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Food Price Bubble

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The recent events in Egypt and Tunisia highlight something that many people in the U.S. have not noticed, the price of food has skyrocketed. Some economists are blaming it on increased demand in developing countries while others (myself included) believe the commodity markets and futures are causing it. Doesn’t everyone remember the summer of skyrocketing gas prices, which most everyone now seems to agree was caused by speculators in the oil markets driving up the price of futures? The same type of speculation started happening in the commodities markets after investors lost faith in mortgage backed securities. After all, corn and wheat are more stable investments than subprime loans, right? Well, that used to be the case before all the money starting pouring into commodities.

Why don’t we Americans notice the rising cost of food? Because our food is already expensive compared to the rest of the world with most of the cost going into marketing. I deal with the cost of food issue in my Chapter 13 bankruptcy cases where we are instructed to use the IRS National Standards for various expenses. For instance, according the IRS National Standards, which are derived from the Bureau of Labor Statistics Consumer Expenditure Survey, a 1 person household in the United States spends $293.00 per month on food. Under those same standards, a household of 2 spends $537.00 per month on food. That number actually sounds low for many people. Consider, however, that in Egypt, where recent spikes in food costs have fueled the current revolt, a good paying job would provide the equivalent of $450/month income. In a household of 2 with only the husband or wife working, their monthly take home pay is less than the IRS National Standard food allowance for a two person household!

Some of my clients think I am cheap when I suggest that they are spending too much on food. I prefer to think of myself as frugal. I tried one month to keep my personal food expenses within the IRS guidelines and found that in order to do so, I had to stay away from high priced food items at the store like fish and wine. I also had to avoid eating out and either packed my lunch for the office or went home to eat for lunch. That also ruled out coffee at my favorite coffee shop and relegated me to the office coffee or coffee at home in the morning. It is certainly doable if you are diligent and I recommend everyone try for at least one month to keep their food within the guidelines.

When and if this current food bubble will burst is anyone’s guess, but I can’t help but think that it will soon have to burst. That is the nature of bubbles.

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Hamid Jabbar

Hamid Jabbar

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