Good day… And a Terrific Tuesday to you! Well… Stop the presses… You know the presses that are talking about the countries that are on the docket to begin a rate hike cycle, because… Russia has thrown a cat among the pigeons this morning with a rate CUT… Let me tell you why this is a big deal…

Well, when everyone is thinking that the G0-GO countries of Norway, Australia, and Brazil will probably begin their rate hike cycles this year, and other won’t be far behind… While the U.S. drags its feet and wallows in the zero rate mud… The thinking was that the rate differentials to the dollar would begin to widen, causing even more pain for the dollar. And, the reason these countries were able to raise rates was that the global economy was recovering, and there is no need to keep those ultra-low accommodating rates that just open the Pandora’s Box of inflation problems…

But then along came Russia, and their rate cut overnight. While this IS JUST RUSSIA, and not even a part of the currencies most people think to buy (except in a MarketSafe CD!), it just reminded everyone that maybe, just maybe, cause you never know, the global economies aren’t as strong as one would like to think… And, when investors have those thoughts in their minds, the “flight to safety” bull-dookie takes place again, which means… Investors buy dollars!

I really don’t believe this will last too long, as I said yesterday, we’ll have a ton o’data to deal with this week, and soon everyone’s attention will be drawn to the data… And, if the data is somewhat positive, and the dollar remains in the trading pattern that punishes the dollar when data is positive, then a turn around could be in the cards…

Yesterday, I read a story in the Wall Street Journal (WSJ) regarding the World Bank President (Robert Zoellick) and his thoughts on the dollar… I thought it would be appropriate to include them in this award winning newsletter! Snicker!

“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency, looking forward, there will increasingly be other options to the dollar.” And then… While the European Union faces similar challenges, Zoellick said he views the euro as a “respectable alternative if the dollar is weak.”

Hmmm… I would guess that he would only talk about this stuff, if the dollar was weak! Right? Why would he talk about this stuff if the dollar was the king of the hill like back in 1999 during the Tech Bubble? The dollar index was around 120 then… It’s 77, and been as low as 76 in recent trading sessions…

Speaking of respectable alternatives for the dollar… The Chinese renminbi continues its baby steps toward full liquidity, and widespread use. Recall I told you a few weeks ago, how China issued a sovereign bond in Hong Kong denominated in renminbi. The issue was 6 Billion renminbi in size, and was the first such issue ever done by the Chinese.

These baby steps, like the currency swap agreements with other countries to take dollars out of the trade between the two countries, and this bond issuance, is just what the Chinese need to do to get their currency to go “international”… And most important, “Convertible”… It will take years, folks… But eventually, you’ll see this happening more and more…

I suggest to you a simple things… To keep a journal… Folks, we are living in historic times… The U.S. probably having to default on debt at sometime in the future, the dollar devaluation, the dollar being replaced as the reserve currency of the world, our move to socialism, and collectivism… It’s all there… You’ll want your grandkids to know what was happening, because, I’m sure it won’t be taught to them in the schools as it should! Ok, I’m heading in a bad direction here, and need to get back on track…

OK after a week or so of telling everyone that would listen, that he was in favor of a strong yen, Japanese Finance Minister, Fujii, not only backed up the truck Sunday night to say that everyone had mistaken what he was saying, (yeah right, like we all are morons, and didn’t understand what he was saying, HAHAHAHAHAHA!) but last night Mr. Fujii, said that the government might intervene to weaken the yen!

See why I don’t like manipulated currencies? Governments are fickle, and whatever their whim or whatever blows their skirt up, just takes a currency in a different direction in a heart beat!

You know what? This just hit me like a ton of bricks (OUCH!) We had European Central Bank (ECB) President Trichet, was talking late yesterday afternoon about the dollar… And then Japan’s Fujii, was talking about weakening the yen… You don’t think… Yes, I do think that dollar weakness in on the minds of Central Bankers… The moves in the dollar in the past week were quite violent downward, and while everyone and their brother believe this will happen eventually, they certainly don’t want dollar devaluation to gain traction right now, when the world has tried desperately to get out from under the financial meltdown of last year.

