Woo-hoo. Mid-seventies, here we come again! Stupid America-hating lib-pig Greenspan! [rquoter] Greenspan sees early signs of U.S. stagflation WASHINGTON (Reuters) - The U.S. economy is showing early signs of stagflation as growth threatens to stall while food and energy prices soar, former U.S. Federal Reserve Chairman Alan Greenspan said on Sunday. In an interview on ABC's "This Week with George Stephanopoulos," Greenspan said low inflation was a major contributor to economic growth and prices must be held in check. "We are beginning to get not stagflation, but the early symptoms of it," Greenspan said. "Fundamentally, inflation must be suppressed," he added. "It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period." The U.S. central bank has lowered its benchmark interest rate three times since mid-September as a housing downturn, tightening credit conditions, and steep food and energy prices threaten to push the U.S. economy into recession. But cutting rates can have the unwanted side effect of pushing up prices, so the Fed finds itself in a tricky position of trying to revive growth without spurring inflation. Last week, U.S. data showed that wholesale inflation rose at the highest rate in 34 years, while consumer prices rose the most in more than two years. Greenspan repeated his assessment that the probability of a U.S. recession had moved up toward 50 percent but noted that corporate America's debt levels were in good shape, which should help cushion the blow from tightening credit terms. "The real story is, with the extraordinary credit problems we're confronting, why the probabilities (of recession) are not 60 percent or 70 percent," he said. "Because of the decline in long-term interest rates for a protracted period of time, American business was able to fund a significant part of its short-term liabilities and take out low-cost, long-term debt, so the credit needs have not been all that large," he said. Greenspan has drawn some criticism for keeping the trendsetting federal funds rate at a low 1 percent from June 2003 through June 2004, which some argue contributed to a housing bubble that is now bursting spectacularly. Greenspan said real estate prices will stabilize only when the overhang of unsold new-construction homes begins to ease, and estimated that financial losses could be in the range of $200 billion to $400 billion as securities tied to failing subprime mortgages lose value. He warned against any sort of government bailout plan for homeowners that interfered with the normal functioning of markets for home prices or interest rates, saying it would "drag this process out indefinitely." Offering cash to stricken homeowners instead would cause less long-term damage, he said. "It's only when the markets are perceived to have exhausted themselves on the downside that they turn," he said. "Trying to prevent them from going down just merely prolongs the agony." [/rquoter]
Why are food prices rising? The corn ethanol lobby... It's in our best interests to pursue bioethanol with sources that doesn't interfere with our food supply, such as wood chips. The end of cheap food Dec 6th 2007 From The Economist print edition Rising food prices are a threat to many; they also present the world with an enormous opportunity FOR as long as most people can remember, food has been getting cheaper and farming has been in decline. In 1974-2005 food prices on world markets fell by three-quarters in real terms. Food today is so cheap that the West is battling gluttony even as it scrapes piles of half-eaten leftovers into the bin. That is why this year's price rise has been so extraordinary. Since the spring, wheat prices have doubled and almost every crop under the sun—maize, milk, oilseeds, you name it—is at or near a peak in nominal terms. The Economist's food-price index is higher today than at any time since it was created in 1845 (see chart). Even in real terms, prices have jumped by 75% since 2005. No doubt farmers will meet higher prices with investment and more production, but dearer food is likely to persist for years (see article). That is because “agflation” is underpinned by long-running changes in diet that accompany the growing wealth of emerging economies—the Chinese consumer who ate 20kg (44lb) of meat in 1985 will scoff over 50kg of the stuff this year. That in turn pushes up demand for grain: it takes 8kg of grain to produce one of beef. But the rise in prices is also the self-inflicted result of America's reckless ethanol subsidies. This year biofuels will take a third of America's (record) maize harvest. That affects food markets directly: fill up an SUV's fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tonnes of extra maize going to ethanol this year amounts to half the fall in the world's overall grain stocks. Dearer food has the capacity to do enormous good and enormous harm. It will hurt urban consumers, especially in poor countries, by increasing the price of what is already the most expensive item in their household budgets. It will benefit farmers and agricultural communities by increasing the rewards of their labour; in many poor rural places it will boost the most important source of jobs and economic growth. Although the cost of food is determined by fundamental patterns of demand and supply, the balance between good and ill also depends in part on governments. If politicians do nothing, or the wrong things, the world faces more misery, especially among the urban poor. If they get policy right, they can help increase the wealth of the poorest nations, aid the rural poor, rescue farming from subsidies and neglect—and minimise the harm to the slum-dwellers and landless labourers. So far, the auguries look gloomy. In the trough That, at least, is the lesson of half a century of food policy. Whatever the supposed threat—the lack of food security, rural poverty, environmental stewardship—the world seems to have only one solution: government intervention. Most of the subsidies and trade barriers have come at a huge cost. The trillions of dollars spent supporting farmers in rich countries have led to higher taxes, worse food, intensively farmed monocultures, overproduction and world prices that wreck the lives of poor farmers in the emerging markets. And for what? Despite the help, plenty of Western farmers have been beset by poverty. Increasing productivity means you need fewer farmers, which steadily drives the least efficient off the land. Even a vast subsidy cannot reverse that. With agflation, policy has reached a new level of self-parody. Take America's supposedly verdant ethanol subsidies. It is not just that they are supporting a relatively dirty version of ethanol (far better to import Brazil's sugar-based liquor); they are also offsetting older grain subsidies that lowered prices by encouraging overproduction. Intervention multiplies like lies. Now countries such as Russia and Venezuela have imposed price controls—an aid to consumers—to offset America's aid to ethanol producers. Meanwhile, high