Confluence of Housing, Energy, Commodities, Banking, Jobs & Food-price Strains Called 'Economic Perfect Storm'

On Thursday of last week, we found on the same day reports that mortgage foreclosures were at an all-time high in the US, the US dollar had fallen to an all-time low against the euro ($1.56 to 1€), the Federal Reserve joined with other central banks to infuse $200 billion into capital markets, oil hit an all-time record of $111/barrel, gold hit an all-time record of $1,001/ounce, Asian and European markets plummeted on news that Carlyle Capital —one of the world's largest capital management funds— was in collapse, and Chrysler would shut down its entire corporation for 2 weeks in July, with no pay, to "increase productivity".

The Fed deal for banks and bond-holders included a special allowance for banks to use otherwise questionable adjustable-rate-mortgage debt as collateral against the new loans. The move was an attempt to help banks re-capitalize holdings whose value had fallen so sharply that the likely result would be steep capital losses and a further wave of foreclosures. European and Asian central banks are likewise worried that a severe blockage in credit and lending in the US will cut into global export and trade potential.

Today, one of Wall Street's most prestigious and far-reaching investment banks, Bear Stearns, was bought for $2/share, a little more than 1% of what it was worth at the in late 2007, and just 10% of its worth just last Friday. Many investors lost far more than 90% of the value of their holdings; former CEO James Cayne is reported to have lost some 99.8% of the value of his holdings in the firm.

In January, the BBC reported that wild speculation by hedge funds may be driving financial deterioration extensive enough to create a global recession of historic proportions. Former Republican presidential candidate, Rep. Ron Paul (TX) has said US fiscal policy and government borrowing may overstress the US economy so severely it could lead to "global economic collapse".

On 14 March 2008, the last word in the US House of Representatives, spoken by Rep. Roscoe Bartlett (R-MD), warned of the economic crisis that could follow "peak oil", when oil extraction and production will enter a permanent decline, even as demand continues to rise worldwide. This was the 39th time Rep. Bartlett has presented the peak oil problem to the House of Representatives.

One can hardly exaggerate the swelling global economic crisis. Chinese officials are reportedly hoping that the crisis will slow its 10%-plus growth, because they are afraid unsustainable growth rates could lead to inflation. Exploding fuel costs, water resource depletion and the loss of arable land, along with the shift of grain crops to biofuels production, has brought a disturbing surge in food prices that threatens to exert long-term strain on economies across the world.

In June 2007, the Christian Science Monitor reported that:

A gallon of milk in Birmingham, Ala., is expected to cost $4.50 this summer, perhaps more. At Wetzel's Market in Glen Rock, Pa., the New York strip steaks that were on sale for $4.99 a pound last Fourth of July will be $6.99 this year. In Boston, some shoppers report checkout prices on certain items that are 30 percent higher now than last summer.

In 2007, Spain had one of its most productive harvests to date, yet the price of vital foodstuffs increased dramatically. The price of bread, the measure of economic stability or growth in Spanish tradition, increased by a stunning 40%, all while Spain's vibrant real estate and building sectors lost steam, and personal debt reached all-time highs, in an environment where incomes rarely grow by more than the mandatory minimum of the officially-declared rate of inflation.

Prices for basic grains in Kenya, itself a highly productive agricultural nation, have doubled in the last year. Recent political violence has slowed foreign investment, crippled the economy, turned off tourists and has delayed the start of the planting season, meaning that food production will likely diminish still further in 2008, as market pressures drive the cost of food sharply higher.

In a still more complicated case, Zimbabwe has inflation reported at 100,000% —some estimates in late 2007 put the rate of "real inflation" at 150,000%—, putting the price of bread into the millions of dollars (Z$). In 1980, US$1 was worth only Z$0.68, but by 2006, one US dollar was worth Z$101,000. The currency was revalued at 1,000 times its value, so that one US dollar was worth Z$101, but by the time the new currency was introduced, one US dollar was worth a revalued Z$250.

Part of the problem with the current economic unhealth is a failure of international systems to adapt real economic activity to globalized trade policies. Where markets have been "opened" and foreign investment has replaced failed compound-interest intergovernmental loan policies, the result has often been the displacement of resources without a corresponding infusion of comparable resources to balance the "innovations" of the global marketplace.

This means that agricultural powers —from Brazil to the US, Russia, Mongolia and western Europe— find themselves poorer in foodstuffs than they should be and facing price inflation, even as their real productivity has risen. The ability to move investment from tax-stressful markets to tax-favorable markets has built an expectation of gain into investment patterns that don't necessarily carry long-term economic resilience with them, making the reaction to underwhelming returns more severe than it should rationally be.

