The Round-Up: September 4th 2007

This is a guest Round-Up by ilargi.

Today, we change our focus (just) a little. Recently, we’ve paid much attention to finance. Still, while many see a toss-up now for which might hit us first, energy or economy, the prize may well go to the third contender: the earth.

AFP - Jeff Haynes

We were thinking about this, even before the Times Comprehensive Atlas of the World published an impromptu edition. Ice caps, lakes and shorelines simply change too fast, and maps become outdated: the world no longer looks the way it did only 4 years ago. The editor-in-chief: “We can literally see environmental disasters unfolding before our eyes.”

Still, we were already noticing articles on a wide range of climate issues, from just the past 4-5 days, and without even searching for them.

Global food prices set to rise by 50% in 5 years. Australian farmers pay 50 times more for irrigation water than in 2002. California cuts off water to farmers to save fish species, French wine growers harvest grapes 8 weeks earlier than in 1978. Russia considers a wheat export ban. Holland: bread prices to rise 20% next year. Milk named the new oil. UK: many crops just drowned. [insert deep breath] Eastern Europe, including Ukraine, had another crop-killing sweltering summer. Australia relives last year’s drought (and this time may not recover). The UN predicts a global food crisis. Topsoil vanishes at record pace. 2008 declared the Year of the Frog: up to half of amphibian species could be wiped out in coming years - the biggest mass extinction since dinosaurs disappeared. North American songbirds: going going gone, and we all know where our bees are by now. Not here.

Satellite images of the Aral Sea 1973-2004: the vast saltwater lake has retreated as a result of river damming and been turned green by pollution.

None of the above mentions Africa and Asia, did you notice? Once we start there, we a/ run out of space, and b/ make people think climate change is not here and not now. It is. And it’s much worse than we, facilitated by IPCC reports and Al Gore love-ins, like to think. “Will sea levels rise by 59 cm or 25 meters?" says another headline for a James Hansen article. Well, why don’t we accept the middle ground? Better safe than sorry, right? Agreed, then, 12.795 m (42 ft) it is.

In Canada, we’re headed for 2 trade-offs: the world’s most polluted mammal, the beluga, makes way for the pine beetle, while the Prairies go from grass to shrubs.

Images showing how Lake Chad has shrunk: Left 1972, right 1987.

We are being lured into complacency by 'scientific' predictions and political announcements for faraway abstract dates like 2050 or 2100. But if Hansen’s only half right, it’s time to seek 'true' higher ground. Today. No amount of oil, and no amount of money, will ever bring back a million extinct species, or put the ice back on Greenland or Kilimanjaro.

Times Atlas shows effect of global warming

Images showing deforestation in Iguacu, South America taken 20 years apart: Left 1973, right 2003

Images showing how Lake Chad has shrunk: Left 1972, right 1987

Cartographers of the Times Comprehensive Atlas of the World have had to re-draw coastlines and reclassify land types because of the effects of global warming.

Since the atlas was last published four years ago, sea levels have lowered in some cases and risen in others while ice caps have shrunk and lakes have almost disappeared.

The atlas's editor-in-chief, Mick Ashworth, said: "We can literally see environmental disasters unfolding before our eyes. We have a real fear that in the near future famous geographical features will disappear forever."

The main culprits, he added, are climate change and ill-conceived irrigation projects.

Vanishing lakes prove impact of man

Satellite images of the Aral Sea, taken between 1973 and 2004, show how the vast saltwater lake has retreated as a result of river damming and been turned green by pollution.Picture: PA/Times Comprehensive Atlas of the World

A generation ago it was a vast deep blue sea teeming with life. Now the Aral Sea is sick and green and a fraction of the size it once was.

What was once a living mass of water brimming with fish providing a living for the thriving fishing villages on its shores is now, 40 years later, a slimy dark green mess suffocated by pollution and vast swathes of salt mountains.

These images, from the latest edition of one of the world's most authoritative atlases, show the stark changes global warming and mankind have wrought on the face of the planet.

Record water prices as farmers try to save crops

The price -- 50 times levels five years ago -- has doubled in the past three weeks as farmers snapped up tradable water allocations in an effort to keep permanent plantings alive until hoped-for spring rains arrive.

At the new price, it now costs farmers $50 to buy barely enough water to fill the equivalent of a small backyard swimming pool.

The price spike came as federal Water Resources Minister Malcolm Turnbull warned yesterday that the Murray River could dry up altogether, jeopardising Adelaide's water supply.

"My big anxiety is that one year the Murray will run dry," Mr Turnbull told ABC radio in Adelaide. "You are describing a nightmare scenario that could become a reality."

California: Water limits imposed to save fish

State water managers said after Friday's ruling that they were still reviewing it to determine what it would mean for California's water supply.

Pumps operated by the Central Valley Project -- operated by the U.S. Bureau of Reclamation -- send water to farmers in the agricultural valley south of the delta. The State Water Project -- operated by the California Department of Water Resources -- delivers the water to urban and rural water users as far south as Los Angeles. The water serves more than 25 million Californians and thousands of acres of crops.

In a year with an average amount of precipitation, about 6 million acre feet of water is pumped from the delta, and up to one-third of that could be lost under Wanger's order, said Jerry Johns, DWR's deputy director. An acre foot is enough to put one acre under one foot of water.

Tim Quinn, who heads the Association of California Water Agencies, said the ruling would have a serious impact in a state already coming off a dry winter and spring. Some districts have already ordered conservation measures and tapped into their water reserves, he said.
"A sober assessment of this says it's a very large deal," Quinn said. "We are not only losing supply here; you are greatly compromising the tools we have developed to deal with water shortages."

The pine beetle's deadly march

At night, you can hear them moving in the trees.

They've swept through parks and golf courses and ranchland and caught thermal currents to fly on the jet stream. They've colonized an area 1,200 kilometres long and 575 kilometres wide, nearly the size of Sweden. They're about the same size as a grain of rice but can kill a tree 10 storeys high.

And perhaps scariest of all, they're stealthy. One day, a tree looks fine. The next, it's been hit by nature's version of a drive-by shooting, left with tiny drifts of sawdust at its base or looking as though it's been pelted by popcorn because “pitch tubes” – blobs of sap that are the tree's natural defence – have sprung up on its bark.

From a helicopter flying west of Williams Lake, B.C., over the majestic Chilcotin Plateau and seemingly endless waves of dead, red trees, the mountain pine beetle appears nothing less than invincible.

In fact, it's not: the beetle remains vulnerable to fire, freezing temperatures and predatory birds. It can also be killed by cutting down infested trees. But in British Columbia at least, it has proved virtually unstoppable.

“I've been here all my life, and it makes me a little bit sick to my stomach to see it,” says Lee Todd, a logging contractor and helicopter pilot who works this region, six hours by road north of Vancouver.

“Our beautiful green forest is gone. It's just gone.

In Northern France, Warming Presses Fall Grape Harvest Into Summertime

On a cobweb-encrusted rafter above his giant steel grape pressers, René Muré is charting one of the world's most tangible barometers of global warming.

The evidence, scrawled in black ink, is the first day of the annual grape harvest for the past three decades. In 1978, it was Oct. 16. In 1998, the date was Sept. 14. This year, harvesting started Aug. 24 -- the earliest ever recorded, not only in Muré's vineyards, but also in the entire Alsace wine district of northeastern France.

Big rise predicted in Asia-Pacific greenhouse gases

The study was presented by Prime Minister John Howard at a news conference to coincide with a week of meetings leading up to a summit of the 21-member Asia Pacific Economic Cooperation (APEC) forum.

It is based on a projection that APEC economies will grow by an average of 3.0 percent a year, with a resulting increase in energy consumption of around 140 percent.

Fossil fuels which produce greenhouse gases provide the bulk of APEC energy and are projected to continue to do so through to 2050, the study says.

