Wheat Shortage May Mean Higher Grocery Bills

New reports of a wheat shortage around the world have experts warning consumers to expect higher prices this fall. As this article form ABC News explains, the shortage in Russia has government agencies all over the globe scrambling for wheat in order to avoid the potential economic strain.

Wheat prices spiked Thursday after Russian Prime Minister Vladimir Putin issued a ban on exports as that country confronts grain shortages amidst drought and withering crops, a situation made worse by out-of-control wildfires.

The global ripple effect – other countries possibly hoarding food, grain supplies dwindling, commodities prices rising – is likely to impact a range of food companies and livestock farmers.

Meanwhile, in India, the government there is stockpiling wheat so aggressively that much of it is sitting outdoors under tarps and starting to rot, the A.P. reported Friday.

"A worldwide scramble for wheat supply is on," said Phil Flynn, commodities analyst at Chicago-based PFG Best. "Higher costs for wheat and grains may hurt the economic recovery because a few months down the road it means higher costs for everything from bread to cereal to meat as farmers reduce their herds."

Continue reading at ABC News…

The Economic Effects of the 2010 World Cup

The 19th World Cup has captivated the hearts and minds of people all over the world. In America, the games have drawn the attention of sports lovers – like myself – as well as millions of Americans simply curious about the hype. In fact, the viewership of the first four games this year was double what it was for the last World Cup, which took place four years ago.

Although it is fun to watch the game, and root for your favorite teams, I could not help but wonder about the economic affect of the World Cup on both its host country as well as the rest of the world.

South Africa's Downturn

Unfortunately the FIFA World Cup is being hosted by South Africa while the country is experiencing their first economic downturn in seventeen years. When first proposed, many South Africans were hopeful that their economy would see a boost from both the symbolism of hosting the world wide sporting event, as well as the visitors it would bring. However, many experts warned that this was wishful thinking, and that sporting events have a tendency to harm the economies that support them, often for the long term. Not only does the preparation that goes into hosting a massive sporting event cost the hosting government, but also local businesses often lose loyal customers when crowds take over.

New Infrastructure = New Jobs

The creation of new infrastructure to support the World Cup did create hundreds of jobs in South Africa, although many were only temporary. In order to satisfy FIFA officials, South Africa was required to refurbish or build 10 new soccer stadiums in time for the World Cup. They also had to repair highways, and take actions to increase security, specifically in the area of transportation. While the stadiums were costly and the construction efforts were not cheap, these buildings will remain for years to come and ideally bringing additional revenue to the country.

However, Beijing was expecting to reap the economic benefits for years to come after hosting the 2008 Olympics and is now suffering what experts refer to as “post-Olympic blues,” due to the lack of long-term revenue from their significant investment. It is unclear if South Africa will experience the same problem or not, as the amount of money spent to host the World Cup was not on the same level as the investment Bejing made to host the Olympics.

Increased Tourism, Economic Troubles

Many tourist related businesses, such as hotel chains are profiting off of the huge increase in visitors to South Africa because of the World Cup. However, these tourists will leave once the games are over, and many other local businesses are not as lucky. According to reports, some service based industries offering local services have seen an 80-90% decrease in business since the World Cup began.

Long-Term Implications

In order to reap the long-term benefits of hosting the World Cup, South Africa will need to use the opportunity as a launching pad for an ongoing increase in tourism. Sydney was able to successfully use their hosting of the 2000 Olympics as a world wide branding opportunity, which resulted in significant tourism increases. It is too soon to see what the long-term implications of the World Cup will be on South Africa’s economy, but they do have a significant opportunity to benefit from the costly sporting event.

Benefit to U.S Businesses

Although the World Cup was held outside the United States, it is an International sporting event that millions of Americans are following closely. Therefore, many American businesses have used the opportunity to benefit from the interest in the games. Local bars, restaurants, and casinos across the country are hosting viewing parties, and many larger corporations have also been able to benefit from the World Cup. For example, Jack in the Box offered a customizable “Jack” antenna ball, allowing customers to outfit Jack with a sweatband to show support for a country playing in the World Cup. This small promotion brought additional revenue to the company’s thousands of franchised locations.

