Provisional
Truth | Essays | May 3, 2008
Food For Thought
By now you know there’s a rice shortage, or so you’ve heard
recently. Sam’s Club and Costco last week imposed limits on
the purchase of imported Asian rice – 80 pounds per person
per day – which, naturally, has encouraged hoarding behavior
among its predominantly food-service buyers of this
commodity, and which, in turn, may create the actual,
self-fulfilling shortage being reported. (Mind you, there’s
plenty of domestic rice available for sale, only Asian
imported rice is being restricted.)
The specter of global food shortages is arising like ethanol
fumes wafting from a gas pump, and food hoarding behavior,
begun in the last few months at a country-level, is entering
the psyche of our consumer society whose previous idea of
shortages – few remembering the gas lines of the 1970s –
consists of a lack of Cabbage Patch Dolls, Tickle-Me-Elmos,
X-Boxes or I-Phones.
Significant price movement in grain commodities in the last
year have led to a number of nations – Egypt and other
Middle East states, the Philippines, Mexico – buying large
quantities of wheat, corn, rice and soybeans, while grain
producers in other areas of the world are beginning to
impose grain export restrictions to insure adequate
supplies, and therefore less chance of social unrest, in
their own lands. China, which has an abundance of U.S.
dollars with which to shop, will spare no expense for food
and fuel.
Suddenly in North America, amidst growing concerns about
global food shortages, the ethics of using food for fuel
calls corn-based ethanol into question as a viable
alternative energy to reduce our dependence on imported oil
and creates another reason for the developing world, which
also wants what we have in terms of diet, housing and
transportation, to question our national policies.
Numberwise, First Quarter 2008 advance Gross Domestic
Product (GDP) growth of anemic 0.6% annualized, identical to
Fourth Quarter 2007, was reported on April 30th
and pessimists determined to find a recession in there
somewhere find the devil in the details of residential
investment (housing) and durable goods (cars, furniture,
appliances), where both categories now are negative.
Some contend pessimists merely are better-informed optimists
and so seem obliged to observe that only an undesirable
build in non-farm private inventories prevented the Q1 GDP
report from becoming the first of two consecutive quarters
of contraction necessary for a textbook recession, but
cooler heads studying the report will notice the bifurcation
between economic segments and regions of which we first
informed you in January in our briefing entitled “A Tale of
Two U.S. Economies.”
Clearly housing in some parts of the country is well-past
recession, more like full-fledged depression after nine
consecutive quarters of contraction since peaking the final
quarter of 2005. Rising energy costs now are more apparent
in “household operation” and transportation components of
GDP although, while impacting economic growth positively,
they represent more of a redistribution of disposable income
away from other consumer spending, as evidenced by the
smallest annualized rate of growth (1.0%) in personal
consumption expenditures (PCE) in 17 years.
So statistically we are not yet in recession as of the end
of March 2008, but, as the pessimists will note, the
consumer side of the economy is showing early signs of
exhaustion. $120-a-barrel oil, which may by summer translate
to a national-average $4.00+ gallon of gasoline (record
$3.61 average now) and brewing consumer inflation likely
will tip the scales to recession later this year.
Warren Buffett again has said the U.S. economy is in
recession and that it “will not be short and shallow.''
Former Fed head Paul Volcker described “today’s financial
crisis (as) the culmination…of at least five serious
breakdowns of systemic significance in the past 25 years,”
and warned the U.S. has become “addicted to spending and
consuming beyond its ability to produce.” But to optimists
and pessimists alike, in many parts of the nation it does
feel like a recession, albeit a slower moving phenomenon
than previously forecast, and perhaps the first pressing
issue of the November winner of this never-ending 2008
presidential election.
The Federal Reserve, invoking lending powers not used since
the Great Depression, has calmed the financial waters
following the collapse of investment bank Bear Stearns in
mid-March and having conferred upon borrowers and investors
another 25 basis point rate cut late last month bringing its
short-term rate to 2.0%, likely will rest. Although wary of
downside risks to growth and “while the economy remains weak
and the inflation outlook remains uncertain,” the Fed’s rate
cuts and last-resort lending efforts over the past several
months "should help promote moderate growth over time and to
mitigate risks to economic activity."
Time for a “pause that refreshes” as the nation’s central
bankers step back from the winter’s financial landscape of
discontent to see exactly what they hath wrought, thus
signalling a lesser likelihood of future interest rate cuts.
So let it be written, so let it be done…but don’t forget to
spend your tax rebate, a big slug of which should be
received this month, the economy is counting on you.
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