We have been accused by our detractors of promoting "CLASS WARFARE" because we have refused to "X-out" (delete) from the Scriptures (specifically, the New Testament) Christ's warning against money — that the love of money cannot help but crowd out one's love for God:
In other words, if you love money, you will HATE God! If you serve money you will despise Christ - maybe not in words, but certainly in the way you live your life. That's what the Bible says! You cannot serve both money and God.
Now think about this: "THE LOVE OF MONEY IS THE ROOT OF ALL EVIL." Not "some" evil, but ALL evil. Some, of course, will make a differentiation between the "possession" of money, and the "love" of money. But that is a very thin reed on which to rest eternity - YOUR eternity!
In all my seventy years, I have only met a handful of Christians who have been truly able to walk that very, very thin line; who have been truly able to differentiate between the "possession" of money and the "love" of money.
Of course, most Christians who have money claim that they are the exceptions to the rule, but their life-style - the houses they live in, the cars they drive, the furniture that graces their homes, their business practices, and their attitude towards the poor - inevitably gives them away. Shortly before His death, Paul wrote with a heavy heart,
Speaking of the poor, Jesus said,
While the New Testament says that Christ will "... fill the hungry with good things" when He comes again (Luke 1:53a), the Bible also says that -
There is to be no room in the coming Kingdom for the rich of the world - and so much so is this to be the case, that the rich are warned -
THIS REALITY IS BEING "PLAYED OUT"
The American New World Order System
Frederick Kaufman - in an article that appeared last year (July, 2010) in Harper's Magazine entitled "The Food Bubble: How Wall Street Starved Millions and Got Away with It" - explains what's been happening:
"The history of food took an ominous turn in 1991, at a time when no one was paying much attention. That was the year Goldman Sachs decided our daily bread might make an excellent investment.
"Agriculture, rooted as it is in the rhythms of reaping and sowing, had not traditionally engaged the attention of Wall Street bankers, whose riches did not come from the sale of real things like wheat or bread but from the manipulation of ethereal concepts like risk and collateralized debt.
"But in 1991 nearly everything else that could be recast as a financial abstraction had already been considered. Food was pretty much all that was left. And so with accustomed care and precision, Goldman's analysts went about transforming food into a concept.
"They selected eighteen commodifiable ingredients and contrived a financial elixir that included cattle, coffee, cocoa, corn, hogs, and a variety or two of wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known thenceforward as the Goldman Sachs Commodity Index. Then they began to offer shares.
Goldman Sachs Commodity Index
NOTE: The creation of the Goldman Sachs Commodity Index is — as stated above — based on complicated mathematical formulations; the product created is called a "derivative." Derivatives are "investment instruments" whose value is linked to or "derived" from some other security. Derivatives are an extremely high-risk form of market speculation; nonetheless, they have become in recent years one of the largest markets in the world. The size of the derivatives market is estimated to be $600 trillion today. And just how complicated these mathematical formulations are can be demonstrated by examining the so-called PEARL derivative, a currency derivative that was marketed by Morgan Stanley in the early 1990s. The Pearl derivative (a simple derivative by today's standards) was linked to its principal multiplied by the change in the U.S. dollar over a particular period of time, plus twice the change in the value of the British pound, minus twice the change in the value of the Swiss Franc.
"As was usually the case, Goldman's product flourished. The prices of cattle, coffee, cocoa, corn, and wheat began to rise, slowly at first, and then rapidly. And as more people sank money into Goldman's food index, other bankers took note and created their own food indexes for their own clients. Investors were delighted to see the value of their venture increase, but the rising price of breakfast, lunch, and dinner did not align with the interests of those of us who eat. And so the commodity index funds began to cause problems.
"Wheat was a case in point. North America, the Saudi Arabia of cereal, sends nearly half its wheat production overseas, and an obscure syndicate known as the Minneapolis Grain Exchange remains the supreme price-setter for the continent's most widely exported wheat, a high-protein variety called hard red spring. Other varieties of wheat make cake and cookies, but only hard red spring makes bread. Its price informs the cost of virtually every loaf on earth."
An obscure syndicate known as the Minneapolis Grain Exchange remains the supreme price-setter for the continent's most widely exported wheat, a high-protein variety called hard red spring. Upper Left: Minneapolis Grain Exchange today; Upper Right: The Exchange itself; Lower Left: The Old Exchange trading pits; Lower Right: Hard Red Spring wheat.
According to Steven Rothbart, a commodities trader for Cargil, when Goldman Sachs entered the commodities market —
"Commodities had died. We sat there every day and the market wouldn't move. People left. They couldn't make a living anymore."
