A 2010 Food Crisis?

[The Duchess of Zeon]

Is the government bound to issue and back letters of credit? If the situation is bad enough, the military could (and would) forcibly move the grain and ration food; the gov't will only go through the financial motions if the situation isn't grave enough to warrant automatic nationalization.

Yeah, seriously, if things got so bad that food wasn't being delivered, the military would just run the railroads to deliver it to the cities, and oversee distribution via ration.

[Big Phil]

The problem is distribution, simpliciter.

Just so, but that will never be an issue in a modern industrialized country with an established road/rail/(and up here) canal network.

Actually distribution is a potential problem since everything, and I mean everything moves on credit nowadays. In the event of a credit collapse where credit locks up and becomes mostly unavailabe we have the following situation which I've outlined in the past.

Gas stations will be unable to refill their storage tanks since gasoline & diesel are purchased using short term commercial credit which is paid off as the fuel is sold. This brings trucking to a halt unless there's a pipeline terminal nearby which is willing and able to refuel the trucks. At best there will be limited trucking for essential goods only, if your area isn't as fortunate the trucks will not move until someone can truck in diesel fuel from a distribution terminal. In the meantime grocery store shelves will not be restocked and the shelves go empty. Better hope that the central food terminal in your area is served by a rail link or you're not getting any food at all until someone gets around to trucking in fuel so the food trucks can move.

The problem is it takes time to setup an emergency fuel & food distribution system, and with what's involved the authorities will likely waste valuable time deciding whether or not it's worth it to go ahead and do it. There's only so many days of food & fuel on location and in inventory, odds are good they'll be completely depleted by the time emergency measures take an effect. Some areas will be fine, others will be forgotten and end up in deep trouble.

Oh, and let's not forget that bulk grains are usually shipped using letters of credit, without credit the grain isn't moving. The government will have to pledge guarantees on all food shipments with whatever credit it has remaining after bailing out the financials. Then the grain can be moved, if the fuel & trucks are around to move the grain and the finished food products.

And the likelihood of the entire distribution system collapsing without a nuclear war or similar sort of Armageddon is what... close to zero in a modern industrialized country? I might as well say "I could be President, Pornstar, and Professional Wrestler all in one..." it could happen, but it's pretty damned unlikely.

[J]

Is the government bound to issue and back letters of credit? If the situation is bad enough, the military could (and would) forcibly move the grain and ration food; the gov't will only go through the financial motions if the situation isn't grave enough to warrant automatic nationalization.

True. The government will use the army to move the food as a last resort option. It's better & easier to unfreeze teh existing logistics system than to setup an entirely new one.

And the likelihood of the entire distribution system collapsing without a nuclear war or similar sort of Armageddon is what... close to zero in a modern industrialized country? I might as well say "I could be President, Pornstar, and Professional Wrestler all in one..." it could happen, but it's pretty damned unlikely.

Chances are better than you think. During the credit collapse last fall after Lehmans' went under, international bulk grain & food shipments cratered since letters of credit weren't available nor being accepted from foreign banks. There were major pileups of grains on all the west coast ports in the US since credit wasn't available to ship it out, and the same was happening in Chinese ports for both bulk grains and consumer goods. It's not that big of a step from international shipments getting stopped to domestic shipments coming to a halt. Citibank going under and setting off a CDS kablooie should be enough to do the trick, and a failure of Bank of America would definitely do it.

[Big Phil]

I see... so you're saying I could be President/Pornstar/Professional Wrester, all at the same time?

Jokes aside, the government has already shown it will not allow BofA or Citibank to fail, so that's not going to happen short of a complete societal collapse where the government is ineffective or just gone, in which case the absence of credit is moot.

[J]

Jokes aside, the government has already shown it will not allow BofA or Citibank to fail, so that's not going to happen short of a complete societal collapse where the government is ineffective or just gone, in which case the absence of credit is moot.

Eventually the government will be faced with a very ugly choice; let the banks fail and have the FDIC clean up the mess or have the liabilities of the banks bring down the government itself. BAC and Citigroup each have at least $500 billion in losses on their balance sheets which they're currently hiding by sticking them in Level 2 & Level 3 assets and putting a fictional price on those assets. If the recent losses taken by the FDIC are any indication of the actual valuation of said assets (the FDIC has been taking 40% hit on the assets which it seizes from failed banks), the actual losses being hidden by BAC and Citigroup are about $800 billion to a trillion each. Plus an unknown percentage of their $40 trillion and $32 trillion, respectively, off the balance sheets derivatives holdings. If enough of those derivatives go bad not even the US government would be able to do a bailout without going under itself. My feeling is someone will eventually sit down the President and tell him that his choice is to let BAC or C fail, or have the government fail, and hopefully he makes the right choice. If he does we get a credit lockup and bank holidays, if he doesn't, you have your scenario.

It's actually pretty interesting in a way, can the Fed and Treasury, via the government, steal enough of your tax dollars to keep the banks from collapsing? Every day the banks lose billions as housing prices decline and homes get foreclosed, the Fed and Treasury try to keep up with those losses using bailouts and various backdoor ways of funneling money to the banks, and the banks try to hide their losses and pretend they're Ok. Who will win? Stay tuned for further episodes of the Great Bailout Race! So far I've been rather surprised at how much they've managed to steal and pretend.