And industrial powers are finding that natural resources once considered so common and so basic in their overall economic expansion are now being distributed across the world, increasingly consumed in far higher per-capita rates by China and India —each close to or more than 4 times as populous as the United States—, meaning that the ability of traditional industrial powers to fall back on industry as a growth mechanism or to exert global economic power through industrial supply and demand dynamics, is severely diminished.

The tested wisdom available to most bankers and traders to deal with this apparently distorted but really "new-model" environment is limited. There has not been enough time to deal with a world where "emerging economies" can now dominate the pricing of global commodities like grains, metals and hydrocarbon fuels.

If we are seeing an 'economic perfect storm', what is not clear at present is whether it will be classed as a massive "correction" or whether it will build into a new productive model for global trade a tendency to shift resources away from traditional centers of power, a phenomenon for which few economic and political leaders are truly prepared.

FOOTNOTE: We may need to develop new technological alternatives to current regulatory practices, but keeping in mind that the freedom of movement of goods and services is key to the long-term health of a global economy. Balancing capital interests with consumer interests, lending interests with spending interests and resource availability with globalized demand are the keys to achieving such long-term resilience.

• HotSpring.fm: "Cloud Clarity vs. Shadow Banking"
  

Pittsburgh Jobs Conference to Focus on Greening of US Industry, Spurring Transition to 'Green-collar' Workforce

The emergence of ecological economic trends, methods and industries, means that a wave of job creation could be the stabilizing factor which helps American industry recover both momentum and public appeal, potentially helping to ease pricing pressures and banks' concerns about lending to individuals and small and medium-sized businesses.

An industry-environmentalist joint conference in Pittsburgh starting today will focus on the modes and the meaning of green job creation. According to the Houston Chronicle, "The growth of renewable energy should produce some 850,000 new jobs at existing U.S. companies alone, said David Foster, executive director of the Blue Green Alliance, a group formed by the United Steelworkers union and the Sierra Club."

The conference has as its aim the education of public officials, industry executives and other decision-makers, in light of new directions in energy, in public funding, in the long-term virtues of green industry, for both private interest and public good. And ultimately, the goal is to promote and to measure the progress made toward recasting the American industrial economy to survive in a globalized economy where environmental sustainability —still seen as costly and frivolous by many in leadership positions— is a basic requirement.

• Houston Chronicle: "Conference to Focus on 'Green Jobs'"

Green Economy: Resilience Services Will Meet Opportunity & Urgency

HotSpring.fm :: The ongoing transition to an environmentally sustainable economy, focusing on energy and agricultural resources, is already opening the door to a range of new industrial and engineering services related to resource and ecosystem resilience (now understood to be vital to the stability of the natural environment whose own services underpin every element of our civilization).

More efficient management of water, better testing, diversification, distribution and self-sustainability of crop varieties, energy resources that do little to disrupt the natural environment but seriously impact the more harmful tendencies of our economic activity, sustainable transport (increasingly shifting toward the low-emissions and emissions-free standards), each play a vital role in the emerging resilience economy.

What we are building into the global economy, in the same present tense, are both severely damaging extensions of now primitive industrial methods and also the antidotes or successors to those practices. As one after another city, province, region or state, begins to view its own natural habitat as an economic asset, resilience services and the goal of self-regulating elasticity become key market-altering forces, on both the conceptual and practical levels.

New technologies may go a long way to helping us serve the resilience interests of local and international markets, in ways that remain difficult to envision. The first wave of such technologies will likely be those that supplement energy production and reduce demand for high-polluting carbon-based fuels, while advances in overall efficiency and resource-light information distribution will continue to reshape economic output in favor of resilience and sustainability. [Full Story]

Green Investment Boom Gets Traction: Fund Promises $10 Billion for Clean Energy

HotSpring.fm :: The private investment fund Ceres, a group of institutional investors, has promised to devote $10 billion to investment in clean energy sources. The news comes as 3 of the world’s major oil companies call for coordinated policy on how to face climate change, constrain emissions, and a couple of months after 150 global corporations asked for a major boost in subsidized research into transitioning to clean energy technologies.

The Financial Times reports “A group of nearly 50 institutional investors has pledged to invest at least $10bn (£5.1bn) in environmental technologies and to incorporate ‘green’ standards in investment decisions”. The fund’s president, Mindy Lubber, said during the press conference at UN Headquarters in New York, “This action plan reflects the many investment opportunities that exist today to put a dent in global warming pollution, build profits and benefit the global economy”.

The cost of the climate change burden is increasingly on the minds of corporate leaders, financiers and investors, and the glittering potential of economic windfall in pioneering the green economy is catching the eyes of investors and political leaders. Bio-ethanol, a crop-based fuel source, considered cleaner than fossil fuels, and having the benefit of being a renewable fuel source, has shown tremendous potential for financial growth.

