Smart Money

Dear Reader,

Last week, the New York Times proposed “10 Questions Bank CEO’s Should Face.” Among them:

“The Treasury has proposed a $500,000 cap on executive compensation… Many of you have complained that you will lose your top talent. Are those the same people that helped lose your banks billions?”

Oh, you jokers at the NYT . Touché!

Yes, it’s “open season” on bankers. And check the new dictionary. The word ‘banker’ has become synonymous with “reptile” or “scalawag.” Drivers will soon be using it on the street. “F**** banker!” they will yell to the car that cuts them off. “Scumbag Millionaires,” the Sun called them.

English bankers got slapped around on Monday. Then, on Wednesday, it was the Americans’ turn. They were summoned to Washington by Congressman Barney Frank; be prepared for a “public flogging,” the New York Times warned them.

In Paris, meanwhile, the bankers tried to stay ahead of the lynch mob by proposing to cut their own bonuses.

Everybody wants to kick the bankers when they are on the ground. Heck, we’d do it too…but the crowd around them is so thick; we can’t get a boot in edgewise. Besides, there are bigger charlatans still standing. After all, bankers were just doing their jobs – separating fools from their money. What about those who were supposed to be protecting the fools?

But we are in a depression. And everyone has to play his part. The politicians feign moral outrage. The bankers feign contrition. The spectators feign to know what was going on and have a good time. It’s a show with a subplot, we think. In the interest of seditious mischief, here we undertake to deconstruct it.

First we begin with a critic’s remark: this is a well-rehearsed storyline. When the losers are unhorsed, they are almost always spat upon. Louis 16th’s severed head was held up and subjected to “atrocious and indecent gestures”…Mussolini was hung on a lamp post. The bankers seem to be getting off easy.

Now, a comparison: the farce of ’09 is nothing compared to the great show put on following the ’29 crash. The weakness of the present spectacle is the cast. The chief American protagonist – Barney Frank – is no match for his role model, Ferdinand Pecora. Pecora was “the most brilliant lawyer of Italian extraction in the US,” said the TIME magazine report of March 6, 1933. He “finished public schools at 12. At 18, after loping through his brother’s law books, he was managing clerk of a law firm. Even on the most complex cases (which he, tireless, likes best) he never needs notes, never forgets a word of testimony once it is on the record… At 47, his black eyes flash, his black hair bristles.”

But then, the victims are no match for Charles Edwin Mitchell either. “Billion Dollar Charlie” earned more than a million dollars in ’29, when a million dollars was still real money. Senator Carter Glass said that he “more than 50 other men is responsible for this stock crash.” But, as TIME reported, “neither the directors nor any other Manhattan banker knew anyone who, they believed, could do an equally good job of carrying the bank safely through storm and strife. That he has done the job, Ferdinand Pecora would be the last to deny. The statement of National City Bank [Mitchell’s] was, on Dec. 31, 1932, the envy of nearly every bank in the US.”

Still, the depression was on and Mitchell was damned for it. By 1933, he was out of a job. And now Jamie Dimon, Lord Stevenson, Andy Hornby, John Mack, Vikram Pandit, and Sir Fred Goodwin are in the dock.

‘Yes, we have erred and strayed like lost sheep,’ the bankers chant. “We are profoundly, and I think I would say unreservedly, sorry…” said Lord Stevenson, formerly of HBOS, on Tuesday. But “UK bankers find sorry is not enough,” judged a headline on Wednesday morning. “I want groveling,” wrote an opinionist to the LA Times . “I want show-trial sweating and stammering. I want their nine-figure bonus checks endorsed over to the rest of us…I want blood…”

Be careful not to over-act, is our advice. Viewers might catch on. In London, the Guardian announced its own 12 questions to put to the bankers, including “why should profits be private, but losses be socialized?” Uh…that is a good question, but it is put to the wrong person. Why the bankers would want to offload their mistakes is a question even a Guardian reader could answer. Why else would they humiliate themselves publicly? Why would not a one of them dare show any fight? The pols control the money now; the bankers know it.

