Russian re-collapse...

I'm not much on calling catastrophes, but I think the economic sanctions derided as too little and too feeble by the die-hard hawks in DC are seriously biting Putin's butt.

There has been little attention to this in the western media, but the Russian ruble has suffered a major decline in the last few months.  Earlier this year it was running around 25-30 to the US dollar.  Now the official rate is at 40, but the black market rate is at 50 and falling.  There is major capital and human flight going on that is attracting increasing comment in Russian sources.
Two pro-Putin economists have subtly noted problems.  In English in Russia Behind the Headlines this past week, Alexander Shokhin, Director of the Union of Industrialists, has argued that the fall of the ruble will have some positive effects, particularly in the agro-industrial sector.  However, he also warns that it will be damaging in the high technology sector, along with the sanctions, most notably in the nanotechnology sector, which was getting off the ground and has now come to a complete halt. [More]

In an instantaneous world, we have been reluctant to embrace long-haul foreign policy, such as the sanctions on Iran, even though patience seems to be a valid choice. I also think the mad rush to bomb is economic stupidity of the highest level and reveals the shallow thinking of deficit hawks in Congress. Not spending trillions on questionable conflicts is good for the economy.

I have not been thrilled with our ISIS response, but do support the slow vice of economic sanctions now taking a toll in Russia and Iran. It's not showy, but add in an oil price war and the oligarchs in Russia have some real headaches to deal with - all thanks to the breathtaking arrogance of their leader. 

There is a time for troops, but it is exceedingly rare IMHO. And should be.

Pakistan

Confused about Pakistan?...  

And Afghanistan? And India, China, Iran, etc.? Join the club. Sop I offer this imminently readable summary of the backstory and situation as it now sits. (It is also one of the slickest web-page articles I have ever read - which gives me great hope for this medium).

One jewel from the text:

The continuation of clashes between India and Pakistan in—and over—Afghanistan after the U.S. withdrawal is dangerous for all countries in the region and for the world, especially given Pakistan’s reported fondness for developing tactical nuclear weapons for use on the battlefield, such as the recently tested Hatf IX missile, with a range of under 40 miles. Pakistan is apparently also testing other small, low-yielding nuclear devices such as landmines, presumably designed to destroy large Indian tank formations moving into Pakistani territory. 

It's not in-depth, but at least I have a slightly better picture of the geography and politics of this volatile region. And more good reasons why we should be leaving ASAP.

Cutting foreign aid...  

Not. Gonna. Happen. 

This budget item always tops the list for what to cut when deficit arguments start between ordinary citizens. It will never happen - at least to a significant degree, and this week just showed why.

First, how much are we talking here?

The 2010 United States federal budget spent $52.7 billion out of $3.55 trillion (1.5%) on foreign aid. $15.0 billion was military; $37.7 billion was economic aid (of which USAID received $14.1 billion).^[1]  [More]

So, still less than farm bill costs. Next, who gets the money?

Israel is currently the largest cumulative recipient of U.S. foreign aid since World War II. Although aid to Israel began in 1949 with a $100 million bank loan, large-scale U.S. assistance for Israel increased dramatically throughout the several Arab-Israeli wars in the 1960s and 1970s.
A 2012 report by the Congressional Research Service, “U.S. Foreign Aid to Israel,” characterizes the historical financial relationship, types of military spending and current trends.
Among the highlights of the report are:

• To date, the United States has provided Israel $115 billion in bilateral assistance. It is currently the second largest recipient of aid worldwide, with Afghanistan now first.
• The fiscal year 2013 budget request “includes $3.1 billion in Foreign Military Financing [FMF] for Israel and $15 million for refugee resettlement. Within the U.S. Department of Defense, the U.S. Missile Defense Agency’s FY2013 budget request includes $99.8 million in joint U.S.-Israeli co-development for missile defense.”

[More]

Now let's look at the Hagel confirmation hearing.

[Source]

In fairness, Democrats are only mildly less obsessed.  But it seems clear to me what and whom our Senate thinks of first. It's not ending the longest war in our national history in Afghanistan and saving troops.

Any effort to cut foreign aid will be overwhelmed by the Israel lobby. I'm not saying this is right or wrong, but injecting a note of realism for budget hawks.

The second item on most budget cutting lists is ag subsidies, and I don't the Israel gives a hoot about them.

What if...  

North Korea's newest "great leader" is NOT a total doofus?

Those measures, according to the reports, reduce the size of cooperative farm units from between 10 and 25 farmers to between four and six. The decrease is critical because it allows one or two households, not entire communities, to plan and tend to their own farms. Farmers still must hit production quotas, but they can keep 30 percent of their crops, up from less than 10 percent. They can sell the rest to the government at market prices, not state-fixed prices, and they can keep (and sell privately) anything exceeding the quota.
The changes do not apply to the entire country; they have been introduced in three rural provinces and took effect in July, according to reports. The changes could not be independently verified because North Korea maintains strict controls on foreign visitors, allowing few to visit poor areas outside the capital, Pyongyang.

North Korea is on a push to develop a long-standing special economic zone in its far northeast, hoping to attract business from China and Russia.

It remains unclear what is driving the government to allow farmers more personal control. The North could be trying to wring more production from its farmers “out of necessity, not out of virtue,” because its centrally planned rationing system is broken, said Victor Cha, a former White House director of Asian affairs. If and when the North’s food shortages ease, he said, the country is likely to retreat.
“Having said that, the more time they have to do this and let the economy function on its own, the better off we all are,” Cha said. “You can say to farmers, ‘Okay, for six months, you can keep 30 percent,’ but the more times you do this, the harder it will be to pull back.” [More]

All I know is we couldn't imagine change in Egypt or Libya, or even China a few years ago, so why not keep an open mind? 

