Sunday, October 19, 2008

You read it here first

Biofuels, the root of all economic distress.
At the bottom of this energy and food inflation was a political effort to fight global warming by discouraging investment in fossil fuel production capacity and encouraging the use of renewables such as ethanol made from corn. During the past year, major petroleum producing firms announced drastic cutbacks in energy infrastructure investment plans. Similar efforts were in progress in other countries. Rising gasoline and diesel fuel prices rippled through the economy, affecting everything that moves by fuel-powered vehicles. A massive diversion of farm capacity toward fuel ethanol production occurred while federal and state governments eliminated MTBE, a virtually harmless gasoline component synthesized from natural gas and constituting about 3% of the nation's gasoline supply. The inflation surge was reminiscent of the mid-1970s energy crisis that also produced an inflation that the Federal Reserve elected to fight with tight monetary policy.
Food, feed, or fuel: Pick any two.

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