Daily Digest - June 29

• New hope in war against deadly wheat fungus (H/T Fujisan)
• Fading of the Dollar's Dominance
• CRE: TTTIIIIIMMMMMBBBEEEERRR (Chart)
• FOMC (Output Gap and Inflation, Repost)
• In the Inflation Camp (Repost)
• Budget crisis forces deep cuts at Calif. schools
• Numbers on Welfare See Sharp Increase
• Exhausted Claims part II
• News from 1930
• FSN News Hour, 3rd Hour with Jim and John Part 3A and 3B
• "Zombie Bank"

Economy

New hope in war against deadly wheat fungus (H/T Fujisan)

An international effort has yielded new wheat varieties resistant to a devastating fungus spreading from Africa towards Asia.

The research was presented at a meeting this week (17–20 March) in Ciudad Obregón, Mexico, which has attracted hundreds of crop specialists concerned with the rapid spread of Ug99 — a strain of stem rust fungus that first emerged in Uganda ten years ago.

Researchers have developed around 60 new wheat varieties containing several genes with a small resistance effect to Ug99. Although such genes might not provide as much protection as genes that cause a high level of resistance, the researchers believe they will be more efficient in the long term, as they will force the fungus to overcome a wider array of genetic barriers.

To obtain faster, more efficient results, the researchers continually exchanged breeding materials between the Mexico-based International Maize and Wheat Improvement Center (CIMMYT) and field stations in Njoro, Kenya, where Ug99 is well established.

"We sent a large number of plants to Kenya, where they were tested for their resistance in real world conditions," says Ravi Singh, a CIMMYT wheat expert and lead scientist of the study. Resistant varieties were sent back to Mexico, where other positive traits were added.

This 'shuttle breeding scheme', which took advantage of the two crop seasons per year in both Kenya and Mexico, halved the number of years required to generate and test varieties.

The resulting varieties of wheat also produce 5–10 per cent more grain than most popular varieties. "With high-yielding varieties, we expect a higher adoption rate, particularly in areas where Ug99 is not yet causing immediate problems," says Singh.

Ug99 has spread to Ethiopia, Iran, Kenya, Sudan and Yemen. Some scientists believe it is on the march toward South Asia, where farmers produce 19 per cent of the world's wheat.

Fading of the Dollar's Dominance

As a result, the IMF is now set to "print" $300 billion worth of SDRs -- 10 times more than currently exist -- for distribution to nations around the globe. They will effectively be held as reserve deposits by each nation's central bank.

Some, like Bergsten, have argued the SDRs' role should be taken a step further, allowing them to serve as a de facto global reserve currency. Bergsten has advocated, for instance, the idea of nations such as China "trading in" their dollars for SDRs, allowing for an orderly transition away from the greenback without causing a sharp fluctuation in the dollar's market value.

"Like it or not, the dollar is going to lose some of its global status," Bergsten said. "So maybe it's time we just accepted that and figured out the best and most orderly way to make that happen."

CRE: TTTIIIIIMMMMMBBBEEEERRR (Chart)

FOMC (Output Gap and Inflation, Repost)

The main change came in the 2nd part when they mentioned the rise in commodity prices BUT they continue to hang their hat on the ‘output gap’ in giving them comfort that “inflation will remain subdued for some time.”

In the Inflation Camp (Repost)

The first of these monetary fallacies is that 'the output gap will prevent inflation.' The second is that a lack of net bank lending or other 'debt destruction' will require a deflationary outcome. Let's deal with the output gap theory first.

Output gap is the economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity.

The theory is that when GDP underperforms its potential, with unemployment remaining high, there can be no inflation because demand is weak and median wages will be presumably stagnant. This idea comes from neoliberal monetarist economics, and a misunderstanding of the inflationary experience of the 1970s.

The thought is that sustained inflation is due to a 'wage-price' spiral. Higher wages amongst workers cause prices to rise, prompting workers to demand higher wages, thereby fueling inflation. If workers do not have the ability to demand higher wages there can be no inflation.

While this is in part true, it tends to confuse cause and effect.

The cause of a monetary inflation, which is a broadly based inflation across most products and services relatively independent of demand, is often based in a monetary expansion of the currency resulting in a debasement and devaluation.

A monetary expansion is relatively difficult to achieve under an external standard since it must be overt and often deliberative. A gradual inflation is an almost natural outcome under a fiat currency regime because policy-makers can almost never resist the temptation of cheap growth and the personal enrichment that comes with it.

Is this the death of the dollar?

After two smugglers were stopped last week with what at first appeared to be $134bn in US state bonds, the tension and paranoia surrounding the fate of the dollar hit a new high.

Budget crisis forces deep cuts at Calif. schools

RICHMOND, Calif. (AP) - California's historic budget crisis threatens to devastate a public education system that was once considered a national model but now ranks near the bottom in school funding and academic achievement.

Deep budget cuts are forcing California school districts to lay off thousands of teachers, expand class sizes, close schools, eliminate bus service, cancel summer school programs, and possibly shorten the academic year.

Without a strong economic recovery, which few experts predict, the reduced school funding could last for years, shortchanging millions of students, driving away residents and businesses, and darkening California's economic future.

