We’ve seen lots of talk about bubbles destroying our economy, but what are we doing to try to make sure we don’t have another one?
A bubble is caused by artificially inflated demand for a commodity. For example, the real estate bubble was caused by people who bought houses because they wanted a good investment — after all, “housing prices always go up”. But eventually the demand collapsed. The price of housing went up so far that people who, you know, actually wanted to live in a house couldn’t afford them any more. Duh.
Another bubble is oil prices. The UN estimates that speculators have driven up the price of a barrel of oil by 20 to 25%. But again, once oil gets ridiculously expensive, people stop buying it. They carpool or walk.
Now investors have found a new commodity to invest in: Food. In 2003, fund managers had $13 billion invested in food. By 2008, just five years later, that number had increased to $316 billion (yup 25 times). As a result, prices of food like bread and beef skyrocketed (and it isn’t rocket science).
What’s sickening about this is that the demand for food is stronger than the demand for housing — the spike in world food prices has brought on a spike in world hunger causing around a billion people go to bed hungry every night. Investors are betting on the price of food going up even more. According to the UN, speculation has already increased the price of food by around ten percent: “Food markets have been turned into a casino. And for no other reason than to make Wall Street money.”