It was in the midst of this dead market that Goldman Sachs created its index fund: the strategy behind the index consisted essentially of creating a "BUBBLE" in the price of a certain commodity and persuading investors to participate in the creation of that bubble by bidding the price of the commodity up through a mechanism known as "REPLICATION." [Please see Appendix 1 for a description of this mechanism.]
While they would never admit it, what Goldman Sachs created was a very, very sophisticated PONZI scheme. [Please see our article, "Ponzi Schemes, The Investment Craze and the End of Days" for a description of a Ponzi scheme.]
As a result of Goldman Sachs' Ponzi scheme, the price of wheat rose from a little less than $4.00 a bushel in 2003 to over $15.00 by 2008 — a rise of 400 percent, and it did so when the world was producing more wheat than ever before.
Indeed, the wheat harvest of 2008 turned out to be the most bountiful the world had ever seen. U.S. Department of Agriculture statistics eventually revealed that 657 million bushels of 2008 wheat remained in U.S. silos after the buying season, a record-breaking "carryover." So plentiful was the supply of wheat that even as hundreds of millions slowly starved around the world, 200 million bushels were sold for animal feed. Livestock owners could afford the wheat; poor people could not.
Agriculture statistics eventually revealed that 657 million bushels of 2008 wheat remained in U.S. silos after the buying season, a record-breaking "carryover."
The worldwide price of food as a whole rose by 80 percent between 2005 and 2008, and unlike other food catastrophes of the past half century or so, the United States was not insulated from this one, as 49 million Americans found themselves unable to put a full meal on the table. Across the country demand for food stamps reached an all-time high, and one in five kids came to depend on food kitchens. In Los Angeles nearly a million people went hungry. In Detroit armed guards stood watch over grocery stores.
Naturally enough, as with all Ponzi schemes, the Ponzi pyramid had to eventually collapse, and it did for wheat shortly after reaching the astronomical price of over $15.00 a bushel in 2008. But Goldman Sachs had found a way to profit from the pyramid scheme regardless of whether it was inflating or deflating. Kaufman writes:
"If the price of wheat went up, Goldman made money. And if the price of wheat fell, Goldman still made money ... The bankers had figured out how to extract profit from the commodities market without taking on any of the risks they themselves had introduced ..." [Again, please see Appendix 1 for a description of this mechanism.]
And what happened in 2008 may only be the beginning of man-made scarcities in the world's food supply. Kaufman warns:
"It may be hard to imagine commodity prices advancing another 460 percent above their mid-2008 price peaks. But the fundamentals argue strongly that these sectors have significant upside potential. I made a quick calculation: 460 percent above 2008 peaks would mean hamburger meat priced at $20 a pound."
NOTE: Paul B. Farrell writes that if one believes that average investors in the commodity markets will eventually "catch on" to how they are being duped, Goldman Sachs is already "... adjusting its strategies to keep a steady supply of naïve, clueless investors buying their toxic commodity ETFs, "dumb money" investments that "make lousy buy-and-hold investments" for Main Street investors while making Wall Street traders filthy rich."
Liam Fox and Gilbert Mercier describe the idea behind what Goldman Sachs and other Wall Streeters are up to:
"The idea is quite simple. It's a regular process of boom and bust with an elite few consistently making as much money off the bust as they do the boom. The boom period attracts people to invest their money into the inflating financial system. The bust allows for the money to be consolidated into the few hands that control and manipulate the system. At first you create the right conditions for an economic bubble to occur to get as much money as possible injected into the financial markets. During such a period of boom, the people running the financial game can reward themselves handsomely without even attracting attention from shareholders, because investors, especially the small ones, are under the illusion that they are greatly profiting from the upward trend. When the bust happens, suddenly the pseudo-science of Wall Street is replaced by the odds of chance in Vegas. Sorry for your luck, the house always wins in the end."
The House always wins!
Rolling Stone's McKenzie Funk adds another brutal critique regarding what Wall Street is up to in "Will Global Warming, Overpopulation, Floods, Droughts and Food Riots Make This Man Rich?"
Funk focuses on Phil Heilberg, a former AIG commodity trader who is one of the new "Capitalists of Chaos." Heilberg is a self-proclaimed pure Ayn Rand capitalist hustling Africa, making "land grab" deals to control millions of acres and commodity rights in unstable nations in order to drive the price of food up all the more.
Regarding what Heilberg is up to in Africa, Funk writes that Heilberg -
"... makes no apologies for dealing with warlords: 'This is Africa ... The whole place is like one big Mafia, and I'm like a Mafia head.'"
