Wednesday, July 2, 2008

Treacherous Economic Signposts

In earlier posts I mentioned the rash of bad reports I've been seeing. I mention them because I believe realism is better than unfounded optimism. When I was a Boy Scout, our motto was: "Be Prepared." Here are a few more ominous signs:

Billionaire real estate investor Eli Broad (age 75)
said yesterday "This is worse than any recession since World War II." On the brighter note, he thinks the Federal Reserve and other "mechanisms" will keep things from getting as bad as the 1930's. However, Wall Street just had its worst June since 1930, so Broad's optimism might be unfounded.

Money Week thinks that the floods in the midwest US
"could bring America to its knees." Most Iowans who lost their homes in floods did not have flood insurance. The author predicts "a wet version of the 1930's Dust Bowl" with families who lost everything migrating because they have nowhere else to go. With world grain reserves at record lows, crop losses will only aggravate the situation. Check out these flood photos to get an idea how bad it is.

As countless truckers go out of business because they can't afford the losses from high fuel prices, the three-day supply of food on supermarket shelves is looking pretty thin. Might be time to buy some
food storage as basic insurance. eFoodsDirect has a nice-looking line of storable foods, too. Think how nice it would be to have two month's supply of food on hand -- just in case you can't get gas to go to the supermarket. You might want to check out this list of 100 items that disappear first in a disaster.

Next time you're at the store, notice the
shrinking size of packages for many of your favorite foods and snacks. They're not really increasing prices, just decreasing the amount of food you get for the same price. Maybe that will help our obesity epidemic. Actually, prices for most foods are way up over last year.

USA Today reports that
high gas prices threaten to shut down rural towns. Wait, isn't that where a lot of our farming is done? King Abdullah of Saudi Arabia urges us to get used to high oil prices.

Fortis Bank in the Netherlands and Belgium predicts a
US financial market meltdown within weeks. What do those alarmist Europeans know anyway? In a related story, Citigroup goes out on a limb and predicts the gold price to get back to $1,000 before the year ends. It could easily double or triple they say due to "global policy prescriptions for the credit crunch [that] remain powerfully and uniformly re-flationary."

The Bank of International Settlements says a "
disorderly decline in the dollar can't be ruled out." They like it nice and orderly like the smooth 14 percent decline last year. Sensing that the dollar is not falling in value quickly enough, the Fed pumped another $75 billion into the banking system to help squeezed banks "overcome credit problems," promising a fresh batch of loans later this month. Where do I sign up?

The Fed is really in a bind. As
Michael Swanson puts it so well: "In essence the Fed is playing a game of poker. It is bluffing when it says it is fighting inflation. It has no chips left and has bet everything on the slim chance that the economy has already bottomed. If something happens to make the Fed intervene again then it will be faced with a choice of fighting inflation by raising rates, which would have the effect of blowing up the banking system, or intervening to save the banking system, the economy, and the stock market, which of course would mean more inflation, a falling dollar, and falling bond prices. The Fed has proven that if it gets trapped into such a corner it will side to help the banks and the stock market a stable currency be damned."

For a detailed analysis of increasing international systemic financial risks, and the possible "End Game" envisioned by the Money Masters, check out
this article. He repeats Warren Buffet's now famous characterization of derivatives as "financial weapons of mass destruction."

This podcast with David McAlvaney with Ambrose Evans-Pritchard, while highlighting many of the dangers to the international economy, actually has some positive things to say about the underlying strength of the US economy. Be sure to sign up for McAlvaney's weekly email for new interviews.

Why are these Missouri National Guardsmen training for riot control?

Have you seen
this video about police confiscation of citizen's guns during the Katrina aftermath? Why would they disarm law-abiding citizens and leave them at the mercy of looters?

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