The Coal Crunch is Coming

The Coal Crunch is Materializing

Posted by Luis de Sousa on May 1, 2008 - 1:00am in The Oil Drum: Europe

In recent days a series of media articles surfaced pointing to a concerning situation in China. The New Scientist reported:

At the end of a cold and stormy winter, the country has just 12 days of coal reserves at most power stations. Some provinces, including Hebei, bordering Beijing, have less than a week's coal left. This is a record low, the state electricity regulatory commission revealed on Tuesday.

It continues:

China relies on burning coal for 70% of its electricity. Even though Chinese coal production in the first quarter of this year was up almost 15% on the same period last year, it has apparently not been enough to meet rapidly growing demand.

[...]

The coal mining industry, and the rail network needed to bring the coal to the power plants, are both struggling to keep up with the drive to build ever more generating capacity. The strains raise questions about how much longer China's breakneck industrialization can continue.

China Stakes presents even grimmer details:

The Vice-President of the State Electric Power Supervisory Commission, Wang Yeping, said that in Hebei, Anhui, and Chongqing, the stockpile of coal for power generation was not even enough to last 7 days. This situation is quite similar to the one that existed in January 2008. Theoretically, a stockpile that is smaller than 7 days supply has reached an “urgent level”.

This scenario is even more concerning coming during the Spring when electricity demand is at the lowest. Air conditioning is not needed yet and most of the country should by now be through with home heating. The coming Summer can indeed have some hardships reserved for China.

While the hard winter brought all sort of disruptions to the regular life of Chinese folk during the weeks prior to the New Year festivities, production kept strong during the first months of 2008, setting new records. These facts show that the difficulties felt during January and early February were mainly caused by shipping disruptions.

While cold weather continued for the rest of the Northern Hemisphere, China was granted some relief in March with some warm temperatures:

Temperature anomalies in March of 2008. Source University of Alabama in Huntsville.

Although out of season frosts returned to China in April, the southern provinces of the country are now well into Spring. So why these dwindling stocks now? China Daily have it by the numbers:

The General Administration of Customs said on Thursday that China exported 8.75 million tonnes of coal for $630 million [during January and February], up 13.5 percent and 39.7 percent, respectively, year-on-year.

Prices averaged $72.2 per tonne. For February only, exports were 3 million tonnes, down 32.1 percent.

Imports were 7.06 million tonnes, down 18.2 percent year-on-year. These shipments were valued at $450 million, up 13.1 percent. The average price was $63.3 per tonne. For February only, imports were 2.82 million tonnes, down 28.2 percent.

Putting it simply, China is importing a smaller volume of Coal than last year, but actually spending more money doing it. Especial attention should be taken to the prices per tonne, in the order of $60 – 70.

At the same time prices in Europe are well above $100 /tonne and Indonesian Coal is expected to reach a $150 /tonne, this kind of Coal was below $50 /tonne last year.

Apparently the international Coal market is getting tight enough for a country like China to feel the pinch. While Europe and North America are still able to import their usual share with prices triple of those last year, China isn't. Volumes available for export in South East Asia, Australia and New Zealand are being diverted away from local buyers with lower purchasing power.

Partially this problem is rooted on extreme weather events that have been affecting Australia's production. Floods during the first months of the year brought hard cooking coal prices to a spike of $400 /tonne [hat tip Big Gav]. Still, the same article indicates long term contracts being celebrated at $300 /tonne, and thermal coal also bound to go over $100 /tonne this year.

With the Coal Crunch the world is stepping into is just another dimension of the present energy crisis that is being triggered by anaemic oil production. Either by pushing demand up for other energy sources or supply down for minerals, food and other commodities, oil is building an economic whirlwind that has the potential to transform the face of our societies. Ready to ride?

Hybrids and I'm Not Talking Cars Here........

Interesting article. I guess it's a morbid fact that a chimp-human hybrid can be created. Yuck. No doubt the resulting individual would need some back waxing. I thought the items at the bottom of the article on hybrids amoungst other animals were interesting and are quoted below the whole article link:

http://realitysandwich.com/the_cryptic_cosmology_synchromysticism

EVEN though hybrids of humans and animals have never been created, many other creatures have been crossed successfully.

Lions and tigers have been bred to create ligers, the world's largest cats.

And there are also zorses (zebra and horse), wholphins (whale and dolphin), tigons (tiger and lion), lepjags (leopard and jaguar) and zonkeys (zebra and donkey).

As well as these hybrid mammals, there are also hybrid birds, fish, insects and plants.

Many hybrids, such as mules, are sterile, which prevents the movement of genes from one species to another, keeping both species distinct. However, some can reproduce and there are scientists who believe that grey wolves and coyotes mated thousands of years ago to create a new species, the red wolf.

More commonly, hybrids mate with one of their parent species, which can influence the genetic mix of what gets passed along to subsequent generations.

Hybrids can have desirable traits, often being fitter or larger than either parent.

Most hybrid animals have been bred in captivity, but there are examples of the process occurring in the wild.

This is far more common in plants than animals but in April 2006 a hunter in Canada's North-west Territories shot a polar bear whose fur had an orange tint.

Research showed that it had a grizzly bear father, and it became known as a pizzly.

In 2003, DNA analysis confirmed that five odd-looking felines found in Maine and Minnesota were bobcat-lynx hybrids, dubbed blynxes.

OK now it really gets weird. No shit. You can't make this stuff up:

Scientist sent to Africa in Stalin's plan for species that felt no pain

THE controversial fascination with crossing humans and chimpanzees has a colourful history.

Records suggest that in 1926 the Russian dictator Joseph Stalin decided he wanted to try to create a new species of superhuman.

Kirill Rossiianov, of the Russian Academy of Sciences in Moscow, has studied Soviet archives that detailed the wor

His findings, published in the journal Science in Context in 2002, outlined how Russia's leading animal breeding scientist, Professor Ilya Ivanov, was ordered to turn his skills to the quest for an ultimate soldier by crossing humans with apes.

Stalin reportedly told the scientist: "I want a new invincible human being, insensitive to pain, resistant and indifferent about the quality of food they eat."

Ivanov was sent to French West Africa and on 28 February, 1927, he wrapped two female chimps in nets and inseminated them with sperm from a local man. On 25 June, he inseminated another chimp with human sperm, this time using a special cage and knocking her out with ethyl chloride.

None of the three became pregnant, and at that point he changed tack. He reportedly went on to ask the authorities whether he could, instead, inseminate native women with the sperm of a dead male chimpanzee in a local hospital.

He even suggested the experiment could be carried out without the women's knowledge because he was concerned they would resist.

According to records, the authorities refused permission because the studies would be taking place in a hospital.

Instead they suggested the procedure could be done outside, where no regulations existed, but Ivanov was apparently offended, believing his research should take place in a clinical setting.

It is believed that Ivanov left Africa with a number of primates and went to the Soviet Republic of Georgia.

There, it is thought he worked in a government primate station, where rumour has it he attempted to arrange further experiments on the artificial insemination of women volunteers. No evidence exists that these experiments actually took place.

No evidence, eh? A quick google search yielded this nugget and many more to boot:

http://tinyurl.com/5wt78v

Mass Murder of Young Men?

I don't normally follow crime stories but this is pretty interesting. Sounds like it is straight out of the Chris Carter series Millenium :

DETECTIVES: Chris Jenkins murder connects dozens around country

Could there be a calculated, cross-country plot to kill young college men, including some in Minnesota? It seems a little hard to believe, but two New York detectives say they can prove it.

