A warning to those who think that this story being off the front page means it’s over.

It’s not.

I am getting repeated reports that farmers and other producers are turning increasingly to direct deals with the users of their products, eschewing the futures markets entirely.

These are not speculators.  These are the people who grow the corn, wheat, soybeans and other products you wish to buy in “processed” form.

This is exactly what I warned might happen, and it appears that it is.

It is an extremely dangerous trend for consumer price stability and in fact for the stability of our nation’s economy in general.

Futures markets in various forms are not new constructs.  They literally date to the East India Tea Company with spice contracts.  They are necessary lubricants for price stability and the even functioning of markets.

Some very ordinary transactions that we have all become accustomed to are at risk of disappearing entirely.  Among them are airline tickets at a known price for travel six months from now.  Reasonably-stable prices for a box of cereal are another example (corn has traded from 572 to 799 in the last year; a forty percent range over the last 12 months; soy and wheat have seen similar moves); indeed, virtually every food item in your store, from orange juice to bacon (pork bellies) is hedged off in these markets!

The move to direct transactions means that the reasonable stability we have enjoyed in these transactions, or even the ability to enter into them at all over a horizon of more than a month or two, is at risk of disappearing!

I warned when this story first broke that the danger was much more severe than being reported and that in fact the financial media was downplaying the importance of this fiasco.  It was (and is) my expectation that if there is another event of this sort the entire futures market structure for hedging these prices would be likely to collapse.

But now the cracks are becoming evident around the edges anyway.

The producers don’t have to put up with this crap and they are beginning to vote with their feet.

The unwillingness of the government, from Obama and Eric Holder on down, to demand that these funds be returned to the segregated client accounts immediately irrespective of who holds them and irrespective of how, with sorting out who goes to prison for the actions behind their loss, if anyone, at a later date is a failure that the markets appear to be taking very poorly.

If you think this story is “over” because it’s no longer front-page news, you’re wrong.  Keep your ear to the ground on this one — it is rather likely that more unpleasant surprises are going to be forthcoming in this sad saga.

(Reuters) – For the first time in 25 years, Minnesota farmer Dean Tofteland has missed his deadline to buy seed for next spring’s corn and soybean crops.

With $200,000 of his money yet to be returned from the accounts of MF Global, his former broker, the 49-year-old farmer has missed a $5,000 discount for early buyers, and is watching friends and neighbors snap up the best varieties of seeds.

In the latest sign of how MF Global’s failure is continuing to cascade across the commodity industry, Tofteland and other farmers who have yet to recover more than a third of their money from the bankrupt broker now find themselves in a cash crunch that risks rippling far beyond the futures market.

Some farmers have had to postpone purchases of land or equipment. Tofteland still expects to sow his 1,000 acres in the southwest corner of the state, but may have to borrow money to do so.

Still, the delay in returning billions of dollars in customer funds more than a month after MF Global filed for bankruptcy is starting to affect actual decisions on the farm. This threatens to cloud the outlook for U.S. crops, warn farmers who have been ratcheting up pressure on the bankruptcy trustee to move faster to disperse any cash he secures.

“That’s pretty serious when you’re raising food for the country and the world,” Tofteland said.

For most farmers, the fact that their broker may have taken as much as $1.2 billion of customer money for its own use is bad enough. But the seasonal business of farming is now being disrupted since regulators still can’t account for the missing funds, or even agree how big the hole is.

The chief regulatory officer for CME Group said on Tuesday the exchange was confident after more investigations that some of the higher estimates of the shortfall in MF Global customer funds were inflated. CME was MF Global’s main regulator at the exchange level.

“The amount of money that we have tied up is significant,” Tofteland said. “Because of this I’ve been delaying my seed purchase decisions.”

Tofteland normally would have made his purchases at least two weeks ago to take advantage of discounts for farmers who buy early. He has avoided borrowing money in order to do so because he does not want to take on more debt but says he will consider a loan if the delay persists.

Tofteland worries his harvest next fall will suffer because the best-performing types of seeds will likely be sold out by the time he makes his purchases. He still plans to plant his crop in the spring.

