Signs of the Economic Apocalypse, 5-28-07

From Signs of the Times

Gold closed at 661.40 dollars an ounce Friday, down less than 0.1% from $662.00 at the close of the previous Friday. The dollar closed at 0.7439 euros Friday, up 0.5% from 0.7403 at the previous week’s close. That put the euro at 1.3442 dollars compared to 1.3508 the Friday before. Gold in euros would be 492.04, up 0.5% from 490.08 for the week. Oil closed at 65.20 dollars a barrel Friday, up 0.4% from $64.94 at the close of the week before. Oil in euros would be 48.50 euros a barrel, up 0.9% from 48.08 for the week. The gold/oil ratio closed at 10.14, down 0.5% from 10.19 at the close of the previous Friday. In U.S. stocks, the Dow closed at 13,507.28, down 0.4% from 13,556.53 for the week. The NASDAQ closed at 2,557.19 Friday, virtually unchanged from 2,558.45 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.86%, up six basis points from 4.80 for the week.

We are seeing a clear trend of rising U.S. interest rates with the ten-year Treasury note rising 22 basis points over the last four weeks. This has helped boost the dollar against the euro, but is one blade of the scissors cutting the U.S. consumer, the other blade being the rise in energy and food prices. The official inflation numbers don’t look too bad but they exempt food and energy prices (the two most necessary items) and include housing prices, which have dropped. If you don’t own a house yet, that’s good news, but about 70% of U.S. citizens do own a house and it is their most valuable asset, so dropping housing prices are bad news for most folks.

U.S. Existing Home Sales Drop to Lowest in Four Years

Shobhana Chandra

May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.

Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.

The decline comes a day after a government report showed sales of new homes surged as buyers took advantage of a slide in prices. Today's figures suggest that owners of existing homes may have to cut prices further during the prime spring selling season. The drop also reflects the impact of banks making it tougher to get subprime loans, a response to rising defaults.

“The housing market correction won't be resolved quickly,” said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. “Downward pressure on prices will persist and sales will be sluggish for some time.”

Resales were expected to be at a 6.12 million annual rate, unchanged from the originally reported March figure, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 5.9 million to 6.4 million. Logan forecast a 6 million pace.

Inventory Grows

The number of previously owned unsold homes on the market at the end of April represented 8.4 months' worth at the current sales pace. The supply of homes for sale increased 10.4 percent to 4.2 million last month.

Purchases fell in all four regions. They declined 8.8 percent in the Northeast and 0.7 percent in the Midwest. They slid 1.2 percent in the South and 1.7 percent in the West.

The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900.

Resales of single-family homes declined 2.4 percent in April to an annual rate of 5.22 million, the report said. Sales of condos and co-ops dropped 3.8 percent to a 770,000 annual rate.

“There is just no way that the housing slump is over,” said Roger Kubarych, chief U.S. economist at UniCredit HVB in New York.

Sales of new homes jumped 16 percent in April, the Commerce Department reported yesterday, as buyers took advantage of the biggest decline in median prices since 1970. New homes make up about 15 percent of the market.

Timely Barometer

Economists consider sales of new homes a more timely barometer because they are recorded when a contract is signed. Figures on home resales are compiled from contract closings and may reflect agreements reached a month or two earlier.

The housing slump helped reduce the pace of economic growth last quarter to an annual 1.3 percent, the slowest in more than four years. Federal Reserve policy makers say housing remains a risk to their forecast that growth will pick up later this year.

The Realtors group forecasts resales will fall 2.9 percent this year, after an 8.5 percent drop in 2006, and the median price of an existing home will drop 1 percent.

A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.

‘Spillovers’

Curbs on subprime lending “are expected to be a source of some restraint on home purchases and residential investment in coming quarters,” Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee “significant spillovers” from the subprime market to the rest of the economy.

At least 50 subprime lenders have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data, leading to a smaller supply of money for lending.

Builders are still struggling. Toll Brothers Inc., the largest U.S. luxury home builder, yesterday reported a 79 percent plunge in profit in the quarter ended April 30.

The Horsham, Pennsylvania-based company didn't provide an earnings forecast for the rest of the year because of “uncertainty” about the pace of sales and the direction of the market.

“We continue to operate conservatively in the current difficult market,” Chief Executive Officer Robert Toll said in a statement. Still, he said he was “a little more confident” than he was on a May 9 call.

Affordability

Lower prices and higher incomes may make homes more affordable, drawing buyers back into the market. Affordability has improved since the second quarter of last year, when it slipped to the lowest since at least 1992.

Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is “at or near the bottom.” Lowe's, based in Mooresville, North Carolina, lowered its annual earnings forecast after fewer home sales hurt demand for cabinets and appliances last quarter.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

The wave of large public corporations taken private by private equity firms gathered steam last week with EMI and Alltel joining Chrysler as private companies. For the short term the buyouts and mergers (81 billion dollars worth of deals in May alone, a record amount) have propped up stock markets in the U.S. Record high stock prices help to keep economic confidence up and mask the structural defects of the economy.

For the long term, the private equity boom marks a new stage in depriving people of economic power. Changes to labor laws over the past 30 years have given workers much less control over their lives and now the private-equity boom is taking power away from public shareholders. And now, Wall Street is taking the private equity trend a step further, creating a private trading system for “stocks” of such privately held companies:

Goldman Takes 'Private' Equity To a New Level
Firm's Trading System Lets Unregistered Stock Reach Exclusive Market

Randall Smith

Goldman Sachs Group Inc. ranks as the most profitable securities firm on Wall Street -- reflecting its mastery of trading on the world's public markets.

Now Goldman is turning that franchise on its head, creating its own private system to trade the stocks of companies that don't want the scrutiny and regulatory burdens of going public.

The new system, GS TRuE -- short for Goldman Sachs Tradable Unregistered Equity -- was announced two weeks ago and made its debut on Monday with an $880 million sale of a 15% stake in Oaktree Capital Management LLC, an alternative-investment manager.

It is the first of several new, private exchanges like these being considered by Wall Street firms and others. Nasdaq is also planning its own new market for smaller, unregistered securities.

These markets will generally be closed to individual investors. For instance, Goldman's market is open only to large institutional investors with assets of more than $100 million. That is because the stocks traded on GS TRuE aren't registered with the Securities and Exchange Commission and issuers aren't subject to SEC regulations designed to protect individual investors.

It represents the latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. For instance, giant private-equity firms are busy buying public companies and delisting them from stock exchanges. The growing importance of hedge funds -- which are generally limited to wealthy investors, institutions and endowments -- also excludes individuals.

The new system is "a manifestation of the growth of private-equity relative to public equity," said Jay Ritter, a finance professor at the University of Florida in Gainesville, pointing to the record-setting pace of private-equity buyouts of public companies recently.

Traditional mutual funds -- one of the main investment tools at the disposal of individual investors -- are also limited in the amount of unregistered securities they can buy or sell. Hedge funds, by contrast, have more freedom to buy unregistered stocks and bonds.

Indeed, bankers and capital-markets executives at rival firms say that, at GS TRuE's debut, hedge funds were prominent among buyers for the issue by Los Angeles-based Oaktree.

Some investor advocates criticized the trend of selling more securities faster with less disclosure. "It becomes much more of a buyer-beware marketplace with little regulatory oversight or protection," said Steven B. Caruso, a New York lawyer who represents investors in disputes with Wall Street.

Business Backlash

Goldman's move partly reflects a business-community backlash against increased regulation of public-company accounting practices -- a favorite theme, as it happens, of Treasury Secretary Henry M. Paulson Jr., who is also a former Goldman chief executive.

Wall Street executives said the market offers an alternative to companies that don't want to wait for regulators to approve their financial disclosures needed for an initial public offering, which can take 90 days or more.

They also said it offers a haven for firms that don't want to be subject to what Oaktree described as "the full panoply of regulations applicable to publicly traded companies in the United States." In a memorandum describing the stock sale, Oaktree added that staying private would avoid "pressure to describe the company as one capable of steady growth, whereas our underlying business is actually quite variable."

Although the Oaktree offering was sold to only about 50 buyers, it traded at roughly the same multiple of expected 2008 earnings as Fortress Investment Group LLC, a comparable alternative-investment manager that recently sold stock in a conventional initial public offering, according to Wall Street traders.

In other words, the Oaktree stock traded without a price discount that would reflect the lack of a public market with multiple dealers. In that respect, the new market passed an important first test. If stocks traded at too much of a discount, that might dissuade other companies from listing there.

What History Says

Bankers at rival firms -- many of which are developing similar systems -- predict that there will be consolidation among the different platforms.

"History in other markets would indicate that this will converge into a single platform," said Daniel Simkowitz, a managing director in capital markets at Morgan Stanley, which advised Oaktree on the issue.