I believe it will start with agriculture.

Letters from Africa...  

The following are dispatches from a man I am proud to call my friend, Wallie Hardie from North Dakota. Through a serendipitous chain of events starting with a daughter who is a nurse-missionary in Mozambique, he has somehow proceeded to start a farm there AND then buy 100,000 acres in Tanzania.

On top of it all is his admirable motivation of truly helping those most in need of help in a way only a great farmer could. The following are his recent letters.  I will add more and any pictures when they arrive.

The land...

The landscape of central Mozambique is stunning to a dirt farmer like me.  Gently rolling dark soils of mainly silt loam textures.    Out of nowhere these huge hills with steep granite facings pop up perhaps 20 acres in size with heights up to 300 ft.  Some are shaped like a football on a tee, others have very irregular shapes with the largest mass at the top, like a natural water tower.

The name of the farm here is Rei do Agro, king of agriculture.  Our intent is to convert these soils into highly productive producers of soybeans, wheat, barley, sunflower, and corn.  Our game plan is to clear existing trees, plant a single crop in December for two years, then install an irrigation system using SDI subsurface drip irrigation or center pivot on the third year.  The water will come from small reservoirs created by dams installed on seasonal streams that are abundant here.

Coming from the cold North Dakota tundra, the temps here are heavenly.  It is winter and the sun arcs across the northern sky from east to west.   It is 65 degrees at sunup with a high about 80.   Summer here (december) is 80 to 100, but that is also the rainy season...you can get a 11/2 inch rain and be farming the next day!  After analyzing temp and rainfall data it is becoming quite clear we should plan on a triple crop, no till system that starts with a 1.5 to 2.0 maturity soybean that is planted in December and comes off in April.  Immediately followed by barley and wheat no-tilled into the soybean stubble.   The barley would be harvested in late July, the straw would be baled and later maize varieties would be planted with liquid fertilizer based no till systems.  As the wheat comes off, earlier varieties would go in.  This system would prevent the tendency for these soils to bake in the tropical sun.

The demand for all of these crops here is huge.  Soybean processors, barley malt producers, bakery's, and chicken producers have been in constant contact hoping to get some of our production because they cannot source enough to meet growing nutritional needs here in Africa.

All for now.  Next time I will share about the people here.     

The people...

The only word that comes to mind when describing the status of the people of southeast Africa....heartbreaking.  Less than 15% have jobs as we know them.  A large majority of the children are malnourished.  Almost everyone receives a three year maximum education and is functionally illiterate.  As we drive through the countryside we pass through countless villages where masses of people walk along the roadway, the women carrying stuff on their heads, all with perfect posture.  The men usually aren't carrying anything--"where are they going" I ask my partners, "who knows" is the reply.   I am struck by the homogeneity of the culture--everyone equally poor.

How is it that these folks seem stuck in a twilight zone of 40 year lifespans and hardscrabble living in this modern world?  Some Africans will tell you part of their problem has to do with good intentioned people giving them stuff & taking away the motivation to EARN a living.  Even our "Farmers feeding the world" program launched a few months ago is a quarter turn off.  Farmers should be about mentoring their African counterparts to feed their own continent with the incredible resources they have right here.

There is a remote village about 5 miles west of our farm that needed a source of fresh water.  We had a well drilling company doing two holes for our needs and it was not hard to spend an extra 12K to help them get a great well, of course pumped by hand.  Now they need some kind of business activity to get them on the first rung of the economic ladder.  Our plan is called the hub--outgrower model that involves a large farm at the center that has its own production systems, but also provides the infrastructure for small local farmers to access the knowledge base, inputs, machinery, and most importantly the transparent market to thrive in their own right.  We have our own Extension specialist on staff to implement this process.

An example, we are planning to install a small-scale ethanol production facility as a first step in our sustainability model.  This plant provides the engine for all kinds of good things to happen.  The feedstock will probably be cassava, a root plant that is essentially all starch and can be easily grown by small farmers on poorer soils.  Hundreds of farmers will have a new market for this crop.  The energy source will probably be wood chips.  With the thousands of acres of trees needing to be removed to build out the farm, this is a ubiquitous energy resource that employs many people.  Getting diesel and gasoline into the farm is difficult and costly.   Making our own fuel is a no brainer.  But running an ethanol plant requires highly skilled operators.  Finding and training these people won't be easy, but is the pathway that some will gladly take to break out of a cycle of hopelessness.

All for now,  next time I will talk about opportunities and threats.  

 Godspeed and safe travel, Wallie.

Since discovering there are...  

More Muslims than Methodists in IL, I guess I have been sensitized to mentions of what's happening in the Islamic world. Frankly, it's not a whole lot clearer than the confusing internecine Christian squabbles.

IT SEEMED historic. Muslim scholars, 170 in number and representing nine schools of legal thought (including four main Sunni ones and two Shia), gathered in Amman and declared that, whatever their differences, they accepted the others’ authority over their respective flocks. Implicitly, at least, they were renouncing the idea that their counterparts were heretics. Some called that meeting in Jordan in 2005 the biggest convergence since 969, when a Shia dynasty took over Egypt.
Many of the globe-trotting greybeards who met there, and at a similar gathering in Qatar in 2007, remain actively and optimistically engaged. But seen from the outside, feuds between Sunnis, who make up roughly 80% of the world’s Muslims, and the Shia minority (most of the rest), remain savage and are, in some ways, worsening. [More, along with the helpful chart below]

For most of us, the Islamic culture is just too much work to understand and too alien to be attractive, so we marshal our ignorance when the issues arise between cultures. I know I find little attractive about the theology and practices, but at the same time my lack of person-to-person contact with Muslims makes me uneasily aware of my ignorance, and hence, poor judgements.