I’ve talked about this before folks… One of the reasons you don’t hear ECB members, especially Trichet talk about the euro much is because they can’t be seen by the markets as promoting euro strength, for that would mean that they (the ECB) has given up on the dollar! And that would cause huge chunks of dollar value to be lost in a NY minute.

So… Here we are Sept. 29th, and it looks like “the boys” are propping up the dollar… Now, it will be interesting to see if the currency traders of the world, realize this, or if it just flies over their heads until they read the Pfennig! For, if they do, and they have the intestinal fortitude of their fathers and grandfathers, they would be testing the Central Bankers’ mettle… When a man’s an empty kettle, he should be on his mettle, and yet I’m torn apart… Just because I’m presuming that I could be kind of human, if I only had a heart!

OK… I guess I was being serious there for a minute, before going into my beautiful granddaughter, Delaney Grace’s favorite movie!

I guess that means I need to get this tied up and sent to the data cupboard!

The data cupboard will yield the S&P/CaseShiller Home Price Index this morning for July… The data is expected to show that home prices fell less than the previous month, with a -14% fall expected. We’ll also see Consumer Confidence for this month, which is expected to show an increase on Confidence (index number) to 57 from 54.1 in August. On a much lesser scale for data, the ABC Consumer Confidence is expected to weaken! However, the markets really only pay attention the Conference Board’s Consumer Confidence.

On Friday of this week, we’ll see the Jobs Jamboree for September… Right now, it is expected, (by the BLS of course who we hold in contempt for misleading Americans), that the unemployment rate will tick up to 9.8%… However, when you actually count the 59% of Americans that are out of work, the number goes to 16%… And then there are the chronically unemployed and the underemployed who can only find part-time work.

I told you last week that the unfortunate thing is the fact that the unemployed are remaining unemployed longer and longer… Right now, about 33% have now been out of work for more than 27 weeks.

And… Big Ben and the President really think that the economy is going good, when you have that kind of rot on the employment vine?

My good friend, David Galland, who by the way, has agreed to be a guest contributor to our monthly letter to clients of EverBank World Markets, called the Review and Focus, had this to say about the prospects of a strong recovery and continued stock markets prowess with the unemployment situation as is…

“In the final analysis, however, there is a real economy that underpins the stock market. At this point, the Wonderland rally is focusing entirely on the bright prospects for that economy. “Just imagine,” we are told, “how well these companies are going to do once the economy recovers.”

The problem is, the economy has no real chance of actually recovering until some major change occurs in the current policies of the administration. A changes that actively encourages new business formation, as opposed to what we are getting now, which is the exact opposite.”

Then there was this… Gold has remained under $1,000 for a few days now… Holding the door open for you? Wink, wink…

OK… To recap, The dollar is stronger this morning, as Russia throws a Cat among the pigeons with a rate cut. A return of the “flight to safety” trades is in the cards today, but the data might bring the dollar back down to earth. It looks to me as though Central Bankers in Japan and the Eurozone, are feeling a bit uneasy with the dollar weakness… And Chuck sings the Tin Man song…

Currencies today 9/29/09: A$.8735, kiwi .7165, C$ .92, euro 1.4570, sterling 1.5975, Swiss .9635, rand 7.4185, krone 5.8480, SEK 7.0220, forint 185, zloty 2.8870, koruna 17.2630, RUB 30.15, yen 89.80, sing 1.4180, HKD 7.75, INR 48.09, China 6.8280, pesos 13.56, BRL 1.7870, dollar index 77.10, Oil $66.46, 10-year 3.29%, Silver $16.11, and Gold… $990.75

That’s it for today… I hope you make your Tuesday quite Terrific!

Chuck Butler

Source: Stop The Presses!

Notes can reveal that the pre-meeting booklet for the meeting is predicting “either a prolonged, agonising depression that dooms the world to decades of stagflation, decline and poverty – or an intense but shorter depression that paves the way for a new sustainable economic world order, with less sovereignty but more efficiency.”

Don’t you believe it.

I’ll grant you, the alliterative moniker for the crisis cooked up by WFP Executive Director Josette Sheeran was clever – if not downright brilliant: It was picked up by dozens of global news services and was actually featured prominently in quite a few headlines. It’s also one of the most accurate descriptions of a growing global crisis that I’ve ever seen.

