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DOES CONGRESSIONAL INTERFERENCE IN THE FREE MARKET RESULT IN INFLATION? YOU DECIDE! YOUR LATTE IS "AT RISK"

A Pandering Congress...

Congress panders to the special interest lobbyists who want to maximize profits for their clients. In return, those who support the lobbyist-directed legislation receive campaign contributions and votes. The reason given for the legislation is usually directed at some worthy cause -- which may be far from the truth. In our milk price support example below, the goal is to save small independent farms -- although the bulk of the subsidies always seem to flow to large agribusiness corporations... and sometimes to so-called "gentlemen farmers" who have no active interest in farming and use the "family farm" as a tax mitigating device.

According to Chris Edwards, Director of Tax Policy at the Cato Institute (The Madness of American Milk Prices) ...

"As Congress considers a major farm bill in coming weeks, it has an opportunity to cut wasteful subsidy programs and cut food prices for average families. Dairy programs would be a great place to start, since milk prices have soared in recent months."

"Consider the illogic of federal dairy policies. They jack up milk prices for millions of families at the same time that other programs, such as food stamps, aim to reduce food costs. And although federal law generally prohibits cartels, a federal dairy cartel enforces high milk prices. If Coke and Pepsi got together and agreed to hike prices, they would be prosecuted. But with milk, raising prices is government policy."

"The trouble started in 1930s with "marketing order" regulations. Those rules set minimum prices that dairy processors must pay to dairy farmers in 10 regions of the country. Today, about two–thirds of milk is produced under federal marketing orders, and most of the rest is produced under similar state schemes such as California's."

"Marketing orders limit competition, because entrepreneurs are not allowed to supply milk at less than the government prices. The system also restricts milk from lower–cost regions, such as the Midwest, from gaining market share in higher–cost regions, such as the Southeast. Government data show that residents of Cincinnati paid an average $2.68 for a gallon of milk in 2006, while those in New Orleans paid $4.10, and government policy is largely to blame."

"On top of marketing orders, Congress added a dairy price–support program in 1949. This program helps to keep prices high by guaranteeing that the government will purchase any amount of cheese, butter, and dry milk from processors at a set minimum price."

"In 2002, Congress added an income support program for dairy farmers, which distributes cash payments whenever prices fall below target levels. Perversely, this program causes overproduction and thus downward pressure on prices — in direct opposition to the price support program, which tries to raise milk prices."

"To enforce artificially high prices, the government imposes import barriers on milk, butter, cheese, and other products. Without those barriers, consumers could simply purchase lower–priced foreign goods. Imports of cheese, butter, and dried milk are limited to about 5 percent or less of U.S. consumption."

"All these policies add up to higher prices. The Organization for Economic Cooperation and Development found that U.S. policies create a 26 percent "implicit tax" on milk consumers. That "milk tax" is regressive, meaning that it harms low–income families the most."

"The Government Accountability Office compared U.S. dairy prices to world prices over the period 1998 to 2004. It found that U.S. prices for butter averaged twice the world price, cheese prices were about 50 percent higher, and dry milk prices were 24 percent or more higher."

As commodity prices rise, corporations are forced to pass the price increases as well as any taxes along to their customers, resulting in artificially inflated prices in everyday goods and services.

STARBUCKS RAISING PRICES ... AGAIN

LOS ANGELES (Reuters) - Starbucks Corp will raise U.S. prices on coffee, lattes and other drinks by an average of 9 cents a cup next week to help offset soaring costs for milk and other commodities, a spokesman said on Monday.

The widely anticipated move marks Starbucks' second price increase in less than a year and comes a month after the coffee shop chain's chief financial officer warned it would be "very challenging" for Starbucks to meet the high end of its 2007 earnings forecast, in part because of rising dairy prices.

U.S. milk prices have soared recently amid strong global demand for dairy products and higher production costs.

Reference:  Starbucks raising U.S. drinks prices next week | U.S. | Reuters

UNINTENDED CONSEQUENCES TO GOVERNMENTAL REGULATIONS IN ONE AREA MAY AFFECT OTHER AREAS

It is bad enough when governmental legislators attempt to regulate a single area, but as with all things government, there are unintended consequences. In the case of milk producers, one cause cited for price increases is global warming. No, not directly, because farmers and ranchers actually understand the cyclical nature of weather. But price increases due to rising feed prices as more corn is diverted into the production of ethanol -- at a higher rate of return to the corn farmer than if it is sold for feed. Thus any shortages of corn will serve to drive up the costs of corn used for feed purposes.

