Monday, May 05, 2008

Signs of the Economic Apocalypse, 5-5-08


Gold closed at 858.00 dollars an ounce Friday, down 3.7% from $889.70 for the week. The dollar closed at 0.6480 euros Friday, up 1.3% from 0.6398 at the close of the previous Friday. That put the euro at 1.5432 dollars compared to 1.5630 the week before. Gold in euros would be 555.99 euros an ounce, down 2.4% from 569.23 at the close of the previous week. Oil closed at 116.32 dollars a barrel Friday, down 1.9% from $118.52 for the week. Oil in euros would be 75.38 euros a barrel, down 0.6% from 75.83 at the close of the Friday before. The gold/oil ratio closed at 7.38 down 1.8% from 7.51 for the week. In U.S. stocks the Dow Jones Industrial Average closed at 13,058.20 Friday, up 1.3% from 12,891.86 at the close of the previous Friday. The NASDAQ closed at 2,476.99 Friday, up 2.2% from 2,422.93 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.86% Friday, down one basis point from 3.87 for the week.

Gold is almost in a free-fall and I don’t know quite what to make of it. Do traders think the worst is past? How could they, given the signs of Israel ordering its client state, the U.S., to attack Iran? Whatever the reason, gold has dropped more than 16% from its peak, further than the 10% that defines a mere correction. What may be happening is that the commodity boom has made other commodities more attractive than gold. Gold is unique in that it is both a commodity and a currency. Gold is good for a flight to safety, but markets have been up lately and some complacency is setting in.

In the U.S., stocks are up, jobs are down, prices are rising. What we are seeing is a further decoupling of general well-being from corporate well-being. That shouldn’t come as a surprise, since profits can only be made to the extent that people are exploited (paid less than the value of their labor). And when the U.S. Federal Reserve steps in, it does so to preserve the financial industry and corporate profits, thus encouraging stagflation, defined as the loss of jobs, low growth with high inflation. Usually inflation accompanies periods of high growth. Not in the 1970s and not now.

US payrolls shrank by 20,000 jobs in April
Net job less in 2008 at 260,000

Barry Grey

3 May 2008

The Labor Department reported Friday that the US economy lost a net total of 20,000 jobs in April, marking the fourth consecutive month of overall job losses. The employment report, combined with other data on economic growth, retail sales, consumer spending and wages, provides a picture of an economy sinking deeper into recession and a population in increasingly desperate financial straits.

While the net job loss reported by the Labor Department was lower than most economists’ predictions, it nevertheless confirms that the crisis ignited by the collapse in the housing and credit markets is dramatically impacting production, sales and consumption, and driving down working class living standards.

April’s job losses followed upwardly revised losses of 81,000 in March and 83,000 in February. Payrolls also fell by 76,000 jobs in January.

The payroll decline would have been far worse except for a spurt of new jobs in the generally low-paying service sector. Service industries added 90,000 jobs, the most since last December. Most of them came in the health care and professional technical services sectors.

Massive job losses continued in construction and manufacturing. A net total of 61,000 construction jobs were lost in April, the largest number for that sector since 103,000 were cut in February 2007. Since peaking in September 2006, some 457,000 construction jobs have been lost.

Goods-producing businesses cut 110,000 jobs, the largest number of job reductions since January 2002. This followed a loss of 88,000 jobs in this sector in March.

Factory payrolls slumped by 46,000 workers. Retail payrolls declined by 26,000, after falling 19,300 a month earlier.

The report confirmed that wage growth has slowed dramatically and is trailing behind inflation. Workers’ average hourly earnings rose in April by 1 cent, or 0.1 percent, the least since October. In a separate report issued on Wednesday, the Labor Department revealed that wages and benefits, adjusted for inflation, were down 0.6 percent in the first three months quarter of 2008 compared with a year earlier.

Employers are reducing work hours and overtime, further slashing take-home pay. The average work week declined to 33.7 hours from 33.8 hours. Average weekly hours worked by factory workers deceased to 40.9 from 41.2, while overtime fell to 3.9 hours from 4.0 hours. That brought average weekly earnings down by $1.45 to $602.56 last month.