Partly it's because of the factionalism and clear terrorist ties to some of the sects. But then you look at the largest Muslim country (any guesses?*) and think "they're not so weird".

[Click to enlarge]

Well, we may be getting some help bridging this gap. One of the biggest cultural differences with the West has been Islamic problems with capitalism. Due to Sharia usury laws, Islamic entrepreneurs have had to devise some, umm, innovative workarounds to help capital flow.

The chief loophole was murabaha. Let’s say that you, a small businessman, wish to go into business selling cars. A conventional bank would examine your credit history and, if all was acceptable, grant you a cash loan. You would incur an obligation to return the funds on a specific maturity date, paying interest each month along the way. When you signed the note and made the promise, you would use the proceeds to buy the cars—and meet your other expenses—yourself. But in a murabaha transaction, instead of just cutting you the check, the bank itself would buy the cars. You promise to buy them from the bank at a higher price on a future date—like a futures contract in the commodities market. The markup is justified by the fact that, for a period, the bank owns the property, thus assuming liability. At no point in the transaction is money treated as a commodity, as it is in a normal loan.
But here’s the catch: most Muslim scholars agree that there is no minimum time interval for the bank to own the property before selling it to you at the markup. According to Timur Kuran, the typical interval is “under a millisecond.” The bank transfers ownership of the asset to its client right away. The client still pays a fixed markup at a later date, a payment that is usually secured by some sort of collateral or by other forms of contractual coercion. Thus, in practice, murabaha is a normal loan.
Since murabaha must be asset-based, however, it can’t help a small businessman who needs a working-capital loan, for example, to provide cash on hand to meet payroll or other expenses. To get such capital from an Islamic financial institution, an entrepreneur would have to sell the bank an equity interest in his business. This is far riskier for the bank and thus much harder to obtain. [More interesting background]

Let's face it, it's no worse than say grain loans/PIK/LDP contortions at the FDA, IMHO. Anyhoo, these types of financial sidesteps are gaining ground, especially in countries just beginning to taste some economic wiggle room. After all, it doesn't take long to adopt a "It's about the economy, stupid" mentality when you are suddenly having to actually pander for votes, instead of arranging the elections.

Islamist parties are increasingly becoming "service" parties: an acknowledgment that political legitimacy and the likelihood of re-election rests on the ability to deliver jobs, economic growth, and to demonstrate transparency. This factor introduces a huge degree of pragmatism in their policies. The example of Turkey, especially its economic success, has had a major impact on Arab Islamists, many of whom would like to emulate the Turkish model. The Arab Islamists have, in other words, understood the truth of the slogan, "It is the economy, stupid!" The Turkish model, with the religiously observant provincial bourgeoisie as its kingpin, also acts as a reminder that Islam and capitalism are mutually reinforcing and compatible.
It is notable that the Islamists' economic agenda does not espouse a distinctive "Islamic" economic model. This is unsurprising, however, as an Islamic economic model does not exist. Islamists suffer from a paucity of original ideas on the economy and have not even developed a blueprint to tackle the structural socioeconomic crisis in Arab societies.
Nevertheless, what distinguishes centrist religious-based groups from their leftist and nationalist counterparts is a friendly sensibility toward business activities including wealth accumulation and free-market economics. Islamism is a bourgeois movement consisting mostly of middle-class professionals, businessmen, shopkeepers, petty merchants and traders.
If there is a slogan that best describes Islamists’ economic attitude, it would be: "Islam-is-good-for-business". Many Arab Islamists admire and wish to imitate the example of Turkey, even though they know little about the complexity of the country’s economy and lack Turkey’s strategic economic model. What impresses them is Turkey’s economic dynamism, especially the dynamism of the religiously observant provincial bourgeoisie who have turned Anatolian towns such as Kayseri, Konya and Gaziantep into industrial powerhouses driving the growth of the Turkish economy. [More]

In fact, keeping our eye on Turkey (which is becoming a more reliable US partner, as those things go) or Indonesia instead of Saudi Arabia and Iran might help us coexist a little more anxiously with the enormous Muslim world.

Nothing fosters bonding like griping about government economic policies together.


* Indonesia

This might help...  

Are you sick of hearing about the Greek crisis affecting corn/soy/banana prices and you realize you have no idea what the heck is going on except the hardworking Germans are being asked to bail out crummy, corrupt Greeks?

Felix Salmon, one of the best econobloggers in the world of finance deploys some rubber ducks to educate you.




The most interesting part for me was the statement that bondholders have agreed to a 50% haircut.  That's pretty harsh, but essential to a resolution. Like our mortgage mess here, there must be some liability for foolish lenders, IMHO.

A reason to visit Germany...  

Way cool.

 


Almost makes me want to go to Hamburg.

Almost.

[via sullivan]

Morality and debt...  