The question is better put to the inquisitor than to his victim. Why would the government wish to take on the losses? There, the answer is fairly easy too – power. Besides, it’s not their money; it belongs to the same mouth-breathing yahoos who are enjoying the show. In fact, we have other questions we’d like to put to Barney Frank, John McFall and the rest of these sanctimonious meddlers: How many of you jackasses went short the financial sector? And if you’re so smart, why didn’t you warn the public about the housing bubble and the toxic asset meltdown? If your committees…and your armies of regulators at the SEC, FHA, FDIC, FSA or other agencies…could do nothing to prevent the crisis, what good are they? And how cometh it to be that the biggest financial fraud of all time took place right under your own employees’ noses?

So you see, dear reader, how deliciously the plot turns? In the bubble years, the bankers ripped off the public…pretending to make them rich, of course…while the regulators looked the other way. Now, the politicians create a distraction, pretending to punish the bankers, while together they pick the public’s pocket for $3 or $4 trillion more. The bankers are judged guilty; but the audience hangs.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

Dear Reader,

It must have been quite a meeting.

It began at 3:00 pm this past Monday at the U.S. Treasury’s plush offices in Washington, D.C. On one side of the table sat U.S. Treasury Secretary Henry Paulson. He was flanked by Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.

On the other side were the chief executives of the nation’s biggest banks. They were arranged in alphabetical order, with Bank of America’s chairman on one end and Wells Fargo’s CEO at the other. Between them sat representatives from the Bank of New York Mellon, Citicorp, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, and State Street.

Although no reporters were present, journalists later pieced together what was said. All accounts agree on the following: For over an hour, Paulson and Bernanke told the assembled bankers just how grave was the situation threatening not just this country, but all the known world. (All together now, can you say, “the gravest financial crisis since the Great Depression”?)

At the end of Paulson’s and Bernanke’s remarks, aides handed each banker a document. The pages contained the government’s terms for becoming their partner. It detailed how much money the Treasury would “invest” in each bank (a total of $125 billion for those present), how much ownership it expected, what their new dividend policies would be, even the limits that would be imposed on executive pay. (The top five officers at each institution could not receive more than $500,000 a year.)

While discussion was permitted, negotiations were not. Paulson explained the deal was for their own good and the good of the country. Then it was time to “shut up and sign.” And every banker did.

Any questions, any doubts, any disagreements were blithely ignored. Thus was born a new age in what was once the land of the free and the home of brave. Government would “save” capitalism by becoming its partner … nay, its boss.

It may not be a Brave New World. But I can guarantee you, folks, it’s going to be an expensive one. Time will tell how expensive – to our wallets and to the free-enterprise system.

The ancient Chinese saying, “May you live in interesting times,” wasn’t meant to be a blessing. No, I’m told that it was always intended as a curse.

To call the past two weeks “interesting” would be the understatement of the decade. Whether in the markets, in Washington, or in politics, I can’t remember a time when we’ve experienced so many startling reversals and unexpected shocks.

The largest S&L in the country, Washington Mutual…gone. It’s younger sister, Wachovia, is about to disappear.

The nation’s largest insurer, AIG, will have a new owner when Uncle Sam steps in with $85 billion (subsequently raised to $120 billion-plus) and ends up with 80% of the company.

Two of the most venerable (and, as it turned out, most vulnerable) of Wall Street’s august institutions, Bear Stearns and Lehman Brothers…gone. Merrill Lynch, meanwhile, exists in name only. The employees there are about to call Bank of America “boss.”

Over the past two weeks, the stock market experienced what some have called a “slow-motion” crash. Many investors felt as though they’d stepped into a boxing ring against Smokin’ Joe Frazier. Bam!, down 500. Wham!, down 300. Slam!, down another 400. Then last Friday came the most incredible day of all. Moments after the opening bell, the market plummeted over 700 points. The Dow dropped all the way to 7900. Then it started back up.