Funk says, however, that people like Heilberg know -
"... that the 'Food Bubble' they're collectively blowing will also explode, triggering wars across the planet, wars fought over ever-scarcer non-renewable commodities. That's why the new Capitalists of Chaos -- not just Heilberg and Goldman, but Monsanto, Exxon, etc. -- and their competitors are in the short race to buy up and hoard rights to hard assets, positioning themselves for global catastrophes dead ahead."
In other words, Goldman Sachs, Monsanto, etc. are not only creating a "Food Bubble" on paper (i.e., creating "scarcity" on the world's commodity exchanges), but they are doing everything in their power to make it real by buying up the hard assets themselves and taking them "out of the market," thus creating REAL scarcity - even if it means starving people around the world.
Britain's Guardian reports that the trend for large land acquisitions by First World corporations is a wide-spread phenomenon affecting ever growing parts of south-east Asia, Africa and Latin America.
For instance, in Cambodia, 15% of land has been signed over to private companies since 2005. The Guardian goes on to report that -
"Many of the deals are shrouded in secrecy, so the scale of what is happening is obscured ... It's not hard to see why the subject generates so much attention. It's partly the secrecy element, partly the fear ... Large-scale land acquisition prompts all too vividly visions of a dystopian future in which millions of the hungry are excluded from the land of their forefathers by barbed wire fences and security guards as food is exported to feed the rich world.
NOTE: Dystopia is an imaginary place where everything is as bad as it possibly can get.
"This is no longer just a fear for the future. US environmentalist Lester Brown points out in his new book, World on the Edge, that in 2009 Saudi Arabia received its first shipment of rice from giant corporate agri-businesses that had acquired land in Ethiopia while at the same time the World Food Programme was feeding 5 million Ethiopians. Similarly in the Democratic Republic of the Congo, 7 million hectares for palm oil production were exported by agri-businesses while millions of people in the DRC are dependent were international aid for food ... [Please see our article, "The Congo and American Greed."]
"Much of the attention so far has focused on Africa. Most of the biggest deals have been in countries such as Ethiopia, Mali and Sudan. The imminently independent south Sudan has seen investors queuing up to exploit one of the areas of greatest potential for as yet under developed agricultural land. In comparison with many other areas of the world, land in Africa is very cheap; in Ethiopia, land can be leased for as little as $1 an acre."
Concerning what's happening in Ethiopia, Fekade Shewakena writes:
"If you are wondering why the government of Meles Zenawi in Ethiopia is doing the secretive land deals with ... agribusiness corporations without any public discussion and scrutiny, and why the officials are handling it in much the same way like thieves who sell their stolen stuff on street corners and dark alleys, you have asked a serious question and probably have almost gotten some of your answers. This is pure theft and burglary sugarcoated as investment — only in this case that the burglar has someone to open the door from inside. It is a dangerous venture that has little to do with solving Ethiopia's economic problems but bound to negatively impact the country's most strategic resources, land and water, and its posterity. It appears that we have reached a point where we are selling out our last belongings just like the desperate peasants I once saw in 1984 sell their last belongings for scrape as they fled their villages to escape an impending famine.
"This land deal, now popularly known as "land grab" among other names, and becoming epidemic in desperately poor ... countries, is a neocolonial venture where land is being sold to foreigners at bargain prices.
Foreign land grabs by First World "investors."
State and private investors, from Citadel Capital to Goldman Sachs, are leasing or buying up tens of millions of hectares of farmlands in Asia, Africa and Latin America for food and fuel production. Land grabbing has intensified over the past 10-15 years with the adoption of deregulation policies, trade and investment agreements, and market oriented governance reforms. [From "Food Crisis and the Global Land Grab."]
"The "investors" are salivating over the cheap access to agricultural land, water and cheap labor which would definitely make them even richer in the lucrative food markets ... The Meles Zenawis of Africa are salivating over the quick cash that will go to temporarily solve their hard currency crunch and the opportunity of swelling their individual bank accounts. Those who likened these secret deals to the colonial scramble for African land, where some local chiefs signed and sold off tract after tract of land to colonialists under the influence of alcohol supplied by the colonialist and some glittering gifts, are not very far from an accurate description of these transactions."
NOTE: One would be very wrong to assume that these kinds of land grabs are only occurring in Third World countries; they are happening in First World countries such as Canada. For example, NFU (the National Farmers Union) reports that —
McKenzie Funk continues with his assessment of what commodity traders such as Phil Heilberg — people that Funk calls "CAPITALISTS OF CHAOS" — are creating, and in doing so he echoes what Ellen Brown had to say earlier about the chaos this is creating in North Africa and the Middle East:
"The toxic trail of ... [what Goldman Sachs, etc. are up to] is already proving to be deadly, starving thousands worldwide, while the new Capitalists of Chaos only see incredible profit opportunities, as they make huge bets that they'll get even richer in the next round of catastrophes, disasters, poverty, starvation and wars.