Now, they are revealing years of their evidence for the first time to 5 EYEWITNESS NEWS...

Click above for article and TV report

Oil demand destruction, where is it?

Oil is close to $120/barrel, "peak oil" is everywhere you look, so where’s the demand destruction? The latest EIA figures actually show a 0.57% increase in US gasoline demand year on year over the last week. The week prior also showed an increase in gasoline demand, but the 4-week average still shows a 0.5% decrease because of lower demand in 2008 for the weeks ending 4/4/08 and 3/21/08. Regardless of which statistic one chooses, this is hardly a convincing case for demand destruction.

Click above for whole story

Good question; where is the demand destruction? I thought we'd see clear signs of it by now.

Analysts Divided Over Cause of Food Price Increases

AGRICULTURE: What is Really Causing ‘Agflation’?

By Mario Osava

RIO DE JANEIRO, Apr 25 (IPS) - The old laws of the marketplace are no longer working. Food prices have been rising for six years because of surging demand, and increased production is not restoring the balance as it used to in the past. In fact, prices have been going up even faster over the last year.

The so-called "financialisation" of commodities markets, that is, the influx of investment funds seeking safer and more lucrative assets, has intensified the trend and "at the moment impinges more than the law of supply and demand," said analyst Fernando Muraro of AgRural, a consultancy firm in Brazil.

There is no way to measure the influence of speculative forces on "agflation," the new term coined to describe inflation provoked by the agricultural sector, he said.

>>>>>>>>>

There is a global excess of dollars, and holders are transferring them to markets and products wherever sustained price increases indicate good prospects for making profits, he said.

>>>>>>>>>

In contrast, Sergio Vale, a consultant with MB Asociados, said "it’s not true that a financial bubble exists for agricultural commodities." The price increases are "concretely based" on sustained growth of demand in China, India and other Asian countries, as well as in Latin America, he told IPS.

Click on title block for whole article. I'm not certain either; they both may be partly correct.

Japanese Bond Panic

JGBs sell off

Published: April 25 2008 09:38 | Last updated: April 25 2008 18:52

It takes a lot to rattle Japanese government bonds. But on Friday, the world’s biggest bond market went into freefall. The yield on 10-year JGBs jumped 12.5 basis points to 1.6 per cent. Futures trading screeched to a halt – the first enforced stoppage since new systems were introduced at the start of the year.

Part of the rush for the exits can be explained by global concerns about higher inflation. The $6,700bn JGB market has a habit of selling off when US interest rates bottom. Many expect a cut next week by the US Federal Reserve to be the last in this cycle. Against this backdrop, foreigners were keen to reduce their positions.

SPECULATING IN HUNGER

ARE INVESTORS CONTRIBUTING TO THE GLOBAL FOOD CRISIS?

by Ellen Brown, April 28th, 2008

http://www.webofdebt.com/articles/global-food-crisis.php

Investment newsletters are now featuring headlines like "How You Can Profit from the Global Food Crisis." The recommended investments include agribusiness stocks and exchange-traded funds (ETFs) that speculate in agricultural commodities. These investments will no doubt do very well in the global food crisis; but before you put your money down, you may want to explore whether you will be helping to alleviate the problem or contributing to it. Do you really want to "invest" in starvation? In an April 23 article in the German news source Spiegel Online called "Deadly Greed: The Role of Speculators in the Global Food Crisis," Balzli and Horning note, "Many investors . . . are simply oblivious to the fact that by investing in the global casino, they could be gambling away the daily food supply of the world's poorest people."1

Jean Ziegler, UN Special Rapporteur on the Right to Food, has called the exploding food crisis "a silent mass murder." In an interview in the French daily Liberation on April 14, he said, "We are heading for a very long period of rioting, conflicts [and] waves of uncontrollable regional instability marked by the despair of the most vulnerable populations." He blamed globalization and multinationals for "monopolizing the riches of the earth," and said that a mass uprising of starving people against their persecutors is "just as possible as the French Revolution was." In some places, this is already happening. In Haiti, where the cost of rice has nearly doubled since December, the prime minister was fired this month by opposition senators after more than a week of riots over the cost of staple foods. Violent protests over food prices have also been set off in Bangladesh, where rice has also doubled; in the Ivory Coast, where food prices have soared by 30 to 60 percent from one week to the next; and in Egypt, Uzbekistan, Yemen, the Philippines, Thailand, Indonesia and Italy.

In an April 21 Wall Street Journal article titled "Load Up the Pantry," Brett Arends observed that the food riots now seen in the developing world could soon be affecting Americans as well. Rocketing food prices are not a passing phase but are actually accelerating. He recommends hoarding food – not because he is actually expecting a shortage but as an investment, because "food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund." Arends goes on:

The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food. A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.2

That's the rationale published in the Journal of Wall Street, the financial community that brought you the housing bubble, the derivatives bubble, and now the commodities bubble, producing the subprime crisis, the credit crisis, and the oil crisis. The main reason for the food crisis, says this author, is that the Chinese and Indian middle classes are eating better. Really? Rice has been the staple food of half the world for centuries, and it is hardly rich man's fare. Moreover, according to an April 2008 analysis from the United Nations' Food and Agriculture Organization, food consumption of grains has gone up by only one percent since 2006.3 That hardly explains the fact that the price of rice has spiked by 75 percent in just two months. The price of Thai 100 per cent B grade white rice, considered the world's benchmark, has tripled since early 2007; and it jumped 10 percent in just one week. The fact that corn is being diverted to fuel, while no doubt a contributing factor, is also insufficient to explain these sudden jumps in price. World population growth rates have dropped dramatically since the 1980s, and grain availability has continued to outpace population.4 Biofuels have drained off some of this grain, but biofuels did not suddenly happen, and neither did the rise of the Asian middle class. If those were the chief factors, the rise in food prices would have been gradual and predictable to match.

Another explanation for the sudden jump in grain prices is not mentioned by this Wall Street Journal writer but is suggested by other analysts. William Pfaff wrote in the April 16 International Herald Tribune:

[M]ore fundamental is the effect of speculation in food as a commodity – like oil and precious metals. It has become a haven for financial investors fleeing from paper assets tainted by subprime mortgages and other toxic credit products. The influx of buyers drives prices and makes food unaffordable for the world's poor. "Fund money flowing into agriculture has boosted prices," Standard Chartered Bank food commodities analyst Abah Ofon told the media. "It's fashionable. This is the year of agricultural commodities."5

The "hot money" that has fled the collapsed real estate bubble is now moving into the commodities bubble, and that includes food. "Hot money" is an influx of speculative capital in search of high rates of return, quickly moving from one market to another. It moves, however, not because the products are better (the traditional justification for price-setting according to "free market forces") but because the speculative "spread" is better. Money is invested not in making real goods and services but simply in making more money. Food prices are being driven by speculators, and today that includes ordinary investors like you and me, who can now gamble in agricultural futures through ETFs that have opened up a lucrative market formerly available only to big investment players.