‘If current policy settings are continued, it is projected that energy supply in the APEC region in 2050 will be sourced from: coal 29 percent, oil 31 percent, gas 25 percent, nuclear nine percent, hydroelectricity two percent and biomass and other renewables four percent.’

The great global coal rush puts us on the fast track to irreversible disaster

If any credible environmentalist should be speaking the hardened language of priorities, one much-overlooked story surely deserves a lot more attention: what may soon be known as the new coal rush, and developments so at odds with the imperatives of climate change that they suggest a fast track towards irreversible disaster. The ubiquitous reduction of green politics to ethical consumerism means we'd probably rather carry on talking about cars, thermostats and lightbulbs. Faced with a resurgence that spans most of the planet, even the most righteous green activist could be forgiven for feeling powerless. No matter; what with skyrocketing gas prices and the fractious state of geopolitics, the stuff responsible for a quarter of the world's CO2 emissions is on a roll, which surely represents our biggest environmental headache of all.

China, that rapidly advancing dystopia where rivers run black and miners are killed at the rate of 5,000 a year (witness this month's coverage of the 180 trapped and probably killed in Shandong province, and the two brothers who dug their way out of a collapsed shaft near Beijing), is building an average of two coal-fired power stations a week, and in six years has doubled its annual coal production. India will construct more than 100 coal-fired plants over the next decade. Panicked by the possible policy repercussions of George Bush's departure, US power corporations are desperately pushing ahead with plans for about 150 coal-fired stations and leaning hard on presidential candidates - as evidenced by Rudy Giuliani's recent suggestion that the US should "increase our reliance on coal".

Moreover, the new coal rush is truly global: in the next five years, 37 countries - among them plenty of Kyoto signatories - will build additional coal-fired capacity, while world coal production heads towards a peak that will apparently materialise in about 25 years' time.

Vast ice island trapped in Arctic

The Ayles Ice Island changed the Arctic map by breaking free from the Canadian coast two years ago.

Scientists have been tracking the progress of this monster iceberg amid fears that it could edge west towards oil and gas installations off Alaska.

The creation of the island is seen by many scientists as a key indicator of the rapid warming of the Arctic.

Ayles Ice Island is vast, measuring about 16km (10 miles) long and five kilometres (three miles) across.

Spreading deserts threaten world food supply

Spreading deserts and degradation of farm land due to climate change will pose a serious threat to food supplies for the world's surging population in coming years, a senior United Nations scientist warned on Friday.

M.V.K. Sivakumar of the U.N.'s World Meteorological Organisation (WMO) said the crunch could come in just over a decade as all continents see more weather-related disasters like heat waves, floods, landslides and wildfires.

"Should we worry about land being degraded? Yes," Sivakumar, who leads the WMO's agricultural meteorology division, told a news conference in Geneva.

"Today we feed the present world population of 6.3 billion from the 11 per cent of the land surface that can be used for serious food production. The question is: Will we be able to feed the 8.2 billion that we expect to populate the globe in 2020 if even less land is available for farming?," he said.

Great Wall could be lost to sands of the desert

Sandstorms in northern China are reducing large sections of the Great Wall to rubble. Archaeologists say whole chunks of one of the seven wonders of the world could be gone in 20 years, swallowed up by the Badain Jaran desert.

More than 20 centuries old, the Great Wall once stretched 3,980miles through China, from Shanhaiguan Pass in the north-eastern province of Hebei to Jiayuguan Pass in the north-western province of Gansu. The wall was originally built to defend China against invasion by northern nomadic tribes.

About 310 miles from the Jiayuguan Pass lies Minqin county, where 37 miles of the wall is disappearing rapidly, a victim of extensive farming since the 1950s, which has sapped underground water and destroyed the local ecology.

Food prices set to surge 50 per cent within five years

The price of milk has risen 20 per cent in the past year, says Bill Barbour, and he should know. He's the investment manager at the DWS Global Agribusiness Fund, a $1.6 billion fund from Deutsche Bank that was formed last year to capitalise on what he calls "Ag-flation" — the sudden and irreversible upward momentum in food prices which is going to change the world as we know it.

Australian milk and dairy prices are bounding ahead and wheat prices are at an all-time high.

In China pork prices are up 90 per cent, in Britain food prices are growing at their fastest in a decade, in Mexico a sudden lift in the cost of flour for tortillas caused a riot a few months ago.

I had barely digested this news about food price inflation when two of the biggest food companies on the stock exchange reported annual results. At Goodman Fielder, CEO Peter Margin talked of a "perfect storm" of higher wheat and oil prices; at Futuris — owners of Elders Rural — CEO Les Wozniczka suggested food prices could rise by 50 per cent in the next five years.

What is driving food prices higher? A bunch of factors has combined at the same time. In Australia there is drought, which reduces supply against unchanged demand. ANZ's chief economist Saul Eslake points out that the effect of the drought is only temporary: longer term falling EU subsidies will be a bigger driver of higher milk prices.

But a more important global force is climate change — or at least developments around climate change, such as the new limitations on land use and the push (especially in the US) to replace petrol with biofuel.

2008 Declared Year of Frog to Save Amphibians

Conservationists from around the world have declared 2008 the Year of the Frog to highlight their new campaign to save threatened amphibians from extinction.

The World Association of Zoos and Aquariums (WAZA) said on Friday that up to half of amphibian species could be wiped out in coming years through habitat loss and climate change -- the biggest mass extinction since dinosaurs disappeared.

"It's imperative that the world zoo and aquarium community plays an active role in working to save the planet's critically endangered amphibian species," said WAZA president Karen Sausman following the decision at a meeting in Budapest.

As part of the campaign, which needs to raise up to US$60 million in funding, WAZA also set up a petition calling on all governments to take action to beat the amphibian crisis and agreed to an Amphibian Ark captive breeding programme.

Pollution stunts Canada's beluga whales

As well as banning the hunt, the government in the 1980s restricted the use of chemicals such as the toxic pesticide DDT and the industrial chemical PCB, which were found in beluga carcasses washed up on the Saint Lawrence's banks.

These measures were supposed to allow the beluga population to grow by three percent a year. But 25 years on, the numbers in the river have not changed, staying at between 1,000 and 1,200, says Veronique Lesage, a researcher at the Canadian fisheries ministry.
Meanwhile, other chemical threats have flowed in.

"The beluga is currently accumulating the biggest load of persistent contaminants," chemicals that do not break down quickly, said Michel Lebeuf, a specialist from the Maurice-Lamontagne research institute.

His team analysed the carcasses of beluga over 15 years and estimates that the traces in the fat of the whale of chemicals banned in the 1980s have fallen little -- in fact, they remain "still very significant."

21st Century May Belong to the Shrub

As atmospheric carbon dioxide levels continue to climb shrubs and other woody plants will likely dominate grasslands, altering pastoral lifestyles around the world, a U.S. study has found.

In the first experiment of its kind done on native grassland, U.S. scientists artificially doubled carbon dioxide (CO2) levels over enclosed sections of prairie in Colorado, a state in the western United States, for five years. To their surprise, one shrub species, Artemisia frigida -- commonly known as fringed sage -- thrived under those conditions. In fact, it grew 40 times faster than normal, dominating other plant species.

"This kind of response to higher CO2 levels is almost unprecedented," said Jack Morgan, a plant physiologist at the U.S. Department of Agriculture, and lead author of the study, published Aug. 28 in the 'Proceedings of the National Academy of Sciences' (PNAS), a science journal.

"Fringed sage is a minor species on the landscape normally. We were not expecting to see this," Morgan told IPS.

Grasslands of various types cover 40 percent of the world's land area and provide grazing for domestic livestock. According to 2005 figures from the United Nations Food and Agriculture Organisation, pastoral areas also occupy 40 per cent of Africa’s land mass, and support most of the 235 million cattle on the continent. Cattle cannot eat woody plants, but thrive on grass.

