Food Inflation May Rise to 3% to 4% in 2013 After Drought

There a myriad of reasons why we will have food inflation, in addition to the current drought.  There are two other reasons few understand:  the bankruptcies of MF Global and Peregrine--and subsequent theft of client segregated funds.  Many of these clients included farmers hedging their crops and livestock.  With their funds dissipated from the fraud, the crop and feed shortages will become more acute going forward.  It takes money to grow crops:  for seed, fertilizer, labor, machinery, water, and land.  No money, no honey.


http://www.bloomberg.com/news/2012-07-25/food-inflation-may-rise-to-3-to-4-in-2013-after-drought-1-.html

Broke Town, U.S.A.

Thanks to Kitty for this submission.

http://www.nytimes.com/2011/03/06/magazine/06Muni-t.html?ref=magazine

Newt Gingrich Pushing Bill To Allow States To File Bankruptcy Allowing Them To Renege On Pension And Benefit Obligations

http://www.zerohedge.com/article/newt-gingrich-pushing-bill-allow-states-file-bankruptcy-allowing-them-renege-pension-and-ben

Illinois ignoring bills

http://www.msnbc.msn.com/id/37136518/ns/us_news-life/

Illinois isn't bothering with the formality of issuing IOUs, as California did last year. It simply doesn't pay.

Plenty of states face major deficits as the recession continues. They're cutting services or raising taxes or expanding gambling to close the gap. But Illinois is taking the extra step of ignoring bills.

Right now, $4.4 billion worth of bills, some dating back to October, are sitting in the Illinois comptroller's office waiting to be paid someday.

A supplier refused to sell bullets to the Department of Corrections unless it got paid in advance. Legislators have gotten eviction notices for their district offices because the state wasn't paying rent. One legislator said he had to use campaign funds to pay the telephone bill after service was cut off at his office.

This sounds awfully like Greece. And a default.

FDIC falls further into the sink hole

http://www.zerohedge.com/article/fdic-hits-record-default-levels-deposit-insurance-fund-plunges-127-billion-negative-209-bill

The Federal Deposit Insurance Corp. said Tuesday that its deposit-insurance fund fell to $20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund.

Municipal bankruptcies aboout to soar

Please don't tell me you didn't see it coming. I've been handing out these pamphlets for a couple years.

http://finance.yahoo.com/taxes/article/108866/muni-threat-cities-weigh-chapter-9?sec=topStories&pos=4&asset=&ccode=

The Euro, the British pound sterling, the USDollar will take a beating--in fact, almost every paper currency will be affected. In addition to municipalities, California, Nevada, Illinois, Michigan, New Jersey et. al, defaulting on their debt obligations cannot be good for the USDollar, much like debt problems in Greece, Spain, Italy, and Portugal have not been good for the Euro.

GE and the US government are broke

General Electric and the US government are bankrupt, according to Porter Stansberry.

We've been telling our friends for months that sooner or later the U.S. Treasury secretary would come out and publicly say something ridiculous in defense of the U.S. dollar – much like a banana republic's finance minister on the eve of devaluation. Today, we got our first actual taste... On Sunday, Geithner said the U.S. "will never" lose its triple-A credit rating. Never is a very long time. And if you believe the representative of a bankrupt government, there's a bridge in Brooklyn you should look into buying...

Watching Geithner lie through his teeth reminded us of July 2008, when Fed Chairman Ben Bernanke assured us Fannie Mae and Freddie Mac were "adequately capitalized" and "in no danger of failing." One month earlier, I'd written an issue of my newsletter (Porter Stansberry's Investment Advisory) titled "Freddie Mac and Fannie Mae Are Going to Zero." I was watching Bernanke's testimony on TV in a hotel room on the 30th floor of the Four Seasons Hotel in Las Vegas. I could literally see more than $100 million worth of bankrupt real estate from my window – more than enough to bankrupt both Fannie and Freddie. As an investor, I had a simple choice to make: I could believe a government bureaucrat, who is in charge of running a paper money system backed by nothing by confidence... or I could believe audited financial statements and my own two eyes. I chose the latter.

More recently, I've been warning investors both our government and our biggest conglomerate (GE) are broke. On Friday, Moody's seemed to agree with me, warning the current deficits are unsustainable. Geithner and Bernanke will undoubtedly beg to differ. However, anyone who has ever paid interest on any debt before is welcome to simply look at the numbers and ask themselves a few basic questions... How can so few taxpayers be expected to repay more than $20 trillion worth of debt? How can a democracy where most people don't actually pay taxes ever be expected to run a balanced budget? Why would anyone expect America to repay its debts when millions of our consumers and a large number of our biggest companies are going bankrupt?

Big problems like these are easy for investors to ignore. And many investors will ignore these problems – for a long, long time. I can't tell you when, exactly, the scary numbers behind GE and our federal government will cause investors to take action. But I can tell you when that time comes you won't want to be holding dollars or GE bonds. And I can tell you with 100% certainty both GE and the federal government are going bankrupt within the next five years.