Conventional economic theory says that prices are driven up when "demand" exceeds "supply." But in this case "demand" does not mean the number of hands reaching out for food. It means the amount of money competing for existing supplies. The global food crisis has resulted from an increase, not in the number of mouths to be fed, but simply in the price. It is the money supply that has gone up, and it is investment money in search of quick profits that is largely driving food prices up. Much of this seems to be happening in the futures market, where fund managers seek to maximize their profits by using futures contracts. Balzli and Horning explain:

The futures market is a traditional tool for farmers to sell their harvests ahead of time. In a futures contract, quantities, prices and delivery dates are fixed, sometimes even before crops have been planted. Futures contracts allow farmers and grain wholesalers a measure of protection against adverse weather conditions and excessive price fluctuations. . . . But now speculators are taking advantage of this mechanism. They can buy futures contracts for wheat, for example, at a low price, betting that the price will go up. If the price of the grain rises by the agreed delivery date, they profit. Some experts now believe these investors have taken over the market, buying futures at unprecedented levels and driving up short-term prices. Since last August, this mechanism has led to a doubling in the price of rice.

The authors quote grain wholesaler Greg Warner, who says what is happening now in the grain futures market is unprecedented. "What we normally have is a predictable group of sellers and buyers -- mainly farmers and silo operators." But the landscape has changed since the influx of large index funds into the futures market. "Prices keep climbing up and up." Warner calculates that financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called "soft red winter wheat." He calls these developments "stunning" and points to them as "evidence that capitalism is literally consuming itself."6

What about investing in agribusinesses such as Monsanto, which have promoted the "Green Revolution" through the bioengineering of foods and the production of GMO (genetically modified) seeds, synthetic fertilizers, and herbicide and pesticide sprays? Won't these corporations, at least, help to alleviate the global food crisis?

To the contrary, say critics, these businesses too are just driving food prices up. Monsanto's patented GMO seeds have been genetically engineered so that they cannot reproduce but must be purchased every year from the company. Small farmers who have fallen for the hype of greater productivity and subjected their land to these seeds and chemicals have found that not only have their yields been reduced but that the land will no longer bear anything except GMO seeds.7 Farmers who can no longer afford the seeds are priced out of the market, handing monopoly control over to the agribusiness giants that can then raise prices to whatever the market will bear; and in the case of food, it will bear a lot, right up to the point of slavery. As Henry Kissinger once famously said, "Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world."

What can you invest in, then, that actually would help relieve the global food crisis? One possibility is local organic farming. "Community-supported agriculture" (CSA) is a model of food production, sales, and distribution aimed at increasing the quality of food and the care given to land, plants and animals, while reducing losses and risks for producers. A variety of CSA systems are now in use worldwide, allowing small-scale commercial farmers and gardeners to have a successful, small-scale closed market while providing their customer-members with a regular delivery or pick-up of healthy local produce. The USDA provides a list of CSA addresses and websites.8

That still leaves the problem of speculation in food futures. How can parasitic profits to non-producing middlemen be eliminated while still protecting farmers? The futures market was first created for farmers, who needed to be able to lock in a price today that would cover their costs and return a reasonable profit later. One interesting proposal is to return to the policy of "farm parity pricing" enacted during the 1930s. It ensured that the prices received by farmers covered the prices they paid for input plus a reasonable profit. If the farmers could not get the parity price, the government would buy their output, put it into storage, and sell it later. The government actually made a small profit on these transactions; food prices were kept stable; and the family farm system was preserved as the safeguard of the national food supply. With the push for "globalization" in later decades, farm parity was replaced with farm "subsidies" that favored foods for export over local markets, and large corporate farms engaged in chemical farming over sustainable farming, forcing thousands of family farmers out of business.

Farm parity pricing could help, but a complete solution to the problem of global inflation would require an overhaul of the private central banking system that has created one bubble after another for the last century. (See E. Brown, "Market Meltdown: The End of a 300 Year Ponzi Scheme," webofdebt.com/articles, September 3, 2007.)

And if you want to invest in the commodities boom without guilt? You can buy gold, which is no one's staple food or fuel.

___________________
1 Beat Balzli, Frank Hornig, "Deadly Greed: The Role of Speculators in the Global Food Crisis," Spiegel Online (April 23, 2008).
2 Brett Arends, "Load Up the Pantry," Wall Street Journal (April 21, 2008).
3 "2007–2008 World Food Price Crisis," Wikipedia.
4 Ibid.
5 William Pfaff, "Speculators and Soaring Food Prices," International Herald Tribune (April 16, 2008).
6 Balzli & Hornig, op. cit.
7 William Engdahl, Seeds of Destruction (Global Research 2007), summarized by Stephen Lendman in "Unleashing GMO Seeds: 'Food is Power'", Global Research (January 19, 2008).
8 "Alternative Farming Systems Information Center," USDA.gov. See "Community-supported Agriculture," Wikipedia.

China stock exchange investors suffer from spectacular bear market

China's stock market has lost half its value since October in one of the most spectacular bear markets of the last half century, eliminating $2.5 trillion (£1.25 trillion) of paper wealth.

The Shanghai Composite briefly fell below the key psychological level of 3,000 yesterday, down 50pc from its peak.

...

Food costs make up roughly a third of China's inflation index, so the spiralling cost of rice, corn, poultry and milk is playing havoc with price stability.

The inflation rate is nearing levels that set off urban riots in the late 1980s and caused workers to come out in sympathy with the students in the Tiananmen Square protest.

more here

Japan: Where has all the butter gone?

Where is the butter? — cry Japanese consumers who have been hunting everywhere for the dairy product. The drastic reduction in raw milk production, complicated by hikes in the price of grain as well as changes in the global patterns of dairy product consumption, have caused a serious butter shortage in Japan. Empty shelves in the dairy section of grocery stores across the country have not seen a shipment of butter for days, and stores are posting signs apologizing for the shortage.

more here

Food Rationing Confronts Breadbasket of the World

April 21, 2008 Edition

BY JOSH GERSTEIN - Staff Reporter of the Sun

April 21, 2008

URL: http://www2.nysun.com/article/74994

MOUNTAIN VIEW, Calif. — Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing. Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.

At a Costco Warehouse in Mountain View, Calif., yesterday, shoppers grew frustrated and occasionally uttered expletives as they searched in vain for the large sacks of rice they usually buy.

"Where's the rice?" an engineer from Palo Alto, Calif., Yajun Liu, said. "You should be able to buy something like rice. This is ridiculous."

The bustling store in the heart of Silicon Valley usually sells four or five varieties of rice to a clientele largely of Asian immigrants, but only about half a pallet of Indian-grown Basmati rice was left in stock. A 20-pound bag was selling for $15.99.

"You can't eat this every day. It's too heavy," a health care executive from Palo Alto, Sharad Patel, grumbled as his son loaded two sacks of the Basmati into a shopping cart. "We only need one bag but I'm getting two in case a neighbor or a friend needs it," the elder man said.

The Patels seemed headed for disappointment, as most Costco members were being allowed to buy only one bag. Moments earlier, a clerk dropped two sacks back on the stack after taking them from another customer who tried to exceed the one-bag cap.

"Due to the limited availability of rice, we are limiting rice purchases based on your prior purchasing history," a sign above the dwindling supply said.

Shoppers said the limits had been in place for a few days, and that rice supplies had been spotty for a few weeks. A store manager referred questions to officials at Costco headquarters near Seattle, who did not return calls or e-mail messages yesterday.

The curbs and shortages are being tracked with concern by survivalists who view the phenomenon as a harbinger of more serious trouble to come.

"It's sporadic. It's not every store, but it's becoming more commonplace," the editor of SurvivalBlog.com, James Rawles, said. "The number of reports I've been getting from readers who have seen signs posted with limits has increased almost exponentially, I'd say in the last three to five weeks."