You see, the “silent tsunami” is real. And as the damage escalates, the silence will devolve into a grating global cacophony of pain, poverty and protests. The folks at the U.N., the World Bank, and in global capital cities from Beijing to Washington all have vowed to fight back. In Great Britain, the government this week hosted a world summit at its offices on Downing Street.
But there’s a problem. And it’s a pretty big one: You see, even the folks who are planning to battle back against the “silent tsunami” aren’t fully armed in that they don’t really understand all its causes.

Nor do the victims understand the very real steps that they can take to protect themselves – let alone how to offset at least some of the damage by profiting on the very real global trends that have whipped up this worldwide food firestorm.

Let me explain …

Fanning the Flames of a Global Food Crisis

By “silent tsunami,” Sheeran is referring to soaring worldwide food prices – the first truly global food crisis since World War II. The WFP says the crisis already threatens 20 million children in the world’s most-poverty-stricken regions, and has ignited demonstrations and protests in Africa, across Asia, and throughout the Caribbean. This unrest even led to deaths in Haiti and in Cameroon, where civil servant Samuel Ebwelle told a journalist from The Associated Press that the thought of continued escalations in the price of food scares him deeply.

“We are getting to the worst period of our life,” said Ebwelle, 51. “We’ve had to reduce the number of meals we take a day from three to two. Breakfast no longer exists on our menu.”
World Bank President Robert B. Zoellick claims that as many as 100 million people could be forced deeper into poverty. And U.N. Secretary-General Ban Ki-moon says the soaring price of food is undermining a goal of slashing worldwide poverty in half by 2015.

So just how bad is this “tsunami?”

According to the World Bank, worldwide food prices have risen a scorching 83% over the past three years. The price of rice – a staple of daily diets all across Asia – has actually doubled in the last five weeks. [Here in the United States, the Sam’s Club warehouse stores unit of Wal-Mart Stories Inc. (WMT) actually began limiting rice purchases yesterday (Wednesday)].
Research such as the World Bank stats certainly give the crisis a somewhat daunting feel, but it’s when an American consumer takes a look at actual grocery store prices that the impact finally starts to hit home. Consider these prices from a U.S. Bureau of Labor Statistics study:

• A dozen large Grade A eggs that two years ago cost $1.33 now costs a U.S. shopper $2.17 – 63% more.
• A pound of whole wheat bread has jumped 42% during that same period, moving from $1.32 to $1.88.
• A gallon of whole milk has jumped 20%, moving from $3.22 to nearly $3.90.
• And a pound of white flour, a key ingredient in so many things, has soared 39%, from 33 cents to 46 cents.

Add in the impact of rising fuel and energy prices – regular gasoline that consumers use to drive to their jobs or run family errands is up 18% in the past year, while the diesel fuel that powers the trucks and trains that deliver goods from producers to market has soared 44%.

The bottom line is this: In the U.S. market, inflationary forces have struck hard at staple goods – the essentials like groceries, gasoline and healthcare – causing them to soar, while having very little impact on luxury goods that many American consumers are avoiding right now anyway.

Because food and energy costs are backed out of – not included in – the so-called “core” rate of inflation, domestic pricing pressures still look fairly benign, with inflation running at a tad bit more than 4%.

But clearly the “real” inflation rate is much higher. And U.S. consumers and investors know it, because they’re worried – if not afraid.

According to a USA Today/Gallup Poll released yesterday (Wednesday), 73% of the American consumers surveyed cited soaring food costs in the form of rising grocery bills as a concern, while nearly half said that food inflation has caused a “hardship” for their households.

That’s here in the United States. Let’s now take a look overseas, where the rising prices aren’t merely a “hardship” – they’re a disaster.

Causes, Effects, Solutions

The U.N.’s World Food Programme says the soaring food prices will leave a $755 million shortfall in its $2.9 billion budget, forcing cuts in vital programs.
“This is the new face of hunger – the millions of people who were not in the urgent hunger category six months ago, but now are,” Sheeran said. “The response calls for large-scale, high-level action by the global community, focused on emergency and longer-term solutions.”

