Effects of Quantitative Easing on Food Prices - Research Paper Example

Quantitative Easing on Food Quantitative easing can be defined as ‘a monetary policy or instance of increasing the money supply by a central bank’. This move is normally undertaken by banks with hopes of increasing spending rates at times when consumers and business persons are reluctant to spend, thus, helping in sustaining inflation rates. Quantitative easing has many negative effects on consumers, especially those approaching retirement and those who have savings. This paper focuses on how it influences change in food prices. In 2011, the president of Euro Pacific Capital Peter Schiff states that the instability in the commodities market is influenced by the nations that print much money and demean their currencies. He stated that the United States is the leader and the rest of the countries seem to be trailing the footsteps of us. The more money countries print the higher the prices of goods grow. Thus, if countries want to end the uphill trajectory and the volatility of prices, then they need to turn off the printing presses and let interest rates rise. This statement shows the effect of quantitative easing on prices of commodities including food (Schiff, n.p.). Under normal circumstances, whenever there are quantitative easing, prices for foodstuff will be on the rise, since the money around or being in circulation increases. While the agricultural production, as well as food being manufactured in industries could be the same as it were before, quantitative easing increases the price of foodstuff as it has been commonly believed and in some cases proven that easy money reliably drives up the price. Fredrick Kaufman, writer of “A Short History of the American Stomach” and an editor to the Harper’s Magazine stated that quantitative easing brings up a new level of volatility in the markets. Because of the introduction of more billions of dollars in the market, food prices have increased because a lot of money in the market means inflation that causes a rise in the price of things. Kaufman argues that it is true quantitative easing has led to increase in food prices he goes further to say that we cannot blame quantitative easing alone because demand and supply, climate change, and speculations are also serious contributors to the volatility in the commodities market (Schiff, n.p.). As money increases and becomes more available so does the prices of food stuff rise and affect people differently because of the differences in the economic status of people, in that society. The poor are affected negatively, since they do not feel the real impact of quantitative easing. Thus, some people have been quoted making statements saying that if only the world was poor and starving masses understood the benefits of Quantitative Easing, they would perhaps not riot in the streets over increasing food prices. This shows the real effect of quantitative easing on foodstuff. People must simply be educated to understand the concept of quantitative easing. For instance, the prices of major foodstuff wheat and corn are being towered so are the profits at Goldman Sachs, according to Eric Fry of the Daily Reckoning. In his article, Eric goes further to say that the passing food problems of the poor people in places that they occupy are a minimal price to pay for the resurgent economic activity in other places. Moreover, if people do not make much money in one place, they cannot send any handouts to other places. This logic seems to inspire Chairman of Bernanke’s QE campaigns. This already is a proof that quantitative easing causes an increase on food prices and hits the poor people with detrimental effects when the prices of foods are raised because they cannot access the money said to be available (Fry, n.p.). The fact that quantitative easing increases food prices also means that it makes the availability of food scarce to many people. Quantitative easing makes the prices of stocks to shoot up and influence people to feel that they have more money, something that makes them spend more than they normally do. However, mostly families that earn large amounts of incomes because these families own a bigger percentage of the stocks feel this difference. On the other hand, the poor are affected the more because of the rising commodity and food prices. These families earn the lowest amounts of incomes that are up to 20 percent and use up to 50 percent of their income and food. The lowest earners are affected most because even when stock prices rise, their salaries remain almost the same. This is a proof that the effect of quantitative easing are felt differently by people depending on the economic status of the individuals subjected to it. The rich never feel the bite of quantitative easing since it will not only make money available to them but also in some way it makes the cost of food in relation to the money available cheaper as compared to the way it was before the quantitative easing (Schiff, n.p.). In an interesting twist, the chief U.S. economist, Joshua Shapiro of Maria Fiorini Ramirez Inc. in New York, argues that there is no much difference on whether quantitative easing occurs or not (Schiff, n.p.). He points out that people get more of the same other than very slow growth in consumer spending. The state of income growth and what goes on in the labor market determines the real effect of quantitative easing on food prices. The money considered as “cheap money” in the form of quantitative easing spoils the market conditions. As more money gets flooded into the market system, the worth of the money in circulation depreciates. This means that it will take more money to purchase items that were cheap before. Food commodities can also go to waste especially perishable or foodstuffs that expire within short deadlines because people have to look for more money to buy food that they did before (Fry, n.p.). In general, it can be said that quantitative easing increases prices for food and to extent that many people may not realize. It is evident that the working poor and lower or middle classes are disproportionally affected by quantitative easing in comparison to the remaining population. This is because majority of their expenditure is directed to food because of the increases in commodity prices. Works Cited Fry, Eric. Rising Food Prices Through the Scope of Quantitative Easing. 18 Feb 2011. Web. 1 Nov 2012. . Schiff, Peter. Quantitative Easing Driving up Food Prices. 19 May 2011. Web. 1 Nov 2012. . Read More