Interesting articles you might have missed during the week

The pace of change for the world has accelerated.  Perhaps a glance at these stories can help keep your Orientation current!

  1. Farm-Credit Squeeze May Cut Crops, Spur Food Crisis“, Bloomberg, 27 October 2008
  2. Ryan Says Treasury to Need `Unprecedented’ Financing“, Bloomberg, 28 October 2008
  3. U.S. Borrowing Needs to Reach $2 Trillion in 2009“, Bloomberg, 30 October 2008
  4. The Age of Prosperity Is Over“, Arthur B. Laffer, op-ed in the Wall Street Journal, 27 October 2008 — “This administration and Congress will be remembered like Herbert Hoover.”

Excerpts

Farm-Credit Squeeze May Cut Crops, Spur Food Crisis“, Bloomberg, 27 October 2008

The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries. Global production of wheat, the most-consumed food crop, may drop 4.4 percent next year, said Dan Basse, president of AgResource Co. in Chicago, who has advised farmers, food companies and investors for 29 years. Harvests of corn and soybeans also are likely to fall, Basse said.

Smaller crops risk reviving prices of farm commodities that sank from records in 2008 after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean. Futures contracts on the Chicago Board of Trade show {the price of} wheat will jump 16% by the end of 2009, corn will rise 15% and soybeans will gain 3%.

“The credit situation is worrying even the biggest and best farmers,” said Brian Willot, 36, a former University of Missouri commodity analyst who now grows soybeans on 2,000 acres in Brazil. “For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.”

The number of hungry around the world is at risk of increasing as the financial crisis cuts investment in agriculture and crops, said Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations Food and Agriculture Organization in Rome. The total increased by 75 million last year to 923 million, the UN estimates.

“The net effect of the financial crisis may end up being lower planting, lower production,” Abbassian said. “More people will go hungry.”

In Brazil, the world’s third-biggest exporter of corn after the U.S. and Argentina, production may fall more than 20% because farmers can’t get loans to buy fertilizer, said Enori Barbieri, a National Corn Producers Association vice president. The nation’s coffee harvest, the world’s largest, may drop 25% for the same reason, said Lucio Araujo, commercial director at farmer cooperative Cooxupe, located in Guaxupe.

Borrowing costs increased and farmers struggled to get loans after the worst financial crisis since the Great Depression made banks and grain processors, including Cargill Inc. and Archer Daniels Midland Co., less tolerant of risk.

Minnetonka, Minnesota-based Cargill and Decatur, Illinois- based Archer Daniels, the world’s largest grain processors, are among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertilizer Distributors. Processors usually cover half the financing needs of farmers by accepting part of the future crop as payment. “No one is doing it,” Dahe said. “It’s stopped.”

In Russia, loan rates for farmers have jumped by half in some cases to more than 20% in the past few months, Arkady Zlochevsky, president of the Russian Grain Union, said in an interview earlier this month.

… Global inventories of corn, wheat and soybeans before the harvest in the Northern Hemisphere next year will be the second- lowest since 1974, enough for 67 days of consumption, compared with 144 days of supplies in 1986, U.S. data show.

“Stockpiles are going to be extremely tight,” said AgResource’s Basse. “The world cannot afford any dislocation in production next year, or there will be a real shortage.”

Ryan Says Treasury to Need `Unprecedented’ Financing“, Bloomberg, 28 October 2008

“This year’s financing needs will be unprecedented,” said Anthony Ryan, the Treasury’s acting undersecretary for domestic finance, at a Securities Industry and Financial Markets Association conference in New York. … “The potential for deterioration in economic conditions given the contraction in credit also may affect budget conditions this year,” Ryan said. Analysts say the 2009 budget deficit could be more than double the White House projections. In fiscal year 2008, which ended Sept. 30, the deficit was a record $455 billion.

“The budget deficit for fiscal year 2009 might reach $1 trillion if Congress passes another stimulus package this winter,” said Lou Crandall, chief economist of Wrightson ICAP, in a research note. “And that’s just the beginning of the bad news — financing needs arising from off-budget items might be nearly as large as the on-budget deficit.” Crandallestimates 2009’s total borrowing needs at $1.95 trillion. He says Treasury could raise this money with an “aggressive but sustainable” increase in regular borrowing, accompanied by one-time auctions as needed.

U.S. Borrowing Needs to Reach $2 Trillion in 2009“, Bloomberg, 30 October 2008

The U.S. government’s borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt, according to Goldman Sachs Group Inc.

The U.S. borrowing requirement will surge as the Treasury buys troubled assets from banks under a $700 billion rescue law, $561 billion in coupon securities mature, and the budget deficit widens to $850 billion, Goldman said.

The Age of Prosperity Is Over“, Arthur B. Laffer, op-ed in the Wall Street Journal, 27 October 2008 — “This administration and Congress will be remembered like Herbert Hoover.”

Some 14 months ago, the projected deficit for the 2008 fiscal year was about 0.6% of GDP. With the $170 billion stimulus package last March, the add-ons to housing and agriculture bills, and the slowdown in tax receipts, the deficit for 2008 actually came in at 3.2% of GDP, with the 2009 deficit projected at 3.8% of GDP. And this is just the beginning.

The net national debt in 2001 was at a 20-year low of about 35% of GDP, and today it stands at 50% of GDP. But this 50% number makes no allowance for anything resulting from the over $5.2 trillion guarantee of Fannie Mae and Freddie Mac assets, or the $700 billion Troubled Assets Relief Program (TARP). Nor does the 50% number include any of the asset swaps done by the Federal Reserve when they bailed out Bear Stearns, AIG and others.

But the government isn’t finished. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid — and yes, even Fed Chairman Ben Bernanke — are preparing for a new $300 billion stimulus package in the next Congress. Each of these actions separately increases the tax burden on the economy and does nothing to encourage economic growth. Giving more money to people when they fail and taking more money away from people when they work doesn’t increase work. And the stock market knows it.

FM comment: Laffer seems to believe that the accumulated follies of 20 years can be laughed away. But they were real, and now must be paid for. We have dined, and Dr. Laffer finds it sad that we must pay the bill. Too bad he did not join the long chorus warning America; then I would find his analysis more worthly of attention.

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One thought on “Interesting articles you might have missed during the week

  1. it seems that mr. laffer is looking at things rather simplistically. to say that our current crisis is from one side of the political party or another, or even from one set of ideas or another is foolish.

    like you often say FM, we all got ourselves into this mess; we must all get ourselves out.

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