Blatant Reality

Corn ethanol is once again being linked to as a contributor of rising food prices and it seems that things will only get worse. This year, because of flooding and other factors, the corn harvest expected to be drastically smaller than last year. When you add this to the fact that the government has mandated a 9 billion gallon corn-based Renewable Fuel Standard (RFS), the demand for corn is going to far outstrip the supply. This will end up contributing to the increase of prices of all corn-based products, including food.

“A lot depends on how badly this weather has devastated the corn crop,” said Thomas Elam, an agricultural economist at Indiana University who was commissioned by the Balanced Food and Fuel Coalition to release a study on the matter. “A smaller crop will be devastating to meat, dairy, and poultry producers if the Renewable Fuels Standard is maintained, and consumers will suffer as food and fuel costs rise.”

 

About 5% of the world’s corn supply goes to producing bio fuels - representing a whopping three years of growth in typical crop production, according to Elam.

 

“Corn will have to go to at least $8 a bushel to squeeze out enough food use to keep up with corn for ethanol,” he said. “Food prices will be significantly impacted by corn if RFS goes to 10.5 billion gallons for 2009.”

 

How significantly? Collins said food costs could rise 23% to 35% above the normal annual inflation rate of 2.5% over the next two to three years if the RFS mandates are not reduced. Elam said food price inflation rate could go as high as 7% without a mandate reduction.

“Collins” is the US Department of Agriculture chief economist just to let you know. How should we fix this? Well the article states that just a simple 50% reduction in the RFS would bring the bushel price of corn to $2. Sadly, this probably won’t happen.

I sure hope everyone is beginning to see that using a food crop for fuel is never a good idea, no matter how well intentioned or fool-proof it looks on paper.

For more of my thoughts on Corn Ethanol, check out this article I wrote on the subject a couple weeks back.

If you aren’t already aware of this, the United State’s Military has outsourced the production of the Air Force’s new generation of tankers to two European companies (some history on this here and here). These two companies, EADS and Northrop, are going to be receiving this contract that is worth billions of dollars. Normally, globalization is a very good thing that ends up saving everyone money. However, with the current state of the economy and the respective national security implications, this contract should have been awarded to a domestic company.

In fact, Boeing had bid on this contract and was only outbid because these foreign companies are receiving such large subsidies from their respected governments. This, in itself, should be grounds for the US government to not grant this contract to either EADS or Northrop.

Luckily, the US Government Accountability Office will be looking into Boeing’s formal complaint against this decision and should have a ruling towards the end of this month. The Center for Individual Freedom has taken up the fight by launching AmericasTanker.com. This site not only provides updates about this issue, it also allows visitors to send emails to their respective Representatives and Senators.

If you would like to voice your complaint against EADS and Northrop receiving this contract, go here to send an email to your legislator.

One question we must ask ourselves is that in this time of war, do we really want some of our important military technologies in the hands of foreign companies(definitely if it is the French who haven’t been that supportive of us)?

Boeing has been there for us since before World War II and I think that they deserve our support.

In a recent article in Sky News, the author claims that with the current supply and demand of oil, prices should be at 60-70 dollars a barrel.

A source at Opec said its 13 members were uncomfortable with the current price of crude, which last week hit a record $135 a barrel.

 

Based on present supply and demand, he said it should be fetching $60-$70 a barrel.

I have taken basic economic courses in the past and the only thing that could be making the prices this high are either 1) taxes or 2) the oil companies are inflating the prices through some kind of Cartel-like conspiracy.

Given, I have only the most rudimentary knowledge of economics so if someone with more economic prowess would like to chime in, please leave a comment.

Recently, British Airways has stopped serving beef on board their flights partly to ensure they do not offend their Hindu customers. Many people are all up in arms about how this is outrageous and that they shouldn’t do this. I, however, feel that British Airways should be able to do whatever they want.

Lets look at the facts. According to the article, British Airways wasn’t doing this because of a government regulation, a court order, a complaint or anything else for that matter. They decided to institute this change on their own free will.

Now there are two reasons that I see they could be doing this. 1) According to the article, one of their larger markets is India. Therefore, British Airways obviously feels that whatever customers they will lose from not serving beef will be replaced with customers that see BA as “Hindu friendly.” 2) Even though the article says that the airline isn’t discontinuing beef because of its increasing cost, that could very well be the case.

