First let's take a closer look here:
I don't know exactly how your situation compares to ours, but I would guess it is comparable, otherwise someone would be making profits on arbitrage situations.
The situation is complicated to explain. The short version is that our central bank has loaned $Trillions to big banks, which the banks hand right back to the central bank as "excess reserves" that "earn interest", or they buy Treasuries.
The key part is that the banks have no incentive to loan it out. They get free money risk-free by NOT lending it out. Some of the details are described here:
articles.businessinsider.com/2012-02-09/wall_street/31040431_1_interest-rates-big-banks-member-banks/3Either way, the money is not flowing into the real economy; even though credit creation is essentially exploding with the so-called "quantitative easing" and bailout programs, the new money is not flowing into the real economy.
Which is therefor shrinking. Here's why:
All money that exists in the modern system comes into existence when a loan is made (through the "miracle" of fractional reserve banking). Let's say that there are "X" dollars in the system. That means that there is at least "X" amount of debt in the system.
Most of which has interest due on it. If "X" is the principle of the loan, and that's all the money in the system, then where do you get the money to pay off the interest? There's never "enough"!
Somewhat by design, the problem being that when for whatever reason it becomes impossible to expand the economy, a great deal of debt can no longer be rolled over without either expanding the money supply (thereby causing debt to expand exponentially), or defaulting on some of the debt.
In practice, during recessions both occur: some debt is defaulted on, and some is "monetized", causing inflation. Which outcome depends on to whom the debt is owed! That's a story in itself.
They don't net out, even if the money supply remains relatively stable (which becomes increasingly difficult to do anyway). Instead, you find a net transfer of wealth. Generally speaking, it's from the private economy to government spending and/or private parties that are politically-connected and get bailed out.
The net result is slow starvation of the real economy for capital. That includes agricultural production. It's hard to see in the stats because the department of labor intentionally under-reports inflation, in order to get inflation to show up instead as economic growth.
BTW, when lending begins again in earnest, then we have a new problem: severe inflation, due to the "money multiplier effect" of "fractional reserve banking".
Some economic models do not consider economic growth to be demand-driven. (wink) Capital investment, ie the accumulation over time of productive tools to accomplish ever more work, is more important.
If that is true of unemployment we should all move up to Canada. It might be partially true; I know your unemployment rate is lower than ours, to the point that apparently you have active hiring in certain oil-related industries. But our real rate is VERY high. It's hidden under some fraudulent practices, such as "imputed hiring". They claim that it is impossible for them to measure all the new jobs, so they "estimate" some new jobs into existence. However, that claim is not true: they can tell exactly how many new jobs because we all have to fill out W-4s, and eventually W-2s get reported to the government. Self-employed people send quarterly returns. So they can count virtually ALL of us except for black market labor.
Another trick they do is they stop counting people who have been unemployed too long; those fall off the reports as "discouraged"/"not looking".
It's more instructive to look at our labor participation rate, the inverse of unemployment. How many of us of working age are still working, then subtract that off from the able-bodied working-age population. You get somewhere around 20%, It's actually been creeping up for quite a while now, and is still climbing. John Williams at Shadowstats.com has relatively exact figures if you're interested and willing to pay for the data. He mentions the issue from time to time in his numerous interviews.
Which means either we've discovered a new miracle in per-capita productivity, or our economy is in fact shrinking. We think the later is rather more likely.
Agricultural production does not have enough clout to be spared the capital depletion. That's one reason that wheat prices were rising significantly even before weather-related problems started showing up.
A trend continues until it stops. Until something happens to reverse the process, I remain extremely bullish on food prices especially at the retail end where the USDA's optimistic appraisals of bumper crops have no manipulative effect.
One thing one of my recently acquired books claims will happen is that food production will ramp up again when the $US plunges. Foreign countries will buy food from the USA when the dollar falling makes US products affordable again.
I'm not sure I buy the argument. The same argument was made in the 1970s, but instead of the trade deficit closing, it widened and we had "globalization" and "offshoring".
My counterargument is that only purely domestic costs will go down. Imported fertilizer, fuel, and equipment won't go down in price; from the point of view of the American farmer they'll go up! Labor costs will go down, but big ag is not particularly labor-intensive.
Then there is still the problem that American farmers are undercapitalized. Possibly foreign buyers with deep pockets could buy up the farms though. That's already happened to an extent. The Chinese have been speculating in prime Iowa corn and soy farmland. You might be a little better capitalized up there in Canada than we are down here.
My biggest fear is "cascading system failure". When one subsystem fails, it can take down subsystems downstream, some of which feed into feedback loops, eventually resulting in catastrophic system failure. For better or worse, the financial system determines how resources are allocated. Right now, it is effectively broken. The "seat of the pants" stop-gap measures that keep it alive (and burning up real capital in the process--"zombie banks") are too chaotic to be sustainable.
Food is the most critical resource we've discussed. If you can eat, you can probably survive to worry about other problems. Therefor, it's the "weak link" in the system that I'm paying the most attention to.
I suggest that we draft Canada Mike and Darwinslair into this conversation. There's one other person who has voiced opinions privately, but I don't know if he feels comfortable doing so publicly.
Thank you! Likewise.
)