"Bottom line: Commodity ... [trading] is mutating into a toxic pandemic fueled (and protected by) the insatiable greed of banks, traders and politicians whose brains are incapable of giving up their profit machine, won't until it implodes and self-destructs. The Wall Street Banksters have no sense of morals, no ethics, no soul, no goal in life other than getting very rich, very fast. They care nothing of democracy, civilization or the planet. [Please see our article, "The Elite, Money and the End of Days."]
"They are in a race to become the richest man in the world, to control more assets, more commodities, more rights, more land, more money ... It's a contest and the other 6.3 billion humans on the planet are just profit opportunities (and collateral damage) in the dangerous high-stakes games played by the new Capitalists of Chaos ruling the world."
It is sometimes difficult for ordinary people to believe that there exist such people - people who are so past all feeling toward others, and so lacking in any kind of compassion that they would purposefully starve their fellow man in order to enrich themselves.
But, of course, they do exist. Indeed, to the elites, people THEMSELVES are "commodities" to be used up and discarded; "throw-aways" to be worked to death and then cast off as human trash the way the German chemical firm I.G. Farben did to the Jews in Auschwitz-Birkenau; the way the British elites did to indigenous workers in India, Kenya, Malaysia, etc.
In the elites' frenzied and deranged pursuit of wealth, working people are no more valuable than the iron, tin, cotton and other raw materials they use to create the "things" they "buy and sell" on the world's exchanges and in the world's market places. THESE ARE THE PEOPLE - i.e., THE ELITES - THAT THE BIBLE SAYS "TRAFFICK IN THE SOULS OF MEN;" PEOPLE WHO TRADE IN -
"... gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet ... and all manner of vessels of ivory, and all manner of vessels of most precious wood, and of brass, and iron, and marble,
"And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and SLAVES, AND SOULS OF MEN." (Rev. 18:12-13)
"... they (i.e., Christians) that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts WHICH DROWN MEN IN DESTRUCTION AND PERDITION." (I Tim. 6:9)
NOTE: Perdition here means COMPLETE ruin.
Of course, you won't here that from most of today's leaders in the evangelical church - leaders like Bennie Hinn, John Hagee, D. James Kennedy, Creflo Dollar, Charles Stanley, etc. "The blind leading the blind." (Matt. 15:14). Idiots - all of them! "Fanny kissers" to the rich; people (i.e., the rich) who are gnarled and twisted in mind and soul; people who are -
"... filled with ... covetousness ... deceit, malignity ... despiteful, proud, boasters, inventors of evil things ... implacable, unmerciful ..." (Rom. 1:29-31)
Why would Christians ally themselves with such people? But isn't that precisely what the leaders of the evangelical church have been doing in partnering with the country club patricians of the Republican Party? - conveniently forgetting what the Bible says about such alliances:
"Be ye not unequally yoked together with unbelievers: for what fellowship hath righteousness with unrighteousness? and what communion hath light with darkness?
"And what concord hath Christ with Belial? or what part hath he that believeth with an infidel?
"And what agreement hath the temple of God with idols? ..." (2 Cor. 6:14-16)
You would have to say that they are blind - and money does that to people! It blinds them; and it has UTTERLY blinded the leaders of today's church to the malicious, dirty, miserable character of the "richy riches" with whom they have partnered.
Moreover, it's not as if this blindness does not have consequences in the REAL world: It is making the evangelical Christians participants in the chaos that is developing in North Africa and the Middle East — a chaos that cannot but lead eventually to the HORROR of the Gog / Magog War.
No good can come from the alliance that Christian evangelicals are promoting with the rich of the world - an alliance that has entangled not only themselves, but Israel as well.
Christian are UTTERLY blind to the view that God takes with regard to this up-coming war; they seem UTTERLY impervious to the fact that it will result from a war that they and their Israeli ally have made with the United States, an alliance that the Bible calls —
"... your covenant with death [i.e., the U.S.] and your agreement with hell [again, the U.S.] (Is. 28:18) [Please see Chapter XV of the New Antipas Papers, "The Gog / Magog War."]
No good can ever come from an alliance with the elites of the American New World Order System — an alliance that those Christians who fail to understand the gravity of Christ's warning against the rich.