Many parts of the world have experienced an invasion of woody shrubs over the last 100 to 200 years, Morgan added.

Prairie grasslands could soon fade

The greenhouses with extra CO2 produced 40 times more than the normal amount of fringed sage, a woody plant that grows from 10 to 60 centimetres high. The change took place over five years.

"A 40-fold increase in biomass (amount of the plant material) is huge," said lead researcher Jack Morgan of the USDA.

Elk and antelope will eat this plant, but cattle won't. And other experiments suggest other types of sage and small shrubs might also invade grasslands as the atmosphere changes.

This is more than a North American problem, the scientists said. It's likely to affect grasslands used for grazing by all kinds of livestock in many parts of the world. These are mostly lands too dry for most farming, but good for grazing.

Morgan says the slow invasion of woody shrubs has been happening for as much as 100 to 200 years, and has been reported in many parts of the world.

"That's one of the major points in this paper. Most people, when they hear climate change discussed, think it's always about the future," he said.

"CO2 has been going up for the past couple of hundred years, so this relates to changes that are already under way."

Past analysis has blamed these changes on overgrazing and bad land management, he said. The sage is more common in degraded grasslands.

Global food crisis looms as climate change and population growth strip fertile land

Climate change and an increasing population could trigger a global food crisis in the next half century as countries struggle for fertile land to grow crops and rear animals, scientists warned yesterday.

To keep up with the growth in human population, more food will have to be produced worldwide over the next 50 years than has been during the past 10,000 years combined, the experts said.

But in many countries a combination of poor farming practices and deforestation will be exacerbated by climate change to steadily degrade soil fertility, leaving vast areas unsuitable for crops or grazing.

Competition over sparse resources may lead to conflicts and environmental destruction, the scientists fear.

Dirt Isn't So Cheap After All

Soil erosion is the "silent global crisis" that is undermining food production and water availability, as well as being responsible for 30 percent of the greenhouse gases driving climate change.

"We are overlooking soil as the foundation of all life on Earth," said Andres Arnalds, assistant director of the Icelandic Soil Conservation Service.

"Soil and vegetation is being lost at an alarming rate around the globe, which in turn has devastating effects on food production and accelerates climate change," Arnalds told IPS from Selfoss, Iceland, host city of the International Forum on Soils, Society and Climate Change which starts Friday.

Along with many other international partner institutions, Iceland is marking the centenary of its Soil Conservation Service by convening this forum of experts.

Every year, some 100,000 square kilometres of land loses its vegetation and becomes degraded or turns into desert.

"Land degradation and desertification may be regarded as the silent crisis of the world, a genuine threat to the future of humankind," Arnalds said.

China: River Pollution Threatens Drinking Water of 86 Million People

The Laodao River runs 141 kilometers and covers 23 townships with a population of 86 million. It serves the agricultural irrigation, drinking water and industrial uses of the population. It also serves as the only drinking water source for the surrounding area, the Changsha City economic development area, and seven Biomedical and Research Parks.

Official figures show that all major rivers in Liuyang City, such as Liuyang River, Laodaohe, and Nanchuan River are contaminated. Liuyang City is reported to annually generate at least 12 million tons of rural sewage and more than 10 million tons of industrial waste water. As a result, the quality of drinking water is increasingly deteriorating.

278 cities suffer untreated sewage

More than half of the population is living in an environment where sewage is not treated, an expert said.

By the end of 2005, 278 cities across the country had no sewage treatment facilities, including eight with a population of more than 500,000, Zhao Baojiang, chairman of the China association of city planning, told a recent conference on sustainable sanitation held in the Inner Mongolia Autonomous Region.

About 5,000 administrative towns and 20,000 market towns also had no sewage treatment facilities, he was quoted as saying by

Water pollution is deteriorating, but orders of the State Environmental Protection Administration to reduce the pollution are being disregarded in some cities, Zhao said.

Moscow considers wheat export ban

Cereals traders said Moscow was contemplating either a partial ban on wheat exports or to introduce a prohibitive export tariff to rein in foreign sales. A decision could be made in the first two weeks of September, the traders added.

Moscow’s concern comes as other food-exporting countries, such as Ukraine and Indonesia, try to rein in foreign sales amid rising prices.

Ukraine, the world’s sixth largest wheat exporter, introduced in June prohibitive cereal export tariffs. Indonesia, the world’s second largest palm oil exporter, last week raised to 10 per cent its export tariff on crude palm oil to cool domestic prices.

European-based cereal traders said the mere discussion of an export tariff would limit Russian foreign sales. Russian merchants would avoid new export commitments on fears that the sales could be taxed and unprofitable, the traders said.

The discussion of an export ban is also fuelling panic buying by some food-importing countries, such as Egypt and India, traders said.

Credit turmoil ‘has hallmarks of bank run’

The current turmoil in the financial markets has all the characteristics of a classic banking crisis, but one that is taking place outside the traditional banking sector, Axel Weber, president of the Bundesbank, said at the weekend.

“What we are seeing is basically what we see underlying all banking crises,” said Mr Weber, one of the most influential members of the governing council of the European Central Bank.

The comments mark the first time that a top central banker has endorsed the notion that the non-bank financial system is seeing an old-style bank run.

Some Federal Reserve policymakers also privately see comparisons between the current distress in credit markets and the bank runs of the 19th century, in which savers lost confidence in banks and demanded their money back, creating a spiralling liquidity crisis for institutions that had invested this money in longer-term assets.

US housing: bad and getting worse

The figures are set to get worse, said Nils Pratley in The Guardian; in July and August, mortgage lending “virtually came to a halt”. Credit conditions are tightening “for all but the most basic mortgages”, as Lex said in the FT, and high levels of unsold homes also point to lower prices.

There is now almost ten months’ inventory sitting on the market, a 16-year high. And the adjustable interest rates on mortgages worth $750bn will rise over the next year, implying further rises in default rates, which will boost supply. Around two million defaults are expected before this cycle is complete, said Bill Gross of Pimco, with the likely result that prices will fall by around 10%. Given that 70% of Americans are homeowners (most don’t rely on stocks for their nest egg) they are facing “an asset deflation never seen since the Great Depression”.

Unsafe at Any Rating, CDO Speeds to CCC From AAA: Mark Gilbert

Watching the rating cuts trickle out of the derivatives forest is akin to searching for elephant dung on a path to try and work out how many pachyderms are in the jungle. There's clearly a herd in there. And it's probably much bigger than the ordure you have seen so far would suggest.

Last week, Standard & Poor's butchered the ratings on $3.2 billion of debt from structured investment vehicles spawned by Solent Capital Partners LLP in London and Avendis Group in Geneva. About $254 million was slashed from the top AAA grade to CCC+ and CCC -- slides of 16 and 17 levels, triggered by their investments in mortgage-backed bonds.

Think about that for a second. You left the office Tuesday owning a AAA rated security. By the time you got back to your desk on Wednesday morning, it was eight steps below investment grade in a category S&P defines as ``currently vulnerable to nonpayment.'' Try explaining that to your pension-fund trustees.

The rating companies are sifting through the billions of dollars of repackaged bonds and structured investment funds they graded in recent years. You can bet the world's biggest and smallest banks are also panning for risk in the structured investment vehicles and off-balance-sheet companies they casually sponsored in the gold rush.

Heading for the rocks - A special report on the turmoil in the world's financial markets

The tremors in financial markets have gone far beyond their beginnings in the US subprime mortgage sector, and indeed far beyond the borders of the US. The full impact on the markets, and the repercussions on the global economy, remain unclear, but we can sketch out three broad scenarios:

  • Scenario 1. The Economist Intelligence Unit’s central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy.
  • Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout in the rest of the world.
  • Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration....

....For the full text of the report click here. (PDF warning)

Debt vultures await desperate sellers

The vultures are circling Canada's asset-backed commercial paper market, seeking to snap up securities on the cheap from distressed sellers.