DAWNING IMPACT

Farmers are among the thousands of former MF Global clients who are missing money from the brokerage. The firm run by former New Jersey Governor Jon Corzine, an ex-CEO of Goldman Sachs, collapsed on October 31 after making bad bets on European debt.

The bankruptcy had an immediate impact on farmers’ abilities to hedge their crops at grain exchanges. Many had to liquidate positions or put up additional cash to meet margin calls after their accounts were transferred from MF Global to other brokerages.

Now, the collapse has begun to impact farm decisions that can directly affect output.

In Montana, Marty Klinker, who grows wheat and barley, is missing about $275,000 from his accounts at MF Global. He said the shortfall caused him to delay buying more than $500,000 worth of farm equipment, including a tractor and combine, from manufacturer Case IH.

Klinker didn’t know whether he would eventually buy the equipment, which would replace older models on his farm. He said he has to decide by the end of the year to take advantage of prices he previously negotiated with the company.

Case is a brand of CNH, a majority-owned subsidiary of Italy’s Fiat SpA. A Case spokesman did not respond to a request for comment.

“We’re right in the middle of year-end equipment decisions,” Klinker said.

FARMERS CAUGHT OFF GUARD

MF Global’s collapse has not completely halted farm purchases.

Stine Seed, which calls itself the largest independent U.S. seed company, has not seen a slowdown in sales, said Myron Stine, vice president of sales and marketing.

Yet, other agribusiness professionals confirm shockwaves from the bankruptcy have disrupted plans affecting crop production.

Diana Klemme, a broker for Midwest grain elevators and vice president of Grain Service Corp in Atlanta, said one of her clients was holding about $400,000 cash in an MF Global account at the time of its collapse. The client had to delay purchasing some land because the money had been frozen, she said.

Farmers were caught off guard by the disappearance of their money because it was held in segregated accounts considered to be immune from troubles at brokerages. Several farmers said they had felt it was safer to keep cash in the accounts than at local banks.

(Reporting by Tom Polansek; Additional reporting by Jonathan Spicer in New York and Dave Clark in Washington; Editing by Dale Hudson)

It does not help your case when you make absurd statements to support your views. All it does is damage your credibility. Here are a couple of completely unrelated viewpoints that will show what I mean.

“No Food at Any Price”

Speaking on food shortages, Jim Rogers says Global Agriculture Supply Worsening May Spur Food Shortages

The global agriculture supply situation has worsened and a failure to boost food production fast enough to meet demand may lead to shortages, said investor Jim Rogers, chairman of Rogers Holdings.

“We’ve got to do something or we’re going to have no food at any price at times in the next few years,” Rogers said in a Bloomberg Television interview with Rishaad Salamat today in Singapore. “I still own agriculture. If I found something to buy, I would buy it.”

Rogers likes agriculture. Maybe he’s right, and maybe not. However, the notion “We’ve got to do something or we’re going to have no food at any price at times in the next few years” is one of the more blatantly absurd things regarding food shortages that I have ever heard.

US has record grain forecasts. Even if you do not believe those forecasts, the US is going to have a good crop. How does that translate to “no food”? The short answer is “it doesn’t”.

Many reported shortages are weather-related. Some “alleged” shortages are not shortages at all, but unavailability because of government price controls. The rest of the “shortage” problem is  higher prices caused by speculation and/or rampant inflation in China and India.

The idea there will be no food at any price is absurd. There may not be food available at government mandated prices, but that is certainly not what Rogers said.

“U.S. Needs a Massive Public Works Program”

Barton Biggs Says U.S. Needs a Massive Public Works Program

Don’t expect the economy to perk up any time soon.

The U.S. and Europe are set to grow at an anemic pace for the foreseeable future unless the government can step in with an enormous fiscal stimulus, according to a veteran investor.

Speaking exclusively with The Wall Street Journal, Barton Biggs, managing partner at multibillion dollar hedge fund Traxis Partners, painted a bleak outlook for the developed world with only huge government intervention likely to improve things.

On the final day of the Federal Reserve’s bond-buying program, Mr. Biggs dismissed a further round of the so-called quantitative easing as a possible solution. It was meant to lower borrowing costs and simulate investment.

