What?  It wasn't carelessness?...

What really caused the fall of the Roman Empire?  Answer: Lack of heavily-subsidized crop insurance.

The decline of the Roman and Byzantine Empires in the Eastern Mediterranean more than 1,400 years ago may have been driven by unfavorable climate changes.
Based on chemical signatures in a piece of calcite from a cave near Jerusalem, a team of American and Israeli geologists pieced together a detailed record of the area's climate from roughly 200 B.C. to 1100 A.D. Their analysis, to be reported in an upcoming issue of the journal Quaternary Research, reveals increasingly dry weather from 100 A.D. to 700 A.D. that coincided with the fall of both Roman and Byzantine rule in the region.
The researchers, led by University of Wisconsin-Madison geology graduate student Ian Orland and professor John Valley, reconstructed the high-resolution climate record based on geochemical analysis of a stalagmite from Soreq Cave, located in the Stalactite Cave Nature Reserve near Jerusalem.
"It looks sort of like tree rings in cross-section. You have many concentric rings and you can analyze across these rings, but instead of looking at the ring widths, we're looking at the geochemical composition of each ring," says Orland.
Using oxygen isotope signatures and impurities — such as organic matter flushed into the cave by surface rain — trapped in the layered mineral deposits, Orland determined annual rainfall levels for the years the stalagmite was growing, from approximately 200 B.C. to 1100 A.D.
While cave formations have previously been used as climate indicators, past analyses have relied on relatively crude sampling tools, typically small dental drills, which required averaging across 10 or even 100 years at a time. The current analysis used an advanced ion microprobe in the Wisconsin Secondary-Ion Mass-Spectrometer (Wisc-SIMS) laboratory to sample spots just one-hundredth of a millimeter across. That represents about 100 times sharper detail than previous methods. With such fine resolution, the scientists were able to discriminate weather patterns from individual years and seasons.

Their detailed climate record shows that the Eastern Mediterranean became drier between 100 A.D. and 700 A.D., a time when Roman and Byzantine power in the region waned, including steep drops in precipitation around 100 A.D. and 400 A.D. "Whether this is what weakened the Byzantines or not isn't known, but it is an interesting correlation," Valley says. "These things were certainly going on at the time that those historic changes occurred." [More]

Another perfectly good smart-alec riposte ruined by science.

Xmas Gift Hint #2008-5...

Promise not to tell Chip.

Antler Outlet Covers

Behold the Socket Deer! No longer will you need to rest your cellphone or Nintendo DS on the floor while it charges. Now you can cradle it comfortably in these faux antlers sprouting from your electrical socket!

Or, more practically, you now have a place to hang your wallwarts when not charging your portable electronics. (You do unplug your wallwarts when they’re not charging your devices, right?) [More]

You're almost desperate enough now to consider it, aren't you?

Apocalypse-o-rama #3...

I think we may be jumping the shark, end-of-the-world-wise, ya know.

Definitely wait for the paperback.

[Too much more]

Enter the young*...

Dollars, that is.  Newly created, ready for consumption, the much talked about but scarcely seen trillions of greenbacks may finally be about to enter the world of commerce.

One sign is the indication the dollar has seen it's best level for some time.

To be sure, it still seems to be the haven of security for people who are too scared to contemplate any risk, and hence will accept zero or even negative interest.  But the difference is we can issue more debt that the Fraidy-Cat sector can absorb.

U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows that the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows. [More]

More importantly, ideas are surfacing to get the fledgling greenbacks into spender's hands, rather than investors or bankers.

Bloomberg News last week reported that the chairman- designate of the National Economic Council, Lawrence Summers, had been conferring with conservative icon and Columbia Business School Dean Glenn Hubbard about a housing plan Hubbard designed with Columbia colleague Christopher Mayer. Obama’s economic advisers appear to have embraced the proposal, which is already “on a fast track at the Treasury,” according to the story.

The Hubbard-Mayer plan calls for the government to revive the moribund housing market by providing just about everybody with access to a 30-year fixed-rate mortgage with a 4.5 percent interest rate. That’s almost a full percentage point lower than the average national rate of 5.47 percent currently.