World Economy

Unfortunately, financial experts are split on their predictions regarding the impact of the World Cup on the global economy. An analysis of the world markets during and after the previous 18 World Cups shows that stocks declined during the games, and once again in the few months following their conclusion. However, the global economy is showing some signs of recovery from the banking and financial crisis, and it is too early to tell if the World Cup will slow down the recovery or not.

U.S. Lost Most Jobs Among Rich Countries

From ABCNews.com:

Unemployment in rich countries may have peaked — but there are still 17 million more people out of work than at the start of the crisis, the OECD said Wednesday.

They are "the human cost of the crisis," OECD chief Angel Gurria said, urging governments not to neglect them as they seek to repair wrecked balance sheets.

The longer a person is unemployed, the harder it typically becomes for them to gain paid employment.

"This threatens to mark whole generations," Gurria said in a news conference to mark the publication by the Organization for Economic Co-operation and Development of the report 'Employment Outlook 2010.'

There are 47 million unemployed in the OECD's 31 member countries — the world's most developed economies, the report says.

That's a rate of 8.6 percent, according to May 2010 figures, and compares with 5.8 percent in 2007.

World's Rich Got Richer Amid '09 Recession

From MSNMoney.com:

The United States was home to the most millionaires in 2009 -- 2.87 million -- followed by Japan with 1.65 million, Germany with 861,000, and China with 477,000.

Switzerland had the highest concentration of millionaires: nearly 35 for every 1,000 adults.

Yet as portfolios bounced back, investors remained wary after a collapse that erased a decade of stock gains, fueled a contraction in the global economy and sent unemployment soaring.

The report, based on surveys with more than 1,100 wealthy investors with 23 firms, found that the rich were well served by holding a broad range of investments, including commodities and real estate.

"The wealthy allocated, as opposed to concentrated, their investments," Merrill Lynch head of U.S. wealth management Lyle LaMothe said in an interview.

Millionaires poured more of their money into fixed-income investments seeking predictable returns and cash flow. The challenge ahead for brokers is convincing clients to move off the sidelines and pursue riskier, more fruitful investments.

World’s Wealthy Tapped for Cash as Governments Tax High Incomes

From Bloomberg.com:

From Athens to Olympia, Washington, governments made poorer by the recession are looking to higher taxes on the rich for cash.

Spain’s wealthiest should be tapped to help close the euro region’s third-largest budget deficit, Prime Minister Jose Luis Rodriguez Zapatero said yesterday. The U.K. has boosted taxes on high earners and French and Swedish politicians are calling for the same. The top U.S. tax rate is set to rise in 2011, while at least 14 states have lifted rates or are considering increases.

“There’s a real move to get at whatever revenue you can get at without being so broad as to get the populace all up in arms,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington. “You go where the money is.”

The longest recession since the Great Depression has deprived governments of revenue, opening gaps between what they take in and what they must spend to sustain their economies. Budget deficits in advanced economies have swollen more than eight-fold since 2007 to about 9 percent of gross domestic product, the International Monetary Fund said.

U.S. states are projected to confront $124 billion in cumulative budget gaps in the next two fiscal years, according to the Pew Center on the States, confronting politicians with the need to raise revenue and cut spending to balance budgets.

Dow Plunge is Wake-Up Call to Deal With Debt

From CNNMoney.com:

Technical glitch. Violence in Greece. Historic U.K. elections. A combination of these factors sent the Dow plummeting nearly 1,000 points Thursday before regaining two-thirds of the ground lost.

But here's the thing: the market could be in for a very bumpy ride in the coming months -- except it won't have technical glitches to blame. U.S. debts, more likely than not, could be an underlying culprit.

In any case, Thursday's Dow drama should be a wake-up call that policymakers heed, said Allen Sinai, chief economist and president of Decision Economics.

The story now is Greece's debt crisis, and the fear of debt contagion to Portugal, Italy, Ireland, Spain -- and EU's neighbor, the United Kingdom.

All of that may spell trouble for U.S. exports six to 18 months from now, Sinai said.