Spiking food prices have led to riots in recent weeks in Haiti, Indonesia, and several African nations. India recently banned export of all but the highest quality rice, and Vietnam blocked the signing of a new contract for foreign rice sales.

"I'm surprised the Bush administration hasn't slapped export controls on wheat," Mr. Rawles said. "The Asian countries are here buying every kind of wheat." Mr. Rawles said it is hard to know how much of the shortages are due to lagging supply and how much is caused by consumers hedging against future price hikes or a total lack of product.

"There have been so many stories about worldwide shortages that it encourages people to stock up. What most people don't realize is that supply chains have changed, so inventories are very short," Mr. Rawles, a former Army intelligence officer, said. "Even if people increased their purchasing by 20%, all the store shelves would be wiped out."

http://www2.nysun.com/pf.php?id=74994&v=2508878021

Good-Bye, Cheap Oil. So Long, Suburbia?

http://www.businessweek.com/magazine/content/08_18/b4082056979063.htm

The suburban landscape has been marred by foreclosures and half-built communities abandoned in the subprime aftermath. But James Howard Kunstler, author of a dozen books, including The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape, thinks there's a bigger threat to those far-flung neighborhoods: the scarcity of oil. As Kunstler sees it, oil wells are running dry and the era of cheap fuel is over. Given the supply constraints, he says the U.S. will have to rethink suburban sprawl, bringing an end to strip malls, big-box stores, and other trappings of the automotive era.

Not Guzzling So Much Gas

From http://calculatedrisk.blogspot.com/:

Without the strong world economy, oil prices would probably already be falling. From BusinessWeek: Not Guzzling Quite So Much Gas

Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show.

The supply and demand curves are both very steep for oil, so a small decline in consumption would usually result in a significant decline in price. However, right now global demand is more than making up for any decline in domestic consumption.

How Cuba Solved Hunger

"Unable to import food or fertilizer, Cuba saw the calories and protein in the average diet drop by almost a third, from 3,000 calories a day to 1,900 calories between 1989 and 1994."

Click above to read the article to get the good news of how they fixed it.

A house price crash or soaring inflation

This is the corner the Americans and Brits have backed themselves (and everyone else into by proxy)

Bank of England's dilemma: A house price crash or soaring inflation
By Edmund Conway, Economics Editor

Last Updated: 1:07am BST 25/04/2008

Which would you rather face: a recession and house price crash or years of soaring seventies-style inflation?

Whole article here

Hmmmm. Might put oil prices down if they opt for the price crash route. Something to keep an eye on.

WSJ Recommends Food Hoarding

http://online.wsj.com/article/SB120881517227532621.html?mod=googlenews_wsj

Load Up The Pantry

Wall Street Journal

4-23-8

I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.

No, this is not a drill.

You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs."

Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you'll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.

Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.

And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.

These are trends that have been in place for some time.

And if you are hoping they will pass, here's the bad news: They may actually accelerate.

The reason? The prices of many underlying raw materials have risen much more quickly still. Wheat prices, for example, have roughly tripled in the past three years.

Sooner or later, the food companies are going to have to pass those costs on. Kraft saw its raw material costs soar by about $1.25 billion last year, squeezing profit margins. The company recently warned that higher prices are here to stay. Last month the chief executive of General Mills, Kendall Powell, made a similar point.

The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.

A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.

You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory of a bygone age.

The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.

Write to Brett Arends at brett.arends@wsj.com

On a related story, FOX News report on "food rationing" in the US at Sam's Club and Costco. Click below; when I played this it buffered slow so may be a wait. Note the "alarmist" site that this is hosted on.

http://www.vloggingtheapocalypse.com/viewVideo.php?video_id=518&title=FOX_NEWS_ON_FOOD_RATIONING_AT_COSTCO_AND_SAM_S

Wheat Crop Failures Could be Total, Experts Warn

Something unexpected like this; if it happens at the wrong time can create massive troubles.

David Kotok, chairman and chief investment officer of Cumberland Advisors, said the deadly fungus, Puccinia graminis, is now spreading through some areas of the globe where "crop losses are expected to reach 100 percent.”

Losses in Africa are already at 70 percent of the crop, Kotok said

The Exploding Whale

This is damned funny in a quirky way. Yeah the whale blew up. With surprising results.

http://www.hecklerspray.com/awesome-or-off-putting-the-exploding-whale-of-1970/200813718.php

World Food Prices Continue to Soar

Global food crisis looms as Asia's rice bowl empties and world price soars

By Raju Gopalakrishnan in Manila

THE crisis over rice showed no signs of easing yesterday as the price of the world's benchmark jumped 10 per cent in just one week, fanning fears that millions across Asia will struggle to afford their staple food.

In a clear sign of the strain on output after major exporters began to curb exports earlier this year, a tender from the Philippines, the world's top importer, attracted offers to sell only about two-thirds of the half a million tonnes it sought.

In Bangkok, Thai 100 per cent B grade white rice, considered the world's benchmark, hit $950 (£482) per tonne, three times its price at the start of 2007.

The REAL cost of inflation

The trick of official underestimation of inflation is wearing thin. Folks are catching on. See below.

The REAL cost of inflation: The Mail's Cost of Living Index reveals food prices rising at SIX times official figure

By SEAN POULTER
Last updated at 13:00pm on 18th April 2008

The true, devastating scale of rising prices is revealed today - by the new Daily Mail Cost of Living Index.

It shows that families are having to find more than £100 a month extra this year to cope with increases in the cost of food, heat, light and transport.

According to the Consumer Price Index, inflation is running at only 2.5 per cent.

Yet the Mail's index finds that food costs alone are rising at 15.5 per cent a year - more than six times the official rate.

And there are double-digit increases in other "must-pay" essentials such as petrol, gas and electricity.

Many families need to find more than £1,200 extra a year just to stand still.

Once higher mortgage costs are added, millions are having to pay out at least another £2,000 a year to keep their heads above water.

The Bank of England's chief economist Charlie Bean admitted last night that higher food and energy costs are likely to push the Consumer Price Index over 3 per cent this year.

Click the title to see the whole article

Brazil Betters Alberta

Brazil respects agreements and contracts; Alberta doesn't. This is specifically referring to the "no grandfathering" aspects of the New Royalty Framework in Alberta. Read it and weep:

RIO DE JANEIRO, April 17 (Reuters) - Brazil is mulling changes to its set of rules for oil exploration and production, eyeing more taxes, but any shift would apply only to future contracts, Mines and Energy Minister Edison Lobao said on Thursday.

"Concessions can be brought up to date, improved, but we don't want to change the rules of the game already under way. It will be for future (concessions)," Lobao told reporters.

Can We Stay in the Suburbs?

From The Oil Drum where you can read the whole article. Growing potatoes in the suburbs? Excerpt below:

April 17, 2008 - 10:00am

This is a guest post by Aaron Newton, who is working with coauthor Sharon Astyk on the forthcoming book, A Nation of Farmers. Aaron contributes at Groovy Green; he also blogs at Powering Down. Aaron is a land planner and garden farmer in suburban North Carolina, seeking ways to transform the current course of human land use development in an effort to prepare for the effects of global oil production peak and its outcome on automotive suburban America.