Instead, Mr. Biggs, former chief global strategist for U.S. investment banking powerhouse Morgan Stanley, demanded the U.S. government temporarily return to ideas used in the Great Depression as a way to get the country back to higher growth.

“What the U.S. really needs is a massive infrastructure program … similar to the WPA back in the 1930s,” he says.

He suggested financing such building through the sale of U.S. Treasuries.

Failure of Japan

It amazes me that apparently bright people can neither think nor see. Biggs is proposing the same medicine Japan tried. Where did it leave Japan? After 20 years of infrastructure projects, Japan has government debt to the tune of 200% of GDP and is still mired in deflation.

Looking Down the Road

Demographics and debt levels now are both far more precarious than they  were in the 30′s and 40′s. Worse yet, Davis-Bacon and prevailing wage  laws guarantee government will overpay for what it gets.

What if we tried the idea anyway? What if we fixed everything in 5 years?

The economy would boom for 5 years, then what? How would the US pay back that debt? What would happen to jobs the moment the projects finished? How would our children and grandchildren pay back that debt?

No Painless Solution, No Free Lunch

The very last thing the US needs is a massive infrastructure program paid for via the printing presses. Instead, we need to cut military spending, scrap Davis-Bacon, scrap prevailing wage laws, get rid of government workers, reduce public worker pensions, and get the budget in shape before the US becomes the next Greece.

Will that cause pain? Of course it will. However, Biggs wants a free lunch. If printing money solved problems, Zimbabwe would be the wealthiest nation on the planet.

Biggs Cannot See, Hear, Think

It  would help if Biggs could look at Greece, or Spain, or Portugal, or  Ireland. Those countries show what happens when debt gets excessive and the bond market takes matters into its own hands.

The  logical conclusion is Biggs is cannot see, hear, or think.

Perhaps Biggs is simply talking his short-term book with complete disregard to what his proposal would do to our children and grandchildren, so that he could have one last party.

Mike  “Mish”  Shedlock
Global economic Analysis

Gee, what’s this from Hoenig?

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

And what did I post a good long while back?

http://www.youtube.com/watch?v=mys2ocTbmAo

That was the second version, and now that Hoenig has admitted it, well…..

Where are the handcuffs for BendOverBernanke?  It’s a crime to lie to Congress!

The Market-Ticker

A couple of revealing charts from the Fed’s Flow of Funds data.   Both show net flows into Treasuries by creditor type and the Federal Government’s borrowing during each quarter.   Note, the quarterly data is annualized.

The first chart illustrates how QE2 flushed domestics out of Treasuries and effectively funded 63 percent of the budget deficit in Q4.  The Treasury is prohibited from directly selling bonds to the central bank, but effectively finances the government through POMO.

Given that a large portion of the Rest of World category are central banks recycling BOP surpluses,  it’s likely that 90 percent of the U.S. budget deficit in Q4 was funded by central banks.    You think this may have anything to do with what’s happening in the commodity markets?   That is, the central banks’ printing presses providing the fuel for speculators?

Furthermore, we ask: who is going to finance the U.S. budget deficit when QE2 ends, especially at a sub 3.50 percent 10-year Treasury rate?    Bill Gross knows!

(click here if charts are not observable)

Macromon

The media is finally waking up.  Along with Fox News’s Larry Kudlow, now Dylan Ratigan of MSNBC sees the clear correlation between the Federal Reserve (with permission from Congress) devaluating the US dollar (QE I, II and lordknowshowmanymore) and the skyrocketing prices of essential commodities for the rest of the world.  The simple fact is that commodities are priced in US dollars.  If the dollar is going down in value, it takes more of these other countries’ currency to purchase them.  All countries other than the US must first exchange their own currency for US dollars before purchasing needed commodities like wheat, beans, rice and sugar.  This makes essential food impossible for them to afford. 

Egypt used to produce nearly all the wheat it needed to sustain its people – but now, it imports almost all of its wheat supply.  In the past year, Egypt has experienced a 47% increase in the price of its wheat.  For people making only $2.00/day on average, exactly how long is it before many starve?  This situation is playing out across the globe.  Starving people do desperate things.

