Price shock in Tunisia and the world economy

A coup, or revolution, in north Africa fuelled by economics: mass unemployment of highly-educated graduates. That is a factor across the Maghreb.

The spark, however, was mass complaints about huge surges in food prices. Tunisia does not have the mass gas resources of neighbour Algeria. The Algerian government attempted to buy off similar riots earlier in the week by promising to use some of that countries’ gas revenues to lower food prices. Clearly, the world impact of renewed strife in Algeria could impact gas prices.

Little shock that other nations in the area have acted rather sharply.

Wheat prices, we know have been forced up because of droughts and fires around the world, severely reducing corruption. There have been localised problems with onion prices, for example in India. Oil is heading towards $100 a barrell, with visible impacts at the petrol pump.

But speculation is clearly having an impact. Clearly. I do wonder about the role of Exchange Traded Funds, or ETFs, in helping supersize some of these commodity price increases. More on those another day.

The monetary policy of the US is also contributing by creating jumbo-incentives for US banks to stop holding US Treasury bonds (government debt) and go out and invest in risky assets. It’s partly the unintended consequence of QE2 around the world. One week it’s inflating the price of Facebook, the next it appears to be futures of commodities.

Governments around the world have been re-erecting the barricades in the global capital market, seeking to create barriers to the tsunami of hot money flowing from the Federal Reserve.

When Governments start to fall, perhaps the world will start to notice.