It is here — IT IS PRECISELY HERE — that you must come to grips with the UNRESERVED foolishness of people who say that in pointing these facts out we in Antipas are promoting "CLASS WARFARE;" — in saying this, they are "watering down" the Scriptures concerning the danger that contact with the rich of the world (no matter how peripheral) poses insofar as your soul is concerned. [We urge you to study our article concerning the duplicity of these men, "Your Blood Be Upon Your Own: I Am Clean of It."]
And in all of this, one should pay attention to this fact: THERE IS VERY LITTLE DIFFERENCE BETWEEN THE KIND OF PONZI SCHEMES THAT PEOPLE SUCH AS PHIL HEILBERG PARTICIPATE IN AND THE KIND OF PONZI SCHEMES THAT DENE McGRIFF AND LOEL PASSE PROMOTE. [Please see our article, "The Titanic."]
There is, to be sure, a difference in SCOPE, but there is very little difference in KIND. The point to be made here is this: One must not think that just because the kind of money schemes one is promoting are not of the same magnitude of the ones that Phil Heilberg and Goldman Sachs are promoting, one is any less a MONSTER in the eyes of God.
It's NOT without reason that the Bible warns us:
"No servant can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon." (Luke 16:13)
In other words, if you love money, you will HATE God! If you serve money you will despise Christ - maybe not in words, but certainly in the way you live your life. That's what the Bible says! You cannot serve money and God at the same time.
God bless you all!
FOR THOSE OF YOU WHO WANT TO FELLOWSHIP ON HOW TO GO ON IN THESE DANGEROUS AND TROUBLED TIMES, WE URGE YOU TO CONTACT US AT: [email protected].
IN ADDITION, WE URGE YOU TO DOWNLOAD THE NEW ANTIPAS PAPERS, PRINT THEM OUT YOURSELF, AND STUDY THEM CAREFULLY; SHARE THEM WITH YOUR FRIENDS.
FINALLY, WE URGE YOU TO DOWNLOAD AND PRINT OUT THE FLYER WE SENT TO YOU RECENTLY.
Then make copies and take these copies out to the campuses where you live; pass them out; OR if that seems too "daring" for you right now, post them on telephone poles, the sides of buildings, on campus bulletin boards; post them in union halls, in the neighborhoods of the poor and downtrodden, near employment offices, wherever you can.
Once again, we URGE you to read (or re-read):
The food bubble: How Wall Street
A LONG POSITION is when a trader buys a commodity low, and a later date sell it high; the difference between what he bought the commodity for and what he sold the commodity for is his profit.
A SHORT POSITION — is a when a trader promises a buyer that he will deliver a commodity to him at a certain price at a PRECISE date in the future; for example, the trader promises that in three months time — on a certain specific date - he will deliver 1000 bushels of wheat to him at $10.00 per bushel. If the trader can find a way of buying that 1000 bushels at a lower figure than $10.00 a bushel, he makes money; for instance, if finds a way of buying the wheat at $5.00 a bushel, he will make $5,000 on the transaction.
In fact, the structure of commodity index funds ran counter to our normal understanding of economic theory, requiring that index-fund managers not buy low and sell high but buy at any price and keep buying at any price. No matter what lofty highs long wheat futures might attain, the managers would transfer their long positions into the next long futures contract, due to expire a few months later, and repeat the roll when that contract, in turn, was about to expire—thus accumulating an everlasting, ever-growing long position, unremittingly regenerated.
"You've got to be out of your freaking mind to be long only," Rothbart said. "Commodities are the riskiest things in the world."
But Goldman had its own way to offset the risks of commodities trading—if not for their clients, then at least for themselves. The strategy, standard practice for most index funds, relied on "replication," which meant that for every dollar a client invested in the index fund, Goldman would buy a dollar's worth of the underlying commodities futures (minus management fees). Of course, in order to purchase commodities futures, the bankers had only to make a "good-faith deposit" of something like 5 percent. Which meant that they could stash the other 95 percent of their investors' money in a pool of Treasury bills, or some other equally innocuous financial cranny, which they could subsequently leverage into ever greater amounts of capital to utilize to their own ends, whatever they might be. If the price of wheat went up, Goldman made money. And if the price of wheat fell, Goldman still made money—not only from management fees, but from the profits the bank pulled down by investing 95 percent of its clients' money in less risky ventures. Goldman even made money from the roll into each new long contract, every instance of which required clients to pay a new set of transaction costs.
The bankers had figured out how to extract profit from the commodities market without taking on any of the risks they themselves had introduced by flooding that same market with long orders. Unlike the wheat producers and the wheat speculators, or even Goldman's own customers, Goldman had no vested interest in a stable commodities market. As one index trader told me, "Commodity funds have historically made money—and kept most of it for themselves."