The official unemployment rate for April declined marginally to 5 percent from 5.1 percent in March. However, this reduction was the result of an increase in part-time jobs. The number of workers with full-time jobs actually declined.

An alternative Labor Department measure of the unemployment rate, which includes people who have stopped looking for work and those working part-time because they can’t find full-time work, rose a tenth of a percentage point to 9.2 percent. Moreover, the number of people remaining on jobless rolls—called continuing claims—rose 74,000 to 3.02 million, the first time in four years the number has exceeded three million.

Since midweek, a number of major companies have announced plans for layoffs.

* General Motors on Wednesday said it was slashing production of full-sized trucks and SUVs, eliminating 3,550 jobs.

* Home Depot announced a major retrenchment on Thursday, saying it was halting plans to open about 50 new US stores and closing 15 existing stores over the next seven weeks. As many as 1,300 employees could lose their jobs.

* Sun Microsystems posted a net loss of $34 million for its third quarter and announced plans to cut up to 2,500 jobs.

* Health care giant Johnson & Johnson announced Wednesday it was eliminating 400 sales jobs in the US by the year’s end.

These job cuts are in addition to ongoing layoffs in the financial sector. Wall Street banks and securities firms have slashed 48,000 jobs in the past ten months.

A raft of other data released over the past several days indicates that the economic slowdown is accelerating and points to even bigger job losses in the coming weeks.

The Commerce Department reported on Wednesday that the US economy had grown by an anemic 0.6 percent in the first quarter of 2008. But even this marginal growth was due entirely to a rise in exports, resulting from the sharp decline in the value of the dollar, and a buildup of inventories.

Excluding inventories, US gross domestic product shrank at a 0.2 percent pace, the first contraction in more than 16 years. Excluding both inventories and exports, the economy contracted at a 0.4 percent rate, the first such decline since the end of 1991.

The underlying data on consumer spending, business investment and construction all showed a sharp contraction. “You’re seeing a sharp slowdown in domestic demand,” Michael T. Darda, chief economist at MKM Partners, told the Wall Street Journal.

The buildup of inventories portends a major pullback in the coming months. As the New York Times noted on May 1, “If business does not swiftly improve, allowing factories to sell the products they have piled up, firms are likely to lay off workers at a more aggressive clip.

“Even if business picks up and orders materialize, averting broader layoffs, factories will probably not need to produce as many new things in coming months, prompting some to trim working hours and purchases of materials.”

The Institute for Supply Management (ISM) issued a report this week showing a continuing slowdown in manufacturing. Its index of factory activity for April was 48.6, the same as the month before. A number below 50 indicates contraction. The index, based on a survey of purchasing managers, showed a retrenchment in new orders and production, as well as a rise in prices paid to suppliers.

The impact of soaring food and gasoline prices on consumer demand has hit the auto industry particularly hard. Industry figures released Thursday showed that autos sold at a lower-than-forecast rate of 14.4 million units per year in April, the slowest since 1998. GM officials estimated that the industry’s seasonally adjusted annual selling rate in April was at its lowest since 1992.

A Commerce Department report released Thursday showed an accelerating decline in consumer spending, which accounts for more than two-thirds of GDP in the US. Consumer spending grew by only 0.1 percent in March, when adjusted for inflation, after remaining flat in February.

Sales of big-ticket items declined in March. In the first quarter, sales of those goods plummeted 6.1 percent.

“What you’ve got here is a very dramatic consumer slowdown,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “It’s much more severe than anything we saw in 2001,” he added, referring to the last recession.

Slumping consumer spending is wreaking havoc among major retail firms, sparking a wave of bankruptcy filings, store closings and the cancellation of expansion plans. Besides Home Depot’s announcement of store closings and layoffs, homes goods retailer Linens ‘n Things on Friday said it had filed for Chapter 11 bankruptcy protection and disclosed plans to close 120 stores. The company employs 17,500 people.

