Stock Market Crash Expected In 2008 To Be Worse Than 1929

[Soldier4Christ]

Bush says White House 'on top of the situation'
President seeks to calm financial markets, praises Federal Reserve actions

President Bush, trying to calm turmoil in financial markets after a dramatic weekend, declared Monday that his administration is “on top of the situation” and dealing decisively with the slumping economy.

“One thing is for certain, we’re in challenging times,” Bush said after meeting with Treasury Secretary Henry Paulson and other senior economic advisers. “But another thing is for certain: We’ve taken strong, decisive action.”

Bush spoke as the financial markets absorbed the stunning news that 85-year-old Wall Street powerhouse Bear Stearns had agreed to be acquired by rival JPMorgan Chase for the fire-sale price of $2 a share. Bear Stearns, which traded at nearly $160 a share less than a year ago, collapsed after losing billions of dollars on mortgage-backed securities.
Story continues below ↓advertisement

Bush commended the Federal Reserve for its urgent actions over the weekend, which included guaranteeing financing for the Bear Stearns deal and making available more credit to Wall Street investment banks. Fed policymakers are scheduled to meet again Tuesday and are expected to lower a key short-term interest rate by as much as three-quarters of a percentage point.

The White House moved quickly to raise Bush’s public profile Monday, and he continued to send an upbeat message, even in acknowledging a downturn that keeps roiling the economy and the country’s people as well.

Bush said “our financial institutions are strong” and “our capital markets are functioning efficiently and effectively.” He praised Paulson for working with the Fed and showing “the country and the world that the United States is on top of the situation.”

Still, Bush said the administration is monitoring economic developments closely.

“When need be, we’ll act decisively in a way that continues to bring order to financial markets,” Bush said.

He did not indicate any other steps the government might take, or when.

“In the long run, our economy is going to be fine,” Bush said. “Right now we’re dealing with a difficult situation.”

Over the weekend the the Fed, which operates independently, approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent.

White House press secretary Dana Perino said Bush had been kept informed of the Fed’s intended actions through a variety of people, but that he was not personally involved in making or approving the decision.

She defended the dramatic intervention on behalf of the financial markets as necessary, even though Bush himself had warned Friday against excessive government intervention in the housing markets. “The concern about possible future market disruptions is real, and a concern not only just to the president but also to world markets,” Perino said.

Global markets plunged Monday, with Tokyo's Nikkei index off nearly 4 percent and major European indices down about 3 percent.

She also said the administration was taking action to help individual homeowners suffering from higher mortgage defaults, and that there is “a responsibility on the part of the media to really explain” that assistance.

Later Monday, Bush met with his Working Group on Financial Markets, which includes Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox.

Afterward, Paulson rejected the notion that the government had bailed out Bear Stearns with a $30 billion line of credit for a takeover by JPMorgan Chase. “If you would ask the Bear Stears shareholder in what has happened in terms of their value, I don’t think any of them would think this is a good outcome for them,” Paulson told reporters in the White House driveway.

“This was an easy decision,” he said. “It was the right outcome.”

[Soldier4Christ]

U.S. loses No. 1 ranking as dollar drops
European Union now has world's biggest economy

The European Union has overtaken the U.S. as the world's No. 1 economy due to the continued dramatic fall of the dollar, according to a Reuters report.

The U.S. Gross Domestic Product, or GDP, for 2007 is officially estimated at $13,843,800 billion. The 2007 GDP for the 15 EU countries is estimated at 8,847,889 billion euros, the report said.

That means when the euro yesterday topped $1.56, the EU officially became the largest economy in the world.

In a Financial Times commentary published Monday, former Federal Reserve chairman Alan Greenspan declared the current financial crisis in the U.S. "is likely to be judged in retrospect as the most wrenching" since the end of World War II.

Greenspan further concluded the U.S. financial crisis will not end until "home prices stabilize and with them the value of equity in homes supporting troubled mortgage securities."

Dollar in crisis

WND has reported the Federal Reserve is in a dilemma. As the Fed continues to lower rates to stimulate the sagging economy, the dollar is increasingly abandoned, hitting new lows almost every day against other major currencies.

If the Fed were to raise rates to prop up the dollar, most Wall Street experts would expect a broad sell-off of U.S. stocks across the board.

Today, before the opening of the New York Stock Exchange, the dollar was trading at a new low, $1.5787 against the euro.

Just yesterday, the dollar hit a new all-time low in foreign currency exchange markets, closing at 71.44 on the U.S. Dollar Index.

Home Equity Foreclosures Hit Bank Assets

Meanwhile, the crisis in the home equity market is spreading to impact major financial institutions.

Over the weekend, the Federal Reserve and the Treasury intervened, guaranteeing J.P. Morgan Chase's bargain basement purchase for a mere $2 per share of then in free-fall Bear Stearns, the 85-year-old Wall Street investment bank that had survived the Depression and two world wars.

Today, Wall Street is pressuring the Federal Reserve's Open Market Committee to drop rates on federal funds as much as 1 percent, a nearly unprecedented one-time adjustment.

Fed Funds rates, now at 3 percent, reached a high of 5.25 percent in January 2007.

Since September, the Fed has been engaged in a series of rate cuts, trying to keep ahead of the developing financial crisis and economic slowdown that began with the downturn in the mortgage markets in the middle of last year.

The real estate bubble developed as Greenspan kept fed funds rates at a historical low of 1 percent throughout much of 2003 and 2004.

The resulting liquidity pumped funds into home equity markets, stimulating dramatic price increases that continued throughout much of 2006. That resulted in abundant cash for mortgage lenders to fund the risky sub-prime market where typically unqualified home buyers were being offered unconventional loans with artificially low mortgage payments in the initial few months.

The nation is now experiencing the fallout of collateralized mortgage obligations in which mortgages packaged as securities and sold to banks as assets were allowed to count in the banks' legal reserve calculations.

A wave of home foreclosures across the nation has caused a resulting failure in the collateralized mortgage securities held by banks.

When the collateralized mortgage obligations are marked to market, many banks across the country are finding they do not have adequate non-borrowed reserves to continue operations under current reserve requirements.