Indeed, Nasdaq Stock Market Inc. is in the home stretch of getting approval for a similar unregistered trading facility for smaller companies called Portal. Another securities firm, Friedman, Billings, Ramsey Group Inc., has sold unregistered stock for numerous companies in real estate, energy and lodging.

Goldman executives said one reason they launched their own system solo, without asking other rival securities firms to participate, was to insure control over the number of investors in any particular security. That is crucial, they said, because any company that goes over 499 investors must register as a public company.

That 499-investor limit, said one executive of a top private-equity firm, is one reason why such buyout firms aren't likely to rush pell-mell into this type of new issue for their portfolio companies. The buyout firms want to attract far more investors to make sure they get the best prices for their stock, he explained.

'New Tool' in the Kit

Rob Pace, a senior capital-markets executive who played a lead role in developing the Goldman system, called such issues "a new tool in the tool kit" for investors, filling out a spot between harder-to-trade traditional private placements and public offerings.

Mr. Pace noted that Goldman still believes "the U.S. public capital markets are the deepest and most liquid," and will continue to represent "a more prevalent way to raise equity capital."

Goldman also said companies that issue stock on its system must promise to issue quarterly, annual and event-related financial reports comparable to those of public companies. However, they don't have the same obligation for widespread dissemination of detailed business information that can be of use to competitors.

Gregg Weinstein, a Goldman trading executive who also worked on the system, said Goldman doesn't "have any expectation that we're going to be able to stand alone in this product forever." But, he said, working with other dealers on the first issue would have risked delays.

China was in the news last week for a variety of reasons. The second U.S. – China Strategic Economic Dialogue took place last week between U.S. Treasury Secretary Paulson and Chinese Vice Premier Wu Yi. The Chinese pushed back at U.S. pressure to let Chinese currency increase in value, so Alan Greenspan sparked a sharp drop in the Chinese stock market by mentioning how overvalued it is and the Washinton Post expanded the poison food additive from China scandal moved from pet food to human food. China then announced $36 billion in U.S. business deals.

First the Strategic Economic Dialogue:

Dancing with the Drago
Paulson in China

Mike Whitney

May 24, 2007

Treasury Secretary Henry Paulson wrapped up 2 days of high level talks with the Chinese delegation on Wednesday without any progress on the two issues of central importance to the American people"the massive $230 billion trade deficit and the ongoing manipulation of the Chinese currency, the yuan. As expected, China agreed to allow "more passenger flights between the two countries" and they also approved a plan "to remove a ban on the entry of new foreign brokerages and to allow financial services firms to expand their operations in China". (Marketwatch)

But that was basically it. China will not to allow its currency to float freely on the open market. They want to maintain the advantage they have on their American competitors by continuing to "fix" the yuan in a way that best serves their national interests. That's the way nations are supposed to work. The Chinese aren't taken in by the hogwash about "free trade" or "deregulation". They're playing to "win""and that's what counts.

It's different in America, where the currency has been deregulated to serve the interests of a small group of bankers and investors. Every one else loses. Factories are boarded-up and workers are thrown out of their jobs because they cannot compete with foreign manufacturers who "underbid" them on every item. This doesn't matter to Paulson and his buddies in the financial service industry. Their business thrives on ever-increasing flows of cheap capital to American markets. Whatever happens to the American worker is not his concern.

Oh sure, Paulson may wave his finger reproachfully at his Chinese counterparts for rigging their currency, but he's certainly not going to do anything that would disrupt the flow of $230 billion into US bonds and securities. America's massive $800 billion current account deficit is what keeps interest rates low and the stock market humming-along at full throttle. Why would he mess with that?

After all, what's more important: American workers or the wealth and prosperity of Wall Street moguls and banking giants?

According to Marketwatch, Paulson succeeded in persuading his Chinese counterparts to allow foreign brokerages and financial services firms "to expand their operations in China." Big surprise, eh? As former chief of Goldman Sachs, it's clear that this was high on Paulson's list of priorities. After all, Chinese workers set aside an estimated 50% of their earnings and have saved a whopping $2 trillion in the last decade. The financial service industry must be salivating at the thought of opening shop in Beijing and tapping into that mushrooming market.

There's a misconception in the US (particularly among "protectionist" Democrats) that trade with China is a "one way street" that only benefits the Chinese. That is not the case. In fact, the real beneficiaries of the present arrangement are the US business elites who set out to destroy the American work-force by moving factories to a country with no labor or environmental laws. The Bush administration has assisted the exodus of US corporations by creating tax incentives for "off-shoring" and by promoting a free trade ideology which is ruinous to America's future.

