The developing tsunami of rising global food prices is gaining steam. Thailand yesterday announced that it wishes to form a rice cartel with neighbors Laos, Burma, Cambodia, and Vietnam. Thailand, the world's largest rice exporter, wants to take the lead in forming an OPEC-like rice cartel.
Rice prices have tripled this year, putting the pinch on consumers in regions where rice is a main diet staple. If rice gets even more expensive, we could potentially see more food riots like those taking place in Haiti, Cameroon, and Indonesia in recent months.
5 Asian Nations Are Weighing a Rice Cartel
BANGKOK — The prime minister of Thailand, Samak Sundaravej, said Wednesday that his government would try to create a cartel of rice-producing countries in partnership with Vietnam, Cambodia, Myanmar and Laos.
“We don’t aspire to be like OPEC, but we hope to be just a group of five to help each other in trading rice on the world market,” Mr. Samak was quoted as saying in The Nation newspaper.
Governments in Thailand, the world’s largest rice exporter, have for many years toyed with the idea of using their dominant market position to influence the price of rice in the same way that the Organization of the Petroleum Exporting Countries tries to set crude oil prices.
The plan appears to be in a nascent stage. “I think it’s time to do it, probably within the term of this administration,” Noppadon Pattama, Thailand’s foreign minister, said Wednesday.
But if successful, a cartel could have far-reaching consequences on the rice market, sustaining prices at their current historic highs and worsening a food crisis that is hurting Asia’s poorest consumers. The price of Thai B-grade rice, a benchmark variety, has nearly tripled in recent months and is now hovering at about $1,000 a ton.
Maintaining rice prices would please large-scale rice farmers and traders in countries like Thailand and Vietnam, but it would anger places like the Philippines, Singapore and Hong Kong, which rely heavily on imported rice. Plans for the cartel were front-page news in the Philippines on Thursday.
The current ruling coalition in Thailand received the backbone of its support from rural areas, and Mr. Samak appears eager to capitalize on the rice price increase. Thai rice farmers now “have an opportunity,” he said in a recent interview.
Unlike corn, wheat and other grains that are widely traded globally, only a small number of countries export rice. The largest rice producers, China, India and Indonesia, consume most of their rice crop domestically.
Thanks to a vast, fertile delta, which allows farmers to harvest three or four times a year, Thailand exports about 10 million tons annually, twice as much as Vietnam, the second-largest rice exporter, and three times what the United States exports.
Rice prices rose sharply in March and April after many exporting countries, including Brazil, Egypt, India and Vietnam, announced that they were restricting exports to ensure domestic supplies.
Showing posts with label Food Crisis. Show all posts
Showing posts with label Food Crisis. Show all posts
Saturday, May 03, 2008
Monday, April 21, 2008
Death of a Dream
I just read a great article that needs to be shared. Though quite unconventional and slightly radical in his rant, Roger Mason makes many very good points and I rather enjoyed his writing style/perspective... However, if his timeline and conclusions are correct (which I have some reservations about), we are in far worse trouble than even I envisioned. Enjoy!
Death of a Dream
After 232 years the American Dream is over folks. In the 1780's Alexander Tyler wrote, "A democracy is always temporary in nature lasting on average 225 years and cannot exist as a permanent form of government." The U.S. Constitution and Bill of Rights have been gutted. We almost elected an openly Marxist lesbian as our President and Commander in Chief. Obama Osama is to the left of Hillary, if you can comprehend that. McCain is dying of jaw cancer as if that isn't obvious. 1 in 10 American adults, children, and infants are on food stamps. One in six are government employees. The housing crash is just warming up! 59% of homes for sale in Los Angeles are fore-closures. They are selling for 50 cents on the dollar at auction. Adjusted for inflation since 2005 it is a quarter on the dollar. The dollar is useless. Our trade and budget deficits are egregious. The DJI is ready to collapse down to 5,000 ultimately. The DJT and DJU are hopeless. Dow Theory is telling us the house of cards is about to fall. Illegal immigration is completely out of control, and McCain will open the border gates even wider. Real unemployment is 14%, and real inflation is 18%. Four major airlines just went bankrupt- ATA, Skybus, Frontier, and Aloha (ATA was once the 10th largest). Alan Greenspan just publically admitted we're in a recession. We've been in one for months, and 70% of Americans know that. Gordon Brown (England's Prime Minister) just said we face the greatest economic crisis of the century. George Soros said the economic situation is hopeless. Warren Buffet basically said the same thing. Only 10% of our jobs are in manufacturing. We're now a mere service economy. We are closer to the Much Greater Depression every day.
Real inflation is now up to 18% as proven by configured M3 figures (which the government refuses to print anymore). See www.shadowstats.com if you want to verify that. Has your salary gone up 18%? Your home? Your private or government pension? Your Social Insecurity? Of course not. Your wealth has to go up 18% a year now just to break even! Let's take a prime example: General Electric (GE) was $28 five years ago.
Estimating 10% real inflation over that time GE stock would have to go up ($31, $34, $37, $41, $45) to $45 just to break even. It is $32 now, so it is DOWN 30% in the last five year. The real purchasing power is down almost a third in only five years.
What can you do? Put every penny you have into silver. If you can't convert your IRA/401k to American silver stocks then dump it. Take the 40% hit, and put the 60% into silver. There is a severe shortage of silver bullion, but you can still buy it at Gaithersburg Coin in Maryland. There has never been a silver shortage in the history of the world until now. Soon we will be completely out of silver, and mine supply (and recycling) will not begin to cover the shortage. Silver will go to $200 an ounce and probably keep going. Gold should merely go to $3,000.
Look for $30 silver by Christmas. In addition to Quaterra, Silverstone, Impact, U.S. Silver, ECU, Fury, Endeavor, and First Majestic, we're going to add Genco today (we don't own this). There are only about 50 real silver mines in the world, and only maybe a dozen are worth buying. You must hold any bullion in your own personal physical possession. You cannot own ETF's, silver certificates, or other paper silver. You cannot let anyone store it for you. If you don't possess it, you don't own it. The $4 correction from $21 to $17 makes this a strong market which is now blue skies all the way to $30. Silver has far, far more potential than gold, and cannot be confiscated.
With Admiral Fallon out of the way, our illegal, immoral, insane, unethical attack on Iran looms closer. McCain and Petraeus won't shut up about the "danger" Iran poses to us. We have already attacked the Iranian banks with FinCEN. The Saudis are preparing for it. The Russians have detected American military buildup on the Iran border. Our war- ships are in the Persian Gulf. We have a record number of troops in Afghanistan. Syria is preparing for an attack by the U.S. CNBC, CNN, and the media constantly beat the Iran-ian war drum. An attack on Iran is going to end in disaster in many, many ways. Go to www.vdare.com and read Paul Craig Roberts about this. No more oil will be just one of the results. Gasoline and diesel are now $10 in Europe, and soon will be $10 here. Can you say "$10 gasoline"? Truckers are already starting to strike to stop federal and state diesel taxes for trucks. They are going to have a nationwide strike as they can't feed their families. American moves by truck. A trucking strike will freeze this country. Suspend-ing all commercial diesel fuel taxes would be good for this country. Support the truckers, unless you want the economy to grind to a halt overnight.
CNBC is the official government disinformation center, and Jim Cramer the Emperor of Disinformation. Watch his show to see what NOT to do. Whatever he tells you to buy, you sell it. Notice that Cramer missed the move in gold from $300 to $1,000, and the move in silver from $5 to $20. He still ignores both gold and silver, while he tells you to invest in the house-of-cards stock market. Do the opposite of anything he says. The DJI to gold ratio used to be 1:1 in 1980, but went to 45:1 in 2000. It is now 13:1 (12,300: $930) and headed back to 1:1.
Have you noticed your local shopping mall is going under? Have you noticed how many empty stores there are in your local strip malls? The Big Three Auto Makers are all broke. The entire banking system is bankrupt. The fifth largest bank in the world, Bear Stearns, is bankrupt. Citibank, Wells Fargo, Lehman, Bank of America are all next. Wachovia, the fourth largest, is about to go under as well. Open your eyes! Nothing like this has happened in almost 80 years since the last depression. You don't need to be a psychic to see the future; just look closely at today. The bailout (at YOUR expense) will just make things worse. The entire world banking system is coming unglued with the DERIVATIVES unraveling. Now the Federal Reserve is going to take over our entire investment system, nationalize the banks, and make Russia look like a free country. After the Federal Reserve was formed in 1913 the dollar has lost 99% of it's value. That's right- the Fed has made the dollar worth a penny in 95 years. Countless major chains are going under every day. The Top 10 Home Builders are completely and totally done in. The budget deficit worsens every day. The national debt gets deeper. The trade deficit worsens. We can't even sell T-Bills and T-Bonds to the fools who were buying them. The U.S. dollar is Monopoly Money. Inflation is destroying the middle class here- the very bedrock of America. We used to have the cheapest most plentiful food supply on earth bar none. No longer. Seen $1.19 lemons lately? Watch beef become unaffordable by the end of the year like in socialistic Europe. Restaurants are going broke. Hotels are going broke. Most everyone is going broke.