What a recovery it staged over the next five hours. Before you could say, “no mas!,” the Dow gained back all of the 700 points it lost and tacked on 300 more. I wish someone had rung the closing bell then, but no, worried investors couldn’t leave well enough alone. Mr. Market gave up all of those gains and a bunch more before the session finally ended at 4:00 pm.

When the dust finally settled, the Dow closed down 128 points last Friday. Come Monday, a lot of investors decided all that selling was a mistake. With a weekend to think about it, on Monday morning they became buyers instead. And buy they did – in record numbers. By the time the final bell was rung, more than 1.5 trillion shares had changed hands and the Dow had gained a record 936.42 points.

On Tuesday, volatility returned with a vengeance. First the market soared 400 points. Then it plummeted 700. Like someone tied to a bungee cord, it bounced back up again. Then it fell again. When the day was finally over, the Dow finished down 72 points. That’s barely a blip on the radar, compared to what the past few weeks had seen.

On Tuesday and Wednesday, the Dow gave back nearly 80% of those record gains it notched on Monday. I gotta tell you, my tired old ticker can’t take much more of this. (Not to mention my wallet.)

Are we there yet, mommy? Is the bottom finally behind us? No one knows for certain. Of course Monday’s explosion to the upside was a delight to see. It was the biggest one-day point gain ever, and the largest percentage gain (11.1%) since March 15, 1933.

Still, it was nowhere near enough to bring us back to break-even. The Dow is still down 34%, or more than 4,775 points, from its record high back on October 9, 2007. More than $5 trillion in investor assets have gone to money heaven.

A lot of pundits are predicting the market will hit more lows before it comes anywhere near its old highs – especially if, as seems likely, President Barack Obama is greeted by Democratic majorities in both branches of Congress when he takes office in January.

Meanwhile, let’s talk about the legislation that’s supposed to end all of this travail. I’m referring, of course, to the $850 billion bank bailout bill, officially known as the “Emergency Economic Stabilization Act of 2008.” It’s got to be one of the most odious pieces of legislation ever approved by Congress and signed by the President.

How did a $700 billion bank rescue turn into expenditures of $850 billion? It’s simple, folks. In the words of an old television show, they socked it to us. The Senate packed the measure with $150 billion worth of pork. The so-called “sweeteners” included $397 million for a “domestic production activities deduction” for the motion-picture industry (hooray for Hollywood), $33 million for an economic development program in American Samoa (hey, Samoans vote, too), $100 million in tax breaks for “certain motor sports racing track facilities” (gotta love those NASCAR fans), and even a $2 million excise-tax exemption for “certain wooden arrows designed for use by children” (you aren’t against kids’ toys, are you?).

If there ever was an event where our elected representatives showed their complete and utter disdain for the numbskulls who elected them, this was it.

By the way, some of you may have wondered how a spending bill could originate in the U.S. Senate. Doesn’t the Constitution require that all appropriation bills begin in the House of Representatives? (Not that anyone in Washington, on either side of the aisle, pays any attention to the Constitution anymore.)

Here’s how that particular trick was done. The Senate took a bill that had been passed in the House some time ago – in this case, the Paul Wellstone Mental Health and Addiction Equity Act of 2007 – and voted to replace all of the text with their spanking-new measure. Presto-chango, a new (but unconstitutional) spending bill was transformed into an appropriations bill that originated in the House.

Did I already mention how this measure, more than any other I’ve seen, shows the total and complete disdain our representatives have for us? I guess it doesn’t really matter if its origins were strictly Constitutional, since the measure itself will finance the biggest government takeover of business we’ve ever seen in this country. Would someone please show me where the Constitution says that the Treasury can take taxpayers’ money to buy stock in a bank, an insurance company, or another financial institution?

But I keep forgetting; we don’t operate under the Constitution any more. Haven’t for decades.

