Suppose China decided to _____...  

Fill in the blank. An enormous number of people with a tenuous grasp of macroeconomics and less understanding of foreign policy are lobbing out bizarre scenarios that in truth simply arise from blatant xenophobic "Yellow Peril" panic.

One of my favorites is: CHINA"S GOING TO CALL IN OUR LOANS!!! (I use all caps because that seems to be the standard format).

And, um, how would they do that, zactly? Let's check in with someone who actually studies these things.

No.  No, no, no, no, no, and no. 

To elaborate a bit further:  

First, it wouldn't be enough for China to stop buying Treasuries -- as Joe Weisenthal showed with some fun charts a few weeks ago, China has pared back its Treasury purchases intermittently over the past few years -- with zero appreciable effect on U.S. interest rates. (see non-panda-hugger Paul Krugman on this point as well).  No, for China to have the effect that Friedman envisions, they would also have to actively dump most of their holdings of U.S. debt as well.

So what if they do?  Well, second, while Romney's stated China policies border on the destructive, the "labeling" move is bone-headed rather than truly calamitous. China wouldn't dump its debt unless things got really bad between the two countries.  Not even Stephen Roach thinks this would be the initial Chinese response -- and I think Roach is being way too gloomy about Sino-American relations under Romney. 

The reason China won't respond with the nuclear option of dumping all its U.S. debt holdings is that -- to repeat a theme -- this move would hurt China way more than it would hurt the United States.  The far more likely response by China would be to retaliate with trade measures.  This would not be good, as China is now the third largest export market for the United States.  Beijing can hurt a Romney administration by reducing its American imports far more adroitly than trying to trigger another financial crisis. 

Now, for the record, I don't think Romney should label China as a currency manipulator on day one, and I think Friedman makes some trenchant observations on Romney's consequences-free foreign policy statements later in his column.  But this Niall Ferguson-lite version of Sino-American relations is bad international relations theory and really bad economics -- and yet Very Serious People keep trotting it out.  

I really, really wish this would disappear from public discourse.  But it won't.  So, most likely, my desk is gonna get dented a few more times before Election Day. [More]

Thinking about it, this is very similar to the worry that Arabs were buying up all the good property in the US back during the 80's (?) or some such time. I never could figure out why that was a big deal. It's not like they could take a skyscraper back home. 

What I keep coming back to how hard it is to comprehend the glut of wealth in the world. It has to be somewhere, and if not in relatively high-quality sovereign debt it would be "bubblizing" other assets even more than currently is the case.

While I agree we need to address our fiscal policy and move toward a sustainable debt level, the current simplistic view of debt as anathema or a weakness to be exploited by China is unhelpful and inaccurate. We need to fear the effects of enormous and concentrated wealth more.

The S-word...

A few months ago, I spoke on USFR about income and wealth inequality.  I have been writing about it for a couple of years here, and researching the data on what lumped distribution may mean for our nation's future economy and society.

 [More]

My main point was while most of us don't think income redistribution via progressive taxes is a cure-all, allowing income and wealth to pile up in a few hands seems historically to have really bad consequences. (Interestingly, one outcome that never seemed to come up was the wealthy would mishandle it badly - as looks like the case today.)

Inevitably, in such conversations name-calling can break out, and the epithet of the moment seems to be "socialist". One of my heroes had pertinent words on this topic and he is admired by a man who decries any hint of socialism.  

Imagine that instead of telling Joe "the Plumber" Wurzelbacher that "when you spread the wealth around it's good for everybody," Barack Obama had said the following:

    We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community. … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.

The New York Post's Page One would blare: "OBAMA: I'LL SEIZE 'SWOLLEN FORTUNES'!" Bill Kristol would demand to know, in his New York Times column, what godly powers enabled Obama to discern precisely whose wealth—David Geffen's? George Soros'?—would "benefit the community." On Fox News, Bill O'Reilly would start to say something, then sputter, turn purple, and keel over backward in a grand mal seizure.

John McCain, meanwhile, would have to stop saying that Teddy Roosevelt is his hero, because the passage quoted above is from T.R.'s "New Nationalism" speech of 1910. Either that, or McCain would have to quit calling Barack Obama a socialist. [More]

Further, since we all know how rich the rich are these days, the brain chemistry known as reference anxiety triggers widespread dissatisfaction despite increasing well-being all up and down the spectrum. For a nation which interweaves the ideas of individual equality throughout our political values system, the apparent dichotomy becomes a real bone of contention.