No surprise, then, that other banks soon recognized the rightness of this approach. In 1994, J.P. Morgan established its own commodity index fund, and soon thereafter other players entered the scene, including the AIG Commodity Index and the Chase Physical Commodity Index, along with initial offerings from Bear Stearns, Oppenheimer, and Pimco. Barclays joined the group with eight index funds and, in just over a year, raised close to $3 billion.
Government regulators, far from preventing this strange new way of accumulating futures, actively encouraged it. Congress had in 1936 created a commission that curbed "excessive speculation" by limiting large holdings of futures contracts to bona-fide hedgers. Years later, the modern-day Commodity Futures Trading Commission continued to set absolute limits on the amount of wheat-futures contracts that could be held by speculators. In 1991, that limit was 5,000 contracts. But after the invention of the commodity index fund, bankers convinced the commission that they, too, were bona-fide hedgers. As a result, the commission issued a position-limit exemption to six commodity index traders, and within a decade those funds would be permitted to hold as many as 130,000 wheat-futures contracts at any one time.
"We have not seen U.S. agriculture rely this much on the market for almost seventy years," was how Joseph Dial, the head of the commission, assessed his agency's regulatory handiwork in 1997. "This paradigm shift in the government's farm policy has created a new era for agriculture."
Goldman and all the other banks that followed them into commodity index funds had figured out how to safeguard themselves, but there was a lot more money to be made if the banks could somehow convince everyone else that an inherently risky product designed to protect the banks—and only the banks—was in fact also safe for investors.
Good news came on February 28, 2005, when Gary Gorton, of the University of Pennsylvania, and K. Geert Rouwenhorst, of the Yale School of Management, published a working paper called "Facts and Fantasies About Commodities Futures." In forty graph-and-equation-filled pages, the authors demonstrated that between 1959 and 2004, a hypothetical investment in a broad range of commodities—such as an index—would have been no more risky than an investment in a broad range of stocks. What's more, commodities showed a negative correlation with equities and a positive correlation with inflation. Food was always a good investment, and even better in bad times. Money managers could hardly wait to spread the news.
"Since this discovery," reported the Financial Times, investors had become attracted to commodities "in the hope that returns will differ from equities and bonds and be strong in case of inflation." Another study noted as well that commodity index funds offered "an inherent or natural return that is not conditioned on skill." And so the long-awaited legion of new investors began buying into commodity index funds, and the food bubble truly began to inflate.
A few years after "Facts and Fantasies" appeared, and almost as if to prove Gorton and Rouwenhorst's point, the financial crisis hit mortgage, credit, and real estate markets—and, just as the scholars had predicted, those who had invested in commodities prospered. Money managers had to decide where to park what remained of their endowment, hedge, and pension funds, and the bankers were ready with something that looked very safe: in 2003, commodity index holdings amounted to a not particularly awe-inspiring $13 billion, but by 2008, $317 billion had poured into the funds. As long as the commodities brokers kept rolling over their futures, it looked as though the day of reckoning might never come. If no one contemplated the effects that this accumulation of long-only futures would eventually have on grain markets, perhaps it was because no one had never seen such a massive pile of long-only futures.
From one perspective, a complicated chain of cause and effect had inflated the food bubble. But there were those who understood what was happening to the wheat markets in simpler terms. "I don't have to pay anybody for anything, basically," one long-only indexer told me. "That's the beauty of it."
Mark Bagan, CEO of the Minneapolis Grain Exchange, invited me to his office for a talk. A self-proclaimed "grain brat," Bagan grew up among bales, combines, and concrete silos all across the United States before attending Minnesota State to play football. As I settled into his oversize couch, admired his neatly tailored pinstriped suit, and listened to his soft voice, it occurred to me that if the grain markets were a casino, Mark Bagan was the biggest bookie. Without him, there could be no bets on hard red spring.
"From our perspective, we're price neutral, value neutral," Bagan said. I asked him about the commodity index funds and whether they had transformed the traditional wheat market into something wholly speculative, artificial, and hidden. Why did anyone except bankers even need this new market?
"There are plenty of markets out there that have yet to be thought of and will be very successful," Bagan said. Then he veered into the intricacies of running a commodities exchange. "With our old system, we could clear forty-eight products," he said. "Now we can have more than fifty thousand products traded. It's a big number, building derivatives on top of derivatives, but we've got to be prepared for that: the financial world is evolving so quickly, there will always be a need for new risk-management products."
Bagan had not answered my question about the funds, so I asked again, as directly as I could: What did he make of the fact that speculation in commodity index funds had caused a global run on hard red spring?
