This morning's key headlines from
- Food price surge expected after worst U.S. drought in 50 years
- Food price surge may lead to global riots, as in 2008
- IMF will end bailout for Greece, possibly forcing exit from euro currency
- Analysis: Euro crisis is saving Germany tens of billions
- Iran announces multiple currency exchange rates
- Catholic Priests protest Church attacks in Vietnam
Food price surge expected after worst U.S. drought in 50 years
FAO Food Price Index through June, 2012
The FAO Food Price Index has been declining since a major spike up in
2010, but that's about to change. This summer's drought, now covering
more than half of the United States, is the most widespread since
1956, and is likely to get worse. Record-setting triple-digit
temperatures have already occurred across the country. The National
Weather Service counted 86 records last month, including 118 degrees
in Norton, Kan., on June 28. Other record highs included 111 degrees
in Yuma, Colo., 106 degrees in St. Louis, and 105 in Logan, W. Va.
Between the extreme heat and the lack of rain, corn yield projections
have been slashed, and will be slashed again in August. Corn prices
have risen to historic highs, and beef prices have been surging as
well, as corn makes up about 95% of cattle feed grains.
Toledo (OH) Blade
Food price surge may lead to global riots, as in 2008
Damaged corn crop in Woodville, Ohio
The world price of food has been growing steadily since 2002, as the
effects of the 1960s "Green Revolution" have petered out, and
population growth has been exceeding growth in food production. Food
price shocks in 2008 sparked a wave of riots in 30 countries around
the world, from Haiti to Bangladesh, and rising food prices helped
trigger the Arab Spring uprisings in 2011. The American drought is
now expected to trigger a new world food price shock. According to
"Food riots are a real risk at this point. Wheat
prices aren't up at the level they got to in 2008 but they are
still very high and that will have an effect on those who are
least able to pay higher prices for food."
Global corn prices have already shot up 40% since June to hit all-time
highs, soy bean prices have jumped 30% to record levels, and wheat has
UN Food and Agriculture Organization (FAO)
IMF will end bailout for Greece, possibly forcing exit from euro currency
According to reports from Germany's Der Spiegel, officials from the
International Monetary Fund (IMF) are signaling that they will stop
paying bailout money to Greece, because Greece has failed to meet its
austerity commitments. Readers may recall that one of the conditions
of the 130 billion euro bailout is that Greece must reduce its annual
budget deficit from its current 160% of GDP to 120% of GDP by 2020.
As I wrote in a lengthy analysis at the time ( "28-Oct-11 News -- Markets explode on crazy Rube Goldberg eurozone deal"
), this demand was based on
ridiculously impossible future economic assumptions that overlook the
generational changes that are taking place. And now it's "already
clear" that the "Troika" -- consisting of the European Commission
(EC), European Central Bank (ECB), and the IMF -- will reach the
conclusion, when it meets this week, that Greece's 120% commitment
will not be met. It's already clear, for example, that the 3 billion
euros that Greece was supposed to earn from asset sales this year will
turn out to be only 300 million euros.
Greece has been begging EU officials to get it more time to implement
its austerity commitments, and this was a big discussion in Greece's
recent election that brought Antonis Samaras to office. But the
Troika has decided that giving Greece more time would mean that it
would be necessary to increase Greece's bailout package by an
additional 10-50 billion euros. German officials this weekend torpedoed
any possibility of renegotiating Greece's austerity agreement.
"That won’t work -- that’s a Rubicon we can’t cross," said
German foreign minister Guido Westerwelle.
The result is that Greece will go bankrupt next month, when it's due
to make a 3.8 billion euro bond payment, and will be forced to leave
the euro currency.
This discussion comes at a time when the euro crisis is rapidly building
in Spain and Italy, with 10-year bond yields (interest rates) well above
7% and 6%, respectively, after officials in those countries announced
that they won't be able to meet their own deficit commitments.
Last year I proposed the "Kick the Can Theory" for the European
financial crisis. It says that if you want to know what's going to
happen, just assume that European leaders will look for a way to "kick
the can down the road," meaning that they'll do the minimum possible
to postpone the crisis a little longer, to prevent a current disaster
without fixing the problem, so that the crisis will recur in worse
form weeks or months later.
There's already a can-kicking solution being proposed for Greece next
month. The Greek government will sell 3.8 billion euros in short-term
government bonds known as T-bills, and sell them to Greek banks. The
Greek banks would then deposit them with the ECB to be used as
collateral for 3.8 billion euros of new ECB bailout money. Voilà! 3.8
billion euros created out of thin air! Problem solved!
Analysis: Euro crisis is saving Germany tens of billions
We've been reporting
(interest rates) for some bonds issued by Denmark and Germany have
been falling and have actually gone negative, meaning that investors
have to pay these countries to keep their money safe. This is a
result of the euro crisis, and an analysis indicates that the euro
crisis has thus earned Germany a windfall of about 100 billion euros,
in all, with 10 billion euros saved in 2012 alone in reduced interest
Iran announces multiple currency exchange rates
With Western sanctions on Iran causing rapid domestic inflation,
Iran's parliamentary economic commission announced on Saturday that
there will now be three official exchange rates of exchange for the
U.S. dollar: 12,260 rials per dollar for "the import of basic goods,"
15,000 rials per dollar for import of "capital and brokered goods,"
and the open market rate, currently 19,100 rials per dollar, for
luxury goods, like toys and foreign cars. The new plan is drawing
severe criticism from the Ahmadinejad administration.
Catholic Priests protest Church attacks in Vietnam
Vietnamese Catholic priests have sent a letter to President Nguyen Tan
Dung protesting against what they said were violent local government
backed attacks on a church in a northern Vietnam province which have
angered Christians in the communist state. A non-Catholic mob, paid
by government officials to participate, occupied the church on July 1
and smashed property, before church members called for help from
fellow Catholics in nearby parishes, who came in groups and
overwhelmed the attackers.
Radio Free Asia
The Catholic Church has played a major role in Vietnam society for
over two centuries, since the the Tay-Son rebellion, the most
celebrated military event in Vietnamese history, united the north and
south in 1789. The generational Awakening era that followed the
Tay-Son rebellion changed Vietnam enormously, and became the high
point of Vietnam's literary culture, thanks to the French, who also
introduced the Catholic religion, converting hundreds of thousands
from Confucianism and Buddhism. The Catholic religion was an
important symbol in the 1950s, when Ho Chi Minh's violence forced over
half a million Catholics to migrate from North to South. Vietnam's
crisis civil war in the 1970s united the North and South again, but
now the new attacks on the Catholic Church indicate that new, younger
post-war generations are renewing the hostilities that occurred in the
under Ho Chi Minh.
Receive daily World View columns by e-mail