Roubini - Hard landing in China

NYU economist Roubini is now predicting China could be the backdrop in the next drama of the deteriorating global financial system. Not necessarily a lot of fresh produce connection here, but something to think about it. This link examines what's at stake:

For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.

For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful: collapsing consumption and consumer confidence, plunging housing, collapsing auto sales, plunging durable goods spending (while supply side indicators such as production, ISM and employment are also free falling). The U.S. is entering its worst consumer recession in decades both supply and demand data look worse than in the severe recessions of 1974-75 and 1980-82. And in due time this tsunami of awful macro news, together with ugly downside surprises to earnings will take another toll on equity valuations that are now temporarily lifted by another bear market sucker’s rally.

More worrisome there are now increasing signs that the other main engine of the globaeconomy – China - is also stalling. Let us consider now in detail the evidence that China may be on its way to a hard landing…

Later....

In conclusion the risk of a hard landing in China is sharply rising; a deceleration in the Chinese growth rate to 7% in 2009 - just a notch above a 6% hard landing – is highly likely and an even worse outcome cannot be ruled out at this point. The global economy is already headed towards a global recession as advanced economies are all in a recession and the U.S. contraction is now dramatically accelerating. The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth – at market prices – will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.

Food Miles Mistake?

Have you noticed that diesel prices have dipped below year-ago levels for the first time since Fresh Talk began tracking the fuel's price trends? This type of price movement could not have predicted in early June, but the historic deflationary pressures on commodity prices and the global economy have been prime contributors to the collapse.

I noticed an interesting article about food miles and research from Reasononline, called "The Food Miles Mistake"
While everyone in the U.S. produce world expects the local food movement to only increase in the years ahead. two researchers take aim at one of its chief underpinnings - the concept of food miles.



From the piece:

But for some activists, eating local foods is no longer just a pleasure—it is a moral obligation. Why? Because locally produced foods are supposed to be better for the planet than foods shipped thousands of miles across oceans and continents. According to these activists, shipping foods over long distances results in the unnecessary emission of the greenhouse gases that are warming the planet. This concern has given rise to the concept of "food miles," that is, the distance food travels from farm to plate. Activists particularly dislike air freighting foods because it uses relatively more energy than other forms of transportation. Food miles are supposed to be a simple way to gauge food's impact on climate change. In their recent policy primer for the Mercatus Center at George University, however, economic geographer Pierre Desrochers and economic consultant Hiroko Shimizu challenge the notion that food miles are a good sustainability indicator.


Here is the link to the policy primer for the Mercatus Center. From that report's executive summary:

This Policy Primer examines the origins and validity of the food miles concept. The evidence presented suggests that food miles are, at best, a marketing fad that frequently and severely distorts the environmental impacts of agricultural production. At worst, food miles constitute a dangerous distraction from the very real and serious issues that affect energy consumption and the environmental impact of modern food production and the affordability of food. The course of the debate over food miles is nonetheless instructive for policy makers. It highlights the need to remain focused on the issues that are important—in this case, the greenhouse gas emissions of highly subsidized first-world agriculture, the trade imbalances that prevent both developed and developing countries from realizing the mutual benefits of freer trade, biofuel subsidies, and thirdworld poverty. With the 0opulation of the planet growing rapidly, numerous food-policy issues other than food miles should preoccupy policy makers.


Later...


Food-mile activists sometimes promote the economic benefits of local purchases, at least inasmuch as they imply higher incomes for local producers. Missing from this perspective, of course, is the fact that, if forced by political intervention, farmers’ gains can only come at the expense of consumers who will be forced to pay higher prices for similar food items, or similar prices for lesser quality food items, than would otherwise be the case (if not, there would be no need to adopt coercive policies to penalize agricultural items produced in more distant political jurisdictions). Restrictive “local food” policies would imply, even in the world’s currently most productive agricultural areas, a drastic reduction in the quantity and diversity of foods available to consumers. Smaller supplies of meat, soybeans, cereals, fresh fruits and vegetables—even if somewhat compensated by increased local production of a few
items (say, potatoes, beets, and onions)—would result in lower amounts of calories available per individual and reduced vitamin, protein and mineral intakes


From the UK: The Validity of Food Miles as an Indicator of Sustainable Development

Goodlatte calls Obama out on ag policy

From Rep. Bob Goodlatte yesterday afternoon:

Ranking Member Bob Goodlatte adamantly opposes Senator Barack Obama’s newly revealed stance on agriculture policy calling it outrageous and irresponsible. In a recent interview published in Time magazine, Senator Obama blamed American farmers for high food prices, high energy costs, high healthcare costs, and global warming.

In the article Obama said “our agriculture sector actually is contributing more greenhouse gases than our transportation sector. And in the mean time, it's creating monocultures that are vulnerable to national security threats, are now vulnerable to sky-high food prices or crashes in food prices, huge swings in commodity prices, and are partly responsible for the explosion in our healthcare costs because they're contributing to type 2 diabetes, stroke and heart disease, obesity, all the things that are driving our huge explosion in healthcare costs.”

Ranking Member Bob Goodlatte says “blaming the agriculture community for our nation’s health and energy problems is nonsensical and irresponsible. Our American farmers are some of the hardest working people in the U.S. They’re trying to make a living like all other Americans. They do so by growing food, which enables us to provide for our families. It’s grossly unfair to blame them for rising healthcare and energy costs. Is Senator Obama really suggesting that farmers are causing obesity? Is he really suggesting the agriculture community is more of a problem than the transportation sector when it comes to energy? This kind of thinking seems out of touch with the agriculture community and any policies that stem from these ideas will invariably be detrimental to U.S. agriculture. In stark contrast, John McCain understands the value of our farmers and how important rural communities are to our nation’s economy.”