The bruised U.S. economy limped through the first quarter, growing at just a 0.6% pace as housing and credit problems forced people and businesses alike to hunker down. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if modestly.

Consumers—whose spending is vital to the country’s economic health—turned much more cautious, also restraining overall economic growth in the first quarter. Their spending rose at just a 1% pace. To bolster the economy, the Federal Reserve is expected to lower a key interest rate by one-quarter percentage point to 2%.

Accelerating Price Declines in Most Big Cities

A Washington think tank is warning that housing prices are falling at an accelerating level, destroying wealth at a pace that will cost the average homeowner $85,000 in lost wealth this year alone.

At the same time, the price decline implies an incredibly rapid loss of wealth. In real terms, the rate of price decline in the 20-city index would imply a loss of almost $6 trillion in real housing wealth over the course of the year, an average of $85,000 per homeowner. The only time that many Americans have lost that much wealth in a short period of time would have been during the Great Depression.

If you didn’t have ethanol, you would not have the prices we have today

The globe’s worst food crisis in a generation emerged as a blip on the big boards and computer screens of America’s great grain exchanges. As prices rise, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase.

At the same time, food was becoming the new gold. Investors fleeing Wall Street’s mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest.

Foreign buyers, who typically seek to purchase one or two months’ supply of wheat at a time, suddenly began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide.

The food price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world’s poorest nations. It is outpacing even the Soviet grain emergency of 1972-75, when world food prices rose 78%. By comparison, from the beginning of 2005 to early 2008, prices leapt 80%. Much of the increase is being absorbed by middle men — distributors, processors, even governments.

At least 14 countries have been racked by food-related violence.The crisis, it fears, will plunge more than 100 million of the world’s poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.

People worldwide are coping in different ways. Although China has tried to calm its people by announcing reserve grain holdings of 30 to 40% of annual production, a number that had been a state secret, anxiety is still running high. In India, the government recently scrapped all import duties on cooking oils and banned exports of non-basmati rice. Even wealthy nations are being forced to adjust to a new normal. In Japan, a country with a distinct cultural aversion to cheaper, genetically modified grains, manufacturers are risking public backlash by importing them for use in processed foods for the first time.

In the United States, experts say consumers are scaling down on quality and scaling up on quantity if it means a better unit price. In the meat aisles of major grocery stores, steaks are giving way to chopped beef and people used to buying fresh blueberries are moving to frozen. Some are even trying to grow their own vegetables.

A big reason for higher wheat prices, for instance, is the multiyear drought in Australia, something that scientists say may become persistent because of global warming. But wheat prices are also rising because U.S. farmers have been planting less of it, or moving wheat to less fertile ground. That is partly because they are planting more corn to capitalize on the biofuel frenzy. If market forces had played a larger role in food trade, some now argue, the world would have had more time to adjust to more gradually rising prices.

The souring job market and rising costs of the usual teenage indulgences (a slice of pizza, a drive to the mall, the hottest new jeans) are causing teens to do something they rarely do: be thrifty. Jobs for teens have been less plentiful, and parents who supply the allowances are feeling the economic pinch themselves.

Secondhand clothing chains have seen business surge this year as teens and their parents buy popular brands like Gap, Banana Republic and Juicy Couture at a fraction of the regular price.

Teen hiring has slumped by 5% since March 2007, with many mom-and-pop stores, which typically hire younger workers, laying off employees. Hiring in the overall job market fell by just 0.1% during the same period. That’s still not as bad as the 13% drop in teen hiring in the early 1990s. Last month, teen retailers suffered an 8% drop in sales at established stores. The good news is that the under-20 crew is still spending on tech gadgets like iPods, cellphones and headsets.

Job scarcity? There’s plenty of farm jobs and food factory jobs available. Teens are just not willing to work for minimum wage or even higher. Actually illegal immigrants are being hired over teenagers. Teens can’t work past a certain time and can’t work as many hours as an adult, so employers do not want to hire them. Here’s how to survive these new times: swap meet, garage sales, 99 cent store, good will, salvation army and Walmart.

Earners Feel More Secure Due To Their Confidence To Control and Preserve It.

PNC Wealth Management conducted the survey of people with more than $500,000 of investable assets. The Wealth and Values Survey showed that 69% of “wealthy” Americans accumulated most of their money through work, business ownership or investments; 6% percent received money through inheritance; and 25% gained wealth through a combination of inheritance and earnings.