Buyers could borrow as much as 95 percent of the value of the home they purchase. The plan might extend to those with existing mortgages, allowing them to refinance and get the same terms. When either type of deal is complete, the lender will place the loan with Fannie Mae or Freddie Mac.

...

The bottom line: if you have a mortgage, this plan would put extra money in your pocket.

Imagine, for example, that you have a $500,000 mortgage with a 30-year fixed-rate loan carrying an interest rate of 6.1 percent, the average rate for a fixed 30-year mortgage issued this year. Lowering the interest rate to 4.5 percent would reduce monthly payments by about $500 monthly. Someone with a mortgage of $150,000 would save about $150 a month.

These monthly payments changes are different from tax rebates because they would last for many years. For that reason, consumers would be fairly likely to increase their spending. After all, if your monthly housing expenses just dropped by $400, then adding a new car payment of $300 a month might seem a lot less frightening, even in these difficult times.

These subsidized mortgages should increase the number of home buyers and help push property values back up. There are a lot of problems in the economy, but they all began in the housing sector and it seems likely that staunching the bleeding there is a prerequisite for achieving financial stability.[More]

Just a guess, but a move like this seems like it could  be executed very rapidly, and inject a truly phenomenal amount of money into consumer hands - about $3.5 trillion.

That won't make the dollar rise, I'm sure. So if we see this kind of stimulus - heck, it may be better described as economic electroshock therapy - the pieces will be in place for significant inflation.  Initially this will be good for the farm sector, and it could even occur fast enough to help me compensate for overly optimistic cash rent bids made earlier this year.

But we should keep in mind the aftermath of inflation, and the preparation for it needs to start now.


* The Association, the soundtrack of my college years.

The turbines are the easy part...

More states and investors are seeing huge potential in wind farms as both an energy answer and an income opportunity.  Once again, a solution that has great visual appeal is mostly a mirage due to the two big factors.

First, our electric grid sucks.  No kidding. Even if we could generate power for pennies, we would not be able to efficiently get it where it is needed.  One reason is organizations you've probably never heard of, like MISO.

The Midwest Independent Transmission System (MISO), the organization in charge of the power lines, has to approve every new project that will connect to existing power lines. And MISO is only used to dealing with coal-plant-sized projects. Thus, the current regulations say that they must dedicate 2 years of their time to every project that will connect to the grid.
Not only that, but they're only allowed to process one application at a time.
This worked fine back when they were approving coal plants. Two years was plenty of time, and there weren't enough giant fossil fuel plants to fill their docket.

But a system that worked fine for fossil fuel has completely broken down in the face of distributed wind energy. People filing an application with MISO to build a medium- to large-scale wind project (of which there are currently over three hundred) have a heck of a wait in front of them. [More]

But it gets even better.  Because of the enormous queue and the rising value of MISO approval, many of the places in the approval line are actually occupied by speculators who intend to sell their spot, not build an actual power plant.  Add a few more dollars to the cost of "free energy".

Interestingly, another energy darling of the moment  - methane digesters - run into similar grid problems.

Second, wind is a flaky power source. Absent a smarter grid, the erratic power availability of wind turbines creates more of a problem for grid operators that an opportunity. As more wind farms are added, this unpredictability goes up, unlike steady-state, boringly predictable coal plants.  Guess which grid operators prefer to deal with?

Not only do turbines generate only when the wind blows, but their touchy electronic controls cause them to trip off-line at the drop of a hat. Consequently the nominal 40% of nameplate rating is more like 30% because of operational flightiness.

Now consider the standard for reliability for the grid is 99.5%.  Wind farms can't come close to that unless some storage (batteries, compressed air, etc.) capacity is included. 

So what happens when an erratic power generator is located too far from a large load to balance its fluxuations?  Strange energy economics.

A power producer typically gets paid for the power it generates. In Texas, some wind energy generators are paying to have someone take power off their hands.

Because of intense competition, the way wind tax credits work, the location of the wind farms and the fact that the wind often blows at night, wind farms in Texas are generating power they can't sell. To get rid of it, they are paying the state's main grid operator to accept it. $40 a megawatt hour is roughly the going rate.

For the first half of this year, power producers, mostly wind farms, paid the grid operator to take electricity for nearly 20 percent of the time. It happened 33 percent of the time in March alone and nearly 10 percent in October, said Mike Giberson, an energy business instructor at the Texas Tech University. He recently wrote about this issue in his blog, Knowledge Problem.

