Dr Roubini was the first to predict this economic collapse in the same way that Alan Greenspan’s ‘Irrational Exuberance’ comments warned investors of an overvalued IT market in the 1990’s. Well, the good professor is called Dr Doom for a reason. Besides being right over and over again, he is able to see through the fog of information and spin and get down to fundamentals. His latest prediction is large societal and economic problems in Asia due to increased food prices:

Roubini’s Next Crisis Is Scary Food for Thought: written by William Pesek

Forget Egypt for a moment. Skip the water crisis in China. Look past angst on the streets of Bangladesh. If you want to see how extreme the effects of surging food prices are becoming, look to wealthy Japan.

So big are the increases that economists are buzzing about them pushing deflationary Japan toward inflation. Yes, rising costs for commodities such as wheat, corn and coffee might do what trillions of dollars of central-bank liquidity couldn’t.

Yet the economic consequences of food prices pale in comparison with the social ones. Nowhere could the fallout be greater than Asia, where a critical mass of those living on less than $2 a day reside. It might have major implications for Asia’s debt outlook. It may have even bigger ones for leaders hoping to keep the peace and avoid mass protests.

What a difference a few months can make. Back in, say, October, the chatter was about Asia’s invulnerability to Wall Street’s woes. Now, governments in Jakarta, Manila and New Delhi are grappling with their own subprime crisis of sorts. This one reflects a toxic mix of suboptimal food stocks, exploding demand, wacky weather and zero interest rates around the globe.

It’s not hyperbole when Nouriel Roubini, the New York University economist who predicted the U.S. financial crisis, says surging food and energy costs are stoking emerging-market inflation that’s serious enough to topple governments. Hosni Mubarak over in Egypt can attest to that…

It’s important to begin considering the side effects. The United Nations reckons countries spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009. These increases are just getting started. In January, world food prices rose to another record on higher dairy, sugar and grain costs.

This crisis might lead to another: debt. Expect Asian leaders to increase subsidies sharply and cut import taxes. The fiscal implications of these steps aren’t getting the attention they deserve. The same is true of social-instability risks. Events in Egypt are a graphic example of how people living close to the edge can get motivated in a hurry to demand change. Keeping that rage bottled in the age of Twitter, YouTube and Facebook won’t be easy. Hence Roubini’s concerns about geopolitical crises…

The growing pains inherent in shifting consumption patterns will be especially acute in this region. Unlike the food-price spike of 2008, this one may be more secular than cyclical. Asia alone, for example, will have another 140 million mouths to feed over the next four years. Add that to almost 3 billion people in the fast-growing region and you have a recipe for booming demand.

China’s size and scope means it will be buying up ever- growing chunks of the world’s food supply. As the yuan rises, so will China’s ability to outbid everyone else. Increased trade tensions are inevitable and it will show the futility of food subsidies. Prices will rise as long as consumption does, so it’s really a matter of pouring money down the drain…

China also shows how changing weather will bump up against rising living standards. Severe droughts are imperiling wheat crops in the world’s largest producer. It’s creating shortages of drinking water both for China’s 1.3 billion people and livestock. It’s a reminder that water is the next oil. Governments will be scouring the globe for it before long.

Rising food prices will complicate things for China’s central bank. That goes, too, for India, Indonesia, the Philippines and even less developed economies from Pakistan to Vietnam.

This will be an inconvenient reality check for Asia bulls. Take Indonesia, the fourth-most populous nation and home to the biggest Muslim population. Food prices make it harder to deliver higher living standards and narrow the gap between rich and poor. The same goes for other countries in which population growth often outpaces gross domestic product, like the Philippines.

What’s killing households surviving on a few dollars a day is price volatility. If you spend almost half of your income to fill bellies, a 10 percent surge in cooking oil, wheat or chili peppers is devastating. It’s hard enough to pay rent and handle health-care costs today, never mind investing in education.

Well, economics is rightly nick-named ‘the Dismal Science’ for a reason; mainly becasue of the occasional Malthusian prediction of food production not keeping up with base demand. Very seldom do economists bear good news, even in good times, the end is often nigh. In this case, the end is not nigh, but there will be some problems and inflation, riots, and toppled governments. This situation is not a matter of how much food can be grown, but one of how much it costs to deliver. Prices are going to go up as Asia goes on a panic buying spree for basics both in the immediate and future delivery arena to try to lock in some prices and thereby lock in some predictability.

All economic situations have winners and losers. I would suggest that the US and Canada, Ukraine, and Russia can easily be the winners here. Those four are the largest producers of grain and corn in the world, not one of those countries is near max capacity for production. So, Asia needs more food, and we in America are just outstanding at food production. Well, how about we clear the way for the farmers to grow what they need to export to these markets that we are in trade and bond deficit to and help with our debt problem? We can get rid of the ethanol subsidy debacle and move grow and export as much grains and foods as possible. Does this cause food prices to rise here, it sure does and they will rise even more if the ethanol subsidies are still in place and the farmers aren’t encouraged to grow as much as needed for export because demand will still be going up in Asia. Non action on our part will open the way for the other grain exporters (who aren’t burning their fuel to drive around) to take the lead and make the money on the international markets. Is this the fix on our international debt, no, of course not. But is is a first step in the right direction.

Prices are going to go up in the US regardless, we can either have high prices and burn our food in our gas tanks, or we can get rid of ethanol subsidies and use the higher prices on foods to help with our international trade deficits. Who bought all of those cheap Chinese imports? All of us, so guess what, time to pay up on the negative account balance that we all helped create.