During my commentary I pointed out we are already engaged in various forms of wealth redistribution: progressive income taxes, Medicaid, food stamps, farm program, etc.  In fact, all modern democracies sort themselves along a range between capitalism and socialism according to their cultural preferences.  It is not black and white.

My European friends are much more socialistic and they don't seem miserable.  In fact, the highly socialized economies of Scandinavia consistently report the highest level of happiness.

The reaction from many on the right was sharp.  Several long rants (and I think that is fair characterization) about the heresy of socialism, and the slippery slope to godless communism soon arrived in my inbox. Some even worked in gun control and abortion somehow.

Fair enough.

But none offered any answer for the the bi-polar income distribution and its possible effects.  And amazingly, most despised the bailout plan as helping the rich, whom in the previous sentence they jut stood up for vehemently.

Well, they may want to rethink. The old s-word has popped up again and it was initiated not by liberal loonies, but by rock-solid Republicans on Wall Street.  In a matter of a few weeks, the most right-wing administration in recent history has nationalized banks, insurance companies, money market funds, and who knows what's next.

One possible conclusion that is dawning on many Americans is socialism is all right for capitalists who screw up, but heresy for autoworkers who lost their jobs. The idea of taking my hard earned wealth and giving it to slackers is anathema.  The hard right only supports giving it to bumbling members of their own upper caste.

Regardless of the beneficiaries, we are all going to lose significant wealth - or at least have a harder time accumulating it. This will occur whether by outright redistribution mechanisms or unavoidable inflation.  Besides, if all the wealth is held by a few, who ya gonna rob?

You can call it what you want, but the sooner we can actually say the word socialism without spitting in contempt, the sooner we can begin to find ways out of this mess. 

It's going to be tough...

To remold Americans into savers after this round of economic moves.

Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to Bankrate.com (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."

Sure you are. Wholesale inflation has soared 9.8% in the past 12 months, the highest clip since 1981. The more widely cited consumer price index jumped to 5.6%. In other words, while your saved buck was adding 2 cents or so on one end (and even less after taxes), three times as much was getting singed off the other end of that dollar bill. "Inflation is just deadly to savings," says David Gitlitz, chief economist at TrendMacrolytics, an investment adviser. Gitlitz observes that, taking into account the hit from inflation, rates haven't been this negative since the dreary 1970s. (That, in turn, gave way to an early '80s that saw the worst inflation in U.S. history since the Civil War.) "It steals your purchasing power and sets less and less of an incentive to keep money in the bank." [More]

Despite the pounding savers have been taking it is being erroneously translated, I believe, into a moral tale  centered on the virtue of money as the ultimate asset.  Money, especially fiat money such as ours, is an odd choice for such adoration.  It's primary quality is liquidity, the ability to turn it into assets that actually are something well, real.  It is also easily evaluated - the appraisal value is right on the bill, of course.

The two characteristics make it the darling choice for wealth in the financial sector.  But those attributes don't mean the world has to share their high opinion.  Money will always possess an allure for those who are nervous about how to store wealth, but this apprehension, which mounts in uncertain times like this, often leads to less than optimal asset allocation.

Once again, for about the fortieth time in my life, the calls are out that cash is king.  Based on the rocky condition of alternative investments, pessimistic economic advisers are standing by the bunker door.  Meanwhile, I see all kinds of reasons why inflation and interest rates are pointing the other way.

My concern is the steps we are taking, and especially the debt we are generating will make cash the last place you want to store wealth.  Perhaps the inflation of the 70's has faded in memory, but the real return to cash is struggling to reach positive ground.

The money pouring into farmland is not a wild guess on the next windfall, but a reasonable choice to protect wealth.  Even if the return slows, as the cost squeeze intensifies for farmers, I don't see investors fleeing simply because other choices will be much worse.

To teach Americans to save would require a reversal of our consumerist training (note the monthly hype over retail sales and the urging to spend your tax rebate).  It will also need a huge benefit such as a sharply curtailed money supply and broad deflation. Again, I don't hear many policy makers mumbling about either.