The energy crisis is a lie; we have endless energy available now. Global warming is complete scam. Ethanol is a government funded scam- at your expense. Coal, natural gas, and uranium are plentiful, and will last for hundreds of years. The military has enough oil off the coast of Alaska for 100 years. We don't even have any oil refineries now. Oil is useless without refineries. Windmills for power is a joke out of the 18th century. Hydrogen fuel cells are a long, long way off in the future. Hydroelectric is limited. We have no SASOL plants in the U.S. to make endless $4 liquid fuel out of coal. 60% of all our energy is ELECTRIC, and we can generate all we want with coal, natural gas, and uranium.
If you think things are bad now, by Christmas you'll be ready to jump off a bridge. 2009 to 2010 will usher in the Much Greater Depression, and events will unfold so quickly you'll be shocked and blindsided. We'll get Patriot Act II for finances. Banks will be nationalized as all police states do. Food and gasoline will be rationed. You'll think you're in Cuba, only you won't have bananas. There are already worldwide food riots. People around the world cannot cannot even get rice to eat. The housing crash is just beginning, along with the stock market collapse. It's just getting warmed up folks.
Your salary, your house, your pension, your Social Insecurity, the stock market all have to go up 18% just to break even! That's just to break even and not lose. Are they all going up 18% or more? Of course they aren't, and your standard of living is going to hell every day- as is your future. Silver is $18, and will be $30 by the end of the year. Silver is your financial saviour. Silver has almost quadrupled in the last five years. Silver is going to $200 an ounce in the next five years. Silver is a much better investment than gold, and gold is a great investment.
So many major longtime companies and chains are closing stores and going out of business you can't name them all. Sharper Image, Wilson's Leather, Pep Boys, Comp USA, Ethan Allen, Macy's, Levitz, PacSun, Lane Bryant, Talbots, Krispy Kreme, Starbucks, Harley Davidson, 84 Lumber, Home Depot, RentACenter, Rite Aid, Sprint, Disney Store, and Linen'n'Things are just SOME of them. The list gets longer every month.
If you want to read more go to http://www.kitco.com/ and read the Contributed Commentaries.
Go to http://www.butlerresearch.com/ to see what Ted Butler has to say about silver.
Join GATA at http://www.lemetropolecafe.com./You can get a two week free trial and it's $199 a year.
Or you can just read the Econmic Rants twice a month for free. Soon the website http://www.economicrant.com/ will open. Free of course.
Now go out and buy all the silver you can!
Click here for Roger's Past Monthly Rants
Death of a Dream
After 232 years the American Dream is over folks. In the 1780's Alexander Tyler wrote, "A democracy is always temporary in nature lasting on average 225 years and cannot exist as a permanent form of government." The U.S. Constitution and Bill of Rights have been gutted. We almost elected an openly Marxist lesbian as our President and Commander in Chief. Obama Osama is to the left of Hillary, if you can comprehend that. McCain is dying of jaw cancer as if that isn't obvious. 1 in 10 American adults, children, and infants are on food stamps. One in six are government employees. The housing crash is just warming up! 59% of homes for sale in Los Angeles are fore-closures. They are selling for 50 cents on the dollar at auction. Adjusted for inflation since 2005 it is a quarter on the dollar. The dollar is useless. Our trade and budget deficits are egregious. The DJI is ready to collapse down to 5,000 ultimately. The DJT and DJU are hopeless. Dow Theory is telling us the house of cards is about to fall. Illegal immigration is completely out of control, and McCain will open the border gates even wider. Real unemployment is 14%, and real inflation is 18%. Four major airlines just went bankrupt- ATA, Skybus, Frontier, and Aloha (ATA was once the 10th largest). Alan Greenspan just publically admitted we're in a recession. We've been in one for months, and 70% of Americans know that. Gordon Brown (England's Prime Minister) just said we face the greatest economic crisis of the century. George Soros said the economic situation is hopeless. Warren Buffet basically said the same thing. Only 10% of our jobs are in manufacturing. We're now a mere service economy. We are closer to the Much Greater Depression every day.
Real inflation is now up to 18% as proven by configured M3 figures (which the government refuses to print anymore). See www.shadowstats.com if you want to verify that. Has your salary gone up 18%? Your home? Your private or government pension? Your Social Insecurity? Of course not. Your wealth has to go up 18% a year now just to break even! Let's take a prime example: General Electric (GE) was $28 five years ago.
Estimating 10% real inflation over that time GE stock would have to go up ($31, $34, $37, $41, $45) to $45 just to break even. It is $32 now, so it is DOWN 30% in the last five year. The real purchasing power is down almost a third in only five years.
What can you do? Put every penny you have into silver. If you can't convert your IRA/401k to American silver stocks then dump it. Take the 40% hit, and put the 60% into silver. There is a severe shortage of silver bullion, but you can still buy it at Gaithersburg Coin in Maryland. There has never been a silver shortage in the history of the world until now. Soon we will be completely out of silver, and mine supply (and recycling) will not begin to cover the shortage. Silver will go to $200 an ounce and probably keep going. Gold should merely go to $3,000.
Look for $30 silver by Christmas. In addition to Quaterra, Silverstone, Impact, U.S. Silver, ECU, Fury, Endeavor, and First Majestic, we're going to add Genco today (we don't own this). There are only about 50 real silver mines in the world, and only maybe a dozen are worth buying. You must hold any bullion in your own personal physical possession. You cannot own ETF's, silver certificates, or other paper silver. You cannot let anyone store it for you. If you don't possess it, you don't own it. The $4 correction from $21 to $17 makes this a strong market which is now blue skies all the way to $30. Silver has far, far more potential than gold, and cannot be confiscated.
With Admiral Fallon out of the way, our illegal, immoral, insane, unethical attack on Iran looms closer. McCain and Petraeus won't shut up about the "danger" Iran poses to us. We have already attacked the Iranian banks with FinCEN. The Saudis are preparing for it. The Russians have detected American military buildup on the Iran border. Our war- ships are in the Persian Gulf. We have a record number of troops in Afghanistan. Syria is preparing for an attack by the U.S. CNBC, CNN, and the media constantly beat the Iran-ian war drum. An attack on Iran is going to end in disaster in many, many ways. Go to www.vdare.com and read Paul Craig Roberts about this. No more oil will be just one of the results. Gasoline and diesel are now $10 in Europe, and soon will be $10 here. Can you say "$10 gasoline"? Truckers are already starting to strike to stop federal and state diesel taxes for trucks. They are going to have a nationwide strike as they can't feed their families. American moves by truck. A trucking strike will freeze this country. Suspend-ing all commercial diesel fuel taxes would be good for this country. Support the truckers, unless you want the economy to grind to a halt overnight.
CNBC is the official government disinformation center, and Jim Cramer the Emperor of Disinformation. Watch his show to see what NOT to do. Whatever he tells you to buy, you sell it. Notice that Cramer missed the move in gold from $300 to $1,000, and the move in silver from $5 to $20. He still ignores both gold and silver, while he tells you to invest in the house-of-cards stock market. Do the opposite of anything he says. The DJI to gold ratio used to be 1:1 in 1980, but went to 45:1 in 2000. It is now 13:1 (12,300: $930) and headed back to 1:1.
Have you noticed your local shopping mall is going under? Have you noticed how many empty stores there are in your local strip malls? The Big Three Auto Makers are all broke. The entire banking system is bankrupt. The fifth largest bank in the world, Bear Stearns, is bankrupt. Citibank, Wells Fargo, Lehman, Bank of America are all next. Wachovia, the fourth largest, is about to go under as well. Open your eyes! Nothing like this has happened in almost 80 years since the last depression. You don't need to be a psychic to see the future; just look closely at today. The bailout (at YOUR expense) will just make things worse. The entire world banking system is coming unglued with the DERIVATIVES unraveling. Now the Federal Reserve is going to take over our entire investment system, nationalize the banks, and make Russia look like a free country. After the Federal Reserve was formed in 1913 the dollar has lost 99% of it's value. That's right- the Fed has made the dollar worth a penny in 95 years. Countless major chains are going under every day. The Top 10 Home Builders are completely and totally done in. The budget deficit worsens every day. The national debt gets deeper. The trade deficit worsens. We can't even sell T-Bills and T-Bonds to the fools who were buying them. The U.S. dollar is Monopoly Money. Inflation is destroying the middle class here- the very bedrock of America. We used to have the cheapest most plentiful food supply on earth bar none. No longer. Seen $1.19 lemons lately? Watch beef become unaffordable by the end of the year like in socialistic Europe. Restaurants are going broke. Hotels are going broke. Most everyone is going broke.