There is little doubt that during that last 60 years we here in America have transformed our manmade landscape in a way that is fundamentally different from any form of human habitation ever known. While many have flocked to this new way of organizing the spaces in which we live, critics have noticed the shortcomings and have loudly pointed them out. It’s been suggested that the development of the suburbs here in the U.S. was a really bad idea. Author James Kunstler describes suburbia as, ‘the greatest misallocation of resources in the history of the world.’ The ability of most citizens to own and cheaply operate an automobile means we’ve had access to a level of mobility never before experienced. The outgrowth of which has been a sprawling pattern of living that changed the rules about how and where we live, work, and play and how we get there and back. We are now more spread out than ever before, mostly getting back and forth from one place to another by driving alone in our cars. This could turn out to be a really bad thing.

As the cost of fueling those cars increases, it’s becoming obvious we’ve foolishly put too many of our eggs into one basket. And as America wakes up to the realities of a changing climate, it’s also painfully obvious that soloing around in a huge fleet of carbon emitters isn’t the most thoughtful way to transport ourselves from one side of suburbia to the other. The question is, as the expansive nature of suburban life becomes too expensive, both economically and ecologically, what will we do with this great ‘misallocation’ of resources?

Potatoes 'could solve food shortage'

Now if we could just invent a car that run on spuds.....

By Alex Spillius in Washington
Last Updated: 12:01am BST 16/04/2008

The potato has been touted as a solution to the global food crisis. Increasingly derided in the West for contributing to expanding waistlines, the vegetable is being rediscovered as a nutritious crop for the developing world.

Researchers at the International Potato Centre, in Lima, the Peruvian capital, suggested that the growing problem of food supply due to rising prices and the production of crops for biofuel rather than food could be alleviated by an increase in potato cultivation.

"The shocks to the food supply are very real and that means we could potentially be moving into a reality where there is not enough food to feed the world," said Pamela Anderson, the centre's director.

more here

Inflation Coming or Going?

I'm more than a bit puzzled about what I perceive to be an impending inflation juggernaut not bearing its teeth sooner. Read some of the articles posted earlier relating to massive increases in commodities. Everyone knows oil; but coking coal is up 200%, iron ore 65%, rice over 100%, etc......

The Globe today had a bunch of articles pertinent and interesting in explaining what might be going on.

First, this from the Globe and Mail

Inflation dips, rate cut expected

HEATHER SCOFFIELD

Globe and Mail Update

April 17, 2008 at 2:16 PM EDT

OTTAWA — An aggressive 50-basis-point interest rate cut from the Bank of Canada is more of a sure thing now that inflation for March has proven to be benign, economists say.

Total inflation was 1.4 per cent in March from a year ago, the slowest pace since in well over a year and the fourth straight month of deceleration.

The core rate of inflation, which excludes the most volatile prices such as energy and some types of food, was just 1.3 per cent over a year ago, compared to the 1.5 per cent pace recorded for February.

Which is followed by the following articles:

China deal sends Potash soaring

JOHN PARTRIDGE AND ANDY HOFFMAN

April 17, 2008

Desperate for fertilizer to increase crop yields amid a looming global food crisis, China agreed to pay more than three times as much for potash as it did last year, launching Potash Corp. of Saskatchewan to a record stock price and within spitting distance of becoming Canada's largest publicly traded company.

And this

Runaway prices fuel Chinese unrest

GEOFFREY YORK

From Thursday's Globe and Mail

April 17, 2008 at 3:42 AM EDT

BEIJING — Construction worker Chai Changyi, one of the vast army of migrants from Western China who provide the muscle for Beijing's building boom, is always searching for the cheapest place to buy his meals. Lately it's becoming harder and harder to find anywhere he can afford.

"I used to spend 400 to 500 yuan (about $57 to $71) on food every month, but now it is 700 to 800 yuan," he says.

"A beef dish used to cost 10 yuan, but now it is 18 yuan and we've had to stop ordering it. The restaurant owners say they have to increase prices because vegetables and meat are more expensive now."

In the temporary kitchens and dormitories of China's sprawling construction sites, the rising cost of food is a source of rising discontent. The workers hope for higher wages, or at least some government action to ease the crisis.

Perhaps the temporary lull in inflation is explained in this article; it explains the lack of food inflation but not of other commodities soaring:

Against the grain

Why the world's crisis in food inflation isn't being felt in Canada – yet

HEATHER SCOFFIELD AND MARINA STRAUSS

From Thursday's Globe and Mail

April 17, 2008 at 12:20 AM EDT

OTTAWA AND TORONTO — Amid a deepening global food crisis, the cost of food for Canadian consumers has done something unusual: gone down.

Households across the country are enjoying the benefits of food deflation. Food from grocery stores was 0.6 per cent cheaper in February than a year ago – a stark divergence from the United States, where food prices are rising at 4 per cent a year, and China, where they soared 21 per cent in the first quarter.

Canadian inflation numbers for March are to be published today, but the trend is not expected to disappear overnight.

Canada's stronger dollar is playing a role in keeping some food prices down for consumers, especially imported fruits and vegetables, analysts say.

But the surging loonie doesn't explain everything. A closer examination shows food commodity prices are actually rising in Canada – they're just not being passed on to consumers at the supermarket.

The Bank of Canada's commodity index shows food prices at the raw materials level have soared more than 50 per cent in the past year. The index is in U.S. dollars, but even after converting to Canada's currency, food commodity prices have risen 28 per cent.

Consumers are benefiting from trench warfare between grocery stores, said CIBC economist Avery Shenfeld, who has dissected the food chain to determine how consumer prices are declining while raw material prices are soaring.

So if food prices are being kept down in Canada due to fierce competition amongst grocers I think it is only reasonable to think the increases in food prices are coming and when they come they will be harsh. We're living on borrowed time.

What to do? Stock up on staples that have a shelf life. Go long on loans at the low interest rates available. Invest in things now that will save money in the long term like home energy efficiency. Invest in equities that will benefit from increased commodity prices. Be shy of investing in any stocks that rely on consumer spending. A storm is coming, best get ready for it. Usually the warning signs are not so obvious and there is not usually so much time to prepare.

Food Inflation, Riots Spark Worries for World Leaders

IMF, World Bank Push for Solutions; Turmoil in Haiti
By BOB DAVIS and DOUGLAS BELKIN

April 14, 2008; Page A1

WASHINGTON -- Finance ministers gathered this weekend to grapple with the global financial crisis also struggled with a problem that has plagued the world periodically since before the time of the Pharaohs: food shortages.

Surging commodity prices have pushed up global food prices 83% in the past three years, according to the World Bank -- putting huge stress on some of the world's poorest nations. Even as the ministers met, Haiti's Prime Minister Jacques Edouard Alexis was resigning after a week in which that tiny country's capital was racked by rioting over higher prices for staples like rice and beans.

More here

83% over the past three years? Not sure how the low single digit inflation values that are put out by government agencies jive with this.

IMF Approves Selling 400 Tons Of Gold

April 8, 2008 8:28 a.m. EST

Benjie Telleron - AHN News Writer

Washington (AHN) - The executive board of the International Monetary Fund has approved the sale of some 440.3 tons of its gold supplies in a wide-ranging financial overhaul and to replenish its depleting coffers.

Dominique Strauss-Kahn, IMF managing director, welcomed the board's move on Monday, the action seen as a buffer to the expected $400 million budget deficit the Washington-based lending institution could experience in the next few years.

The board is projecting to generate at least $11 billion from the sale of at least 12 percent of its gold reserve. The money to be generated from the sales would fund the reorganization of the IMF and finance lending to needing countries.

Strauss-Kahn said it will also shore up diverse investments to generate income.

However, the IMF still needs congressional approval and legislative action of the 184 member-nations of the IMF.