The authors of this monstrosity call it a “Troubled Asset Relief Program,” or TARP. I think J.T., one of my Alert Readers, was a lot closer to the mark when he said it should be called the Special Official Congressional Institute for Assuring Liquidity In Secure Mortgages. What a perfect acronym: SOCIALISM!

I’m running out of space for today’s rant. But before I say goodbye for this week, let me make a few observations.

While everybody and his brother (including a lot of my conservative colleagues and friends) agree that government had to rescue the financial system, no one ever said what the alternatives were. What would have happened if we didn’t allow Uncle Profligate to spend an additional trillion dollars (which he doesn’t have) to bail out the banks? We’ll never know.

What will the rescue cost? And will it work? Again, we don’t know the answers to either question. I think it’s a safe bet that the final cost will be many times higher than even the worst estimates we’re hearing now. How can I say that? Because that’s been true about every government program since FDR wheeled into office.

Whatever the nominal cost of this rescue plan, the hidden costs will be many, many times worse. The Federal Reserve is about to flood the country with a tsunami of new money and credit. In 2007, loans from the Fed to our nation’s banks averaged $10 billion a month. For the first eight months of this year, they soared to over $100 billion a month.

But listen to this: Last month, the Fed increased its lending to an astonishing $2.7 trillion. The total for the year is over $3.5 trillion and climbing. Makes a billion-dollar bank bailout seem puny by comparison, doesn’t it? No wonder some wags say that FED actually stands for “frantically expanding dollars.”

At this point, every single helicopter in Ben Bernanke’s fleet is in the air.

And what happens when tons of new money and credit flood into the economy, class? Can you spell i-n-f-l-a-t-i-o-n?

The money masters in Washington, aided and abetted by academia and the media, have fooled the public into believing that “inflation” means rising prices. You and I know differently, don’t we?

Inflation is an increase in the supply of money and credit. Period. Yes, it causes higher prices, as people realize their dollars are worth less and less. But blaming rising prices on inflation is like blaming wet streets for causing rain.

John Maynard Keynes, the famed economist, understood the process very well. Nearly a century ago he warned, “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

That is precisely what our government is doing to us, folks. It is stealing your wealth – a lot of it through the direct and indirect taxes you pay. But a lot more through the loss in value of every dollar-denominated asset you own.

I’ll have a lot more to say about all of this in the future. But for now, let me conclude by saying that we have just witnessed the greatest financial heist in all of history.

We should be putting the culprits in jail. Instead, we’re going to elect them to Congress – and one of them to the White House. Others will be rewarded with fancy titles and plush offices in Washington and New York.

Truly, we live in a world gone crazy.

Until next time, keep some powder dry.

Chip Wood

And here’s a curious bit of data for both Buffett and Greenspan, champions of the “American productivity” school of euphorinomics:

Between 2000-2007, U.S. worker productivity increased 18%, but salaries declined, on average, $2,000.

Despite producing an average of 2.5% more geegaws each year, the median inflation-adjusted family has fallen over the past seven years, from $58,000 to $56,000. “It’s a compelling example of a large disconnect,” says Jared Bernstein of the Economic Policy Institute. “Americans aren’t being rewarded for their productivity.”

Really.

5 Min. Forecast

Dear Reader,

There�s a particular moment known to all Baby Boomers when Wile E. Coyote, in a rapture of over-reaching, has run past the edge of the mesa and, still licking his chops and rubbing his front paws in anticipation of fricasseed roadrunner, discovers that he is suspended in thin air by nothing more than momentum. Grin becomes chagrin. He turns a nauseating shade of green, and drops, whistling, back to earth thousands of feet below, with a distant, dismal, barely audible thud at the end of his journey. We are Wile E. Coyote Nation.

Is there anyone in the known universe who thinks that the U.S. financial system is not fifty feet beyond the edge of the mesa of credibility?

