Commodities: Obama's Failed Ethanol Policy

Ethanol as a viable commodity is a joke, yet Obama following same failed Bush policies

The more things "change," the more they stay the same, and that is how it will be with Barack Obama and the ongoing ethanol debacle in America.

With Obama, it's obvious the reasons why, as government subsidies pour into his home state of Illinois, the nations second-largest producer of corn.

Obama campaign senior energy adviser Heather Zichal said concerning Obama's ethanol policy that "Obama recognizes how important the renewable and biofuels industry is to creating jobs and meeting our goal of reducing dependence on foreign oil. He's fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path."

So the man of change is going to keep the Bush policy goal of a "minimum of 36 billion gallons of biofuels by 2022," said Zichal. At this time ethanol loses close to 66 cents a gallon at existing prices.

Oil refiners receive a subsidy of 51 cents a gallon for the ethanol mixed with regular gasoline, and a stiff 54 cent-a-gallon tariff is put on the sugarcane-based ethanol from Brazil.

The continued idiocy of saying we need to reduce our dependence on foreign oil when we have billions upon billions of barrels proven to be on American soil or off its coastlines is dishonest at best.

There is no way the corn-based ethanol industry currently touted can survive, no matter what the government says. The idea now being thrown about is to use cellulosic ethanol, which is made from non-food crops.

One major problem is it costs about twice as much as corn-based ethanol to produce. Another is it's years away from being any significant contributor to our energy needs, if it ever will be. We need answers in the near future, not 10 or more years from now.

The corn-based ethanol problem is even worse, as it has already caused a lot of pain to poor people around the world who suffered from the resultant high food prices from the misguided effort, and riots ensued in a number of countries because of skyrocketing food costs.

Another huge problem is the increased costs to meat producers in the U.S., who have been damaged greatly from higher feed costs.

This is one area we need to simply toss aside and refuse to bring politics into. The damage is extensive and it'll only get worse if we keep going in this direction.

I wonder if this is the type of "change" Obama was supposedly going to initiate? This ethanol policy and the resultant illusion that it's a real commodity continues to be destructive, as shown by the damage it does to small engine power equipment like chainsaws, snowmobiles and generators.

Federal Reserve Overnight Rate Cut to 1 percent

Still trying to jumpstart the economy, the Federal Reserve cut its key interest rate by half a percentage point to 1 percent. The federal funds rate cut is on overnight loans and what banks charge one another.

This is the second time in a month the fed has cut rates by half a percentage, as the month started off at 2 percent overnight lending rates, which was cut to 1.5 percent on October 8.

Commercial banks are expected to follow suit and cut their prime lending rates by half a point as well.

According to the Fed, they are willing to cut rates this low because economic conditions seem to indicate inflation will be contained. That assumption is probably unwarranted, yet the pressure to cut rates is why this event happened, not because it's good for the long term health of the economy.

Some are asserting it's the weakness in the market which is causing the fall in commodity prices, so this cut in rates is not risky. But that's only a small part of the picture. The reality is commodity prices have plunged because of the lack of credit, and large funds having to sell their positions in order to access cash.

That, more than anything else, is the reason for the drop in commodity prices, not the underlying fundamentals.

Remember that when inflation rears its ugly head again in response to government printing more money and lowering lending rates.

This is why the commodity bull market will extend longer than thought, as this temporary credit squeeze will eventually run its course and the demand from emerging countries for commodities continue to grow.