Note: This originally posted in July but I’m moving it to now because it’s a GREAT way to start the New Year. I don’t actually expect you to do much on actual New Year’s Day … I’m certainly not planning on it … but at least print out a year’s worth of calendars from your word processing program or from an online calendar program and then this weekend, go through the rest of the exercise …

Like most people, I hate putting together budgets. Blech.

You sit down, you know you SHOULD do a budget. Heavy sigh. You make spreadsheets of income and expenses, most of the time not all that accurate because you didn’t take the time to go back and see how much you actually spend in categories like gas, dining out, and food in the first place so you just toss a number in there and hope for the best. You promise to follow it and within a week, it’s at the bottom of a pile of mail and the next time you look at it, you realize that you’ve totally gone off course and you feel like a weak-willed loser.

In other words, budgets are like diets. And do you know what else? Just like most diets, they’re simply not realistic because they don’t fit in with our actual lives. In the case of budgets, the issue isn’t only about the net inflow and outflow, it’s about WHEN the money comes in and goes out.

So guess what - I don’t want you to do a budget. Yay!

Don’t get too excited, I still want you to write down your income and expenses, but try this instead of using a spreadsheet:

1. Get a monthly calendar with plenty of space to write in the date areas. Please don’t go spend a lot of money on a calendar, a free giveaway one from a store will work just fine as long as it’s big enough. I actually just print out a bunch of months from Word, punch holes in them and put them in a three ring binder.
2. Pull together a copy of any bank or credit card statements that note regular monthly expenses - mortgage, credit card payments, direct deposits, utilities, insurance, etc.
3. Write the payment for each bill in pencil on the day that the money is set to leave your account (not the due date). For example, if your water bill is usually about $100 per month and it goes out on the 15th, write that in on the calendar on the 15th, with parentheses around the amount to denote a debit. If your regular bills change monthly (water bills tending to be higher in the summer if you have a yard, for example), either remember to adjust them for an estimated upward amount in the appropriate months or see if your utility company has some sort of level billing program (if they don’t, you can still set up a level billing program - just send more than necessary in low payment months and let a credit build up).
4. Enter any irregular (special) upcoming expenses, such as summer camp tuition or annual car registration expense.
5. Enter your income on the dates that you receive/deposit your paychecks.
6. Add up how much you spent in the last month on groceries, gasoline, eating out, and other things like clothing and entertainment, multiply it by 12, divide it by 52, and enter that amount as a debit (parentheses) on each Saturday.
7. Get your calculator and write down a running balance in each day - I usually put all of my debits and credits at the bottom of the box and keep my running balance (again - in pencil!!) at the top of the box.

What you’ve done is essentially lay out an actual cash flow for your household. I want you to do it in pencil because things change over the course of a year, but I guarantee you that having a year’s worth of cash flow written out.

Why is this preferable to a simple, “we make this much, we spend this much” monthly budget?

• It gives you an opportunity to look forward and see where in the month you will have quite a bit or not very much money at all.
• Keeping the running total at the top of each day gives you a bit of a goal - if you overspend, you won’t be able to hit that number, right?
• Sharing this calendar with your partner can help show him or her that even though it looks like there is a bunch of money in the bank when they look at the ATM receipt right after payday, that money is already “spent” in the future.
• Seeing where you tend to accumulate funds might offer you an opportunity to send extra to credit card companies or savings accounts before it gets spent little by little on lunches, entertainment, etc.

E-mail me at info@foolsandsages.com if you would like for me to send you an example of what this type of cash flow calendar looks like. I scanned one but it ends up being so small on the page that you can’t really see the writing.

If you’ve been visiting the Fools and Sages community for a while, you already know that one of my favorite websites is The Grocery Game. I’ve written about it here, here, here and most recently, here. I hope you have been able to carve out some time and check it out.

If you haven’t, I humbly implore you to go to the site right now (well, after you finish reading this post), see if there is a program in your area and at least sign up for the $1 five week trial. I’m begging, because I saw the video version of this story tonight on the news:

With just a few weeks until Christmas, the Salvation Army says they’re worried about the lack of food donations, which are down about 30 percent in just the last year. Last month, the charity was forced to turn away 300 families who showed up to their food pantry looking for help.

This is in the Denver area, but I’m sure the same story is playing out all across the country.

You can make a difference, and The Grocery Game can help.

For example, quite often you’ll find that turkeys and hams are on sale, but there are limits of one per shopper’s club member. If you are planning on having turkey for your holiday dinner but there are hams at a great price, see if a local soup kitchen could use a fresh donation and pick one up … or pick up a super cheap turkey if you’re planning on having ham.