The industry parlance for paying someone to take the electricity is "negative pricing." It happens mostly when power producers bid the selling prices in the negative territory because they can afford to pay someone to use the energy.

Why? Wind energy producers get money for generating renewable electricity, but to qualify for these federal tax credits, the generation must be purchased and fed to an electric grid. As long as the money paid to the grid operator to take excess or "unwanted" electricity is less than the federal tax credit, the wind producer can make a profit. [More]

Wind farms need to be crowded around population centers rathet than stuck in the outback of ND, for example, because we can't move power easily.  A patchwork of ossified regulatory bodies like MISO ensures a sluggish response to any effort to reshape our nation's energy policy.

Even more valuable than transportation infrastructure would be greater investment in  electricity infrastructure, a smart grid.  Consider that in 2003 a massive, widespread, power outage threw 50 million people in the Northeastern states and Ontario, Canada out of power - disrupting lives and the economy.  Why did this happen?  Because of a failure to "trim trees" in Eastlake, Ohio - now that's a dumb grid.  And remember that only a few years earlier, the most innovative, high-tech industries in the world were shut down by blackouts caused by our primitive electricity grid.  Overall, blackouts cost the U.S. on the order of $100 billion a year.
The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers.  Decentralized power, for example, makes it easier to isolate problems, "route" power to different areas, and maintain robustness in the face of falling trees and other problems.  Plug and play architecture means that new technologies such as electric cars can be automatically used as both consumers and producers (via storage) of electricity, as needed, on the fly.  Plug-n-play, the open-source of electricity infrastructure, will also open the field of electricity generation and storage to far greater innovation than is possible now. [More]

What this means is if we are not careful, all the billions of stimulus/energy dollars we're about to pour out could simply create more boondoggles like we see in wind farms and ethanol plants, if we don't address some way to get the energy to users, and clear regulatory arteries to handle new technology flows.

The problem for farmers will be lifting their eyes to a more distant horizon that may not include a monthly turbine/digester check, but rather enrich the whole power infrastructure.  At the same time, when transmission lines or access roads are surveyed, we need to consider our responsibility to generations ahead.

It's a break from accounting...



I dunno, it took my mind off estimating expenses for 2009 for while.

[via 3Q]

Apocalypse-o-rama #2...

Sent in by  a loyal reader:

By 2018, we'll be firmly in the post-industrial stone age. Kunstler's novel, A World Made by Hand, closely matches my outlook (I think we'll approach Kunstler's version of the world about a decade before his book suggests; it's set in ca. 2025). The final third of the book descends into distractingly silly superstition, but otherwise the book offers a plausible portrayal of our post-petroleum future. All activities have become very local, and the world has become very large. Travel is restricted, for all practical purposes, to walking and riding animals. Global climate change has warmed upstate New York, where the characters struggle to capture water, grow food, and maintain civility when civilization has failed. Violence is extremely local, unlike the violence we visit upon other countries, cultures, and species on an unrelenting basis.
Unlike the fictional characters in Kunstler's book, I see great hope and great beauty in our own post-carbon world. Despite the presence of a limited from of civilization -- there will still be a few functioning solar panels and windmills in ten years -- we'll be depending on each other and living close to the land that sustains us. Any stored food will be gone, the climate will be completely out of whack with our memory and expectations, but Earth and its native flora and fauna will be making serious comebacks. Most of the marauding hordes will be a distant memory, along with ammunition for the remaining guns, though the problem of evil will continue to appear on a frequent basis. People will continue to seek power, but the world to be conquered will be restricted to a sparely populated few acres.
We'll be thinking more, and differently, and undertaking a lot of manual labor. We'll struggle to feed ourselves, physically and emotionally. If we commit to a different set of arrangements than those to which we've become accustomed, the bounty of the natural world will assist with the former. The renewed and renewing beauty of the natural world certainly will help with the latter. [More]

I usually catch sense of wistful anticipation in these Stone-Age prophecies, and I think much of this feeling arises from an alienation to technology and an imperfect grasp of how necessarily crude, unfair, and difficult this simpler life was. 