The energy crisis is a lie; we have endless energy available now. Global warming is complete scam. Ethanol is a government funded scam- at your expense. Coal, natural gas, and uranium are plentiful, and will last for hundreds of years. The military has enough oil off the coast of Alaska for 100 years. We don't even have any oil refineries now. Oil is useless without refineries. Windmills for power is a joke out of the 18th century. Hydrogen fuel cells are a long, long way off in the future. Hydroelectric is limited. We have no SASOL plants in the U.S. to make endless $4 liquid fuel out of coal. 60% of all our energy is ELECTRIC, and we can generate all we want with coal, natural gas, and uranium.
If you think things are bad now, by Christmas you'll be ready to jump off a bridge. 2009 to 2010 will usher in the Much Greater Depression, and events will unfold so quickly you'll be shocked and blindsided. We'll get Patriot Act II for finances. Banks will be nationalized as all police states do. Food and gasoline will be rationed. You'll think you're in Cuba, only you won't have bananas. There are already worldwide food riots. People around the world cannot cannot even get rice to eat. The housing crash is just beginning, along with the stock market collapse. It's just getting warmed up folks.
Your salary, your house, your pension, your Social Insecurity, the stock market all have to go up 18% just to break even! That's just to break even and not lose. Are they all going up 18% or more? Of course they aren't, and your standard of living is going to hell every day- as is your future. Silver is $18, and will be $30 by the end of the year. Silver is your financial saviour. Silver has almost quadrupled in the last five years. Silver is going to $200 an ounce in the next five years. Silver is a much better investment than gold, and gold is a great investment.
So many major longtime companies and chains are closing stores and going out of business you can't name them all. Sharper Image, Wilson's Leather, Pep Boys, Comp USA, Ethan Allen, Macy's, Levitz, PacSun, Lane Bryant, Talbots, Krispy Kreme, Starbucks, Harley Davidson, 84 Lumber, Home Depot, RentACenter, Rite Aid, Sprint, Disney Store, and Linen'n'Things are just SOME of them. The list gets longer every month.
If you want to read more go to http://www.kitco.com/ and read the Contributed Commentaries.
Go to http://www.butlerresearch.com/ to see what Ted Butler has to say about silver.
Join GATA at http://www.lemetropolecafe.com./You can get a two week free trial and it's $199 a year.
Or you can just read the Econmic Rants twice a month for free. Soon the website http://www.economicrant.com/ will open. Free of course.
Now go out and buy all the silver you can!
Click here for Roger's Past Monthly Rants
News of Interest today
Sallie Mae affirms outlook, warns of "train wreck"
WASHINGTON (Reuters) - Sallie Mae (SLM.N), the largest U.S. student loan company, on Thursday affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion education financing market without urgent government intervention
Chief Executive Al Lord told analysts on a conference call: "We've been predicting something of a train wreck" in mid-2008 without prompt changes in a market hit by fallout from the subprime mortgage crisis and cuts last year in federal subsidies to student lenders.
Legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.
The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.
Sallie was being flooded with loan applications from students, reflecting the exit of dozens of other lenders from the business.
He said loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs
Dollar under pressure after Bank of America misses
The dollar was weaker against most major counterparts Monday, after Bank of America Corp.'s earnings shortfall reminded investors that the U.S. financial sector is not out of the woods yet.
Bank of America Corp.'s first-quarter profit fell 77% as credit-loss provisions jumped $4.78 billion, driven by weakness in home-equity loans as well as credit extended to small businesses and home builders.
Comments from European Central Bank Governing Council member Axel Weber also gave euro sentiment a lift. Weber reportedly said inflation is likely to remain elevated and suggested the ECB might have to hike rates.
The British pound sterling was under pressure itself, after the Bank of England announced details of a plan to let commercial banks use mortgage-backed securities as collateral for loans in an effort to thaw frozen credit markets.
Meanwhile, another house price index showed further weakness in the U.K. housing market. Rightmove said annual house price inflation, without seasonal adjustments, slowed to 1.3% in April from 5%, the slowest pace since July 2005.
Crude Oil Trades Near Record After Attackers Cut Nigeria Supply
April 22 (Bloomberg) -- Crude oil traded near a record above $117 a barrel in New York after attacks cut Nigerian output and the dollar dropped against the euro.
Royal Dutch Shell Plc said yesterday 169,000 barrels of oil a day was suspended because of attacks last week in Nigeria, Africa's largest oil producer. OPEC should help replenish oil inventories because prices are ``too high,'' International Energy Agency Executive Director Nobuo Tanaka said yesterday.
``We are clearly headed over $120 a barrel and we are targeting $125,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The last thing we need is another supply disruption. The outage certainly adds to the bullish sentiment.''
``This is a wild bull market,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``It's getting harder and harder to stand in the way of this. As long as the dollar is weak investors are going to buy oil as a hedge.''
The dollar fell to within a cent of a record low against the euro after European Central Bank officials reiterated concern inflation is accelerating, increasing chances interest rates will stay at a six-year high.
The dollar traded at $1.5909 per euro at 6:05 a.m. in Tokyo, after falling 0.6 percent yesterday. It touched $1.5983 on April 17, the lowest level since the European currency's 1999 debut
``If the dollar continues its slide, I can see prices go up,'' Iranian Oil Minister Gholamhossein Nozari told reporters yesterday in Rome. ``OPEC is supplying enough in the market. There are other factors keeping the oil price high.''
As Australia dries, a global shortage of rice
Six long years of drought have taken a toll, reducing Australia's rice crop by 98 percent
The collapse of Australia's rice production is one of several factors contributing to a doubling of rice prices in the last three months — increases that have led the world's largest exporters to restrict exports severely, spurred panicked hoarding in Hong Kong and the Philippines, and set off violent protests in countries including Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen.
Workers Get Fewer Hours, Deepening the Downturn
Not long ago, overtime was a regular feature at the Ludowici Roof Tile factory in eastern Ohio. Not anymore. With orders scarce and crates of unsold tiles piling up across the yard, the company has slowed production and cut working hours, sowing worry and thrift among its workers.
“We don’t just hop in the car and go shopping or get something to eat,” said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. “You’ve got to watch everything. If we go to town now, it’s for a reason.”
Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.
The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.
While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.
Moreover, this slippage is a critical indicator that the nation may well be on the verge of a recession, if not already in one.
Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn.
From March 2007 to March of this year, the average workweek reported in the private sector slipped slightly to 33.8 hours, from 33.9 hours, while overtime for manufacturing workers fell by a larger margin.
At the end of last month, more than 4.9 million people were working part time either because they could not find full-time jobs or because their companies had cut hours in the face of slack business, according to a Labor Department survey. That represented an increase of 400,000 since November.
And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel — the sixth consecutive month that pay failed to keep pace with inflation.
As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown
“It means spending slows going forward,” said Robert Barbera, chief economist at the trading and research firm ITG.
Paychecks are diminishing just as millions of Americans are finding their access to credit constricted as well. Borrowing against the value of real estate — a crucial artery of household finance in recent years — has been pared back as home prices have plummeted and as banks have tightened lending standards in the aftermath of the collapse of the housing bubble.
“At this point, those avenues are blocked,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “Consumption going forward is going to be in large part a good old-fashioned function of paychecks and incomes.”
Even before the rollback in working hours, pay was barely keeping up with the rising costs of gas and food. From February to September of last year, the average hourly earnings for workers in the private sector was still growing at a slightly faster clip than the pace of inflation, according to the Labor Department. But from November through March, as employers began to scale back in a variety of ways, wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.
Now, work opportunities are themselves declining, as the downturn snuffs out business.
In the suburbs of Denver, Max Garcia was netting as much as $2,000 a month last year as a self-employed computer repairman, he said. As recently as November, he was still receiving three and four calls for help a week. But since early February, calls have dropped to one a week or fewer, he said.
“Everybody’s getting tighter,” he said — himself included. With his income cut in half, Mr. Garcia, a single father, no longer takes his two young daughters out for fast food, he said. For clothing, he now goes to secondhand stores instead of the mall. For amusement, he visits the park instead of the museum.
“We spend more time at home,” Mr. Garcia said. “We don’t drive anywhere we don’t have to.”
In Los Angeles, William Righi, a musician, bemoans the sudden difficulty of getting jazz and blues gigs at restaurants and parties. He gives fewer private singing lessons to high school students.
“Their parents don’t want to pay,” Mr. Righi sighed. “They don’t have the money to burn. In the last month, it’s really dropped off.”
With his income down, Mr. Righi has been putting off buying new musical instruments and sheet music. He has curtailed his traveling.
At a factory in Lancaster, Pa., Armstrong World Industries, which makes flooring products, cut production of vinyl sheets for two weeks in March in reaction to softening demand for its goods, the company said.
Management is now seeking to slow production further, said Joe Rumberger, president of the local branch of the United Steelworkers, which represents workers there.
Some of those sent home received temporary unemployment benefits, he said, securing government checks of about $520 a week in lieu of paychecks that reached $900.
“It hurts,” he said. “If you’re not working, unemployment checks only go so far.”
At many companies, management is hanging on to as many workers as it can, cutting hours to try to limit layoffs, while hoping that business improves.
