9 August 2012

Food prices are about to rise sharply; Now for me steep price changes create a feeling of general insecurity, I guess that I am not alone here; a general feeling of insecurity is then followed by less spending in general; and that follows straight into a recession; (How do you quantify this reasoning?)

My alternative history of the economic crisis that started in 2007

Before 2008 there was a strong assumption that the inflation and interest rates would be low; this notion was enforced by the fact that inflation did not rise despite a sharp growth in oil/energy prices throughout the decade; This trick was achieved by redefining/tricking the way that economic indicators (CPI/PCE) where calculated

I guess these assumptions were the reason why subprime mortgages where valuated as AAA (really valuable assets) ; with low inflation numbers the mortgage rates would be low forever; what could possibly go wrong ? And so the whole economy was a house of cards that was based on massaging of the statistics that defined the rate of inflation.

Now the cards came down because of the world food price crisis of 2007 . I did not find any explanation on the web as to why inflation started to grow during 2007; but lets remember that it coincided with the sharp rise in food prices. I am not sure how, but it seems that somehow it was no longer possible to massage the inflation numbers while basic foods prices went through the roof.

The rest is history: people did not meet the mortgage payments due to rising interest rates; these of course are linked to inflation numbers; the banks went down, the economy freezes.

Now food prices are related to the price of oil; the weather; all sorts of reason beyond our control; Very humbling for us.

Like it said in the Shema Yisrael prayer ‘ .. And it will come to pass that if you continually hearken to My mitzvot that I command you today, to love the Lord your God, and to serve Him, with all your heart and with all your soul ? then I will provide rain for your land in its proper time, the early and late rains, that you may gather in your grain, your wine, and your oil. I will provide grass in your field for your cattle and you will eat and be satisfied.’ http://www.aish.com/jl/m/pb/48954656.html