Biggest boondoggle of them all

The Biggest Financial Deception of the Decade

Jeff Clark, Editor, Casey’s Gold & Resource Report

Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception...

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron's decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

And what had we been told by the media? Fortune magazine dubbed Enron “America's Most Innovative Company” for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. “We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,” assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.

Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.”He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”

He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s “Ten Most Wanted Culprits” list in 2008.

GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn't enough to keep the nation's largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund “reorganization operations.”

GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, “I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.” I wonder what he thinks now that the stock is named “Motors Liquidation,” trades only on the pink sheets, and sells for about 50¢?

Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see...

By now you are probably wondering... what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?

To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”

Here are a few clues…

Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”

►Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.

Ben Bernanke claimed on February 28, 2008, “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks...” Henry Paulson added on July 20, 2008, that “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

►Since the recession started in December, 2008, 144 banks have failed.

Paulson informed us on April 20, 2007, that “All the signs I look at show the housing market is at or near the bottom.”

►The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.

Ben Bernanke announced on June 20, 2007, that “[The subprime fallout] will not affect the economy overall.”

►Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.

Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:

* Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.

* Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.

* U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.

* David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.

We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the “blunder that will plunder” the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.

Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.

This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.

Yet, what is the guardian of our economy and money telling us now?

“Will the Federal Reserve's actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).

This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.

Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.

Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.

The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face the citizens will receive when higher levels of inflation arrive. And when it does, it will make a mockery of any opposing viewpoint.

So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?

For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.

US is broke

Are there anymore skeptical Polyanna's who don't believe the US government is on the brink of bankruptcy? Read this tidbit on the national debt and the ability to fund it.

http://www.zerohedge.com/article/us-avoids-technical-default-three-days

My Facebook post on deficit spending

Kathleen, not to single you out, as I do agree with you on the benefits of hope, but when the hopes are built on a false foundation, the house will crumble. Ask Shawna, as I'm sure she is aware of my thoughts--and investment theses. It's built on mistrust of government fiscal and monetary policies. It's got nothing to do with Dems vs. GOP, or conservative vs. liberal, etc. Obama and Pelosi just happen to take it to unprecedented extremes, as our nation's currency--and hence, our sovereignty are now at risk of being irrelevant.

Long story short, you could quite possibly be holding confetti, built on false promises from the Fed and US Treasury, with the complicity of our banking industry, who Congress conveniently bailed out, while they appropriate all this deficit spending. The US is running a massive Ponzi scheme, taking in taxes on social security and other unfunded entitlement programs--knowing full well payers will never see a dime back.

I'm in the business of risk management, not in the business of forming ideaological judgments, and unfortunately, the average American is an unwilling participant in the huge casino of the world's financial system. It includes citizens who pay taxes, have home mortgages, credit cards, retirement savings, or merely hold the USDollar. In other words, every single American.

The financial implications go well beyond whether Congress enacts healthcare reform, cap and trade, or any other bill. The crux of it comes down to you can't keep spending money you don't have. Because in our case, the foreign creditors who have been lending us this money, will eventually say "Enough!", and then the music will stop.

The US government has been bailing out failing industries, and foreign sovereign funds have been buying Treasury bills to fund our debts, but when they realize the US government itself is already bankrupt, they won't be bailing us out.

Sorry to take the punchbowl away, but the G-20 countries have already pissed in it.

Good news, bad news...

The good news is that oil and fuel prices have backed down, as I predicted recently. Further good news indicates Americans are driving less, reducing our carbon emissions. The bad news is that the reduced tax revenue from fuel sales has left the federal and state governments even more cash-strapped.

Another gem I saw on the news is that our superhero Governor has mandated all non-emergency response state employees will now earn the minimum Federal wage of $6.55 an hour. That paycheck should really help pay the variable mortgage about to reset--not.

The US is a mess, and a recent trip by a friend to Australia illuminates the growing gap, as the land Down Under is experiencing a bull market in natural resources, fueled by booming economies in China and India. Australia is clean, modern, and their citizens are in good spirits, buoyed by a tourism boom as well. Kinda reminds me of us in the late 90's.

Meanwhile, China and India are aggressively securing energy and natural resources, acquiring equity stakes in suppliers, setting the stage for the US to be forced to buy at spot prices.

The Fed has to continue printing dollars in order to sustain an unsustainable balance of economic growth and fiscal responsibility. A money manager quipped that he senses the public believes we're in the late innings of this recovery, which is true--but not when you consider it's a 7-game World Series, not a one-game wonder. In other words, we should continue to have record foreclosures and bankruptcies for a couple more years before we turn this tanker around. The good news is that equity prices should rebound a year before the actual bottom, as the stock market is a forward discounting mechanism.