To my surprise, the tile we've been putting in for a decade seems to work. We got started Friday and have been applying NH3 and working chiseled ground at flank speed. I tried posting from my iPhone, but that was a bumpy failure. I will be tweeting (@jwphipps), so you can follow my assorted thoughts there.
But this one thought that I pondered yesterday: The Great Interest Rate Panic.
Such forecasts of a federal debt disaster depend on an assumption that is rarely mentioned: that interest rates will normalise even though economic growth will not. Combine decades of tepid expansion with traditional real interest rates, and an unsustainable debt burden quickly comes into view. But that combination would represent a dramatic break with history. It goes against everything we know about the mechanisms that determine real interest rates. It is, therefore, a slim reed on which to base a radical departure for economic policy.In its February report the CBO serves up the consensus view in elaborate detail. Deficits swell over the decades ahead and the debt climbs to 100 per cent of gross domestic product. The subsequent discussion centres on how best to rein in these fiscal excesses.This is strange. The fact is that federal deficits have fallen precipitously over the past few years. In 2011 the watchdog projected that government spending (excluding interest payments) would exceed receipts by 7 per cent of GDP in 2038. It now states that this “primary deficit” will instead be 1.6 per cent of GDP, hardly cause for panic.Yet despite this relatively sanguine view of the deficit, the CBO continued to sound the alarm about an incipient US debt crisis. Why? Because it believes that rising interest rates will amplify the debt burden at the same time as a weak economy saps the country of the strength needed to service the growing debt. [More]
I am more persuaded each year, the conditions for high interest rates simply aren't present. There is a surfeit of liquid wealth, a top-heavy demographic in the developed world, and incalculable productivity thanks to technology - all of which lower the demand for capital.
Meanwhile the Farm Credit System is having collective flashbacks to the '80's.
Real farm incomes this past decade never quite broke the all-time highs of 1973 when adjusted for inflation, said Jennifer Ifft, an ERS economist and one of the study's authors. But farm leverage peaked in the middle 1980s and has been on a downward trend ever since: The average full-time farm operator's debt-to-asset ratio hovered near 13% in 1992, but slid to 9% by 2011, the most recent data in USDA's study. That's less than half the 22% rate farmers averaged at the peak of the farm credit crisis in 1985, before years of loan write-offs and debt pay-downs began in earnest.Even the nation's most potentially risky farm borrowers -- those full-time operators with debts 40% or more of their assets -- are shrinking in numbers. In 2011, only 5.3% of farm businesses held that leverage level, down from 9.5% in 1992, said Ifft. What's more, that highly leveraged category accounts for a shrinking share of total farm business debt compared to 20 years ago.At least two potential trouble spots still exist should the farm economy take a prolonged tumble. Ifft worries most about young farmers whose numbers have shrunk drastically over the past two decades: Because they rent the bulk of the operations, young operators didn't benefit as much from the windfalls that accrued to landowners during this era. In fact, leverage levels for full-time farmers under age 35 remain as high today as they were 20 years earlier, about 19%, Ifft said.Another potential concern is large-scale family farms -- defined as those with sales in excess of $1 million. They acquired 70% more debt during this period, the largest gains of any sized operations. While they borrowed an average of $684,400 in 1992, their total debt ballooned to $1.165 million in 2011 inflation-adjusted dollars. Increasing cash rents, land purchases and machinery costs contributed to those debt loads, burdens that may be hard to shed if commodity prices and repayment capacity shrink.READY FOR $3 CORN?Many forecasters predict leaner farm incomes and a return to much higher interest rates in the decade ahead, both of which have implications for land values and borrowers' repayment capacity.Allen Featherstone, a Kansas State University economist, agrees farmers are on excellent footing at the moment, but cautions not to become complacent."We're probably in as good a position as we've been in the last 20 years, but in some respects they were in good shape in 1979, too. Then things changed very quickly," he said. [More]
These oracular warnings, which have become the constant refrain from FCS for several years now, may be aimed at themselves, not farmers. After all it was the FCS that wrote some really poor loans (especially on hog expansion) and needed the bailout in the '80s. This latest warning lloks like an effort to shift their institutional memory from "the bad loans that we made" to "the bad loans farmers took", as if farmers can make lenders hand them money.
You don't get to say "I told you so" if you say it all the time. Enough already. What the FCS might do is get their CEO compensation under control.
I'm wading my way through the book of the year in economics - Thomas Piketty's Capital in the 21st Century. There are several reviews out, the best, albeit longest, IMHO, the Economist. This is one of his premises as well. I hope to add to my own tiresome rebuttal to the warnings of imminent farmland price collapse and the End of Life As We Know It when I'm done.
It's a tough read on chiseled stalks, however.
In the meantime - Happy Easter!