Again, the Federal Reserve has stepped in, providing multiple facilities in which struggling banks can borrow on a short-term basis the reserves needed to continue operating.

In a series of unprecedented moves over the weekend, the Federal Reserve has now made many of these same borrowing facilities available to securities and investment brokerage firms as well as commercial banks.

As WND reported, for the first time since the Federal Reserve has published the data, bank non-borrowed reserves have begun to turn negative, reflecting the increased borrowing banks are utilizing to continue operating.

[Soldier4Christ]

Dow skyrockets 420 points after Fed move
Biggest one-day point gain for the Dow index in more than five years

Dollar gains ground or is it still a flailing market with a false glimmer of hope.

Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve’s decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank’s benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said “recent information indicates that the outlook for economic activity has weakened further,” but also that “uncertainty about the inflation outlook has increased.”
Story continues below ↓advertisement

“The Fed once again in the statement showed that it is ready for further action if this were needed,” said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. “It also showed the fact that it’s still paying attention to inflation ... but that it is far from being the primary concern right now. And the market knows that, and it is happy.”

Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday gave great comfort to a market fearful about investment banks weakening further — and hurting the rest of the economy — due to losing bets on mortgage-backed securities. After Sunday’s news that the stricken Bear Stearns Cos. was being bought by JPMorgan Chase & Co. at a bargain price of $2 a share, both Lehman and Goldman posted quarterly profits early Tuesday that were significantly lower than they were a year ago, but higher than analysts predicted.

“The overwhelming news this morning was the Lehman and Goldman Sachs earnings,” said Jim Herrick, director of equity trading at Baird & Co. “The earnings this morning allayed investors’ fears that there’s going to be a hard collapse.”

Still, while Wall Street’s advance was heartening, investors were well aware that over the past six months, stocks have had many bursts higher, only to give them back at the first sign of credit market or economic trouble.

It will take some time before anyone knows whether the market is back on a true upward track, or is just staging another bear market rally. As market watchers will recall, the Dow jumped 416 points just last Wednesday after a $200 billion loan pledge from the Fed. A great deal of those gains evaporated late last week on worries about Bear Stearns.

After the Fed’s decision was announced, the Dow first gave back half of its 300-point gain, then shot higher, closing up 420.41, or 3.51 percent, at 12,392.66. The Dow’s point gain was the largest point jump for the Dow since a 447-point advance on July 29, 2002.

Broader stock indicators also finished sharply higher. The Standard & Poor’s 500 index rose 54.14, or 4.24 percent, at 1,330.74, and the Nasdaq composite index rose 91.25, or 4.19 percent, to 2,268.26.

Bond prices were mixed after the Fed rate cut. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.45 percent from 3.30 percent late Friday.

It was a good sign that short-dated Treasury prices rose while long-dated bonds fell, said Michael Materasso, senior vice president at Franklin Templeton. “What you’re seeing is an unwinding of this flight-to-quality that we saw last week,” he said, adding that the Fed’s cut and statement indicated that it is willing to act further, but “not panicking.”

After its last scheduled meeting Jan. 30, the Fed reduced rates by a half-point, pointing to not only stressed financial markets, but also tightening credit for businesses and households; a deepening in the housing contraction; and softening in the labor markets. The central bank repeated these concerns in its statement Tuesday.

Data released Tuesday supported the notion that the economy is sliding while costs are rising. The Commerce Department said home construction fell in February: housing starts fell 0.6 percent, while building permits plummeted 7.8 percent.
Story continues below ↓advertisement

Meanwhile, the Labor Department reported a 0.3 percent rise in its Producer Price Index for February, in line with estimates, but the core PPI, which strips out food and energy prices, rose by a greater-than-expected 0.5 percent.

Although the market was clearly upbeat on Tuesday, many on Wall Street have been unsure recently that rate cuts will give the markets and the economy the lift they need; rate cuts usually spur growth, but they also drive down the dollar, which in turn lifts commodities prices. It’s likely that the uncertainty will lead to some more pullbacks until investors have a sense that the economy is indeed recovering.

Wall Street certainly remains nervous about the effect of inflation on cash-strapped homeowners. Still, the Fed’s language about inflation Tuesday could be oddly comforting to investors, who may be relieved that policymakers weren’t so preoccupied with troubles in the credit market as to set aside inflationary concerns.

“They’re saying, ’You’re healthy enough for me to talk about inflation,’ “ said Swiss Re senior economist Arun Raha.

Following the Fed’s move, the dollar regained ground against some major currencies, while gold prices fell and crude oil surged $3.74 to settle at $109.42 a barrel on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by 9 to 1 on the New York Stock Exchange, where volume came to 1.95 billion shares.

The Russell 2000 index of smaller companies rose 31.45, or 4.83 percent, to 681.93.

Financial stocks were the biggest winners Tuesday. Lehman rose $14.74, or 46 percent, to $46.49; Goldman rose $24.57, or 16 percent, to $175.59; and Bear Stearns rose $1.10, or nearly 23 percent, to $5.91.

[Soldier4Christ]

Delta to cut jobs, U.S. capacity
Offers voluntary severance more than half its work force

Delta Air Lines said Tuesday it will offer voluntary severance payouts to roughly 30,000 employees—more than half its work force—and cut domestic capacity by an extra 5 percent this year as part of an overhaul of its business plan to deal with soaring fuel prices.

Executives at Atlanta-based Delta said in a memo to employees that the airline's goal is to cut 2,000 frontline, administrative and management jobs through the voluntary program, attrition and other initiatives.

Delta spokeswoman Betsy Talton said that if more than that amount agree to take the voluntary severance, that will be allowed. The severance program primarily affects mainline Delta employees. It will not affect Delta pilots, who have a union contract with the company, and employees at Delta regional carrier Comair, which is based in Erlanger, Ky.

One part of the program is for employees who are already eligible for retirement or for those whose age and years of service add up to at least 60, with 10 or more years of service. The other part of the program is an "early-out" offer for frontline employees—such as flight attendants and gate and ticket agents—with 10 or more years of service and for administrative and management employees with one or more years of service.

Delta had 55,044 total full-time employees as of the end of last year.

Oil prices recently cracked $111 a barrel, nearly twice what they were a year ago.