In July 2006, Sentido.tv [a project of Hot Spring and Quipu's publisher], reported that:

The global wind-generation resource has been estimated at 72 terawatts, 40 times the entire global demand for 2000. Eliminating peat bogs and other highly vulnerable ecosystems from that resource potential will cut into the global capacity, but at 40 times demand, or 20 times or even at 10 times, there is clearly room to work with.

Finding the right combination of resources, in terms of cost-effective construction and maintenance, infrastructure development and ugrading, and stabilizing the role of consumers in both production and usage (solar and wind energy permit fitted individual homes to become production mechanisms expanding grid potential), will allow for the creation of a far more efficient and by extension, economically viable and sustainable energy market. This could be extended to a global scale, if investment accurately discerns and follows opportunity. [Complete Text]

Why Ethanol Production Will Drive World Food Prices Even Higher in 2008

Lester R. Brown, EPI :: We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

In industrial countries, the higher processing and marketing share of food costs has softened the blow, but even so, prices of food staples are climbing. By late 2007, the U.S. price of a loaf of whole wheat bread was 12 percent higher than a year earlier, milk was up 29 percent, and eggs were up 36 percent. In Italy, pasta prices were up 20 percent.

World grain prices have increased dramatically on three occasions since World War II, each time as a result of weather-reduced harvests. But now it is a matter of demand simply outpacing supply. In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks—the amount in the bin when the new harvest begins—have now dropped to 54 days of world consumption, the lowest on record. [Full Story]

Final Bush Budget Shows Economic Weakness, Policies at Odds with Marketplace, Moment

Among the numerous scathing criticisms leveled against the record $3.1 trillion federal budget proposal —which will be the last of the George W. Bush White House— are fiscal irresponsibility, near record deficits, and plans to cut or eliminate fully 151 federal programs, in an effort to save just $18 billion, while base Defense Dept. spending increases by 8%.

Economists worry that spending priorities laid out in the budget will only exacerbate current economic slowdown. Democrats in Congress have vowed the budget "will not be the model" for the legislation they will put forth to govern spending for 2009. But the White House insists the budget is fiscally responsible and will in fact reduce spending.

Some $160 billion could be tied to a planned "economic stimulus package", currently being debated in the Senate, already approved by the House, and Iraq war costs severely inflate the overall amount of spending. It is believed that 2008 spending will also exceed $3 trillion, when all war costs are tallied. Total Defense spending for this year was a record $670 billion, including war costs.

One surprising budget cut would be funding for the Centers for Disease Control and Prevention, which could be a major necessary component in responding to any sort of biological weapons attack, a danger often cited by the administration in its warnings about terrorist attacks on American soil.

The Community-Oriented Policing Services (COPS) program, which put huge numbers of additional police on urban streets, and helped integrate police work into the fabric of communities, thus further reducing crime figures, would be cut 100%. Homeland security apparatus would see significant budget increases, however, of some $4 billion, while the Homeland Security Department would see its budget cut by $2.5 billion.

Democrats have already seized on such contradictions as evidence that the budget does not take real security for the American citizen seriously and misdirects vital government spending to what opponents see as ill-advised cash-drains, like the surplus-eliminating tax cuts of 2001 and 2003, and the war in Iraq.

The Congressional Budget Office in January published its own projections showing concern that budget deficits would jump by $250 billion in 2008, in part a sign of the poor state of economic performance at the individual and corporate level. Economic stimulus would sharpen those deficits, though long-term tax-revenue gains may offset some of the cost.

The state of the American economy at present is in part why the president is not able to fund his own priorities (border-security, Iraq war, the $635 billion 5-year price of making his tax cuts permanent) without slashing much-needed government spending in other areas, leaving even then a likely record deficit.

The result is that Congress will not start with the White House budget proposal as a baseline, but will likely initiate an entirely parallel process of negotiation and planning, as even top Republicans in Congress have complained about the massive deficits and potentially unpopular spending priorities.

MORE AT
AP: "Congress Looks Askance at Bush's Budget"
OMB: "Budget of the United States Government, Fiscal Year 2009"
Atlanta Journal-Constitution: "New president will be faced with long-term economic woes"
The Cheers: "Bush's budget for 2009 could spell disaster for AIDS research in the US"
Reuters: "Rising budget deficit may add to Republican woes"
CNN: "CBO expects deepening budget woes"

'Davos Conversation' Allows Public to Match Ideas with Policy-Makers

The 'Davos Conversation' is a multimedia effort to bring online public together with major policy-makers, activists and economists, to broaden the scope of debate at the World Economic Forum. The question which was used as a platform for the online forum was "what one thing would make the world a better place?"

Individual citizens, government officials, economists and thinkers, recorded their ideas on video and blogged their answers, in an effort to ensure that there is contact between those thinking about the future of an increasingly integrated world's economic structure and those who have no direct say but will be affected.

