schoollunch.jpgLet’s call this a round-up of sorts and see if you can pick out the interconnected ties:

– Business Week:  Inflation Above The Fed’s Comfort Zone:

Amid the recent turmoil in the credit markets, economic data releases haven’t received the full attention of many market watchers….The reports showed that core consumer inflation, which excludes food and energy prices, remains stubbornly above the Federal Reserve’s comfort zone. On the plus side, other releases showed solid factory sector readings for both July and August.

– Paul Krugman: Financial Meltdown Looks Like The One In ‘98, But Worse:

Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average the rule rather than the exception for the past two weeks.

But Thursday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” – that is, there are no buyers.

When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C – and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.

– WAFF News: Milk Prices Historically High, Hurting Schools:

The average price for a gallon of milk is at its highest nationwide average ever at $3.80.  Last year, a gallon of milk on average was $3. Six months later, it was more than $3.29. It jumped up to record $4 dollars a gallon last month.  The skyrocketing milk prices are also reaching beyond the grocery store, it’s now affecting some of its smallest consumers.  Many schools say they don’t have a choice but to raise the price of milk.

– MPR: Rural Foreclosures Hitting Some Areas Hard:

The number of mortgage foreclosures in greater Minnesota is nearly twice as large as previously reported according to a new study from the Greater Minnesota Housing Fund. Experts say the study reveals an invisible epidemic that’s affecting every corner of the state and they predict the problem will get worse.

–USAToday: Stockton, CA — Housing Market Is Still Sliding:

Lenders filed 1,129 notices of default against borrowers who were behind on their mortgages in the second quarter, according to DataQuick Information Systems, up 205% from the second quarter last year.

The bulk of the foreclosures, Underhill said, are homes purchased with subprime, adjustable-rate mortgages or exotic loans that allowed the buyer to pay only the interest, or less, for a set period of time. As their monthly payments reset to higher rates, some homeowners and investors are finding they can’t afford them and can’t refinance — either because the property is worth less than they owe, or the mortgage they hoped to get no longer exists in today’s risk-averse market.

– CNN: Housing Woes Hammer Home Depot, Wal-Mart:

Wal-Mart and Home Depot, two of the nation’s largest retailers, blamed the housing market slump and ongoing turbulence in the mortgage market for hurting sales and profits in the second quarter.

Wal-Mart, which has already stepped up its price-cutting this year, warned Tuesday that the problems are spreading beyond its U.S. stores to international markets including Mexico and Canada – and rolled back its profit forecast for the full year.

Is it me or are things awfully crappy out there for a whole lot of people?  And if you think the richflation crowd isn’t being hit on this too…think again.  And if the richflation crowd doesn’t understand the connection between the rise of the cost of milk, the reduction in the Wal-Mart profits and the declining home sales…and how that cuts into their own portfolio musings…then they aren’t paying attention.  This is the point where the collective shit begins to hit the fan. 

Think about the above for just a moment.  It is back to school time, one of the biggest retail points of the year, and WalMart is forecasting a gloomy quarter.  That is huge — and has to be reverberating across the entire retail sector.  Low retail means lower imports and less manufacturing, means layoffs down the road, means…well, you get the picture.  And once you start thinking about retail, you wonder how many other areas that will ripple out to — and for how long?   

The first political type who comes out of the gate with a good understanding of what it is like to dig for change in the couch cushions so your kid can get an extra milk at school lunch…and why it matters to the guy who owns the Chipotle franchise into which he has poured his family’s life savings so that they could make something solid to pass down to their kids…and how that links up to Wall Street…finds the magic answer.  Because I have this feeling that in the 2008 election, we’re going to be talking money crunch on a whole lot of levels.  And in that discussion, how this impacts the poor and the middle class had better be at the top of a very long list — because without some real, honest discussion of the hardships they face, we may be looking at a very bleak economy for the days ahead, and that is bad for everyone — even the richflation crowd.  Welcome to the ties that bind.

(Photo of school lunch via Old Shoe Woman.  And a happy birthday to Wordsmith today!)

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