The memo from Chief Executive Richard Anderson and President Ed Bastian did not mention Delta's talks with Northwest Airlines Corp. about a combination that would create the world's largest airline. Bastian was updating investors Tuesday at a conference in New York.

"We're focused on addressing our challenges," Bastian said at the conference. "We're moving quickly. We're focused on performance."

Bastian said Delta will continue to grow internationally. He brushed off concerns raised by one analyst that robust international expansion may be the wrong approach while many corporations are cutting back on travel as the economy weakens.

On Monday, Delta's pilots union said it had told company executives it can't agree on seniority issues with its counterpart at Northwest, raising serious doubts about the prospect of a combination of the two companies.

The disclosure was made in a letter from the head of the pilots union at Delta, Lee Moak, to rank-and-file Delta pilots.

The letter does not mention Northwest by name, but makes references to the other union as the only one Delta pilots have been talking to. Multiple officials close to the talks have said in recent months that the other company was Northwest.

The letter talks about the discussions with the other carrier in the past tense, suggesting at least for now there won't be further talks.

The two carriers don't need a pilot seniority integration deal in advance to move forward with a combination, but Delta Air Lines Inc. executives have said they would not move forward with any combination unless the seniority of their employees was protected.

A Delta-Northwest combination deal could proceed without a pilot seniority agreement, but that would be up to the boards of the two companies.

At least one airline analyst, Calyon Securities' Ray Neidl, sounded doubtful that will happen, at least in the near term.

Bastian said Tuesday that he would not be able to provide details on the consolidation discussions. He said the process Delta's board is conducting to review strategic alternatives is "fluid."

"We are proponents of consolidation, but it does have to be the right deal," Bastian said.

Asked by an analyst why Delta doesn't seem willing to move forward without a pilot deal first, Bastian responded, "No. I'm not going to bite."

Bastian reaffirmed Delta's first-quarter earnings guidance. He said the company will be updating its full-year guidance considering higher fuel costs.

"It is not out of the question for Delta to be profitable this year, albeit it modestly profitable," Bastian said.

[Soldier4Christ]

Debt fueling drop in homeowner equity

An economic advisor and portfolio manager says it's significant, but not surprising, that the Federal Reserve now says Americans' percentage of equity in their homes has fallen below 50 percent for the first time.

The Fed reported that tally at the same time that the Mortgage Bankers Association announced home foreclosures soared to an all-time high in the last quarter of 2007. Mortgage analyst Debbie Petruzelli says it also appears that only 30 percent of Americans own their homes outright, which is a lower figure than she imagined.
 
But Petruzelli acknowledges that her countrymen already carry more debt in today's environment than most generations of their ancestors did.
 
"It seems that people do enjoy borrowing money to fund their homes, and have been able to extract equity out of it when home prices were going up," she shares, "so these statistics are not startling at all to me."
 
Petruzelli says the Fed's news re-emphasizes the importance of mortgage lenders finding the borrowers to offer several new renegotiating options which the government is trying to facilitate -- and the importance of borrowers getting to their lenders to communicate, instead of ducking them and being difficult to find.

[Soldier4Christ]

U.S. Treasury fears Islamic strings on investments
Requests assurances decisions won't be dictated by sharia law

 The U.S. Treasury is struggling with how to handle any political or Islamic ramifications as Persian Gulf sovereign wealth funds look to make substantial investments in capital-poor American banks and securities firms.

The crisis in mortgage-backed securities has created a need for new capital to enter financial markets after major financial institutions such as Bear Stearns and Carlyle Capital Corp. failed over the weekend.

The crisis is an opportunity for sovereign wealth funds that have prospered as the price of oil has soared over $110 a barrel.

WND previously reported sovereign wealth funds in six Persian Gulf countries, including Kuwait, the United Arab Emirates and Qatar, have now amassed $1.7 trillion, positioning them for attempts to control major banks and securities firms in the U.S.

The question is whether political strings will come with the investment from the Islamic oil-rich states.

Since the beginning of the year, Dubai and Abu Dhabi, two of the largest United Arab Emirate states, have been in discussions with the U.S. Treasury, offering reassurances that their investments in U.S. banks and security firms would not impose restrictions usually dictated by Islamic law, commonly know as sharia.

The Wall Street Journal reported today that Abu Dhabi sent last week a three-page letter to U.S. Treasury Secretary Henry Paulson and other Western finance officials spelling out a set of principles that will guide Abu Dhabi's investing philosophy.

The letter marks the first time Abu Dhabi has responded to Treasury requests for reassurance the Islamic states will not use investments in U.S. financial firms to seek political advantage.

The Wall Street Journal reported the letter was also sent to the finance ministers of the other Group of Seven industrialized nations, the International Monetary Fund, the World Bank, the Organization for Economic Cooperation and Development and the European Commission.

On Monday, Dubai announced the launch of the Investment Corporation of Dubai, a new multi-billion dollar sovereign wealth fund positioned to make investments in the global economy.

According to the Telegraph of London, the fund will be chaired by Sheik Mohammad bin Rashid Al Maktoum, the emirate's ruler, but it will be operated separately from Dubai Holdings and Dubai International Capital.

Still, the new fund will be backed by state money, not just the personal wealth of the Maktoum family.

Paulson and Dubai are trying to avoid the repeat of a controversy that developed in 2006 when Dubai Ports World sought to acquire Peninsular & Oriental Steam Navigation, the London-based ports management firm that conducted operations at some 22 U.S. ports.

Still, despite the enthusiasm for foreign capital, the Treasury's effort to work with the Islamic sovereign wealth funds demonstrates, savvy investors in Dubai and Abu Dhabi are likely to be cautious when venturing into the U.S. market at this time.

The problem, they say, is that no one knows for sure whether the crisis triggered initially by mortgage foreclosures in the sub-prime market has peaked.

How many more losses will be realized in mortgage-backed and other loan-based collateralized securities held in bank and investment firm asset portfolios remains to be seen.

The Telegraph noted Qatar's 30 billion pound sovereign wealth fund just bought under 2 percent of Credit Swiss.

While the Qatar Investment Authority plans to spend between 5 billion and 7.5 billion pounds on bank investments over the next two years, the fund plans to avoid U.S. banking stocks for now, due to uncertainty over their exposure to sub-prime loans.

