Saturday, October 25, 2008
A Dystopian Perspective on the Coming Global Recession (Part 2)
Gary is getting it wrong. Inability to obtain credit is is a demand problem, and, in any event, there is going to be a severe demand problem going forward, as people lack the ability to pay anything near current market prices. Note also how the credit crunch is preventing shipping companies from moving the commodity to other countries for consumption, the type of thing that I speculated about on Thursday.The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.
Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.
"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."
So far the problem is mostly being felt in U.S. and South American ports, but observers say it is only a matter of time before it hits Canada.
Labels: Credit Crunch, Food Crisis, Global Recession, Neoliberalism