The other angle I always ponder is the likely futility of beating such a dire outcome.  If you prepared adequately for the end of the world, you would simply become a target for fearful neighbors. Imagine having power when all around you are freezing and hungry in a an ice storm.  You think you wouldn't have visitors?
 
These scary scenarios strike me as jeremiads railing against current (sinful/wasteful) lifestyles and a longing for some crule justice to justify the author's sense of outrage. And right now, people will listen to you.

But the real test of belief is whether you sell out and move to a secret well-stocked cabin in the mountains, or just keep haranguing folks on the Internet.

[Thanks, Dave]

Planning ahead...

Don't let your Christmas results be limited by an undersized delivery system.

Behold, the expanding stocking:

The secret to the Warm, Meaningful, Christmas Experience: meticulous foresight.

Plus, maybe you've asked Santa for a BB gun.

Apocalypse-o-rama I...

Admittedly, things are not good.  But the End-of-the World bandwagon is getting crowded.  I posted some doomsayings earlier.  But in case you're not depressed enough or harbor some sad delusions that the sun will shine again somewhere, I thought I would begin posting the choicest morsels of pessimism to let you realize what wide-eyed optimists you really are.

OK, let's start with a Peak-Oiler. Now remember, oil at $45 was not on peaker radar a scant few weeks ago.  Still they seem to roll with the punches, finding the downside of declining consumption.

I am becoming more and more convinced that the drop in gasoline prices has a huge amount to do with all of our credit problems (which in turn are related to limits on the oil supply). These credit problems are causing more and more defaults on debt and more and more bankruptcies. These defaults and bankruptcies have a double impact on oil prices--partly from reduced demand, and partly from distressed sellers disposing of futures contracts at low prices, because they are easy assets to sell.
We often hear that "soon" oil prices will hit a bottom, and start shooting back up again. I am less and less certain that this will be the case. Instead, I am concerned that we may on a relentless path to a point far below the point where energy companies can expect to have any chance of making money. We may be on a path toward more and more bankruptcies and defaults of all types--energy companies, owners of commercial real estate, homeowners, financial institutions, auto makers, airlines, and many more. If this is the case, there will be a huge strain on governments, and some may find it necessary to default on their debt.

In order to ultimately get past this crisis, it may be necessary for governments to establish new currencies in which debt is severely limited, and at the same time unwind the debt in the existing currency. I expect that a huge amount of derivatives of all types will need to disappear as well, so that financial assets start bearing a close relationship to physical resources. [More]

Hot stuff, huh?  A whole new monetary sytem - hmmmm.  If you read closely, I find many of the more extreme forecasts are preludes to some whopping social/economic/political change long favored by the authors.

In short, this crisis looks like the chance of a lifetime for culture remodelers.

(More as I find 'em - or send in a link to your favorite by e-mail or comment.)

I can do cute...



Just not too much at once.

And it is Christmas time.

There's gotta be a pony in here somewhere...

Just because I have been laughing too much these days, I read Fortune's "Eight really, really scary predictions" and found this little jewel:

Virtually the only asset class I know where the fundamentals are not impaired - in fact, where they are actually improving - is commodities. Farmers cannot get a loan to buy fertilizer right now. Nobody's going to get a loan to open a zinc or a lead mine. Meanwhile, every day the supply of commodities shrinks more and more. Nobody can invest in productive capacity, even if he wants to. You're going to see gigantic shortages developing over the next few years. The inventories of food worldwide are already at the lowest levels they've been in 50 years. This may turn into the Great Depression II. But if and when we come out of this, commodities are going to lead the way, just as they did in the 1970s when everything was a disaster and commodities went through the roof.

What I've been buying recently is agricultural commodities. I've also been buying more Chinese stocks. And I'm buying stocks in Taiwan for the first time in my life. It looks as if there's finally going to be peace in Taiwan after 60 years, and Taiwanese companies are going to benefit from the long-term growth of China.

I have covered most of my short positions in U.S. stocks, and I'm now selling long-term U.S. government bonds short. That's the last bubble I can find in the U.S. I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back. [More]

You know my bias, but very few folks expect the type of disaster for ag that will befall too many others.

I weep for Abe...