AND THERE ARE INCREASES IN PRODUCTS OTHER THAN LIQUID MILK...

According to an article in CNNMoney.com, cautioning their audience to be prepared for higher prices...

"But the milk issues stretch well beyond the liquid you pour in a glass."

"Prices for nonfat dry milk, used for baking and sent to feed people in developing countries, have jumped 30 percent, according to the International Dairy Foods Association. And prices for dry whey - the byproduct left when making cheese and other products that's widely used in processed foods - are at record highs."

"Rising milk prices can also push prices higher for things like ice cream, energy bars and pizza, as well as anything else made with dairy. Economists said they couldn't pinpoint how much prices might rise on those products but they said consumers will notice."

"'They should just be aware that they're going to be paying a lot more for food items that contain certain dairy products. There's no substitute for cheese, there's no substitute for milk or butter,' said Penn State's Bailey, 'The only consolation if you're a consumer is that dairy farmers had a really rough year last year' and the price increases will help."

Reference: 

CNNMoney, "Got milk? Get ready to pay more."

And the government can't even keep track of the program...

"The Agriculture Department sent $1.1 billion in farm payments to more than 170,000 dead people over a seven-year period, congressional investigators say."

"The findings by the Government Accountability Office were released Monday as the House prepared to debate and pass farm legislation this week that would govern subsidies and the department's programs for the next five years."

"GAO auditors reviewed payments from 1999 through 2005 and found that the department has not been conducting the necessary checks to ensure that subsidy payments are proper."

"Of the identified payments to deceased farmers' estates or businesses, 40 percent went to those who had been dead more than three years, and 19 percent went to those who had been dead for seven or more years."

Reference:  Seattle Times

As the tax-and-spend Democrats push for even more...

"House Speaker Nancy Pelosi signed off Friday on a five-year farm bill that would keep multibillion-dollar subsidies flowing to cotton, corn and a handful of other crops, deeply disappointing Bay Area food and environmental activists who had hoped that Congress might shift federal farm policy this year to combat obesity, air and water pollution and industrial farming."

"Pelosi, a San Francisco Democrat, hailed as reform legislation that would grant subsidies to farmers earning up to $1 million -- five times more than the cap sought by the Bush administration -- while increasing actual payments to farmers. The bill comes during the most prosperous era American agriculture has seen in decades as crop prices and farm income approach or set record highs."

"The bill, finished late Thursday night by the House Agriculture Committee, would add $1.6 billion for environmental and pest detection programs and research for California's fruit, nut and vegetable crops. It also would add money for farmers' markets and to provide more fresh produce in school lunch programs. Approval of the money is a breakthrough for the state's specialty crop industry, which receives no direct subsidies."

"But the bill leaves the big commodity programs intact for cotton, corn, wheat, rice, soybeans and a handful of other crops that have been subsidized since the Dust Bowl in the 1930s."

"Last year, farmers received more than $21 billion in crop subsidies. Average farm incomes are about 20 percent higher than the average U.S. household income."

"The committee even threw in an export subsidy for tobacco."

Reference: Pelosi takes heat for stand on farm bill: Legislation heavy on subsidies draws Bay Area activists' fire. (San Francisco Chronicle)

While we discourage tobacco products, it is amazing that we would subsidize its export to foreign nations -- which only proves, once again, it is all about the money.

What can YOU do?

Urge your elected congressional leaders to forgo pandering to the special interests that seem to dictate much of their legislative actions.

Urge your elected congressional leaders to give up artificial attempts to control "supply and demand" by imposing arbitrary production caps and price supports on the production of goods and services.

Urge your elected "congressional leaders" to make low-interest loans to those "family farmers" who may be struggling to survive and to eliminate all major agribusiness corporations or tax-shelters from receiving any crop subsidy or control benefits and/or tax mitigation benefits.

Keep a watchful eye on all Congressional activities which may benefit a few special interests at a large cost to the American consumer.

Buy wisely ... by using coupons and special offers, it is far easier to save money and earn an equivalent return on your dollars than the highest bank interest rate or stock market investment.

-- steve   

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