The IMF is facing the challenge of cutting costs and trimming its bureaucracy, after a downturn in lending as some countries refuse to borrow money due to IMF's strict conditions.

The lending firm has a projected budget deficit of at least $140 million for the fiscal year 2008 which will end on April 30.

However, the IMF said the sale of the gold will be carried out in several transactions over several years so as not to affect the international gold market.

Global price of gold reached an all-time high of over $1,000 an ounce.

http://www.allheadlinenews.com/articles/7010571641

The World Food Crisis

Published: April 10, 2008

Most Americans take food for granted. Even the poorest fifth of households in the United States spend only 16 percent of their budget on food. In many other countries, it is less of a given. Nigerian families spend 73 percent of their budgets to eat, Vietnamese 65 percent, Indonesians half. They are in trouble.

Last year, the food import bill of developing countries rose by 25 percent as food prices rose to levels not seen in a generation. Corn doubled in price over the last two years. Wheat reached its highest price in 28 years. The increases are already sparking unrest from Haiti to Egypt. Many countries have imposed price controls on food or taxes on agricultural exports.

Last week, the president of the World Bank, Robert Zoellick, warned that 33 nations are at risk of social unrest because of the rising prices of food. “For countries where food comprises from half to three-quarters of consumption, there is no margin for survival,” he said.

Whole article here

From the "What are the Odds" file......

Hmmm. What are the odds of having your house hit five times be meteorites?

I'm not sure about buying into the alien explanation; but if this is really true it certainly begs some real explanation!

Man 'targeted by aliens'

A Bosnian man whose home has been hit an incredible five times by meteorites believes he is being targeted by aliens.

Experts at Belgrade University have confirmed that all the rocks Radivoje Lajic has handed over were meteorites.

They are now investigating local magnetic fields to try and work out what makes the property so attractive to the heavenly bodies.

But Mr Lajic, who has had a steel girder reinforced roof put on the house he owns in the northern village of Gornja Lamovite, has an alternative explanation.

He said: "I am obviously being targeted by extraterrestrials. I don't know what I have done to annoy them but there is no other explanation that makes sense. The chance of being hit by a meteorite is so small that getting hit five times has to be deliberate."

The first meteorite fell on his house in November last year and since then a further four have smashed into his home. The strikes always happen when it is raining heavily, never when there are clear skies.

He said: "I did not know what the strange-looking stones were at first but I have since had them all confirmed as meteorites by experts at Belgrade University.

"I am being targeted by aliens. They are playing games with me. I don't know why they are doing this. When it rains I can't sleep for worrying about another strike."

Short-term supplies of natural gas

Good article. Note the growth of natural gas use in the US. Looks like prices going up?

http://www.theoildrum.com/node/3785#more

Here's a real hint that North American gas prices will be going up. Look at what Japan is paying to lock up LNG supply. Doesn't look like cheap LNG will knock our gas markets down. Doesn't this article simply play into todays theme of inflation postings??

Indonesian term LNG deal sets new Asian benchmark

By Annika Breidthardt

SINGAPORE, March 31 (Reuters) - Indonesia's deal to raise liquefied natural gas (LNG) prices to Japan sets a new benchmark for Asian term contracts and ups the heat on other gas deals currently under negotiation, analysts said on Monday.

Analysts said the agreed price based on crude oil levels -- around $16 a million British thermal unit -- was the highest they had seen for firmly guarded term LNG deals.

whole article is here

Concentrating Solar Power

Good Article and links therein:

http://anz.theoildrum.com/node/3791#more

Good Articles on Energy Return on Investment (EROI)

Part 1

http://www.theoildrum.com/node/3786

Part 2
http://www.theoildrum.com/node/3810#more

Oil Hits $115/bbl in Singapore

http://anz.theoildrum.com/node/3814

IMF: Financial Losses May Approach $1 Trillion

Read it below and weep:

http://calculatedrisk.blogspot.com/2008/04/imf-financial-losses-may-approach-1.html

The Import Slowdown: Los Angeles Area Ports

Great article; links to the rail car articles being parked and has some good links and graphs.

http://calculatedrisk.blogspot.com/2008/04/import-slowdown-los-angeles-area-ports.html

Railcars idle as economy falters

By SUSAN GALLAGHER - Associated Press- 04/04/08

CRAIG — BNSF Railway Co., the nation’s top hauler of container rail freight, is parking miles of railcars in Montana and elsewhere because there isn’t enough freight to keep them rolling.

Cars that often carry 40-foot containers of goods shipped from Asia stand like an iron fence between the Missouri River and this Montana burg known for world-class fly fishing. They stretch as far as Sandee Cardinal can see when she stands outside her home on the river’s west bank between Helena and Great Falls.

‘‘What is that but a symbol of how America is down in the dumps right now?’’ Cardinal asked as she gazed at the cars that haven’t moved for about three months.

The cars parked are the type that haul cargo from ships on the coast to points inland, mainly imported goods — an area that’s starting to slow down due to the weak economy. Analysts say transportation usually is among the first sectors to show signs of a downturn in the economy and with Americans feeling pinched — employers eliminated 63,000 jobs last month amid declining consumer confidence — it could be a while before the idle cars move.

‘‘If you take a look at transportation, both trucking and rail, you will see that things started softening last summer,’’ said Arnold Maltz, associate professor of supply-chain management at Arizona State University. ‘‘The reason you are seeing all those cars parked is that the consumer economy translates into slower imports.’’

Texas-based BNSF Railway, a division of Burlington Northern Santa Fe Corp., has parked upward of 1,000 cars in Montana alone, spokesman Gus Melonas said. More are parked in other parts of the company’s 32,000-mile system, which operates in 28 states and two Canadian provinces.

‘‘There’s been a downturn in international business and therefore this equipment is not necessary at this point,’’ Melonas said.

The cars standing between Helena and Great Falls constitute 5 percent of the BNSF fleet, Melonas said. He declined to say what percentage of the fleet is parked elsewhere, citing confidentiality issues.

Seasonal car storage is common, he said, but the number of cars now idle is exceptional.

Most of the parked cars are designed for intermodal transportation, when containers filled with imported goods are taken off vessels at U.S. ports and then transported by train, truck or both to distribution centers around the country.

For the first two months of 2008, the volume of intermodal rail freight in the United States was down 3.4 percent compared to the same period last year, according to the Association of American Railroads, an industry group based in Washington, D.C. Last year, intermodal traffic was flat as railroads began to feel the effects of slowing retail orders and the dollar’s decline.

While shipments of store-ready consumer goods such as clothing have dipped, movement of coal, grain and ore have risen, according to the association. The latter are less sensitive to swings in the economy and help balance out the bottom line.

Excluding intermodal traffic, rail freight rose 1.7 percent for the first two months of 2008 compared to the same period a year earlier. Coal was out in front last month with 576,012 carloads, or an increase of 5.7 percent.

‘‘The railroads have actually performed relatively well when you look at their entire portfolio,’’ said transportation analyst Todd Fowler of KeyBanc Capital Markets in Cleveland.

For 2007, BNSF Railway’s parent company, Burlington Northern Santa Fe Corp., reported about $15.4 billion in total freight revenues, compared to about $14.6 billion the previous year. That growth was carried largely by coal and agricultural segments.

The annual revenue generated from hauling domestic freight was down about 1 percent from 2006, while international traffic was up 2 percent. Meanwhile, coal and agricultural revenue each grew about 12 percent.