Look through the list for inexpensive non-perishable goods that you can pick up with coupons while they’re on “super sale” and take them to your local food bank. Even if you can’t get some of the great sales the first couple of weeks because you haven’t built up your stock of coupons, these organizations are still going to be in great need after the holidays when people pressed for cash are going to have to decide between paying for heat or paying for food. And if there are toiletries on sale, pick those up too. Most food banks welcome non-food items for their patrons.

Some examples of great prices from this past week’s sales from King Soopers/City Market/Kroger:

• Cook’s Spiral Sliced Ham - regularly $3.79 per pound, on sale for $1.49 per pound. … 61% savings.
• Olay Quench Therapy Hand and Body Lotion - regularly $7.69, on sale for $3.84, plus a coupon for $2. …. 76% savings.
• Arm & Hammer Antiperspirant and Deoderant - regularly $3.99, on sale for $1. … 71% savings.
• Kroger Anti-Plaque Dental Rinse - regularly $3.49, on sale for $1. … 72% savings.
• Goody Stay-Put Headbands - regularly $5.99, on sale for 50% off.
• Betty Crocker Brownie Mix - regularly $2.99, on sale for $1. … 67% off.
• Manischwitz Potato Pancake Mix - regularly $3.99, on sale for $1. … 75% off.
• American Beauty Pasta - regularly $2.49, on sale for $1. … 60% off.
• Mrs. Cubbison’s Stuffing Mix - regularly $2.39, on sale for $2, plus a coupon for $.55 (doubled up to $1). … 58% off.

That’s just a small sampling of this week’s specials, most of which are 50% off or more. And, as you’ll notice, most of the sales don’t even require a coupon, so you can make a difference THIS WEEK.

Just imagine, though .. if you got one each of the items above, assuming a five pound ham, you would spend $18.29 for merchandise regularly priced at $51.97, including some items that could be real food treats for a family, plus some that could help with hygiene, and even a couple of items that could be a small gift or stocking stuffer for a family that has fallen on hard times.

If you use the Grocery game for your own shopping, that $18.29 would probably VERY easily be covered by the savings you can glean from your own needs.

This weekend before you do your grocery shopping, I urge you to sign up for The Grocery Game and print out some items that you can pick up for those in need.

Please pass this post to friends as well, and let them know that if they use your e-mail address as a referral, you can earn free months with The Grocery Game. They can too, if they recommend this simple and inexpensive program to friends.

I am grateful to you in advance, and so are those who are in need of these wonderful charitable organizations this season.

A friend told me about a show he watched last night called Half Ton Dad. It is a documentary about a man named Kenneth Brumley and the lengths he went to in order to lose weight and regain his life. I haven’t seen the show (no cable) but apparently after undergoing surgery to remove over 200 pounds of fatty tumors and then gastric bypass surgery, he is now down to a  little over 500 pounds and can stand on his own for a few minutes at a time. That’s fantastic and I wish him the best.

So how did he get so large? By eating too much, of course. His case is obviously extreme, but just to give you an idea, he ate 30,000 calories per day. According to the McDonalds nutrition chart, and with a quick note that I’m not picking on McDonalds but am just using them as a familiar reference, a Big Mac, large fries and large regular Coke is about 1,350 calories and 54 grams of fat. He was eating the equivalent of a little over twenty-two of those meals per day, on average.

Seriously, sit back and ponder that for a moment. 22 Big Macs, 22 large fries, and 22 32-ounce sodas per day. It’s mind boggling.

What’s even more mind boggling is how much money it must cost to feed someone 30,000 calories per day, and why the people around him continued to kill him by bring him this much food. Not to sound cold here, but he couldn’t walk so his food intake was dictated by what others would bring to him. It’s not like he could get up and get his own burger if his family chose to only bring him salad …

… but I digress.

Back to the topic at hand, there is a KFC commercial currently in rotation that mocks anyone who would get a puny little burger and fries combo because their new box combo, branded by Guitar Hero, is bigger and manlier.

From the a friendly blogger in Michigan (I’ll include his video at the bottom of this post - thank goodness he went and bought it because I never will!), here’s what you get in your Guitar Hero fully loaded box meal, which will run you about $8:

• 1 Snacker (mini sandwich)
• 1 piece chicken (leg or thigh, Original Recipe or Extra Crispy)
• 2 Crispy Strips
• 2 sides
• 1 biscuit
• 32-ounce drink in flimsy “collector” cup

Alrighty.