This followed bankruptcy filing announcements by Sharper Image and Lillian Vernon in February.

Foot Locker plans to close 140 stores over the next year, Ann Taylor will close 117, and the jeweler Zales will close 100. Women’s clothing retailer Charming Shoppes, which owns Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. Pacific Sunwear is shutting a 153-store chain called Demo. Starbucks will close 100 stores.

JC Penney recently announced it will open 36 stores this year, down from the 50 initially planned. Lowe’s said it was delaying the opening of 20 stores this year, mostly in California and Florida.

The International Council of Shopping Centers predicts 5,770 store closings in 2008, up 25 percent from 2007.

The store closings and delayed openings will have a ripple effect throughout the economy, depressing sales tax revenues and eliminating work for commercial construction firms.

While the deepening slump is having a devastating impact on working class families, Wall Street is celebrating a major stock market rally. The Dow Jones Industrial Average closed Friday at 13,058, its high point for the year.

The stock market is up almost 11 percent in the last few weeks, and high-yield, low-grade junk bonds are once again soaring, along with bank stocks and credit derivatives. As the New York Times put it on Friday, “Main Street may be struggling, but Wall Street is on a bit of a roll.”

“There has been a huge change of sentiment in all of the markets,” said William Knapp, investment strategist for MainStay Investments, a division of New York Life. “A lot of the fear has been gone.”

It is no mystery what has caused this remarkable shift in market sentiment. It began with the Federal Reserve’s rescue of Bear Stearns in March and its decision to directly lend money to the big Wall Street investment banks.

This was a signal that the US government would marshal all of its resources to prevent a collapse of a major Wall Street financial house and rescue the financial elite from the consequences of its own reckless pursuit of super-high investment returns by means of vastly inflated home values and the creation of a huge credit bubble.

The reverse side of this coin is a deepening assault on the jobs, wages and living standards of working people, in order to place the full burden of the financial crisis on their backs.

While hundreds of billions of dollars have been made available to Wall Street firms—indeed, only minutes before the jobs figures were published on Friday, the Fed said it would increase its auctions of cash to banks and expand the collateral it takes on from bond dealers—virtually nothing has been done either by the Bush administration or the Democratic Congress to provide relief to families facing the loss of their homes, crushing debts and soaring food and gasoline prices.

It is estimated that 10 million American home owners are “under water”—meaning they owe more on their mortgage loans than their homes are worth on the market. Foreclosure filings are soaring, having risen in the first quarter of this year more than 112 percent over the same period in 2007.

But the Bush administration’s housing relief program, FHA Secure, has so far aided only about 2,000 homeowners who were clearly behind in repaying their loans. The administration insists that only “deserving” home owners should be helped—a standard that clearly does not apply to bank CEOs, who have appropriated hundreds of millions in compensation while running their companies into the ground.

The Democrats, for their part, are promoting a bill that would help a mere fraction of distressed home owners refinance their mortgages, while providing no relief for the hundreds of thousands who have already lost their homes. To qualify, home owners would have to prove their ability to repay new, federally insured loans.

Democrats promoting the bill, such as Massachusetts Congressman Barney Frank, say it could help up to 1.5 million home owners. (In fact, they know the bill will not be enacted due to opposition from the Bush administration and Republican legislators).
But there were already 1.2 million loans in foreclosure as of January, and one analyst at Credit Suisse projects that falling home prices, tighter lending standards and job cuts could lead to an additional 2.8 million foreclosures in 2008 and 2009.

As for the rise in commodity prices, the Fed’s actions have fueled that too, thereby increasing the hardship on people around the world:

Ben's bind

The Economist

Disentangling the links between the Fed, the falling dollar and the soaring price of the world's commoditiesMay 1st 2008

Washington, DC - The spirit of St Augustine hovered over the Federal Reserve this week. “Oh Lord, let us stop cutting interest rates, but not yet,” is pretty much what America's central bankers decided on April 30th. The Fed's governors cut their policy rate by another quarter-point, to 2%. But the accompanying statement gave a small hint that they may now pause.