There has been a robust debate in the econoblogs regarding the Eurozone crisis and how the economic strength of Germany does or does not grant them the moral "high ground".  I have noticed this is often how debtor/creditor arguments devolve - the virtues of the lender versus the vices of the borrower. Tyler Cowen does an excellent job of listing the facets of this debate, and sums up this way:

I believe that the Germans have approached this crisis with some bad economic theories, a lack of understanding of how government spending cuts can be self-defeating in the short run, and a good deal of more or less deliberate self-deception about its partners in the union, not to mention Germany’s own ability and willingness to act “fully European.”  I’m also not sure that Germany has a path out of this which leaves their own financial system intact.  You can rack up the moral and practical minus points there in considerable number.  That said, I see a lot of intellectuals dismissing the perspective outlined above, rather than figuring out why it makes so much sense to so many people, not just in Germany.  I think the financial elites in the periphery countries themselves actually see it quite clearly.

The result is significant misunderstandings about what can happen and will happen in the eurozone.  Germany cannot and will not drop its moral perspective, even if there is some theory — and yes theory is the right word here, because no one knows these broad guarantees will work — of how a broader and far more costly commitment can set things right.

In reading American discussions of the eurozone, I am frequently reminded of earlier discussions of the Soviet Union.  Most outsiders simply didn’t realize how little social capital was left in the system, though some of the Soviet insiders did.  Might the same be true of the eurozone?  I’m not calling these countries corrupt, rather there may be remarkably little cross-national cultural capital, and remarkably little deep public support for a costly EU bargain, so little that many German (and other) insiders know that no grand bargain can be sustained or even seriously attempted.

I believe we need to be exposed to this moral perspective, and this intellectual Turing test, as a bracing slap in the face, as a wake-up call, and I see our unwillingness to do anything with this perspective, other than summarily dismiss it as a kind of tragic juvenile moralizing, as a sign of our own decline, right here in the USofA.

But it's the same transaction, people!  How can lending be an act of moral superiority and the borrowers' actions be cast as morally suspect? If nothing else, hasn't the lender then engineered the "fall" of the borrower?

To be sure, the economic and cultural character of Germany resonates with the "work ethic" moral training remains a powerful part of Western societies: hard work, thrift, gratification delay, self-determination, etc. But I think we may be outgrowing those values or at least failing to modify them to present economic realities.

One of the most powerful of these new realities is the abundance of wealth. In the face of that surplus the choices for investors are not always an array of solid, high return productive assets, but a sorry collection of higher-risk, low yield instruments. I do not disallow the German culture its moral high ground connected to thrift and good choices, but I do wonder why they should not bear responsibility for their investment choices - both private and public. Why were they pouring money into Greek, Spanish, Irish debt to such a degree they could not suffer bad consequences? Aren't they guilty of bad investment strategy at least? Should not they bear the consequences of buying junk?

This is the dilemma of capital surplus countries and individuals. You will seldom find another place to park your money as "virtuous" as your own business, since they would likely be in capital excess, too.

Meanwhile, Ezra Klein reports from the financial front lines.

Over the course of dozens of interviews conducted in Berlin over the last few days, I've spoken to members of Angela Merkel's government, members of the opposition Social Democrats, industrialists, and bankers. No one has evinced even the slightest willingness to see the euro zone crack apart. But nor have they quite said they're willing to save it. Rather, they remain serenely confident that they will save it. But they don't have a surefire strategy. They have a bet. A big one.
That's really the key to understanding the German psychology on the euro. In America, we keep asking why they don't join with the European Central Bank to end the run on the European periphery. The answer is simple: they don't want to end the run on the European periphery. To them, the run on Italy and Greece and Portugal and Spain is a feature, not a bug. It's leverage, and they want to use it.
Look how much it has already gotten them. Greece, Portugal, Italy and Ireland are working their way through stringent deficit-reduction plans. The widely disliked governments of Greece and Italy, which proved unequal to the task of fiscal reform, have been toppled. There is a good chance that the euro zone might become what Germany has always wanted it to be: a fiscal union, in which the members meet their deficit targets and reform their labor markets. And none of this would have happened without the markets making their run at the European periphery.
So to understand the German position, look at it from their perspective: Why in the world would Germany let up the pressure now? When they're so close to amending the very treaty underlying the euro zone? When France has joined with them on a set of reforms? When the market is doing what the Germans never could?
I worry this makes the Germans sound like puppetmasters. They're not. Many of their intended reforms are very sensible. The flaws they point to in the euro zone are, indeed, deep, structural flaws in the euro zone. They do envision a future that includes sacrifice on their part: eurobonds that raise Germany's cost of borrowing and a bailout fund -- excuse me, a fiscal stabilization fund -- that they contribute heavily to.
So my concern isn't that the Germans are selfish and calculating. It's that, without quite realizing it, they have become reckless. They are trying to time the market, betting that they can, in essence, manage the run -- that they can do just enough to keep the pressure on without letting matters get totally out of hand. They are like a doctor who, faced with an unhealthy patient presenting signs of a heart attack, demands to see the patient lose weight before they will administer the life-saving treatment.
In almost all of their arguments, the Germans are right. The euro does need to be fixed. But first it needs to be saved. The Germans are betting that this is their opportunity to do both. If they're right, it will have been a remarkable play. If they're wrong, it will have been a disastrous one. [More]

It will be some time featuring very low rates before this curious economic puzzle gets solved. The idea of excess money struggling to get a return despite being the trophy of economically prudence and self-discipline will take some time getting used to. My guess is we are nearing that time as the last of the ~5 year investment instruments roll over into sub 1% territory. I'm seeing it at my bank, and now in Europe.

[Update: Rats! As soon as I labored through this post, Kevin Drum explains it much better. And with punctuation, spelling and charts. It's a must-read for those newly interested in the euro.]