As the construction business deteriorated rapidly last fall, so did demand for the ceramic tiles produced in New Lexington, Ohio, at the Ludowici factory. In November, the company began drastically cutting overtime for many workers. The following month it laid off several people.
Last month, the factory resorted to layoffs, cutting the hourly work force to 81, from 93. It idled the kiln on weekends.
But even as sales fell, the company kept producing, building up stocks of tiles that it assumed it could sell eventually.
“We thought that would be a smart way to do it in order to keep people working,” said Derek Thomas, the plant manager. “The philosophy around here is we remain hopeful that things are going to pick up.”
But if fresh orders do not arrive soon, Mr. Thomas acknowledged that his hopes were likely to be dashed. In that case, he said, the company was facing further “head count reductions.”
With his overtime pay gone and faced with the ugly potential of a layoff from the job he has known for 14 years, Mr. Baker, the plant worker, is streamlining his spending every way he can.
This time of year, he would normally be planning a trip through Ohio in his camper. But he does not expect to take to the road anytime soon. “Not with the money flowing the way it is,” he said, “and the price of gas.”
To John E. Silvia, chief economist for Wachovia, the banking company based in Charlotte, N.C., Mr. Baker and his boss are representative of a national economy that is hunkered down and awaiting better while worrying about worse.
“You’ve got a lot of people sitting around now,” he said, “waiting and hoping for orders.”
WASHINGTON (Reuters) - Sallie Mae (SLM.N), the largest U.S. student loan company, on Thursday affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion education financing market without urgent government intervention
Chief Executive Al Lord told analysts on a conference call: "We've been predicting something of a train wreck" in mid-2008 without prompt changes in a market hit by fallout from the subprime mortgage crisis and cuts last year in federal subsidies to student lenders.
Legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.
The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.
Sallie was being flooded with loan applications from students, reflecting the exit of dozens of other lenders from the business.
He said loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs
Dollar under pressure after Bank of America misses
The dollar was weaker against most major counterparts Monday, after Bank of America Corp.'s earnings shortfall reminded investors that the U.S. financial sector is not out of the woods yet.
Bank of America Corp.'s first-quarter profit fell 77% as credit-loss provisions jumped $4.78 billion, driven by weakness in home-equity loans as well as credit extended to small businesses and home builders.
Comments from European Central Bank Governing Council member Axel Weber also gave euro sentiment a lift. Weber reportedly said inflation is likely to remain elevated and suggested the ECB might have to hike rates.
The British pound sterling was under pressure itself, after the Bank of England announced details of a plan to let commercial banks use mortgage-backed securities as collateral for loans in an effort to thaw frozen credit markets.
Meanwhile, another house price index showed further weakness in the U.K. housing market. Rightmove said annual house price inflation, without seasonal adjustments, slowed to 1.3% in April from 5%, the slowest pace since July 2005.
Crude Oil Trades Near Record After Attackers Cut Nigeria Supply
April 22 (Bloomberg) -- Crude oil traded near a record above $117 a barrel in New York after attacks cut Nigerian output and the dollar dropped against the euro.
Royal Dutch Shell Plc said yesterday 169,000 barrels of oil a day was suspended because of attacks last week in Nigeria, Africa's largest oil producer. OPEC should help replenish oil inventories because prices are ``too high,'' International Energy Agency Executive Director Nobuo Tanaka said yesterday.
``We are clearly headed over $120 a barrel and we are targeting $125,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The last thing we need is another supply disruption. The outage certainly adds to the bullish sentiment.''
``This is a wild bull market,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``It's getting harder and harder to stand in the way of this. As long as the dollar is weak investors are going to buy oil as a hedge.''
The dollar fell to within a cent of a record low against the euro after European Central Bank officials reiterated concern inflation is accelerating, increasing chances interest rates will stay at a six-year high.
The dollar traded at $1.5909 per euro at 6:05 a.m. in Tokyo, after falling 0.6 percent yesterday. It touched $1.5983 on April 17, the lowest level since the European currency's 1999 debut
``If the dollar continues its slide, I can see prices go up,'' Iranian Oil Minister Gholamhossein Nozari told reporters yesterday in Rome. ``OPEC is supplying enough in the market. There are other factors keeping the oil price high.''
As Australia dries, a global shortage of rice
Six long years of drought have taken a toll, reducing Australia's rice crop by 98 percent
The collapse of Australia's rice production is one of several factors contributing to a doubling of rice prices in the last three months — increases that have led the world's largest exporters to restrict exports severely, spurred panicked hoarding in Hong Kong and the Philippines, and set off violent protests in countries including Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen.
Workers Get Fewer Hours, Deepening the Downturn
Not long ago, overtime was a regular feature at the Ludowici Roof Tile factory in eastern Ohio. Not anymore. With orders scarce and crates of unsold tiles piling up across the yard, the company has slowed production and cut working hours, sowing worry and thrift among its workers.
“We don’t just hop in the car and go shopping or get something to eat,” said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. “You’ve got to watch everything. If we go to town now, it’s for a reason.”
Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.
The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.
While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.
Moreover, this slippage is a critical indicator that the nation may well be on the verge of a recession, if not already in one.
Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn.
From March 2007 to March of this year, the average workweek reported in the private sector slipped slightly to 33.8 hours, from 33.9 hours, while overtime for manufacturing workers fell by a larger margin.
At the end of last month, more than 4.9 million people were working part time either because they could not find full-time jobs or because their companies had cut hours in the face of slack business, according to a Labor Department survey. That represented an increase of 400,000 since November.
And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel — the sixth consecutive month that pay failed to keep pace with inflation.
As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown
“It means spending slows going forward,” said Robert Barbera, chief economist at the trading and research firm ITG.
Paychecks are diminishing just as millions of Americans are finding their access to credit constricted as well. Borrowing against the value of real estate — a crucial artery of household finance in recent years — has been pared back as home prices have plummeted and as banks have tightened lending standards in the aftermath of the collapse of the housing bubble.
“At this point, those avenues are blocked,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “Consumption going forward is going to be in large part a good old-fashioned function of paychecks and incomes.”
Even before the rollback in working hours, pay was barely keeping up with the rising costs of gas and food. From February to September of last year, the average hourly earnings for workers in the private sector was still growing at a slightly faster clip than the pace of inflation, according to the Labor Department. But from November through March, as employers began to scale back in a variety of ways, wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.
Now, work opportunities are themselves declining, as the downturn snuffs out business.
In the suburbs of Denver, Max Garcia was netting as much as $2,000 a month last year as a self-employed computer repairman, he said. As recently as November, he was still receiving three and four calls for help a week. But since early February, calls have dropped to one a week or fewer, he said.
“Everybody’s getting tighter,” he said — himself included. With his income cut in half, Mr. Garcia, a single father, no longer takes his two young daughters out for fast food, he said. For clothing, he now goes to secondhand stores instead of the mall. For amusement, he visits the park instead of the museum.
“We spend more time at home,” Mr. Garcia said. “We don’t drive anywhere we don’t have to.”
In Los Angeles, William Righi, a musician, bemoans the sudden difficulty of getting jazz and blues gigs at restaurants and parties. He gives fewer private singing lessons to high school students.
“Their parents don’t want to pay,” Mr. Righi sighed. “They don’t have the money to burn. In the last month, it’s really dropped off.”
With his income down, Mr. Righi has been putting off buying new musical instruments and sheet music. He has curtailed his traveling.
At a factory in Lancaster, Pa., Armstrong World Industries, which makes flooring products, cut production of vinyl sheets for two weeks in March in reaction to softening demand for its goods, the company said.
Management is now seeking to slow production further, said Joe Rumberger, president of the local branch of the United Steelworkers, which represents workers there.
Some of those sent home received temporary unemployment benefits, he said, securing government checks of about $520 a week in lieu of paychecks that reached $900.
“It hurts,” he said. “If you’re not working, unemployment checks only go so far.”
At many companies, management is hanging on to as many workers as it can, cutting hours to try to limit layoffs, while hoping that business improves.
As the construction business deteriorated rapidly last fall, so did demand for the ceramic tiles produced in New Lexington, Ohio, at the Ludowici factory. In November, the company began drastically cutting overtime for many workers. The following month it laid off several people.
Last month, the factory resorted to layoffs, cutting the hourly work force to 81, from 93. It idled the kiln on weekends.
But even as sales fell, the company kept producing, building up stocks of tiles that it assumed it could sell eventually.
“We thought that would be a smart way to do it in order to keep people working,” said Derek Thomas, the plant manager. “The philosophy around here is we remain hopeful that things are going to pick up.”
But if fresh orders do not arrive soon, Mr. Thomas acknowledged that his hopes were likely to be dashed. In that case, he said, the company was facing further “head count reductions.”
With his overtime pay gone and faced with the ugly potential of a layoff from the job he has known for 14 years, Mr. Baker, the plant worker, is streamlining his spending every way he can.