Toronto-based Cerberus Capital Management LP sent in a team of distressed debt specialists as the Canadian market for asset-backed commercial paper (ABCP) – very short-term securities backed by assets such as credit card loans and mortgages – imploded amid concern that some of the paper was backed by U.S. subprime mortgages that are going sour, sources said.

Cerberus isn't alone as distressed debt experts Fortress Investment Group LLC of New York and Brookfield Asset Management Inc. of Toronto are also looking to buy the paper at a substantial discount to its “par” value of 100 cents on the dollar, said people familiar with the market. At least one big U.S.-based brokerage firm is also looking to make a market in the securities. More than $30-billion of this paper is outstanding.

So far, no trades are taking place because the market is locked up in the wake of the so-called Montreal proposal brokered by the Caisse de dépôt et placement du Québec, which created a stand-still in the ABCP market while players look for a way to minimize losses. Big holders of the paper don't want any trades to go through at less than 100 cents on the dollar because then all the securities they hold will have to be revalued at a lower level in a so-called “mark to market,” which could lead to substantial paper losses for holders.

Quebec backs debt bailout

Quebec's Finance Minister says the government stands behind the province's major financial institutions as they try to buy some time to work through problems in a segment of the commercial paper market.

"The market, it's always based on confidence, and when everybody runs after their cash obviously you're going to have a problem," Finance Minister Monique Jérôme-Forget said by telephone yesterday.

Caisse de dépôt et placement du Québec chief executive officer Henri-Paul Rousseau, National Bank of Canada CEO Louis Vachon, and Desjardins Group CEO Alban D'Amours have been trying to come up with a solution to the issues in the non-bank-sponsored asset-backed commercial paper (ABCP) market, she pointed out.

A Bird's-Eye View of the Credit Conundrum: minyanville

First, having been there at the beginning, the genesis of the asset-backed commercial conduits was regulatory capital arbitrage. Through the conduits’ convoluted structures, banks were able to "lend" huge amounts off-balance sheet and collect fees on no-capital-required lines of credit. No one - and I mean no one - ever expected these conduits to move from off-balance sheet back on-balance sheet and I don't think the market yet understands the earnings, capital and liquidity impact of this migration. If you figure you need anywhere from 6-8% capital per dollar of loans, then a move of $1.0 trln from off-balance sheet to on requires $60-80 bln in additional equity capital. I don't know about you, but I don't see this kind of free capital sitting around.

The Real Causes of the Financial Storm

"Tornadoes are caused by trailer parks." Norm Augustine, former chief executive of Lockheed Martin, coined that aphorism a few years ago after seeing one too many photos of mobile homes that had been devastated by twisters.

A similar misapplication of logic is now evident in discussions of the economic havoc surrounding subprime mortgages. These flimsy loan structures have been splintered by a financial tornado, but they were not the cause of the storm. For that you have to look deeper into the financial system, to the regular pattern of bubbles and binges that has been evident during the past several decades.

A useful compilation of these recurring crises appeared in the Financial Times last week in an article by former Treasury secretary Lawrence Summers. He cited the 1987 stock market crash driven by lockstep "pattern trading"; the rise and sudden collapse of savings and loan institutions in the late 1980s; the frantic borrowing by Mexico that spawned the 1994 peso crisis; the lending binge that led to the 1997 Asian financial crisis; the Russian debt default of August 1998 and the ensuing demise of Long-Term Capital Management; the technology bubble of the 1990s that burst in 2000; and the deflation worries that followed the collapse of Enron in 2002.

These disparate crises share a feature: In each case, capital flooded into assets that were thought to offer higher returns -- only to flood back out when the assets proved to be shaky. Investors overlooked the ordinary risk factors in their hunt for extraordinary profits. Rather than contenting themselves with the average "beta" returns of, say, the Standard and Poor's 500, they sought what a magazine for hedge fund managers last year described as "portable alpha." They were seeking a world like the one at Garrison Keillor's mythical Lake Wobegon, where all the children are above average.

Do You Recognize this Deflationary Spiral?

It is beginning to dawn upon people how a deflationary spiral works. As explained in Conquer the Crash, to satisfy creditors, debtors will sell all they can, even their best assets, to raise cash. That's one reason why gold and silver are not going up. When the sub-prime mortgage market crashed, guess what: other bonds, including supposedly safe municipal and corporate bonds, also fell. Most commentators believe that forced liquidation is the only reason that perfectly good investments fell in price. As one report dated August 24 said, "There's really no credit-related reason behind the decline."

But Conquer the Crash is on record predicting that a large portion of currently outstanding corporate and municipal debt will become worthless. Every trend has to begin somewhere, and its ultimate outcomes are never evident at the start of a move. By the end of the price decline in these bonds, when a bit of glue on the back of them will aid their use as wallpaper, observers will finally postulate why the bear market started in the first place. Even if most of the recent price declines are due to forced sales, those sales in turn are decreasing the total value of investments, which in turn will curtail individuals' and companies' economic activity, which will lead to an economic contraction, which will stress the issuers of such bonds to the point that they will be unable to make interest payments or return principal. In other words, whether investors understand it now or not, the forced sale of bonds is itself enough reason to sell them also on the basis of default risk.

Despite my description, this process is not linear. Every step of the way seems to have an immediate causal precursor, but like credit inflation, credit deflation is in fact an intricate, interwoven process, whose initial impetus is a change in social mood from optimism toward pessimism. If you are still on the fence about this idea, ask yourself: What changed in the so-called "fundamentals" between June and August? The answer is: absolutely nothing. Interest rates did not budge; there were no indications of recession; there were no changes in bank lending policies; there were no chilling government edicts. The only thing that changed was people's minds. One day sub-prime mortgages were a fine investment, and the next day they were toxic waste....

Risk of redemptions loom over 2,000 hedge funds

According to the report, nearly a quarter of the 9,000 hedge funds with an estimated $1.5 trillion in assets are at risk.

The report says: “Some foresee an increased risk of both margin calls on hedge funds’ highly leveraged positions, and consequent distressed sales of such hard-to-value assets, all forcing prices and values even lower.”

A margin call occurs when one or more securities purchased from a company decreases in value beyond a particular level. At that point, a broker demands an investor use margin to deposit more money or securities to restore the fund to a minimum maintenance level.

As investors' fears over being last to recover assets increase, the chance that they will be reduced in value, creates a “run on the bank” scenario amid competition, according to the report.

Can the Mortgage Crisis Swallow a Town?

They have had no takers. Although they lowered the asking price to $99,000 from $109,000, no one has even come to look at it in more than six weeks. “My heart panics every time I drive down the street and I see another for-sale sign,” says Mrs. Eggleston, pointing past the placards in front of her porch to others that dot surrounding yards like lawn furniture. “Some people on the street couldn’t pay, so they just left. The competition to sell is just ridiculous.”

It is a scene being repeated in cities and towns across America as loans that were made to borrowers with little or no credit history, many of whom could not even afford a down payment, fail in ever-growing numbers.

Buy Houses in Detroit for $1500, Monthly Pmt. = $7

You can go to and search for homes for sale in any city in the U.S., and you can specify a certain price range. If you search for homes for sale in Detroit, Michigan, you'll find that there are 22,387 homes for sale right now, and if you search for Detroit homes for sales between $0 and $20,000, you'll find that there are 3,431 homes for sale in that price range! That is, more than 15% of the homes for sale in Detroit, or almost 1 out every 7 homes for sale, is priced at $20,000 or less.

Big bailout might be inevitable

The U.S. loan guarantee for Chrysler Corp. in 1979, the Treasury-engineered refinancing of Latin American debt in 1989, the savings and loan bailout of the early 1990s -- all of these were solutions for problems that were deemed too big for any entity other than Uncle Sam to handle.

What, then, is the current housing bust, if not of the same or even greater import to the economy than the above? A few hours after President Bush spoke, the liberal-leaning Center for American Progress reached back to the 1930s to propose the re-creation of the Home Owners' Loan Corp., which during the Great Depression directly refinanced many delinquent mortgages.

