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Wall Street Enjoys Ebullience While U.S. Farmers Suffer Depression

January 20, 1999

Brazilian Devaluation Seen As A Death Knell for the American Farmer



Two rapidly converging events with seemingly no apparent relationship may cause untold suffering for the US: the CRB Index downtrend and the on-going Brazilian devaluation.

The Commodity Research Bureau Index (CRB) is an index of 17 basic commodities - heavily weighted in agricultural foodstuffs. In recent weeks the CRB has sunk to its lowest level in nearly 24 years (since early 1975). And the trend continues south. Seemingly unrelated to the CRB decline is the recent devaluation of Brazil's currency - the real. Very sadly, they are indeed related - and portend unbelievable misery for the American farmer.

In recent weeks Brazil has in vainly tried to support its currency. In the battle to support the real, Brazil squandered more than $2 billion. Finally surrendering, Brazil allowed the real to float. Within a few days, the currency has seesawed between a devaluation of between 8% to nearly 25% - at this writing it remains near 25% devaluation, but still falling. And international FOREX experts predict the real may well sink to a total devaluation in excess of 35% before it finally stabilizes versus the US dollar. Unfortunately, this has dire ramifications for the U.S. farmer.

Brazil is considered one of the world's most prolific bread baskets. Indeed it is the globe's largest exporter of soybeans - one of the US's most important crops. Therefore, a deep devaluation of the Brazilian real will literally flood world markets with cheap soybeans, causing the commodity prices to continue to plunge. In characteristically historic sympathy, this will put downward pressure on ALL agricultural products - due to the economic substitute effect. Consequently, many American farmers will be forced into bankruptcy vis-à-vis a 25% to 35% fall in farm produce prices - unless the price fall can be curbed.


In the Roaring 1920s the Federal Reserve board (FRB) was more concerned about fueling Wall Street's Bubble, than it was in protecting America's food supply. History is painfully testament to monumental suffering heaped upon the world due to the FRB's misdirected attention and blatant disregard for the needs of the American farmer… just as it is TODAY!

In early 1929 the bankers were promoting a DOW of 500 with wanton abandon (in the first nine months of that fatal year it had already risen more than 50%)… TODAY the bankers wistfully talk of a DOW of 15000 in the not too distant future. The 1929 deafening echo of IRRATIONAL EXUBERANCE can again be heard in Wall Street TODAY… all while the American farmer is sucked down further and further into the deadly quicksand of burgeoning debt.


The myopic attitude and indifference of the FRB regarding the sad state of the American farmer in the 1920s is only exceeded by what prevails TODAY. The FRB is more concerned with the "Producers of Money," than it is with the producers of food.

When international bankers recently got caught up in the Hedge Fund fiasco just a few months ago, it was the FRB which came to their immediate rescue with bailout. Alan Greenspan et al orchestrated an emergency multi-billion dollar 'bailout' of the greedy speculators and their bank-rolling cohorts… international banks. Meanwhile, the American farmer is forsaken to his own devices to survive… while farm prices relentlessly fall.

(Chart courtesy of Bridge/CRB)

While Wall Street continues to inflate the Bubble in a reckless and cavalier fashion - with the obvious blessings of the FRB (i.e. easy money and low interest rates), the American farmer sinks stoically more and more into insolvency… as commodity prices inexorably dwindle - reflected by the Commodity Research Board Index (CRB)--already near a 24-year low.

Worst to Come for the American Farmer

The Brazilian devaluation and the decision to allow the free float of its currency (real) can only exasperate the plight of the US farmer. In less than two weeks the real has already devaluated nearly 25%… and continues to fall. Brazilian soybeans, now very competitively cheap will inundate world markets, exerting strong downward pressure worldwide on farm products -- which translates to heightened misery for the American farmer. This is not a happy day for US farmers as they are big losers.

Rapidly declining farm prices are leading the world into DEPRESSION. Even more ominous is the fact the Millennial Menace looms on the horizon. Dr. Edward Yardeni, chief US economist for Deutsche Bank, has publicly stated the Y2K Bug will quite possibly precipitate global depression and a long-term bear market in stocks.

The pressing question facing us is: What may be done to avert the demise of the US farmer and defuse global depression before it builds enough self-sustaining momentum? Perhaps past solutions should be tried again…? And in light of the rapidly approaching disrupting force of computer failures in the industrial and financial worlds due to Y2K, action must be implemented soon.