Bagan slowly shook his head, as though he were an elementary-school teacher trying to explain a basic concept—subtraction? ice?—to a particularly dense child. The Goldman Sachs Commodity Index did not include a single hard red spring future, he told me. Minneapolis wheat may have set records in 2008 and led global food prices into the stratosphere, but it had nothing to do with Goldman's fund. There just wasn't enough speculation in the hard red spring market to satisfy the bankers. Not enough liquidity. Bagan smiled. Was there anything else I wanted to know?
Plenty, but there was nothing more Bagan was about to disclose. As I left the office, I remembered the rumors I'd heard at a grain-crisis conference in Washington, D.C., a few months earlier. Between interminable speeches about price ceilings and grain reserves, more than one wheat expert had confided, strictly on background, that at the height of the bubble, Minneapolis wheat had been cornered. No one could say whether the culprit had been Cargill or the Canadian Wheat Board or any other party, but the consensus was that as the world had cried for food, someone, somewhere, had been hoarding wheat.
Imaginary wheat bought anywhere affects real wheat bought everywhere. But as it turned out, index traders had purchased the majority of their long wheat futures on the oldest and largest grain clearinghouse in America, the Chicago Mercantile Exchange. And so I found myself pushing through the frigid blasts of the LaSalle Street canyon. If I could figure out precisely how and when wheat futures traded in Chicago had driven up the price of actual wheat in Minneapolis, I would know why a billion people on the planet could not afford bread.
The man who had agreed to escort me to the floor of the exchange traded grain for a transnational corporation, and he told me several times that he could not talk to the press, and that if I were to mention his name in print he would lose his job. So I will call him Mr. Silver.
In the basement cafeteria of the exchange I bought Mr. Silver a breakfast of bacon and eggs and asked whether he could explain how index funds that held long-only Chicago soft red winter wheat futures could have come to dictate the spot price of Minneapolis hard red spring. Had the world starved because of a corner in Chicago? Mr. Silver looked into his scrambled eggs and said nothing.
So I began to tell him everything I knew, hoping he would eventually be inspired to fill in the blanks. I told him about Joseph in Egypt, Osaka in 1730, the Panic of 1857, and futures contracts for cat pelts, molasses, and onions. I told him about Goldman's replication strategy, Gorton and Rouwenhorst's 2005 paper, and the rise and rise of index funds. I told him that at least one analyst had estimated that investments in commodity index funds could easily increase to as much as $1 trillion, which would result in yet another global food catastrophe, much worse than the one before.
And I told Mr. Silver something else I had discovered: About two thirds of the Goldman index remains devoted to crude oil, gasoline, heating oil, natural gas, and other energy-based commodities. Wheat was nothing but an indexical afterthought, accounting for less than 6.5 percent of Goldman's fund.
Mr. Silver sipped his coffee.
Even 6.5 percent of the Goldman Sachs Commodity Index made for a historically unprecedented pile of long wheat futures, I went on. Especially when those index funds kept rolling over the contracts they already had—all of them long, only a smattering bought in Kansas City, none in Minneapolis.
And then it occurred to me: It was neither an individual nor a corporation that had cornered the wheat market. The index funds may never have held a single bushel of wheat, but they were hoarding staggering quantities of wheat futures, billions of promises to buy, not one of them ever to be fulfilled. The dreaded market corner had emerged not from a shortage in the wheat supply but from a much rarer economic occurrence, a shock inspired by the ceaseless call of index funds for wheat that did not exist and would never need to exist: a demand shock. Instead of a hidden mastermind committing a dastardly deed, it was old Mike Mullin's "brainless entity," the investment instrument itself, that had taken over and created the effects of a traditional corner.
Mr. Silver had stopped eating his eggs.
I said that I understood how the index funds' unprecedented accumulation of Chicago futures could create the appearance of a market corner in Chicago. But there was still something I didn't get. Why had the wheat market in Minneapolis begun to act as though it too had been cornered when none of the index funds held hard red spring? Why had the world's most widely exported wheat experienced a sudden surge in price, a surge that caused a billion people to go hungry.
At which point Mr. Silver interrupted my monologue.
Index-fund buying had pushed up the price of the Chicago contract, he said, until the price of a wheat future had come to equal the spot price of wheat on the Chicago Mercantile Exchange—and still, the futures price surged. The result was contango.
I gave Mr. Silver a blank look. Contango, he explained, describes a market in which future prices rise above current prices. Rather than being stable and steady, contango markets tend to be overheated and hysterical, with spot prices rising to match the most outrageously escalated futures prices. Indeed, between 2006 and 2008, the spot price of Chicago soft red winter shot up from $3 per bushel to $11 per bushel.