A couple of things separate the earners from the inheritors: First, earners were in control of making their money, and therefore feel more confident about preserving it or making even more. Second, earners likely took large risks to achieve wealth. As we all know, as risk increases, so does return. Accordingly, earners are likely more comfortable with the concept of risk.

Driving the point of risk tolerance home, the report says earners also have a higher risk tolerance than heirs: 39% of earners rate themselves as moderate to risky investors compared with 21% of heirs. Those who inherited their wealth often view themselves as stewards for future generations. As a result, they tend to be more conservative in their approach to investing.

Other Intersting Finds:

•  Heirs are more than twice as likely to say “Having a lot of money brings about more problems than it solves.”

• More people who have earned their wealth (37%) agree with the statement: “The money I have made so far has come from being in the right place at the right time.“

• Far more of earners agree with the statement: “Every generation should be responsible for creating its own wealth” along with “It is more important for children to learn the value of money through hard work.”

Not a bad idea, adults!

If there’s really a huge excess of supply, it would restrain demand

The Federal Reserve is considering contingency plans to bolster its lending power, in case measures it has taken to rescue the troubled credit markets fail. One option being considered is to have the Treasury borrow more money than it needs to fund the government and keep the proceeds on deposit at the Federal Reserve.

Other options include issuing debt under the Federal Reserve’s name instead of the Treasury’s, and asking Congress for immediate authority for the Fed to pay interest on commercial bank reserves rather than waiting until a law enacted earlier allows it to in 2011.

If the Fed were to issue debt, it would be following the Bank of England and this could involve issuing short-dated paper in the two-to-five-year Treasuries area. Secondly, the market would not like the Fed to issue long paper which would hang for many years. Should the Treasury decide with Congressional approval to issue more bonds to fund the Fed, there should be good demand for extra paper due to the backdrop of weakening global economic growth, although this would depend on the ultimate size of the issuance.

The New Economics of Outsourcing

Companies that traditionally rely on India for offshore IT services have been looking for that something beyond India for years, citing such reasons as high employee turnover and unreliable communications. But the search has taken on added urgency recently, especially for U.S. companies, as a weakening dollar has boosted the cost of IT services priced in India’s rupee. Over the past five years the dollar has declined about 16% against the rupee. High real estate costs and expectations for tax increases also have diminished India’s allure.

As outsourcing to India becomes more expensive, North American companies are more inclined to “nearsource,” keeping work in the Western Hemisphere, where they can operate in a closer time zone. In years past a company could save 40% to 50% by hiring Indian firms to handle IT and other services. Should the U.S. dollar continue its descent, that differential would shrink to 10% to 20%.

How much longer the world’s companies will have financial incentive to outsource to India is a matter of lively debate. India’s “advantage as an offshore location is fast eroding—its attractiveness takes a hit with each passing day,” analysts at Forrester Research wrote in a January, 2008, report. Forrester catalogued some of the well-known challenges, such as increasing staffing costs, turnover and strained infrastructure.

The benefit of doing business, from a labor-cost point of view, in such locales as Bangalore, India, will disappear for some companies in three to four years. Indeed, while costs are increasing in India, the country is generally less expensive than Latin America and most other locations, especially for companies that don’t require high-end software developers. The average annual salary for an IT worker in the U.S. is about $75,000. In India it’s about $7,779 and in Argentina, it’s slightly higher at $9,478. In Brazil, the annual wage jumps to $13,163, and in Mexico it climbs to $17,899.

Increasingly, companies want a provider that can nimbly shift tasks and labor among its own global network of work centers. The dollar’s decline aside, even Brazilian firms are benefiting as companies spread their outsourcing around. The real question, if you’re going to sign onto somebody for five to seven years, is do they have a vision for how they’re going to move work around the network.

 The Labor Department on Friday said nonfarm employment fell by 80,000 jobs in March, more than expected and the biggest drop in five years. Financial markets saw this as reinforcing the need for further Federal Reserve interest rate cuts.

Adding to the bleak picture, the Labor Department said a total of 152,000 jobs were lost in January and February, sharply above the prior estimate of 85,000, and the jobless rate jumped to 5.1% from 4.8%, the highest since September 2005. Construction employment fell 51,000, the ninth consecutive month of job losses.

Factory employment fell by 48,000, the biggest decline since July 2003, exacerbated by a 24,000 fall in auto manufacturing jobs that the department said likely reflected the impact of a strike at an auto parts maker. Most economists, having seen a third monthly decline, were now convinced that the economy is in recession.

The numbers drew calls from Democratic presidential hopefuls Hillary Clinton and Barack Obama for aid to families facing foreclosure on their homes, while Republican candidate Senator John McCain said tax cuts and streamlining burdensome regulations were needed to foster growth.