A new Home Owners' Loan Corp. would perform the same function: It would take over, at taxpayers' expense -- and also at some loss to lenders -- a large chunk of the mortgages now in default or destined to land there.

The idea that a government entity should step in to save some significant number of people who can't make their mortgage payments has been gaining traction, and not just with the think-tank set.

Bill Gross, the bond fund guru at Pacific Investment Management Co. in Newport Beach, in his latest website commentary all but demanded that Bush rescue "millions of hard-working Americans whose recent hours have become ones of frantic desperation."

The borrower bailout fallacy: why PIMCO's Bill Gross is flat-out-wrong

By bailing out those who can least afford their mortgages, we essentially reduce home prices to their lowest common denominator - that is, to whatever price a troubled subprime borrower can bear. and that price will, but its very definition, be much lower than the price that the rest of the market - that is, the majority of borrowers who can afford their mortgages - would otherwise settle on.

US aims to tackle mortgage crisis

Henry Paulson, the treasury secretary, later told National Public Radio that the US administration would try to help people facing foreclosure find ways to refinance.

"We can't keep everyone in their home," Paulson said.

"But we sure as heck can make a big effort to help those who have got the capability to own a home refinance."

Bush’s FHA Plan May Only Reach 10 Percent of At-Risk Subprime Borrowers

A press release showed up on HUD’s Web site tonight with some interesting details about today’s announcement by President Bush of an assistance plan for some troubled borrowers.

Among them is a disclosure that the FHASecure lending program designed to help troubled subprime borrowers will utilize a risk-based pricing system that will allow the FHA to price insurance premiums by a borrower’s risk profile. The system is targeted for implementation by January 1.

Also in the press release is an important number — 240,000. That is the estimate of the total number of at-risk borrowers that the FHASecure program will keep out of foreclosure, with expected Congressional reforms to FHA program guidelines making help available to more.

Keep in mind that most estimates now assume that the total at-risk subprime population numbers around 2.4 million, so today’s announcement would appear to mean that help is available for roughly 10 percent of the troubled subprime population. That assumes all FHA borrowers are subprime, of course, which need not be the case. And, of course, I’m not accounting for run-off (those who have already defaulted) or for a likely understatement of the at-risk population.

White House Has It all WRONG On Subprime

I'm incensed. There's no other way to describe it. I called the White House, because after listening to the President's speech and reading the corresponding press release from the White House, I was confused, because of this:

"The "FHA-Secure" program will help people who have good credit but who have not made all of their payments on time because of rising mortgage payments."

Ok, well that's not subprimers, because subprimers by definition have poor credit or no credit at all. I asked the White House to clarify, and got the following email response.

"No -that's not how a subprime is defined. Subprime defined by the product not the borrower. A lot of people took subprime loans because they liked the low teaser rates and wanted to flip their properties after 2 years. Some liked the free plasma TV they got and figured that their home values would rise and they could sell. Some people made dumb decisions thinking that property values can only rise and bought more home than they could afford."

WRONG. I don't know any other more respectful way of saying it. WRONG WRONG WRONG. Anyone, subprime, prime or other could have gone after these low teaser loans. Many did!! I thought I was losing my mind, so I called John Mechem at the Mortgage Bankers Association: "We define subprime loans by borrower characteristics." Plain and simple. It has to do with how the loan is serviced, based on the credit of the borrower.

I read him the email, and he said the same thing. WRONG. So just to make sure I wasn't totally losing my mind (I mean how could the WHITE HOUSE be wrong????) I called Guy Cecala over at Inside Mortgage Finance. Same deal. He went on to say that FHA underwriting standards even if loosened somewhat, would still present a problem due to the credit of the subprime borrower. FHA deals with only the very top tier of subprime borrowers.

Ultra-low Fed rates stoked housing boom: Taylor

In rare public criticism of Alan Greenspan, former U.S. Undersecretary for International Affairs John Taylor said on Saturday that ultra-low Federal Reserve interest rates had stoked the U.S. housing boom and subsequent bust.

Greenspan, who retired as chairman of the Federal Reserve in January 2006, slashed rates to an ultra-low 1.0 percent to protect the U.S. economy after the collapse of the technology bubble, the September 11, 2001, attacks and fears of deflation.

"A higher federal funds path would have avoided much of the housing boom," Taylor said, drawing on a model he designed to simulate housing activity if the Fed had raised rates instead of aggressively easing borrowing costs.

Rules 'hiding' trillions in debt

The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows.

The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006.

"We're on an unsustainable path and doing a great disservice to future generations," says Chris Chocola, a former Republican member of Congress from Indiana and corporate chief executive who is pushing for more accurate federal accounting.

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

Banks financing TXU buyout offer $1bn to get off the hook

The banks that underwrote the $45 billion acquisition of TXU Corp, the world’s biggest buyout, have offered to pay the $1 billion (£495 million) break fee in a desperate attempt to convince the private equity backers to drop their bid.

It is understood that the banks asked Kohlberg Kravis Roberts and TPG to consider withdrawing their offer after the turmoil in the credit markets meant that the banks would have little or no chance of syndicating the record-breaking $37 billion loan to investors. The banks include Goldman Sachs, Morgan Stanley, Citigroup, Lehman Brothers and JPMorgan.

However, KKR and TPG are understood to want to press on with their offer, despite tough market conditions, and are focusing on next Friday, when shareholders are scheduled to vote on the acquisition.

Failed Bear Stearns funds invited smaller investors

Burton Lifland, a U.S. bankruptcy judge in Manhattan, said last week that he needed more time to decide whether the liquidation of two failed Bear Stearns mortgage securities funds could proceed in the Cayman Islands, where they are incorporated, or in this country, where most of their assets and many of their investors reside.

Although there is little left in the funds to divvy up among investors and creditors, how Judge Lifland rules will be closely watched. That's because most hedge funds are domiciled in faraway places where the courts may be, ahem, less friendly to investors than they are to the managers who park billions there.

If the Bear Stearns funds are liquidated in the Cayman Islands, they will be shielded from investors' suits, and all distributions to creditors will be handled by the courts there.

Bear Stearns wants the Cayman courts to oversee the liquidations.

Banks boost Fed borrowing for 2nd week

Banks increased their borrowing from the Federal Reserve for a second straight week as the central bank worked to deal with a credit crunch that has roiled global financial markets.

The Federal Reserve reported that the daily borrowing averaged $1.315 billion for the week ending Wednesday. That was the highest average borrowing since the attacks of Sept. 11, 2001. The average surpassed last week's average of $1.2 billion, which also had been the highest since the 2001 terrorist attacks.

The War On Working Americans

The toll adds up to a global race to the bottom in a country where services now account for 84% of the economy. The once bedrock manufacturing portion is just 10% and falling as more good jobs in it are lost in an unending drain. Since the start of 2000 alone, about one in six factory jobs, over three million in total, have been affected. The sector is less than a third of its size 40 years ago and one-fourth the peak it hit during WW II.

It's been devastating for the nation's 130 million working people. No longer are unions strong and workers well-paid with assured good benefits like full health insurance coverage and pensions. Today, all types of financial services comprise the largest economic sector. Much of it is in trillions of dollars of high stakes speculation annually producing wads of cash for elite insiders (when things go as planned) and nothing for the welfare of most others and the good of the country.

Worst of all is the poor and declining quality of most service sector jobs measured by wages, benefits, job security and overall working conditions. It's because fewer good ones exist, unions are weak, and workers are at the mercy of employers indifferent to their plight. People are forced to work longer and harder for less just to stay even. Jobs in this sector are mostly concentrated in unskilled or low-skill areas of retail, health care and temporary services of all kinds. They pay lots less than full-time jobs, and have few or no benefits and little prospect for future improvement.

