Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
In the category of almost too boggling to be true, we have this story in the WSJ this morning of a proposed bailout of the U.S. sugar industry. Even more backwards the federal government gave subsidized loans to the industry and to avoid having these loans go sour now is strongly considering going in and buying the actual commodity in bulk to support prices. Talk about ponzi financing. The more you read over the years, the more you realize the federal government has its tentacles in almost all aspects of our “free market capitalist” economy. The dollars are minuscule in the big picture as we’ve seen bailouts in the tens of hundreds of billions the past 5+ years – heck its not even a few hours of the Fed’s daily POMO injection, but the concept of what they do and how few jobs it supports is the thing.
- The U.S. Department of Agriculture is considering buying 400,000 tons of sugar—enough for 142 billion Hershey’s Kisses—to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program.
- The action aims to prop up tumbling U.S. sugar prices, which have fallen 18% since the USDA made the nine-month operations-financing loans beginning in October. The purchases could leave the price-support program with an $80 million loss, its biggest in 13 years, said Barbara Fecso, an economist at the USDA, in an interview.
- The move would benefit companies that turn sugar beets and sugar cane into granulated sweetener, a business plied by American Crystal Sugar Co., Amalgamated Sugar Co. and U.S. Sugar Corp. The USDA wouldn’t say how many companies have received loans, or identify them.
- The domestic sugar industry has long relied on subsidies that critics say are disproportionate to its contribution to the U.S. economy. The sugar industry supports jobs for 142,000 people, according the American Sugar Alliance, an industry group.
- The loan program was designed to operate at no cost to taxpayers. A June 2000 study by the Government Accountability Office, then called the General Accounting Office, estimated the program’s cost to the U.S. economy at $700 million in 1996 and $900 million in 1998.
- Ms. Fecso said the USDA is hoping to avert a repeat of 2000, the last time the agency bought sugar on the open market. The USDA bought 132,000 tons of sugar to raise prices, but the effort was generally considered unsuccessful because borrowers ended up handing over 1 million tons of sugar to the agency instead of repaying the loans. The loan program incurred losses of $295 million that year.
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