Nothing will avail now. Not even if Sirhan Sirhan were paroled at noon today and transported directly to the West Wing with a .44 magnum in each hand (and a taxi driven by the Devil waiting outside to take him to the U.S. Treasury and the offices of the Federal Reserve).

It�s hard to imagine what kind of melodramas were unspooling on the Hamptons lawns this weekend, while everybody else in America was watching Nascar, or plying the aisles of BJs Discount Warehouse for next week�s supply of mesquite-and-guacamole flavored Doritos, or having flames and chains tattooed on their necks, or lost in a haze of valium and methedrine.

With the death of the IndyMac Bank last week, and the GSEs Fannie Mae and Freddie Mac laying side-by-side in the EMT van on IV drips, headed for the Federal Reserve�s ever more crowded intensive care unit, there was a sense of the American Dream having passed through the event horizon that denotes the opening of a black hole.

What would happen if the U.S. government acted to bail out these feckless enterprises (and what if they don�t)? Either way, it�s not a pretty picture. If Mr. Bernanke does start shoveling loans into the GSE black hole, he�ll further undermine the soundness of his own outfit and do nothing, really, to repair Fannie and Freddie�s structural problem of having securitized too many loans that will never be paid back. If instead Fannie and Freddie are flat-out taken over entirely by the U.S. government (and remember the Federal Reserve is not the government), then the national debt will roughly double overnight � which will pound the U.S. dollar down a rat-hole.

Meanwhile, the foreign holders of those decrepitating dollars might not rush to the redemption window, but they certainly would use them to buy up every oil futures contract on God�s not-so-green Earth as fast as possible � they�d be dumb not to � which would leave American Happy Motorists with gasoline prices north of $5 a gallon, and possibly north of $10. (In that case, say goodbye to the airlines. In fact, say goodbye to what passes for the rest of the US economy, including especially the vaunted retail sector that supposedly counts for 70 percent of the action.)

If Fannie and Freddie are left to die out on the desert floor, say goodbye to the housing market, the major investment banks, countless regional banks, the retirement accounts of virtually everyone in America, the viability of all fifty states� governments, and the day-to-day operating ability of all their municipalities � and very likely the current incarnation of the world banking system.

This process is really out of control now. The bottom line is the comprehensive bankruptcy of the United States. The Republican Party under George Bush will be known as the party that wrecked America (release 2.0). Painful as it is, Americans had better get a new �Dream� and fast. It better be a dream based on the way the universe actually works, which is to say an operating procedure run on earnest effort and truthfulness rather than merely trying to get something for nothing and wishing on stars. We might begin symbolically by evacuating Las Vegas and calling in an air strike on the loathsome place � to register our new reality-based attitude adjustment.

After that, we�ve got to get to work re-tooling all the everyday activities of life, including the way we grow our food, the way we raise and deploy capital, the way we do trade and manufacturing, the way we go from point A to point B, the way we educate children, the way we stay healthy, and the way we occupy the landscape. I know, it sounds like a lot, maybe too much. But grok this: we don�t have any choice if we want a plausible future on this portion of the North American continent.

Of course, none of that is likely to happen. Instead, and under the worst imaginable economic conditions, we�ll probably embark on a campaign to prop up the un-prop-up-able and sustain the unsustainable � that is, defend every status quo habit and behavior that we�re used to, whether it can be salvaged or not. Of course, this would be a fatal squandering of our dwindling resources, but it tends, historically, to be the last act of the melodrama in any faltering empire.

The result, pretty soon into that process, will be social breakdown and political upheaval. Every tattoo freak out there who has been prepping for his own starring role in some kind of comic book Armageddon will finally get his chance to shine. Lots of people will get hurt and starve. Property will change hands in a disorderly way. And at the end of this process an American corn-pone Hitler may be waiting to set everything and everyone straight.