For Petrocan investors, too much cash can be a bad thing

As problems go, Petro-Canada's is an enviable one: too much money.

That sounds like the kind of trouble an investor would like. It isn't necessarily so, however, because the company has few options for deploying its abundance of cash flow. When excess money marries limited opportunity, the offspring are usually ugly.

How will Petro-Canada's Fort Hills project turn out? Investors might want to take a closer look, according to Veritas Investment Research analyst Sam La Bell. The math is downright curious.

Fort Hills is a big oils sands project north of Fort McMurray and it is the linchpin of Petro-Canada's big, bold and long-term bet on oil sands. The partners are Teck Cominco and UTS.

Like all oil-mining endeavours, Fort Hills carries an astronomical price tag of almost $30-billion if taken to completion in 2014. A little more than half of that investment is the responsibility of Petro-Canada, on behalf of its investors.

You get the sense that Petro-Canada's management, and maybe its board, want to damn the torpedoes and take on the project because the company went to some lengths to massage the numbers it used to justify the green light on it.

Oilsands project hit by delays, higher costs

Construction of the Long Lake oilsands project is about 90% complete, but labour struggles, including a failure this summer to find enough pipe fitters, has led to a delay of between six months and a year and to a fourth cost bump in two years.

Nexen Inc. and OPTI Canada Inc. now say Long Lake's first phase will cost as much as $6-billion to build, a 10%-to-15% hike from April when the 50-50 partners revealed an increase to $5.3-billion from $4.6-billion.

The development was expected to cost $3.4-billion and be producing synthetic crude early next year when it was sanctioned in 2004.

Nexen shares up despite Long Lake cost jump

Nearly all oil sands projects have been hit with large cost overruns due to a tight labour supply in Alberta and industry-wide inflation in the costs of key materials like steel.

“I know people come out with much more conservative, realistic cost estimates based on the current environment, but I would expect to see, more than likely, continued cost increases in these projects, especially these ones that are five years out-plus,” Mr. Preston said.

Ontario's nuclear future

It has taken 15 years for Ontario to produce a major policy paper on our power system. What has happened as a result?

This province has two of the top five dirtiest sources of pollution in Canada in the Lambton and Nanticoke coal-burning thermal-electric power plants. Our nuclear plants have fallen into disrepair quite often, causing power shortages during peak summer periods. Ontario's electricity system, once the pride of this province, is left buying power from its partners in the United States and Quebec. Hydroelectric plants have been unable to keep pace with the demand for power.

This is the province of Sir Adam Beck, of Niagara Falls: a place where industries flocked to take advantage of bountiful, clean, inexpensive power. Today, some industries are afraid to locate here because of the brownouts. This can't happen in one of the largest industrial jurisdictions in North America. Industry, jobs, wealth and the hospitals and schools they pay for, will go elsewhere.

Private firms key in Ontario energy plan

Ontario's $60-billion plan to rebuild its electricity system poses a vast new market for private sector companies that are looking to develop generation and transmission projects throughout North America.

But corporate energy executives worry the power plan will be driven by political promises that are driven by election campaign expediency, and by public unease with the profit-hungry companies supplying electricity, rather than by the long-term needs of the province's energy users.

It's a scenario that is playing out to a varying extent throughout North America as a once publicly owned and publicly managed power sector looks increasingly to the private sector to finance the estimated $1.5-trillion (U.S.) in new generation investment that will be required over the next 25 years.

Nuclear power debate about to mushroom into nastiness

And the issue is this: Last year, BC Hydro estimated that the gap in the electricity it produces and what we consume will grow by between 25 per cent and 45 per cent over the next 20 years. In the U.S., the Department of Energy forecasts that demand for electricity will grow at an annual rate of 1.5 per cent. So the big question is, how are we going to realistically meet our increasing power needs without dramatically increasing our carbon emissions, let alone reducing them?

Even the United Nations seems to have thrown in the towel on the Kyoto targets of reducing emissions to 1990 levels in favour of holding steady at today's levels. The anti-nuclear advocates are pinning their hopes on alternative energy sources like wind, solar power and biofuels, plus a massive reduction in consumption through conservation.

Personally, I'm a big fan of geothermal, but I see no way the impact will be great enough to stop the growth in fossil fuels.

As James Lovelock states in summing up the sentiments of the 9,000-plus members of Environmentalists for Nuclear Energy, in light of the massive threat posed by global warming "we cannot continue drawing energy from fossil fuels and there is no chance that the renewable, wind, tide and water power can provide enough energy and in time."

Canada contemplates nuclear solution to quell climate change

Canada is poised to join an elite club of "advanced nuclear nations" that - led by U.S. President George W. Bush - plans to promote nuclear energy as a key solution to global warming and to control the international movement of enriched uranium and radioactive waste, CanWest News Service has learned.

Canada's membership in the controversial Global Nuclear Energy Partnership would open a new battlefront in the already divisive national debate over what this country should do to help avert a planetary climate change crisis.

And joining the partnership - initiated by the Bush administration last year, and now counting Russia, China, Japan and France as members - could raise thorny questions about the costs and benefits to Canada, including potential impacts on the country's thriving uranium export industry, its CANDU reactor sales and its capacity to dispose of nuclear waste.

Responding to a CanWest News Service request about Canada's possible involvement in GNEP, a Foreign Affairs spokeswoman said: "Canada has been invited to join the Global Nuclear Energy Partnership and to participate in the next meeting scheduled to take place on September 16 in Vienna."

The statement added: "Canada is reviewing the proposed GNEP Statement of Principles and a decision on Canadian participation will be made shortly."

One of the key components of the partnership is its push for the development of "fast-cycle reactors" - not yet proven to work commercially - that would produce less nuclear waste, but could compete internationally with the CANDU.

Fallout over nuke plant hits B.C. legislature

Debate is starting to mushroom in the B.C. legislature over a nuclear power plant proposed for just outside its border in northern Alberta.

The NDP is leading the charge against Calgary-based Energy Alberta's plan to build a nuclear power plant 30 km west of Peace River and 70 km from the B.C. border, with energy critic John Horgan calling on the ruling Liberals to register opposition with Alberta Premier Ed Stelmach.

"British Columbians don't want a nuclear power plant next door and our government needs to make that crystal clear to the premier of Alberta," said Horgan yesterday.

Billions Up in Flames as Oil Firms Burn Gas

Energy producers waste about 40 billion dollars every year by burning off gas released at oil fields, says a new study commissioned by the World Bank.

The practice, known as flaring, also hastens climate change by spewing some 400 million tons of carbon dioxide into the atmosphere, says the study, billed as the first global survey supported by photos taken from satellites in space.

Scientists say carbon dioxide and other so-called greenhouse gases are mainly responsible for changes in global climate that are resulting in increasingly frequent and intense natural disasters and the spread to temperate regions of diseases once found only in the tropics.

The report, commissioned by the World Bank and conducted by the U.S. National Oceanic and Atmospheric Administration, estimates that last year, 5.5 percent of global gas production, or 27 percent of U.S. consumption, was lost to flaring.

"If the gas had been sold in the United States instead of being flared, the total U.S. market value would have been about 40 billion dollars," according to the study.

Aaron Russo, R.I.P.

As well expressed in his film, Russo found a frightening coincidence between the fledgling enforcement of a federal income tax and the 1913 creation, at Jekyll Island and at the behest of President Woodrow Wilson, of the Federal Reserve Bank which now issues us all our money, in the form of debt. Creation of the Fed was one of Wilson's greatest regrets. A mere three years after the Fed's initiation, Wilson said: “The growth of the nation ... and all our activities are in the hands of a few men ... We have come to be one of the worst ruled; one of the most completely controlled and dominated governments in the civilized world ... no longer a government of free opinion, no longer a government by conviction and the free vote of the majority, but a government by the opinion and duress of a small group of dominant men."

Thanks for all your hard work! Great articles!