Union Pacific Railroad spokesman James Barnes said the Nebraska-based company’s intermodal business is ‘‘just a little down, but that’s not unusual for this time of year.’’ The company’s total commodity revenue was $15.5 billion in 2007, compared to about $14.9 billion in 2006. The agricultural segment posted an 8 percent increase over 2006.

Another major rail company, CSX Corp. in Florida, said its car storage is not out of the ordinary. The company’s total revenue from surface transportation was up 5 percent, from about $9.6 billion to $10 billion in 2007.

One of the nation’s leading trucking companies, Schneider National in Green Bay, Wis., says it believes a freight recession began about 20 months ago, well before signs of a downturn closed in on consumers.

‘‘We have been in a freight recession longer than people have been expressing deep concern about the economy,’’ said Bill Matheson, Schneider’s president for intermodal transportation.

Trucking companies are in a unique position. They often compete with railroads for long haul contracts, while also carrying rail freight from the nearest railhead to its final destination.

Schneider is not parking trucks, but neither is it buying new ones to the usual extent, Matheson said.

In Long Beach, Calif., home of the nation’s busiest port complex with Los Angeles, the movement of goods has been somewhat stagnant. About 7.3 million containers passed through the Port of Long Beach in 2007, the same as in 2006, port spokesman John Pope said.

‘‘That was a big decline from the growth we’d seen in the past decade or so,’’ Pope said. ‘‘Typically, there had been double-digit growth from year to year.’’

In January, Long Beach posted a decrease of about 12 percent in overall volume compared to January 2007. The situation was less extreme last month, with a 2 percent drop in overall volume compared to a year earlier.

While retailers have imported less goods to be hauled by rail or truck nationwide, exports leaving Long Beach rose as the weak dollar strengthened overseas purchases of U.S. goods, Pope said. Rising export volume — including grain and wheat shipped by rail — helped balance falling container imports for most of last year.

‘‘It’s a barometer of the economy,’’ Pope said. ‘‘We’re going to see the ebb and flow that mirrors what happens in the rest of the nation.’’

Haiti Food Inflation Riots

The real consequences of massive inflation are only starting. Here is one example of many that are happening.

Protests over food prices paralyze Haitian capital

Tue Apr 8, 2008 5:39pm EDT

By Joseph Guyler Delva

PORT-AU-PRINCE (Reuters) - Haitians erected fiery barricades and tried to storm the National Palace on Tuesday as protests against rising food prices, which have killed five people, paralyzed the impoverished nation's capital.

whole article here

Batten Down the Hatches

I chuckled when the author is talking about inflation at two percent and maybe going higher. Of course it is going higher and probably already much higher than 2%.

Batten down the hatches: this is the big one

The Bank has to change its low inflation mentality to address economic reality

* Ashley Seager, economics correspondent
* The Guardian,
* Monday April 7 2008

This article appeared in the Guardian on Monday April 07 2008 on p26 of the Financial section. It was last updated at 08:58 on April 07 2008.

"Whole cities of pain. A continent of pain," said the great, if eccentric, Wall Street money dealer Jim Cramer recently. He was talking about the economic pain spreading across the United States, of course.

Until recently, the pain of the US housing market had not spread to our own fair land. Much of the economic data here has been, if anything, surprisingly healthy. But such figures are generally backward-looking and often look fine until suddenly they don't.

Last week we saw a dramatic escalation in pain levels as one mortgage lender after another either withdrew home loans or raised the interest rates. The chart shows the growing divergence between the Bank of England's official rate and interbank Libor rates that explains this.

This is the most concrete evidence to date that the esoteric "credit crunch" has moved out of the so-called "interbank money markets" and into the consciousness and pockets of the British people.

The Co-op Bank and First Direct said they had to shut their doors to new business because house buyers were deluging them with requests for favourable mortgage terms. Many who bought a two-bed flat in a city centre anywhere in Britain are now finding they can't afford the mortgage repayments and the value of the property is dropping fast.

Perhaps Cramer should take a trip across the Atlantic to see more cities groaning under the pain.

Britons are also carrying record levels of debt. Figures last week showed a surprise jump in unsecured lending in February, mostly overdrafts.

A sign of continued consumer confidence, you might say. But it looks more as if consumers faced with greater difficulty in raising mortgage finance have simply let their overdrafts take the strain: it is a sure sign of consumers under stress.

That makes sense when survey after survey has been showing consumer confidence is very weak and people's intentions of making a major purchase are vanishing. No wonder private car sales are dropping. Ernst & Young, the consultants, have warned that dealerships face a year of struggle.

The Bank of England's credit conditions survey last week showed banks expect lending conditions to get worse, signalling more trouble ahead.

The economy has sailed resiliently through many shocks over the past 15 years, from the Asian crisis in the late-1990s to the dotcom bust of the early noughties. But it has not been hit by anything like this credit calamity for a very long time, if ever. This is the big one.

The idea that we can escape the impact of what is happening in America is just wishful thinking. There was some optimism in financial markets last week that the worst of the credit crunch might be over. These are the same markets that failed to predict the credit crunch and are the root cause of this misery, so their opinion, frankly, is not worth much.

Housing bubble

The reality is that the economy has been pumped up and up in the past decade by the cheap and easy availability of credit. Now it is neither cheap nor plentiful and the fallout is hurting.

For one thing the housing market bubble - in a way we knew all along it was a bubble - has been pricked and is starting to deflate rapidly.

House prices are not going to drift quietly sideways over the next few years while average earnings catch up. They are going to fall sharply. I would be surprised if they don't fall by a quarter or more over the next two years.

It is not just about the supply of credit, it is about mentality - the fear and greed syndrome. Who would buy a property, even if they could get a mortgage, if they thought they could wait another year and pay, say, 10% less?

Estate agents report they have stacks of properties for sale but simply can't shift them. So supply is plentiful and demand has dried up. In most markets, that means prices fall. Why should the housing market be different?

Already, the construction sector has nose-dived, as witnessed by two surveys of the sector that came out last week. The much bigger services sector, too, looks as if it is running into trouble, according to a survey by the Chartered Institute of Purchasing and Supply last week.

The service sector is about two-thirds of the economy and has looked robust until now. Financial services employment has fallen sharply. The data is turning down.

All of which brings us to the policy response. What can the Bank of England do about interest rates? The growing risks to growth would normally call for sharp cuts in interest rates, following the Federal Reserve in the United States. The Fed has cut from 5.25% last autumn to just 2.25% now.

The Bank of England has been much more cautious, cutting from 5.75% to 5.25%. Part of the reason is that, until now at least, the British economy had held up well. But the other key element, as the Bank's executive director, Paul Tucker, said last week, is that the monetary policy committee is not prepared to let the "inflationary genie" out of the bottle.

He hinted that slow, gradual rate cuts were in the committee's mind rather than Fed-style emergency cuts.

Inflation

Inflation has been pushed up to 2.5% - above its 2% target - by rising food and energy prices and is likely to rise quite a bit further.

Tucker acknowledged that a sharp slowdown in the economy would also put the brakes on inflation but it was not clear by how much.

But these are strange times for the MPC. In the face of such a shock to the economy as this credit crunch, it has to be wondered whether any of its forecasting models are of any use.

Models often use past performance to predict what might happen. But the past 15 years have been so stable for British growth and inflation that most models are likely to forecast that it will simply carry on. That is very unlikely, which means in turn that interest rates could be left too high for too long, just as happened in the US.

