From Volume 7, Issue 45 of EIR Online, Published Nov. 4, 2008

U.S. Economic/Financial News

Ethanol Boom Leader Files For Bankruptcy

Nov. 1 (EIRNS)—Ethanol producer VeraSun Energy Corp., the flagship company of the ethanol boom, filed for Chapter 11 bankruptcy late last night. VeraSun, based in Sioux Falls, South Dakota, accounts for 7% of ethanol production in the United States, ranking high behind ADM and Cargill, the cartel operators. VeraSun, formed in 2001, operates 16 ethanol distilleries; it was portrayed as the ethanol "success story" for its rapid growth and big initial public offering.

The immediate cause for the bankruptcy was derivatives. VeraSun contracted to pay $8 a bushel for corn (locked in months ago), but then ethanol prices fell significantly. Corn is now selling at $4 a bushel. The company reported a third-quarter loss of $103 million in September, attributed to failed hedging bets. VeraSun is the third U.S. ethanol producer, after Greater Ohio Ethanol and Gateway Ethanol, to file for bankruptcy recently.

Price Swings Whomp Farm Belt

Nov. 1 (EIRNS)—Farm regions worldwide are reeling from commodity price swings, deflation, lack of credit, and lack of any way to carry out timely functions for crop seasons and livestock cycles. All along the food chain, processors and shipments are being disrupted, including cartel-controlled operations, which already were deleterious for national food security. Some of the big-name cartel fertilizer and agro-processors, operating supranationally, are withdrawing credit from farmers. A few recent reports on the situation in the United States:

* Cargill turned back four shiploads of meat from the United States, because the purchase-credits fell through, according to Iowa sources.

* Wisconsin dairy farmers' gross incomes have fallen by 25% since Spring. In June, raw milk was selling for $21 for 100 pounds; it is now selling for $15 a hundredweight.

* Farm input costs are still high, while output prices are plunging. In Clinton County, Wisconsin, the price for a delivered ton of dry fertilizer in 2006 was $330; today it is $1,300.

Suppliers (Cargill/Monsanto, DuPont/Pioneer, etc.) are informing Midwestern farmers that seed costs could rise more than 40% for next Spring's planting.

* Grain and most all other farm commodity prices are plunging. In Janesville, Wisconsin, the contract price for corn in May (for Fall delivery) was $5.75 (on the Chicago Exchange, corn was bid up to $8 a bushel this Summer), but right now, cash to farmers for corn delivery is $3.33 a bushel.

Nuclear Reactor Parts Plant Planned for Virginia

Nov. 1 (ELIRNS)—Areva SA, the French nuclear engineering firm, and Northrop Grumman Corp. will build a $360 million plant in Virginia to make large nuclear reactor parts. The two companies said on Oct. 30 that the facility will be near Northrop Grumman Shipbuilding's plant in Newport News, and will create 500 jobs. It is expected to be completed in 2011.

Areva is one of the three top nuclear power plant manufacturers in the world, and its reactor design has been selected for at least seven new U.S. reactors. In early October, a news report indicated that notwithstanding the growing interest expressed by many nations in nuclear power, the world (excluding Russia) no longer has the ability to produce more than four nuclear reactors a year.

Over the past few years, power companies and utilities in the United States have been filing or preparing applications—nearly two dozen at last count—to build nuclear reactors, spurred by concerns about energy demand and desires to find cleaner (and cheaper) alternatives to coal. To do so, however, they'll need a range of custom parts, from steam generators to pressurizers to special engines, all engineered to extremely precise standards. Finding them in the United States will not be easy, because the plants that once built and assembled these items have long since closed down.

Tokyo-based Japan Steel Works has a near monopoly on manufacturing the most significant component for nuclear reactors, the steel containment vessels, and a three-year waiting list for new orders. Areva has a plant in Chalon, France, that already manufactures heavy nuclear power plant components, including reactor vessels and steam generators, but Anne Lauvergeon, Areva's CEO, said a second plant was needed to meet a five-year backlog of anticipated reactor business. The plant will be built in conjunction with Northrop Grumman Shipbuilding and adjacent to its shipyard in Newport News.

Fed's Data 'Don't Show What Paulson and Bernanke Are Saying'

Oct. 27 (EIRNS)—A report has come out from the Minneapolis Federal Reserve research section which provides strong ammunition to Congressmen and community bankers who are now angrily accusing Hank Paulson of using the $700 billion bailout to feed small, sound banks to big, unsound ones, and lying to do it. Paulson's continuous "WMD"-like refrain has been that all bank lending has broken down since September, and that only massive Treasury and Fed bailouts could cause banks to resume lending into the economy. The Minneapolis Fed report appears to prove in black and white, in 12 pages of charts, that Paulson to stampede Congress into passing the hated "TARP" bailout.

EIR News Service is still investigating, but the Minneapolis report's conclusions—based on data as recent as Oct. 10—were confirmed in several interviews today with bankers and economists. "It's about time somebody said this," said one university professor of finance. A regional banker said, "This is definitely all about restructuring the banking system, and handing over banks to Paulson's banking allies. Commercial banks are having problems; some are reporting quarterly losses or much less profit; but they are not capital-short, and they are not stopping lending. They are able to raise capital; and they are lowering their asset base" by selling off securities and concentrating in loans. He had talked very recently to a large regional bank, a $12 billion community bank, and a relatively new, $3 billion community bank; this was true of all of them.

One of the report's authors told EIR that "They [Bernanke, the Fed Board] are not relying on their own data at all. The tables on the Fed's own website do not at all show what they are saying. And they say that they don't trust the Fed's own quantitative data [i.e., what the Minnesota Fed researchers put out] because something else is going on. But they have no data showing what they say is going on, and they don't point to any." He said that nonetheless Paulson has been saying publicly, categorically, that bank lending is coming to a stop; and what he's said privately to Congressmen has terrified them. Presented with the proposal that Paulson is telling a "WMD" fable in order to restructure the banking system and try a lunatic bailout of derivatives markets, one of the authors responded: "That is very hard to dispute, as you just said it."

Two of the Fed authors opposed the TARP bailout: "There should be more of a spirit of caution and a need for better data analysis before we spend nearly a trillion dollars."

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