Last week’s introductory comment about a possibly evolving food crisis caused an investment bank’s research note on the situation in India to land in my email inbox. Its bottom line is that by early August, halfway through the monsoon season, it appeared that, unless rainfall improved significantly in the weeks ahead, there could be a drop in agricultural output that would cut its GDP growth during the current year by 1-2% from the forecast 7% (rice plantings, for instance, have been lower than last year’s in each & every week of the current planting season, with the cumulative effect being that the number of acres planted to rice was 25% lower than a year earlier). Meanwhile India each year has 15-20MM new mouths to feed, twice as many as China.  

In Argentina, one of the Southern Hemisphere’s two major grain exporters the ‘worst drought in 50 years’ has resulted in brown pastures & cattle dying, and wheat not growing, to the point where this perennial beef exporter, home to the world’s most beef-loving people, may have to  import beef next year. And the USDA’s forecast for the second largest corn crop on record this year could be thrown into a cocked hat if there were an early frost; for across much of the US Corn Belt adverse conditions during the planting season have caused crops to be two, or more, weeks later than usual (& a early frost would depress both the crop’s quantity & quality). 

Canada’s Finance Minister was in China last week at the head of a high-powered delegation to drum up more business for Canada. While there, he encouraged the Chinese to invest more in Canada’s oil & gas industry in disregard of Chinese complaints that the American-dominated Calgary oil patch has made it abundantly clear to them that they are about as welcome there as a skunk at a garden party (for while Canada’s national interest would be served if Canadian oil & gas were to flow freely into global markets, the US oil companies’ corporate-, & the US’ homeland security-, priority is for it to keep flowing to markets across the border). 

What we seem to be witnessing in the US health care debate is that the same middle class right wingers that rail against undue greed in the financial sector are doing anything they can to keep the less fortunate of gaining access to the kind of health care they themselves enjoy. 

Six police officers in Chattanooga, Tenn. pumped a total of 59 rounds into a man they said was threatening them with a rifle, with some of them actually having had to take the time to reload their weapons. And yet the official line is that this was not an undue display of force. 

FEW EXPECT A BOOM AFTER THIS BUST (WP, Neil Irwin) 

∙ Typically deep recessions are followed by robust recoveries. But it may not be so this time.  For the damage to the financial system may affect consumers & businesses for years to come, American families are saving more & borrowing less & the government’s stimulus efforts may need to wind down before the economy can return to a solid footing.

∙ Recessions most commonly occur when business overinvests, causing interest rates to be raised, & growth typically resumes when business inventory- & staffing levels are corrected & interest rates are cut. But those caused by financial crises play out differently. According to Carmen M. Reinhart & Ken Rogoff in fourteen financial crisis-prompted recessions around the world unemployment rose by an average 7% (vs. 4.7% in the US to date) & lasted an average 4.8 years (while this one is only at the two-year mark, and not even that). 

And this doesn’t factor in the possible impact of a ‘run on the dollar’.

BUFFETT, PIMCO WARN OF GREENBACK’S DECLINE (G&M, Boyd Erman) 

∙ For years Washington has claimed a “strong dollar” to be a national priority even as it slumped & deficits grew. Now the above have joined the growing numbers of those concerned the US$ is headed for a slide unless policy makers rein in government spending. Mr. Buffett warns spending & the borrowing needed to fund it may result in inflation & “will certainly cause the (international) purchasing power of the dollar to melt. The dollar’s destiny lies with Congress.” And PIMCO says in a market commentary made public on August 19^th that the US dollar’s reserve currency role is losing credibility. 

The significance of this is that Buffett & Pimco daily put their money where their mouth is while the doomsayers to date have mostly been tenured university professors & ‘talking heads” who get paid no matter what. 

CONSUMER SENTIMENT FALLS (Bloomberg, Courtney Schlisserman) 

∙ The University of Michigan Preliminary Index of Consumer Sentiment unexpectedly declined to 63.2 this month, from 66 in July, while the market consensus had expected a rise to 69 (with individual estimates ranging from 64 to 75). One economist believes that “If consumers are lacking confidence, then they will not be able to help us spend our way out of this long, dark recession ... Households are still concerned about the jobs outlook” while another argues that consumption as a share of GDP must decline to 65%, or less, from the 70+% of recent years, for the economy to get back on a solid footing. 