The rate cuts implemented by the Bank of England have probably already been cancelled out by the rising market interest rates that have pushed mortgage costs up. So interest rates are likely to be slowing the economy down, rather than boosting it.

The MPC is also conscious that for years, inflation was steady around the 2% target as high domestic inflation was offset by very low foreign inflation thanks to the strong pound and cheap Chinese imports. But now, rising world food and energy prices, combined with a falling pound, mean imported inflation has risen.

The implication of that is that domestic inflation will have to be much lower in the coming years than in the past decade. In turn, that means the economy will have to be run more slowly to keep domestic inflation in check. That's why Tucker said last week that the MPC wanted to see some slack develop in the economy.

But the risk is that the economy might slow much more sharply than the MPC is expecting, possibly even follow the US into a recession.

In the face of such downside risks, which look to be much bigger than the upside risks to inflation, rates need to be cut, and fast, starting this week. There may not be much time. The pain is real, it is time to get the aspirin out.

Serious Inflation in the Works #2

Coking coal up 200%, rice up 100%, oil up a mere 50% in the last year......

Serious inflation in real good is happening before our eyes. All this inflation, yet the prime interest rate in the US is in low single digits. This may mean that the real interest rate is actually negative.

Price of rice set to soar

Shortages in exporting countries push up the wholesale cost, force local supermarkets to raise theirs

Joanne Lee-Young, Vancouver Sun; with files from Reuters

Published: Thursday, April 03, 2008

Food-price inflation is about to hit one of the main staples for local shoppers at Asian supermarkets: rice.

At T&T Supermarket, executives have been watching wholesale prices rise more than 100 per cent during the past year.

"Prices have basically more than doubled," said Herman Poon, T&T's marketing manager. "If we take a specific example, like rice from Thailand [the world's biggest exporter], there is still a lot of upward movement. It has gone up 30 per cent in the last month."

At Jia Jia, an Asian market in Richmond, owner Raymond Lin said that starting next week, he will raise retail prices by 20 per cent.

With rumours swirling day to day as to when exactly this might happen, some customers are already picking up some extra 10- and 20-pound bags of rice, said Lin.

"Instead of one bag, they are picking up two or three."

T&T has managed so far to shield its customers from large price hikes, Poon said, because with eight stores across Metro Vancouver it has a "bigger buffer" than other retailers in the form of larger inventory stocks.

"But this is going to change real soon," Poon said. "We are just hanging in there for the next 30 days" in terms of price changes that would impact consumers.

Sean Hwang, the manager of H-Mart, a Korean supermarket with three stores in Metro Vancouver, said he is struggling with the idea that he might have to do what other retailers are already doing. As much as possible, he would like to avoid raising rice prices.

"[Rice] is a very sensitive item. For Koreans, it is a main food. We usually don't make money on it [anyway], so it is very hard for us to change the price."

Most countries that export rice face supply shortages, the Food and Agriculture Organization said Wednesday.

And those nations are curbing overseas sales to contain food prices at home, the Rome-based United Nations organization said in an e-mailed report, adding that China, India, Egypt, Vietnam and Cambodia have imposed curbs on shipments, including minimum export prices and quotas.

"The international rice market is currently facing a particularly difficult situation with demand outstripping supply and substantial price increases," said Concepcion Calpe, a senior economist at the FAO.

On Monday, India imposed a ban on non-basmati rice exports to ensure the country had enough rice to feed its more than one billion people.

And Indonesia, the world's third-largest rice producer, may also curb exports as declining inventories threaten to spark unrest around Asia.

Indonesia's rice production may exceed domestic consumption by about two million tonnes this year, insufficient to allow for exports, Agriculture Minister Anton Apriyantono said Wednesday. The United Nations warned in February that 36 countries, including China, face food emergencies this year.

Rising populations and higher incomes across Asia are leading to increased consumption of rice. Global production will rise to a record of about 423 million tonnes, and consumption is expected to increase to nearly the same amount, according to the U.S. Department of Agriculture.

Higher fuel prices and hoarding by suppliers anticipating higher prices are also being blamed for inflation in rice prices.

Serious Inflation in the Works

This is a sign that serious inflation is going through the world economy. 200% - carumba!

Record coal contract has producers salivating

South Korean steel maker agrees to pay three times as much as it did last year, setting 'astronomical' new benchmark

ANDY HOFFMAN

MINING REPORTER

April 8, 2008

Coal producers are rejoicing after a South Korean steel maker agreed to an unprecedented 200-per-cent increase in the price it will pay for coking coal, setting a benchmark for other yearly contract negotiations between miners and steel makers.

However, the record contract will likely add to inflationary pressures, as the price increase is expected to boost the cost of producing everything from automobiles to building materials.

Posco, Asia's third-largest steel maker, said it will pay Australian coal producers more than triple what it did last year or as much as $305 (U.S.) a tonne for coking coal, a key component in making steel.

"What appears to be coming to fruition in coal contracts are numbers that we've never seen. These are astronomical numbers in [metallurgical] coal," John Hughes, an analyst at Desjardins Securities, said in an interview.

Coal producers annually negotiate contract prices with steel makers for the coal year, which begins April 1. The Posco contract marks the first major met coal contract signed for the 2008 coal year and is likely to set a precedent for other negotiations.

The seaborne met coal market, which annually supplies roughly 180 million tonnes of coal to steel makers, has been sideswiped by an extraordinary string of disruptions over the last few months that has constricted the coal supply amid strong demand for steel.

Extraordinary rains caused flooding at coal mining operations in Australia and is believed to have reduced production by as much as 15 million tonnes.

In China, where a booming economy has driven higher demand for steel, the worst snowstorms in 50 years hindered production. Attempts by coal producers to increase supply in response to the anticipated higher prices have been constrained by logistics including a lack of rail and port capacity.

"You could say that $305 a tonne for met coal is almost panic-buying levels. Which means somebody is desperate enough to want to keep their blast furnaces running and will pay that price for the coal," said Tony Robson an analyst at BMO Nesbitt Burns.

Shares of Canadian coking coal producers, including Fording Canadian Coal Trust, Teck Cominco Ltd., and Western Canadian Coal Corp. gained in anticipation that they will win similar increases.

Fording units surged to a record, rising as much as 11 per cent before settling back for a 6-per-cent rise.

Company spokesman Colin Petryk said Fording will negotiate "accordingly" in its talks with steel makers, which are continuing.

"It's definitely showing us where the price is going. That's good news for Fording," he said.

The Calgary company, which supplies coal to Posco, among others, and hopes to produce roughly 23 million tonnes of coal this year, has seen its unit price increase more 60 per cent so far this year, pushing its market value above $9-billion (Canadian).

Fording, which owns 60 per cent of the Elk Valley Coal Partnership, put itself up for sale in December. Teck, which already owns about 20 per cent of Fording and has a 40-per-cent stake in the Elk Valley operations, giving it a 52-per-cent interest in the overall partnership, has been widely seen as the most logical buyer.

However, Fording's price tag has risen so much that Teck may not be willing to bid.

"I think the message from Teck Cominco has been that they don't want to overpay for Fording. And the higher that the unit [price] goes, the more difficult it is, if you want to buy Fording, to substantiate you are not overpaying," Mr. Hughes said.

Yet the Posco contract likely means steel customers and consumers will have little choice but to pay more.

Global steel prices hit a record last month. Posco recently said it was planning another steel price increase after raising prices by 11 per cent in February.