Out of the Pot and into the Fire

Funny how bad luck turns into a string of bad luck. Well, the financial crisis is fast being overtaken by the food crisis. It looks like we are in for a string of "bad news". Here's a nice piece by Paul Krugman that explains the gory details, but the bottom line is:

Governments and private grain dealers used to hold large inventories in normal times, just in case a bad harvest created a sudden shortage. Over the years, however, these precautionary inventories were allowed to shrink, mainly because everyone came to believe that countries suffering crop failures could always import the food they needed.

This left the world food balance highly vulnerable to a crisis affecting many countries at once — in much the same way that the marketing of complex financial securities, which was supposed to diversify away risk, left world financial markets highly vulnerable to a systemwide shock.