Many take issue with the unfettered nature of "free market" capitalism, which some critics say is less about open markets and more a euphemism for the "laissez faire" plunder that shook the US economy and political system in the late 19th century, leading eventually to major anti-trust legislation.

Bill Gates, founder and chairman of Microsoft, put forth at the Forum itself his vision for a more humanitarian kind of capitalism, which not only acts responsibly, but envisions narrower wealth divides and increased prosperity among the poor as clear benefits for long-term financial gain.

Efforts to push for sustainable development as an absolute standard in international economic policy fed into debates on the nature of environmental resource depletion, agriculture, the hunger of developing nations for fuel and industry, and the responsibility of those at the top of one market for those at the bottom of another, socio-economically speaking.

Climate change was a prime subject, with presentations, videos, and some of the most credible debate yet on the policy side, as world leaders struggle to find a way to imagine tying down highly profitable but unsustainable industries in an effort to find a more responsible way forward.

Fmr. US pres. Bill Clinton espoused the theory of one British economist, who has called for the need for wealthy nations to voluntarily enter into an economic slowdown, if that's what's needed to arrange and implement a rapid transition away from the carbon-intensive 18th-century model that still underlies much industrial production, though he did not say it was an absolute necessity.

Clinton's vision, like that of many other attendees and observers, leans toward the idea that the US and other wealthy industrialized nations, are plodding along with ill-advised caution, when they could be enjoying a major innovation and job-creation boom, as whole economies transition to renewable energy systems.

Joseph Stiglitz warned that deregulation (again, a euphemism for "laissez faire") has not worked as many dreamed it would. With "barriers" to investment removed, money may flow into certain markets, but without regulatory authority to ensure fair play, that money does not necessarily benefit the market as a whole.

What now appears to be a global crisis in credit overwhelmingly affected the talks. Mass default on loans given in the US to people who did not have the capital to pay them back, with "adjustable" (read "rapidly escalating") interest rates that make them even harder to pay back, has dampened the lending power of banks across the world.

Central banks, major financial institutions, state pension systems, and high-value stocks, have all suffered as money available for lending and spending seems to dry up. The US government is planning to inject as much as $150 billion into its citizens pockets, in an effort to spur a positive economic reaction, though no major market has reacted exceedingly well to the news.

What one thing will make the world a better place? Communication, dialogue, understanding, efforts to collaborate and to seek mutually beneficial solutions. The Davos Conversation is an encouraging experiment, because the policy-makers who respond to what average people are worried about gain credibility, and that helps make for more responsible, more effective economic policy, and a brighter future for those who need such improvements.

MORE AT
DavosConversation.org

Unified Earth Theory: Can Integrating Efforts to Reduce Poverty with Sustainable Development Heal Global Economy?

At the World Economic Forum at Davos, Switzerland, a range of ideas from international disease relief, healthcare, security, climate change, extreme poverty, and the responsibility of market incentives, took the discussions in a new direction. Fmr. US vice-president Al Gore spoke of the need for a "marriage" of policy regarding extreme poverty and the climate crisis.

A big part of the reason is that sweeping economic trends, that encourage rampant industrialization of regions where economies are still deeply rooted in subsistence farming, and whose governments are broken by unfundable international debt, often leave the poorest people with little or no access to real economic benefits of any surge in investment.

Activist and musician Bono also spoke of his efforts to help reach the UN's Millennium Development Goals and the Gleneagles G8 aid pledges, amounting to some $50 billion in aid and debt cancellation. A fundamental principle of what might be called a 'unified Earth theory' for economic integration and socio-economic sustainability is that overcoming the severe drag of extreme poverty and environmental degradation will lead to widespread economic health across poorer and wealthier markets alike.

The focus of the forum presented in the embedded video is the ongoing effort to integrate hard scientific data and the most effective policies for reaching long-term solutions and moving world economic structures toward a prosperous, sustainable, open and accessible future.

Elections, Credit, Fuel Costs, Soil Quality, Water Policy & Access to Food Crucial in 2008

Sentido.tv :: 2008 will be a year in which the integrity of election processes, the quality and resilience of cultivated soils, the availability of credit to consumers, the affordability of homes and rentals, and access to affordable vital staples like food and water, as well as the cost of transportation, will affect economies the world over. Some economic analysts have said the combination of these factors, resulting instability or environmental degradation, and migration of affected populations, could mean the world is facing an unprecedented level of economic precariousness.

2007 saw prices of commodities, ranging from grains, to metals to petroleum, skyrocket, with mining giants like Río Tinto tripling their stock value, and the price of bread in Mediterranean countries like Spain, jumping 40%. The Earth Policy Institute reports that world grain stocks are at an all-time record low, with only about 54 days of consumption available in case of crop failure or demand-driven scarcity. Drinkable water is also frighteningly scarce, with overpumping of fossil aquifers already beyond sustainable and on the rise. [Complete Text]