According to his site, this meal has about 1,200 calories, which actually makes it a more slenderizing choice than a Big Mac, large fries and a Coke. There are, however, quite a variety of choices to be made with this meal. The only fairly consistent calorie numbers come with the Snacker sandwich, Crispy Strips and biscuit. If I put together a meal with a Snacker, 1 Extra Crispy thigh, 2 Crispy Strips, Baked Beans, Coleslaw, 1 biscuit and a 32 ounce regular Pepsi, I can easily plump that calorie count up to about 1,800 calories and 73 grams of fat.

Since this meal is aimed at young males, I found a calculator that would calculate the average calorie needs of a 6′0″ tall, 200 pound, lightly active 20 year old male. The calculator popped out that to maintain that weight, my fictional young man would need about 2,800 calories per day, including 95 grams of fat. One of these meals would provide about 65% of caloric needs for the day, and 77% of his fat. In other words, he’s theoretically OK if he eats this meal every day, depending on how the rest of his daily calorie and fat content plays out.

Of course, weight and nutrition is not all about calories and fat content. Besides the cabbage in the slaw I chose for him and a piece of token lettuce on the Snacker sandwich, there’s no vegetables in this meal, and no fruit at all. I can’t imagine he would be getting a decent amount of vitamins and minerals either, and just looking at the foods in that list makes me tired - eating all of it at one sitting would probably require a nap afterwards, don’t you think?

So, while I wouldn’t personally choose to pay $8 for this meal, it’s certainly not a killer as an occasional expenditure. If you want to splurge and KFC is your thing, I guess this is a great way to get a wide variety of treats in one box - just don’t make it a daily habit.

KFC Guitar Hero Fully Loaded Box Meal unboxed from Tim Agne on Vimeo

As you may know by now, I’m a big fan of The Grocery Game. Even though the program does cost a few dollars a month, I like the format and particularly like that the lists are laid out in the same order as the store - a big time saver that is worth a few bucks in exchange for not having to trek back and forth across the store.

Although I generally wouldn’t suggest buying stuff that you won’t use even if it’s a Great Deal, I do want to take this opportunity to remind you that there are people in need all year round and using some of these fantastic savings opportunities is a way to donate frugally and therefore stretch your generosity.

If you attend a church that has a soup kitchen, you might be able to work out a regular communication with whoever runs it to see if particular sale items from the produce section or other areas might be of use every week. Homeless shelters might also find particular use from fresh produce. You can also bring non-perishables to food banks, and I’ve noticed that holiday cooking needs are already starting to show up on special. For example, this week I saw that Carnation Evaporated Milk was on sale with a coupon for $.50 per can, down from $1.79 - that’s someone’s pumpkin pie. A few weeks ago I remember seeing those crunchy onions on crazy sale, and I’d bet next week or the week after there will be a few great deals on canned pumpkin.

So, if you’re using the Grocery Game or some other coupon site to help you save money - and I highly recommend it, 50% off your grocery bill is really not hard to do - keep an eye out for those non-perishable goods, toiletries for shelters, and even fresh food for soup kitchens and shelters if you know what they need.

Although fuel prices have dropped precipitously - I saw $1.90 per gallon in my neighborhood yesterday - restaurants are still expecting to see much higher food prices and are changing their menus accordingly.  If you have a favorite restaurant that you frequent regularly enough to be able to recognize alterations in portion sizes or prices, it might be fun to see if you can see where they’re making the adjustments.

From the Associated Press:

CKE Restaurants Inc., which operates the Hardee’s and Carl’s Jr. chains, stopped offering Double Cheeseburgers in its 2 for $3 promotion at the end of August and replaced them with Jumbo Chili Dogs and Hot Ham ‘N’ Cheese Sandwiches to avoid selling pricey beef at a lower price.

Even fast-food leader McDonald’s Corp. is considering making some changes to its popular dollar menu — either by changing the items on the menu or bumping up prices — saying the cost of selling meat at such low prices might be too high.

I feel sorry for the resturants, in a way - they’ve gotten used to Americans eating out constantly. Over the last year, though, dining out has cut back quite a bit and food prices have gone up, so the restaurants are hit with a double whammy. If they raise prices or cut portions (and therefore, “value”), they’ll lose even more business, but they really don’t have any choice.

“This is the most challenging environment for restaurant operators regarding food price inflation on the wholesale level for almost 30 years,” said Hudson Riehle, senior vice president of research at the National Restaurant Association.