We all have biases, and certainly mine is emotionally and perhaps irrationally against an essentially artificial form of wealth.  I'll stick with land.

Money is only one asset choice...

I have never been a fan of money as a form of wealth. Much of its allure has been the easy comparability with other's pile of money. It also seemed to "hold value" and was "safe". Maybe it was the inflation of the '70's that formed my instinct, but a preference to other assets over money is paying off big time - and has for several years.

Conversely, carefully considered debt is not to be despised out of hand either.

Max Weber argued convincingly in his famous book The Protestant Ethic and the Spirit of Capitalism that the frugality and industriousness promoted by the early Protestants in opposition to the opulence of the Roman Catholic Church were values conducive to and perhaps critical in the rise of commercial society. Protestants who believed in predestination wanted to show by their modesty, austerity, and avoidance of lavish display that they were predestined for salvation.

But saving plays a less important role in economic progress today than it did in the sixteenth century. Its role in powering economic growth has been taken over, to a large extent, by technology. The great rise in standards of living worldwide is due far more to technological progress than to high rates of savings, that is, to deferring consumption.

At the same time, now that we have efficient debt instruments that in former times did not exist or were extremely costly, the role of personal debt (Brooks does not criticize corporate or government debt) in human welfare is more apparent than it was. Apart from its role in solving short-term liquidity problems resulting from delay in the receipt of income, debt enables consumption to be smoothed over the life cycle. Without debt, a family might have to wait 20 years before it could afford to buy a house. Of course, debt creates risk for both lender and borrower, as the subprime mortgage crisis has dramatically illustrated. But if the risks are understood, it is unclear why the assumption of them should be thought harmful to personal or social welfare. At worst, debt leads to bankruptcy, but bankruptcy is not the end of the world either for the borrower or for the lender. [More]

Holding corn instead of paying off operating loans is a winning strategy and has been for two years. Borrowing to buy a tractor last year means you'll save far more than the cost of the interest. The list of examples goes on.

But financial advisers and economists love the neat countability of money. They worship its liquidity and in some cases only generate revenue when moving money around. Owning land doesn't give them much chance to churn the account when they need income, for example.

Many other assets now approach cash in liquidity, especially for farmers. Have any trouble selling your corn? How about a used combine? Now imagine the rush to your door if you decided to part with an 80.

Even that most loathsome economic vice - borrowing for consumption - is subject to unfair, and often outdated prejudice. Derived largely from the intertwining of finance and morality by smug hypocrites, current economic conditions are proving these near biblical maxims less than logical.

My friends who study humanities are shocked and do not believe me when I, a pension economist, tell them they should not be saving. Prudent advice has become: You should always save some fraction of your income. You should save not only for retirement, but also for adverse income shocks. But, Mr Becker points out, these new lines of credit help workers cope with income shocks.

Young consumers who take on debt are often classified as impulsive and irresponsible. Some deserve that label—for example, people who take on massive amounts of credit card debt to finance the purchase of multiple flat-screen TVs. But saving does not necessarily make sense for everyone at every age. For some, higher rates of debt are appropriate in order to smooth consumption and, ultimately, increase welfare. [More]

So as the pages of farm media are overflowing with advice on what to do with our current windfall profits (oh yeah - they are real), every other sentence is to pay down debt and build cash reserves.

Well, here's an alternative strategy. Reinvest. Buy land close to you, build infrastructure (bins, buildings, tile, etc.). Start two years ago when the same advice filled the pages.

And then consider what form you want your wealth to be in if the looming inflation takes off.

One reason high profits don't seem to be enough...

I had always suspected that improved profit levels for farmers would boost larger operators much more than small, and the emergence of very large operations paying very high rents would seem to indicate there is some validity to that statement. Still as many of us look at current margins, even the most quarrelsome have to admit compared to as recent as 2006, business is pretty good.

[I know, I know - bad times are a-comin'. I'm just saying most of us will be paying a lot of income tax next February.]

But one big reason for the contentment shortage (the euphoria came and went pretty fast, didn't it?) is that relative reward matters more than absolute reward. In other words, we like doing better than competitors more than doing better than we used to.

But overall, the researchers say that envy trumps ambition: the negative impact of relative position outweighed the positive effects of pay incentives.