Regards,

James Howard Kunstler

Dear Reader,

Those were the words that Fed chairman Ben Bernanke used to describe the financial markets (and by extension the economy) these heady spring days when everybody else with a rostrum, it seems, has pronounced the so-called liquidity crisis contained. There�s a great wish for American finance to return to business-as-usual � raking in fantastic fees for innovating new modes of tradable paper, and engineering mergers and buy-outs that generate huge fees plus $100 million kiss-offs for corporate CEOs in the noble struggle to dismantle America�s productive capacity � but apparently events are still out of hand.

The Federal Reserve itself has been instrumental in promoting abnormality by doing everything possible to prevent the work-out of bad debts in the system. Since money is loaned into existence, and loans are debts, the work-out of bad debt suggests the discovery that a lot of money has disappeared � which is exactly the case. The Fed has postponed the work-out by sucking up truckloads of impaired, untradable securities in exchange for loans to giant banks who don�t have enough cash on hand to pay their janitors.

Personally, my theory has been that the specter of peak oil pretty clearly implies the inability of industrial economies to continue producing real wealth in the customary way. In the face of this, either consciously or at a more mystical level, the worker bees in banking recognize that, in order to maintain their villas in the Hamptons, money has to be loaned into existence some other way (than in the service of industrial productivity).

We�ve tried just about everything else. There was the so-called service economy, an attempt to replace manufacturing with hamburger sales. Then there was the information economy, in which work would be replaced with knowing about stuff. Then there was the tech thing, which was about bringing internet companies that existed only on the back of cocktail napkins to the initial public offering stage of capitalization � which allowed a few-hundred-or-so thirty-year-old smoothies to retire to vineyards in the Napa Valley, while hundreds of thousands of retirees lost half the value of their investment portfolios. Then there was the housing boom, which was all about the creation of more suburban sprawl under the theory that houses (or �homes� in the jargon of the realtors) represent an obvious sort of wealth, and therefore that using houses as collateral would allow humongous sums of money to be loaned into existence � along with massive fees for structuring the loans into bundles of bond-like thingies.

This has all failed now because the racket went too far. Every possible candidate for a snookering got snookered. Too much collateral for which there were no takers went into the ground. The insane run-up in house values made a downward price movement inevitable, and as soon as the turnaround happened, it fell into the remorseless algebra of a deflationary death spiral. More importantly, however, this society ran out of tricks for loaning money into existence and instead began to experience the pain of money thought-to-be-in-existence being defaulted into a vapor � and worse, these defaults led to logarithmic chains of money destruction in its places of origin, the investment banks that had created the racket.

The important part of this is that the money is gone. What makes matters truly eerie is that the �bubble� in suburban houses has occurred at exactly the moment in history when the chief enabling resource for suburban life � oil � has entered its scarcity stage.

The logical conclusion of all this is not what the American public wants to hear: we have become a much poorer society and are now faced with the unavoidable task of making major changes in how we live. All the three-card-monte moves at the highest level of finance lately amount to an effort to avoid the unavoidable, acknowledging our losses. Certainly the political fallout of all this will be awesome. But it�s not about politics, really. It�s about the entire society�s inability to form a workable new consensus of reality.

It�s hard to predict how long these institutions at the heart of our economic system can linger in the �far from normal� limbo of pretending that money has not been defaulted out of existence. Since the same process is underway in Great Britain and Spain, places beyond the control of Bernanke, Secretary Paulson, and the Boyz on Wall Street, and since actions and reactions there will affect the destiny of money here, its hard to escape the conclusion that we�re at most months away from the brutal recognition that Wall Street has managed to bankrupt itself (and, by extension, the United States). This is dark heart of the matter of which no one dares speak.

Meantime, on the ground, everyone in the land sees the gas pumps levitate beyond the $4 hash mark, and notes with bugged-out eyes the double-digit price stickers on common supermarket items, and feels the rush of blood from the extremities when some check-out clerk at the Wal-Mart declares that a certain proffered credit card is maxed out, and some strangers in overalls � the neighbors say � managed to hot-wire the GMC Sierra in the driveway, and took it away….