Meanwhile, the Conference Board’s Employment Trends Index in July equaled June’s 88.3 (after declining for 16 months in a row), suggesting the worst in layoffs may be over (although it does not necessarily follow that the economy will now resume serious growth). 

RECORD NUMBER OF AMERICANS IN MORTGAGE WOES (AP) 

∙ The Mortgage Bankers Association reported on August 20^th that, as more people lose their jobs, 4+% of American homeowners with a mortgage are in foreclosure & another 9% at least one payment behind (California, Nevada, Arizona & Florida account for 44% of the new foreclosures in the country, with Florida alone for over one quarter thereof). 

According to Moody’sEconomy.com 1.8MM homeowners will lose their homes this year, 30% more than in 2008. And the problem seems to be shifting from sub-prime borrowers to those with traditional fixed-rate mortgages (who once had better, employment-based credit records). 

HOUSING CONSTRUCTION SLIPPED IN JULY (AP) 

∙ It fell in July to an annual rate of 581,000, down from June’s 587,000 & the 600,000 unit consensus forecast, all of it due to a slowdown in the construction of new apartments. 

More importantly, applications for building permits fell 1.8% to 560,000, vs. a 580,000 forecast. On the other hand, Home Builders’ Confidence Index rose in August to its highest level in over a year (as first-time home buyers rushed in to take advantage of a federal tax credit before it expires in November). Its reading of 18 was made up of an unchanged 16 for current sales conditions, a three point higher 18 for traffic by prospective buyers & a sub-index for expected sales over the next four months that, at 30, jumped four points (although, to keep it all in perspective, the ‘tipping point’ between pessimism & optimism is 50).

INDUSTRIAL PRODUCTION RISES MORE THAN EXPECTED (AP) 

∙ The output of US factories, mines & utilities rose by 0.5% in July (vs. a 0.3% consensus forecast), only the second MoM rise in 19 months. Factory output (up 0.2%) benefitted from 20.1% higher motor vehicle output as several GM & Chrysler plants that were closed in May & June came back on stream & from the success of the ‘Cash for Clunkers’ program. Mining output was up 0.8% & that of utilities down 2.4%. 

While the inventory rundown may have run its course, the Industrial Production Index for July was 96.0, down 14% YoY, & the capital utilization rate only 68.5%, well below its customary 80+% level. 

WASHINGTON TO WIND DOWN CLUNKERS PROGRAM (G&M, Ken Thomas) 

∙ The Administration may announce as early as August 21^st when the Cash for Clunkers program will end. For as of August 19^th dealers had ‘burned through’ US$1.81BN & the entire US$3BN earmarked for the program is expected to be gone by early September. 

Dealers have been pushing for such a move since they are worried that if they keep on making deals on the assumption the program is still in effect after the money runs out, they will get stuck with the bill. 

NBC POLL : DOUBTS OVER OBAMA’S HEALTH PLAN (NBC News) 

∙ Like a month ago, the NBC’s latest poll shows a plurality of Americans believe Obama’s health plan will worsen the quality of health care & only four in ten approve of his handling of the issue. And 54% worry it will go too far in reforming the health care system & 41% that it won’t do enough to lower costs & cover the uninsured, and just 36% that his efforts are a good idea & only 24% that it will result in better healthcare.

∙ Majorities believe it will give coverage to illegal immigrants, lead to a government takeover of healthcare & pay for abortions, none of which are anywhere in the legislative proposals that have so far emerged from Congress. And almost half believe incorrectly that it envisages government deciding when to stop providing medical care for the elderly. On the other hand, the poll was not good news for the Republicans either since just 21% approved, & 62% disapproved, of their handling of the healthcare issue. 

Obama may soon have to fish or cut bait, continue to strive for a bipartisan bill or shift to ‘ramming’ one through with only Democratic support (in which case the outcome may not be as much as a foregone conclusion as many people believe; for while he notionally has the 60 Senators needed to forestall a filibuster, their number includes two, one of them being Ted Kennedy unable to participate in a vote, while in the House the seemingly comfortable Democratic majority includes a significant number of Congessmen who could not be relied on to vote for significant health care reform). And while the White House & Administration officials are sending out mixed signals, the unilateral approach is becoming more likely by the day. So far, four Congressional committees, three from the House & one from the Senate, have come forward with plans that incorporated a total of 183 Republican amendments between them, without generating any more Republican support. It‘s things like this that prompted White House Chief of Staff, Rahm Emanuel, to observe that “The Republican leadership has made a strategic decision that defeating President Obama’s health care proposal is more important for their political goals than solving the health insurance problems that Americans face every day.” And Obama himself is well aware of how critical the passage of a health care bill now is to his effectiveness as President during the 39 months remaining until the 2012 Presidential election.  