According to Rules hiding trillions in debt:

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

If the world were infinite, and we could have infinite growth, maybe all this would be possible. We live in a finite world. I expect that sometime in the not too distant future we will be hitting peak real GDP. I talk about both of these ideas in my article Our World Is Finite: Is This a Problem?

Once we are past peak real GDP, the likelihood of paying back all of the promises in dollars that are worth anything near what they were when they were promised is zero. The system cannot deliver on its promises in any meaningful way.

I would be very surprised if we hadn't hit post real GDP already. My view is that the developing credit crunch is set to escalate dramatically over the next couple of months, involving a market crash of several thousand points and possibly banks runs.

This is a very dangerous time IMO, where the risk is that the system will default on almost all of its promises at once. The fear we saw in the markets before the rally began is nothing compared to a full on market panic. As Don Sailorman rightly says, we aren't there yet, but I would disagree with his faith in the Fed and other central banks. We aren't there yet, but I think it is inevitable that we will be, and in the near future as well.

Axel Weber, the president of the Bundesbank, is arguably the most powerful man in European finance, despite the ECB. His remarks merit scrutiny. The core of his argument is that today looks a lot like the eve of Great Depression, but there is a big difference. The "bank run" is now a commercial paper, or money market, run. Investors are well aware that banks have no money. The by far largest part of credit (debt, money) creation has taken place outside the traditional banking system. One look at the derivatives markets makes that painfully clear.

Credit turmoil ‘has hallmarks of bank run’

Mr Weber told fellow central bankers and economists at the Federal Reserve’s Jackson Hole symposium that the only difference between a classic banking crisis and the turmoil under way in the markets is that the institutions most affected at the moment are conduits and investment vehicles raising funds in the commercial bond market, rather than regulated banks.

These entities were inherently vulnerable to a sudden loss of confidence on the part of their funders because “there is a maturity mismatch” on the part of financial institutions that have invested in long term mortgage-backed or asset-backed securities using short-term finance.

“Most of the conduits are owned by the banks,” he said. In many cases, sponsoring banks are being forced to take risky assets back onto their balance sheets, in turn causing banks to keep hold of their own cash, putting pressure on short-term money markets, he argued.

I have said elsewhere and before that Bernanke and the Fed are like France and the Maginot Line. They are clearly fighting the last war and the world economy is doing a blitzkrieg around them.

The wealthy have lost control of the beast they have created and now it is going to eat them too, or at least some of them. Those who survive this may expect to become the next generation of masters but reality may be about to throw in several curve balls all at once.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

I agree GreyZone. The sum of millions of short-term, self-interested decisions has resulted in a system that has been taken to its logical conclusion, and is now about to fail, as all Ponzi schemes do. There will be no controlling the chaotic unwinding proces IMO, and many of the erstwhile beneficiaries are likely to find themselves looked to as scapegoats when the recriminations begin.

Peak Plunder (peak booty?)

The "masters of the universe" have sucked the profit out of every possible situation around the world.

Then they sucked the FUTURE profit up too.

Thats it! Game over!

Don't know about you Souperman2 but I've never thought it was much of a game anyway, maybe we can do better next time. It still is a beautiful world though and maybe there will be something of it left if we get a big enough crash to kill capitalism corporatism and the 'work ethic', especially that last one.(dream on eh?) ... Maybe try imitating the lilies of the fields that next time.

BTW(for those who have spent their days with noses to the grindstone, that thing about lilies ends saying,...'neither do they spin nor do they toil, yet see how God has clad them.' or worthy words to that effect.)


With all the fuzzed and befuddled numbers coming from US government entities, I'd say it's impossible to calculate "Real GDP" these days. And that logically means we may be well past its peak.

In Chavistan it's called "infinite variance"


Looks like a lot of great stuff on GW and will print a bunch to read tonight, no time now as this rabbit has many local dark holes to drop down into today, but I noticed that Burgandy gave out with an interesting link the other day and want to pass it on. Among other disasters it gives an idea about food production, World and local. Scroll down to "CROP fAILURE/FOOD SHORTAGES".

From the link above:

Looming Food Crisis - the surge in demand for agrofuels such as ethanol is hitting the poor and the environment. A "perfect storm" of ecological and social factors appears to be gathering force, threatening vast numbers of people with food shortages and price rises. The era of cheap food is over. World commodity prices of sugar, milk and cocoa have all surged, prompting the BIGGEST INCREASE IN RETAIL FOOD PRICES IN THREE DECADES in some countries. "Meat, too, will cost more because chicken and pigs are fed largely on grain." The world price [of maize] has doubled. 850m people around the world are already undernourished. There will soon be more because the price of food aid has increased 20% in just a year.

In the US, where nearly 40 million people are below the official poverty line, the Department of Agriculture recently predicted a 10% rise in the price of chicken. The prices of bread, beef, eggs and milk rose 7.5 % in July, the HIGHEST MONTHLY RISE IN 25 YEARS. Reports suggest that one-third of ocean fisheries are in collapse, two-thirds will be in collapse by 2025, and all major ocean fisheries may be virtually gone by 2048. 15% of the world's present food supplies, on which 160 million people depend, are being grown with water drawn from rapidly depleting underground sources or from rivers that are drying up. In large areas of China and India, the water table has fallen catastrophically.

In Britain, the recent floods will result in a shortage of vegetables such as potatoes and peas, and cereals such as wheat. This comes on top of a 4.9% rise in food prices in the year to May and a 9.6% hike in vegetable prices. Rain-dependent agriculture could be cut in half by 2020 as a result of climate change. "Anything even close to a 50% reduction in yields would obviously pose huge problems." "The competition for grain between the world's 800 million motorists, who want to maintain their mobility, and its two billion poorest people, who are simply trying to survive, is emerging as an epic issue." It is not going to get any better. The UN's World Food Organisation predicts that demand for biofuels will grow by 170% in the next three years. A separate report from the OECD, the club of the world's 30 richest countries, suggested food-price rises of between 20% and 50% over the next decade.

This time last year, there were fewer than 100 ethanol plants in the whole United States, with a combined production capacity of 5bn gallons. There are now at least 50 more new plants being built and over 300 more are planned. If even half of them are finished, they will help to rewrite the politics of global food.

"The competition for grain between the world's 800 million motorists, who want to maintain their mobility, and its two billion poorest people, who are simply trying to survive, is emerging as an epic issue."

And, just to confirm my big picture understanding of biofuels, is it fair to say that biofuels effectively do nothing to improve the fossil fuel situation, since their EROEI is so low? In other words, we 800 million are putting 2 billion at greater risk for no good reason,



Thanks, this time I tried a bit longer, and actually managed to find the category. The info is good, the interface is a prime candidate for worst on the web. I'm always sorry to see these things.

Thanks for all the articles! For the first time I can really see how desperately bad the situation has become. The world food situation concerns me the most. I actually missed my lunch today and got really hungry and irritated as the day passed. If one missed lunch can do that, I feel sick just imagining what a real famine will be like.

We pull together so many articles, and order them coherently, precisely so the big picture will become clearer. There's a great deal of ground to cover in order to convey the scope of the challenges we face - financial, sociopolitical, energetic, environmental, organizational etc. It is a multi-faceted problem with no obvious solution.

Big picture for sure - bigger than I can get my head around, and an unremittingly depressing picture at that. Sometimes I don't know how I can stand reading so much about all this, and I don't know how you stand gathering it all up. Blissful ignorance has its attractions.

Oh well, the truth hurts, and it is a valuable service!

This one's for the remaining 99% of Canadians (and others) who still believe in the "robust economy" hologram:

When the Financial Times starts writing, it's serious. All they talk about, though, is still the known investments in securities, and it looks like that's just domestic. What pension funds, banks, and other funds hold in US paper that's never been properly rated or marked is a whole different, and added, story.