It's hard to argue, however, that the finding could be applied broadly to more conventional working environments. In the N.B.A., for example, players know how much their teammates make. If you don't know your colleague's salary, you'd be much less likely to change your effort. And the relatively higher wages professional athletes make may give them more of a cushion to slack off. Someone making 5-figures is more likely to be concerned with things like food and shelter than a player making $1 million per year.

Still, in places where an employee's output is more visible and is directly linked to his pay (like sales or asset management), incentive pay arrangements may be causing more harm than employers realize. [More, and read the excellent comments, too]

While this is eroding the high times for farmers in the midst of unprecedented gain, it also has some implications for other occupations. One in particular is performance pay for teachers. As school boards grapple with this concept, one of the most complicating factors is public knowledge of teacher salaries. In order to be successful, some information shielding may become necessary.

This brain bias sheds a whole new light on the ideal of modesty. As private wealth numbers become easier to find and compare, wealth loses its ability to bring much satisfaction.

Don't ask, don't tell could be a motto for more than one situation.

Pick a conclusion - any conclusion...

Consider the following table:


As we argue over inequality, perceptions rule, while facts can be disregarded. Partly I believe this is because we are hard-wired to notice and resent inequality, and lord knows the media sure like to point out what's going on with the rich folk.

But after noticing how the top is slurping up the income and paying the taxes, their grasp on the wealth of this nation is pretty stable.

[More]

Granted, the upper tier owns a lot of America - but it would seem they always have.

But one lesson I draw from this is we don't know how much tax the rich can pay without losing significant wealth share, so why not have a very progressive (soak-the-rich) tax scheme?

The answer may be at some point the creation of wealth stalls as the reward to generate more at the top disappears. Stable shares of a stagnant pile of wealth could be worse than a diminishing share of growing wealth for the 99-per-centers.

None of this is intuitive or particularly clear even after scrutiny, which is why debate rages over economic equality.

One interesting note: without the estate tax, we would not have a way to measure wealth shares, as was done in the above study. Eliminating the "death tax" would be a double bonus for the rich.

Rich enough for you?...

I've been fooling around with my accounting getting caught up (almost up to August!) I have also been mulling forecasts for 2008 and 2009. My proforma projections go out farther, but they tend to the ridiculous, I've found.

So Monday I sold some beans for delivery this year to balance my tax load. To do that I had to estimate my AGI and the number was not too ugly - despite the many poor decisions that characterized 2007.

Then I took that number and compared it with the rest of the world.

[via MeFi]

[Return to AgWeb]

Our double-whammy wealth effect...

An odd thing today - I spoke with my John Deere dealer regarding a deal we had made two weeks ago on a 9570 combine for next year. There is serious doubt whether I can get one.

Really.

Dennis (my dealer) is wondering what his year will be like. The situation may be much the same for 9000 series 4WD tractors. He remembers 1973 and customers putting their names on a list for a new tractor. (I was under the North Atlantic at the time, but my buddies all talk about that year like it was their one date with Miss America)

Wall Street has not missed this happy economic news. Deere stock prices:


I may not get a new $300,000 combine because just like me, a few of you guys have placed some orders too. Personally, I blame the producers in IA who knew they had a huge crop from about June onward. I have made sarcastic references to the sailors being in town, but it turns out economists have a better description of what is igniting farmer spending: the wealth effect.

The effect includes the changes in the amounts and composition of consumer consumption caused by changes in consumer wealth. Economists believe people spend more when one of two things is true: when people actually are richer (by objective measurement, for example, a bonus or a pay raise at work, which would be an income effect), or when people perceive themselves to be "richer" (for example, the assessed value of their home increases, or a stock they own has gone up in price recently). Economists also believe that this situation has macroeconomic implications. A typical response to the wealth effect includes a reduced supply of labor; however, personal income will still be increased. This can be seen by the parallel outward shift in the production function, which is indicative of the wealth effect. The effect's size is governed by a different calculation in either case. [More]

Given this definition we have dual engines for our wealth effect: realized wealth in the form of an extra $20B in net farm income, and perceived wealth as we all revise our capital inventory (land, equipment, etc.) by the current market prices.

Unlike our urban cousins whose home prices soared as their incomes stagnated, we are grumbling about tax problems while land prices skyrocket. This is, in my view, an unprecedented economic tsunami for US agriculture.