Riehle said wholesale food prices have jumped 8.7 percent year-to-date through August. That’s on top of a 7.6 percent increase in 2007.

In 2006, in comparison, wholesale food prices climbed just seven-tenths of one percent, Riehle said.

Those numbers understate the increase in beef costs by quite a bit - the article states that beef and veal have gone up almost 20% from August 2007 to August 2008 - which probably means that you’ll get a little less meat in your taco salad or a few more fries on your plate to make up the difference.

There’s a lesson in here, and I’m betting you know what it is - Meat Is Expensive.

The easiest way to save money on your grocery bill is to eat less of it. Stretch your meat use with more veggies.

Instead of having a steak at home with a salad and maybe some potatoes on the side, slice up half a steak and throw it on top of the salad. A spicydressing made by combining about half and half ranch and salsa will “kick it up a notch” and help fill you up.

Other ways to stretch your meat without getting too much flack from the family …

• If you use ground meat in your pasta sauce, just use less. They probably won’t even notice.
• Make soups. Stew meat is cheaper, and if you have lots of veggies in there, they provide texture to compensate.
• For those soups, add beans - you see this with chili already, it’s helpful in regular soups as well. Barley is also a good addition to soups.
• If you’re making stir fries or Mexican dishes, slice up some mushrooms and combine them in with the meat. Portobellos provide some good “bite” but even button mushrooms can help extend enchilada or taco filling (chop up the mushrooms really small for taco filling).

Switching out beans and veggies for meat is not only less expensive, it also cuts back on fat. Don’t worry about missing out on your protein. For almost all of us, low dietary protein is simply not an issue.

As I went through a week’s worth of mail this morning, I noticed two things. One is that I’m seeing far fewer catalogs than I recall over the last few years. I don’t know if that’s because we’ve been purged from many lists because we haven’t bought anything in a while or if it’s because companies are trying to cut costs. I don’t know that I think either is really true given that retailers desperately need this year to be a good holiday season, and maybe it’s just too early to be completely inundated. We shall see.

I did receive one catalog that I particularly look forward to every year, though. I don’t know about you but I love the Signals and Wireless catalogs. Signals supports public television and I believe Wireless supports public radio, so I like that some of their revenues are going to those causes, but mostly I like them because they have cool, quirky stuff that makes me laugh and/or covet. If I wasn’t such a Cheapy McCheapster, I’d have a field day in those two catalogs.

By far the coolest catalog I have seen so far, though, is one from Heifer.org. From their site, here’s a blurb about their intiatives:

Heifer has learned over the years that a holistic approach is necessary in order to build sustainable communities. So we’ve developed a set of global initiatives – areas of emphasis that must be addressed if we’re to meet our mission of ending world hunger and poverty and caring for the earth.

Agroecology
In a world where land is overused, community members need to learn how to protect and rejuvenate their land, water and other natural resources. Heifer helps by teaching environmentally sound agricultural techniques.

Animal Well-Being
Before any Heifer animal is passed along to a project partner, Heifer trains the new recipient in animal management, using our strictly enforced. Animal Welfare Guidelines

Gender Equity
In Heifer’s view, gender equity is a social justice and human rights issue that directly leads to ending hunger and poverty. That’s why our participants are equal partners in sustainable development projects.

HIV-AIDS
Today, we as a world community, confront AIDS, a virus that in the past 25 years has either infected or killed over 64 million people. It is not only a health issue, as it fractures every sector of society, for Heifer, it is a prominent concern in the arena of sustainable development. This is why Heifer is incorporating HIV/AIDS education in our community training groups.

Microenterprise
Heifer provides both “no-interest living loans” in the form of livestock, as well as small monetary loans to help people start and expand businesses that yield big benefits for families.

Urban Agriculture
Heifer is reconnecting city-dwellers with their food sources, building strong alliances and instilling an entrepreneurial spirit among adults and youth through our Urban Agriculture projects.

Young People’s Initiative
Heifer weaves youth-focused programs through all our project work and emphasizes young people’s needs.

Their catalog, which I have to admit is really fun to look at (how many catalogs have you received where you can buy a cow for someone?) and is chock full of cute kids hugging their livestock, which is used for milk, wool, or to produce offspring for food or sale. There is one story in particular that warmed my heart about a little girl whose mother was able to sell two offspring from a Heifer donated goat for $200, which was enough for them to be able to build a new home with an iron sheeted roof to replace their thatched hut plus a uniform, books and pencils so that this little girl could go to work. $200 was all that it took to give a child an opportunity. Isn’t that wonderful?