Bank Tax Tops G20 Meeting Agenda

Finance ministers, representing 20 of the largest economies in the world, are meeting this weekend. They reportedly plan to discuss an international tax on banks, although it is unsure how many countries support the proposal. However, the group is not expected to reach a final agreement.

The IMF and World Bank are also holding their spring meetings in Washington this weekend. Ahead of those talks, smaller gatherings of central bankers and finance ministers will take place. Officials of the Group of Seven wealthiest nations will gather Thursday night, but the group has ceded policy supremacy to the larger G20, which will kick off their meeting Friday.

A U.S. Treasury official said he detected growing international support for a bank levy, but that the details needed to be worked out. The official said that not all countries would have to follow the exact same approach.

President Barack Obama has proposed a bank tax in his budget, aimed at recouping U.S. government spending on the $700 billion bank bailout.

The U.K. has also proposed a bank tax to protect taxpayers from future bailouts.

Not all G20 nations are supportive of the idea.

Continue reading at MarketWatch.com…

U.S., U.K. Move Closer to Losing Rating, Moody’s Says

From Bloomberg.com:

The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.

The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.

U.S. Dollar Is Still The World's Most Trusted Currency

Although America’s recent economic troubles have caused damage to the reputation of the U.S. dollar, many economists are claiming it is still the strongest and most trusted currency. According to this article on USA Today.com, although our country has debt problems, they are not nearly as bad as the troubles other countries are having. Additionally, no other country has a currency as strong or as well-regarded as the U.S. has, even with its current fiscal woes.

Could the debt eventually push the U.S. away from its status as a reserve currency and into second-tier status?

"It's very difficult for a reserve currency to lose that status," says Kristin Lindow, vice president at Moody's Investors Service. "It takes another nation to take its place, and right now, there isn't one."

As long as the U.S. looks better fiscally than other nations, it will be able to finance its deficit. But that doesn't mean it can continue to bleed red ink forever. In the short term, interest rates are likely to remain low as the Federal Reserve tries to nurse the economy out of recession. In the long term, however, unchecked borrowing could lead to higher interest rates and slower economic growth. As such, the debt has serious implications for savers and investors.

Fears of dire economic consequences have mounted as the U.S. annual budget deficit has soared — and the warnings aren't just coming from Republicans. President Obama last month created a bipartisan panel to rein in the nation's deficits. In November, Treasury Secretary Timothy Geithner called the deficit too high. The Federal Reserve Chairman Ben Bernanke is also worried about the deficit.

"We have a debt that will continue to grow," Bernanke told Congress in February. "It's important to look at the deficit as it goes forward."

But even though the nation's debt, relative to gross national product, is the highest since World War II, the financial markets seem unconcerned. Investors eagerly buy our debt and use the dollar as the premier trading currency worldwide.

How The U.S. Can Avoid the Greek Problem

Greece’s economic troubles have sparked concern among the rest of the world, especially here in the U.S. Their huge debt, and inability to meet their debt payments has many European countries scrambling to help, since they have such strong financial ties to Greece.

In a new article on CNN Money titled “How the U.S. can avoid the Greek problem,” author Jeanne Sahadi urges the U.S. government to create a financial commission such as the bipartisan panel President Obama suggested to tackle the nation’s long term debt problems. Check out a snippet of Sahadi’s opinion piece below.

The delay in getting the commission up and running is due in great part to partisan jockeying from both sides of the aisle and continued uncertainty about whether current Republican lawmakers will agree to take part.

There's no guarantee that when it does materialize it will have the respect of many in Congress, which would have the final word on the commission's recommendations.

And the call for the commission has taken on greater urgency in light of the recent global volatility caused by the sovereign debt crisis in Greece, which threatens all of Europe.

"You need a fiscal commission. You need it now," Simon Johnson, senior fellow at the Peterson Institute for International Economics, told lawmakers this week.

The commission will be asked to figure out ways to get annual deficits down to 3% of gross domestic product by 2015 and thereafter put the country on a more sustainable fiscal track.

