7/3/08

The Difference a Goat Can Make.    Nick Kristof's column in today's NYTimes reports on one success story of the efforts of Heifer, International.    "She was on track to become one more illiterate African woman, another of the continent’s squandered human resources. ...  [A goat] bought by the Niantic [Connecticut] church went to Beatrice’s parents and soon produced twins. When the kid goats were weaned, the children drank the goat’s milk for a nutritional boost and sold the surplus milk for extra money.  The cash from the milk accumulated, and Beatrice’s parents decided that they could now afford to send their daughter to school."  Beatrice graduated with a bachelor's degree from Connecticut College last month.

posted July 3, 2008 at 8:30 p.m.

 

If There Is a Food Price Bubble, How Will it End?   Charles Kindleberger, in his book Manias, Panics, and Crashes  (and there is a newer edition) notes that bubbles don't just burst at their peaks.  Rather they peak, then slowly deflate, and then burst.  (So maybe there is a fault in the imagery of a "bubble.")  For example, the "bursting" of the stock market in October 1929 followed a peak of stock prices in August 1929, followed by 2 months of flat and slightly declining prices.

"As the speculative boom continues, interest rates, velocity of circulation, and prices all continue to mount.  At some stage, a few insiders decide to take their profits and sell out.  At the top of the market there is hesitation, as new recruits to speculation are balanced by insiders who withdraw.  Prices begin to level off.  There may then ensue an uneasy period of ”financial distress.” ....  For an economy as a whole, the equivalent is the awareness on the part of a considerable segment of the speculating community that a rush for liquidity --- to get out of other assets and into money --- may develop, with disastrous consequences for the prices of goods and securities, and leaving some speculative borrowers unable to pay off their loans.  As distress persists, speculators realize, gradually or suddenly, that the market cannot go higher.  It is time to withdraw.  The race out of real or long-term financial assets and into money may turn into a stampede."

So if the current high food commodity prices are in part caused by bubble psychology, we might expect not a sudden bursting at the peak, but rather a period of flat and slightly negative growth and then the sudden sharp decline in price.  Gallegati, et al.,  suggest that this phenomenon is seen not just for asset price bubbles, but also for commodity price bubbles (silver prices in the late 1980s) for which there is a "real" supply (production) and "real" demand (consumption).    So is the moderation of wheat prices in April and May of 2008 the presage of an even sharper decline as we move through the summer?    And would we have (mistakenly) seen the flatness in October - December 2007 (months 28-30 in the graph below) as a predictor of a sharp price decline?

posted July 3, 2008 at 8:20 p.m.