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From: patrickbarron@msn.com
To: wsj.ltrs@wsj.com
Subject: Russia Bans Grain Exports
Date: Fri, 6 Aug 2010 08:05:33 -0400
Re: Russia Bans Grain Exports
Dear Sirs:
Russia is suffering from excessive heat and wildfires. So President Putin has banned the export of grain and has set up an emergency relief fund of $1.2 billion for farmers. These measures usually meet with approval by those unfamiliar with economics. But President Putin's arbitrary decisions overrule the wishes of millions of Russians. If Russians want more grain, they can divert their spending from less important choices. But they will have less money with which to do so, because President Putin also has confiscated it for handouts to farmers. The market is far superior in reacting to natural disasters than arbitrary government edits. Yet politicians must grandstand, so they wave their hands and pass laws to convince the public that they can make it all better. We saw this farce in spades five years ago when Hurricane Katrina hit New Orleans and the Gulf coast.
Patrick Barron
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There is also the possibility that he made this announcement in order to increase prices in the world market so that anything intended for export would sell at a much higher price. He has said that existing contracts will be honored.
ReplyDeleteI don't know enough about grain markets, but this could have the effect of a "supplies are limited, hurry now" kind of marketing scheme on a grand scale. What a great way to increase profit. Declare an embargo and then create your own underground market to convince buyers they are pulling one over on the government by getting wheat out of Russia. This is how the diamond trade works. If they have enough control over export channels, the Russian government might be able to do the same.