Free Learner

A poet describes the economic crisis

Imagine my surprise when I saw that Margaret Atwood had written an opinion piece on the debt crisis, titled A Matter of Life and Debt.  There's a lot packed into this short essay, including some literary analysis and a second look at The Lord's Prayer that was extremely eye-opening.  (I hope that entices you to go read it!)

And imagine my even greater surprise to discover that she's written a non-fiction book on debt and credit called Payback: Debt and the Shadow Side of Wealth.  The reviews of this book suggest it's not laid out in the usual dry and linear manner of most non-fiction, but goes all over the place, exploring what debt and credit mean to humans.  The book sounds fascinating and I can't wait to get my hands on it.

Another breastfeeding "controversy"

In November, some magazine is going to have Angelina Jolie breastfeeding her baby on its cover.  Reuters found a way to create an imaginary controversy over the photo, since the media loves to pretend that breastfeeding is a complicated and fraught political issue, instead of human nature.

But while breast-feeding support groups and moms celebrated Jolie's public statement, one expert said the picture felt like voyeurism, especially given Jolie's sex symbol status in movies like "Wanted" and "Lara Croft: Tomb Raider".

Translation: This would all be fine and everything, except that some people find Ms. Jolie sexy.  And we're just not comfortable with sexy women choosing to breastfeed.

Little is seen in the picture of the act of breast-feeding. It shows Jolie smiling, while a tiny hand is just visible at bottom of the frame.

But [psychotherapist Shannon] Fox said the cover photo sends a second message.

"The problem is that she is also an international sex symbol. So whether or not she says 'This is a beautiful way of nurturing my baby', every man who sees that photo will see those breasts as sexual."

Why... yes, Dr. Fox, that's right!  Men see boobs and think "sexy," and babies see boobs and think "food".  And your point is???

I guess these little-minded people are still trying to pigeonhole every woman according to the ancient virgin/whore dichotomy.  In their world, you can either be the Virgin Mary nursing your babe in the manger, or you can be a sexual Mary Magdalene... but not both.

A huge thanks and congratulations to Angelina Jolie, for turning that stupid dichotomy on its head.

Food distribution at risk?

Crop farmers, livestock farmers, and grain elevators all rely on loans from banks to handle the seasonal nature of their businesses, and governments are stupidly ignoring the agricultural sector during this crisis.  There's another link in the food chain that's been harmed: food shipments.  Consider the article Grain piles up in ports:

The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.

"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."

. . .

"We've got a nightmare in front of us and a lot of people are concerned it's going to get a lot worse," said Anthony Temple, a grain marketing expert based in Vancouver.

. . .

Access to credit is key to the survival of maritime trade and insiders now say the supply is being severely restricted. More than 90% of the world's trade by volume goes by ship.

Of course, this doesn't only affect food shipments.  Everything and anything we import could be impacted if the buyer cannot get credit, or if the producer doesn't trust the buyer's source of credit.  Even if the buyer has actual cash on hand, and is not relying on a loan, some producers may still balk because they don't trust the bank where that cash is sitting.  If someone wants to buy an expensive home using that half a million they have at Bank of America, well... there is that chance that BofA blows up and the buyer is left with only $250,000.  Nobody trusts anybody anymore.

Yet another reason to buy and store food!

10 Reasons to store food

Yesterday there were some bits of news that were positive.  There were some indications that more money was being passed around in the financial sector, and the Dow was only down 189 points, a relatively good day.  Six central banks around the world had made a coordinated interest rate cute of 0.5%.  Translation: they all pitched in and took emergency measures to make it cheaper for banks to borrow money from one another.  For about three seconds it looked like it might be helpful in getting money moving again.

Eh, well.  That all came to nothing.  Today was positively hideous, with GM stock closing at $4.76 and Ford headed for penny-stock status if this continues much longer.  The Dow was down 679 points to 8,579.  (One year ago today, the Dow hit its all-time high of 14,165.)  Credit markets were frozen again, with the LIBOR rising.  The LIBOR interest rate is what determines the new interest rate for many American adjustable rate mortgages, so this has a direct effect on US families.