grain prices are persuading people to clear forests to plant more maize. Dearer food is a chance to break this dizzying cycle. Higher market prices make it possible to reduce subsidies without hurting incomes. A farm bill is now going through America's Congress. The European Union has promised a root-and-branch review (not yet reform) of its farm-support scheme. The reforms of the past few decades have, in fact, grappled with the rich world's farm programmes—but only timidly. Now comes the chance for politicians to show that they are serious when they say they want to put agriculture right. Cutting rich-world subsidies and trade barriers would help taxpayers; it could revive the stalled Doha round of world trade talks, boosting the world economy; and, most important, it would directly help many of the world's poor. In terms of economic policy, it is hard to think of a greater good. Where government help is really needed Three-quarters of the world's poor live in rural areas. The depressed world prices created by farm policies over the past few decades have had a devastating effect. There has been a long-term fall in investment in farming and the things that sustain it, such as irrigation. The share of public spending going to agriculture in developing countries has fallen by half since 1980. Poor countries that used to export food now import it. Reducing subsidies in the West would help reverse this. The World Bank reckons that if you free up agricultural trade, the prices of things poor countries specialise in (like cotton) would rise and developing countries would capture the gains by increasing exports. And because farming accounts for two-thirds of jobs in the poorest countries, it is the most important contributor to the early stages of economic growth. According to the World Bank, the really poor get three times as much extra income from an increase in farm productivity as from the same gain in industry or services. In the long term, thriving farms and open markets provide a secure food supply. However, there is an obvious catch—and one that justifies government help. High prices have a mixed impact on poverty: they hurt anyone who loses more from dear food than he gains from a higher income. And that means over a billion urban consumers (and some landless labourers), many of whom are politically influential in poor countries. Given the speed of this year's food-price rises, governments in emerging markets have no alternative but to try to soften the blow. Where they can, these governments should subsidise the incomes of the poor, rather than food itself, because that minimises price distortions. Where food subsidies are unavoidable, they should be temporary and targeted on the poor. So far, most government interventions in the poor world have failed these tests: politicians who seem to think cheap food part of the natural order of things have slapped on price controls and export restraints, which hurt farmers and will almost certainly fail. Over the past few years, a sense has grown that the rich are hogging the world's wealth. In poor countries, widening income inequality takes the form of a gap between city and country: incomes have been rising faster for urban dwellers than for rural ones. If handled properly, dearer food is a once-in-a-generation chance to narrow income disparities and to wean rich farmers from subsidies and help poor ones. The ultimate reward, though, is not merely theirs: it is to make the world richer and fairer.
I wonder if we can impose a ceiling in agriculture since the farmers have been enjoying the floor from the New Deal.
Greenspan should not have lowered interest rates so low for so long. Then he wouldn't be "seeing" this problem.
Reporter: What are you going to do about the Farm Bill? LBJ: Pay it. Times have changed since I was a kid... the family farm is going down the tubes and bid agribusiness controls the bulk of the mainstay ag products these days. The family farmers seem to go to the boutique crops, like grapes, pears, etc. You could get away with trimming the big stuff on farm bills, because there aren't really that many votes... just a lot of money.
Exactly. This is so true. There really is not a worse choice for biofuel than corn. America has really shot themselves in the foot by pandering to the corn lobby.
Interestingly, I'm reading through Greenspan's book, The Age of Turbulence, and it's a really in-depth look at his career and what he thinks of the world today.
Chmipy disagree with Greenspan. Go figure. Bush Says US Economy Is Safe and Sound Dec 17, 3:26 PM (ET) By BEN FELLER FREDERICKSBURG, Va. (AP) - President Bush worked to reassure Americans on Monday about the economy but said "there's definitely some storm clouds and concern" because of the nation's credit crunch and mortgage problems. "But the underpinning is good," Bush told business and community leaders at a gathering of Rotary Club members. "We've had a pretty good economic run," the president said in a speech intended to show he is aware of the public's edgy mood these days. Consumer confidence has eroded as turmoil in the housing and credit market have battered the economy. Bush tried to position himself as an advocate for working families by taking aim at his favorite target: the Democratic Congress. "The Congress cannot take economic vitality for granted," Bush said. "The most negative thing Congress can do in the face of economic uncertainty is to raise taxes on the American people," Bush said. The audience of roughly 80 people listened to Bush with respectful silence. Yet a line that normally gets him applause - "I'll veto any tax increase" - drew no reaction at all. Bush chose to highlight positive economic news, such as job growth. "People are working; productivity is high," Bush said. He acknowledged the nation's major economic woes - mainly the housing and credit crunch - in the context of explaining what his administration is doing to help. "We can mitigate some of the issues," Bush said. "I just want to let you know we've got a strategy. And Congress can help," the president said, citing a list of bills he's proposed to lawmakers. Bush spoke at the Yak-A-Doo's restaurant inside a Holiday Inn. The White House wanted to keep the flavor of the local Rotary meeting, so there was no banner or backdrop. Bush was not even introduced; he just showed up, drawing a round of applause. The Christmas music being piped was not cut off until someone pointed that out. The president watched silently as club members offered a truncated version of their normal business routine, offering the Pledge of Allegiance and a prayer. After months of bickering with Congress, Bush pronounced himself pleased with the shape of spending levels that Congress is expected to approve this week. He said any measure must include money for troops in Iraq and Afghanistan. "We're making some pretty good progress toward coming up with a fiscally sound budget," Bush said. He said that the next couple of days "will be interesting to watch."