I did look up Heifer through Charity Navigator. They have a three out of four star rating and their efficiency (how much of donated money is put towards administrative costs versus actual program costs like cattle) is low. I have to wonder, though, if their worldwide mission doesn’t create more expenses than a hunger organization that operates only in one country, but perhaps someone with more experience with researching charities can help me out with the Charity Navigator evaluation.

Check them out, at least. And if you have a person in your family who is impossible to buy for because they already have everything they need, consider donating in that person’s name to an organization like this or to one that they have a particular interest in.

Are you a Rachael Ray fan? She’s quite a dynamo, isn’t she? Her energy level is admirable, as is her drive and what appears to be her genuinely kind personality.

I’ve been thinking about her lately during my time in the kitchen. I never really got into her 30 Minute Meals show, mostly because I don’t happen to have a magic cupboard that holds everything I need for a recipe and partly because as nice as she is, it took approximately one appetizer demonstration to realize I never wanted to hear the term “EVOO” or the word “sammie” ever again.

Still, I like that she doesn’t get fussy about measurements, doesn’t change her kitchen for every show or put together over the top tablescapes, and almost everything she makes looks actually kind of tasty. She’s not intimidating, in other words, and makes you believe that you can cook. You know you can cook, of course, but I think to a large extent many of us have forgotten or never learned the basics. Her show demonstrates cooking without all of the pretentious “I’m a CIA grad” blah-dee-blah.

The reason I’ve been thinking of her lately is that with our tightening economy, people are looking for ways to eat at home more often. Grocery stores are encouraging this trend, which in my opinion is great, but not if family dining out experiences are replaced with frozen, overly processed garbage and not if you actually spend $75 trying to mimic a Kentucky Fried Chicken meal when more healthful recipes would save you money, time and calories.

Multitasking in the kitchen can save you time, money, and effort, and if you go into it with the right attitude, it can be very empowering. Maybe that sounds a little silly, but when you can’t turn on the TV without seeing reports of market crashes, bailouts, foreclosures, failing banks, and endless political ads, a little empowerment goes a long way.

So what kinds of things can you do to multitask? It all amounts to basically thinking ahead. For example, the other day I was making a Thai-ish stirfry with cabbage. I only actually needed about half a cabbage (I used it to replace quite a bit of the noddle part of the dish - less wheat, more fiber), but I shredded the entire head anyway. While my veggies were steaming, I grated up a carrot or two and made a quick slaw dressing - mayo, a little sugar, a splash of milk, and either vinegar or, if you really want to go old school frugal, some juice from a pickle jar - and voila, I had dinner for that night and slaw for the next few days. Had I only made my dinner recipe and put that cabbage away to make something else later, I can almost guarantee you that it would have gone bad and gotten tossed.

Another example came just a couple of days ago. We decided to bake up some potatoes and top them with leftover chili in the freezer, but since the oven was on, we baked a few extra potatoes for work lunches or quick dinners later in the week.

Or this past weekend watching football, I prepared some radishes, celery sticks, and actually peeled and cut up carrots. They all went into a large plastic tub filled with water, which keeps them nice and crispy in the fridge. When it’s time to make lunches, grabbing a handful of veggies couldn’t be easier.

There are also cleaning tips and tricks to save you time in the kitchen.

• If you’re going to be in the kitchen for a while and will have a few minutes between tasks while something is simmering or baking, take the opportunity to clean your microwave. All you need is a large microwave Set it on high for a few minutes to get a good boil going. Let it sit for a few minutes and then wipe clean - the condensed steam will loosen just about everything.
• Let your cleaner do its work. Don’t be like the folks in the commercials who squirt their cleaner on and wipe everything off a half a second later. The only time that works is when you’re using seriously strong chemicals, which is of dubious benefit in my opinion. A spray bottle filled with half water and half white vinegar will take care of most of your kitchen and bath cleaning needs - unless you have marble. Don’t use vinegar on marble.
• If you are cooking with lemons or limes or just ate some kind of citrus fruit, toss the peels into a small saucepan with water and simmer for a free air freshener that doesn’t smell like chemicals.
• If you have a double sink, fill one side with halfway water while you’re cooking and put used utensils into the water as you finish with them. Anyone who has ever made mashed potatoes or oatmeal and left them to dry in the pan knows why this is a good idea.

Those are just a few examples, and I’m sure you have your own tricks. Please do share!