Visit msnbc.com for breaking news, world news, and news about the economy

Now when you turn on the news and you watch the violence breaking out all over the world, you’ll know who to blame.  While you’re at it, realize that the other pertinent fact here is that all this US dollar devaluation is for one reason and one reason only:  to hide the insolvency of the major US banks.  These are the very same banks commiting massive fraud against millions of homeowners across the country.   The very same banks that Congress forced you to support with your taxpayer money.

The banks, Congress and this Administration is desperately hoping you don’t figure this out.  Our government is now completely devoid of any morality or ethics.  Are you?

The Cycle of Corruption

Some (Like Nutting) Really Are Nuts

From Marketwatch:

As much as he might like to take credit for the march of democracy, Bernanke wouldnt do it when he was asked about it on Thursday. He said higher prices reflect strong global demand for commodities due to high growth rates in the emerging economies, not to anything the Fed is doing.

Right.  This is why the following charts are what they are:

Cotton:

Wheat:

Sugar:

Corn:

We can keep going, but I think you get the point.  When did all of these charts start to move like this?

Right around the time that Bernanke started chattering about QE2.

High “growth rates” in emerging markets started….. when? 

Remember, the global economy allegedly came out of recession more than a year earlier, in 2009, and in fact China posted an 8.7% full-year 2009 growth rate, including the first two quarters – their 4th quarter figure from 09 was 10.7%.

So why did the price ramp not start until more than a year later, when QE2 was talked about?

Kudlow and other critics of the Fed are confused. They think that because many commodities are priced in U.S. dollars that means that any price movements can be traced back to U.S. policies. But the fact that oil and other commodities are priced in dollars is irrelevant in a world of floating exchange rates.

It is?

The Egyptian Pound (EGP) has been pegged to the dollar on an effective basis since 2005.

Their compound inflation rate over the last three years is 45%. 

That is, the cost of living has risen 45%.

Their per-capita GDP is 1/17th of ours, and hasn’t materially expanded during that time.

Our per-capita GDP is $47,000, which is quite close to median household income (right near $50k.) 

Their per-capita GDP is $2,700 (both from the CIA World Factbook.)

Would you like to run the numbers on what a 45% increase in the CPI would do to someone living here with a $2,700 per-capita domestic output (which likely closely approximates household income there too)? 

That person would starve…. and maybe riot, eh?

Just because it costs more dollars to buy a barrel of oil or a bushel of wheat doesnt mean that it will also cost more euros, or Egyptian pounds, or Chinese yuan to buy that barrel or bushel. Its the exchange rate that matters, not the level of the federal funds rate.

The Egyptian Pound is pegged to the dollar. 

You can argue that it shouldn’t be, but right now it is and has been on an effective basis since ’05.

Bernanke 0, everyone else who has pointed out the facts (that you refuse to look at) 1.

Before blowing smoke out one’s butt, one should check the facts, especially when they’re right under your nose.

The Market-Ticker

In a shocking new interview, Donald Trump has gone farther than he ever has before in discussing a potential economic collapse in America.  Using phrases such as “you’re going to pay $25 for a loaf of bread pretty soon” and “we could end up being another Egypt”, Trump explained to Newsmax that he is incredibly concerned about the direction our economy is headed.  Whatever you may think of Donald Trump on a personal level, it is undeniable that he has been extremely successful in business.  As one of the most prominent businessmen in America, he is absolutely horrified about what is happening to this nation.  In fact, he is so disturbed about the direction that this country is heading that he is seriously considering running for president in 2012.  But whether he decides to run in 2012 or not, what Trump is now saying about the U.S. economy should be a huge wake up call for all of us.

Trump says that the U.S. government is broke, that all of our jobs are being shipped overseas, that other nations are heavily taking advantage of us and that the value of the U.S. dollar is being destroyed.  The following interview with Trump was originally posted on Newsmax and it is really worth watching….

Now, you may or may not think much of Donald Trump as a politician, but when a businessman of his caliber starts using apocalyptic language to describe where the U.S. economy is headed perhaps we should all pay attention.

The following are 12 key quotes that were pulled out of Trump’s new interview along with some facts and statistics that show that what Trump is saying is really happening.