The move by the Caisse et al was already a strange one (it unilaterally saddled investors with long-term paper), and it didn't do much of anything. My gut says Canada, like Europe and Asia, holds a lot of empty paper, much of which will be forcibly re-rated later this year, and prove to be worth pennies on the loonie.

Credit crunch threat to Canadian growth

A continuing liquidity crunch in Canada’s asset-backed commercial paper market is triggering a sharp contraction in the availability of credit, threatening to cut short the economy’s robust growth.

The problems are striking, given that the Canadian authorities organised a highly unusual restructuring of ABCP paper last month – a move intended to bring an end to the liquidity squeeze and restore confidence.

Bankers globally will be closely watching developments, particularly as similar pressures are emerging in Europe and the US.

The Canadian crisis stems from issuers’ inability in mid-August to roll over maturing issues as a result of turmoil in the US subprime market, investors’ diminishing appetite for risk, and the failure of emergency liquidity provisions of some commercial paper issues.

Many of the issues are supported by foreign banks, including ABN Amro, Deutsche Bank, HSBC and UBS. Commercial paper backed by the big six Canadian banks has been largely unaffected. Although some steps have been taken to avert a forced liquidation of assets, an executive at one mortgage-securitisation company said the market remained “frozen”. Some big issuers of asset-backed paper are still unable to find buyers, forcing them to warehouse securities and, in some cases, draw on bank loans.

Ted Carmichael, chief economist at JPMorgan Canada, said the crisis had led to “an unprecedented widening of short-term credit spreads and a contraction of short-term business financing”. He added that “downside risks to growth have increased significantly”.

The value of outstanding asset-backed commercial paper stood at C$116.3bn ($110bn) at the end of June, or two-thirds of the total asset-backed securities market, according to DBRS, a credit-rating agency.

Automotive loans, mortgages and structured financial assets each make up more than 20 per cent of securitisations. DBRS is reviewing the ratings of 17 non-bank commercial paper programmes.

Well a lovely sumnny day yesterday, a big and welcome change here on Vancouver Island , also I think a welcome change for the local bee population.

Had a bunch of dreary chores to do but with the weather finally sunny, on motorcycle, and a fun stop at the local purveyor of beekeeping supplies figured it wouldn't be all that onerous. Weather stayed great but there was no expected sunshine in the eyes of said purveyor. The long and short is that with all the bad cloudy cold and wet weather here the bees have been unable to produce.

I was told that everyone has begun feeding their bees sugar to help them build up stores for winter. The Bee Lady went on to say that with their 400 hives they expected to go from no feeding for winter to using four pallets of sugar worth 3200 dollars, I forget how much that amounted to in lbs.

I have checked the weight of my hive and have started to put the sugar syrup to them as well as the mite strips I originally went to buy. No winter honey for this dilettante beekeeping bunny this year.

Besides the bees the my fruit trees and garden have been really set back with things like peaches and plums nearly a month late , cool weather things are not too bad but anything with a need for sun is desperate. Kentucky as Airdale has mentioned is having drought, here we have what could be called a reverse drought, I guess to balance things off.

Once upon a time there was the "Great Depression" that frightened not only children but adults. Let's review what the leading "economists" of that day said about that depression, shall we?

"We will not have any more crashes in our time." - John Maynard Keynes in 1927

"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

"There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding." - Calvin Coolidge December 4, 1928

"There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929

"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

"There will be no repetition of the break of yesterday... I have no fear of another comparable decline." - Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." - Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." - R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929

"Buying of sound, seasoned issues now will not be regretted" - E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929

"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom." - R. W. McNeal, financial analyst in October 1929

"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

"Hysteria has now disappeared from Wall Street." - The Times of London, November 2, 1929

"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before." - Business Week, November 2, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." - Harvard Economic Society (HES), November 2, 1929

"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." - HES, November 10, 1929

"The end of the decline of the Stock Market will probably not be long, only a few more days at most." - Irving Fisher, Professor of Economics at Yale University, November 14, 1929

"In most of the cities and towns of this country, this Wall Street panic will have no effect." - Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

"Financial storm definitely passed." - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have reestablished confidence." - Herbert Hoover, December 1929

"[1930 will be] a splendid employment year." - U.S. Dept. of Labor, New Year's Forecast, December 1929

"For the immediate future, at least, the outlook (stocks) is bright." - Irving Fisher, Ph.D. in Economics, in early 1930

"...there are indications that the severest phase of the recession is over..." - Harvard Economic Society (HES) Jan 18, 1930

"There is nothing in the situation to be disturbed about." - Secretary of the Treasury Andrew Mellon, Feb 1930

"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

"... the outlook continues favorable..." - HES Mar 29, 1930

"... the outlook is favorable..." - HES Apr 19, 1930

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." - Herbert Hoover, President of the United States, May 1, 1930

" May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..." - HES May 17, 1930

"Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

"... irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930

"... the present depression has about spent its force..." - HES, Aug 30, 1930

"We are now near the end of the declining phase of the depression." - HES Nov 15, 1930

"Stabilization at [present] levels is clearly possible." - HES Oct 31, 1931

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933

Note the persistent optimism. Note that it took 4 years from the crash until the government seized people's gold (which was one of the primary points of the 1933 order). I could go on but this is already probably more than many people are willing to digest.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

Thanks GreyZone - I've seen that before, but couldn't remember where I'd found it. Do you have a link? If so I'll put it in the next Round-Up where more people will see it.

That kind of cheerleading all the way down is what I would expect to see again, but the timescale could be more compressed this time. Although those who expressed such sentiments may have sincerely believed them, the effect was to nevertheless to keep more people in the market and buying the dips. In other words, the effect was to keep the pool of suckers as large as possible, allowing a larger percentage of the well-connected to cash out (at the expense of those suckers) than would otherwise have been the case.

People are conditioned to buy the dips, thinking that they're getting a bargain, but IMO that would be disastrous this time. We're still very close to a historic market top and a very long way from anything even vaguely resembling a bottom. The time to buy stocks as a bargain is when no one else would touch them with a barge pole, the conventional wisdom is that stocks are poison, and anyone you tell about your plans to buy would try hard to discourage you (perhaps telling you that you're crazy). When the world is cheerleading for stocks, then it's time to be out of the market.

There may, or may not, have been intentional deception in the 1930s, and there may, or may not, be intentional deception this time (IMO there will be), but people would do well to heed the lessons of the earlier era and not allow themselves to be turned into a new generation of empty bag holders.

I don't recall where I got that. I have it stored on my personal website, which I am not going to link here.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

Thanks from me too GreyZone,

And following from that, my experiences during the dot com bubble read like a mini version of the above. The bread I had invested in the market at the time a largish amount was whittled down to 60% and only got that out by finally in desperation firing the cheerleader broker I had.

I have never run into a broker or any person in the financial business who has warned me of doom and gloom approaching and the current situation is no exception. No matter how honest or busy looking after your interest they are, they will boost even the most desperate of markets.

In a way I understand their position and how they are, I feel, run by their masters the analysts and the ones who own the annalists. That is to "Keep the punters in there or the whole dirty business will collapse, guys".

I have a interesting day before me today, as I have to go visit mine broker and while he is a great guy and salt of the earth he is still a broker and will be expecting me to jump back into the fray, so I expect to see the tears of a 'father disappointed in his favourite child' in his eyes.Especially when he learns of my plans for the future:)

BTW GreyZone, I will copy your bluebox text and hold it like a cross before me.


Looks like TGTDETDBO (the gnomes that destabilize everything that doesn't bend over) may have scored something in Venezuela
(scroll down a bit)

No mention anywhere in the MSM.

Any ideas?

Venezuela is on the tape--yes, Venezuela--as Bloomberg reports that overnight rates soared from an average of 22% yesterday to as high as 90% today and the central bank has suspended loans.

Does this matter? You betcha, Minyans--in a globalized machination tied together by $500 trillion in derivatives, it all matters. It's just a function of what matters when and how much.