Savers need borrowers just as much as the reverse. Meanwhile, the ag markets have a huge stake in this political turmoil as we obviously miss the extra money in the pits.

Another apostate...  

Dan Drezner, to whom I have linked occasionally, is a noted conservative foreign policy writer whose opinion I always consider, even when I disagree. Like so many others, including yours truly, he has lost the faith with what is masquerading as the Republican Party.

2)  I haven't overtly talked about my own personal political beliefs since the blog moved to FP, but this seems to be an appropriate time to bring it up and then never speak of it again.  When I've published essays like this before, I find liberals write "even conservative Dan Drezner..." while conservatives often deploy terms like "academic elitist" or "RINO." 

In my case, at this point in time,  I believe that last appellation to be entirely fair and accurate.  I'm not a Democrat, and I don't think I've become more liberal over time.  That said, three things have affected my political loyalties over the past few years.  First, I've become more uncertain about various dimensions of GOP ideology over time.  It's simply impossible for me to look at the aftermath of the 2003 invasion of Iraq and the 2008 financial crisis and not ponder the myriad ways in which my party has made some categorical errors in judgment.   So I'm a bigger fan of the politics of doubt during an era when doubt has been banished in political discourse. 

Second, the GOP has undeniably shifted further to the right over the past few years, and while I'm sympathetic to some of these shifts, most of it looks like a mutated version of "cargo cult science" directed at either Ludwig Von Mises or the U.S. Constitution (which, of course, is sacred and inviolate, unless conservatives want to amend it).  Sorry, I'm not embracing outdated concepts like the gold standard or repealing the 16th Amendment.  Not happening. 

Third, David Frum wrote something in New York Magazine that touches on the issues I just discussed, but also articulates something that has been nagging at me for a few years now: 

The conservative shift to ever more extreme, ever more fantasy-based ideology has ominous real-world consequences for American society. The American system of government can’t work if the two sides wage all-out war upon each other: House, Senate, president, each has the power to thwart the others. In prior generations, the system evolved norms and habits to prevent this kind of stonewalling. For example: Theoretically, the party that holds the Senate could refuse to confirm any Cabinet nominees of a president of the other party. Yet until recently, this just “wasn’t done.” In fact, quite a lot of things that theoretically could be done just “weren’t done.” Now old inhibitions have given way. Things that weren’t done suddenly are done.

Also, things that weren't said are now being said.  Or, to be more precise, things that use to be said but ignored are now being taken seroiusly by the GOP's leading lights.  Newt Gingrich endorses the notion that Obama has a "Kenyan, anti-colonial" worldview.  Mitt Romney claims Obama has been apologizing around the world and no longer believes in American exceptionalism.  Herman Cain is [Remember your mercy rule!!--ed.].... Herman Cain.  There's good, solid partisanship -- a vital necessity in this country -- and then there's unadulterated horses**t.  Too much of the GOP's rhetoric on Obama reads like the latter to me. 

So for those reasons, I really am a Republican in Name Only at this point.  And I say this for the GOP's benefit.  The next time someone writes, "even the Republican Dan Drezner has said...." GOP partisans should feel perfectly entitled to link to this post and call me a RINO.  Because it's true. [More]

There is more to foreign policy for the US than doing whatever Netanyahu wants amd ignoring the rest of the globe. But you wouldn't know it from the GOP candidates, save Huntsman and Paul.

Not my party anymore.

Not just Edgar County...

The flow toward urbanization is an international phenomenon. While becoming pronounced in our Heartland states, rural depopulation in Russia is extreme.

Of course the rest of the country isn't doing so well either. The population has dropped by 2.2 million people, or 1.6%, since the last census was taken in 2002. These were supposed to have been the glory years under Vladimir Putin, who has ruled Russia since 2000, first as president and now prime minister. And in that time, a handful of cities have indeed prospered, with Moscow becoming home to more billionaires than any other city in the world. But more than 6,000 villages have meanwhile turned into ghost towns, or as the census calls them: "population points without population." About 2,000 of those are in Pskov.
In just eight years, the region has lost 11.5% of its population, a rate of decline more often seen in times of war and famine. This might have been expected in Russia's permanently frozen north, like the region of Magadan, once home to the Gulag prison camps, where the population dropped 14.1% in that time. But Pskov lies on the border with the European Union, and the city of St. Petersburg, Putin's birthplace, is only 100 miles away.
In Soviet times, huge collective farms and machine works were based in Pskov. Village life thrived, and the main city was still famed for nobler things, like fending off the Teutonic Knights in the 13th century. But traveling the region's backroads now inspires the creepy feeling that a plague has just passed through. Every few miles a cluster of huts emerges from behind a hill, and most of them turn out to be abandoned, their floorboards warped and splintered, releasing a smell of decay. The fields are overgrown, and old grain elevators tower over them like enormous ghosts — landmarks to Russia's demographic catastrophe.
So by local standards, the village of Lopotova is doing fairly well. The villagers say it still has a few hundred residents (down from about a thousand ten years ago) as well as its own grocery store, where the saleswoman spends most of the day ringing up liquor sales on an abacus. No surprise that the most popular item is vodka, the cheapest half-liter bottle going for 68 rubles, or $2.25. Far from everyone can afford it.
Behind the store, at the end of the unmarked village road, Zhbanov comes across a group of five young men in their 20s sitting on a log in front of a sheet-metal shack. They are not homeless, but they look it. In a week or so, the weather will let them pick mushrooms and berries to sell on the side of the road, the steadiest form of employment they have had since 2003, when the local farm went bankrupt. Aside from that, they can forage for scrap metal or go talk to Zhbanov, who makes enough selling his paintings in St. Petersburg to give them a handout from time to time.
[More]

Note the statement "the local farm went bankrupt".  In a world of grain anxiety and real questions about enough ag production this boggles the mind. This is not desert or swamp, but a place where stuff can be grown.