‘EXPLODING’ DEFICIT PLAYS INTO HEALTH REFORM (WP, Lori Montgomery) 

∙ Key Republicans & growing numbers of Democrats say it will be hard to push an ambitious health reform bill through Congress unless it can be shown to reduce projected federal spending on medical care. A majority of Americans are said to believe that President Obama should abandon his healthcare reform plans if they “significantly” add to the deficit. And Sen. Mark Warner (D.-Va), one of nine freshman Democrats who last month urged Senate leaders to pay more attention to controlling federal health spending in an era of “exploding debt and deficits”, says “It’s not good enough that it’s just paid for; it actually has to start driving long-term costs down.” 

While almost 50MM Americans are without healthcare coverage, they account for less than 20% of the population & many of the other 80% are thinking in personal rather than societal terms. 

THE MASSACHUSETTS MODEL (NYT, Editorial) 

∙ It’s experiment in universal healthcare is a favourite whipping boy for opponents of health care reform. But their claim it is a fiscal disaster is a misrepresentation; for it has shown that it is possible to insure almost all citizens (97% of its residents now have health insurance) & yet stay within planned budgets (although this has taken great creativity & political will). And the Massachusetts Taxpayers Foundation, a non-partisan research group, recently concluded that the cost of achieving near universal coverage “has been relatively modest and well within early projections of how much the state would have to spend to implement reform.” Nevertheless, its legislators have yet to figure out how to slow the relentless rise in medical costs & private insurance premiums. 

For Senators & Congressmen creativity & political will is an oxymoron (except when their self-interest is at stake). 

OIL SANDS CAUSING ACID RAIN IN SASKATCHEWAN (CP, Bob Weber) 

∙ Alberta’s oil sands, located just West of the Alberta-Saskatchewan border, emit 150,000+ tonnes of acid rain-causing gases each year & studies suggest that 70% thereof drifts on the prevailing Northwestern winds into Saskatchewan. Rain water samples taken in the La Loche area on the Saskatchewan side of the border East of Ft. McMurray showed pH levels of 4.93, 3x the acidity of clean rain. But Alberta Environment maintains the acidity of both rain & soil is within acceptable limits (despite the fact that soil pH in the oil sands region is in the 4.0 range, i.e. barely above the 3.7-4.0 range at which vegetation starts to be affected).  

A pH of 5.0 in lake water starts affecting the reproductive ability of fish & hence the survivability of fish-eating birds. And despite (or because of?) Alberta’s Environment Minister having been briefed by his officials that the acidity of rain falling in the oil sands region is similar to that falling downwind in Saskatchewan, his government has cut funding for tests to determine the acidity of the rain falling there (although its spokesman maintained it “hasn’t been cut, only rescheduled.”)  

FRASER RIVER’S SALMON STOCKS ‘BEYOND A CRISIS’ (G&M, Mark Hume) 

∙ In 2005 9MM sockeye salmon spawned in the Fraser River. As a result, in 2007 100+MM two year-old ‘smolts’ migrated to the ocean. This was expected to result  in 13MM adult fish returning this year to the river to spawn. But only 1.7MM have done so & the finger is being pointed at the numerous salmon farms the smolts must pass on their way to the open ocean that infect them with sea lice that lower their survivability. 

Sockeye are the most valuable of the salmon species that return to the river of their birth to spawn.  

OBAMA HOPES EGYPT RETURNS TO FOLD (AP) 

∙ President Mubarrak has ruled Egypt for 28 years (ever since Sadat’s assassination by one of his own troops) & was a frequent visitor to Washington during the Clinton years. But he had a serious falling out with Bush over his invasion of Iraq & his criticism of Egypt’s democratic & human rights’ track record. Now Obama expects him to become his ace-in-the-hole in his efforts to normalize relations between Israel & the Arabs. 

