I write this editorial in context of the ongoing food and financial crisis that the world is reeling under and coupled with other reasons how the United States had been instrumental in creating this global catastrophe. It all started in March of 2003, when President George Bush’s Administration decided to engage Iraq, to capture those ‘WMDs’ which the Late Saddam Hussain possessed. At that time oil prices were hovering around USD 25-30 per barrel and everything seemed to be in order as far as the economics of energy was concerned. And then Iraq happened, and with it changed the global oil economics forever. Till date, Iraq has cost the US upwards of USD 2 trillion but worse than that has been the effect that Iraq engagement had on the global oil prices, throwing everything off balance. Five years since Iraq (the second largest oil supplier in the world) went into war, and as a result all supplies got disrupted from there, oil now trades at USD 100 per barrel!! And this cataclysmic rise in oil price has thrown every possible strategy and calculation completely out of sync for most nations across the world. As if this in itself was not enough, US, in order to mitigate its ever growing energy needs within the economy, has stepped up its drive towards bio-fuels, by providing illogical subsidies which has completely skewed the food grain productions across the world. In fact on account of lavish subsidies and supporting regulations, farmers across the world have replaced food grains and have been producing fuel crops for extraction of ethanol. Nothing can be more unfortunate than farmers finding it more feasible to divert corn towards production of ethanol. This, coupled with some other climatic disorders, has created havoc in the agriculture sector pushing food grain prices to record levels. According to World Bank, prices of staple food have gone up by a whopping 80% since 2005, pushing more than 100 million people below poverty levels. The effect of diversion of food grains has been so damaging that 21 of the 36 African countries have been severely affected, with food riots spreading like wildfire, as reported by FAO. Almost 40 people have been killed in Cameroon, some 200 and 24 arrested in Burkina Faso and Senegal respectively. Not just Africa, even Asia has not been spared of this crisis. There are reports that rice in Thailand is currently being sold at more than USD 800 per ton which was around USD 100 not very long ago. While the first thing that the Cuban leader Fidel Castro severely criticised the USA on in his first interaction after his hospitalisation was this very fact, Hugo Chavez, the Venezuelan Premier, who has been vehemently opposing the American drive of diverting crops, captures the entire American hypocrisy by stating that – “The FAO (Food and Agriculture Organisation) is soliciting $500 million to alleviate the food crisis, while the United States spends $500 million per day in Iraq”.
Well, that is not the only inhuman gift the Americans have given the world recently. Along with food, the other American endowment that the world is grappling with is the financial crisis. This crisis too started brewing almost five years back, coinciding with the American military engagement with Iraq. It was around that time that the US banks found new markets in highly indebted, lower middle income families with very poor credibility. And thus, sheer greed instigated them to recklessly borrow short term funds and lend them to consumers with poor credibility at high interest rates. In fact the entire drive was also supported by the Federal Reserve as it kept reducing the rate, thus pumping further liquidity into the American money markets. This not only prompted consumers and speculators on a buying binge but also escalated real estate prices to crazy levels. This boom not only further indebted the highly indebted American population but also had a contagion effect on the real estate prices across the world. It is reported that, on an average, indebtedness of American households has reached a staggering 140%, of which mortgage payments comprise of 95% of their incomes (I had first predicted this crisis due to over indebtedness of the Americans in my book The Great Indian Dream Pg 131). Though at all times it was known to the Federal Reserve and the established bankers that they have been treading on a high risk zone but then none bothered till the time business was brisk. But then the moment default rate started piling the entire house of cards came tumbling down which took away almost USD 7.7 trillion dollars global stock markets. As per Standard and Poors, this year in January alone the global stock markets lost a whopping USD 5.5 trillion dollars on account of the American sub-prime crisis.
All in all, the global citizens have always been at the receiving end of American capitalism. But then this time they have been paying an exorbitant price for their experiments and his adventurisms. And the bigger concern is that it is going to get worse with time. It doesn’t matter who becomes the next President of US, whether a Republican or a Democrat, given the damage that they have created, it would take years to restore some sense of normalcy in the global oil and economic order. And unfortunately, by that time it would be time again for some ‘other engagements’ because without that it is impossible for the incumbent American President to seek re-election!!! It is indeed sad that the world is becoming growingly uni-polar and the dominating pole is a pole of shameless inhumanity and greed. Undoubtedly a new world order is the call of the day.
- 04 May 2008 |
- Arindam on Indian Economy