Financial Warfare, Famine & Meltdown?

freeacre

The news of the dramatic attacks in Mumbai was disturbing last week. Seeming like an action movie, the story of ten armed men breaking up into teams and terrorizing Mumbai in several locations at once was shocking. The Taj Mahal hotel up in flames for days. Tourists and Jewish people executed in a city that avoids killing cows!

But that, it seems, is not the half of it. It might have been a sucker punch to the gut of financial globalism itself. I think, as usual, Mike Ruppert nailed it. He wrote on Thanksgiving evening,

“I do not know how many other corporations are affected; but they will be many, if not most of the Dow 30 and the Fortune 500. And I can tell you that on Friday morning, any customer or client of Citigroup, Symantec or Hewlett-Packard will be unable to get customer assistance over the phone. Warranty service for these corporations will stop. I know that because I have been through that horrible grind with all of them in the last year or so. All of their calls are taken in Mumbai, by Indians. Nothing is working in Mumbai and there can be no certainty when anything will be working. Because the attacks included the premier hotels in the financial district, no multi-national will ever trust the city again. The risk is too great. I can almost bet that the multinationals are all well prepared for attacks on their own facilities, but were totally unprepared for an attack that pulled the city out from under them.

I think many corporations also have data processing and IT centers there as well.

The Achilles tendon of globalization has just been severed.”

Since then, Matt Savinar on Life After the Oil Crash continues the analysis this week:

“…This is why, as Mike Ruppert wrote last week, every world leader with an IQ over 70 is shaking in their boots right now. Reason being the effects of the attacks on the Fortune 500 and Dow 30 will be, at the very least, as follows:

A) the cost of insuring their outsourced operations goes through the ceiling

B) the cost of providing security goes through the ceiling

C) the cost of capital (interest rate) for any projects outsourced to India and elsewhere just went through the ceiling

With so many companies as highly leveraged as they are, it doesn't take much to push them over the edge. Jack up their interest rates, jack up their insurance premiums while drastically escalating the amount of money they need to spend on security and a whole bunch of them will be plunged right into insolvency.

Point #2: "But won't they just move their operations back U.S. soil, thereby creating more jobs for us Americans?"

Again, this would only serve to raise their operating costs and therefore raise their interest rates. In a different era, where things weren't so mind-bogglingly leveraged, a company might be able to absorb these increased costs. But modern Fortune 500 companies rely on "Just in Time" (JIT) financing the same way Safeway and Shell rely on JIT delivery food and fuel. As you already know, it only takes a brief (2-5 day) or small (1-3%) disruption in the JIT delivery of food and fuel to totally shoot the whole system to hell. It's the same with the JIT delivery of money. The companies most affected by these attacks have structured their operations for maximum financial "efficiency".* Maximum efficiency is great for a company's bottom line when times are good and the flow of capital is reliable. But when things get dicey, maximum efficiency means just a small increase in costs, be it in labor, in capital, in insurance rates, in the cost of security, etc. can blow your entire balance sheet to hell.

Key point: the big banks have loaned money to the Fortune 500 under the assumption that the project of globalization will continue, more or less, unfettered. An attack like this therefore detonates one of the basic assumptions under girding the finances of pretty much every multinational corporation on the planet.

So the answer to the question of "will they be moving their operations back to U.S. soil" is "no, they won't be as the loans they've been getting from the Big Banks are based on the assumption of ultra-cheap outsourced labor. Without these artificially cheap loans, many of them will simply go out of business as their entire business model was predicated on low-cost loans, the issuance of which was predicated on unfettered access to ultra-cheap outsourced labor."

HOLY COW!

You wonder why the stock market plunged on Monday? Naturally, there will be dead cat bounces and fluctuations. But, the one-two punches of resource depletion and increased costs of production and insurance, just may have knocked out this globalization beast!

What?? Give me another cigarette… I think I need to smoke two at once while this is sinking in… humm…

Somehow the global financial brain trust has managed to set everything up so that it could not be more vulnerable to the slightest vagary. Running so close to the bone in terms of relying on “just in time” deliveries of both goods and monies, the very cheapest labor costs, cheap oil for production as well as distribution, and low rates of insurance, the geniuses of greed have orchestrated their own demise. Plaxico Burress seems not to have been the only one who shot himself in the foot last week.

Meanwhile, as though oblivious to the Dead Men Walking scenario that is the corporate reality in Asia, Washington DC continues to play charades with the bailout. Everybody knows that Detroit was red-lined years ago. If the automakers have their way, they’ll take the money and expand their factories in Brazil and China. Maybe we ought to think of a better way to stimulate our economy as well as the company – let’s have the government buy us all a brand new car! Tax free. It would only be a temporary fix, but at least we’d have our last new car and no payments! Some of us could live in them.

Then, we would be liberated to make other arrangements as the world as we know it deteriorates beyond recognition.

We really can not afford to be this stupid. Because in addition to the corporate meltdown, we are facing a disaster with our food production next year as well. In the last post, ras directed our attention to a Daily Koz article (11/27). Here’s an excerpt:

“ … I wrote earlier about the famine potential we face due to the under fertilization of the wheat crop. Wheat that gets enough ammonia is 14% protein, if it is unfertilized closer to 8%, and that 43% reduction in total plant protein is going to cause unimaginable suffering in places like Egypt, where half of the population gets subsidized bread. Global end of season per capita wheat stocks have been about seventy pounds my entire life, except the last three years where they've dropped to only forty pounds. One mistake in this area and one of the four horsemen gets loose, certainly dragging his brothers along behind. That mistake may already have been made in the lack of wheat fertilization this fall.

The fall nitrogen fertilizer application has been 10% of the norm. A typical year would see 50% put on in the fall and 50% in the spring. During fertilizer application season the 3,100 mile national ammonia pipeline network runs flat out and the far points on the network experience low flow both fall and spring. If they try to jam 90% of the fertilization into a period of time when the system can only flow a little more than half of the need much of our cropland will go without in the spring of 2009.

Finances as much as weather are the issue with regards to fertilization this fall. Crop prices have fallen to half of what they were, ammonia prices have dropped but ammonia suppliers here, receiving 75% of their supply from overseas, still have product in their storage tanks purchase at the historical highs last spring and summer.

When farmers plant they record the acreage and they purchase crop insurance - $20 to $40 an acre depending on the crop. If they have a failure they file a claim, an adjustor contacts them, and they get a check to cover the deficit. Some of this runs through the U.S. Department of Agriculture and some of it is through private insurers.

My conversations with farmers earlier this week lead me to believe that the largest private insurer, Des Moines Iowa's Rain and Hail Agricultural Insurance may be insolvent. Flooding claims from this spring were filed and payments would have typically been received by the end of June or beginning of July. It's now the end of November and payments are not being dispersed. “

Additionally, there is a propane shortage in the Dakotas that is not allowing the proper storage of corn in their silos. This will decrease the crops dramatically next year. Farming, anymore, requires vast amounts of loans in order to plant, fertilize, harvest, and store the food. With the FUBAR in financial circles, this crucial aspect of food production is dramatically challenged.

So… the banks are blowing up, the jobs are disappearing, the homes are being lost, the commercial loans are still frozen, the government is giving away all our money, and now to top it off, we are looking at severe food production failure.

Is it raining frogs yet?

In spite of all this bad news, I think the most horrifying thing to me last week was that a 34 year old employee of a Long Island Wal-mart got trampled to death in the rush to shop the day after Thanksgiving. That this monstrous culture that spawned this collective atrocity is going down, can only be interpreted on the whole, as a blessing.

Good by and good riddance to all of it.