Now 81 years old, he is grooming his son to succeed him. But this is not a sure thing, especially since the country suffers from a population explosion, widespread poverty, high unemployment & Muslim extremism. So Obama may be leaning on a slender reed indeed. 

ISRAEL BOWS TO U.S. PRESSURE, SUSPENDS WEST BANK SETTLEMENT

(DT, Dina Kraft) 

∙ Ariel Attias, the housing minister, said that the decision last March not to issue any more new building permits was part of a “waiting period” rather than a “freeze”. 

Following his recent meeting with Hosni Mubarrak President Obama said he viewed this as “movement in the right direction.” But one must wonder why, if this decision was taken five months ago, it took so long to surface (to stall off the predictable anger among Israel’s right-wingers?) And in the short run there is a world of difference between not issuing any more building permits & freezing construction.

 

BAGHDAD CARNAGE RAISES QUESTIONS OVER U.S. WITHDRAWAL (WP) 

∙ The coordinated powerful blasts in the early morning hours of August 19^th that killed over 100 people & injured over 500 demonstrated the continued strength of Sunni extremism in the country. After the June 30^th withdrawal of US troops from Iraq’s major cities the government of Prime Minister Nouri al-Maliki severely curtailed their mobility in the country & his security forces started removing blast walls along major routes on the grounds the capital was now safe, moves criticized by US officials as dangerously overconfident & impulsive, and prompting one military adviser to declare that “The Iraqi government got ahead of itself. It is declaring the war over when it is far from over.”  

This has been a big concern all along; i.e. that this would be a matter of “apres nous, le deluge”, with a US withdrawal leading to civil war. 

REFORMERS DEMAND PROBE OF KHAMENI (AP) 

∙ Amidst growing controversy about allegations that protesters arrested during the post-election crackdown were tortured, a group of reformers on August 14^th appealed to Ayatollah Akbar Hashemi Rafsanjani, the still influential former president known to be in the reformist camp who heads the Council of Experts, that has the constitutional right to remove the Supreme Leader, to investigate Ayatollah Ali Khameni’s qualification to remain in office. While little more than a symbolic gesture, especially since no one actually signed the appeal, this illustrates the extent to which events since the June 12^th election have undermined his position. 

The hardline cleric Ayatollah Ahmad Khatami, rejected such allegations of torture, as “a total slander of the Islamic system”. And Ahmadinejad may be in for a rough ride when he submits his Cabinet (which for the first time ever includes three women) to Parliament for approval  since he not only will face opposition from the reformers but also has angered many conservatives who make up a majority of those in Parliament. 

PARENTS CLASH WITH POLICE OVER LEAD POISONING OF CHILDREN

(G&M, C. Bodeen) 

∙ Last week it became public knowledge that 651 out of 731 children in two villages near a smelter in Northern China’s Shaanxi province had tested positive for lead poisoning & that air quality tests had found unusually high lead levels although officials say ground- & surface water, soil- and company waste discharge meet national standards. This week residents rioted near the smelter, another sign of growing anger among the hoi polloi across the country at the industrial pollution from the country’s breakneck pace of economic development without regard for the environmental consequences.  

In a one-child society with a strong tradition of the older generation relying on their offspring for security in their old age, & no ‘social safety net worth mentioning, the welfare of their child is uppermost in people’s mind.  And Beijing has been better at ‘talking the talk than walking the walk’ about the need to close down polluting industries. And even when it is serious, it’s easy to circumvent its intention by bribing local officials to look the other way. 

JAPAN’S GDP RISES AT 3.7PERCENT PACE (AP) 

∙ The Second Quarter rebound came after four consecutive quarters of declines as consumer spending inched up & exports of cars & electronic consumer goods surged. 

And that increase in export demand is coming from ........................................China! 

AUSTRALIAN SENATE REJECTS CARBON PLAN (Reuters) 

∙ Conservative, green & independent members of the Upper House banded together on August 13^th to reject Prime Minister Kevin Rudd’s plan to cut emissions by 2020 by 5-25%  from their 2000 levels (with the exact level depending on the outcome of the Kyoto follow-up negotiations in Copenhagen next December). With Rudd well ahead in the polls, most Australians favouring action on global warming & an election due in a year, the opposition is accusing him of sacrificing environmental concerns to a desire to trigger an early election so as to avoid having to deliver a tough budget next May before the election.  

With cap-and-trade a key part of the plan, they may well have been right for the wrong reason.