At this point, every other farm media article I have read to date launches into a stern Calvinistic sermon about profligacy - all the reasons why the good times can't last and why we don't deserve this windfall are carefully laid out.

My take is different.

Act now. Act boldly. Add market share [acres] (or at least defend what you have).

Tomorrow could be too late. In every bubble (which this well could be) the secret was to bet heavily early, and I think this is still early because we are not sure it's a bubble yet.

The wealth effect is generally lamented by economists and other commentators but that does not seem to make much difference. What is demonstrably true is the downside is much less devastating than we imagine it. Even at the nadir of the farm economy (1987) mortgage defaults were about 7% - or in other words, after the wildest inflationary spiral and harshest monetary response in modern farm history, 93% of borrowers found a way to keep on keepin' on.

Much of this wealth can be realized into cash or other assets right now. I think more than a few marginal operations will take this option, and enjoy the result.

Our wealth effect is real right now. Those who choose to wait and scoff cannot deny this moment.

[Return to Agweb]

The wealth divide...



Extreme visual examples of income disparities. We all thought Google Earth was just an entertaining curiosity, but once again have underestimated the power of new information tools to spark ingenious advancements in understanding.

The growing global income maldistribution is the subject of heated debate. Many economists doubt it really exists. And the range of solutions goes from Utopian to the blatant denial. While it could be this problem is not significantly worse than it has always been, it has never been shown in such powerful light.

And it would seem there is enough wealth now to make any justification for the vast and growing differences less compelling.

[Return to AgWeb]

It's not all ethanol...

Commodities have been in and out of the investment spotlight for the last year. I think they are back in for loose money looking for somewhere to live.

But the broad strength of commodity prices may also reflect the appeal of the sector as an “alternative asset”, along with hedge funds and private equity. Ever since the dotcom bubble burst, investors have been keen to diversify away from their traditional focus on equities and government bonds. That has led to the launch of a whole series of exchange-traded funds based on commodities, which have made the asset class accessible for a much wider range of investors; the latest example, from Barclays Global Investors, is a fund based on timber prices. And Wall Street has been gearing up to meet demand; a survey by Options Group, a recruitment consultant, found that the hiring rate of commodity traders is up 33% on last year.

The recent credit crunch may have given commodities a further lift. Speculative money that had been flowing into high-yield bonds and structured credit is now looking for a new home. Some commodities, particularly gold, are also seen as a hedge against a declining dollar.

Robin Bhar, a metals strategist at UBS, says investors seem to feel they have an each-way bet on commodity prices. Either global economic growth is strong and supply remains tight, or the world slips into stagflation, as it did in the 1970s. In either case, commodities should perform well. [More]

This interest in commodities carries over to farm real estate as well, I think. I have long believed (mostly to justify my own decisions) that land is superior investment. All it takes is a few of the very wealthy to agree with me to support what seem to be astronomical prices for dirt.

What many of us have trouble wrapping our mind around is how much wealth there is in the world, and the very real problem of what to do with it. The real world and real stuff like commodities and land contrast well to the abstract and barely comprehensible investment competition like derivatives or (shudder) CDO's.

Maybe the rich should get all the money...

Boy, they economics of income distribution has hit full crescendo in favor of the wealthy.

Given the top-heaviness of the economy, one could make the case—one could, but I'm not—that the continuing upward redistribution of income is good for the economy and good for all of us. As they earn more, and keep more of their income, the rich and the very rich spend more, thus keeping the growing number of residents of Richistan gainfully employed. The fact that the rich are getting richer is one of the reasons that federal tax revenues—which are much less progressive than they were in 2000 but still somewhat progressive—are growing so smartly, up 7.4 percent year over year. Today, analysts are likely sifting through the jobs report and ratcheting down their forecasts for the Christmas season. It may well turn out to be a glum one for many retailers. But as long as the lights are on in the mansion on the top of the hill, the growing number of stores and businesses that cater to their residents will be busy. [More]

I fall in that despised category. I know, you are not supposed to acknowledge you are "rich", but numbers are numbers. And if a few more farmers would look more closely at their own AGI's we might see a different attitude about what's going "wrong" in agriculture today. Besides, the rich aren't the ones carrying the water to protect our advantages. Amazingly, it's the rank and file of agriculture who stand squarely against estate taxes or payment limits or pretty much anything I think might help level income.