Tomorrow, hundreds of billions of dollars' worth of bets taken out on Lehman Brothers will undergo "price discovery."  The people holding these legalized gambling contracts might get 12 cents on the dollar, or 50 cents, or who knows.  And we don't know how many of these bets are in existence.  And we don't know who the bookies are-- as in, just who is it that has to cough up the dough?  It's a big unknown.  Depending on how the Lehman thing works out, markets could rally, or the Dow could drop a thousand points.  Some folks on the blogs have already dubbed it "Black Friday," but if the news were good, we could see some stabilization in stock prices.

Things are not improving in Iceland.  The IMF says it's going to "help" them.  This is like Dracula saying he's going to cure you of a disease by draining half your blood.  It's true that Iceland allowed its banks to grow to 11 times the size of their entire GDP, but their entire GDP is piddling.  Google is bigger than Iceland.  Hell, if the amount of money the Fed gives to banks on an average day could just be funneled to Iceland instead, the country's problems would largely be solved!  But no.  Iceland is to be thrown to the wolves.  This is how the West treats the least among us: we cut them off, and worse, sic the IMF on their asses.  Meanwhile, the head of the European Central Bank says the banks can have as much money as they want.  No-- seriously!!  Unlimited cash.  Unlimited cash for banks, and Iceland can go starve.

On to the title of this post: 10 Reasons to Buy and Store Food.

1. It's only going to get more expensive, so buy it now and eat it later.
2. Banks could be closed for days by government order; stores would close.
3. A diesel shortage could disrupt food distribution; stores would run out of food.
4. Extra food provides a cushion when you have an unexpected expense.
5. #4 goes double when the banks begin canceling all our credit cards.
6. Buying in bulk and at bulk discount stores is cheaper anyway.
7. The government says you should have 2 weeks worth of food.
8. They're serious about #7.  They're hopelessly incompetent during disasters.
9. You'll learn about shelf life, food preservation, and nutrition.
10. You will feel less scared and more empowered during this economic unraveling.

At least get a sack of rice, a big box of spaghetti, and a giant #10 can of marinara.  How hard is that?

The Fed buys us another day

Today the Fed announced that they will be handing out money directly to US companies.  Yes, these are loans, but many times when the Fed loans money they just roll the loan over into another loan next week, or next month.  The loan gets rolled over and rolled over and rolled over... basically, the money is a donation.

In spite of this unprecedented action, the Dow plunged over 500 points today.  The S&P is a 3-digit number now.  The Dow is back to 4 digits.  The Nasdaq is well below 2,000.  Trading in Tokyo just opened, and the Nikkei is down over 3% [now 4.5% at 11:30pm].

This is all very bad, but we did not suffer utter implosion today.  Jim Sinclair wrote: "If the Fed hadn't taken the rather strange action they took today by becoming OTC derivative dealers themselves this would have been the day the USA banking system imploded."

Sinclair is predicting a bank holiday, and quite soon.  If you do have extra cash available in your bank accounts (lucky you), go and withdraw some.  If not, consider going to a discount or bulk store and getting some pasta and pasta sauce and canned tuna and canned beans on credit.  The US government says you should have 2 weeks worth of food on hand, anyway... and this way, if for some reason there is a banking crisis, you will not have to scramble and borrow cash from others to buy something to eat.  If you bank with Bank of America, this goes double for you.

Tomorrow we might see rate cuts at the Fed and the Bank of England.  The Dow may ignore it, if they do take such emergency action.  The Fed is very nearly out of bullets.

What a leader sounds like

For those of us in the US who have forgotten what it's like to give a shit what your premier is saying, I thought I would post an excerpt from the grim words of the Icelandic prime minister.  He had the difficult job tonight of going on television and explaining to the country that the rest of the financial world has cut them off.

The position has today altered completely and for the worse.

Major credit lines to the banks have been closed and it was decided this morning to suspend trading with the banks and with the savings funds in the Icelandic Stock Exchange.

We now need responsible and measured reactions....

If there was ever a time when the Icelandic nation needed to stand together and show fortitude in the face of adversity, then this is the moment. I urge you all to guard that which is most important in the life of everyone of us, protect those values which will survive the storm now beginning....