OK, I was going to let this go, but this commercial from KFC touting its $10 challenge just irritates me. If you haven’t seen it yet, you can view here: KFC $10 Challenge Promo

Maybe I dislike this commercial because it actually worked to the extent that my nine year old asked if we could have KFC for dinner because it would save money. Since I can consistently feed our brood on less than $10 a meal, I don’t like the message being sent that $10 a meal is acceptable.

Maybe it is because I challenge anyone to feed a family of four at Kentucky Fried Chicken for less than $10 unless two of those people are preschoolers. In fairness, the family in the commercial is only three people, one adult and two children, but that makes it even worse. If I can feed our family, including one adult male who eats more than should be humanly possible without turning into a big tub-o-lard (and really, he doesn’t gain weight - the unfairness of it all), an almost 13 year old who is turning into that teenaged eating machine we’ve all heard of, a nine year old, a toddler and myself for under $10, then feeding this size 8 woman in the commercial and her two small children is not that impressive.

But ultimately, what gets my goat is that it’s an incredibly stupid comparison and that means that KFC thinks we’re stupid enough not to notice.

I’m not going to subject this commercial to a huge amount of investigative objectivity and scrutiny, because frankly, it doesn’t need it. I think we’re fine going with some general assumptions, don’t you?

• “Seven pieces of chicken is HOW much?” So asks the incredulous little girl of the store butcher. Sweetheart, you’re not asking the right questions. Your 7 piece value meal will include both white meat and dark meat, so you need to be specific about which pieces you want, and frankly, the butcher should send you over to the whole chickens in the first place. They’re much less expensive.
• Flour. They buy a 5 pound bag of flour. I don’t think you can use a whole bag of flour when you make seven pieces of fried chicken. That would be some incredibly crispy chicken.
• The little boy gets handed the worst line in the commercial, because he has to ask the hapless stock boy if he has the secret herbs and spices. He doesn’t, of course, because they’re secret, but it didn’t take me long to find a recipe online that probably isn’t too far off:

1 tablespoon rosemary
1 tablespoon oregano leaves
1 tablespoon powdered sage
1 teaspoon powdered ginger
1 teaspoon marjoram
1 1/2 teaspoons thyme
3 tablespoons packed brown sugar
3 tablespoons dry minced parsley
1 teaspoon pepper
1 tablespoon paprika
2 tablespoons garlic salt
2 tablespoons onion salt
2 tablespoons chicken bouillon powder (or 4 cubes, mashed)
1 package Lipton tomato Cup-a-Soup mix

Place all ingredients in blender and pulse for 3-4 minutes to pulverize, or rub through a fine strainer. Store in an airtight container so the spices will not lose their potency. Makes about 3/4 cup.

Add 1 ounce mix to every one cup of flour for coating chicken.

Holy grocery receipts, Batman! I’m guessing buying even the smallest container you can find of all of the spice ingredients would be at least $45 - challenge over, KFC wins!

Of course, they don’t really dwell on the detail that if you actually did buy all of the ingredients for the secret spice recipe, you’d have enough to make probably a month’s worth of fried chicken. Details, schmetails.

• The narrator then confirms for us that you can’t cook a 7 piece dinner with a side and four biscuits for less than $10, but lookie here, KFC to the rescue with that meal for $9.99, pre-tax, no beverages, and no pesky leftover ingredients in your kitchen that you could use to make other meals at home.

This commercial reminds me of double talking politicians. It isn’t exactly LYING since you couldn’t possibly make that meal for $10 if you didn’t have any of the ingredients on hand, but it’s certainly not telling the truth, is it?

I’m still catching up on news, folks - trying to see what slid past while we were all watching the bailout and the candidates (yes, there WAS other news!), and also trying to keep up with some other obligations.

Here’s some “mixed bag” news from the Business Standard in India on the food price front, both for US consumers and for hungry people across the globe:

The global prices of wheat, rice and maize have seen a declining trend during the July-September quarter on better output prospects, large exportable supplies and softening crude oil prices. The apprehension of an economic slowdown in the US is expected to further weaken the demand for all commodities.

What that last sentence means is that a bad economy here is somewhat good news in other parts of the world when it comes to food prices. It’s a delicate balance, since a major downfall of the US economy will pull the rest of the world with it but a moderate drop is good for certain commodity prices.

Part of the relief comes from expanded production, but again we see the hand of speculation in the grain market, just as we did in the oil market. Also from the Business Standard article:

“Farmers continue to expand area under these crops in response to high prices. And speculators, who had entered commodity markets in a big way, are finding their way out,” noted a commodity analyst.