But here’s the crux of that problem: Before you can fix a problem, you have to understand its root causes. And it’s clear to us that very few folks really see the big picture.
When asked about the causes for the massive run-up in food prices, “experts” listed many of the same catalysts:

• Rising fuel costs.
• The use of certain foods – such as corn – for the creation of biofuels that are being developed to combat global warming and to take up the slack for the increase in conventional fuel prices.
• Rising populations.
• Growing demand from emerging economies – especially China and India.
• Floods and droughts that are being blamed on ongoing climate changes.

Unfortunately, they forgot two causes – and they’re not small: The first is the implosion of the U.S. subprime mortgage bubble, and the second is a greenback that’s so weak that it’s threatening to disappear altogether. Both are part and parcel of inflation.

By creating all the cheap money that created, first, the U.S. Internet stocks bubble and, second, the U.S. housing bubble, the U.S. Federal Reserve essentially created the subprime mortgage bubble. When that burst, as all bubbles must, it created a global financial crisis that forced all the world’s key central banks to create additional liquidity in an attempt to basically bail out the world’s developed economies [and lest we try and blame the United States for all of this, let’s not forget that Great Britain has a humdinger of a housing bubble that’s deflating, but hasn’t quite fully collapsed].

The Mogambo Guru recently weighed in on the situation:

“The big problem with inflation is that people get low blood sugar when they are hungry, and soon their moods turn sour. I know this for a fact because if breakfast or brunch or lunch or coffee break or dinner or any snack is five minutes late, I involuntarily turn into a screaming monster from hell demanding to know who stole my food and vowing bloody revenge. I can only imagine the anger when hunger is caused because someone can’t afford to buy food!

This “inability to buy food” is one of the problems with inflation, and that ugliness is now here, as we read from Bloomberg.com that “The World Bank in Washington says 33 nations from Mexico to Yemen may face ’social unrest’ after food and energy costs increased for six straight years.” Hahaha! No kidding?”.

The big problem with inflation is that people get low blood sugar when they are hungry, and soon their moods turn sour. I know this for a fact because if breakfast or brunch or lunch or coffee break or dinner or any snack is five minutes late, I involuntarily turn into a screaming monster from hell demanding to know who stole my food and vowing bloody revenge. I can only imagine the anger when hunger is caused because someone can’t afford to buy food!

This “inability to buy food” is one of the problems with inflation, and that ugliness is now here, as we read from Bloomberg.com that “The World Bank in Washington says 33 nations from Mexico to Yemen may face ’social unrest’ after food and energy costs increased for six straight years.” Hahaha! No kidding?

World Bank chief Robert Zoellick says, “Thirty-three countries around the world face potential social unrest because of the acute hike in food and energy prices”, and that since 2005, “the prices of staples have jumped 80%”.

Like what? Like corn and wheat, which are making the news by rising like crazy, and the latest food emergency is that “Rice, the staple food for half the world,” is now double the price of a year ago, and a fivefold increase from 2001. Yikes!

100% inflation in the price of rice in one year! And 500% in seven years! Yikes again! No wonder that Jody Clarke at MoneyWeek.com reports that “Since January 2005 the average price of a loaf of bread in the US has risen 32%. Overall, US retail food prices rose 4 % last year, the biggest jump in 17 years, says the US Department of Agriculture. Meanwhile restaurant owners have been even harder hit, with wholesale price increases of 7.4%. That’s the biggest jump in nearly three decades, according to the National Restaurant Association.”

And worse yet for us alcohol-besotted worthless lushes out here, heroically keeping bartenders and comely barmaids gainfully employed year around, the price of hops, an integral ingredient in beer making, has soared from $4 a pound to $40.

The Marketbasket Survey, conducted by the American Farm Bureau Federation, says a basket of things like bread, milk, eggs and pork chops will cost you $3.50, or 8.9%, more this year than last. Both a five-pound bag of flour and a dozen eggs are up over 40% since January 2007.”

And speaking of pork and yummy pork products, there is a pig crisis in Britain because the government mandated that pig farmers institute some reforms to make the rearing process more humane, and that means that “Costs rose and farmers fled the sector. The U.K.’s breeding herd has fallen to about 425,000 – half the size it was in 1990. Now, soaring feed prices have tipped the industry into crisis.”