Historic Solution

As mentioned previously, the unbridled ebullience of Wall Street led the world into the GREAT DEPRESSION of the early 1930s… when the US farmer was totally devastated. He lost his crops, his house… even his land. He was forced to abandoned a healthy rural way of life, only to grovel in urban ghettos and shanty towns in order to eke out mere survival for his family. (The available video film made in 1940, "GRAPES OF WRATH," too vividly describes the heart-wrenching trials and tribulations of the American farmer during the period) Fortunately, at the very depths of the DEPRESSION a dynamic leader arose to the challenge to give relief to the long suffering farmer.

It was Franklin Delano Roosevelt (FDR), who in 1934 took the dramatic step to ensure fair farm commodity prices… to pave the way for the working man to rescue himself from the disheartening DEPRESSION, which then engulfed the entire globe. Specifically, FDR ordered the FRB and US Treasury to dramatically increase the price of gold from $20.67 to $35 an ounce. His expressed purpose was to boost commodity prices (especially farm products) and create more employment for the millions who were enduring the devastating effects of the GREAT DEPRESION.

FDR demonstrated a clear understanding of the roots of DEPRESSION, and did what was needed to be done to wrench America from excruciating poverty… and to resolve the agonizing plight of the American farmer.

Ironically, 65 years later - while greedy Wall Street Whores wallow in 'paper' money, the president of the American Farm Bureau again pleads for the survival of the US farmer!


American Farm Bureau Federation

President, Dean Kleckner -

ALBUQUERQUE, N.M., Jan 11 (Reuters) - "The Federal Reserve Board must end the deflationary spiral in commodity prices by pegging U.S. interest rates to gold and other commodity prices, the president of the largest U.S. farm group said on Monday." American Farm Bureau Federation president Dean Kleckner, in a keynote speech at the group's annual convention, also called on Fed chairman Alan Greenspan to encourage tax cuts.

"Lowering interest rates has been a good plan of attack," he said. "But the Fed now has to stabilize commodity prices by using gold and other commodity prices as benchmark to set monetary policy. In addition to this, Greenspan once again has to remind Congress and world leaders that proper fiscal policies -- that's tax policy -- should accompany proper monetary policy." Kleckner then called for federal tax cuts.

In the past few weeks, U.S. hog prices tumbled to their lowest level since World War Two. Grain and oilseed prices are the lowest in a decade and farmer income was forecast to fall by six percent this year. Kleckner described the farm economy as lousy. "Due to natural disasters and low prices, farmers lost billions of dollars." All raw materials, "from oil to copper to forest products," were suffering, along with crops and livestock, he said.

"Only Chairman Greenspan can put a stop to this downward spiral," Kleckner told the farm families.

Food Prices Vs Wall Street Prices (1975 and 1999)

To appreciate the dire straits of the US farmer today, we need to compare food prices to Wall Street "bubble" values.

From the CRB chart above it is painfully obvious commodities are nearly at a 24-year low. On the other hand Wall Street - as measured by the DOW is nearly at an all-time high (9350). That is to say farm prices are the same as they were two and a half decades ago, while 'paper' stocks have increased 1,540% (One thousand five hundred and forty percent). The DOW soared from 570 in early 1975 to about 9350 this week! The US farmer in overalls wallows in sweat and burgeoning debt at the brink of bankruptcy, while Wall Street brokers swagger in $2,500 silk suits. Something is horribly wrong! UNJUST! UNFAIR!

Pray tell, how can the politicians and FRB ever justify their current indifference to the needs of the American farmer… especially since FDR's bold action of increasing the gold price by 69% in 1934 significantly helped speed the recovery of commodity prices - and provide vitally needed relief to the farmers?!

Pray tell, how can the politicians and FRB ever justify their current indifference to the needs of the American farmer…in light of the fact that the president of the American Farm Bureau Federation just one week ago publicly beseeched the Chairman of the FRB, Alan Greenspan, to "put a stop to this downward spiral" (farm prices)?!

Pray tell, how can the politicians and FRB ever justify their current indifference to the needs of the American farmer…in view of Dean Kleckner's urging to " "end the deflationary spiral in commodity prices by pegging U.S. interest rates to gold and other commodity prices"?!

President Clinton's Opportunity for Greatness

One of the greatest Democrats of US history took timely controversial and essential action to resolve a grave national problem in 1934. Would it not be timely for another Democrat to make his indelible mark in history by following in FDR's footsteps... in an eerily similar situation?


The Red Baron

20 January 1999


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