According to the FAO, global wheat prices continued to slide in the third week of September, mostly driven by a record world production. The seasonal harvest pressure in the northern hemisphere countries, falling crude oil prices and financial turmoil in world economies also contributed to further decline in wheat prices. The US hard red winter wheat averaged $312 per tonne (freight-on-board Gulf) in September, 9 per cent below August and 35 per cent below its peak in March.

I wouldn’t hold your breath while you wait to see food prices drop. Producers kept a lid on increases in food prices for quite a while as oil prices went up, they’ll rightly use any relief as a way to cover some of the losses they took in the meantime. We’ll need a sustained drop in oil and grain prices before we see price relief in the grocery store, probably.

I’m sure we’ve all noticed that gas prices have dropped quite a bit in the last few months, but there hasn’t been nearly as much fuss about that as there was when prices were going up. It’s not a big mystery as to WHY there hasn’t been more attention paid to it - the media loves to scare the crap out of you so you’ll keep watching, we have an election coming up, and there’s this bailout thing going on that I’m trying to ignore.

But no really, why have prices come down? Here is a six month chart from Gas Buddy:

Gas prices peaked in the US right around mid-July and then started a strong trend downward, with a little spike around September 15-16 (Hurricane Ike) that couldn’t be sustained. US prices have dropped from an average of $4.12/gallon to about $3.54/gallon, 14%, in two and a half months.

Why?

As usual, there is no simple reason and I’m not going to try to claim one, and it bears reminding that even with this decline,the price a year ago at the beginning of October was $2.75/gallon.

Still, I’m intrigued. Certainly a decrease in demand as people reduce consumption is a factor, but I’m still not convinced that consumer will power is strong enough to sustain more than a temporary drop in price and demand hasn’t dropped anywhere near 14%, so that’s not it. Perhaps there is a bit of currency impact here - the dollar has been strengthening recently, which makes imports less expensive, but that wouldn’t account for the drop entirely either. Political factors are always in play, but I don’t think anyone feels like we’re in a decelerating tension cycle with the saber rattling we seem to hear about constantly with Iran.

And with that, I’d like to introduce you to the Commodity Futures Modernization Act of 2000.

If you recall Trading Places (”My God! The Dukes are going to corner the entire frozen orange juice market!”), commodities are raw materials like oranges, oil, pork bellies, corn, wheat and such. The commodities market is used to hedge future price fluctuations and is absolutely essential for farmers and other producers in order to reduce their risk of doing business, but it’s also a place for investors and speculators.

“Futures” lock in a price in the … future. Think of it as insurance.

If, for example, you are a cotton farmer, you can sell futures contracts that lock in the price you will receive when a cotton crop is harvested in, say, six months. This helps you figure out your expenses and also protects you from instabilities in the market, thus providing incentive for you to keep growing cotton. It also provides assurance for the purchasers of your cotton - textile manufacturers, for example - who can accurately predict their price of raw materials in the future.

Investors (speculators) can also get into the game, though. Let’s say that I’m an investor and have reason to believe that China, a huge cotton producer, is going to be plagued by massive crop failures in the next few months. If I’m right, the price of cotton will skyrocket and if I can buy that futures contract from the cotton farmer and then turn around and sell my cotton on the open market in six months (or sell the contract before expiration, which is more likely in the case of an investor), I’m going to make a fortune! If I’m wrong and China has a bumper crop, I’ll lose money when I sell my contract.

Either way, the farmer still receives the same price at the end of six months.

So, the commodities market covers broad markets of basically identical goods, but at some point the financial market decided that what was good for the farmer was good for the securities investor and started selling futures on stock. Unfortunately, since you can’t directly compare, say, Walmart and Target as “identical” goods, what this created was a whole new type of market for futures, and a whole new regulatory black hole. Who was in charge of oversight in this case - the SEC, which oversees securities the securities industry, or the Commodity Futures Trading Commission, which oversees the futures market? The resulting debate could not be resolved and stock futures were banned in the United States, but not in Europe, where they were popular. Since Americans can’t stand to be left out of a party, the Commodity Futures Moderization Act of 2000 was introduced to resolve the issue and allow securities to be traded on the futures market.

There are two aspects of this Act that are pertinent to us today.

One is that it specifically exempted regulatory oversight when it came to their credit default swaps. Go watch the news - any news, any time of day - to see what came from this.

