This morning’s key headlines from GenerationalDynamics.com
- 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 in2010, but that’s about to change. This summer’s drought, now coveringmore than half of the United States, is the most widespread since1956, and is likely to get worse. Record-setting triple-digittemperatures have already occurred across the country. The NationalWeather Service counted 86 records last month, including 118 degreesin Norton, Kan., on June 28. Other record highs included 111 degreesin Yuma, Colo., 106 degrees in St. Louis, and 105 in Logan, W. Va.Between the extreme heat and the lack of rain, corn yield projectionshave been slashed, and will be slashed again in August. Corn priceshave risen to historic highs, and beef prices have been surging aswell, 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 theeffects of the 1960s “Green Revolution” have petered out, andpopulation growth has been exceeding growth in food production. Foodprice shocks in 2008 sparked a wave of riots in 30 countries aroundthe world, from Haiti to Bangladesh, and rising food prices helpedtrigger the Arab Spring uprisings in 2011. The American drought isnow expected to trigger a new world food price shock. According toone analyst:
“Food riots are a real risk at this point. Wheatprices aren’t up at the level they got to in 2008 but they arestill very high and that will have an effect on those who areleast able to pay higher prices for food.”
Global corn prices have already shot up 40% since June to hit all-timehighs, soy bean prices have jumped 30% to record levels, and wheat hassurged 50%. Guardian and 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 theInternational Monetary Fund (IMF) are signaling that they will stoppaying bailout money to Greece, because Greece has failed to meet itsausterity commitments. Readers may recall that one of the conditionsof the 130 billion euro bailout is that Greece must reduce its annualbudget 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 onridiculously impossible future economic assumptions that overlook thegenerational changes that are taking place. And now it’s “alreadyclear” that the “Troika” — consisting of the European Commission(EC), European Central Bank (ECB), and the IMF — will reach theconclusion, when it meets this week, that Greece’s 120% commitmentwill not be met. It’s already clear, for example, that the 3 billioneuros that Greece was supposed to earn from asset sales this year willturn out to be only 300 million euros.
Greece has been begging EU officials to get it more time to implementits austerity commitments, and this was a big discussion in Greece’srecent election that brought Antonis Samaras to office. But theTroika has decided that giving Greece more time would mean that itwould be necessary to increase Greece’s bailout package by anadditional 10-50 billion euros. German officials this weekend torpedoedany possibility of renegotiating Greece’s austerity agreement.German foreign minister Guido Westerwelle.
The result is that Greece will go bankrupt next month, when it’s dueto make a 3.8 billion euro bond payment, and will be forced to leavethe euro currency.
This discussion comes at a time when the euro crisis is rapidly buildingin Spain and Italy, with 10-year bond yields (interest rates) well above7% and 6%, respectively, after officials in those countries announcedthat they won’t be able to meet their own deficit commitments.
Last year I proposed the “Kick the Can Theory” for the Europeanfinancial crisis. It says that if you want to know what’s going tohappen, just assume that European leaders will look for a way to “kickthe can down the road,” meaning that they’ll do the minimum possibleto postpone the crisis a little longer, to prevent a current disasterwithout fixing the problem, so that the crisis will recur in worseform weeks or months later.
There’s already a can-kicking solution being proposed for Greece nextmonth. The Greek government will sell 3.8 billion euros in short-termgovernment bonds known as T-bills, and sell them to Greek banks. TheGreek banks would then deposit them with the ECB to be used ascollateral for 3.8 billion euros of new ECB bailout money. Voilà! 3.8billion euros created out of thin air! Problem solved! Der Spiegel — Translation and Bloomberg
Analysis: Euro crisis is saving Germany tens of billions
We’ve been reporting how yields(interest rates) for some bonds issued by Denmark and Germany havebeen falling and have actually gone negative, meaning that investorshave to pay these countries to keep their money safe. This is aresult of the euro crisis, and an analysis indicates that the eurocrisis has thus earned Germany a windfall of about 100 billion euros,in all, with 10 billion euros saved in 2012 alone in reduced interestpayments. Kathimerini
Iran announces multiple currency exchange rates
With Western sanctions on Iran causing rapid domestic inflation,Iran’s parliamentary economic commission announced on Saturday thatthere will now be three official exchange rates of exchange for theU.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, forluxury goods, like toys and foreign cars. The new plan is drawingsevere criticism from the Ahmadinejad administration. Radio Zamaneh
Catholic Priests protest Church attacks in Vietnam
Vietnamese Catholic priests have sent a letter to President Nguyen TanDung protesting against what they said were violent local governmentbacked attacks on a church in a northern Vietnam province which haveangered Christians in the communist state. A non-Catholic mob, paidby government officials to participate, occupied the church on July 1and smashed property, before church members called for help fromfellow Catholics in nearby parishes, who came in groups andoverwhelmed the attackers. Radio Free Asia
The Catholic Church has played a major role in Vietnam society forover two centuries, since the the Tay-Son rebellion, the mostcelebrated military event in Vietnamese history, united the north andsouth in 1789. The generational Awakening era that followed theTay-Son rebellion changed Vietnam enormously, and became the highpoint of Vietnam’s literary culture, thanks to the French, who alsointroduced the Catholic religion, converting hundreds of thousandsfrom Confucianism and Buddhism. The Catholic religion was animportant symbol in the 1950s, when Ho Chi Minh’s violence forced overhalf a million Catholics to migrate from North to South. Vietnam’scrisis civil war in the 1970s united the North and South again, butnow the new attacks on the Catholic Church indicate that new, youngerpost-war generations are renewing the hostilities that occurred in theunder Ho Chi Minh.