#1 “If oil prices are allowed to inflate and keep inflating, if the dollar keeps going down in value, I think there’s a very distinct possibility that things could get worse.”

Donald Trump is exactly right – we are headed for big trouble if we continue to allow the Federal Reserve to pump hundreds of billions of new dollars into the system.  As I have written about previously, all of this new money will give us the illusion of short-term economic growth and it will pump up the stock market, but in the end all of the inflation the new money is gong to cause is going to be very painful.  Just look at how rapidly M1 has been skyrocketing over the last couple of years.  Is there any way that we are going to be able to avoid paying a very serious price for all of this reckless money printing?….

Already all of this money printing has had a very serious affect on world financial markets.  The price of agricultural commodities is skyrocketing and the price of oil has almost reached $100 a barrel once again.  The last time that the price of oil soared above $100 a barrel was in the early part of 2008, and we all remember the horrific financial collapse that followed in the fall of 2008.

#2 “….you’re going to pay $25 for a loaf of bread pretty soon. Look at what’s happening with our food prices. They’re going through the roof. We could end up being another Egypt. You could have riots in our streets also.”

The price of corn has risen 88 percent over the past year and the price of wheat has soared a whopping 114 percent over the past year.  Let’s hope that we don’t have to pay $25 for a loaf of bread in the United States any time soon, but in some areas of the world that is what it now feels like.

Approximately 3 billion people in the world today live on the equivalent of $2 a day or less, and most of that money ends up getting spent on food.  When food prices go up 10 or 20 percent in deeply impoverished areas of the globe, suddenly the lives of millions are threatened.  The riots that we have seen in Egypt, Algeria, Tunisia and other nations recently were not entirely caused by rising food prices, but they were certainly a big factor.

#3 “I think gold will go up as long as people don’t have confidence in our president and our country. And they don’t have confidence in our president.”

Investors run to gold and other precious metals when they don’t feel secure.  We saw that happen a lot in 2010.  As confidence in the paper currencies and the financial systems of the world has rapidly diminished, precious metals have become increasingly attractive.

In fact, the price of gold has doubled since the beginning of the economic downturn in 2007.  As the global financial situation continues to become more unstable, the demand for precious metals is likely only going to become more intense.

#4 “The banks have really let us down. Number one, they did some bad things and caused some bad problems. Number two, if you have something that you want to buy, like a house, they’re generally not there for you.”

Banks were given massive bailouts with the understanding that they would open up the vaults and start lending money to average Americans again.

Well, that has not happened.

In particular, it has become much, much harder to get a mortgage in the United States today.  Not that the big banks didn’t need to make changes to their lending practices, but things have gotten so tight now that it is choking the real estate market to death.

#5 “I see $3.50 for a gallon of gas for cars, and cars are lined up trying to get it and it’s $3.50. It’s a shame, a ridiculous shame.”

Our lack of a cohesive energy policy is a national disgrace.  There is no way in the world that a gallon of gas should be $3.50 a gallon.

The U.S. has massive reserves of oil and natural gas that it should be using.  In addition, the lack of progress on developing alternative energy sources in light of our sickening dependence on foreign oil is very puzzling.  We should be very far along towards solving our energy problems by this point.

Meanwhile, we keep pouring billions into the pockets of foreign oil barons every single month.  Unfortunately, Trump was exactly correct in the interview – if something is not done the price of gas is going to keep going higher.

#6 “I think the biggest threat is that our jobs are being stolen by other countries. We’re not going to have any jobs here pretty soon.”

Donal Trump is one of the few prominent leaders that is openly speaking the truth about the predatory economic practices of some of our “trading partners”.  Most of our politicians have just kept endlessly promising us that free trade is “good for us” even as tens of thousands of factories and millions upon millions of jobs have been shipped overseas.

Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs.

Yes, computers and robots have replaced a lot of manual labor today, but technology does not account for most of the decline we have seen in manufacturing.

n 1959, manufacturing represented 28 percent of all U.S. economic output.  In 2008, it represented only 11.5 percent.  Meanwhile, manufacturing in the “developing world” has absolutely exploded.

#7 “We’re like a whipping post for other countries. We are standing there and just being beaten by South Korea, by Mexico, by China, by India.”