The candidates for president will have a lot to talk about. I wonder if they�ll dare to.

Regards,

James Howard Kunstler

Dear�Reader,

From:��The 5 Min. Forecast

�My husband and I eat rice at least twice a week,� writes a reader in response to our highlight of U.S. food rationing yesterday, �and we usually buy it in 10-25-pound bags at Costco. When I read in today�s 5 that Costco was going to start limiting rice purchases, I ran out during my lunch hour to stock up.

�First I stopped at a back street discount/restaurant supply store to check the prices, thinking I�d do some comparison shopping. The discount store had various brands of brown rice in bags ranging from 3-50 pounds, but the rack sections where the bags of elephant, basmati and jasmine rice are normally stacked were empty.
�I dashed over to Costco and found pretty much the same situation. There were dwindling stacks of brown rice still available, but except for Uncle Ben�s instant rice, all the white rice was gone. I grabbed 50 pounds of brown rice while the getting was good.
�I suspect every Chinese, Japanese, Thai and Indian restaurant in town has snatched up all the white rice they can get. I wonder how long I�d have to hang out in the rice aisle at Costco to see a food riot right here in the U.S.�

The 5: If it weren�t so serious, we�d find a food riot at Costco fairly amusing.

Editor: �Be sure you make those minimum monthly payments on your credit cards. �We wouldn’t want to ruin our credit rating, even for food. �Would we?

Dear Reader,

Eric Roseman has discussed the growing global food crisis in the A-Letter recently, but it’s quickly escalating into agricultural Armageddon.

Just last week Kazakhstan, one of the world’s largest grain exporters, imposed a TOTAL ban on wheat exports. In other words, wheat can NOT leave the country. This is just the latest of many desperate attempts to hold down soaring local prices.

Wheat has skyrocketed 92% higher in the past year, but may soar even higher, as export restrictions in Russia, Ukraine and Argentina have closed one-third of the global wheat market.

Meanwhile panic is gripping Asia as rice prices have more than tripled in the past year. Rice is a staple food source for three billion people in developing nations of Asia and Africa. It’s easy to see why there is panic and rioting in the streets. The price of benchmark Thai rice broke through the US$1,000 a ton mark for the first time ever last week, up from just US$300 this time last year.

The escalating food crisis is easily the biggest problem facing Asia and other emerging markets – much more troubling than the credit crunch. After all, people in these nations can do without bank loans or new credit cards, but they can’t stop eating!

Offshore A-Letter

Dear Reader,

In a recent artilcle by ERIKA NOLAN, Executive Director in the Sovereign Society’s Offshore A-Letter I learned:

“In the past year, riots broke out in 12 different countries. We’ve also seen street protests in Jakarta. Strikes in Italy. Unprecedented government controls in 20 different countries.

“And over what? Oppressive government? Long work hours? Inequality?

“No. It’s much more basic than that. They’re rioting and protesting because they can no longer afford to eat with these skyrocketing food costs.

“And it’s no wonder. In the last six months alone, the basics people live on have surged dramatically in price. Corn prices have jumped 51%. Barley has soared 38%. Oats, 53%. Wheat, 56%. And rice – the mainstay of diets in emerging countries home to over 3 billion – shot up a devastating 67%!

“You may not have heard the hungry protesters or seen the riots – yet – but I’m guessing you’ve felt this uncomfortable inflationary squeeze in your grocery bills.

“Here in the U.S., you now have to fork over another 32% more for a loaf of bread than you did just three years ago. A carton of eggs costs you 50% more since this time last year. And overall your food bills have climbed 5% since 2007, according to the U.S. Department of Agriculture.”

When you get to the point where you can’t pay the credit card bills you don’t legally owe and buy food for your family – which will you chose?

If you’re opting to buy food – why wait until the last minute to get rid of those illegal credit card bills?