U.S. still in a recession that may last until 2010

Well, some of what I've been watching (see earlier post in this thread re livestock producers and future food prices) is starting to play out.

This week, the USDA released a report that forecasts grocery-store and restaurant prices to increase 2.5% to 3.5% this year.

"Retail food price inflation in 2010 will rebound from the 2009 level toward a moderate level, slightly above the long-term historical average," the USDA said. “At supermarkets, meat, poultry, and fish prices are forecast to be higher this year, up 1.5% to 2.5%, compared to a 0.5% gain in 2009.”

While Ryan Krueger, founder and portfolio manager with Houston money management firm Curbstone Partners, who has a keen focus on the agriculture sector, says they’re not “riot-causing levels”, he's “never seen inventories this tight” and expects wholesale prices to continue to rise.

"While food retailers continue to experience food retail price deflation, if the Food CPI stays at current levels, it will be inflationary by July 2010.”

Krueger points to major pork and beef producers Smithfield Foods (SFD) and Tyson Foods (TSN) as two examples of companies having a tough time in the current economy, cutting production to shore up their balance sheets as consumers spend less and less.

“They’re having an awful time,” he says. “With US demand this slow, entire herds are being liquidated because they’ve become unaffordable. Their costs are not going down, and while sales aren’t necessarily plunging, per se, they are certainly sluggish, to say the least.”

Krueger explains that food shortages and subsequent price increases are due to global circumstances -- not just a weak US economy.

Agriculture consumes 70% of the world’s water supply; many developing nations use 90% of available fresh water for agriculture.

Krueger says these factors contribute to a very tight market for food worldwide
Click to expand...

http://www.minyanville.com/articles...ation-growth-demand-/index/a/26593/from/yahoo
 
Show-me said:
Yep, we tried to tell them that government intervention historically is proven to drag out the recovery. They did not listen again. VOTE THE INCUMBENTS OUT!



What a great graft for the lenders. They modify the loans and get a fee from the taxpayers. The lender gets some more reduced mortgage payments before getting the entire house.

And people are STUPID, they wiped out their 401k's and savings accounts to stay in a house they could not afford in the first place. They got suckered into another gov. sponsored program like cash for clunckers.

You just can not fix stupid.
Click to expand...

A big +1 on that Show-me
 
Yep, we tried to tell them that government intervention historically is proven to drag out the recovery. They did not listen again. VOTE THE INCUMBENTS OUT!

But nearly 40 percent of homeowners who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
Click to expand...

What a great graft for the lenders. They modify the loans and get a fee from the taxpayers. The lender gets some more reduced mortgage payments before getting the entire house.

And people are STUPID, they wiped out their 401k's and savings accounts to stay in a house they could not afford in the first place. They got suckered into another gov. sponsored program like cash for clunckers.

You just can not fix stupid.
 
alevin,

Thanks for the article and validation. My wife and I have caught the occasional article/interview on this subject, but nothing as in-depth as this. We have already increased the size of our pantry, and have even considered buying some of those freeze dried food supplies. We saw a good deal on that type of stuff not to long ago. I need to track down the link.

The other thing folks are not paying attention to is our supply of potable drinking water.

Of course, I'm a survivalist at heart. Lady would say I'd need to get my tin foil hat on. I probably wear it too much anyway.:nuts: I just don't know, when enough prep is enough or whether it's all worth it. Maybe we're both going off the deep end. :D

But I am interested in following these below the radar problems, that could bite us in the butt before we know it.
 
http://www.marketskeptics.com/2009/12/2010-food-crisis-for-dummies.html

Here's something to be paying attention to, guys. The past year, I've been watching talk about dairies go out of business due to the extreme low profit margins, chicken producers dumping breeding stock due to not being able to afford feed, same with ranchers (lag effect of high oil prices last year-which spun into fertilizer prices). Once the "inventory" is gone, where do you think prices will go? I'm still planning on getting my own 2-3 chickens and coop going 2010 or 11 year, still expanding the home garden this coming year. Undecided about community-supported agriculture (CSA) participation, my partners on that effort last year decided the 1-year experiment didn't pay out for them value-wise, they'd rather just buy what they want at Farmers Market every week this coming year. CSA is expensive, but then organic produce always is, bought at store or purchased ahead of production either way.