It is a sad day for those of us in the Land of Lincoln.  Even though the past decade has lowered our expectations of public officials to ground zero, our Current Future Convict just dug a new basement.

On the issue of the U.S. Senate selection, federal prosecutors alleged Blagojevich sought appointment as Secretary of Health and Human Services in the new Obama administration, or a lucrative job with a union in exchange for appointing a union-preferred candidate.

Blagojevich and Harris conspired to demand the firing of Chicago Tribune editorial board members responsible for editorials critical of Blagojevich in exchange for state help with the sale of Wrigley Field, the Chicago Cubs baseball stadium owned by Tribune Co.

Blagojevich and Harris, along with others, obtained and sought to gain financial benefits for the governor, members of his family and his campaign fund in exchange for appointments to state boards and commissions, state jobs and state contracts.

"The breadth of corruption laid out in these charges is staggering," U.S. Attorney Patrick Fitzgerald said in a statement.
"They allege that Blagojevich put a 'for sale' sign on the naming of a United States senator; involved himself personally in pay-to-play schemes with the urgency of a salesman meeting his annual sales target; and corruptly used his office in an effort to trample editorial voices of criticism." [More]

 The most chilling words in that news release are "Patrick Fitzgerald".  This prosecutor gets his man.  Every time.

Meanwhile, we are hurtling toward public sector bankruptcy thanks to a legislature which matches the character of the executive branch, our flagship newspaper is mortally wounded by thunderingly incompetent dealmaking, and our one-sided political rule is about to be overtaken by its own sheer stupidity.

Here's what really hurts.  Who is the one IL Governor I have had a chance to be pictured with?

The stupid - it burns....

When foods began...

From shellfish to deep-fried Coca-Cola:

The Food Time-Line.

[via Op-Pop]

The birth of a "fact"...

Jeffery Smith at Huff Po may be engaging in the supreme blogging skill - the invention of a fact.  At least, I can't find his substantiation for the following post:

I don't know Barack Obama's position on GMOs. According to a November 23rd Des Moines Register article, "Obama, like Bush, may be Ag biotech ally", there are clues that he has not been able to see past the biotech lobbyist's full court spin.

- His top scientific advisers during the campaign included Sharon Long, a former board member of the biotech giant Monsanto Co., and Harold Varmus, a Nobel laureate who co-chaired a key study of genetically engineered crops by the National Academy of Sciences back in 2000. - [Obama] said biotech crops "have provided enormous benefits" to farmers and expressed confidence "that we can continue to modify plants safely."

On the other hand, Obama may have a sense how pathetic US GMO regulations are, since he indicated that he wants "stringent tests for environmental and health effects" and "stronger regulatory oversight guided by the best available scientific advice."
There is, however, one unambiguous and clear promise that separates Obama from his Bush and Clinton predecessors.

President Obama will require mandatory labeling of GMOs.

Favored by 9 out of 10 Americans, labeling is long overdue and is certainly cause for celebration.
(I am told that now Michael Taylor also favors both mandatory labeling and testing of GMOs. Good going Michael; but your timing is a bit off.) [Link] [My emphasis]

I've been searching for over an hour - my legal limit for fact checking -  and cannot any verification of this promise.  It may be there, but it's not easily found. (Please point me if you can.)

But I suspect this assertion is about to take on a life of its own.

If true, it could have considerable ramifications.  Most of those, I think, would not be what the food movement expects.

Suddenly, small is big...

As the rolling bailout ball gathers momentum, it is hard not to notice one financial segment is doing OK. [And in case you haven't been paying attention, OK is the front of the pack these days.]


Small banks.

You know - those guys who take in deposits and pay interest and then loan it to guys like me who pay a little more interest. Dull, boring banking.  No securitized anything.  No swaps or merger deals. Just green eyeshade banking.

Some people have noticed and the idea of lots of small banks instead of a few big ones is gaining traction.

The concentration of power—political as well as economic—that resided in these few institutions has made it impossible so far for this crisis to be used as an evolutionary step in confronting the true economic issues before us. But imagine if instead of merging more and more banks together, we had broken them apart and forced them to compete in a genuine manner. Or, alternatively, imagine if we had never placed ourselves in a position in which so many institutions were too big to fail. The bailouts might have been unnecessary.