Most Americans have absolutely no idea how lopsided many of our “trade agreements” actually are.  Other nations openly manipulate their currencies in order to keep their exports dirt cheap and we allow it.  Other nations openly subsidize their domestic industries that are directly competing with businesses in the United States and we don’t complain.  Other nations make it incredibly difficult for American companies to do business in their countries while we allow foreign corporations to come on in and do pretty much whatever they want here.

Then there are certain nations (such as China) that brazenly rip off trade secrets from foreign corporations time after time after time and never get penalized for it.

Meanwhile, our economy continues to bleed jobs at a staggering pace.  The number of net jobs gained by the U.S. economy during this past decade was smaller than during any other decade since World War 2.

Fortunately, more Americans than ever seem to be waking up and are realizing that globalism is causing many of these problems.  A NBC News/Wall Street Journal poll conducted last year discovered that 69 percent of Americans now believe that free trade agreements have cost America jobs.

#8 “All of our jobs are going to China. We’re rebuilding China and other places.”

China is doing great.  China is now the number one producer in the world of wind and solar power.  They now possess the fastest supercomputer on the entire globe.  China also now has the world’s fastest train and the world’s biggest high-speed rail network.

Most Americans don’t realize that China is literally kicking the crap out of us.

Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

Every single month we buy about 4 times as much stuff from them as they buy from us.  Our trade deficit with China has ballooned to enormous proportions.  In fact, the U.S. trade deficit with China during this past August was more than 4,600 times larger than the U.S. trade deficit with China was for the entire year of 1985.

So when Donald Trump says that we are rebuilding China he is not joking around.

Nobel economist Robert W. Fogel of the University of Chicago is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040 if current trends continue.

Yes, that is how serious things have become.

#9 “We are a laughingstock throughout the world.”

Donald Trump has said on several occasions that his friends and business partners in China just laugh and laugh at us.  They can’t even believe what they are getting away with.

We have become an incompetent giant that is the butt of all the jokes.

According to Stanford University economics professor Ed Lazear, if the U.S. economy and the Chinese economy continue to grow at current rates, the average Chinese citizen will be wealthier than the average American citizen in just 30 years.

Our formerly great industrial cities are slowly becoming ghost towns.  The number of long-term unemployed Americans is at an all-time high.  Tens of millions of Americans can’t even survive without government assistance anymore.  The number of Americans on food stamps set a new all-time record every single month during 2010, and now well over 43 million Americans are enrolled in the program.

We really have become a joke.

#10 “The federal government has no money.”

Unfortunately, our federal government has continued to borrow and spend like there is no tomorrow.

According to the Congressional Budget Office, the U.S. government will have the biggest budget deficit ever recorded (approximately 1.5 trillion dollars) this year.

So much for fiscal discipline, eh?

It is being projected that the U.S. national debt will increase by $150,000 per U.S. household between 2009 and 2021.

Do you have an extra $150,000 to contribute for your share?

By 2015 our national debt will be somewhere in the neighborhood of 20 trillion dollars.

It is the biggest mountain of debt in the history of the world by far, and it is the gift that we are going to pass down to future generations of Americans.

If there are any future generations of Americans.

#11 “I hate what is happening to this country.”

We should all hate what is happening to this country.  Our economic guts are being ripped out, we are being abused by the rest of the world, America’s infrastructure is being sold off piece by piece, our federal government is drowning in debt, our state governments are drowning in debt and our local governments are drowning in debt.

The only way we can even keep going is to run around to the rest of the world and beg them to keep lending us more money.

The mainstream media keeps proclaiming that we are the greatest economy on earth, but the truth is that we are being transformed into a pathetic loser and our politicians are just standing there with their hands in their pockets letting it happen.

All red-blooded Americans should be horrified by what is happening to this nation.  We have been betrayed by corrupt and incompetent leaders.  As a nation, we have become fat, lazy and stupid.

Hopefully what Donald Trump and others are saying about a coming economic collapse will serve as a huge wake up call and the sleeping giant will arise once again.

If the sleeping giant does not arise, we are in a massive amount of trouble, because right now the road we are on is leading to the biggest economic collapse the world has ever seen.

The Economic Collapse