This quote was taken from Brad Setser’s blog (though Michael Pettis is currently minding the shop)…..

Logan Wright, a Beijing-based analyst who regularly writes excellent reports on China’s financial system for Stone & McCarthy, puts it this way in a September 27 report called “China’s Perfect Storm? Food Price Inflation and a Possible PBOC Policy Shock:”

First, at the same time that pork prices have driven August CPI growth to 6.5%, China has also been ravaged by unusually harsh floods in the south and droughts in the north. As a result, the autumn harvest, which comprises around 70% of total annual grain output, could produce a significant negative surprise, accelerating the rapid rise in food prices. At the same time, global food prices and futures continue to trend higher based on a series of bad harvests around the world, just as China may need to increase imports to supplement its own supplies. Secondly, signs of weakness in the housing sector spilling over into U.S. consumption are developing, and this could have consequences for China’s exports, which have been a critical engine of China’s growth and a safety valve for domestic overcapacity in several industries. Third, and perhaps most significantly, inflation is more salient politically in China than in other nations, because of its tendency to produce social unrest that challenges the legitimacy of the Chinese Communist Party’s rule. Support for the CCP depends heavily upon improving standards of living for Chinese citizens. This means that the Chinese government is very likely to react quickly and strongly in response to a potential threat of escalating inflation.

This is from Reuters….

LONDON, Sept 28 (Reuters) – Record high coal prices and tight supply are piling the pressure on electricity generators already hit by soaring oil markets and high gas prices, industry players say.

Coal fuels about 40 pct of global power generation. Physical coal prices for delivery into Europe have risen by over 50 percent this year.

High freight rates are tightening the screws on prices and utilities and cement producers, also big coal users, may be forced to scale down operations.

“The market is having to adapt to coal prices, to freights, which we’ve never seen before,” a trader said.

“I do believe that before the end of the year it’s possible that some generators in Asia will have to look at turning off their plants because they won’t have enough coal,” said a coal producer.

This from Bloomberg…

Sept. 28 (Bloomberg) — Commodities had the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar’s slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.

The 19-commodity Reuters/Jefferies CRB Index was up 8.1 percent this month, the most since July 1975. Wheat climbed to a record in September amid a global grain shortfall, boosting corn and soybeans. Oil also hit a record, and gold reached a 27-year high. The Federal Reserve cut borrowing costs to bolster the U.S. economy, sending the dollar tumbling.

From the Wall Street Journal….

Rising prices and surging demand for the crops that supply half of the world’s calories are producing the biggest changes in global food markets in 30 years, altering the economic landscape for everyone from consumers and farmers to corporate giants and the world’s poor.

“The days of cheap grain are gone,” says Dan Basse, president of AgResource Co., a Chicago commodity forecasting concern.

This year the prices of Illinois corn and soybeans are up 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more. And a growing number of economists and agribusiness executives think the run-ups could last as long as a decade, raising the cost of all kinds of food.
In the past, such increases have been caused by temporary supply disruptions. Following a poor harvest, farmers would rush to capitalize on higher crop prices by planting more of that crop the next season, sending prices back down. But the current rally, which started a year ago in the corn-futures trading pit at the Chicago Board of Trade, is different.

Not only have prices remained high, but the rally has swept up other commodities such as barley, sorghum, eggs, cheese, oats, rice, peas, sunflower and lentils. In Georgia, the nation’s No. 1 poultry-producing state, slaughterhouses are charging a record wholesale price for three-pound chickens, up 15% from a year ago.

Every once in a while, I am reminded why it is good to be American. We still do some things right in this country.

This particular thought occurred to me as I was reading the FDIC notice regarding the shutdown today of NetBank. Unlike the British regulators who at first lied and then had to cave in to what the market already knew, the FDIC seems to have spotted this problem before it became widely known. And when they spotted the problem they did not mess around. They just shut the whole operation down.

This is part of their press release……

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved the assumption of the insured deposits of NetBank, Alpharetta, Georgia, by ING Bank, fsb, Wilmington, Delaware.

NetBank, with $2.5 billion in total assets and $2.3 billion in total deposits as of June 30, was closed today by the Office of Thrift Supervision, and the FDIC was named receiver.

The failed bank was an Internet bank and did not have any physical branches. Depositors of NetBank will automatically become depositors of ING Bank.

Over the weekend, customers can access their money by writing checks, or by using their debit or ATM cards. Checks drawn on the bank that did not clear before today will be honored up to the insured limit. Starting on the morning of Monday, October 1, customers will have full access to their insured deposits via the Internet and for the foreseeable future should continue to utilize NetBank’s current Website to transact banking business.

ING Bank has agreed to assume $1.5 billion of the failed bank’s insured non-brokered deposits for a one percent premium and will purchase $724 million of assets. NetBank had approximately $109 million in 1,500 deposit accounts that exceeded the federal deposit insurance limit. While these customers will have access to their insured deposits, they will become creditors of the receivership for the amount of their uninsured funds.

This is the right way to shut down a bank. By shutting down the weak institutions and giving their money to the strong institutions, you can keep the problem from spreading.

As a side note, I found the fact that the FDIC was sending NetBank’s deposits over to ING interesting. On one hand, the FDIC had no choice but to send NetBank’s money to another internet bank so it would make sense to chose ING. On the other hand, there are a lot other internet banks out there beside ING.

But I have long thought that ING was the only internet bank that was worth anything. I wonder if the FDIC agrees with me.

After delivering bad new, I usually grin. Unless I feel personally affected by the events.
This week in the daily meeting, M.B. the production manager gave us the sketchy details of the recent visit by the Scary One (the member of senior management most prone to asking for what we are not ready to deliver). The Click Here to continue reading.