There are plenty of reasons to stop cutting. Real interest rates are now firmly negative. Although the housing market continues to contract—the latest figures show sales falling, prices tumbling and the number of vacant homes soaring—the economy is limping rather than slumping. According to initial GDP estimates released on April 30th, output grew at an annualised rate of 0.6% in the first three months of the year—the same pace as in the previous quarter and faster than most people expected. The mix of growth was not good. Final sales fell while firms built up their stocks, which bodes ill for future output. But with tax-rebate cheques arriving in the mail, a dose of fiscal stimulus is imminent.

A growing chorus worries that ever lower policy rates are adding to America's problems. Some prominent economists, including Martin Feldstein of Harvard University and Bill Gross of PIMCO, a big money-management firm, have urged the central bank to stop. Fed cuts, they argue, are doing little to reduce borrowing costs but have sent commodity prices soaring—fuelling inflation and hitting Americans' wallets hard.

Thanks to the credit crunch, Fed loosening plainly packs less punch than hitherto. Lending standards are tightening across the board. The cost of a 30-year mortgage has risen over the past six months, even as short-term rates have tumbled. But monetary policy has not been impotent. One route through which it has worked has been the weaker dollar. Although the greenback has been sliding for over five years, the pace of decline stepped up as the Fed slashed rates. Since August the dollar has fallen by 7% against a broad basket of currencies and 13% against the euro. Together with strong global growth, this weakness has cushioned and reoriented America's economy. Strong foreign earnings have boosted corporate profits. Strong exports have countered the weakness in construction. Exclude oil, and America's current-account deficit has shrunk to an eight-year low of 2.4% of GDP.

But oil—and other commodities—are the crux of the problem. In the past, economic weakness in America has usually pushed the price of oil and other commodities down. That relationship has weakened thanks to demand growth in big commodity-intensive emerging economies. But the recent surprise is that commodity prices have soared even as America's economy has stalled and forecasts for global growth have been trimmed as well. No one expects global growth to accelerate this year, yet the price of crude oil is up 20% since the beginning of the year, The Economist's overall commodity-price index is up 18%, the metals index is up 24%, and the food-price index is up 18%. Supply shocks—from drought in Australia to strikes at Nigerian oil wells—are clearly part of the problem. But the fact that prices have soared across so many commodities suggests a common cause.

Could the culprit be the Fed? Advocates of this idea point to two channels. First, by slashing real interest rates, the Fed has encouraged speculation in commodities by reducing the cost of holding inventories. Second, by pushing down the dollar, Fed looseness is pushing up the price of dollar-denominated commodities.

Jeff Frankel, a Harvard economist, has long argued that low real interest rates lead to higher commodity prices. When real rates fall, he points out, commodity producers have more incentive to keep their asset—whether crude oil, gold or grain—in the ground or in a silo, than to sell today. Speculators, in turn, have more incentive to shift into commodities. There is no doubt that commodities have become an increasingly popular investment category—in fact they bear many of the hallmarks of a speculative bubble. But inventories for many commodities, particularly grains, are unusually low.

What about the dollar link? Chakib Khelil, president of the Organisation of Petroleum-Exporting Countries, argued this week that oil could reach $200 a barrel largely because the market was being driven by the dollar's slide. Movements in the euro/dollar exchange rate and the price of oil have become extremely close (see chart). An analysis by Jens Nordvig and Jeffrey Currie of Goldman Sachs shows that the correlation between weekly changes in the oil price and the euro/dollar exchange rate has risen from 1% between 1999 and 2004 to 52% in the past six months.

That link is partly a matter of accounting. If the dollar falls, the dollar price of a commodity must rise for its overall price—in terms of a basket of global currencies—to remain stable. But commodity prices have risen even when priced in non-dollar currencies. And the correlation between changes in the price of oil and the euro/dollar exchange rate has risen even when oil is priced in a basket of currencies, such as the IMF's special drawing rights.