This time of year, he would normally be planning a trip through Ohio in his camper. But he does not expect to take to the road anytime soon. “Not with the money flowing the way it is,” he said, “and the price of gas.”
To John E. Silvia, chief economist for Wachovia, the banking company based in Charlotte, N.C., Mr. Baker and his boss are representative of a national economy that is hunkered down and awaiting better while worrying about worse.
“You’ve got a lot of people sitting around now,” he said, “waiting and hoping for orders.”
Sunday, April 20, 2008
Empty shelves at Food Banks
For the first time in its 25 year history, most of the shelves at the Food Bank's warehouse in New York are barren. A sputtering economy and rising food prices have hiked demand for food aid while food donations have sharply dropped.
Empty shelves at Food Bank
BILL MOYERS JOURNAL | Hunger in America | PBS
Food pantries in need - by News Channel 8's Tina Detelj
Food Prices Squeeze Families, Food Banks - CBN.com
Empty shelves at Food Bank
BILL MOYERS JOURNAL | Hunger in America | PBS
Food pantries in need - by News Channel 8's Tina Detelj
Food Prices Squeeze Families, Food Banks - CBN.com
Sunday, April 13, 2008
Finance Ministers Emphasize Food Crisis Over Credit Crisis
The head of the International Monetary Fund has said rising food prices may lead to a humanitarian crisis.
IMF chief voices food fears
Finance Ministers Emphasize Food Crisis Over Credit Crisis
The world’s economic ministers declared on Sunday that shortages and skyrocketing prices for food posed a potentially greater threat to economic and political stability than the turmoil in capital markets.
The ministers, conferring in the shadow of a slumping American economy that threatens to pull down the economies of other countries, turned their attention to the food crisis and called on the wealthiest countries to fulfill pledges to help prevent starvation and disorder in Asia, Africa and Latin America.
“Throughout the weekend we have heard again and again from ministers in developing countries and emerging economies that this is a priority issue,” said Robert B. Zoellick, president of the World Bank. “We have to put our money where our mouth is now, so that we can put food into hungry mouths. It is as stark as that.”
Mr. Zoellick said that almost half of the $500 million that the World Food Program recently requested in additional pledges for food aid this year had been committed, but that the program would not meet a deadline of raising the money by May 1.
The World Food Program seeks the aid, on top of nearly $3 billion already committed, because of shortfalls in food distribution resulting from higher prices.
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said the food crisis posed questions about the survivability of democracy and political regimes.
“As we know in the past, sometimes those questions lead to war,” he said. “We now need to devote 100 percent of our time to these questions.”
World Bank and I.M.F. officials noted that political instability had already hit countries as disparate as Haiti, Egypt, the Philippines and Indonesia because of food shortages, forcing some countries to limit food exports.
Mr. Zoellick had earlier highlighted the food issue in speeches and presentations this weekend, saying the World Bank intended not only to help with the emergency situation but also to upgrade programs to help countries produce more food on their own. He cited Malawi, in southern Africa, as a country that has started going in that direction.
But food has also become a symbol of the conflicting pressures that frequently emerge at the semiannual gatherings of finance and development officials and central bankers that take place in Washington every spring.
Some ministers from poor countries, for example, are growing impatient with the way the West is addressing global warming by subsidizing and encouraging conversion of corn, sugar cane and other food products into substitutes for oil. The shift is helping to drive up prices, they say.
Mr. Strauss-Kahn said he had heard from many financial officials this weekend that the West’s focus on fuel, at the expense of food, was a “crime against humanity.” Though he noted that the I.M.F. is primarily a monetary and financial agency, he said it would try to “review its tools” to help countries pay for food imports.
In addition, many ministers meeting here appeared to be self-conscious about how much of the attention at the meeting has focused on the global credit crisis, which has caused hundreds of billions of dollars in losses for banks and investment banks, while there was less focus on the problem of feeding the world’s poor.
Treasury Secretary Henry M. Paulson Jr. said on Friday that the subject of food shortages had come up at the meeting of finance ministers of the United States, Canada, Europe and Japan under the heading of the Group of Seven.
“Every country sitting around the table was focused on it,” Mr. Paulson said of the Group of Seven’s concern about food, adding that Mr. Zoellick “made an impassioned plea.” But Treasury officials said they had no details of what aid the United States was prepared to commit.
IMF chief voices food fears
Finance Ministers Emphasize Food Crisis Over Credit Crisis
The world’s economic ministers declared on Sunday that shortages and skyrocketing prices for food posed a potentially greater threat to economic and political stability than the turmoil in capital markets.
The ministers, conferring in the shadow of a slumping American economy that threatens to pull down the economies of other countries, turned their attention to the food crisis and called on the wealthiest countries to fulfill pledges to help prevent starvation and disorder in Asia, Africa and Latin America.
“Throughout the weekend we have heard again and again from ministers in developing countries and emerging economies that this is a priority issue,” said Robert B. Zoellick, president of the World Bank. “We have to put our money where our mouth is now, so that we can put food into hungry mouths. It is as stark as that.”
Mr. Zoellick said that almost half of the $500 million that the World Food Program recently requested in additional pledges for food aid this year had been committed, but that the program would not meet a deadline of raising the money by May 1.
The World Food Program seeks the aid, on top of nearly $3 billion already committed, because of shortfalls in food distribution resulting from higher prices.
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said the food crisis posed questions about the survivability of democracy and political regimes.
“As we know in the past, sometimes those questions lead to war,” he said. “We now need to devote 100 percent of our time to these questions.”
World Bank and I.M.F. officials noted that political instability had already hit countries as disparate as Haiti, Egypt, the Philippines and Indonesia because of food shortages, forcing some countries to limit food exports.
Mr. Zoellick had earlier highlighted the food issue in speeches and presentations this weekend, saying the World Bank intended not only to help with the emergency situation but also to upgrade programs to help countries produce more food on their own. He cited Malawi, in southern Africa, as a country that has started going in that direction.
But food has also become a symbol of the conflicting pressures that frequently emerge at the semiannual gatherings of finance and development officials and central bankers that take place in Washington every spring.
Some ministers from poor countries, for example, are growing impatient with the way the West is addressing global warming by subsidizing and encouraging conversion of corn, sugar cane and other food products into substitutes for oil. The shift is helping to drive up prices, they say.
Mr. Strauss-Kahn said he had heard from many financial officials this weekend that the West’s focus on fuel, at the expense of food, was a “crime against humanity.” Though he noted that the I.M.F. is primarily a monetary and financial agency, he said it would try to “review its tools” to help countries pay for food imports.
In addition, many ministers meeting here appeared to be self-conscious about how much of the attention at the meeting has focused on the global credit crisis, which has caused hundreds of billions of dollars in losses for banks and investment banks, while there was less focus on the problem of feeding the world’s poor.
Treasury Secretary Henry M. Paulson Jr. said on Friday that the subject of food shortages had come up at the meeting of finance ministers of the United States, Canada, Europe and Japan under the heading of the Group of Seven.
“Every country sitting around the table was focused on it,” Mr. Paulson said of the Group of Seven’s concern about food, adding that Mr. Zoellick “made an impassioned plea.” But Treasury officials said they had no details of what aid the United States was prepared to commit.
Friday, April 04, 2008
Worldwide Food Crisis
Back in January, I told you about the looming global food crisis -- Global Food Crisis: Credit Crunch Could Pale in Comparison...
Well, with grain prices making new highs around the globe, it now looks as if the crisis may be getting started...
Rising Grain Prices Panic Developing World
World Wheat Crisis
Global food inflation bites hard
Food Prices Increase Worldwide
Biofuel - Food For Thought
Well, with grain prices making new highs around the globe, it now looks as if the crisis may be getting started...
Rising Grain Prices Panic Developing World
World Wheat Crisis
Global food inflation bites hard
Food Prices Increase Worldwide
Biofuel - Food For Thought
Saturday, March 08, 2008
Final US Economic End-Game
I hope this post serves a useful purpose and helps to shed some light on what may potentially lie in store for our economy/way of life.
Based on what we have just learned above (that monetary growth and consumer inflation are rising, and that the Fed/PPT have officially sacrificed the US dollar to prevent a depression), if we now gaze into our crystal ball and look out at the next 5 years or so, what should/can we expect to see?
Logic reasoning leads us to believe it has now become official Government policy to try to inflate our way out way out of this financial crisis, so lets assume a master plan exists to bail out numerous banks/financial institutions and rescue the bond, housing and various other markets. Let’s then go on to assume a plan exists to eventually ramp up numerous government infrastructure and military/industrial projects to promote US job growth (in the midst of our deep/dark recession).
To keep the math easy, and assuming all of the above takes place, let’s now presume (being conservative here) M3 Growth averages 20% over the next 5 years to fund all these new government efforts… Therefore, in 5 years time, M3 (worldwide US money supply) will have doubled and M3 will equate to ~ 27 Trillion US Dollars. Note: by that time inflation will be raging and the dollar’s purchasing power will be halved (if not more by then; it really depends on foreign dollar holders—will they cash before then?).