But that's not China's fault. China can't be blamed for our job losses or "unsustainable "trade deficit---that's the result of the neoliberal policies which have enriched a few wealthy American industrialists and bankers at the expense of everyone else. As China expert Henry C K Liu says in his article "A Dialogue of the Mute"

"China has actually been a powerless respondent to the dysfunctional terms of trade set by US economic policies, aggressively exploited by US transnational corporations and financial institutions for unfair profit." (More than 60% of China's trade surpluses are traded by foreign companies, many of which are US firms)

Liu adds: "China cannot expand domestic consumption because Chinese wages and benefits are too low. Yet Chinese cannot raise wages faster because real wealth has been leaving the country through export trade while the yuan money supply is expanding through the central bank buying dollar inflows with yuan. The result is a liquidity bubble, with too much currency chasing a dwindling supply of real wealth that has been exported."

The Strategic Economic Dialogue (SED) between the Chinese and US delegations was a complete failure. The yuan will continue to be manipulated and America will continue to bleed jobs and wealth. We'll probably never know what really went on behind closed doors, but one thing is certain; the US is not giving the orders anymore. With $1.3 trillion in dollar-backed securities and US Treasuries, the Dragon is in the driver's seat. Now that Japan has slowed down its purchases of US debt; China represents the last bit of scaffolding holding up the feeble greenback. That means that the Fed will have to consult with their "loan-officers" in Beijing before raising or lowering interest rates.

Sounds crazy, but its true.

And, while everyone is predicting that Fed-master Bernanke will probably lower interest rates to save the struggling real estate market; it may be that our Chinese friends will demand a rate-hike to preserve their investment. That'll just speed up the sub-prime meltdown and send tremors through world stock markets.

Our favorite economic guru, Elaine Supkis, provides a bit of historical background to our current economic predicament. In Yesterday's post she says:

"Anyone with half a brain can see that on 9/11, we reset our economy on its present irresponsible course. Bush and the American people declared a war on terror and began spending like fiends and cut taxes and Bush famously said we should all go shopping so we went on the world's biggest, stupidest shopping binge.

To hide the inflation this new policy brought and thanks to the Federal Reserve simultaneously dropping interest rates to an amazing and irresponsible 1%, hiding inflation became the #1 job and to do this, we had to shift as much labor as possible to China! China's surplus in trade with us was fairly insignificant before 9/11 but it shot through the roof. After 9/11, China passed Japan and has been the #1 source of cheap labor for the US which must use China in this fashion or find some other nation to do this for us.

What I am saying is, we cannot simply force China to raise their prices to us, we will simply rush to India or some other cheap labor nation to do the work for us!

The US RULERS know China's intentions. Bush's family works for the Communist Chinese, they have had business deals with them for years and years. The Chinese have cultivated corrupting the Bush clan since they first met Mr. Bush Sr. when he jumped from the CIA to ambassador to China. These people then ran off to China to make money off of the differential between Chinese labor's wages and American consumer buying abilities. The Chinese exploited this treason as they should, after all, we are in competition with them for ruling the world and if our rulers are so banged stupid that they think they will dominate the Chinese and not vice-versa then...we get what we are getting today.

Namely, our necks in a Chinese noose. But do not forget, the American ruling class put our necks there, not the Chinese. They simply cooperated! (See the whole post here.)

The economic war against the American people started on the same day as the war on terror"9-11. Interest rates plummeted, the money supply was put on steroids, and the US began auctioning off its national wealth at a rate of $800,000 billion a year. The current account deficit and the loss of 3.2 million manufacturing jobs has been used to conceal inflation which is only now beginning to rear its head in the form of recycled dollars in an over-leveraged stock market. (Why else would the Dow hit new highs every day when GDP is an anemic 1.3%?)

We can see now, (from the coordination of policy) that it wasn't just Big Oil and the neocons who led us to war with Iraq. The Federal Reserve played an equally important part in that deception. It lulled the people to sleep with low interest rates (which kept the economy humming-along) while the nation's wealth was shifted from the middle class to the mega-rich. The Fed's policies have created enormous equity bubbles and a massive "unsustainable" trade deficit. When the bubbles burst, the America people will be forced to "privatize" whatever public assets are left.

Wasn't that the goal from the very beginning?

Now, we're stuck and there's no way out. If China allows its currency to rise; then the US economy will plunge into recession or worse. And, if we stay on the same course, the country's wealth will be sold piecemeal to foreign investors while the dollar continues to weaken and unemployment soars.