The publication /Business Intelligence in the Middle East reports the Dubai Financial Market's Sharia Board issued yesterday the first Islamic standards for trading shares of DFM companies, another indication Dubai is positioning for a global investment environment dominated by Western standards.

The DFM, first opened March 26, 2000, is a public institution with a corporate body operating independently of the ruling family, organized to operate as a secondary market for the trading of listed securities issued by public shareholding companies.

Following its 2007 annual meeting, the DFM announced its intention to become the world's first Islamic bourse.

[Soldier4Christ]

Stocks close down sharply amid profit-taking
Dow finishes session off almost 300 points after big rally day before

Stocks pulled back sharply Wednesday, erasing most of the previous session’s big gains as investors grew concerned about high commodities prices and the possibility that banks remain vulnerable to further problems from soured debt. The Dow Jones industrial average fell nearly 300 points after rising 420 on Tuesday.

Some retrenchment was to be expected after the previous day’s huge advance. But the decline also reflects investors’ continuing uneasiness about the world’s financial system and the U.S. economy.

Talk swirled about whether further write-downs are in the offing after Merrill Lynch & Co. filed a lawsuit against a company involved in a debt transaction with the investment bank. Merrill claimed in the litigation that Security Capital Assuance Inc. owed it up to $3.1 billion after backing out of financial transactions.
Story continues below ↓advertisement

News that the government plans to free up billions of dollars at Fannie Mae and Freddie Mac, a move that could help struggling homeowners, for a time helped quell some of the market’s fears. But it couldn’t stave off selling late in the session by investors who have seen big advances evaporate many times during the course of the credit markets crisis and decided to preserve some of their gains.

Investors sent stocks charging higher Tuesday on stronger-than-expected investment bank results and several moves from the Federal Reserve in recent days, including a 0.75 percentage point rate cut aimed at jump-starting the credit markets. The Dow had its second 400-plus point gain in six sessions.

George Shipp, chief investment officer at Scott & Stringfellow, said some investors are still uneasy about the health of the markets. He said back-and-forth days will likely continue as Wall Street tries to feel its way forward.

“Nobody wants to make the first move. There is liquidity on the sidelines. It doesn’t really know what to do right now,” he said, adding that investors are trying to determine whether moves by the Fed and other regulators to stimulate the economy and stabilize the markets will take hold.

“Clearly there is fear. I would say the needle is pointing more toward fear than greed right now,” he said.

According to preliminary calculations, the Dow on Wednesday fell 293.00, or 2.36 percent, to 12,099.66.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 32.32, or 2.43 percent, to 1,298.42, and the Nasdaq composite index fell 58.30, or 2.57 percent, to 2,209.96.

Bond prices jumped as investors again looked for safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.37 percent from 3.50 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell sharply.

Light, sweet crude fell $4.94 to settle at $104.48 per barrel on the New York Mercantile Exchange after government figures suggested the high price of oil and gasoline are damping demand for petroleum products.

Investors’ relief over Morgan Stanley follows better than expected earnings news from Lehman and Goldman on Tuesday that gave the Dow its biggest point gain in more than five years. The Dow got an extra boost after the Fed’s rate cut.

Morgan Stanley rose $1.07, or 2.5 percent, Wednesday to $43.93. Lehman fell $3.95, or 8.5 percent, to $42.54, while Goldman declined $8.66, or 4.9 percent, to $166.93.

The Office of Federal Housing Enterprise Oversight, which oversees government-backed Fannie and Freddie, said the changes should result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities. This could mean greater demand for mortgages — an aid for struggling homeowners hoping to refinance at more favorable terms.

Investors were upbeat about the moves at the mortgage companies. Fannie jumped $2.87, or 10 percent, to $31.09, while Freddie rose $3.86, or 15 percent, to $29.88.
Story continues below ↓advertisement

The Fed has slashed key rates by more than half since last summer, when the mortgage crisis claimed its grip on the global credit markets. But the housing and lending industries are still hurting.

Late Tuesday, Visa Inc. launched the largest initial public offering in U.S. history, selling 406 million shares at $44 apiece to raise $17.9 billion. The world’s largest credit card processor is not a lender, and many investors are betting that it will easily survive the faltering U.S. economy and credit climate. The stock traded up $14.49, or 33 percent, at $58.49.

Despite the pullback Wednesday, Bruce McCain, head of the investment strategy team at Key Private Bank in Cleveland, said recent trading — days when stocks didn’t plummet in the face of bad news and rallied on good news — is encouraging because it could signal the market is closer to regaining solid footing.

He said while any placidity in the markets would likely need to last for some time to extinguish some of investors’ fears, he was encouraged by some recent signs of strength in consumer discretionary and financial stocks.

“Those are probably the two most important sectors with respect to this market regaining some confidence and maybe starting to shift gears,” he said.

Wall Street has beaten up stocks like those of financial companies in recent months in favor of energy, materials and industrials. Investors hoping for a change in the winds on Wall Street will be looking for signs that money is moving out of these defensive areas into downtrodden corners of the market, McCain said.

Declining issues outpaced advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares.

The Russell 2000 index of smaller companies fell 10.15, or 1.49 percent, to 671.78.

Overseas, Japan’s Nikkei stock average increased 2.48 percent, while Hong Kong’s Hang Seng index rose 2.26 percent. Britain’s FTSE 100 closed down 1.07 percent, Germany’s DAX index fell 0.50 percent, and France’s CAC-40 declined 0.58 percent.

[Soldier4Christ]

Bernanke: Federal Reserve
caused Great Depression
Fed chief says, 'We did it. …
very sorry, won't do it again'

Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that's the clearly stated view of current Fed Chairman Ben Bernanke.

The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country on earth. According to the Encyclopedia Britannica, "the Great Depression ranks second only to the Civil War as the gravest crisis in American history."

What exactly caused this economic tsunami that devastated the U.S. and much of the world?

In "A Monetary History of the United States," Nobel Prize-winning economist Milton Friedman along with coauthor Anna J. Schwartz lay the mega-catastrophe of the Great Depression squarely at the feet of the Federal Reserve.

