The Debts of the Spenders: The Obama Years and American Winter

What happens when no one is allowed to default (declare bankruptcy) and people are still allowed to buy homes w/no money down (through FHA crediting of first time buyer home tax credits)?

Not a pretty picture. The author believes we will see the following in no particular order:

1. Early withdrawls from pension plans will be prevented and almost all pension plans will eventually default
   
2. We will see a systemic banking crisis that will result in bank runs and the loss of savings
3. We are headed eventually for a bond market dislocation where nominal interest rates will shoot up into the double digits
   
4. Real interest rates will be even higher (the nominal rate minus negative inflation)
5. Cash hoarding will continue to reduce the velocity of money, amplifying the effect of deflation
   
6. The US dollar will continue to rise for quite a while on a flight to safety and as dollar-denominated debt deflates
   
7. Eventually the dollar will collapse, but that time is not now (and a falling dollar does not mean an expanding money supply, ie inflation)

http://theautomaticearth.blogspot.com/
2009/06/june-17-2009-40-ways-to-lose-your.html

Can you feel the cold?

The Debts of the World: New Wheat Fungus Has Potential To Destroy Crops

A bit sensationalist - by the time you read something like this the commercials have already digested the raw data. I will believe it when the USDA starts issuing press releases and the agronomists start cracking on fumigators. Still, it is a tail event. After all, as I have been saying for weeks here, the weather in the US has been unusually wet. But for a fungal strain to be transmitted in any meaningful quantity requires infected strains to be imported w/in a nation's borders.

I advise readers to watch Russia closely - the projected bumper crops of the Eurasian breadbasket could be negatively affected through the Black Sea corridor (grain barges in transit through Turkey and docking in Ukraine - Russia is landlocked but retains access to the Black Sea b/c of long term leases w/their former client state).

The Ug99 fungus, called stem rust, could wipe out more than 80% of the world's wheat as it spreads from Africa, scientists fear. The race is on to breed resistant plants before it reaches the U.S.


Crop scientists fear the Ug99 fungus could wipe out more than 80% of worldwide wheat crops as it spreads from eastern Africa. It has already jumped the Red Sea and traveled as far as Iran. Experts say it is poised to enter the breadbasket of northern India and Pakistan, and the wind will inevitably carry it to Russia, China and even North America -- if it doesn't hitch a ride with people first.


"It's a time bomb," said Jim Peterson, a professor of wheat breeding and genetics at Oregon State University in Corvallis. "It moves in the air, it can move in clothing on an airplane. We know it's going to be here. It's a matter of how long it's going to take."


Though most Americans have never heard of it, Ug99 -- a type of fungus called stem rust because it produces reddish-brown flakes on plant stalks -- is the No. 1 threat to the world's most widely grown crop.

http://www.latimes.com/news/nationworld/nation/
la-sci-wheat-rust14-2009jun14,0,1661589.story

The Debts of the Lenders: Chinese Trade War?

I am reminded of the 1930s. . . .

‘Buy China’ policy set to raise tensions

By Jamil Anderlini in Beijing

Published: June 16 2009 16:13 | Last updated: June 16 2009 16:13

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package.



http://www.ft.com/cms/s/0/
66454774-5a7c-11de-8c14-
00144feabdc0.html?nclick_check=1

The Debts of the Spenders: El Nino Odds Greater Than 50%

Weather continues to dominate agriculture markets. Especially the sensitive S. American growing regions such as Argentina and Brazil which account for much of the soybean, wheat, and raw sugar (for Brazil) stock.

This is also good news for sugar bulls who have been anxiously awaiting word of a strong and wet monsoon season to affect S. Asian harvests.

Australian Bureau: Pacific Indicators Point To El Nino

Climate indicators in the Pacific Basin are consistent with the early stages of a developing El Nino episode, with computer forecasts increasingly showing this is a “distinct possibility” later this year, the Australian Government’s Bureau of Meteorology reported Wednesday.

“The odds of an El Nino are now thought to be above 50%, which is more than double the normal risk of an event,” the bureau said in a regular review of Pacific climate indicators. El Nino events are usually, but not always, associated with below-average rainfall in the calendar second half across much of southern and inland eastern Australia, it said.