By continuing to understate inflation (as you saw in the Inflation graph above) over the next 5 years and more, the US government will be able to pay all its currently un-funded obligations (Social Security, Pension Benefits, Military Pay/retirements, Medicare obligations, even foreign held debt) with significantly devalued dollars—costing the government far less over time.
In other words (lets use a Social Security recipient as an example): Grandma will still get her entitled (currently unfunded) $1,200-1,400 monthly Social Security Check (w/annual increases tied to Gvt's lower CPI rate), but if her utility bills have doubled and she now pays $8 a gallon for Gas, $7.50 for a gallon of Milk, $5 for a loaf of Bread, $4 for a pound of Chicken and $10 for a “value meal” at McDonalds, her purchasing power has been reduced substantially. The government still pays its obligation, but with devalued dollars and w/severely reduced purchasing power.
Thus: Inflation (monetary growth of printed dollars) has eroded unfunded Gvt debt/obligations, but at the cost of American purchasing power and standard of living—it will have dropped significantly. Ultimately, over time, the Gvt. actually pays out less than that which it really owes—through devalued dollars (it’s all smoke and mirrors).
If you haven’t already done so, read the following links for some thoughts on the issue:
Social Implications of a Significant Economic Downturn
Today, with bad new all around, many make attempts to dissect the individual aspects of the myriad of economic problems that contribute to our problematic US economic condition, but few really try to think ahead and analyze the final end-game. With this post, I hope to do just that, and will attempt to answer the following six questions:
1) What is happening with regard to our economy?
1) What is happening with regard to our economy?
2) Why would our monetary policy-masters want a weaker dollar?
3) Where do we go from here?
4) What long-term exit strategy can we expect to see from our monetary policy masters?
3) Where do we go from here?
4) What long-term exit strategy can we expect to see from our monetary policy masters?
5) How does inflation help the Government and what are the impacts to its people?
6) How will people cope with reduced purchasing power and a much lower standard of living?
So, what is happening with regard to our Economy?
Though I’ve been talking about it since 05 (and many early on considered me a knucklehead for my non-conformist viewpoint), I think it is now becoming common knowledge that the largest speculative bubble in our world’s history (housing bubble) has popped and its reverberations are being felt across the globe:
Though I’ve been talking about it since 05 (and many early on considered me a knucklehead for my non-conformist viewpoint), I think it is now becoming common knowledge that the largest speculative bubble in our world’s history (housing bubble) has popped and its reverberations are being felt across the globe:
Hedge funds are collapsing, bank write-downs are growing, toxic waste marked-to-model Commercial Paper (CP) sitting in off-balance sheets cannot be offloaded, credit markets are completely locked up, home foreclosures (the catalyst to all these problems) are growing, consumer spending (70% of our economy) is waning, consumer inflation is raging, construction spending is down, the dollar is falling off a cliff, job losses are increasing, state revenue is falling—many are slashing budgets, and the list goes on…
The Fed and our Plunge Protection Team (PPT) understand that deflation is taking hold and they are operating in emergency mode... In a brazen attempt to prevent a collapse of the entire banking/financial systems (and hence the US Economy) “Helicopter” Ben Bernanke has officially sacrificed the dollar in the hopes of printing/inflating our way out of this financial mess -- to prevent an economic depression.
Take a look at the US dollar chart below -– NEVER in our country’s history has the US Dollar been weaker. Why so low? Our policymakers are covertly demanding a weak dollar.
The Fed and our Plunge Protection Team (PPT) understand that deflation is taking hold and they are operating in emergency mode... In a brazen attempt to prevent a collapse of the entire banking/financial systems (and hence the US Economy) “Helicopter” Ben Bernanke has officially sacrificed the dollar in the hopes of printing/inflating our way out of this financial mess -- to prevent an economic depression.
Take a look at the US dollar chart below -– NEVER in our country’s history has the US Dollar been weaker. Why so low? Our policymakers are covertly demanding a weak dollar.
But why would our monetary policy-masters want a weaker dollar?
Well, as I see I see it, there are several reasons:
A devalued dollar will (over time) allow the United States to 1) eliminate much of its foreign debt through devalued payback 2) pay for future (currently $60 Trillion) in un-funded obligations through cheaper payouts 3) reduce US labor costs in the global marketplace –- making US manufacturing competitive in the world again, and 4) a side effect -- lower the US standard of living through massive inflation -- ultimately stoking a grass roots demand for some relief and opening the doorway for successful implementation of a new “stable” currency to replace the ailing dollar –- The AMERO.
Additionally, somewhere along the way, we will probably experience a new war to: 1) secure natural resources, 2) create US jobs to support the military/industrial complex, and 3) help to take our minds off the economic misery we are all experiencing.
Well, as I see I see it, there are several reasons:
A devalued dollar will (over time) allow the United States to 1) eliminate much of its foreign debt through devalued payback 2) pay for future (currently $60 Trillion) in un-funded obligations through cheaper payouts 3) reduce US labor costs in the global marketplace –- making US manufacturing competitive in the world again, and 4) a side effect -- lower the US standard of living through massive inflation -- ultimately stoking a grass roots demand for some relief and opening the doorway for successful implementation of a new “stable” currency to replace the ailing dollar –- The AMERO.
Additionally, somewhere along the way, we will probably experience a new war to: 1) secure natural resources, 2) create US jobs to support the military/industrial complex, and 3) help to take our minds off the economic misery we are all experiencing.
So, where do we go from here?
As previously stated, the PPT is attempting to fight deflation with new inflation and the Fed’s monetary printing presses are gearing up to start working overtime. (NOTE: Money=Debt and lack of new consumer/corporate debt means less new money to service older debt, which means declining GDP, defaults and deflation)
Today there are > $13 Trillion Dollars circulating the globe and M3 Growth (expanding US Money Supply) is increasing at an annual 18% rate (see chart below).
M3 -- US Money Supply Growth rate & US Dollars in Circulation
(Note: as an aside, only ~ $400 Billion of this, ~ 3%, is available in cold hard cash in the US -- most of these $13T dollars are 1’s & 0’s on a computer hard-drive somewhere—God help us if we experience banking runs…)
As previously stated, the PPT is attempting to fight deflation with new inflation and the Fed’s monetary printing presses are gearing up to start working overtime. (NOTE: Money=Debt and lack of new consumer/corporate debt means less new money to service older debt, which means declining GDP, defaults and deflation)
Today there are > $13 Trillion Dollars circulating the globe and M3 Growth (expanding US Money Supply) is increasing at an annual 18% rate (see chart below).
M3 -- US Money Supply Growth rate & US Dollars in Circulation
(Note: as an aside, only ~ $400 Billion of this, ~ 3%, is available in cold hard cash in the US -- most of these $13T dollars are 1’s & 0’s on a computer hard-drive somewhere—God help us if we experience banking runs…)
Consumer inflation typically lags M3 growth (those with new dollars first can buy more than those who receive dollars later in the game), but we know inflation in the US is currently running ~ 12% today (next chart below -- measuring inflation w/metrics abandoned in the 1980’s– abandoned to understate inflation, reduce Gvt. entitlement payouts over time and to overstate GDP).
Annual Consumer Inflation Chart – The red line illustrates what our Gvt wants you to believe (inflation ~ 4%); the blue line is our actual inflation rate (~12%); Remember, consumer inflation lags new monetary creation, so you can be certain (after looking at M3 again—the 1st chart) that consumer inflation has only one way to go –- UP!
Annual Consumer Inflation Chart – The red line illustrates what our Gvt wants you to believe (inflation ~ 4%); the blue line is our actual inflation rate (~12%); Remember, consumer inflation lags new monetary creation, so you can be certain (after looking at M3 again—the 1st chart) that consumer inflation has only one way to go –- UP!
What long-term exit strategy can we expect to see from our monetary policy masters?
Based on what we have just learned above (that monetary growth and consumer inflation are rising, and that the Fed/PPT have officially sacrificed the US dollar to prevent a depression), if we now gaze into our crystal ball and look out at the next 5 years or so, what should/can we expect to see?
Logic reasoning leads us to believe it has now become official Government policy to try to inflate our way out way out of this financial crisis, so lets assume a master plan exists to bail out numerous banks/financial institutions and rescue the bond, housing and various other markets. Let’s then go on to assume a plan exists to eventually ramp up numerous government infrastructure and military/industrial projects to promote US job growth (in the midst of our deep/dark recession).
To keep the math easy, and assuming all of the above takes place, let’s now presume (being conservative here) M3 Growth averages 20% over the next 5 years to fund all these new government efforts… Therefore, in 5 years time, M3 (worldwide US money supply) will have doubled and M3 will equate to ~ 27 Trillion US Dollars. Note: by that time inflation will be raging and the dollar’s purchasing power will be halved (if not more by then; it really depends on foreign dollar holders—will they cash before then?).
How does this inflationary effect help the Government and what are the impacts to be felt by the people?