I think it may be partly or even largely due to Stalin's massacre of the peasants. He literally killed off the nations farmers and with it all working knowledge of what the right answer looked like. They have never recovered.


The other mystery is the debilitating problem of alcoholism in Russia. I don't think we can even begin to comprehend how pervasive and pernicious this cultural pillar is there.  But it also tempers my expectations for how much load Russia will be able to handle agriculturally in the demand years ahead.

While you were trying to plant corn...

This forecast was quietly issued.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.Put that in your calendar.It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s. [More]

For help with the idea of Purchasing Power Parity:

In its "absolute" version, the purchasing power of different currencies is equalized for a given basket of goods. In the "relative" version, the difference in the rate of change in prices at home and abroad—the difference in the inflation rates—is equal to the percentage depreciation or appreciation of the exchange rate. [More]

This is not the shocker it may seem, IMHO. Other than simple bragging rights, this crossing of trends was clearly indicated years ago.  The date is mildly startling, but my guess is many will simply dismiss the idea of PPP, and then resort to per capita GDP in turn to satisfy their search for a number that keeps the US on top.

Kind of like the curious "jobs that depend on agriculture" number that FB arbitrarily trumpets.

Moreover, we really don't know how this will affect our lives. My guess is not much, as our fortunes will be made or undone at home by our own policies.

Timing is everything...

If you have wanted to add a standby generator to your rural home (blogger-recommended), I'd be getting my hands on one right now.

Portable power generators made by Honda Motor Co., Fuji Heavy Industries Ltd. (7270) and Yamaha Motor Co. are running out after Japan’s largest earthquake crippled production while simultaneously stoking demand.
Orders for the generators, used to provide hot baths and meals to survivors of the magnitude-9 temblor and ensuing tsunami, surged after the disaster knocked out power plants, causing electricity shortages.
“We’re completely out,” said Ryuzo Nishikawa, who runs his own company in Tokyo selling generators made by Fuji Heavy and Yamaha. “We ran out three days after the quake, but we’ve been receiving orders from hospitals and factories every day.” [More]

Nothing makes anticipating bad weather slightly more less nerve-wracking that knowing you can last for many days without power.

I also think we underestimate what rebuilding Japan will mean for the global economy.

Maybe I get it now...

Of all the video from Japan, this one hit me the hardest.



Unlike the movie tsunamis of 200' waves, a "tide" coming in at 5' per minute (my guess) is both less cinematic and more horrifying.

[via sullivan]

We are the fuel...

If it has not been made abundantly clear to farmers how they are linked to the popular uprisings exploding (and I don't think that is hyperbole) across the Mideast, let me belabor the point.

It's about commodity prices and food, as much as dictatorship.

Of course, prices rose during the Egyptian protests only to fall back as it became clear that Mr Mubarak would depart without significant civil unrest. The same thing could happen this time around. But as the popular uprising gains momentum and moves across borders, bigger issues may loom. Iran is home to a restive opposition movement—and over 10% of the world's proven oil reserves. And if China were to catch the fever for democracy? It's difficult to know how that might impact the global economy. China makes up a much larger share of global activity than it did in 1989.
Amid all the uncertainty, one thing does seem clear: events have a way of building on themselves. The combination of high unemployment and rising commodity prices has fueled dissatisfaction across the Middle East. The resulting unrest is influencing commodity prices. And that, in turn, may make life more difficult for marginal households in other countries, setting the stage for still more political upheaval.
One watches and hopes for the best. But leaders of more stable countries need to be working hard to make sure they're prepared for the economic impacts of something less than that. [More]

In short, it looks to me that the unpredicted rise in food commodities has been so abrupt and injurious to so many, that political triggers have been tripped. The corrupt political regimes there barely coped with a semi-stable global economy. They have no capability of addressing a real challenge, and that is now baldly apparent to their people. For example, they don't even have the political skill to address the public with the spin and persuasion we routinely expect.

In Sayf-Al-Islam's rambling speech last night on Libyan State television, he blamed the current unpleasantness in his country on, as near as I can determine, crazed African LSD addicts. 

This isn't going down as well as Sayf had intended, and Libya seems less stable than 24 hours earlier.  Indeed, Sayf's off-the-cuff remarks managed to make Hosni Mubarak's three speeches seem like a model of professionalism, which I would not have thought was possible a week ago.  

Indeed, it is striking how utterly incompetent leaders in Tunisia, Egypt, and Libya have been at managing their media message.  Speeches are announced, then never delivered on time, and then delivered with production values that woulds embarrass a public access channel in the U.S.  It's like political leaders in the region have discovered blogs just as the young people has moved on to Twitter or something.  [Er, no, that's the United States--ed.]  Oh, right. 

Having just finished a week of intense media whoring, methinks that one problem is that most of these leaders have simply fallen out of practice (if they were ever in practice) at personally using the media to assuage discontent.  I've been on enough shows on enough different media platforms to appreciate that there is an art, or at least a tradecraft, to presenting a convincing message in the mediasphere.  Authoritarian leaders in the Middle East are quite adept at playing internal factions off one another.  That's a different skill set than trying to craft a coherent and compelling media message to calm street protestors no longer intimidated by internal security forces. [More]

He-Who-Must-Not-Be-Spelled provided an equally bizarre public performance last night. This is the backdrop grain traders are trying to game. Meanwhile, we are moaning about why we didn't hold onto our crops.