So is the weaker dollar driving oil prices up or are high oil prices driving the dollar down? The Goldman analysts argue the latter. Dearer oil is pushing the dollar down, they claim, because oil exporters import more from Europe than America and hold less of their oil revenues in dollars. A second factor lies with central banks. Because the Fed focuses on “core” inflation (which excludes food and fuel), whereas the ECB targets overall inflation, America's central bank runs a looser policy in response to higher oil prices, thus pushing the dollar down.

Another reason to suspect that the Fed is more than a bit player is that American interest-rate decisions have a disproportionate effect on global monetary conditions. Some emerging economies still peg their currencies to the dollar; many others have been reluctant to let their exchange rates rise enough to make up for the dollar's decline. As a result, monetary conditions in many emerging markets remain too loose. This fuels domestic demand, pushing up pressure on prices, particularly of commodities. All of which suggests that the Fed's decisions are propagated widely through the dollar.

The most recent circumstantial evidence also suggests that the Fed may bear some responsibility for the commodities boom. The dollar slipped after the Fed's rate-cut decision as investors reacted to its doveish tone, though at $1.56 per euro, it was still up 2.6% from its low of $1.60 on April 22nd. The price of oil, after hitting a record high of almost $120 a barrel on April 28th, had tumbled to $113 on April 30th. But the price of crude and other commodities rose afterwards. If those reactions persist, America's central bankers may have to reflect carefully

The rise in the price of energy and food (ignored in the Fed’s “core inflation” numbers) causes the most anxiety among the general public. Not only are food prices higher, but surpluses are disappearing. Since ancient times, one of the main fuction of urban republics was to stockpile food surpluses for use in times of famine. The scary thing now is that with sophisticated supply chain distribution systems, there is really very little extra food. There have been no famines in the developed world for many decades (not since the end of World War II in Europe, for example), so most people do not realize how dependent we are on far-flung, lean distribution networks. The local food movement is still an elite phenomenon.

Surplus U.S. food supplies dry up

Sue Kirchhoff, USA TODAY

WASHINGTON — As the farm economy collapsed in the 1980s, the U.S. Department of Agriculture was saddled with mountains of surplus cheese, corn and other foods that it socked away in warehouses and even caves.

As recently as 2003, the USDA had to buy so much powdered milk to support dairy prices that beleaguered officials shipped some to U.S. ranchers for cattle feed.

While the previous surpluses were costly and sharply criticized, much of the food found its way to the poor, here and abroad. Today, says USDA Undersecretary Mark Keenum, "Our cupboard is bare."

U.S. government food surpluses have evaporated because, with record high prices, farmers are selling their crops on the open market, not handing them over to the government through traditional price-support programs that make up for deficiencies in market price.

Worldwide, food prices have risen 45% in the past nine months, posing a crisis for millions, says the United Nations' Food and Agriculture Organization.

Because of the current economics of food, and changes in federal farm subsidy programs designed to make farmers rely more on the markets, large U.S. reserves may be gone for a long time.

The upshot: USDA has almost no extra food to supplement the billions in cash payments it spends to combat hunger at home and in developing nations.

A coalition of religious and farm groups, in an open letter to Congress this week, warned that low supplies increase the risk of hunger and higher prices, calling for creation of a strategic grain reserve.

"As a matter or national security, our government should recognize and act on its responsibility to provide a stable market for food in an era of unprecedented risk," says the letter from the National Family Farm Coalition and various groups.

Others experts say large government stockpiles are not only unnecessary, they are counterproductive. That includes John Block who, as President Reagan's Agriculture secretary during the 1980s, went to enormous lengths to get rid of extra food: giving commodities to farmers as payment for idling land, offering surplus grain as a subsidy to exporters and holding cheese giveaways for the poor.

"We shouldn't have large reserves stacked up. It was very costly for us," Block said, noting that for years he was accused by other nations of depressing their farm sectors by dumping extra U.S. food on world markets.

