From Williamsport, Ohio, a first-hand account of the worst drought to grip the corn belt of America since 1956: Scott Metzger told Reuters on Friday that it had rained for about 45 minutes on his farm that day, producing 1.3 inches of rain. Respite, but not much. Since 13 May the farm has only had 2.1 inches of rain.

While some parts of the UK have been recording that in a single day, more than 70% of the midwestern corn belt – breadbasket of the world – is gripped by a catastrophic drought. Little wonder that Metzger declared: "This has been my toughest year of farming so far." His corn crop was "finished", he said, because it had never pollinated.

The story is the same across the main growing region in the US, where the National Oceanic and Atmospheric Administration has declared the January-June period the hottest half-year on record in the United States.

The results will be felt far and wide. World corn prices have jumped 55% in just six weeks to a new record. In the first three weeks of July alone, export prices of corn and wheat have increased by an extraordinary 20%. Despite the washout in England and Wales, last month has been declared the fourth-warmest June on record around the globe.

High cereal prices will have huge repercussions. When basic food prices soared four years ago, there were riots over the cost of living in as many as 30 countries. Two years ago, Russia, the world's third-biggest wheat grower, banned exports of wheat, maize, barley, rye, corn and flour during the country's worst drought in 50 years. The reverberations, according to Oxfam, were felt as far away as Pakistan, where there was 16% increase in the price of wheat and a near 2% increase in poverty in just a year.

The Russian action, and the resulting price rise, was also viewed as one of the catalysts of the Arab spring, when the high cost of bread sparked protests and leaders were deposed.

This year's price rises have happened very rapidly since the US department of agriculture made the biggest cuts to its estimates for the corn crop a fortnight ago. And it's not just the price of corn that is rising. Soya bean prices are at the highest levels on record, bursting through those registered during the 2007 food crisis. Sugar has soared similarly.

The impact could soon be felt in consumers' pockets many thousands of miles away from the midwest of America. In the UK last month, food inflation fell to 3.5% – its lowest level in almost two years, providing a welcome respite for hard-pressed consumers. But if the experience of 2010 is anything to go by, that could be poised to change: two years ago, the Russian wheat export ban helped to drive UK food inflation sharply higher.

And the last thing policymakers worldwide need now is another bout of inflation. A downturn in oil prices since the start of the year has helped to lower inflationary pressures, making room for central banks to cut interest rates in response to fears of a worldwide slowdown. A sudden rise in food prices would dramatically reduce policymakers' room for manoeuvre.

In the developed economies, the threat of inflation would further stifle consumer confidence at a time when it is already extremely fragile. In the emerging world, where food costs are such a high proportion of many households' everyday budget, any new inflationary pressure could halt central bankers in their tracks.

Meanwhile, the soaring price of soya beans could spark rising inflation in China, just when the world was relying on consumer demand from the world's most populous nation to help pull Europe and the US out of the doldrums.

All is not lost. Wheat is still well below the 2008 records – as is rice, a staple across Asia. But with prices already rising, it might only take another weather shock to demonstrate that the global economy is alarmingly reliant on whether it rains or shines in America's corn belt.

Threadneedle Street runners all have a handicap

If the competition to be the next governor of the Bank of England was a horse race, the contest would have to be called off on the grounds that most of the runners have gone lame.

In April, when Paddy Power, the publicity-hungry bookmaker, first offered odds on the governorship, Paul Tucker, deputy governor, was installed as heavy favourite at 3-1. Since then we've have the Libor scandal and two appearances by Tucker before the Treasury select committee. Neither has improved his chances: we discovered that, though Tucker regarded the Libor market as dysfunctional in 2008, it didn't strike him it might be rigged. No alarm bells went off, he said, even when the New York Federal Reserve was suggesting ways to improve the Libor-setting process.

We've also learned that Tucker, responding to Bob Diamond's message of congratulation, thanked the now fallen Barclays boss for being "an absolute brick through this". Just a little too chummy? Current protocol inside the Bank, we learned from an email exchange dump on Friday, is for governor Sir Mervyn King to address even his own deputy as "Mr Tucker."

Back in April, it was thought that a commercial banker might emerge on the rails. John Varley (first offered at 7-2) and Stephen Green (5-1) were judged to be contenders. Forget it. Varley was chief executive of Barclays throughout the 2005-09 Libor scandal, for which the bank will pay £290m in fines. HSBC is likely to pay even more after being accused by a US senate committee of failing to prevent money-laundering between 2004 and 2010; Green was chief executive and then executive chairman in that period.

Who else? Lord Turner, head of the FSA, could perhaps claim credit for telling Barclays' board repeatedly that it had a cultural problem. On the other hand, his admonishments seemed to receive a brush-off. Is that because Turner, for all his intellectual prowess, doesn't intimidate bankers the way a Bank governor should?

The name of Mark Carney, governor of the Bank of Canada, flew for a while, but is it really credible to have a Canadian at the top of Threadneedle Street? Few think so. Jim O'Neill of Goldman Sachs, another name, has spent most of his working life as economist. Is that enough, given that the next governor will be policing banks? O'Neill would seem short of experience in regulation and markets.

Tucker, at 5-2, is second favourite today, which is probably still fair; he's been bruised by events, but that's all. The favourite, at 9-4, is now Gus O'Donnell, the former cabinet secretary and a man with a strong form book. But does he aspire to be governor? What a strange race this is.

Dave, the one-man bank

Hidden among the Olympics-themed documentaries over the past couple of weeks has been an irresistible gem for students of the banking crisis – or of human nature.

Channel 4's Bank of Dave told the uplifting tale of Dave Fishwick, an irrepressible minibus magnate from Burnley who is so enraged by the reckless behaviour of Britain's bailed-out bankers that he wants to set up his own local community bank, in which – perish the thought – he will go out and meet each person he's thinking of lending to, take a stroll around their fish-tank shop or samosa factory, and look them in the eye before he gives out a penny.

Despite the frosty response of the Financial Services Authority, Fishwick's sheer bloody-minded determination eventually wins him a licence to take savings and offer loans, if not to operate as a fully fledged bank, and in last week's episode, though it was early days, he had made a small profit.

Local bank managers, getting to know their customers, and lending out savers' cash to businesses instead of staking it on the markets? You never know – it might just catch on.