Here's how Friedman summed up his views on the Fed and the Depression in an Oct. 1, 2000, interview with PBS:

    PBS: You've written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?

    Friedman: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe.

    The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy.

    The Federal Reserve System had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve System, you had the worst banking crisis in the history of the United States. There's no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.

    And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

    At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

Although economists have pontificated over the decades about this or that cause of the Great Depression, even the current Fed chairman Ben S. Bernanke, agrees with Friedman's assessment that the Fed caused the Great Depression.

At a Nov. 8, 2002, conference to honor Friedman's 90th birthday, Bernanke, then a Federal Reserve governor, gave a speech at Friedman's old home base, the University of Chicago. Here's a bit of what Bernanke, the man who now runs the Fed – and thus, one of the most powerful people in the world – had to say that day:

    I can think of no greater honor than being invited to speak on the occasion of Milton Friedman's ninetieth birthday. Among economic scholars, Friedman has no peer. …

    Today I'd like to honor Milton Friedman by talking about one of his greatest contributions to economics, made in close collaboration with his distinguished coauthor, Anna J. Schwartz. This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history, the onset of the Great Depression – or, as Friedman and Schwartz dubbed it, the Great Contraction of 1929-33.

    … As everyone here knows, in their "Monetary History" Friedman and Schwartz made the case that the economic collapse of 1929-33 was the product of the nation's monetary mechanism gone wrong. Contradicting the received wisdom at the time that they wrote, which held that money was a passive player in the events of the 1930s, Friedman and Schwartz argued that "the contraction is in fact a tragic testimonial to the importance of monetary forces."

After citing how Friedman and Schwartz documented the Fed's continual contraction of the money supply during the Depression and its aftermath – and the subsequent abandonment of the gold standard by many nations in order to stop the devastating monetary contraction – Bernanke adds:

    … Before the creation of the Federal Reserve, Friedman and Schwartz noted, bank panics were typically handled by banks themselves – for example, through urban consortiums of private banks called clearinghouses. If a run on one or more banks in a city began, the clearinghouse might declare a suspension of payments, meaning that, temporarily, deposits would not be convertible into cash. Larger, stronger banks would then take the lead, first, in determining that the banks under attack were in fact fundamentally solvent, and second, in lending cash to those banks that needed to meet withdrawals. Though not an entirely satisfactory solution – the suspension of payments for several weeks was a significant hardship for the public – the system of suspension of payments usually prevented local banking panics from spreading or persisting. Large, solvent banks had an incentive to participate in curing panics because they knew that an unchecked panic might ultimately threaten their own deposits.

    It was in large part to improve the management of banking panics that the Federal Reserve was created in 1913. However, as Friedman and Schwartz discuss in some detail, in the early 1930s the Federal Reserve did not serve that function. The problem within the Fed was largely doctrinal: Fed officials appeared to subscribe to Treasury Secretary Andrew Mellon's infamous 'liquidationist' thesis, that weeding out "weak" banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were small banks (as opposed to what we would now call money-center banks) and not members of the Federal Reserve System. Thus the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller brethren was no longer their responsibility. Indeed, since the large banks felt confident that the Fed would protect them if necessary, the weeding out of small competitors was a positive good, from their point of view.

    In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. …

    Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

    Best wishes for your next ninety years.

Today, the entire Western financial world holds its breath every time the Fed chairman speaks, so influential are the central bank's decisions on markets, interest rates and the economy in general. Yet the Fed, supposedly created to smooth out business cycles and prevent disruptive economic downswings like the Great Depression, has actually done the opposite.

[Soldier4Christ]

Malicious traders try to topple UK bank
'Market abuse': Spread untrue claims institution on brink of collapse

Stock market manipulators yesterday tried to bring down one of Britain’s biggest banks by spreading false rumours through the City.

The Bank of England was forced to issue an unprecedented denial that HBOS was in trouble.

The Financial Services Authority (FSA) said that it would pursue traders guilty of “market abuse” by spreading untrue claims that banks were on the brink of collapse.

The authorities believe that the fear and uncertainty in financial markets are allowing unscrupulous traders to make multimillion-pound profits by whipping up hysteria about the stability of big banks.

Yesterday’s drama began at about 8.30am when rumours started spreading through London’s stock market that HBOS, which owns Halifax, the UK’s biggest mortgage lender, and Bank of Scotland, was about to become another Northern Rock and that it had begged the Bank of England for a multi-billion-pound emergency loan. Within 20 minutes HBOS’s shares had plunged by more than 17 per cent as investors dumped their stakes. An hour later, the Bank of England announced that no bank needed emergency funding, while the FSA issued a statement warning investors to stop spreading false accusations.

It is feared that short-sellers — investors who use falling share prices to make money — were deliberately spooking the market in order to profit from plunging stocks in a practice called trash ’n’ cash.

Rumours that the American investment bank Bear Stearns was short of cash contributed to its near-collapse last week after its lenders were scared into demanding that it repay them immediately.

The warning to speculators came as it emerged that the American financial watchdog was investigating similar activity in the trading of shares of Bear Stearns and Lehman Brothers, another US investment bank heavily exposed to risky American mortgage business.

Andy Hornby, the HBOS chief executive, vehemently denied that the bank needed an emergency loan. He said: “It’s categorically untrue that we’ve approached any central bank for funding.”

Sally Dewar, the FSA’s managing director of wholesale markets, said that a series of “completely unfounded rumours about UK financial institutions in the London market” had been spread over the past few days, usually accompanied by short-selling of the banks’ stocks.

The FSA can listen to office telephone calls and investigate suspicious transactions but has never brought a trash ’n’ cash prosecution.HBOS shares closed 7 per cent down at 446.25p.

[Soldier4Christ]

Economic winter is on its way

The interesting thing about economics is that it is rather like the weather in some ways. It's easy to read the signs and know that autumn is on the way, but it's very hard to predict the precise date of the season's first snowfall. (In Minnesota, Jack Frost never waits for winter, but shows up on Oct. 24, on average.) And the fact that you may be totally confident that it's going to snow this winter doesn't mean you know if it's going to be an 11-footer like 1995 to 1996 or a measly two-footer like 1958 to 1959.