Which leads me to suspect there are more of us in Richistan than even I imagine.

That, and the fact farmers are buying farmland with (gasp!) cash.

[Update: we're not the only ones whose economy seems to depend in the ultra-wealthy]

The stealth wealth...

Our privileged lives help us to overlook the most important source of wealth for our nation: intangible wealth.

The World Bank study defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and nonrenewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most of us think of when we think of capital: machinery, equipment, structures (including infrastructure), and urban land. But that still left a lot of wealth to explain. "As soon as you say the issue is the wealth of nations and how wealth is managed, then you realize that if you were only talking about a portfolio of natural assets, if you were only talking about produced capital and natural assets, you're missing a big chunk of the story," Hamilton explains.

The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population's knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, "natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent."

Social institutions are most crucial. The World Bank has devised a rule of law index that measures the extent to which people have confidence in and abide by the rules of their society. An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth. For example, Switzerland scores 99.5 out of 100 on the rule of law index and the U.S. hits 91.8. By contrast, Nigeria gets a score of just 5.8, while the war-torn Democratic Republic of the Congo obtains a miserable 1 out of 100. The members of the Organisation for Economic Co-operation and Development-30 wealthy developed countries- have an average score of 90, while sub-Saharan Africa's is 28. "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity," the study concludes. According to Hamilton's figures, the rule of law explains 57 percent of countries' intangible capital. Education accounts for 36 percent. [More of a great interview]

[Whole 208-page report here]

This staggering advantage we take for granted becomes most apparent when it is missing. Listen to Americans talk about foreign countries - especially under-developed ones - and the idea of social institutions that don't work hits home first.

As farmers we are very late embracing the idea of wealth that cannot be hauled in a truck. Buy as Hernando de Soto pointed out in "The Mystery of Capital" without the basic ability to prove something is yours, hidden capital sits unused. Such everyday fixtures of order have real value, and the World Bank helps to point out why the US has much to be grateful to our forebears for and much to protect.

You may be in a bubble if...

Signs of the economic times - our first global bubble?

If Hirst designed a vegetable display, it would look like the shop window at the just-opened Whole Foods Market Inc. branch in Kensington, one of London's ritziest shopping areas. Analysts at JPMorgan Chase & Co. calculate that Kensington could contribute as much as 1.8 percent of the food retailer's total sales. Whole Foods said last month that second-quarter revenue was $1.46 billion.

It's a food-porn cathedral dedicated to organic this, natural that and locally produced the other. On a Monday afternoon, the place was packed with gym-buffed yummy mummies driving designer pushchairs and doing battle in the produce- crammed aisles with trolley-dragging wealthy retirees.

The zeitgeist-defining product among the free-range bananas, organic spring water and corn-fed soup is a 60-year-old Vecchia Dispensa balsamic vinegar, costing almost $200 for a triangular 100 milliliter bottle stoppered with red wax seals.

You know there's a bubble when an overgrown U.S. chain store can sell antique vinegar to Britons at 32 times the price of Nicolas Feuillatte champagne. [More - check out how kids are getting to summer camp these days]

Try as I might, I cannot wrap my mind around the staggering wealth growth in the world, and especially our own country. Sometimes anecdotes help to get a perspective, but mostly I think I've dropped out of the mainstream.

Or I'm just clueless.

What enormous wealth means...

Wired magazine has a cute story about a "meteor farmer".

Three days later, Arnold and his partner and investor – an oil and gas attorney from San Antonio named Philip Mani – were attacking the site with a backhoe. After digging down about 5 feet, Arnold scrabbled into the hole with a shovel and started clearing. Finally, the blade clanged against something metallic. The more dirt he moved, the more meteorite he exposed. They lowered the backhoe scoop and strapped the rock to it. Grinding and whining, the machine pulled free the biggest meteorite Arnold had ever seen.

While we could all appreciate his tenacity and ingenuity, the real nugget of this account is how the economics of meteors play out.

