Three major crises: Credit, food and energy

Three major crises: Credit, food and energy

The world today is facing three major crises – the financial crisis, the food and commodities crisis, and the energy crisis. Each has become global in scale which explains why many countries are in turmoil.

The financial crisis began in the United States in August last year with the so-called sub-prime mortgage crisis. Big and venerable banks which should know better lent oodles of money to poor and undesirable housing borrowers who didn’t know any better. Then interest rates began climbing. The borrowers, of course, couldn’t pay. They had no capacity to pay in the first place. This situation multiplied over a million times resulting in massive defaults and foreclosures (which could reach $300 billion), crashing home prices (by 14 to 22 percent during 2007 and 2008), and bankruptcies among lenders like Northern Rock and Bear Stearns (losses of lenders are estimated at $200 billion).
The crash, some analysts claim, is the worst since the Depression. the credit crunch will linger for longer than two years, probably four years, if not longer. In a credit squeeze, consumers won’t be able to borrow money to buy a house, a car, or simply go shopping. Corporations won’t be able to borrow money to open businesses, expand or conduct R and D. The result is an economic slowdown.

The Economist thinks the US is now in recession. The International Monetary Fund says “the continuing deep correction in the US housing market and the unresolved financial sector problems have led the US economy to the verge of recession.”

“We are now anticipating that the US will indeed slip into (a mild) recession – meaning it will experience two or more quarters of negative growth – during the course of 2008, before starting a moderate recovery at some point in 2009.”

The housing bubble has spread to Britain and the credit jitter has leapfrogged to Europe. The US and Europe are Asia’s biggest markets. If they slow down, then Asia slows down. The IMF sees a 25 percent chance global growth will decline to three percent or less per year in 2008 and 2009— “equivalent to a global recession.” “The greatest risk comes from the still unfolding events in the financial markets,” the Fund points out.
To me, the greatest risk comes from the food crisis. Rice prices are the highest in 20 years and climbing.


The food crisis began when world cereal stocks last year came to their lowest in 30 years (to just 57 days so that a drought, flood or crisis will cause massive disruption in supplies). This is the effect of a combination of factors like climate change or global warming, America’s shifting a fifth of its corn production to producing ethanol, and loss of focus on agriculture by the major food producing countries and international research and aid agencies. This was aggravated by the insatiable demand for food by huge countries like China (pop. 1.32 billion) and India (pop. 1.12 billion). Food production has been growing by one percent while the world population is rising by 1.3 percent per year.

You wonder why despite the fact that the International Rice Research Institute has been in Laguna for 30 years, the Philippines and the rest of Asia still suffer from food shortages and food imbalances leading to the crisis we are in today.

The world has 6.67 billion people. More than half of the population depends on rice. About 90 percent of global rice production comes from Asia.

The IMF Managing Director Dominique Strauss-Kahn told a press briefing on April 12 in Washington DC that “if food prices go on as they are today, then the consequences on the population in a large set of countries, including Africa, but not only Africa, will be terrible. Hundreds of thousands of people will be starving. Children will suffer from malnutrition, with consequences all of their lives.”
“The consequences will be such that disruptions may occur in the economic environment, trade balances, current, so that at the end of the day most of governments, having done well during the last five or ten years, willsee what they hae done totally destroyed and their legitimacy facing the population destroyed also,” says Strauss-Kahn. “So it’s not only a humanitarian question. It is not only an economic question. It is also a democratic question. Those kind of questions sometimes end into war.”
Indeed, if the US, the world’s richest country, went to war in Iraq because of oil, why not other countries, because of food?
As for energy, oil will remain at $100 per barrel. Some analysts predict a $150 to $250 per barrel oil.

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