In that case, vast sums now being spent on rescue packages might have been available to increase the intellectual capabilities of the next generation, or to support basic research and development that could give us true competitive advantage, or to restructure our bloated health care sector, or to build the type of physical infrastructure we need to be competitive.

It is time we permitted the market to work: This means true competition with winners and losers; companies that disappear; shareholders and CEOs who can lose as well as win; and government investment in the long-range competitiveness of our nation, not in a failed business model of financial concentration and failed risk management that holds nobody accountable.  [ More - and don't look at the author's name]

Jeez - I told you not to look.

Anyhoo, other voices have come to a similar conclusion.

If we can identify such banks, why not try to make a rule preventing banks from becoming that big? As a tradeoff, banks that rested in the small-enough-to-fail category could be allowed to operate with much, much laxer oversight and regulation since everyone would understand that if they fail they’re going to sink. Presumably, there are some efficiency gains associated with the economies of scale involved in big financial institutions. But there would also be efficiency gains associated with relaxing the regulations on financial institutions. And the only reasonable way to seriously relax those regulations would be to commit to a no-bailouts scenario. But to do that, we need to make sure the banks aren’t too big to fail. So why not focus the regulatory effort on that — on making sure that institutions don’t get so big that they need bailing out? [More]

This gets even more interesting. At this point, I need to make my own prejudices clear: I favor small banks, for several reasons.

• They are 5 minutes away, and a force for good in my community.
  
• They've been berra, berra good to me. At least, my bank has. 
• I can deal with lifelong friends.
• They protect my identity.  The woman who processes checks, along with eveyone else in the bank, knows I don't (or shouldn't) write checks for cash in Las Vegas or Singapore.  I'll trade a little financial privacy for help protecting my small pile of money any day.
• I like knowing my loan interest gets paid back out to senior citizens I know who deposit their SS checks and need the income.  My farm supports more than our two local families, in a sense.

 I think agriculture is in for some collateral damage (pun intended) as both large banks and the Farm Credit System struggle with the credit market meltdown.  Don't get me wrong - I think the FCS does a great job, and I also believe they will weather this storm, but their problem right now is while they used to command a premium in the money market for their implied government guarantee, suddenly every other piece of commercial paper has a FULL government guarantee.  And we're only starting.  Their very business model is under duress, regardless of how well they do their job.

Meanwhile small banks are failing, to be sure, and nobody is wailing to Congress for them. Just as battleships are compartmentalized into individual watertight spaces, I think lots more small financial institutions would not decrease our financial efficiency and would go a long way toward increasing our financial system security.

Meanwhile, reports of farmers meeting with their lenders are trickling in, and are not reassuring.

More anon.  But if you have not spoken with your lender about what the right answer is for 2009, do it tomorrow.

Science leaps forward...

Spurred by promises of untold billions to be thrown at energy/economic problems, bright minds are hard at work.



Why didn't I think of it?

[Thanks, b-ball]

Xmas Gift Hint #2008-5...

Not really a gift, but a great way to mess with a loved one while surprising them with a legitimate gift:

Gag Gift Boxes

 

 

[More]  $8 each, all six for $30

We can use all the laughs we can get this Christmas, I think.

[via RGS]

Here we go...

The more asset values spiral down the less onerous inflation looks in retrospect. More than a few farmers smile inwardly when reminiscing about the 70's, for example.  I have been wondering how the massive increase in money supply could NOT spark significant inflation, since even the strongest budget hawk (one of whom will be in position to do so) would be, I think, deeply reluctant to start restraining inflation too early.

Therefore, I am becoming even more convinced the other side of this seemingly bottomless crevasse will be characterized by strong inflation for a few years at least.  I am not alone, as this formerly unthinkable idea gets better looking with each shot of unemployment increases.