And food prices, and the resultant anger, are rising around the world, as we glean from a reader of George Ure’s Urbansurvival.com who has been using the Google search engine for references to “food riots.” He has submitted these returns:

“278 on the 22 Mar 08
289 23 Mar
330 24 Mar
380 26 Mar
970 02 Apr
1330 05 Apr
1698 07 Apr 08″

Mr. Ure has some data of his own; “Meantime, the word ’shortage’ is hanging around 33,000 hits a day, up from the 11,500 a day” back when he first started tracking it back March 15th, 2006.

Larry Edelson at MoneyandMarkets.com says, “Over the past eight years, the price of food worldwide has increased 75%; the price of wheat has gone up a dramatic 200%.”

And regardless of what idiots at the Federal Reserve or their toadying hangers-on say, inflation in prices follows inflation in the money supply, which brings up the terrifying fact that it is all going to get worse and worse, as from Bloomberg.com we read that “Federal Reserve officials signaled the central bank will keep lowering interest rates because financial markets remain distressed even after the fastest reduction of borrowing costs in two decades”, which goes along with another Bloomberg article that reported, “New York Federal Reserve Bank President Timothy Geithner said capital markets are still ’substantially impaired’ and policy makers and financial industry leaders must ‘act forcefully’ to stem the crisis.” Translation: You ain’t seen nothin’ yet.

Too bad it will be all for naught, as Jason Hommel of the silverstockreport.com is exactly right that “the Fed is doomed. Printing more will not work. Printing less will not work. Printing nothing will not work. All the inflation of all the years from 1913 until now is beginning to crash down on our heads, and it will keep crashing until it stops.”

I am not even from this planet, and I understand that something has to keep going “until it stops”, but when will that be? The answer, says Mr. Hommel, is simplicity itself: “Until bonds start paying more each year than gold is going up each year.”

So what does one do about the collapsing economy? Nothing! You can’t do anything! Your only freaking hope is to not get into this kind of mess in the first place! Ergo, the Constitutional requirement that only silver and gold can be money, which brings up chartoftheday.com, from whom we get the Quote of the Day, which reveals how we can prevent the damned Federal Reserve and the Congress from destroying us with inflation. It is Ludwig von Mises himself who states, “The gold standard makes the money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence.”

And as a guy who is not excellent in anything, I can still recognize it in something that keeps us from being destroyed by inflation. And so when it comes to gold, if you ain’t buyin’, prepare for dyin’.

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

Food the world over continued to surge in price yesterday.

Last week, we were shaking our heads at rice’s parabolic run up to $19 . Yesterday in Chicago, futures busted through $20 per 100 pounds. Chicago rough rice jumped 42% in the first quarter and has more than doubled in the last 12 months.

Markets in Thailand and Vietnam rose to new all-time highs, as well.

“Thirty-three countries around the world face potential social unrest because of the acute hike in food and energy prices,” announced World Bank chief Robert Zoellick, one of the catalysts for yesterday’s buying spree. For those nations, “there is no margin for survival.”

Accordingly, nations across the globe are scrambling to shore up food supplies and nix exports. In addition to new trade controls imposed by India, Egypt, Vietnam Cambodia, the Philippines and China, Saudi Arabia announced it too would cut import taxes, including totally eliminating its wheat tariff.

“It’s more than just commodity prices rising,” Chris Mayer notes. “We could actually see shortages of certain commodities. You have Saudi Arabia and India scrapping import duties on foodstuffs to try to encourage more supply.

“On the other side, you have countries such as Vietnam saying rice exports will fall 11% this year. That has far-reaching effects. For one thing, it will change the way people spend their money — more on food — and it will also encourage agricultural investment.”

Corn and wheat — the American diet staples — also shot up yesterday. Wheat popped 4%, to $9.36, in Chicago on word of exceptionally dry conditions in the Great Plains and abnormally wet soil in the Midwest. Wheat traded as high as $13 in March, but has since backed off.

Corn, on the other hand, found itself at a new record high yesterday. Corn for May delivery rose to just under $6 per bushel.

“This cold, wet start to April,” explains Kevin Kerr, “means farmers may not get corn into the ground before May 1. That is devastating. If cold, wet weather persists in the Corn Belt and farmers don’t plant until after May 1 and then, as in ‘83, we see dry weather come in around June, well, then you can kiss this crop goodbye.”