Continue reading at CNN.com…

Bankers in Favor of Paying Global Fee

From FT.com:

Some of the world’s most prominent bankers have come out in favour of a global bank wind-down fund, a concession from the industry after weeks of fighting proposals for new taxes in the US and Europe.

Josef Ackermann, chief executive of Deutsche Bank, told the Financial Times on Friday : “To help solve the too-big-to-fail problem I’m advocating a European rescue and resolution fund for banks. Of course, the capital for this fund would have to come from banks to a large degree.”

Bob Diamond, president of Barclays , also supported the idea of a global levy, which could see banks contribute tens or even hundreds of billions of dollars over a period of years.

“I think every G20 country would like to have an insurance scheme that would help cover the cost of any future bank failure,” he told the FT at the World Economic Forum in Davos. “A co-ordinated global system is preferable to an unlevel playing field.”

World Bank Could Run Out of Money 'Within 12 Months'

From the Daily Telegraph:

The Bank, whose job it is to support low-income countries, has had to hand out so much cash in the wake of the financial crisis that its resources could run dry within 12 months.

“By the middle of next year we will face serious constraints,” said its president Robert Zoellick, as he launched a major campaign to persuade rich nations to pour more money into the Washington-based institution.

He conceded that such a task was likely to be extremely difficult, given the difficulties facing countries in the wake of the developed world’s biggest recession since the Second World War. However, Mr Zoellick, speaking at the opening of the IMF and World Bank annual meetings in Istanbul, said the Bank needed a capital increase of as much as $11.1bn (£6.9bn) to keep functioning. He said he hoped that its shareholders, including the UK and other leading nations, would decide on resources before its spring meeting next April.

The money would be shared between the International Bank for Reconstruction and Development – the key part of the bank, which lends to poor nations – and the International Financial Corporation (IFC), which lends to companies.

Dollar's days of dominance may end

From the Washington Times:

World Bank President Robert B. Zoellick warned Monday that, with foreign economic powers rising quickly on the world stage, time is running out for the privileged role enjoyed by the American currency.

The dollar's status as the world's reserve currency has given the U.S. prestige and privileges that are unique in the world, lifting living standards by enabling Americans to borrow cheaply and consume far more than they produce with little consequence for decades.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," Mr. Zoellick said in a speech to Johns Hopkins University's School for Advanced International Studies in Washington. "Looking forward, there will increasingly be other options to the dollar."

Mr. Zoellick, who was appointed by President George W. Bush, noted that the world economic order established after World War II, with the United States and a handful of European countries largely dominating, is quickly coming to an end.

A Tiny Tax Could Do a World of Good

From the New York Times:

The G-20 nations could help both the poor and the global economy by fully financing lagging efforts to fight poverty and disease worldwide, and the best way to do this would be to impose a very small tax on the prosperous foreign exchange industry.

The eight United Nations Millennium Development Goals — which include eradicating extreme poverty and hunger, establishing universal primary education, reducing child mortality, improving maternal health and combating AIDS, malaria and other diseases — are meant to be reached by 2015. Morally and practically, the world must try harder to keep these promises. President Obama has made it clear that the United States has, in his words, “a responsibility to protect the health of our people, while saving lives, reducing suffering and supporting the health and dignity of people everywhere.”

Disease takes an enormous toll on economic growth: it sidelines or kills productive workers and causes tremendous suffering. Take, for instance, tuberculosis, an illness that with the right treatment can usually be cured. In 2007, it killed nearly 1.8 million people, more than 600 times the number who have died from H1N1 swine flu. The World Bank estimates that tuberculosis has caused the gross domestic product in some countries to fall as much as 7 percent.

Or consider maternal health. About 530,000 women worldwide die each year from pregnancy-related causes, most of them preventable, and millions more suffer injuries or develop lifelong disabilities. A serious effort to reduce those numbers would bring real economic gains. Improvements in the health of Asian women and children accounted for a significant share of that continent’s economic growth from 1965 to 1990.

Continued at NYTimes.com…

U.N. Panel says World Should Ditch the Dollar

From Reuters.com:

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar's share in its own reserves in recent years.