Either way, the bottom line the company is doing this is because of the potential increase in profits. Without anything other than the market influencing the company’s choices, I really don’t see why people are complaining about this so much.

If you want to eat beef on your flight, just change airlines. It’s not like it is going to taste that great anyways.

(Hat tip Drudge Report)

The world really doesn’t give Iran’s president, Ahmadinejad, enough credit. I mean, what other president has come up with a revolutionary new economic principle that should help alleviate the rising world commodity prices. This new economic principle, which I have termed “martyrnomics,” involves the act of one sacrificing himself for a religious purpose. Less people means less demand which means lower prices! Brilliant!

Read about the story here at Gateway Pundit.

This really sounds like a good idea. Who says capitalism and ending world poverty aren’t compatible?

Even though our economy is predicted to shrink in the second quarter, it isn’t going to have enough momentum to cause a full scale recession.

The U.S. economy will shrink in the second quarter, but avoid a recession this year as housing’s drag will ease in the second half, helping normal growth return next year, according to a UCLA Anderson Forecast report released on Tuesday.“The data don’t yet add up to a recession and there is nothing here to challenge the basic story of sluggishness that we have had for two years,” the forecasting unit’s report said, adding: “Our no-recession forecast remains nervously intact.”

 

Amid a cooling economy, the labor market is only slowing so it lacks enough drag to force a recession, according to the forecasting unit.

 

“The weakening job market is completely consistent with our longstanding forecast of a housing adjustment that is mostly confined to housing,” the report said.

 

The UCLA unit added that its forecast also hinges on whether falling home prices depress consumer spending, and that it does not expect consumers to overreact.

Good news for all, eh?

With a weaker dollar, it only makes sense that more countries will be buying goods from the United States. This fact is illustrated in the recent news that last year our deficit had the largest decrease it has seen in the past 17 years.

For all of last year, the deficit shrank 6.2 percent to $711.6 billion, the biggest decrease since 1991. Last year was the first time the trade gap narrowed since 2001.

 

Exports rose 1.5 percent to $144.3 billion in December, setting a record for a 10th straight month and reflecting more demand for U.S. made capital equipment and industrial supplies. For the year, exports rose 12 percent to a record $1.622 trillion.

 

Imports in December declined 1.1 percent to $203.1 billion, reflecting lower demand for foreign-made autos, consumer goods, food and capital equipment.

 

Also contributing to the drop in imports was a 14 percent decline in purchases from China, which helped shrink the month’s trade gap with the Asian nation 22 percent to $18.8 billion. Petroleum imports rose 4.2 percent to a record $36 billion as the average price rose to $82.76 a barrel, also the highest monthly average ever. Prices increased in late December and early January and may push up the value of imports for the January report. They have since declined.

John Hawkins from Right Wing News conducted an interview with Thomas Sowell about his new book Economic Facts and Fallacies. Sowell is the author of such books like The Vision of the Anointed which discusses the incorrect views of those who view the world as just a series of problems and solutions and not one of variable trade-offs. In this interview, Hawkins asks several interesting questions concerning many of the modern “facts” about poverty and the economic disparity between races. Here is just one of the questions he asks and the answer he gets:

The subprime mortgage crisis has been in the news quite a bit of last. Tell us what caused the subprime mortgage problems and what we should do to fix them.

 

There were any number of things that contributed to it. One of the things was that the Fed lowered the interest rate by a tremendous amount, down to about 1% and under those conditions, many people thought that they could afford to buy a house and in fact, they could afford to buy a house so long as the interest rates remained low and the housing prices kept rising. (However), markets go up and down and have for centuries, so those who got themselves out on a limb, got themselves in deep trouble in part because of that.

 

The government was also, at the same time, leaning on lenders to lend to people they would not lend to otherwise, particularly under the Community Reinvestment Act, that empowered politicians to tell lenders that they ought to put so much money here rather than there — as if politicians know better, which they don’t.

 

Between those two things, you had a lot of people out there in very dicey situations and now the politicians are saying that they want to ride to the rescue. Well heavens, they created the problem and I can only imagine that they’re going to make it worse, the more they intervene.

It is a pretty interesting interview with a lot of the questions directly relating to current economic issues. I would definitely recommend reading the whole article.

Gateway Pundit posted a news clip from FOX news where several people discuss why they don’t want a democrat in office in ‘08. The bottom line is this: Democrats want to take us back to the tax structure of the 1970s which is very, very bad news for our economy if that happens.