A new study on the link between financial speculation in commodity markets and food-price spikes shows that the model can be used to predict future food-price spikes, strengthening the case that financial speculators (fleeing the collapse of the housing market) art the root cause of the violent food-price swings that have been blamed for global starvation, riots and political instability.
The new paper -- M. Lagi, Yavni Bar-Yam, K.Z. Bertrand, Yaneer Bar-Yam, UPDATE February 2012 — The Food Crises: Predictive validation of a quantitative model of food prices including speculators and ethanol conversion -- was produced under the auspices of the New England Complex Systems Institute.
In the new study, predictions made by the researchers’ original model are compared to actual food prices between March 2011 and January 2012. Placed on a graph, the lines match closely, and do so despite spanning a major change in price trends at the last bubble’s peak.
“If you have a straight line, extend it and say, ‘Aren’t we predictive,’ it doesn’t give that much confidence,” said Bar-Yam. “If it changes direction, that’s a much more severe test of what’s happening.”
Both the European Union and United States are now considering whether and how to limit commodity speculation. In the U.S., such limits are required by the Dodd-Frank Act, but have been fiercely resisted by the financial industry.
It’s expected that the U.S. Commodity Futures Trading Commission will enact speculation limits by the end of 2012, though they might still be blocked in court. But even if the rules pass, they’re arguably weak, focusing on “position limits,” or caps on the maximum number of contracts a single speculator can hold. The rules won’t won’t prevent markets from being overwhelmed by speculation.
(But what's a little starvation and global upheaval when compared against the miracle of "enhanced liquidity"?)
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