Like the early leaves of autumn, the first financial institutions are beginning to fall. Globalization and financial innovation have not mitigated economic risk; they have merely allowed the wrinkled whores of Wall Street to conceal the extent of the crises and delay their inevitable day of reckoning. The idea that the various bank failures and last-ditch bailouts taking place everywhere from New York to London and Zurich are the result of unforeseen circumstances is as ludicrous as the idea of taking out an adjustable rate mortgage when mortgage rates are at historic lows. The irresponsible happy talk of the financial media notwithstanding – that are starting to get that same deer-in-the-headlights look they had back in late 2002 – most economically astute individuals have long known that the Greenspan economic regime was not sustainable, despite the present Fed chairman's belief in the efficacy of magic helicopter money. Consider the prophetic statement by Robert Prechter from my 2004 interview with him:

      I think we are about to enter a deflation of historic magnitude which equates to a contraction in the overall supply of dollar-denominated credit.

While the plunging dollar and rising gas prices show that the predicted deflation hasn't kicked in yet, the Bear Stearns bailout, the decline in the number of mortgage applications and the increase in the TED Spread to levels that haven't been seen since 1987s Black Monday crash indicate that the contraction in the supply of dollar-denominated credit is already upon us. Simply printing more money is not an option because a Federal Reserve Note is not, technically, a dollar in the sense that it was originally defined – a silver coin of the United States containing 371.25 grains of silver – but merely a promissory note from the Federal Reserve to the U.S. government. When debt is currency, a collapse in debt creation will tend to presage a collapse in currency.

It is, perhaps, worth noting that even if one ignores the collector's value, a single 19th century dollar is now worth $17.54. The idea that the Federal Reserve exists to fight inflation, preserve a strong currency and smooth out the business cycle has everything wildly backwards, as the only things that the Federal Reserve actually does is to create inflation, reduce the value of its own debt currency and exacerbate the business cycle in precisely the manner we are witnessing today.

Although the mainstream economists have finally begun to acknowledge that the U.S. economy is already in the recession that was long proclaimed to be unlikely, the problem is that there are more than a few signs that a true depression is in the works. Murray Rothbard's excellent 1963 book, "America's Great Depression," shows that in direct contrast to the official mythology, the Great Depression was caused by excessively lax monetary policies by the Fed, which responded to the crash in precisely the same manner that the Japanese central bank responded to the 1989 Nikkei crash and the way that the Fed has desperately been attempting to fend off the unavoidable since 1999. The Fed's decision to cut rates tomorrow – and don't be surprised if Bernanke elects to "shock" the markets with a full-point rate cut in excess of the 75 basis-point "surprise" cut everyone is expecting – is rather like giving a dying man a stiff snort of cocaine. It may have a positive effect on the markets for a week or two, but the feeling of invincibility will rapidly dissipate, and within two months we'll be right back where we were, albeit with a few less bullets in Bernanke's gun and less investor confidence than ever. The short-term high may be your last chance to exit on an up note for a while, though, so if you're still in stocks, this will probably be a good time to cut your losses.

All that two decades of frantic bailing out and bubble blowing has accomplished is to enrich a few fortunate investors and delay the inevitable while significantly jacking up the terrible price that Americans will ultimately pay. The business cycle can be influenced, but it cannot be eliminated. For every economic action, there will be an equal and opposite reaction, and since the financial house of cards has been built ever higher and ever more vulnerable during this decades-long period of delay, chances are very high that the collapse will be swifter and more brutal than even the economic pessimists can currently envision. This is far from a failure of the free markets; it is merely more evidence of the futility of central economic planning.

If we are fortunate, it is only a long and hard economic winter that is approaching. If we are unfortunate, it is the financial Fimbulwinter that will precede a political Ragnarok.

[Soldier4Christ]

Journalist warns taxpayers may pay for Fed's mistakes

Pulitzer Prize-winning journalist Gretchen Morgenson believes the Fed's decision to bail out one of the key players in the country's home mortgage crisis -- Bear Stearns -- may come at taxpayers' expense.

J.P. Morgan's $2-a-share purchase of investment bank Bear Stearns over the weekend came with the aid of $30 billion in financing from the U.S. Federal Reserve to cover potential losses in Bear Stearns' securities holdings. New York Times business columnist Morgenson says the bailout crossed a line, because Bear Stearns -- as she puts it -- "helped create the titanic credit mess we are in."
 
"Let's say you are a parent ... [and] your son takes the keys to the Porsche, wraps the Porsche around a tree, and then you -- after that -- go out and buy him another Porsche. That's ... what [we mean] when we talk about moral hazard," she explains. "You are basically encouraging bad behavior to continue. You aren't punishing bad behavior.
 
"So the reckless behavior that Bear Stearns conducted itself in the mortgage arena is essentially ... being rewarded because the Federal Reserve is not backstopping $30 billion of those kinds of loans, and the taxpayer may have to cover that," Morgenson contends.
 
According to Morgenson, Bear Stearns executives are unlikely to receive excessive compensation packages known as "golden parachutes."
 
"What we do have to remember is that during the mortgage boom, these executives made tremendous amounts of money -- hundreds of millions of dollars," she points out. "And it was generated by the mortgage boom because that was contributing to Bear Stearns' profits.
 
"Now that the boom has turned to bust," she continues, "it seems to me only fitting that some of those bonuses be clawed back. Why on earth should they be allowed to keep money that was made on questionable loans and dubious practices?" Morgenson wonders.
 
The journalist says the Fed had no choice but to intervene because nowadays brokerage firms and big commercial banks are all interrelated, and the Fed needed to ensure that chain remained intact. However, she says the demise of Bear Stearns highlights the failure of regulators to "act before or prevent the train wreck."
 
Morgenson, who was awarded a Pulitzer Prize in 2002 for her coverage of Wall Street, wrote a column Sunday titled "Rescue Me: A Fed Bailout Crosses a Line."

[Soldier4Christ]

Truckers ‘going broke’ and threatening to strike

What started as a small, online grassroots effort now appears to have the potential for something bigger.

Dan Little, the owner/operator of a livestock hauling company in Carrollton, Mo., estimated Tuesday that at least 1,000 other truckers from across the United States have committed so far to joining him in a strike on April 1.

