Friday, June 22, 2007

The Ethanol Impact

I've been saying for some time now that ethanol production in its current form is going to have serious detrimental repercussions on the consumer's food dollar. The following article indicates that the pinch is already showing itself.


Fed Oversight? Inflation Seems To Be Eating Out

Before Federal Reserve policy makers meet to decide what to do with interest rates next week, they should visit a local eatery. They'll find something unappetizing: higher prices and fewer diners. Casual-dining restaurants are getting hit by rising inflation. Corn prices have surged due to demand for corn-based ethanol.

Because corn is a big feedstock, it's trickling into the cost of everything from chicken to cheese. Wholesale butter, cream and milk prices have jumped about 20% in the past three months, according to Raymond James. Cheesecake Factory's stock tumbled 7.1% yesterday after.... (complete article here)

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As the impact on food expenditures increases, we will begin to see a secondary impact in the housing market. Many people today have interest only mortgage payments betting on rising real estate prices to create equity. As more disposable income goes to food, fewer dollars will be available for housing. The bubble will burst and mortgage companies will end up with empty houses that are worth less than the loan against them. It won't be pretty. It will make the S&L fiasco of the 80's look like a picnic.

3 comments:

Hillbilly Willy said...

Help,I was in the Savings and Loan Fiasco of the mid 1980,s. Don't want to go there again. My saying is give me 7 more years and I will be gone.
May have to bum on the street, but when my time comes I am out of here. Besides the gas is getting to high for me to drive to work and because of the ethanol inflation the local eatery has closed so there is no place to eat.

My secretary is about to retire and every real man knows that is the women that do the real work.

Thats it - I quit

10-4 Willy

Incognito said...

Yeah I was just listening to a program about the troubles with ethanol and food production. Sigh.

The Hermit said...

National Public Radio, which is always touting ethanol as the solution to everything from war to the common cold, broadcast a story about how the price of corn has gone up so much in Mexico that the poor are having trouble getting enough tortillas, which I suppose is their equivilent to bread. The law of unintended consequences at work.

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