Even if farmers managed to sow their crops, Kevin tells us that current yields based on planting intentions have no room for error… nothing less than a near perfect harvest will satisfy demand.

“A disaster would take only a nod from Mother Nature. Last year, Australia and China — maybe this year it’s our turn to get spanked. I have decided to head out to see some of my farmer friends in Minnesota and Iowa with my family in a couple weeks. I will keep you posted on how the fields look as I visit each of their farms.”

The 5 will tag along for the ride… stay tuned.

Even sawdust prices have doubled over the past year. According to the AP, a significant decline in lumber production this year has damaged global sawdust supply. Demand for the stuff — for animal bedding, particleboard, and fast-food hamburgers — is evidently considerable.

Due to the slowdown in housing, U.S. sawmills shipped about 114 million board feet of lumber per day during the first quarter — a 15% decline from the same period in 2007. Down nearly 30% from 2006, says the U.S. Forest Service.

The U.S. stock market remained mostly flat yesterday. Traders kept major indexes unchanged most of the day, apparently content with Tuesday’s massive rally. Traders looked like they might dump shares across the board after Ben Bernanke admitted that the U.S. economy might contract this year. But by the end of the day, neither the Dow, S&P or Nasdaq fell more than a few tenths of a point.

“We had a good bottom,” legendary investor George Soros said yesterday of the rally following the JP Morgan/Bear Stearns buyout. But “This will probably not prove to be the final bottom,” he added, suggesting that this faux-bottom might last from six weeks to six months.

“I don’t think we are halfway through the fallout, because to think what happens in the financial markets doesn’t affect the real economy is nonsense… This whole crisis underscores the conceit of many in the markets that we can pretend to understand the properties of complex asset structures when they have cyclical sensitivities, and we have not experienced those since they were created.”

Like the U.S. markets, dollar trading was mixed yesterday and this morning. The dollar index still trades around 72.5, and as we write this morning, we see a slight bias toward buying those belabored greenbacks. The euro trades for $1.56, pound for $1.99 and yen 102.

Crude oil has endured a volatile 24 hours… the black goo rose 4% yesterday, to nearly $105, on a surprise decline in gasoline stockpiles, courtesy of the U.S. Energy Information Association. In spite of recent reports indicating that Americans were cutting back gas consumption, the EIA said supplies fell 4.5 million barrels last week, double the decline expected by the Street.

This morning, crude futures are being sold off on word that crude oil supplies are growing and some dollar strength. Last we checked, a barrel of the light sweet stuff was trading for $103.

For once, gold didn’t budge as oil prices swung up and down. The precious metal has been stuck in a tight range most of the week, just below $900.

“I’ve got some ‘inside baseball’ information on one major upcoming Department of Defense program,” Byron King wrote to us this morning, after rubbing elbows with DoD and Energy Department officials this week in Washington. “An upcoming U.S. Air Force-industry partnership will aim to convert large amounts of U.S. coal into synthetic liquid fuel.

“In essence, the Air Force is offering a pilot site for a coal-to-liquid (CTL) project at a base in Montana. This will be the first of many such CTL facilities around the nation. Funding will come from the private sector, not the Air Force or any other government source.

“The Air Force will sweeten the pot, however, by guaranteeing that it will purchase the fuel that comes out of the CTL plants. Eventually, much of the Air Force fleet will fly on a mixture of CTL fuel and traditional petroleum-based fuel. The idea is to jump-start a large U.S. military-industrial CTL program that will eventually serve the rest of the economy.

“Some of the synthetic fuels information has made it into various trade press publications. But the major media have pretty much ignored the synthetic fuels development.

“The wagon train is forming up on the trail to synthetic fuels. Things are going to start happening, and soon. This ambitious CTL project will have major implications for the future of the coal-mining industry, as well as many companies in the engineering, construction and capital equipment sectors.” Byron’s prepared the Outstanding Investments portfolio accordingly, and promises to add a few investment opportunities in this sector soon. If you haven’t already, subscribe here.

We almost felt sorry for Ben Bernanke yesterday. He looked tired in his testimony before the Joint Economic Committee of Congress. Every congressman who had the floor made effectively the same statement: “There’s panic among my constituents. They’re facing bankruptcy and foreclosure. This is real. They are in real pain. You’re the expert, what are we supposed to do?”