"California used to lead the nation in education," U.S. Education Secretary Arne Duncan said during a recent visit to San Francisco. "Honestly, I think California has lost its way, and I think the long-term consequences of that are very troubling."

Numbers on Welfare See Sharp Increase

Welfare rolls, which were slow to rise and actually fell in many states early in the recession, now are climbing across the country for the first time since President Bill Clinton signed legislation pledging "to end welfare as we know it" more than a decade ago.

Twenty-three of the 30 largest states, which account for more than 88% of the nation's total population, see welfare caseloads above year-ago levels, according to a survey conducted by The Wall Street Journal and the National Conference of State Legislatures. As more people run out of unemployment compensation, many are turning to welfare as a stopgap.

The biggest increases are in states with some of the worst jobless rates. Oregon's count was up 27% in May from a year earlier; South Carolina's climbed 23% and California's 10% between March 2009 and March 2008. A few big states that had seen declining welfare caseloads just a few months ago now are seeing increases: New York is up 1.2%, Illinois 3% and Wisconsin 3.9%. Welfare rolls in a few big states, Michigan and New Jersey among them, still are declining.

 Exhausted Claims part II

[Table on page]

Since Exhaustion Rate was first reported for the 6/72 data set, the average value has been 34% and the median value has been 33%.

In 37 years there have been 44 monthly values of 40% or higher. Only 7 of these were NOT in the period 2002-2009 and the highest of these was the 8/31/83 set with 40.83.

38.3 was the peak for the 1970s — 11/30/76.
40.83 was the high for the 1980s — 8/31/83.
40.11 was the high for the 1990s — 11/30/92

Until 3/31/09, the previous all-time high was set in 7/31/03 with 43.9. The March, April, and May figures have set successive all-time highs. You have to go back to 1/31/91 (29.87) to find a rate under 30%.

When you plot 12-month average benefits duration on the same graph, you see a clear correlation between the two. One question the data raise is that, during the early 80s recession, the average went over 17 weeks from 5/31/82 to 3/31/83. The 27 year average is 14.76 weeks. The latest figures put us only at 15.67 weeks. Given that even the “green shoots” crowd is predicting a jobless recovery at least in the short term, a 17+ week average would seem likely to follow, sending the exhaustion rate to further 27-year highs.

News from 1930

In the wall street journal 79 years ago:

“This is America. Piffling talkers would turn back the calendar to the nineties and destroy the economic progress of thirty years. Vicious rumors spread for selfish purposes; flippant predictions of a five-year slump in business; wholesale demands for the cutting of wages are unworthy of American intelligence. Credit is super-abundant. Business is no worse than three months ago. Twelve months of declining volume is behind us. Many adjustments have been all but completed. Engineering and marketing brains are as fertile as ever. Problems there have always been. To proclaim their insurmountability is childish.”

AFL President William Green meets with President Hoover, says he believes the employment situation is beginning to improve.

Record low 2 1/2% New York Fed rediscount rate indicates to businesses that very easy credit is here to stay for a while. Reserve expected to be cautious about raising rates until it's clear business upturn is here to stay. Rates have been lowered from 6% last August.

“Stocks down, money down, wheat down, rubber down, copper down, silver down, silk down, gasoline down, steel prices down” - but don't forget, “what goes down must come up.”

Economists feel the current situation in commodity markets is starting to look like a bottom; [emphasis mine] a combination of underproduction and easy credit at low rates should work as usual to correct conditions.

Industrial and financial sectors of the US economy are set up for high levels of production and consumption; the current depression puts buyers in control and they are holding off for lower prices. When consumers start spending again this will be reflected early in stock prices.

“A Turn of the Tide Near” ... “It cannot be imagined that the wholesale failures and interest defaults characteristic of earlier depressions will now be repeated. Confidence in our banking system wholly precludes the money panics of former eras.”

Head of a sizable New York investment trust says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930. Cautions that current market technicals don't look that good and further declines may occur first.

Market students have been encouraged by the general gloom for the past two weeks. This contrasts with the “new era” thinking of last summer when no end was seen to the rise in stock prices and margin debt was hitting a record every week. History says the current gloom is just as mistaken as last summer's unjustified optimism. Historically there has been no case in this country since 1900 when business failed to turn upward the year following a depression.

Dear God - lock, stock and barrel, it could have been taken from yesterday's journal. And the further you read, the more apparent that is.

The symmetry is astounding -- testament to just what a terrific extent 'news' is not actually much to do with the reporting of reality and rather is instead the perpetuation of necessary human mythologies. dumbfounding. shocking. deeply frightening.

FSN News Hour, 3rd Hour with Jim and John Part 3A and 3B

Part 3A

• 19:00 1.6 Trillion Health Care and Cap and Tax
• 25:00 Where is the money coming from?
• 27:00 How the Social Security Trust Fund Works
• 32:00 Foreign Investment, Safe Haven and Bond Yields
• 38:00 Catch 22 for the Fed, Save the Economy or the Dollar? A or B?
• 40:00 Imports
• 43:00 Next Bubble
• 46:00 Ben Bernanke Can't Remember (Page 10/18)

Part 3B

• 2:00 Energy Consumption
• 4:00 Not center of the universe
• 26:00 Cap and Trade a 2 trillion dollar hidden tax that will be a $3,000.00 tax to American Families

"Zombie Bank"