Blame Bernanke for the Mideast Revolutions?

The protests across the Middle East and North Africa caused some commentators to claim that President George W. Bush's proactive and preemptive wars for democracy in the Arab Islamic world were finally paying off. Other analysts disagreed vehemently, pointing out that the protests had much more to do with decades of simmering discontent and stalled economic development that had nothing to do with the invasion of Iraq.

It's an ugly American custom to take credit, or assign blame, for every major event in the world. But if there's any American political figure who has played a significant role in the Mideast conflagrations, maybe it's not the ex-president but rather the man he appointed to the Federal Reserve: Ben Bernanke.

To understand how Bernanke might have fanned the flames of protest, let's talk about food. Dramatic inflation in corn, wheat and other agricultural products is feeding discontent throughout the Middle East, where families spend up to 40% of their income on food. When you glance at how the average Egyptian spends his money, you understand why food inflation can traumatize a country.

But what the heck does U.S. monetary policy have do with the price of wheat in Egypt? Remember that Bernanke's policy of "quantitative easing" aimed to stimulate the U.S. economy by printing trillions of dollars to encourage lending and spending. Easy money seems to have driven up equity prices (look at the stock market), but it might also have encouraged banks to plow their liquid cash into commodities -- like petroleum, copper, and wheat.

To understand why QE2 could drive up food prices, imagine that you are a banker who has sold some sticky assets to the Fed for fresh cash. Where do you put this money to get the highest return? You can invest in low-risk U.S. companies, but they're also low-reward. You could invest in high-reward emerging markets, but they're also high risk. Or, you can make a bet on commodities like metals and food where demand from emerging economies seems limitless.

As Mike Masters, fund manager at Masters Capital Management, explained, bank speculation acts like steroids injected into the supply/demand tug-of-war, causing prices to be more more volatile. "Let's say news comes about bad crops and rain somewhere. Normally the price would rise about $1 [a bushel]. [But] when you have a 70-80% speculative market it goes up $2-3 to account for the extra costs. It adds to the volatility. It will end badly as all Wall Street fads do. It's going to blow up."

Bernanke denied that the Fed's policies are driving food speculation by arguing that rising demand for meat and corn from China, Brazil and other surging nations sufficiently explains the rise in food prices. But while there is little doubt that supply and demand forces are driving food inflation, a strong case can be made that commodity speculation is exacerbating the food surge the same way it inflated gas prices before the recession -- and that U.S. monetary is adding its breath to the bubble.

It would be absurd to blame Bernanke for the Mideast uprisings, which are only partially motivated by food inflation -- which itself might be only somewhat exacerbated by the U.S. monetary policy. But it's interesting to wonder to what extent U.S. economic decisions are having unintended consequences in the world's tinderbox.