Saturday, December 08, 2007

Ending the modern era

David Seaton's News Links
We are looking at a sea change in international relations.

Since the nineteenth century everything has been predicated on the seigneur-vassal relationship between Europe/America and the rest of the non-white world. (with the Japanese as 'honorary caucasians'). That is finished. This is truly the end of the modern era.

Imperialism didn't end when the empires dissolved. When the former colonies became independent, nothing really changed at all. In the Cold War world, they simply became the vassals of either the USA or the USSR: rule takers, not rule makers.

China's engaging with capitalism on capitalism's own ground, but playing by Chinese rules, has put paid to hundreds of years of Eurocentric navel gazing. The rise of India's enormous, new, English speaking middle class, dynamic and voracious, only accelerates the tipping of the scales.

When something as massive and long standing as that relationship of "superior/Inferior" falls apart, many are hurt by the falling debris. Things like food, water and air can no longer be taken for granted anymore. We now enter terra incognita. That is the principal characteristic of our time. DS

Food: Cheap no more - The Economist
Abstract: In early September the world price of wheat rose to over $400 a tonne, the highest ever recorded. In May it had been around $200. Though in real terms its price is far below the heights it scaled in 1974, it is still twice the average of the past 25 years. Earlier this year the price of maize (corn) exceeded $175 a tonne, again a world record. It has fallen from its peak, as has that of wheat, but at $150 a tonne is still 50% above the average for 2006. As the price of one crop shoots up, farmers plant it to take advantage, switching land from other uses. So a rise in wheat prices has knock-on effects on other crops. Rice prices have hit records this year, although their rise has been slower. The Economist's food-price index is now at its highest since it began in 1845, having risen by one-third in the past year. Normally, sky-high food prices reflect scarcity caused by crop failure. Stocks are run down as everyone lives off last year's stores. This year harvests have been poor in some places, notably Australia, where the drought-hit wheat crop failed for the second year running. And world cereals stocks as a proportion of production are the lowest ever recorded. The run-down has been accentuated by the decision of large countries (America and China) to reduce stocks to save money. Yet what is most remarkable about the present bout of “agflation” is that record prices are being achieved at a time not of scarcity but of abundance. According to the International Grains Council, a trade body based in London, this year's total cereals crop will be 1.66 billion tonnes, the largest on record and 89m tonnes more than last year's harvest, another bumper crop. That the biggest grain harvest the world has ever seen is not enough to forestall scarcity prices tells you that something fundamental is affecting the world's demand for cereals.(...) Central bankers are determined to ensure that what could be a one-off shift in food prices does not create continuing inflation by pushing up wages or creating expectations of higher prices. So they are tightening monetary policy. China increased interest rates in August, Chile in July, Mexico in May. The striking thing about these rises is that they are the opposite of what has been happening in some rich countries. The Federal Reserve reduced rates by 50 basis points in September and 25 points in October; the Bank of Canada cut rates this week. The indirect effect of food-price rises has therefore been to widen the interest-rate differential between rich and emerging markets. And all this is going on as the economic balance of power is shifting. Growth in America and Europe is slowing; China and India are going great guns. Financial confidence in the West has been shaken by the subprime-mortgage crisis; capital flows into emerging markets are setting records. This shift will be tricky to handle. Such transitions always are. The risk is of a bubble in emerging markets. READ IT ALL

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