CSA at least we'd be guaranteed food deliveries every week since already purchased-essentially paying upfront provides the cash flow for the farmer to buy seed to plant and grow for later delivery-pulling demand forward? So I'm still debating what to do, not sure if I can round up any new partners on the CSA thing for the coming year or not. Or if I really want to, but if the farmers go bust or sell to the rest of the world because we can't buy too broke, then rest of us go bust. Hmm. could get ugly. Kinda like the 30s when herds and crops were destroyed to support farm wholesale prices.
 
All it takes is a change of mindset and we will no longer call this a 'recession'.

This 'recession' cannot be resolved via Keynesian economics. That only works if the government has a surplus, a low debt ratio, or entities willing to invest in it. In the 30's we had all three going for us!!! Now, not so much. But, the bloated western gubmints are the last entities trying to play by the Keynes model - and some of them are starting to hedge.

Watching the 'G Fund' and 'F Fund' :worried:
 
The Present Contains All Possible Futures
We are left with no good choices, only bad ones. We have created a situation that is going to cause a lot of pain. It is not a question of pain or no pain, it is just when and how we decide (or are forced) to take it. There are no easy paths, but some bad choices are less bad than others. I am going to summarize them, and maybe we can look for some signposts that will tell us which path we're headed down.

Argentinian Disease
Hyperinflation is not an economic event; it is a political choice. I think the chances of hyperinflation in the US are quite low. It would be the worst of all possible bad choices.

The Austrian Solution
In their model, government spending is slashed to the bone, as are (in most cases) taxes. The advantage is that, in theory, you get all your pain at once and then can begin to recover from what would be a very bad and deep recession. The bad news is that you risk getting 30% unemployment and another depression that could take a very long time to climb out of.

In Congress, only Ron Paul is its advocate. Most Austrian followers are Libertarian by nature, and that is just not a political reality for the coming decade.

The Eastern European Solution
after the fall of the Berlin Wall, the nations of Eastern Europe started with very weak economies and simply overhauled their entire governments and economies in a rather short period of time, though not in lockstep with one another. Privatization, lowered taxes, etc. were the order of the day.

In many cases they simply started from scratch and built new systems. They had general agreement that things did not work the way they had been, so there was more room for change. Today in the US there are large constituencies that resist change. there is not much chance of major change. We can't even get the obvious changes needed in the financial regulatory world.

Japanese Disease
government stimulus and deficits have no long-run positive effect on GDP. if you increase government spending it will have a positive effect in the short run on GDP, but not in the long run. In essence, the increase in "G" must be made up by savings from consumers and businesses and foreigners.

[If consumers are 70% of our economy and credit cards and mortgages are still going bust or about to, and small businesses are going bankrupt right and left....where are the savings going to come from? The 80% who still have some semblance of a job and who are not in debt up to their eyeballs and about to default? How many is that?]

Government spending may be necessary but it is not especially productive. You increase productivity when private businesses invest and create jobs and products. But if government soaks up the investment capital, there is less for private business. And that is Japanese disease. You run large deficits and you raise taxes, taking the money from productive businesses and reducing the ability of consumers to save. Then you go for 20 years with little or no economic or job growth.

Choosing large deficits does not reduce the amount of pain we will experience, it just seemingly reduces it in the short term and creates the potential for a serious economic upheaval when the bond market finally decides to opt for higher rates. This path is a bad choice, but sadly, in reality it is one we could take.

The Glide Path Option
If Congress and the president decided to lay out a real (and credible) plan to reduce the deficit over time, say 5-6 years, to where it was less than nominal GDP, the bond market would (I think) behave.

The Glide Path Option means that structural unemployment is going to be higher than we like (which is actually the case with all the options). And the large tax increases that come with this option will by their very nature be a drag on growth (and cause a double-dip recession in 2011). I sadly think we will soon have a VAT tax. I just hope that we cut corporate taxes enough when we do create a VAT, that it will make our corporations more competitive, which will be a boost for jobs.

This is not a problem we can grow ourselves out of in the next few years. We have simply dug ourselves into a huge hole. There is not a "V" ending to this recession. We are going to have deal with the pain. It will be the pain of reduced returns on traditional stock market investments, a lower dollar, low returns on bonds, European-like unemployment, lower corporate profits over the long term, and a very slow-growth environment. But if we choose this path, we will get through it in the fullness of time.

then we will eventually have to deal with the $70 trillion in our off-balance-sheet liabilities in Medicare and Social Security and pensions.
Click to expand...
http://seekingalpha.com/article/172057-the-glide-path-option?source=article_lb_articles
 
You must log in or register to reply here.
Back
Top