The Federal Reserve's quantitative easing program has driven a bubble in commodities. The correlation can be seen in this chart:
Wall Street / City of London firms are exploiting QE by funneling cash into fuel and food:
The biggest banks involved in the trading are Bank of America, Citibank, Deutsche Bank, HSBC, Morgan Stanley and JP Morgan. Goldman Sachs alone is estimated to have made more than $1 billion from commodities trading in 2009.
WDM's new report, 'The great hunger lottery', calls for limits to be set on the amount that bankers can bet on food prices and for an end to secretive trading. The US has recently passed tougher regulation for the financial sector but WDM says similar reforms in the EU may not be agreed because of opposition from the City of London and UK Treasury, which still denies speculation played a significant role in the 2007/8 price spikes.
'Perhaps not coincidentally, London is host to the highest amount of commodity trading outside the United States. Recent opposition to EU regulation of hedge funds by the UK treasury shows that the UK government still gives a disproportionate voice to the financial sector at the expense of other sectors of the economy, and against the interests of citizens,' says the WDM report.
Many of the same speculators blowing the commodities bubble are member banks that own arms of the Federal Reserve:
- “The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”
- “[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”
- “The Federal Reserve’s income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.”
Thus, firms such as Citigroup and J.P. Morgan Chase are not only extracting profits by betting on the commodities bubble but are actually getting increasingly large kickbacks through the 6% dividend on the ever-expanding Fed. Balance sheet.