The other is that it created what is called the “Enron Loophole,” which oddly enough, was closed in late June of 2008, right before prices started dropping.

The Enron Loophole, from the Congressional Research Service (bold mine):

The CFMA added a new Section 2(h) to the Commodity Exchange Act, exempting two classes of transactions from most CFTC regulation. First, bilateral contracts between “eligible contract participants” that are not executed on a trading facility are exempt from the Commodity Exchange Act, except for certain anti-fraud and manipulation provisions (Note: banks, investment firms and insurance companies). Second, contracts in exempt commodities between “eligible commercial entities” that are executed on an “electronic trading facility” are also exempt from most provisions of the Commodity Exchange Act. Substantial volumes of trading in energy contracts avail themselves of each of these exemptions.

What does this mean, really? In a nutshell, it means that traders could manipulate the market.

As a silly and very simplified analogy that nevertheless provides a great visual, I invite you to the world of Facebook and specifically an application called “Friends for Sale.” On it, you can be bought and sold by other Facebook members. I don’t remember who invited me to join it several months ago, but I did for some reason. I totally don’t get the appeal (it’s creepy, really) but will admit that I check in sometimes to see how much I’m “worth.” It’s amusing, but more importantly, take a look at how (or why, rather) my “value” has increased:

Now, I didn’t do a darned thing in that time - didn’t even know it was happening, but my value nearly tripled in three days because these two people just kept flipping it back and forth. They didn’t care that they had to pay more each time because they earned something off of each trade. Apparently I did too, but I don’t know what I’m going to do with all that fake cash.

Cool, huh? Except, not so much when the commodity in question is something we all depend on so heavily.

So let’s meet some of the players in this Commodity Futures Modernization Act, shall we?

Former Representative (Democrat and Republican) and Former Senator (Republican) Phil Gramm, Texas - This would be the same Gramm of Gramm-Leach-Bliley, which overturned Glass-Steagall and which I have commented on several times in the past. Senator Gramm is a Republican from Texas who has been linked as an economic advisor to John McCain and serves as Vice Chairman of UBS bankbased in Switzerland, which (by the way) happened to dump millions in “toxic debt” just today to buyers who were apparently invisible to everyone else. Or perhaps only became visible after the Senate vote last night, which is my bet.

Senator Gramm’s wife, Wendy, is also of interest. From Wikipedia (bold mine):

Wendy Lee Gramm … received a B.A. degree in economics from Wellesley College in 1966 and a Ph. D. in economics from Northwestern University in 1971. In her role at the Mercatus Center, Gramm generally called for deregulation of the energy industry. Previously, Gramm held several positions in the Reagan Administration, including heading the Commodity Futures Trading Commission from 1988 to 1993. After a lobbying campaign from Enron, the CFTC exempted it from regulation in trading of energy derivatives. Subsequently, Gramm resigned from the CFTC and took a seat on the Enron Board of Directors and served on its Audit Committee.

Former Representative Jim Leach, Republican, Iowa - What do you know, another Gramm-Leach-Bliley reference. Leach is a complicated cat and I’ll admit I don’t cringe with disgust like I do when I hear the name Gramm, but he’s still on the hook for this one. And I’ll go so far as to say that I’m suspicious of an Iowa legislator when it comes to allowing oil prices to skyrocket, thus maybe encouraging some kind of alternative based maybe on … corn?

Note: Leach is definitely not on the McCain side of the fence, having publicly endorsed Obama, mostly for international relations reasons.

Former Representative Tom Blilely, Jr, Republican, Virginia - No way! Hat trick! Gramm-Leach-Blilely is entirely covered in the Commodity Futures Modernization Act sponsorship! Cute bow tie, though.

All Republican sponsors. Hmm.

I went and looked up the Commodity Futures Modernization Act roll call, just to see how McCain and Biden voted on it - it was actually rolled into a larger appropriations bill, but for the record, Biden voted against and McCain voted for it. And as an aside, Biden also voted against Gramm-Leach-Blilely and McCain voted for Gramm-Leach-Blilely.

So. Y’all know I try to not be too political and I don’t discount the role Democrats have played in this debacle, but if you’re looking at energy prices, I think it’s fair to at least take a peek at this Act and wonder if the demise of its Enron Loophole and coinciding gas price drops isn’t at least slightly interesting. And similarly, when you look at mortgage bailouts, look at the votes there as well.

This post is included in the October 6th Carnival of Personal Finance - if you’d like some more fun reading on a variety of personal finance topics, please be sure to visit Girls Just Want to Have Funds!