meaningful contribution to a healthful diet” and to “minimize consumption of foods with significant amounts of nutrients that could have a negative impact on health or weight—specifically sodium, saturated fat, trans fat, and added sugars.” The IWG pressures food
manufacturers to comply with its recommendations by 2016, urging them not to market to children any food containing more than 1 gram of saturated fat per Reference Amount Customarily Consumed (RACC), any food containing trans fats, any food containing more than 13 grams of added sugars per RACC, and any food containing more than 210 mg of sodium per serving. Most commonly sold pizzas, Italian foods, ice cream, sugarized beverages, chocolates, cakes, and pastries would be off limits for kids under this schema.
The IWG recommendations include an enormous fault, even by other federal regulators own reckoning. As the FTC has touted for years, weight is a factor of two functions, caloric consumption and caloric expenditure. Consequently, if I choose to run five miles a day, my caloric expenditure will permit ingestion of far more calories than if I were totally sedentary. Therefore, the notion that restricting foods to kids will solve the food problem is a reckless, even unscientific, one. A boy on the wrestling, football, soccer, swimming,
basketball, or track team can surely handle far more calories than the typical lad who chooses not to be athletic. In short, imposition of a coercive ban on foods is arbitrary and capricious because the caloric needs of any two individuals are not the same. Moreover, diet is a complex itself. If I choose to consume a bowl of ice cream for breakfast, nothing for lunch, a bowl of carrots for dinner that is likely to result in less weight gain than if I consume a bowl of ice cream for each meal, all other things considered equal. Consequently, if regulators coerce ice cream makers to alter the formulation of their products to include artificial ingredients having low calories and no sugar, they will deny the prudent consumer of ice cream fats and sugars he or she may need or enjoy for the sake of imprudent ones who happen to like to eat a lot of ice cream.
In the end, whether an American gorges himself on fattening and sugarized foods or not is no legitimate concern of the federal government and is entirely a matter for that individual to reconcile. If we cannot enjoy the freedom to determine what foods we ingest, we can hardly consider ourselves a free people.
If a family wants to eat pancakes for breakfast with lots of butter and sugar lathered atop them, that choice is rightfully theirs. To regulate the manufacturers of syrup, pancake batter, and butter to force them to limit the quantities of those products sold or to alter their composition to comply with the dictates of federal food police offends our most basic conceptions of sovereignty and liberty. It is tyranny.
In the end, we can envision a body of mildly plump bureaucrats with Ph.D.s in nutrition science, struggling over whether a twinkie should be permitted to be marketed or advertised; whether soda should be lawful in the market; or whether candy and cookies should be reformulated to be devoid of fat and sugar. Future news stories could read, local doughnut shop closed by order of the Food and Drug Administration for selling doughnuts that contain too much fat. Or, try this one, church picnic stopped by FDA agents when parent revealed that the menu included French fries containing quantities of fat forbidden by federal regulation.
There is an alternative to this highly paternalistic approach, the only one consistent with the Constitution: To trust in the American people to make their own food choices, if only well enough informed. Rather than presume that the federal government knows better than the typical American how to order the family diet, the better approach is to eliminate regulation denying consumers access to health information concerning the disease risk reducing and disease treatment effects of certain nutrients in foods and the corresponding disease promoting effects of certain other ingredients in foods. Were the federal government to end its censorship of health claims, the market could be replete with information aiding consumers in detail on the relative health benefits of foods. In that way, conscientious parents may make their own choices concerning how best to stock cupboards and prepare meals. They would proceed in an environment of freedom, rather than one of restraint.
Thomas Jefferson wisely explained, “I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.” The Obama Administration and its allies in Congress so abhor individual freedom of choice and so believe in state paternalism that they cannot help but attempt to dictate the most basic of decisions, including what’s for dinner. Their approach is more appropriately called slavery. It is indeed ironic that a man who had slaves for ancestors would endeavor to enslave the American people through the power of the regulatory state.
Also See:
Control the Food, Control the People! (Part 1)
17 March 2009
Control the Food, Control the People! (Part 2)
09 April 2010