By continuing to understate inflation (as you saw in the Inflation graph above) over the next 5 years and more, the US government will be able to pay all its currently un-funded obligations (Social Security, Pension Benefits, Military Pay/retirements, Medicare obligations, even foreign held debt) with significantly devalued dollars—costing the government far less over time.
In other words (lets use a Social Security recipient as an example): Grandma will still get her entitled (currently unfunded) $1,200-1,400 monthly Social Security Check (w/annual increases tied to Gvt's lower CPI rate), but if her utility bills have doubled and she now pays $8 a gallon for Gas, $7.50 for a gallon of Milk, $5 for a loaf of Bread, $4 for a pound of Chicken and $10 for a “value meal” at McDonalds, her purchasing power has been reduced substantially. The government still pays its obligation, but with devalued dollars and w/severely reduced purchasing power.
Thus: Inflation (monetary growth of printed dollars) has eroded unfunded Gvt debt/obligations, but at the cost of American purchasing power and standard of living—it will have dropped significantly. Ultimately, over time, the Gvt. actually pays out less than that which it really owes—through devalued dollars (it’s all smoke and mirrors).
So, how will people cope with reduced purchasing power and a much lower standard of living?
With inflation and unemployment raging, tens of millions of Americans will not be able to make ends meet and cutbacks in lifestyle will become the norm.
Americans feeling the pinch will have to eventually downsize (much smaller house or apartment -- to reduce utilities/costs; take on a room mate or rent out a room, purchase a more fuel efficient car; drive MUCH less -- car-pooling will become popular, eating out will stop--it will only be for the well-off; families will eat cheaper foods at home, clothing will be used until completely worn out, churches and aid agencies will become much more involved in the struggling/average American's life, etc...)
With inflation and unemployment raging, tens of millions of Americans will not be able to make ends meet and cutbacks in lifestyle will become the norm.
Americans feeling the pinch will have to eventually downsize (much smaller house or apartment -- to reduce utilities/costs; take on a room mate or rent out a room, purchase a more fuel efficient car; drive MUCH less -- car-pooling will become popular, eating out will stop--it will only be for the well-off; families will eat cheaper foods at home, clothing will be used until completely worn out, churches and aid agencies will become much more involved in the struggling/average American's life, etc...)
Bottom Line: life will become much more expensive/difficult than that which we know today. We could even see oil/fuel shortages due to geopolitical unrest/war, and food shortages could be an issue too -- world food stores are currently at a 50-60 year low with no relief in sight. (Global food crisis—credit crunch could pale in comparison)
Anyway, you ask: What then happens to society?
If you haven’t already done so, read the following links for some thoughts on the issue:
Social Implications of a Significant Economic Downturn
Our long-term way Ahead:
There is however, potentially very good news that will follow this EXTREMELY difficult period in America: Over time, a much lower US standard of living and a significantly devalued US dollar will make it much cheaper to manufacture in the US again, and 15-25 years from now our massive debt loads will have subsided and all those outsourced jobs will eventually come back home. Then we will be able to do more than sell each other cheaply manufactured goods -- we will actually make them again. For more on this subject, read my Jan 06 article: American Wake Up Call
There is however, potentially very good news that will follow this EXTREMELY difficult period in America: Over time, a much lower US standard of living and a significantly devalued US dollar will make it much cheaper to manufacture in the US again, and 15-25 years from now our massive debt loads will have subsided and all those outsourced jobs will eventually come back home. Then we will be able to do more than sell each other cheaply manufactured goods -- we will actually make them again. For more on this subject, read my Jan 06 article: American Wake Up Call
Bottom line to this article:
I think our day of reckoning has finally arrived. We Americans have lived too comfortably for far too long by sucking up 80% of the world's savings and then we wanted more, so we racked up ENORMOUS personal and Gvt Debt loads that must be paid -- paid through Gvt. monetization, massive dollar devaluations and a much lower standard of living.
As stated previously, the PPT is fighting deflation w/inflation, so we will probably experience concurrent deflation and inflation – if/until the deflationary forces are won over.
I expect, over the next 5 years or so, consumer inflation to be completely out of control, but there is nothing the Fed can do about it -- without throwing the economy into a depression.
Ultimately, the US dollar will plummet in value and its fate as the defacto "World Reserve Currency" could soon be brought to question -- but that might be part of our monetary policy master's "master-plan" anyway, as it will allow the Amero to slip right into its place without an American revolt.
I think our day of reckoning has finally arrived. We Americans have lived too comfortably for far too long by sucking up 80% of the world's savings and then we wanted more, so we racked up ENORMOUS personal and Gvt Debt loads that must be paid -- paid through Gvt. monetization, massive dollar devaluations and a much lower standard of living.
As stated previously, the PPT is fighting deflation w/inflation, so we will probably experience concurrent deflation and inflation – if/until the deflationary forces are won over.
I expect, over the next 5 years or so, consumer inflation to be completely out of control, but there is nothing the Fed can do about it -- without throwing the economy into a depression.
Ultimately, the US dollar will plummet in value and its fate as the defacto "World Reserve Currency" could soon be brought to question -- but that might be part of our monetary policy master's "master-plan" anyway, as it will allow the Amero to slip right into its place without an American revolt.
I hope this article provided you with some nourishing "food for thought".
Best regards
Randy
Sunday, January 06, 2008
Global Food Crisis--Credit Crunch Could Pale in Comparison
Grains, food inflation give markets a jolt
Soaring world grain prices will keep driving food price inflation in 2008 as China and India carve out a bigger place at the table and a new dinner guest -- biofuels -- threatens to become the biggest glutton of all.
In 2007, Chicago Board of Trade prices -- world benchmarks for wheat, corn, rice and soybeans -- soared despite big U.S. harvests. Wheat prices rose 90 percent, soybeans 80 percent, corn 20 percent. U.S. prices are key because America is still the world's breadbasket, the single biggest grain exporter.
"The fact we're having higher commodity prices here will have an impact around the world on food prices," Lapp said.
Bill Lapp, former economist for food giant Conagra Foods Inc said the U.S. producer prices for food for the first 11 months of 2007 rose at an annualized rate of 7.5 percent, the highest since 1980, with the exception of the year 2003.
"We've only started to see the impact of higher costs translate into higher consumer prices," Lapp said.
One indicator that markets are watching more closely than even U.S. prices is world grain stocks. U.S. wheat stocks in 2008 will hit a 60-year low and world barley stocks a 42-year low. Global oilseed stocks are projected down 22 percent in one year.
Rice Prices Are Steaming, With Many Implications
The global commodities boom that has lifted prices of everything from gasoline to gold is now elevating rice -- a staple food for half of the world -- to its highest level in nearly 20 years.
A particular humanitarian concern is that the world's poorest consumers, many dependent on rice, often have little or no voice. "When they suffer food shortages, they starve in silence," says Joachim von Braun, director general at the International Food Policy Research Institute.
Lowest Food Supplies in 50 or 100 Years
The United States Department of Agriculture (USDA) released its first projections of world grain supply and demand for the coming crop year: 2007/08. USDA predicts supplies will plunge to a 53-day equivalent-their lowest level in the 47-year period for which data exists.
"The USDA projects global grain supplies will drop to their lowest levels on record. Further, it is likely that, outside of wartime, global grain supplies have not been this low in a century, perhaps longer," said NFU Director of Research Darrin Qualman .
Most important, 2007/08 will mark the seventh year out of the past eight in which global grain production has fallen short of demand. This consistent shortfall has cut supplies in half-down from a 115-day supply in 1999/00 to the current level of 53 days. "The world is consistently failing to produce as much grain as it uses," said Qualman. He continued: "The current low supply levels are not the result of a transient weather event or an isolated production problem: low supplies are the result of a persistent drawdown trend."
In addition to falling grain supplies, global fisheries are faltering. Reports in respected journals Science and Nature state that 1/3 of ocean fisheries are in collapse, 2/3 will be in collapse by 2025, and our ocean fisheries may be virtually gone by 2048. "Aquatic food systems are collapsing, and terrestrial food systems are under tremendous stress," said Qualman.
Severe food shortages, price spikes threaten world population
Worldwide food prices have risen sharply and supplies have dropped this year, according to the latest food outlook of the United Nations Food and Agriculture Organization. The agency warned December 17 that the changes represent an “unforeseen and unprecedented” shift in the global food system, threatening billions with hunger and decreased access to food.
The USDA has cautioned that wheat exporters in the US have already sold more than 90 percent of what the department had expected to be exported during the fiscal year ending June 2008. This has dire consequences for the world’s poor, whose diets consist largely of cereal grains imported from the United States and other major producers.
The food crisis is intensifying social discontent and raising the likelihood of social upheavals. The FAO notes that political unrest “directly linked to food markets” has developed in Morocco, Uzbekistan, Yemen, Guinea, Mauritania and Senegal. In the past year, cereal prices have triggered riots in several other countries, including Mexico, where tortilla prices were pushed up 60 percent. In Italy, the rising cost of pasta prompted nationwide protests. Unrest in China has also been linked to cooking oil shortages.