Still, even he terms the current world situation "shocking" in the sense that prices for so many types of food have risen at once.

The USDA's sole remaining sizable stockpile contains about 24 million bushels of wheat in a special government trust dedicated to international humanitarian aid. The special food program, which also holds $117 million in cash, has dwindled from its original 147-million-bushel level as Republican and Democratic administrations have used it but not fully replenished it.

That leaves the Bush administration with less flexibility to respond quickly to international food aid needs. President Bush in mid-April drew $200 million from the Emerson Humanitarian Trust, named after former congressman Bill Emerson, a Missouri Republican. Bush's action followed a desperate plea from the United Nations for food aid. Thursday, the president announced he would ask Congress for $770 million in separate, additional funding to meet international needs.

But Agriculture Secretary Ed Schafer, at a recent food aid conference, says his agency faces tough decisions about managing the rest of the reserve in times of widespread hunger. "How far do we draw down?" he asked. "Do we take it down to zero because we need it? Do we hold some in there, because who knows what's going to happen, for emergency purposes later?"

Nutrition programs in need

Domestic nutrition programs, supported by once-bountiful commodity supplies, also face increasing stress. In a sign of how tight the situation has become, Keenum last summer dug into little-used legal authority to barter the last remaining USDA raw cotton and other surplus for about $120 million of canned meat and other processed goods desperately needed by domestic food banks and international programs.

"Now that we've created the program, it would be great if we had more stocks we could convert," Keenum says. "We just don't."

The fact that USDA's larders are depleted doesn't mean the country is out of food. The vast majority of U.S. grain is in the hands of farmers and private firms. Overall, the USA is expected to have carryover supplies of 241.9 million bushels of wheat this year, for example. But the USDA situation is indicative of broader trends, with domestic and international grain supplies in decline.

Total U.S. wheat stocks are down from 777 million bushels in 2001, and are the lowest since World War II. The USDA says that's about a 35-day supply of wheat and notes that farmers in Texas are already starting to harvest a new crop. The American Bakers Association estimates the country has a 24-day supply of wheat compared with the previous three-month level on hand.

International grain supplies are the tightest in three decades, and prices of wheat, corn, rice and other food staples have doubled or tripled.

"The whole world has gotten fairly sanguine about food supplies," says Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. "Advances in logistics and just-in-time production have allowed the world to get by on very low stock levels for a very long time. We kind of undershot it this year."

But Babcock says a strategic food trust like that proposed by farm and religious groups raises tough policy questions: How would it be managed? When would it be tapped? Whom would it benefit? And how would USDA keep it from acting as a disincentive to advances in productivity?

There is some basis for comparison. The nation for years has maintained a strategic petroleum reserve as a form of energy security. The White House, which now wants to increase supplies in the reserve, is in a struggle with members of Congress who say such a move is unwise at a time when oil prices are above $100 a barrel.

Congress, so far, has responded to the growing food crisis by proposing a major increase in nutrition funding in a five-year farm bill now under debate. Lawmakers and the White House are also prepared to spend more money for international programs. The U.S. in the last year provided more than $2 billion in foreign food aid.

"The commitment is there to deal with the international and domestic situation … in a formidable way," says Rep. Rosa DeLauro, D-Conn., chair of a House subcommittee that funds food aid.

But there has been no major re-examination of one of the major factors contributing to tight supply: recent federal laws mandating increased production of ethanol, which in the USA is generally made from corn.

Many farmers today are growing crops for fuel, not food, a development outside of USDA control and one that makes it harder for the government to manage crop production. As much as a third of the corn crop could be dedicated to ethanol production.

Commodity programs

The USDA accumulates stockpiles several ways. It buys dairy products when prices are low. Farmers who grow wheat, corn, soybeans and other grains can forfeit their crop to pay off loans. The USDA can buy crops, including fruits and vegetables, when surpluses develop.