The ever-escalating price of wheat and the newfound strength of grain markets were excellent news for the new investors who had flooded commodity index funds. No matter that the mechanism created to stabilize grain prices had been reassembled into a mechanism to inflate grain prices, or that the stubbornly growing discrepancy between futures and spot prices meant that farmers and merchants no longer could use these markets to price crops and manage risks. No matter that contango in Chicago had disrupted the operations of the nation's grain markets to the extent that the Senate Committee on Homeland Security and Governmental Affairs had begun an investigation into whether speculation in the wheat markets might pose a threat to interstate commerce. And then there was the question of the millers and the warehousers—those who needed actual wheat to sell, actual bread that might feed actual people.
Mr. Silver lowered his voice as he informed me that as the price of Chicago wheat had bubbled up, commercial buyers had turned elsewhere—to places like Minneapolis. Although hard red spring historically had been more expensive than soft red winter, it had begun to look like a bargain. So brokers bought hard red spring and left it to the chemists at General Mills or Sara Lee or Domino's to rejigger their dough recipes for a higher-protein variety.
The grain merchants purchased Minneapolis hard red spring much earlier in the annual cycle than usual, and they purchased more of it than ever before, as real demand began to chase the ever-growing, everlasting long. By the time the normal buying season began, drought had hit Australia, floods had inundated northern Europe, and a vogue for biofuels had enticed U.S. farmers to grow less wheat and more corn. And so, when nations across the globe called for their annual hit of hard red spring, they discovered that the so-called visible supply was far lower than usual. At which point the markets veered into insanity.
Bankers had taken control of the world's food, money chased money, and a billion people went hungry.
Mr. Silver finished his bacon and eggs and I followed him upstairs, beyond two sets of metal detectors, dozens of security staff, and a gaudy stained-glass image of Hermes, god of commerce, luck, and thievery. Through the colored glass that outlined the deity I caught my first glimpse of the immense trading floor of the Chicago Mercantile Exchange. The electronic board had already begun to populate with green, yellow, and red numbers.
The wheat harvest of 2008 turned out to be the most bountiful the world had ever seen, so plentiful that even as hundreds of millions slowly starved, 200 million bushels were sold for animal feed. Livestock owners could afford the wheat; poor people could not. Rather belatedly, real wheat had shown up again—and lots of it. U.S. Department of Agriculture statistics eventually revealed that 657 million bushels of 2008 wheat remained in U.S. silos after the buying season, a record-breaking "carryover." Soon after that bounteous oversupply had been discovered, grain prices plummeted and the wheat markets returned to business as usual.
The worldwide price of food had risen by 80 percent between 2005 and 2008, and unlike other food catastrophes of the past half century or so, the United States was not insulated from this one, as 49 million Americans found themselves unable to put a full meal on the table. Across the country demand for food stamps reached an all-time high, and one in five kids came to depend on food kitchens. In Los Angeles nearly a million people went hungry. In Detroit armed guards stood watch over grocery stores. Rising prices, mused the New York Times, "might have played a role."
On the plane to Minneapolis I had read a startling prediction: "It may be hard to imagine commodity prices advancing another 460 percent above their mid-2008 price peaks," hedge-fund manager John Hummel wrote in a letter to clients of AIS Capital Management. "But the fundamentals argue strongly," he continued, that "these sectors have significant upside potential." I made a quick calculation: 460 percent above 2008 peaks meant hamburger meat priced at $20 a pound.
On the ground in Minneapolis I put the question to Michael Ricks, chairman of the Minneapolis Grain Exchange. Could 2008 happen again? Could prices rise even higher?
"Absolutely," said Ricks. "We're in a volatile world."
I put the same question to Layne Carlson, corporate secretary and treasurer of the Minneapolis Grain Exchange. "Yes," said Carlson, who then told me the two principles that govern the movement of grain markets: "fear and greed."
But wasn't it part of a grain exchange's responsibility to ensure a stable valuation of our daily bread?
"I view what we're working with as widgets," said Todd Posthuma, the exchange's associate director of market operations and information technology, the man responsible for clearing $100 million worth of trades every day. "I think being an employee at an exchange is different from adding value to the food system."
Above Mark Bagan's oversize desk hangs a jagged chart of futures prices for the hard red spring wheat contract, mapping every peak and valley from 1973 to 2006. The highs on Bagan's chart reached $7.50. Of course, had 2008 been included, the spikes would have, literally, gone through the roof.
Would the price of wheat rise again?
"The flow of money into commodities has changed significantly in the last decade," explained Bagan. "Wheat, corn, soft commodities—I don't see these dollars going away. It already has happened," he said. "It's inevitable."
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