Wednesday, August 1, 2012

Nature Reminds Economic Policy Makers Who is in Charge – Major Drought May Wreck Economic Havoc

And Monetary Policy, Low Interests Rates  and Fiscal Stimulus Can’t Help

Economists, including this one pride themselves on being smarter about the economy than just about anyone else.  Not only that, they (we) feel they know just what policy will prevent recessions, or if one happens anyway, what will cure the problem.  Unfortunately there are what are called ‘exogenous shocks’, which is academic speak for some unexpected random event that causes havoc with everyone’s plans.

Darn - Saw This Movie - Henry Fonda, The Grapes of Wrath

Currently the shock that the economy is facing is not man made, although with its blundering tax policy and ruinous spending policy it is fair to say that there are huge man made problems by Democrats and Republicans alike.  No the current problem is a severe drought in the middle of the country, which when combined with near record heat (global warming anyone?) is devastating corn crops.

The effects of the drought are being felt particularly on farms and ranches. Federal officials have declared 1,234 counties in the U.S. drought disaster areas due to crop damage and losses. Corn is shriveling in the field in states such as Indiana, while in parts of the Great Plains ranchers are struggling to find enough hay for their herds.

And no, the damage is not just being done to crops.  People are suffering also.

Hot temperatures have accelerated the dry conditions. The Midwestern Regional Climate Center says the first six months of the year were the hottest on record dating back to 1895 for the nine-state region. Hospitals are seeing a jump in heat-related emergency room visits, and some states have reported deaths tied to the hot weather.


So just in time for the Fall election the specter of higher inflation driven by higher food prices and raw material costs looms over the Presidential race.  Sorry Mr. Obama, enjoy your summer and look out for September.  

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