Tuesday, January 18, 2011

A butterfly flaps its wings in Australia

Hope you all had a fun and relaxing holiday weekend. I certainly did, with one glaring exception. That aside, the weekend passed by without my mentioning the flash flooding in Australia, which has become the latest in a long line of natural disasters that have captured the public's attention. I was particularly drawn to this video, which is pretty dramatic:



But what makes this natural disaster particularly interesting is the wider repercussions that it may have (beyond the usual human suffering, etc.). To wit:
While Australia is reeling from the immediate impact, the broader impact of 2010-11 weather patterns may have much bigger ramifications for food and energy prices in Australia and abroad.
The post focuses on the possibility, increasingly endorsed by top meteorologists, that the heavy Australian rains are the result of a super La Niña, the last of which was seen in 1973-4,the time of the last severe flooding in Queensland. Super La Niñas are hugely disruptive to agricultural production and can have other nasty knock-on effects (some contend the 1917 La Niña helped spawn the 1918 influenza pandemic).
In this case, the damage of a super La Niña will not only increase food costs at a time when price rises and food scarcity are already a major concern, but will likely extend to energy prices as well. That one-two punch would be particularly devastating to China.
In Australia, fruit and vegetable prices are projected to increase 30% this year as a result of La Niña. And recall Australia is a major agricultural exporter, so production shortfalls there will hit other markets. Super La Niñas tend to impair food output overall. 2007-8 saw a borderline super La Niña, and we saw sharply higher food prices in the first half of that year. Note that the UN’s Food and Agriculture Organisation reports that staples are already more costly than at any time in 2008.
We were reminded in the financial crisis of 2008 just how interconnected the world is, and how globalization has led to an increased risk of just about any disruption causing a global ripple effect. The Australia flood has the potential to become the latest example of the downsides of globalization and specialization. If a butterfly flaps its wings, etc. etc...

This potential food price shock is clearly the last thing we need, especially with the Fed aggressively printing money like it's going out of style. Chairman Bernanke likes to pretend that he will be able to nip inflation in the bud if and when the time comes, but exogenous shocks like this are far beyond any government or pseudo-government agency's control. Let's just hope that something like this doesn't happen in California--if it does, we could really be in for some trouble.

[Naked Capitalism]

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