Despite this major setback the future of the nation is both sure and bright. What is most important is that the foundations of our society and the economy are solid, even though the superstructure has given way in the face of the present disaster. We have natural resources, both on sea and land, which will ensure us a good living whatever happens. Our level of education and the human resources which we have here are no less enviable in the eyes of other nations than our natural resources.

By the same token, we will have the opportunity to rebuild the financial system. We have learnt from those mistakes which were made during that period of massive growth and that experience will prove to be valuable when put to the test. With a common effort and with that optimism which characterises the Icelandic people, we will emerge from these difficulties and make a new and energetic come-back....

The task of the authorities over the coming days is clear: to make sure that chaos does not ensue if the Icelandic banks become to some extent non-operational. For this the authorities have many options and they will be used. Both in politics and elsewhere it will be important to sheathe our swords. It is very important that we display both calm and consideration during the difficult days ahead....

It does matter whether your leader can speak reassuringly to the populace.  I found that out on 9/11, when we weren't hearing from anyone in Washington, but instead had to cling to the words of Rudy Giuliani from one press conference to another.  I remember I actually cried that day out of frustration that Clinton was not still the President, and it's not like I adored Clinton.  But christ, you need someone who can stand up and appear to be competent and in charge.

If this all goes down while Dubya is still in office, then... let the rioting begin.

How bad is it?

On the one hand there's CNBC, well known for its cheer-leading and Pollyanna optimism, and the equally cheerful CNN.com.  CNN quotes experts who believe many stocks are "bargains" that will soon attract buying, that "global imbalances are getting corrected," and that the selloff in stocks is encouraging. 

And then, on the other hand, there's this piece in the UK Telegraph:

We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.

. . .

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.

The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.

As the unflappable Warren Buffett puts it, the credit freeze is “sucking blood” out of the economy. “In my adult lifetime, I don’t think I’ve ever seen people as fearful,” he said.

We are fast approaching the point of no return. The only way out of this calamitous descent is “shock and awe” on a global scale, and even that may not be enough.

In the less mainstream media, the guy who founded the popular website 321gold.com is predicting a bank holiday very soon.  [Note that this is separate from the rumor about Bank of America preparing for a one-week holiday.]  Bob Moriarty was interviewed on the Korelin Economics Report on Saturday, and I've roughly transcribed the relevant bits:

Bob Moriarty: The banking system is frozen... banks simply will not loan to each other.  We are a few days away from a bank holiday.  The banks will either have a run on the banks, or the government will step in and close all the banks down.  It will go worldwide within 24 hours....

Now the bank holiday gets extremely dangerous because most Americans don't have two days' food and don't have two days' money.  So, unless the government starts coming up with real solutions real quick, we could have a total catastrophe.

Al Korelin: Okay, now what about those folks-- and you talk about a bank holiday-- what about the folks... that utilize debit cards -- not credit cards, debit cards -- as opposed to currency?  Are they out of luck?

Bob Moriarty: I think those will be frozen too.  I think that if you go down to your ATM, if you have a debit card, if you have a credit card, [they will not work]....  This is it!  I mean if you don't have some gold, if you don't have some spare cash handy, you're gonna have a problem.

Al Korelin: Do you think credit cards are going to be frozen too?

Bob Moriarty: Yes.

Al Korelin: You do.  If that happens, things are going to be more than just a little bit ugly.  And you're giving it what kind of a probability, Bob?

Bob Moriarty: Something above 95%, within the next 10 days.

Al Korelin: How long do you think that crisis would last?

Bob Moriarty: And again-- that's a really good question.  It's gonna last until the government comes up with a real solution.

Oh good, I'm sure the government will handle things nicely and we'll all get back to normal by the next morning, eh?  Oy vey. 

Another well-known trader and commentator, Jim Sinclair, had this to say last Thursday:

Dear Extended Family,

Unless the LIBOR rate drops sharply we are facing a planetary financial crisis next week.

For God's sake protect yourself.

Gold and gold related items will be the only true storehouses of wealth. The bailout bill is powerless to reverse what is now happening.