Although none of the truckers interviewed Tuesday at the Iowa 80 Truck Stop, Walcott, which is just off Interstate 80 west of Davenport, has heard of the intended strike, some said they would shut down, too.

Weldon Kinnison, a Virginia trucker who was hauling soft drink from Indiana to Denver, heard about the plans for a strike for the first time Tuesday while stopping at Walcott.

“I’m an owner/operator with the American Truckers Association,” he said. “I’d park my truck for a week with the cattle haulers.

“The fuel is too high, and there’s no reason for it. I don’t listen to the CB (radio) that much, but I guess I’ll start now.”

At issue is the rising cost of diesel fuel, which has reached or exceeded $4 per gallon in at least 17 states. But Little does not expect his strike to bring down the per-gallon price of gas, nor does he expect to have any effect on the oil companies.

“What I would personally like to see is our federal and state governments, until our economy recovers, suspend federal and state fuel taxes,” the 49-year-old said. “The second thing I’d like to see is an oversight committee for truck insurance, which is part of what’s taking us down.

“The average owner/operator is paying $600 to $800 a month for truck insurance. It’s based on personal credit, which means the monthly cost is going up for a lot of truckers because their credit is going down.

“Everything in the world is going up (in price), except for what we do. I lose money if I start my truck, and that truck is paid for — free and clear.”

Mike Hills, a driver from Wyoming, Iowa, said he also would shut down to support Little and the others — if he could.

“I can’t strike with them because I’m company,” he said while at the Walcott truck stop. “If I owned the truck, I’d strike with them. As far as I’m concerned, the gas prices are driving the economy.

“It might be a good thing if the drivers strike. They can’t make payments. Maybe if the oil companies bought all the trucks, things would change. Everything in this country is trucked.”

Hills then removed his wristwatch, using it to explain his point of view: “Every piece of this watch was trucked from somewhere. If you can’t keep up with the trucks, we’re all screwed — not just this country, but the world.”

Keith Deblieck, the owner of a trucking company out of Geneseo, Ill., said that, for many drivers, the time for a strike has come.

“They ought to strike,” he said. “We all ought to. They lose money every day they go out.”

But officials from the Owner-Operator Independent Drivers Association are encouraging truckers to find options to a strike. The trade group represents the interests of more than 160,000 small business trucking companies and drivers.

“If we told our operators to shut down, we’d be slapped with a lawsuit because of anti-trust,” said association spokeswoman Norita Taylor, adding that a poor economic outlook and rising fuel prices are creating “a lot of emotions” among truckers.

“It’s hurting these people who are living paycheck to paycheck,” she said. “People are upset. What can we do?”

One thing the association is trying to do is talk to lawmakers and truckers about making sure that surcharges being charged to shippers are getting back to the people who paid for the gas. Surcharges are supposed to compensate for high fuel charges, but they must be negotiated with each shipper, and the truckers who pay at the pump aren’t always first in line to receive the surcharges.

 Even when the surcharges do make it back to the driver, they are not enough.

“I turn down loads every day,” Little said. “The loads aren’t the problem — never have been.

“It’s the only thing I know how to do, driving a truck. But I sold my trailer the other day, and I’m not buying another one until something gets done.

“In no way, shape or form do truckers want to hurt this country. My whole deal on this thing is that I’m shutting down on April 1. Call it a strike, a shutdown or just flat-ass going broke.”

Jim Johnston, president of Owner-Operator Independent Drivers Association, warned that a strike “is not the answer,” saying, “Calling for a strike without the support of the majority would show weakness rather than strength, and the result would be increased economic hardship to the small percentage of truckers who do participate in the shutdown with no gains to justify their sacrifice.”

Little said he has no other choice.

“Our federal government is subsidizing railroads, airlines, banks and farmers,” he said. “Meanwhile, we’re being taxed to death.”

[Soldier4Christ]

Ohio: 1 in 10 people on food stamps
Caseloads almost double since 2001, highest number in state history

Food stamps double since '01
But price of food means they don't go as far now

Nearly one in 10 Ohioans now receives food stamps, the highest number in the state's history.

Caseloads have almost doubled just since 2001, with 1.1 million residents now collecting benefits, according to the Ohio Department of Job and Family Services.

Low wages, unemployment and the rising cost of groceries, gasoline and other necessities are to blame for financial hardships facing many Ohio families.

Caseloads have been rising steadily in the past seven years, said Brian Harter, spokesman for the state agency which oversees the food-stamp program.

"Look at unemployment during this time," he said.

Ohio's jobless rate is 5.3 percent, up from 4.4 percent in 2001.

"The economy and loss of manufacturing jobs are at the root of what's going on. But lately (it's) the rising cost of transportation and food -- people who were barely getting by, are not getting by," said Jack Frech, director of the Athens County Department of Job and Family Services.

"It has pressed folks to the edge to have to rely on food stamps."

Advocates estimate another 500,000 Ohioans are eligible but not enrolled in the food-stamp program.

Individuals in households with incomes up to 130 percent of the federal poverty level and with assets no greater than $2,000 in most cases are eligible for food stamps. That's earnings of no more than $22,880 a year for a family of three.

Recipients receive $100 a month. The federal government pays for the benefits while the state covers administrative costs.

But as the price of milk, fruits and other groceries climb, advocates say, recipients can buy less and less with that $100.

"Food stamps provide only about $1 per person, per meal. Who in the world is buying groceries with that?" asked Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Bank.

On average, food stamps are now providing less than two weeks of groceries.

"There's the presumption that folks have the cash to make up the rest. Well, they don't," Frech said.

Not surprisingly, food pantries and soup kitchens across the state have been reporting record demands. Like the families they serve, they, too, cannot keep pace.

In central Ohio, demand at the Mid-Ohio Food Bank in January was up 14 percent over the same period a year ago, with 120,000 requests for food.

The increased demand coupled with rising food costs and fewer donations have forced the food bank to reduce the five-day supply of food it had been giving out to a three-day supply.

"Milk is up 25 percent," said Mid-Ohio president Matt Habash. "Applesauce, a big staple at food banks, has gone from $9 to $15 a case."

In other areas of the state, pantries with their supplies depleted have been forced to temporarily close.