Our options are limited and we appear to be headed for a hard landing. But--Elaine Supkis is right--you can't blame the Chinese for that. It may be their noose, but it was Bush and Co. who put our necks there.

Poison food is one result of the collusion between greedy, plutocratic Chinese and greedy plutocratic U.S. elites. The following investigative report was published by the Washington Post:

Tainted Chinese Imports Common

In Four Months, FDA Refused 298 Shipments

Rick Weiss
May 20, 2007

Dried apples preserved with a cancer-causing chemical.

Frozen catfish laden with banned antibiotics.

Scallops and sardines coated with putrefying bacteria.

Mushrooms laced with illegal pesticides.

These were among the 107 food imports from China that the Food and Drug Administration detained at U.S. ports just last month, agency documents reveal, along with more than 1,000 shipments of tainted Chinese dietary supplements, toxic Chinese cosmetics and counterfeit Chinese medicines.

For years, U.S. inspection records show, China has flooded the United States with foods unfit for human consumption. And for years, FDA inspectors have simply returned to Chinese importers the small portion of those products they caught -- many of which turned up at U.S. borders again, making a second or third attempt at entry.

Now the confluence of two events -- the highly publicized contamination of U.S. chicken, pork and fish with tainted Chinese pet food ingredients and this week's resumption of high-level economic and trade talks with China -- has activists and members of Congress demanding that the United States tell China it is fed up.

Dead pets and melamine-tainted food notwithstanding, change will prove difficult, policy experts say, in large part because U.S. companies have become so dependent on the Chinese economy that tighter rules on imports stand to harm the U.S. economy, too.

"So many U.S. companies are directly or indirectly involved in China now, the commercial interest of the United States these days has become to allow imports to come in as quickly and smoothly as possible," said Robert B. Cassidy, a former assistant U.S. trade representative for China and now director of international trade and services for Kelley Drye Collier Shannon, a Washington law firm.

As a result, the United States finds itself "kowtowing to China," Cassidy said, even as that country keeps sending American consumers adulterated and mislabeled foods.

It's not just about cheap imports, added Carol Tucker Foreman, a former assistant secretary of agriculture now at the Consumer Federation of America.

"Our farmers and food processors have drooled for years to be able to sell their food to that massive market," Foreman said. "The Chinese counterfeit. They have a serious piracy problem. But we put up with it because we want to sell to them."

U.S. agricultural exports to China have grown to more than $5 billion a year-- a fraction of last year's $232 billion U.S. trade deficit with China but a number that has enormous growth potential, given the Chinese economy's 10 percent growth rate and its billion-plus consumers.

Trading with the largely unregulated Chinese marketplace has its risks, of course, as evidenced by the many lawsuits that U.S. pet food companies now face from angry consumers who say their pets were poisoned by tainted Chinese ingredients. Until recently, however, many companies and even the federal government reckoned that, on average, those risks were worth taking. And for some products they have had little choice, as China has driven competitors out of business with its rock-bottom prices.

But after the pet food scandal, some are recalculating.

"This isn't the first time we've had an incident from a Chinese supplier," said Pat Verduin, a senior vice president at the Grocery Manufacturers Association, a trade group in Washington. "Food safety is integral to brands and to companies. This is not an issue the industry is taking lightly."

New Focus on the Problem

China's less-than-stellar behavior as a food exporter is revealed in stomach-turning detail in FDA "refusal reports" filed by U.S. inspectors: Juices and fruits rejected as "filthy." Prunes tinted with chemical dyes not approved for human consumption. Frozen breaded shrimp preserved with nitrofuran, an antibacterial that can cause cancer. Swordfish rejected as "poisonous."

In the first four months of 2007, FDA inspectors -- who are able to check out less than 1 percent of regulated imports -- refused 298 food shipments from China. By contrast, 56 shipments from Canada were rejected, even though Canada exports about $10 billion in FDA-regulated food and agricultural products to the United States -- compared to about $2 billion from China.

Although China is subject to more inspections because of its poor record, those figures mean that the rejection rate for foods imported from China, on a dollar-for-dollar basis, is more than 25 times that for Canada.

Miao Changxia, of the Chinese Embassy in Washington, said China "attaches great importance" to the pet food debacle. "Investigations were immediately carried out . . . and a host of emergency measures have been taken to ensure the hygiene and safety of exported plant-origin protein products," she said in an e-mail…

An Official Response

The Cabinet-level "strategic economic dialogue" with China, which began in September and is scheduled to resume on Wednesday, was described early on as a chance for the United States and China to break a long-standing stalemate on trade issues. When it comes to the safety of imported foods, though, they may highlight the limited leverage that the United States has.

