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My primary source of income comes from the pizza business, so I follow commodity prices such as wheat, oil and soybeans because they are major inputs, along with cheese, to making a pizza. Over the past 14 months or so, we have had flour double in price; soybeans are up something like 168 per cent; oil and natural gas have seen a dramatic increase in price and produce hasn't been spared the sharp spikes in price increases.

I haven't seen price increases in the aforementioned inputs or commodities in my business lifetime. You only have to look at the cost of filling up you automobile, heating costs for your home, or the price of bread in a grocery store to feel the full impact of what's going on. On the other side of the commodity story gold , precious metals, and a host of other hard commodities have recently seen new highs.

An individual doesn't have to go to far back in the history books (1998) to find examples of catastrophes such as the collapse of the Asian stock markets or the default on sovereign debt in Russia to find out first-hand that all goods things must come to an end. I am afraid that this commodity boom will be painful when busts.

We have severe distortions in the marketplace that effect commodity prices and actually interfere with the function of bodies such as the Federal Reserve in the United States. To help foster spending by consumers and keep the U.S. economy somewhat solvent, the Fed has been lowering its interest rates almost every month. These actions has had the unintended consequence of driving up prices for soft and hard commodities.

American monetary policy has kept interest rates artificially low for a prolonged period, accentuating speculative capital coming into commodity markets and driving up prices to unprecedented levels in the past month. It's not farmers driving up the price of wheat, it's the financial players adding to the supply/demand functioning of the marketplace. For the first time in my life, I have seen more than once families with calculators in grocery stores keeping close tabs on their grocery bills. There is a group of pundits that says supply/demand economics and higher prices are here to stay. I only have to remind you of what goes up sharply historically comes down. There are a number of analysts in a number of brokerage firms stating that, when the feds reverse policy and interests rates start to climb again to try and fend off inflationary pressure, commodities will start to come off in pricing - in some cases dramatically. In fact we have seen a weakening of oil, gold and wheat, etc. over the past couple of weeks because of a rally in an oversold U.S. dollar. When the U. S. dollar strengthens, commodities tend to go in the opposite direction because a lot of them trade in U.S. currency and they becomes more expensive to buyers in other countries.

The interesting swing factor in this story is China. Their economy has been growing at an eight- to 10-per-cent clip for a number of years, although no one knows for sure, including officials in China. This burgeoning economy has created supply shortages in many commodities and, along with a weak U.S. currency, has created frothy and speculative markets. Once higher U.S. interest rates become a reality, capital will flow back to the U.S. dolla,r which will dampen demand in China.

The Fed's monetary policy has hugely distorted normal supply/demand economics and added to speculative markets. Any excess in any markets eventually leads to implosion such as the subprime disaster in the U.S. Excess brings more excess, which ends in disaster. It is almost like a giant Ponzi scheme - and you know what happens to the last buyer in a Ponzi scheme.

Rick Buckingham is president and CEO of Canadian 2 for 1 Pizza Inc. based in Fredericton. He can be reached by e-mail at rbuckingham@nb.aibn.com. His column appears Tuesdays.