The Oregonian story, today,
Growing too fast for own good?
contained a very illuminating comment on why the commodity prices have skyrocketed:
Richard Brock, Milwaukee-based commodities analyst, said index funds are "literally running the market" with billions of dollars in play. "It's absolutely obscene," he said.
Index fund managers see free-market economics at play.
Daniel Raab, managing director for AIG Financial Products Corp., said funds' share of the market has been near 25 percent since early 2006. Funds' investments rose to $55 billion in early April from $23 billion in the same month two years ago, due to a mix of new money and gains on funds invested. Meanwhile, total futures and options markets for major commodities such as corn, wheat and soybeans grew from about $85 billion to $222 billion.
"Ultimately, if these aren't fair prices supported by the fundamentals, then the prices won't stay at these levels," Raab said.
What this says is that the non-productive, index investment funds have cornered the market on corn, wheat, soybeans, etc, and are gouging consumers. 25% is a HUGE fraction of US food reserves and these guys, who will never, ever take delivery or actually do anything, other than churn the market, have enough money to tie up 25%.
Their rational, effective markets, only works if there aren't any players who can have a "controlling" interest. Unfortunately, just like in the sub-prime mess, the index funds, are big enough "fish" in a modest sized pond to cause major price dislocation.
So, I think we are in the middle of a "big mess" as the greed of the index funds causes major price increases (and starvation) in the world.
For those who don't want to repeat history, this looks a big like the late 1920's.
=> and what do the current crop of presidential candidates know about the Great Depression?