All national governments are keenly aware of the possibility of civil unrest in the event of severe food shortages or famine, and many have taken minimal steps to ease the crisis in the short term, such as reducing import tariffs and erecting export restrictions. On December 20, China did away with food export rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and Argentina have also implemented export controls.
But such policies cannot adequately cope with the crisis in the food system because they do not address the causes, only the immediate symptoms. Behind the inflation are the complex inter-linkages of global markets and the fundamental incompatibility of the capitalist system with the needs of billions of poor and working people.
As the housing market in the United States collapsed, compounding problems in the credit market and threatening recession, speculation shifted to the commodities markets, exacerbating inflation in basic goods and materials. The international food market is particularly prone to volatility because current prices are greatly influenced by speculation over future commodity prices. This speculation can then trigger more volatility, encouraging more speculation.
The rising oil price not only affects the costs of transportation and importation. It also has a direct impact on the costs of farm operation in the working of agricultural and industrial processing machinery. Moreover, fertilizer, which takes its key component, nitrogen, from natural gas, is also spiking in price because of the impact of rising oil prices on the demand and costs of other fuels. By the same token, as oil prices rise, the demand for biofuel sources such as corn, sugarcane, and soybeans also rises, resulting in more and more feedstock crops being devoted to fuel and additives production.
BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe.
A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.
"It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."
Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.
"The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.
Wheat prices alone have risen 92% in the past year, and yesterday closed at US$9.45 a bushel on the Chicago Board of Trade.
At the centre of the imminent food catastrophe is corn - the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday - its best finish since June 1996.
This not only impacts the price of food products made using grains, but also the price of meat, with feed prices for livestock also increasing.
"You're going to have real problems in countries that are food short, because we're already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they're embargoing exports," he said, citing Russia and India as examples.
So, what is the take-away from this post?
Expect 2008 to bring much higher food prices around the globe. The main issue for US consumers (baring any calamity) will, most likely, just be significantly increased costs to feed the family, but we will probably see much more civil unrest and famine around the world.
On the other hand, if we do experience some type of calamity in 2008 or if food stockpiles continue to decline in the out years, we could potentially see one hell of a problem.
As an aside, I spent many months in Somalia back in 1992/93 as Operation Restore Hope (A United Nations Humanitarian Effort--before Blackhawk Down) tried to put food supplies in the hands of the starving (vs the controlling Warlords) and let me tell you, it was the most appalling thing I have ever witnessed... Thousands upon thousands of skeletal shells of human beings, trying to survive any way they could--the smell of death hanging in the stale air as untold numbers of bodies slowly decayed beneath shallow improvised graves baking in the desert sun…
Soaring world grain prices will keep driving food price inflation in 2008 as China and India carve out a bigger place at the table and a new dinner guest -- biofuels -- threatens to become the biggest glutton of all.
In 2007, Chicago Board of Trade prices -- world benchmarks for wheat, corn, rice and soybeans -- soared despite big U.S. harvests. Wheat prices rose 90 percent, soybeans 80 percent, corn 20 percent. U.S. prices are key because America is still the world's breadbasket, the single biggest grain exporter.
"The fact we're having higher commodity prices here will have an impact around the world on food prices," Lapp said.
Bill Lapp, former economist for food giant Conagra Foods Inc said the U.S. producer prices for food for the first 11 months of 2007 rose at an annualized rate of 7.5 percent, the highest since 1980, with the exception of the year 2003.
"We've only started to see the impact of higher costs translate into higher consumer prices," Lapp said.
One indicator that markets are watching more closely than even U.S. prices is world grain stocks. U.S. wheat stocks in 2008 will hit a 60-year low and world barley stocks a 42-year low. Global oilseed stocks are projected down 22 percent in one year.
Rice Prices Are Steaming, With Many Implications
The global commodities boom that has lifted prices of everything from gasoline to gold is now elevating rice -- a staple food for half of the world -- to its highest level in nearly 20 years.
A particular humanitarian concern is that the world's poorest consumers, many dependent on rice, often have little or no voice. "When they suffer food shortages, they starve in silence," says Joachim von Braun, director general at the International Food Policy Research Institute.
Lowest Food Supplies in 50 or 100 Years
The United States Department of Agriculture (USDA) released its first projections of world grain supply and demand for the coming crop year: 2007/08. USDA predicts supplies will plunge to a 53-day equivalent-their lowest level in the 47-year period for which data exists.
"The USDA projects global grain supplies will drop to their lowest levels on record. Further, it is likely that, outside of wartime, global grain supplies have not been this low in a century, perhaps longer," said NFU Director of Research Darrin Qualman .
Most important, 2007/08 will mark the seventh year out of the past eight in which global grain production has fallen short of demand. This consistent shortfall has cut supplies in half-down from a 115-day supply in 1999/00 to the current level of 53 days. "The world is consistently failing to produce as much grain as it uses," said Qualman. He continued: "The current low supply levels are not the result of a transient weather event or an isolated production problem: low supplies are the result of a persistent drawdown trend."
In addition to falling grain supplies, global fisheries are faltering. Reports in respected journals Science and Nature state that 1/3 of ocean fisheries are in collapse, 2/3 will be in collapse by 2025, and our ocean fisheries may be virtually gone by 2048. "Aquatic food systems are collapsing, and terrestrial food systems are under tremendous stress," said Qualman.
Severe food shortages, price spikes threaten world population
Worldwide food prices have risen sharply and supplies have dropped this year, according to the latest food outlook of the United Nations Food and Agriculture Organization. The agency warned December 17 that the changes represent an “unforeseen and unprecedented” shift in the global food system, threatening billions with hunger and decreased access to food.
The USDA has cautioned that wheat exporters in the US have already sold more than 90 percent of what the department had expected to be exported during the fiscal year ending June 2008. This has dire consequences for the world’s poor, whose diets consist largely of cereal grains imported from the United States and other major producers.
The food crisis is intensifying social discontent and raising the likelihood of social upheavals. The FAO notes that political unrest “directly linked to food markets” has developed in Morocco, Uzbekistan, Yemen, Guinea, Mauritania and Senegal. In the past year, cereal prices have triggered riots in several other countries, including Mexico, where tortilla prices were pushed up 60 percent. In Italy, the rising cost of pasta prompted nationwide protests. Unrest in China has also been linked to cooking oil shortages.
All national governments are keenly aware of the possibility of civil unrest in the event of severe food shortages or famine, and many have taken minimal steps to ease the crisis in the short term, such as reducing import tariffs and erecting export restrictions. On December 20, China did away with food export rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and Argentina have also implemented export controls.
But such policies cannot adequately cope with the crisis in the food system because they do not address the causes, only the immediate symptoms. Behind the inflation are the complex inter-linkages of global markets and the fundamental incompatibility of the capitalist system with the needs of billions of poor and working people.
As the housing market in the United States collapsed, compounding problems in the credit market and threatening recession, speculation shifted to the commodities markets, exacerbating inflation in basic goods and materials. The international food market is particularly prone to volatility because current prices are greatly influenced by speculation over future commodity prices. This speculation can then trigger more volatility, encouraging more speculation.
The rising oil price not only affects the costs of transportation and importation. It also has a direct impact on the costs of farm operation in the working of agricultural and industrial processing machinery. Moreover, fertilizer, which takes its key component, nitrogen, from natural gas, is also spiking in price because of the impact of rising oil prices on the demand and costs of other fuels. By the same token, as oil prices rise, the demand for biofuel sources such as corn, sugarcane, and soybeans also rises, resulting in more and more feedstock crops being devoted to fuel and additives production.
BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe.
A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.
"It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."
Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.
"The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.
Wheat prices alone have risen 92% in the past year, and yesterday closed at US$9.45 a bushel on the Chicago Board of Trade.
At the centre of the imminent food catastrophe is corn - the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday - its best finish since June 1996.
This not only impacts the price of food products made using grains, but also the price of meat, with feed prices for livestock also increasing.
"You're going to have real problems in countries that are food short, because we're already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they're embargoing exports," he said, citing Russia and India as examples.
So, what is the take-away from this post?
Expect 2008 to bring much higher food prices around the globe. The main issue for US consumers (baring any calamity) will, most likely, just be significantly increased costs to feed the family, but we will probably see much more civil unrest and famine around the world.
On the other hand, if we do experience some type of calamity in 2008 or if food stockpiles continue to decline in the out years, we could potentially see one hell of a problem.
As an aside, I spent many months in Somalia back in 1992/93 as Operation Restore Hope (A United Nations Humanitarian Effort--before Blackhawk Down) tried to put food supplies in the hands of the starving (vs the controlling Warlords) and let me tell you, it was the most appalling thing I have ever witnessed... Thousands upon thousands of skeletal shells of human beings, trying to survive any way they could--the smell of death hanging in the stale air as untold numbers of bodies slowly decayed beneath shallow improvised graves baking in the desert sun…
Lets hope/pray we never experience something like this on our continent.
Regards
Randy
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