This is a modern day Weimar happening right before our eyes.

Respectfully yours,
Jim

The LIBOR is the London Inter-Bank Offered Rate, meaning the interest rate that one bank charges another bank which needs to borrow some quick cash.  When the interest rate goes way up, it's because banks do not want to lend to each other.  When the LIBOR is very high, it indicates a freeze-up, where funds don't move around, no one can get credit, loans are nearly nonexistent.  The LIBOR came down a tiny smidge today, but is still very close to its all-time high, set last week.  Money is not moving.

Consider for a moment what it means when a small company cannot get a short-term loan for a few months or a year.  Suppose you're a large bakery and you buy your wheat just once in the fall, using credit.  Or suppose you own a grain elevator and fill it up in the fall, then make back the money as you sell grain over the course of the next year.  Or suppose you do 70% of your retail business in the Christmas season and you need to order a huge amount of merchandise right about now, using credit.

By and large, you can't do it.  Often, no one will give you the credit.  Just as homeowners have lost their home equity lines, businesses have lost their commercial loans.  The owner of a grain elevator near my parents actually had this happen to him.  He couldn't fill his giant silos with corn and wheat, even though he has gotten an autumn loan from the same bank for decades, and never once been late on a payment.  He was forced to sell his business due to lack of funding.  I also heard an anecdote about grocery chains in southern California not being able to place large orders for food items, which, if things got bad enough, could lead to empty shelves.

Now imagine that a state-- say, California-- used to be able to borrow money, partly through what used to be called the municipal bonds market (may it rest in peace).  Now they can't.  How do they make payroll?  Well... they beg and plead with Hanky Panky Paulson to spend a mere $7 billion rescuing the largest state economy in the country.  You would think Hank would've already come through for them-- after all, the Fed gives $250 billion to US and foreign banks every single day, so what's $7 billion?  (No, I didn't type that wrong.  It's well over a trillion a week they give to banks.)

It looks pretty dire to me.  I am inclined to believe the people in the "gloom and doom" camp, rather than the smiling sexpots on CNBC.

After all, the reporting in 1929 was all very reassuring.  Here's a snippet from a November 1, 1929 New York Times article titled "British Foresee Benefits in Crash":

LONDON, Nov. 1 -- The material prosperity of the United States is too firmly based, in the opinion of The Economist, one of the foremost economic journals in England, for a revival of industrial activity to be long delayed.

Here's another from the same day, titled "Sees Prosperity Unhurt":

Stuart Chase, economist, who completed recently a six-month survey of the structure of prosperity in the United States, said here yesterday that the present stock market will not affect the prosperity of the country.

There are other well-known quotes from the time, in which the famous or the erudite claimed that everything was just fine.  Maybe it's unfair to hold the ignorance and poor predictive ability of the mainstream media of 1929 against the mainstream media of today, but it tends to make me side with the doom and gloomers.  It might not be as bad as they say, but it doesn't have to get THAT bad before a lot of people will suffer.

In short, if you aren't scared, you don't understand what's happening.

States can't make payroll

Let the money printing begin!

ATLANTA (CNN) -- California may need a $7 billion emergency loan from the Federal government for day-to-day operations and to pay teachers' salaries, nursing homes, law enforcement and every other State-funded service this month, Gov. Arnold Schwarzenegger warned in a letter sent Thursday to the U.S. Treasury secretary.

Back in March I had this suggestion for states: Fire School Administrators.  It's more applicable now than ever.

BOSTON (AP) -- The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis.

Treasurer Timothy Cahill's requests to the U.S. Treasury and Federal Reserve Bank of Boston this week were prompted by the state's inability to borrow from the short-term debt markets, The Boston Globe reported Saturday. The financial turmoil has caused credit markets to stop lending, or to charge prohibitive rates.

. . .

Massachusetts has enough money to cover its expenses for the coming weeks, Cahill said. But a low-rate loan would ease a cash shortfall if the credit problems persist.

Massachusetts has enough money for... weeks.  Not months.  And "...if the credit problems persist" is a joke.  It's the Much Greater Depression, folks.  There is no "if" as to whether credit problems persist.