A New York Times/CBS News poll released on Friday showed the economy’s deepening woes were weighing heavily on the minds of Americans. Of those polled, 81% said they believed things were “pretty seriously” on the wrong track, up from 69% a year ago and 35% in early 2002.

Criminals Have It Too Good In America

Lawmakers from California to Kentucky are trying to save money with a drastic and potentially dangerous budget-cutting proposal: releasing tens of thousands of convicts from prison, including drug addicts, thieves and even violent criminals. Officials acknowledge that the idea carries risks, but they say they have no choice because of huge budget gaps brought on by the slumping economy.

At least eight states are considering freeing inmates or sending some convicts to rehabilitation programs instead of prison.   If adopted, the early release programs could save an estimated $450 million in California and Kentucky alone. A Rhode Island proposal would allow inmates to deduct up to 12 days from their sentence for every month they follow rules and work in prison. Even some violent offenders would be eligible but not those serving life sentences.

In California, where lawmakers have taken steps to cut a $16 billion budget deficit in half by summer, Gov. Arnold Schwarzenegger proposed saving $400 million by releasing more than 22,000 inmates who had less than 20 months remaining on their sentences. Violent and sex offenders would not be eligible.

So where exactly are the savings extracted from? Laying off prison guards and making it more difficult to send parole violators back to state prison would account for part of the savings. To curb spending, lawmakers have offered a bill to make about 7,000 drug offenders in prison eligible for parole. A second proposal would allow the parole board to release inmates convicted of selling marijuana and prescription drugs after serving just a quarter of their sentences. Currently, they must serve 85% of their terms before release.

Law enforcement officials and Republican lawmakers immediately criticized Schwarzenegger’s proposal, which would apply to car thieves, forgers, drunken drivers and some drug dealers. Some would never serve prison time because the standard sentence for those crimes is 20 months or less.

Gov. Steve Beshear has said Kentucky must review its policies after the state’s inmate population jumped 12% last year — the largest increase in the nation. Kentucky spends more than $18,600 to house one inmate for a year, or roughly $51 a day. In California, each inmate costs an average of $46,104 to incarcerate. I now favor death sentence for the extreme crimes. These are cheaper.

The Pressure Is On For Rice Farmers

Asian governments have long focused on developing high-growth sectors, such as manufacturing, and meeting the infrastructure requirements of increasingly urban populations. But that has been coupled with a neglect for farming that is now hurting as a larger and more affluent population demands more food, thereby also contributing to surging world prices for staples such as rice and soyabeans. Such neglect is particularly worrying because nearly two-thirds, or 641m, of the world’s poor live in the Asia-Pacific region, with rural poor accounting for some 70% of those.

Asian governments have shown chronic complacency towards agriculture since reaping the benefits of the green revolution three decades ago. Then, US research led by Norman Borlaug allowed India and other Asian nations to switch to higher-yielding farming techniques and rapidly gain self-sufficiency in crops such as wheat. A clear example is the demise of extension services in many Asian countries. While officials from agricultural ministries used to visit rural areas to train farmers and introduce new technologies, “this provision of public service has now almost collapsed”.

Thailand is ahead of Asian peers on productivity. But it is not immune to the distribution problems and even criminal activities undermining the region’s farming. A surge in crop prices is believed to have been accompanied by increasing theft. According to local reports, some Thai farmers have been waking up to find outsiders have harvested their entire crop overnight.

China and India, meanwhile, have both made substantial pledges to farmers in their latest budgets, with India waiving some $15bn in loans to small farmers. The challenge for China, where a wealthier population has more than doubled its meat consumption over two decades, is the limited availability of arable land rather than poor production. China is a leader in the use of fertilisers, at levels about three times the world average per hectare, and most of the easy productivity gains have already been achieved.  Hail to rice farmers!

Rice climbed to a record and corn traded near its highest ever on speculation a 3% annual increase in global demand for cereals will outstrip supply as governments curb exports to prevent protests. Rice, the staple food for about 3 billion people, rose 2.4% in Chicago trading today after doubling in the past year. Soybeans advanced for the third day and wheat gained as investors bought agricultural commodities on concern dry weather in the Great Plains and heavy rain in the eastern Midwest may curtail U.S. production and push down global inventories.

The World Bank estimates “that 33 countries around the world face potential social unrest because of the acute hike in food and energy prices,” Robert Zoellick, the bank’s president, said on the organization’s Web site. For these countries “there is no margin for survival,” he said.