The federal government spends more than $60 billion a year on food stamps, the school lunch program and other nutrition aid. Much of that is in cash, but the programs can also benefit from surplus commodities. The USDA on Thursday announced it would buy $50 million in pork products for feeding children and school lunch programs, as part of its effort to cope with rising food prices. The purchase also helps pork producers who have been hit by rising grain prices.

In general, higher prices mean federal spending is rising, and many school districts are being forced to raise lunch prices. High prices and low supplies have probably had the most immediate impact on food banks, which face rising caseloads and falling private-sector donations as the economy slows.

"USDA food truly is some of the most nutritional that we receive. We are located where there is no food industry other than retail groceries and small restaurants. … We could not feed the people we need to without the support of the USDA," says Rhonda Chafin, executive director of the Second Harvest Food Bank of Northeast Tennessee. America's Second Harvest, a network of 205 food banks serving 25 million, is seeing a 20% rise in its caseload.

Food banks and other programs receive $140 million in annual commodity donations, which could rise to $250 million in the five-year farm bill under debate. The USDA provides extra food via a bonus program, buying surplus goods as they become available.

The program is an add-on that varies from year to year, though food banks have come to rely on it. The bonus began to dry up several years ago as food prices rose, plummeting from about $250 million in 2003 to $58 million last year. The USDA barter program has partly picked up the slack.

The Emerson Trust, the reserve for humanitarian aid, was created when the government was swimming in supply. The trust isn't the main U.S. food aid program but is an important backstop that's been tapped seven times since 2002 to aid Africa and Iraq.

Sporadic replenishment

The trust has been sporadically replenished since the mid-1990s. In addition to wheat, it now holds $117 million in cash: enough to buy about 14.6 million bushels of wheat at the current price. Still, that would leave overall supply down about two-thirds from original levels. International feeding organizations, which have pushed for years to get the trust replenished, note that it is the only U.S. stockpile for emergency needs. Now, at a time when it is desperately needed, they say, the stocks are not there.

Food aid "is going to have to be significantly higher if we're going to continue to play the role we've played in the past; … $117 million is not much," says Lisa Kuennen-Asfaw of Catholic Relief Services.

As is the case with many food programs, use of the trust has been politically charged in the past. For example, wheat growers have protested that pulling wheat out of the trust when prices are low further depresses markets. Companies that have been paid for years to hold supplies of wheat for the trust don't want to lose their payments.

USDA's Keenum says the U.S. government has the will and the money to continue providing needed resources to hungry people.

"We're not seeing a shortage of food in this country," Keenum says. "The issue is having the resources to purchase food for international and domestic needs."

The problem is much bigger than just food for poor people, it could easily become a cut-throat scramble for short supplies among the well-off. In fact, we may be seeing the beginning of the predicted resource wars. China is working to nail down food supplies by leasing farm land around the world:
China 'may lease foreign fields'

China could lease overseas farming land to beat rising food prices, according to reports from Beijing.

Soaring grain prices have encouraged the ministry of agriculture to consider the scheme, according to the Beijing Morning newspaper.

Chinese enterprises would lease or even buy farmland in Latin America, Australia and the former Soviet Union

The land in production could replace Chinese farmland lost to rapidly growing cities and industrial zones.

Pilot schemes

The BBC's China analyst, Shirong Chen, says the initiative builds on recent experience.

Ten years ago a Chinese company formed a joint venture with the Cuban government to set up two farms to grow rice in Cuba. A similar venture has been set up in Mexico.

High international grain prices and the pressure of domestic inflation are the main factors behind the drive.

Grain prices rose by 60 % on the global market in the first three months of the year, adding to inflationary forces in a country which needs to feed 1.3 billion people.

Meanwhile official records showed that the amount of available arable land fell sharply in 2007, getting closer to the minimum level Beijing has vowed to retain.

The great powers seem to be on the brink of making major moves that could result in a world war. Why else would the United States, Great Britain and Israel be crazy enough to think of attacking Iran and widening the wars in the Middle East?

Labels: , , ,


Post a Comment

<< Home