It is not just that food from China is cheap, said William Hubbard, a former associate director of the FDA. For a growing number of important food products, China has become virtually the only source in the world.

China controls 80 percent of the world's production of ascorbic acid, for example, a valuable preservative that is ubiquitous in processed and other foods. Only one producer remains in the United States, Hubbard said.

"That's true of a lot of ingredients," he said, including the wheat gluten that was initially thought to be the cause of the pet deaths. Virtually none of it is made in the United States, because the Chinese sell it for less than it would cost U.S. manufacturers to make it.

So pervasive is the U.S. hunger for cheap imports, experts said, that the executive branch itself has repeatedly rebuffed proposals by agency scientists to impose even modest new safety rules for foreign foods.

"Sometimes guidances can get through, but not regulations," said Caroline Smith DeWaal, food safety director at the Center for Science in the Public Interest, an advocacy group. Guidances, which the FDA defines as "current thinking on a particular subject," are not binding.

Under the Bush administration in particular, DeWaal said, if a proposed regulation does get past agency or department heads, it hits the wall at the White House Office of Management and Budget.

Andrea Wuebker, an OMB spokeswoman, said that the office reviewed 600 proposed rules last year and that it is up to agencies to finalize rules after they are reviewed. She did not tally how many reviews sent agencies' rule-writers back to the drawing board. She noted that some food safety rules have been finalized, including some related to mad cow disease and bioterrorism. Critics point out that the bioterrorism-related regulations were required by an act of Congress.

John C. Bailar III, a University of Chicago professor emeritus who chaired a 2003 National Academies committee that recommended major changes in the U.S. food safety system -- which have gone largely unheeded -- said he has become increasingly concerned that corporations and the federal government seem willing to put the interests of business "above the public welfare."

"This nation has -- and has had for decades -- a pressing need for a wholly dedicated food safety agency, one that is independent and not concerned with other matters . . . to bring together and extend the bits of food safety activities now scattered over more than a dozen agencies," he said in an e-mail.

Legislation to create such an agency was recently introduced, though many suspect that is too big a challenge politically.

But in the aftermath of the recent food scandals, a growing number of companies and trade groups, including Grocery Manufacturers of America, are speaking in favor of at least a little more protection, starting with a doubling of the FDA's food safety budget...

Paul Krugman points out the absurdity of the Bush administration’s refusal to enforce regulations while the industries themselves are literally asking for it:

…Without question, America's food safety system has degenerated over the past six years. We don't know how many times concerns raised by F.D.A. employees were ignored or soft-pedaled by their superiors. What we do know is that since 2001 the F.D.A. has introduced no significant new food safety regulations except those mandated by Congress.

This isn't simply a matter of caving in to industry pressure. The Bush administration won't issue food safety regulations even when the private sector wants them. The president of the United Fresh Produce Association says that the industry's problems "can't be solved without strong mandatory federal regulations": without such regulations, scrupulous growers and processors risk being undercut by competitors more willing to cut corners on food safety. Yet the administration refuses to do more than issue nonbinding guidelines.

Why would the administration refuse to regulate an industry that actually wants to be regulated? Officials may fear that they would create a precedent for public-interest regulation of other industries. But they are also influenced by an ideology that says business should never be regulated, no matter what.

The economic case for having the government enforce rules on food safety seems overwhelming. Consumers have no way of knowing whether the food they eat is contaminated, and in this case what you don't know can hurt or even kill you. But there are some people who refuse to accept that case, because it's ideologically inconvenient.

That's why I blame the food safety crisis on Milton Friedman, who called for the abolition of both the food and the drug sides of the F.D.A. What would protect the public from dangerous or ineffective drugs? "It's in the self-interest of pharmaceutical companies not to have these bad things," he insisted in a 1999 interview. He would presumably have applied the same logic to food safety (as he did to airline safety): regardless of circumstances, you can always trust the private sector to police itself.

O.K., I'm not saying that Mr. Friedman directly caused tainted spinach and poisonous peanut butter. But he did help to make our food less safe, by legitimizing what the historian Rick Perlstein calls "E. coli conservatives": ideologues who won't accept even the most compelling case for government regulation.

Earlier this month the administration named, you guessed it, a "food safety czar." But the food safety crisis isn't caused by the arrangement of the boxes on the organization chart. It's caused by the dominance within our government of a literally sickening ideology.