New York will be next.

The carnage continues

A lot has been happening in the financial world, but the news comes so fast I hardly know what to blog about.

Ireland, Greece, and Germany are guaranteeing all bank deposits, with no upper limits, while in the UK and the US the upper limits are being raised.  This may sound good for the citizenry, but it indicates that bank runs are feared in these nations. 

In the US, there is a lack of physical cash.  If too many people start hoarding cash under the mattress, we could have a bottleneck during which physical cash can't be printed up fast enough.  Sure, everyone has credit cards, but those are about to go the way of the home equity line: banks will soon begin canceling them.  People will need real hard cash again, and there won't be enough.  Moreover, banks have about 70 cents of cash on hand (mostly 0's and 1's, not paper) for every $100 their customers have deposited.  I don't pretend to know what will happen when credit cards dry up... I don't.  I can't imagine it.  I guess the Fed will print new money as fast as it can and people will all be assigned debit cards in lieu of paper cash, but there are a lot of people who depend on credit to help them squeak by.

Iceland, which got heavily involved in international finance, is in a bad way.  I mean a really bad way-- the UN better start drawing up plans for a food relief program.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out. [source]

They have had panic buying at grocery stores because there aren't going to be any more food imports, since no one will take Iceland's currency.  People should watch what happens in Iceland, because this nightmare will happen one day in the United States.  Thankfully, it is much easier to grow food in the US than in Iceland, but on the other hand we are heavily dependent on imported crude oil and we don't make any shoes or clothing.  Economist John Williams, who runs the well-known and much-cited Shadow Stats website, has predicted that hyperinflation might hit the US as early as 2010.  Mr. Williams defines "hyperinflation" as a time when what used to be the largest bill in circulation (the $100 bill, in our case) becomes "more useful as toilet paper" than as currency.

The EU banks turn out to be in even worse shape than US banks, unbelievably.  They have massively more liabilities (loans to be repaid, depositors who need their funds back, etc) than they have capital.  Germany's second largest real estate lender is going down, and the government is in emergency talks with other banks to try to salvage the situation.  If they cannot save this major lender, it will cause large financial ripple effects in Germany.

That said, Germany is one of the healthiest of EU countries, fiscally speaking.  France wants an EU bailout of many EU banks, and Germany (the main country with a lot of savings) is saying No.  The southern nations (Spain, Italy, Greece) are not doing as well as northern ones, and Germany is refusing to funnel their own wealth into these poorer economies.  I do not think the Eurozone will be able to stay intact as this financial disaster continues.  Already, German citizens are hoarding Euros printed in Germany (there is some sort of number or symbol that indicates which country they were printed in).  They do not trust any currency printed in Italy or Spain, even if they are, ostensibly, all Euros.

In other news, I went to a coin shop and asked about silver.  The guy had two 5-ounce bars ($95 each) and two 10-ounce bars ($180 each).  That was it!  He was getting 20 or more calls per day asking about his available silver, including from Ohio.  He had received several hundred silver bullion coins one day last week, and they sold out in just 90 minutes.  All this silver was going for about $18/ounce, on days when the ostensible price of silver (the spot price) was around $11.  You always pay a little bit more for minted silver (coins or bars), but not 64% more!  The paper "spot" price just doesn't mean anything nowadays.  It has disconnected from the real world and is an imaginary value.  The same goes for gold.  There are extreme shortages of both metals and it is very hard to obtain coins in either metal.

Never mind, though-- most people should, at this point, be buying long-term storable food, shoes and boots, clothes for their kids in the coming years... in other words, tangible goods.  Other ideas, off the top of my head, include: camp stoves, rechargeable batteries, flashlights & LED lanterns, firewood (if applicable), very heavy blankets & sleeping bags, home insulation, Polartec hats, canning jars, a pressure cooker/canner, cases of cheap wine or whiskey, vegetable seeds, gardening implements, escapist fiction (try your library for cheap used novels), basic medicines, knitting / crocheting / sewing materials, a solar cell phone charger, a solar battery charger, and a wind-up radio.