Thank goodness, we didn't. Like ethanol plants which will run out of $4 corn contracted in Dec 2009, the food industry is just beginning to adjust to higher input prices. This volatility takes some time to be felt, but it does impact the system.

3. The current 12-month inflation rate for finished consumer foods in January of 3.8% is only slightly higher than the 3% average over the last ten years, and is lower than six of the months over the last year, e.g. 4% for November, 4.6% for September, 5.7% May, 6.6% March, etc.

4. The average inflation rate for finished consumer foods over the last 12 months of 3.9% is lower than the 6.7% average from 2007-2008. 

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, but no signs yet of rising consumer food inflation (1.5% CPI food inflation through December 2010).   [More]

As demand and supply (in that order, I think) of meat forces prices higher, US consumers may be some of the last to become restive about food prices. Nonetheless, I believe it will come, and the obvious targets will be ethanol and farm subsidies.

And if the protests in the Midwest are mildly successful or even sufficiently disruptive, I would not rule out food-price rallies in Washington.

Can't buy a break...

Jeez - the Australians in Queensland can't get seem to find the end of the tunnel.  Or storm.

Still cleaning up from devastating floods that killed some 32 people, residents along a wide swath of Queensland’s north coast are now being told to brace themselves for what may become the largest cyclone the “sunshine state” has ever faced.
Cyclone Yasi is expected to slam into the Queensland coast around 1 a.m. Thursday local time, packing winds of more than 250 k.p.h. (155 m.p.h.). This puts it on a par with the force of Hurricane Katrina, which devastated New Orleans in 2005 and clocked winds of 175 m.p.h., before weakening as it neared the coast.
...
Yasi is also threatening around a third of Queensland’s sugar cane crop. Australia is the third largest sugar exporter in the world and Queensland grows more than 90 percent of the country’s sugar cane. The state’s banana crop, another major earner, is also expected to be severely impacted. This latest hit comes as Queenslanders clean up from floods that have caused some $5.6 billion in damage. [More]

For me there is something terribly wrong about center pivot fields underwater.

 

OK. Now imagine you are a Chinese government official and you source food supplies for your increasingly wealthy and expectant citizens. One of your best sources can't get out from under clouds (Australia) , another came up short on their corn crop (US) and the rest are fighting La Nina-related production problems.

Now you turn on TV and see popular uprisings triggered in large part by people who want cheaper and better food, and expect their government to make it happen.

I would do three things:

1. Root for appreciation in the value of the yuan to boost my buying power overseas.
2. Keep my domestic inventory numbers very secret (assuming I even believe them).
3. Buy at any price to get what is needed. Those dollars stacked up in Beijing won't be getting stronger anytime soon anyway.

It's about food...

More than we think here in the US.  Here is what Egyptians are facing with their household finances.

[Source]

In November, overall inflation in Egypt topped 8.58 percent for the year, its highest level in 19 months. But food inflation has been much more pronounced.

Fitch, in downgrading Egypt's outlook to negative today, specifically cited the high food inflation, which it said was running at about 17 percent a year. The main drivers of food inflation are meat and sugar. [More]

My guess is the food-fuel debate is about to get much hotter. And any hint of trouble during planting season will not be helpful to the current ethanol pseudo-business model.

Energy from heaven...

Confounding most projections, natural gas seems to be showing up more often and in surprising amounts.  I mean Israel could become an energy exporter, for Pete's sake!

A massive offshore natural gas reserve is poised to give Israel energy security, freeing the desert nation from the threat of boycotts and reshaping the political dynamics of the Middle East.
Estimated to contain 16 trillion cubic feet of gas – equivalent to more than a quarter of Canada’s proven reserves and enough to meet Israel’s domestic demand for 100 years – the Leviathan field is believed to be the largest such deepwater gas discovery in a decade.
...
Observers say the windfall, whose size was confirmed this week, could also affect Israel’s relationships not only with its traditional enemies but also with its allies – and free the energy-poor country in an oil-rich region from the often prohibitively high prices of heat.
But the country’s ability to exploit the field will be fraught with difficulties: It must contend with the challenge of drilling far beneath the earth in deep waters as well as with building infrastructure to transport the gas and sorting out clashes with energy companies over its royalty regime. The field is not expected to start producing for at least six years.
The Leviathan find is believed to cover roughly 325 square kilometres off the country’s north coast – an area about twice the size of the city of Vancouver or half the size of Toronto – in an area called the Levant basin that has already yielded smaller fields. The lease is operated by Houston-based Noble Energy, plus Israeli companies Ratio Oil Exploration and Delek Drilling, which said they plan to drill two more exploratory wells in the coming months to confirm the findings.
If exploited, the gas will mean Israel won’t have to buy on the open market any more and could also lessen its dependence on subsidies from the U.S. government, which has sought to use its clout to push its ally to curb settlements in the West Bank and to try to reach a peace agreement with the Palestinians. [More]

While I will pass over the idea that this discovery could increase their drift toward fundamentalist bellicosity  - which is disconcerting enough, it reinforces my recent suspicion that NG seems to be the BTU of the moment.

Coupled with our own new finds in the US I wonder if we have built our last coal-fired plant for a [long] while.  The easiest replacement is for electricity generation, retiring first oil, then coal factilties.

