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Blame Iowa for Market Woes

Aug
1
2007

Every four years, the media proclaims the virtues of the Iowa Caucuses – real Americans from middle America get together in DeTocquevilliean style meetings to make a choice for the next President of the United States. But the preeminence of the Iowa Cuacuses are costing regular Americans like you and me more than we know. It’s a little complicated but, trust me, the caucuses and its Holy Grail status in American politics are at the heart of our current economic woes.

Three times in the last week, the stock market has fallen out of bed to the tune of three-digit losses. On Monday an official from CalPERS – the nation’s largest pension fund serving California’s state employees – told CNBC’s Money Honey Maria Bartiromo that the pension fund lost two billion dollars in two days, a feat not even the inept California Legislature could accomplish. And it’s all because of the Iowa Caucus.

Behind the market’s woes is what’s being called the “sub-prime debacle.” Families who leveraged their fortunes to buy a home on an adjustable rate mortgage can no longer afford once it adjusted upwards. Foreclosure notices are being handed out in record numbers. Mortgages are costing more these days because interest rates keep going up. The Federal Reserve has hit the pause button on hiking interest rates but refuses to do the one thing that would help many Americans stay in their homes – cutting rates.

In the meantime, Americans are getting hit at the pocketbooks whenever we stuff something into their mouths. Food inflation has joined oil prices among the leading causes of increased living expenses for Americans. Why does food costs more? The Iowa Caucuses.

Food prices are being led by surges in the cost of one item: corn. And it’s not just Nebraska football players who are corn-fed. Which, of course, brings us to Iowa.

Eat a pork chop? That pig probably ate corn. So did the cow they slaughtered to make your filet mignon, and so on. The cost of corn contributes to the rising cost of more than just your Frosted Flakes. So as the cost of corn goes up, so does the expense of producing just about everything else in the food supply.

So why is the price of corn going up so much? You guessed it: the Iowa Caucuses.

Corn is the key ingredient in America’s production of ethanol. Coincidentally, they grow a lot of corn in Iowa. That’s long been the reason why any politician with Presidential ambition wants you to put ethanol in your car. Pro ethanol policies help farmers sell more corn and ethanol’s newly hip status as a possible “green” fuel is, well, making the idea even more popular. But even before it became fashionable, support for ethanol was probably the only thing that all Presidential candidates could agree on.

Senator John McCain, at least, has been honest about his conversion to pro-ethanol policies since he skipped the Iowa caucuses in 2000 but he’s now drinking ethanol as if it were a glass of Kool-Aid. Former Massachusetts Governor Mitt Romney has an eye on next year’s Iowa caucuses as well, making ethanol the center of his energy policy but he doesn’t ask how much it will cost Americans to replace its foreign oil with corn-based ethanol. The Democrats are not immune to the sweet taste of ethanol Kool-aid either Sens. Hillary Clinton and Barack Obama have pro-ethanol stances.

Were the Iowa Caucuses not the first official event in the Presidential selection season, I somehow doubt that ethanol would be so popular. If you want the exception to prove this rule, look no further than California Governor Arnold Schwarzenegger. Unable to run for President and unaffected by the Iowa caucuses, Schwarzenegger’s environmentalism embraces hydrogen, not ethanol – a technology favored automakers Mercedes and BMW.

So, in a way, if you lost money in the stock market this week or worse, risk losing your home to foreclosure, don’t Blame President George W. Bush. Don’t Blame Canada. Blame Iowa and their first-in-the-nation caucuses.

Share  Posted by Scott Olin Schmidt at 10:26 AM | Permalink

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