"The shortages," Hamler-Fugitt said, "are a double whammy for people who have been relying on food stamps and pantries."

[Soldier4Christ]

Consumer confidence plunges in March
5-year low amid tight credit, rising prices, worsening job prospects

Consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects made many worry that the economy has fallen into recession.

The Conference Board, a business-backed research group, said Tuesday that its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. That was far below the 73.0 expected by analysts surveyed by Thomson/IFR.

The index has been weakening since July, and is watched because lower consumer confidence tends to result in lower consumer buying, which is a drag on the economy.

Lynn Franco, director of the Conference Board's research center, said the latest index reading was the lowest since 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.

"Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," she added.

There were steep declines in two companion indexes.

The present situation index, which looks at current conditions, slumped to 89.2 in March from 104.0 the month before. The expectations index, which looks ahead, dropped to a 35-year low of 47.9 in March from 58.0 in February. The last time the reading was that depressed was in December 1973, when it registered 45.2 amid the Arab oil embargo and Watergate scandal, the Conference Board said.

In the expectations appraisal, a growing number of consumers said they expected business conditions to worsen over the next six months. On the labor market, consumers expecting fewer jobs increased to 29 percent in March from 28 percent in February, while those expecting more jobs declined to 7.7 percent from 8.9 percent.

The survey by the New York-based Conference Board is based on a sample of 5,000 U.S. households

[Soldier4Christ]

Food prices soaring worldwide
'Demand is very strong. Supply is constrained. It is as simple as that'

If you're seeing your grocery bill go up, you're not alone.

From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions. Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India.

The world's poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso and Cameroon this month.

But food protests now crop up even in Italy. And while the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

"It's not likely that prices will go back to as low as we're used to," said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization. "Currently if you're in Haiti, unless the government is subsidizing consumers, consumers have no choice but to cut consumption. It's a very brutal scenario, but that's what it is."

No one knows that better than Eugene Thermilon, 30, a Haitian day laborer who can no longer afford pasta to feed his wife and four children since the price nearly doubled to $0.57 a bag. Their only meal on a recent day was two cans of corn grits.

"Their stomachs were not even full," Thermilon said, walking toward his pink concrete house on the precipice of a garbage-filled ravine. By noon the next day, he still had nothing to feed them for dinner.

Their hunger has had a ripple effect. Haitian food vendor Fabiola Duran Estime, 31, has lost so many customers like Thermilon that she had to pull her daughter, Fyva, out of kindergarten because she can't afford the $20 monthly tuition.

Fyva was just beginning to read.

In the long term, prices are expected to stabilize. Farmers will grow more grain for both fuel and food and eventually bring prices down. Already this is happening with wheat, with more crops to be planted in the U.S., Canada and Europe in the coming year.

However, consumers still face at least 10 years of more expensive food, according to preliminary FAO projections.

Among the driving forces are petroleum prices, which increase the cost of everything from fertilizers to transport to food processing. Rising demand for meat and dairy in rapidly developing countries such as China and India is sending up the cost of grain, used for cattle feed, as is the demand for raw materials to make biofuels.

What's rare is that the spikes are hitting all major foods in most countries at once. Food prices rose 4 percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.

As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls.

For many, it's a disaster. The U.N.'s World Food Program says it's facing a $500 million shortfall in funding this year to feed 89 million needy people. On Monday, it appealed to donor countries to step up contributions, saying its efforts otherwise have to be scaled back.

In Egypt, where bread is up 35 percent and cooking oil 26 percent, the government recently proposed ending food subsidies and replacing them with cash payouts to the needy. But the plan was put on hold after it sparked public uproar.

"A revolution of the hungry is in the offing," said Mohammed el- Askalani of Citizens Against the High Cost of Living, a protest group established to lobby against ending the subsidies.

In China, the price hikes are both a burden and a boon.

Per capita meat consumption has increased 150 percent since 1980, so Zhou Jian decided six months ago to switch from selling auto parts to pork. The price of pork has jumped 58 percent in the past year, yet every morning housewives and domestics still crowd his Shanghai shop, and more customers order choice cuts.

The 26-year-old now earns $4,200 a month, two to three times what he made selling car parts. And it's not just pork. Beef is becoming a weekly indulgence.

"The Chinese middle class is starting to change the traditional thought process of beef as a luxury," said Kevin Timberlake, who manages the U.S.-based Western Cattle Company feedlot in China's Inner Mongolia.

At the same time, increased cost of food staples in China threatens to wreak havoc. Beijing has been selling grain from its reserves to hold down prices, said Jing Ulrich, chairwoman of China equities for JP Morgan.

"But this is not really solving the root cause of the problem," Ulrich said. "The cause of the problem is a supply-demand imbalance. Demand is very strong. Supply is constrained. It is as simple as that."

Chinese Premier Wen Jiabao says fighting inflation from shortages of key foods is a top economic priority. Inflation reached 7.1 percent in January, the highest in 11 years, led by an 18.2 percent jump in food prices.

Meanwhile, record oil prices have boosted the cost of fertilizer and freight for bulk commodities—up 80 percent in 2007 over 2006. The oil spike has also turned up the pressure for countries to switch to biofuels, which the FAO says will drive up the cost of corn, sugar and soybeans "for many more years to come."

In Japan, the ethanol boom is hitting the country in mayonnaise and miso, two important culinary ingredients, as biofuels production pushes up the price of cooking oil and soybeans.

A two-pound bottle of mayonnaise his risen about 10 percent in two months to as much as 330 yen (nearly $3), said Daishi Inoue, a cook at a Chinese restaurant.

"It's not hurting us much now," he said. "But if prices keep going up, we have no choice but to raise our prices."

Miso Bank, a restaurant in Tokyo's glitzy Ginza district, specializes in food cooked with miso, or soybean paste.

"We expect prices to go up in April all at once," said Miso Bank manager Koichi Oritani. "The hikes would affect our menu. So we plan to order miso in bulk and make changes to the menu."

Italians are feeling the pinch in pasta, with consumer groups staging a one-day strike in September against a food deeply intertwined with national identity. Italians eat an estimated 60 pounds of pasta per capita a year.

cont'd