Coal has already been losing market share over the last fifteen years. In that period, the amount of electricity generated using natural gas has nearly doubled, while the amount using coal (and nuclear) has remained the same. The other beneficiary has been renewable energy, but rapid growth in that segment only began in the last few years, during the relatively high natural gas price environment. We anticipate that concerns over increased regulation, including potential carbon caps, will accelerate the coal to gas transition. Planned generating capacity additions are dominated by natural gas, with many utilities vocal in their intentions to use more natural gas-fired power plants to generate electricity going forward. [More, also graph source]

Let's assume this happens, and it lowers the demand growth for oil. This is not good news for ethanol, IMHO. If we buy into ravening appetites for corn keeping prices trending upward (and I think we've all sipped that intoxicating beverage) the reluctance of the oil industry to roll over in the face of new mandates seems unlikely. And the reaction of consumers could also be more vigorous than we think.

The EIA apparently agrees with rosy price outlook.

[Source and below]

 Many aren't buying it, however.

It is understandable that the EIA, as a branch of government, must produce an annual report that is politically expedient and that supports a view that meets public policy expectations. The EIA approach takes a long-term economic view and is, therefore, not concerned with the fluctuations that characterize the real world of petroleum supply, demand and price. At the same time, it is not useful that this report is in conflict with industry best practices and opinion as well as trend data available to the public.
The EIA’s resource estimate of technically recoverable gas from shale is interesting but not relevant to future price or production volume forecasts. The Potential Gas Committee’s 2009 report is the benchmark of credibility, and we hope that the full EIA report in March will explain why we should accept unwarranted and insupportable upward revisions to PGC resource estimates and how these might translate to energy reserves and price. The EIA treats shale gas just like conventional gas in its forecasting and does not acknowledge the much higher decline rates and, therefore, great number of wells required to maintain supply.
Exploration and production companies involved in shale gas production have presented a position that emphasizes production and reserve growth over earnings or profit. It is confusing that the EIA has assumed that market forces and improving efficiencies will save the day for oil and gas prices. It would be more appropriate to frame the problem in the context of reasonable expectations that would be useful to public understanding of the shale gas phenomenon and its potential contribution to natural gas volumes and price. It is unsettling that the EIA has not acknowledged the belief by the U.S. military and other credible sources of an impending liquid fuel shortage that confronts the United States and the world (e.g. Hirsch, Benzdek and Wendling, 2010; JOE Report) . Instead, the EIA has provided an unrealistic view of future oil and gas supply and price that will inevitably not serve public understanding or promote reasonable planning for resource availability or price.

I take this critique with a grain of NaCl, since the author is among peak-oil enthusiasts who were gob-smacked by the recession-aided plummet in demand, and subsequent revisions of energy outlook to "slightly less apocalyptic". Nor do I believe the EIA to be as sensitive to politics as other observers.

So I'm watching for more NG finds in improbable places, increased agitation by the coal industry against GHG regulation, and the sales of the Volt, et al. Ethanol may have less of a supply hole to fill that we imagine.

Food is a different kettle of fish...

Apparently.  I have struggled to appreciate the visceral and frankly, often fallacy-riddled opinions so many of us hold about food. From the organic mythos to math-resistant "food-miles", there is a curious passion for what we put in our mouths that those of us in the actual production chain often dismiss at our peril.

Moreover, it seems to be international.

The poultry-centric controversy began late last week when Lotte Mart, one of South Korea's biggest retailers, began selling its fried chicken at a level that undercut the prevailing market price by more than 60 per cent.
South Korea's presidential secretary for political affairs bristled in a blog that, even on a crude calculation of raw materials and processing, Lotte Mart appeared to be losing about 1200 won every time it sold a serving of fried chicken from one of its 82 stores.
That was the cue for a verbal bombardment from Kyochon Chicken, Goob-ne Chicken and hundreds of small restaurants and shops across South Korea that make their living from fried chicken, who fear they would be thrust out of business. Their trade body, the Korea Franchise Association, quickly weighed in with a threat of legal action and allegations of “fried chicken dumping”.
At first, the public shared their rage and seemed ready to be worked up by the media into passionate defence of the little guy against rapacious giants such as Lotte. Then they smelt the chicken, realised they could feed their families for roughly the price of a bus ticket and joined the monstrous queues at branches of Lotte.
The controversy fed into South Korea's unease over how it should continue sculpting its economy now that it is up there among the largest in the world and an attractive model for emerging nations.
 [More]

I wish I could come up with a Grand Unified Theory of Food Thought to help all of us understand how our minds process food issues differently.  I suspect it may be harder-wired than we suspect, as food has been on our minds a lot as a species.

Regardless, these anecdotes do suggest one important thing for producers and others in the food industry: Don't bet the (chicken) ranch on rational or even familiar economic behavior in the markets we serve. We will likely be sideswiped by unpredictable fads, preferences, and rejections despite our best efforts to comprehend our ultimate customers.

Then The Dear Leader says...

Jokes from North Korea.

- Chang Man Yong works on a collective farm in North Korea. He goes fishing, gets lucky, and brings a fish home. Happy about his catch, he tells his wife: "Look what I've got. Shall we eat fried fish today?"
   
The wife says: "We've got no cooking oil!"
   
"Shall we stew it, then?"
   
"We've got no pot!"
   
"Shall we grill it?"
   
"We've got no firewood!"
   
Chang Man Yong gets angry, goes back to the river, and throws the fish back into the water.
The fish, happy to have had such a narrow escape, sticks its head out of the water and cheerfully yells: "Long live General Kim Jong Il!"

It is one of my greatest hopes to see those people freed in my lifetime. And I hope the PRC does it.