This guy could use a nap…

Bernanke’s responsibility at the Fed is first and foremost to the Fed… a private entity set up to run the nation’s money. He paid lip service to price stability and maximum employment. He recommended Congress focus on education and energy policy. But of late, the Fed’s been hamstrung keeping global banks solvent in a liquidity crisis. The dollar and Main Street be damned. Monetary policy, our good friend Kurt Richebacher tried to prove ad nauseam, is effective only up to a point. Bernanke, for what it’s worth, appears to be willing to admit that fact publicly for the first time.

Congress’ duty in this case is to get its own fiscal house in order — rein in deficit spending and quit wagging fingers at everyone else for mucking up. But the hard choices it’s faced with make it impossible for any in Congress to take a stand on government revenues, social programs, the endless war or pork spending without fear of losing their jobs.

None of the congressional members brought up Fannie Mae or Freddie Mac, the mortgage enablers established by that august body for the purpose of greenlighting mortgages at the local and regional level in effort to meet their political mandate that every citizen be entitled to their shot at the American Dream.

Through these government-sponsored agencies, the U.S. mortgage market has effectively been nationalized by Congress. The Financial Times reported this morning, Fannie, Freddie and the FHLB network provided 90% of the financing for new mortgages at the end of 2007.

“If I’m reading the chart correctly,” writes a reader, “just over a paltry third of us here in the U.S. believe we are having a positive influence on the world.

“This is good! I’d have thought we were much more arrogant than that, and I’m relieved to see there’s some humility here in my homeland. It would be truly disturbing if the vast majority of us believed we were having a positive influence on the world, while the rest of the world disagreed. Maybe we aren’t the ugly Americans we’re often reputed to be. And if we really are ugly Americans, it’s comforting to see that at least we realize our own shortcomings.”

The 5 responds: Unfortunately, that was a BBC poll. While they did include Americans in the sample, it was a predominantly international look at the perception of the U.S. and other countries’ impact on the world. It may yet be as disturbing as you think. But then, “Markets make opinions” the old-timers say. We’ll have to see how this financial crisis plays out. Humility on a massive scale may yet be in store for Americans.

“The sweeping financial ‘reform’ announced by Hank Paulson is quite worrisome,” writes another.

“If allowed to go into effect as announced, we are basically giving control of our financial system to the agency that created the mess to begin with. This is a private company with no answerability to the people, or even the Congress, if truth be told. It is also extremely opaque in its operations. With these new powers, it could put all the pieces in place for any type of action behind the scenes and spring it on the populace, full-blown at a moment’s notice.

“What I am specifically concerned about at first glance is the ability of the Fed to implement price and capital controls. Could you give some insight into how such measures would affect the common working man/woman and what a person with moderate means can do to protect against the most pernicious effects of such action?”

The 5 responds: History shows price controls… or any centralized control of the economy… would be a disaster. For a good look at centralized versus free markets in the 20th century, we recommend Daniel Yergin’s book and PBS documentary Commanding Heights. We still believe Bernanke, the Fed and even Paulson want to avoid price controls and let the market sort these problems out as much as possible.

But history also shows that the more egregious the economic situation, the more the people want their government to “do something” about it, including price and capital controls. As we pointed out earlier this week, we just passed the 75th anniversary of the day FDR declared it a crime for citizens hold gold. Crazier things have happened.

What can you do about it? Raise your voice or get the hell out of the way.

“Risk, scarcity and what you can do about them”… today’s themes in a nutshell. Judging by pre-enrollment at our investment symposium in Vancouver this year, readers of The 5 are as keenly interested in these themes as we are. Come join us as we host some of the most engaging speakers in the independent investment world and nearly 1,000 of your fellow travelers:

A View From the Peak: Seeking Profits in a Time of Risk and Scarcity.

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S. Our bulletin board aficionado Gunner Guenthner announced his latest “jumper” from the Pink Sheets to the Amex this morning. He’s hammering away an update as we speak… stay tuned. Nanocaps “jumping” to an exchange generally indicates something great is happening with the company… institutional and pricing support are likely follow.