METEORITE HUNTING wouldn't be so lucrative if it weren't for a music executive named Darryl Pitt. He collected meteorites for years, buying them at rock-bottom rates when the only other buyers were scientists. But in 1995, sitting on a collection numbering in the hundreds, he guessed that people would pay big money for space flotsam. "I needed a mechanism to elevate the profile of my extraterrestrial friends," Pitt says. But he knew he wouldn't get any traction unless he could make people see his "friends'" inherent beauty. A former professional photographer, Pitt started shooting pictures of each of his rocks, lighting them as if they were magazine cover subjects and writing rapturous descriptions in the vein of wine connoisseurship. Then he put them on the block at Phillips International Auctioneers and Valuers, alongside dinosaur eggs and a 3,749-carat opal. The plan worked; the first auction netted close to $200,000.

Pitt is still at it. His online catalog describes meteorites as "objets d'art" with sensuous, zoomorphic shapes – an expert sales job. "Sleek tabletop specimen … evocative of the sculpture of Barbara Hepworth," goes one entry. "With a bright platinum patina and compelling from all perspectives."

Only in a culture where some have enormous amounts of money with little or no demands on it can essentially worthless objects, or even subjectively valued things such as art, command significant exchange rates.

And what's with the doctored picture? Meteorites don't glow.

[via Neatorama]

Update: How many meteorites hit the Earth every day? About 20-50.

Keep looking up!

Why it's not about us (Reason #28)...

It is important to many farmers that the world revolve around them. It's how we buttress our special status as recipients of government payments. Since a bunch of pesky facts contradict this world view, we choose to not hear them. As a result, most farmers I have talked to have trouble putting our industry in context with the rest of the economy.

One overriding reason is the "food" link. "Without us you'd starve", we point out to anyone who will listen. Probably not. This is the wealthiest nation on earth. We spend very little on actual foodstuffs (significantly more to have it prepared and delivered to us). Without us, someone else would feed our fellow citizens, and if anybody starved it would be the poor of the world, simply because they cannot compete for food with rich people in any shortage.

It is hard for us to get a picture of our actual position in the world because our entire self-image (and the one used to sell us seed, tractors and ideas) is a Ptolemaic cosmology with farmers at the center. There is a genuine fear of discovering otherwise, and becoming no more important than plumbers or accountants or teachers.

The world for the most part humors us. But many see clearly the scope of agriculture and its economic horsepower. One of these people was Leo Melamed, pioneering innovator at the Chicago Mercantile Exchange. Long ago he saw the wealth in agriculture would not match the growth of other sectors.

And then, finally, I came to the thought that Bretton Woods, the fixed-exchange-rate system, was coming apart. And when it finally comes apart, wouldn't there be a need for foreign-exchange futures? Our board thought I was crazy, and very frankly I thought it was a little crazy too, because why hadn't anybody else done this? I went to Milton Friedman, though, and he absolutely embraced the idea.

So the board had to go along with me. And the minute we went to foreign exchange, I said to the membership that if it works in foreign exchange, the sky is the limit! I was like a kid in a candy store, honest to God. Because in agriculture, where could you go with it? But in finance - ah, look at this! I mean, whoa, anything you want! [More of interview]

His foresight is a good clue for producers who are struggling to understand the influence of commodity funds. On USFR this weekend, Greg Hunt, one of our more erudite commentators brought up the startling fact that CalPERS - the giant retirement fund whose whims terrify boardrooms around the world - has decided to get into commodities.

CalPERS plans to decide as early as next summer whether to create a new natural resources/commodities asset class within the pension fund. “Global demand for natural resources and proved systems to extract and deliver them will only increase,” said Valdes. “We will look into commodities future contracts and related investments to naturally complement, diversify and add value to our expanding securities investments in the energy and raw materials sector. [More]

Investors like CalPERS talk money on a scale we can barely imagine. Consequently, market participants of their heft can easily skew trade in directions that will confound fundamentalists who assume supply and demand will override all (true in the LONG run) or those who extrapolate from the past.

But does it hurt anything for farmers to entertain this fantasy of unwarranted importance? I think so. Just as Rick Warren stated in the first line of the first chapter of "A Purpose-Driven Life", getting over yourself is the crucial first step in finding fulfillment and abiding happiness.

Seeing our work in real context is also a great defense to prevent being steamrollered by forces whose size we have not fully come to appreciate.

[See the later rerun post on farmland ETF's]