Source: CME News For Tomorrow

Another adverse sign for Southeast Australian rainfall is a recent trend to positive values in the Indian Ocean Dipole (IOD), the bureau reported.

The Debts of the Spenders: Argentina Reaches Deal W/Farmers

I am a bit surprised that farmers and the Argentine govt were able to ink a deal so quickly. The harvest season (seasons are reversed b/c they are in the southern hemisphere) has been marked by unusually acrimonious tensions and accusations of incompetence, corruption, and allegations of price fixing on both sides.

Argentina Govt, Exporters Reach Corn, Wheat Export Deal

Argentina’s grain exporters reached a deal with the government late Tuesday to pay farmers a higher price for grain in exchange for export permits, a representative of the CIARA-CEC oilseed and grain exporter chamber said Wednesday.

Under the deal, exporters will buy three million metric tons of 2009-10 corn and an additional 1 million tons of new crop wheat at a theoretical price set by the government. In exchange, the exporters will be ensured export permits for the surplus wheat and corn from the 2009-10 crop.

Spot corn traded for 449.60 pesos ($119) per ton at the Rosario Grain Exchange on Tuesday, while the government’s theoretical price that farmers should receive was set at ARS527.

The new deal is expected to boost local corn prices, which have been trading at a discount due to a risk premium because of the government’s intermittent closing of exports. Still, stocks of wheat and corn over domestic demand will have to be confirmed by the agricultural trade office, or ONCCA, before the exports will be approved.

The agreement follows a similar deal struck last month for wheat exports. On May 4, President Cristina Fernandez said exporters agreed to buy 1 million tons of old crop wheat at full price, which is the theoretical Free-Alongside-Ship price minus the 23% export tax. Exporters will then have to sell that wheat back to local millers at market price. In exchange, the exporters were guaranteed authorization to ship 1 million tons of 2009-10 wheat. Local prices jumped over 20% following the agreement, with exporters back in the long-dormant wheat market.

Source: CME News for Tomorrow

The Debts of the Spenders: Wheat Fungus Threatens Harvest in Midwest

Before traders get excited, please keep in mind that the overall macro picture for wheat remains bullish w/supply more than ample throughout the world. But this is something to be aware of going into the summer season. Especially if ENSO conditions remain wet.

Devastating Plant Disease Wounds US Winter Wheat Crop

An extremely wet spring has put many U.S. winter wheat fields at high risk of developing Fusarium head blight, a plant disease that can cause tremendous losses in grain yield and quality, also referred to as scab.

Fusarium head blight directly affects the developing heads of wheat, causing yield loss and negatively affecting grain quality. It is estimated that scab has caused more than $3 billion in losses to the U.S. farm economy since 1990. The U.S. Wheat & Barley Scab Initiative has warned that infections of the Fusarium graminearum fungus, which causes scab, are currently “quite high” in some Midwest wheat fields, after reaching “very worrisome levels” in southern
wheat fields earlier this spring. The initiative is a 12-year-old group that promotes communication and research between scientists, growers, input providers, millers, and food processors interested in combating the disease.

All wheat-growing regions in Kentucky have been affected by scab this year, with the western third of the state being hardest hit.

University of Kentucky extension plant pathologist Don Hershman termed the situation “ugly,” adding that “some fields have been destroyed, due to excess scab.” Wheat in parts of Arkansas, normally one of the top-two SRW producing states, appears to have been severely impacted by
scab this year, due to an extended period of spring rains that suddenly halted a period of warm, dry, windy weather.

Source: CME News For Tomorrow

The Debts of the Lenders: BRIC Members Issue Call For Financial Diversity At SCO Meeting

And the drama continues....

(AP:YEKATERINBURG, Russia) Brazil, Russia, India and China say the world needs a more diversified international monetary system.

The four so-called BRIC nations are concluding their first summit with a final statement calling for the reform of global financial institutions to reflect changes in world economy.

They said Tuesday there is a strong need for a stable, predictable and more diversified global monetary system and urged support for a more democratic and just "multipolar" world order.

There was no explicit mention of the U.S. dollar or the United States in the statement.