It is time for the world's major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today's epic debt morass.
Yes, inflation is an unfair way of effectively writing down all non-indexed debts in the economy. Price inflation forces creditors to accept repayment in debased currency. Yes, in principle, there should be a way to fix the ills of the financial system without resorting to inflation. Unfortunately, the closer one examines the alternatives, including capital injections for banks and direct help for home mortgage holders, the clearer it becomes that inflation would be a help, not a hindrance.
Modern finance has succeeded in creating a default dynamic of such stupefying complexity that it defies standard approaches to debt workouts. Securitisation, structured finance and other innovations have so interwoven the financial system's various players that it is essentially impossible to restructure one financial institution at a time. System-wide solutions are needed.
Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.
True, once the inflation genie is let out of the bottle, it could take several years to put it back in. No one wants to relive the anti-inflation fights of the 1980s and 1990s. But right now, the global economy is teetering on the precipice of disaster. We already have a full-blown global recession. Unless governments get ahead of the problem, we risk a severe worldwide downturn unlike anything we have seen since the 1930s. [More]

 The truly tricky bit from my point of view, is how long it takes to get from here to there, assuming I'm close to right.  My experience leads me to suggest 18-24 months based on personal anecdotes from previous bubbles.  About the time I say, "How much longer can this insanity go on?" that amount of time proves me wrong, and suckers me into surrendering with the admission I don't know squat.  This happened with the tech bubble (I bought a tech fund in March 2000, after finally admitting  dotcoms could go up forever). I had been expecting a selloff then for over 2 years.  Ditto for the housing boom, and derivatives market.

So based on three questionable data points, I think mid-2010 to early 2011 could see the start of brisk general inflation.  And I don't think the time spent with asset values flat (the bottom) will be noticeable.  Once housing prices show an increase, for example, they won't look back.

I reach this conclusion the recovery will be v-shaped simply because we've never lobbed trillions of dollars at a recession like were are doing with this one.  And we have never had the need to devalue public debt more than we will have 2011.

The fact investors and savers are shunning even profitable alternative investments for money is a clear indicator to central banks to continue to print money, and stimulate consumption.  And many think that is exactly what they will do.

The fear of deflation gives governments this freedom because investors and savers want to keep all their money in cash or government- guaranteed bonds. As a result, governments can borrow without limit, secure that they will always find willing buyers for their bonds. Investors will buy these bonds not because they trust governments or approve of their borrowing and spending, but because all other assets - shares, properties or commodities - seem too risky, and their money must go somewhere.
Similarly, governments have little to fear from currency markets. Investors may believe that the British and US governments are profligate in their borrowing and spending, but will sell the pound or dollar only if they can find a government with a better fiscal record - and in a deflationary global environment, none seems to offer a better bet.
And even if investors get nervous about future inflation and reluctant to tie up savings in bonds for ten years, governments can still go on spending and borrowing. All they have to do is instruct central banks to print money. If taken to excess, such resort to the printing press would stoke fears of Zimbabwean- style inflation. But if consumers delay purchases while investors favour paper money over inflation-protected asssets, it implies that, whatever they may say about fearing inflation, their behaviour reveals the opposite concern. If they are not spending or investing in real assets it is probably because they believe that prices will fall. Under these circumstances, central banks can safely print money and are right to do so.
As Sir Samuel Brittan, the doyen of British economic commentators, noted a few weeks ago, in today's deflationary environment Treasury ministers have a simple answer to the perennial question: “Where will the money come from?” The answer, according to Sir Samuel, is simple: “From the Bank of England's printing works in Debden.”

But what happens when savers do regain enough confidence to start investing in real assets? Then the reallocation of capital from “risk-free” paper guaranteed by government to genuinely productive, but risky, economic assets will mean that the dangers of a prolonged depression are on the wane. [More]

Should the central banks take government borrowing rates to zero (as widely expected around the globe) it is a guessing game before investors begin to fear less about preservation of capital and more about income.  Meanwhile, the government doesn't have to pay any deficit-increasing interest - something that had not occurred to me until just now.

Of course, that makes another reason inflation could get a big head start.  Until tax revenues edge up from increased activity, raising interest rates - which also raises the rate the governments pays - would compound already huge fiscal deficits.  I think we'll find ways to accommodate a brief, but torrid affair with inflation.

Why it's not about how hard we work...

Farmers are still stuck for the most part on equating hard physical labor with the path to success and virtue.  We don't know Jack about hard labor.



We have many values to deliver to our customers, but thinking competing on the basis of a few weeks of 14-hour days won't fly in a global market.  Our game is to deploy technology and management, and exploit our infrastructure.

Speaking of which, are farm groups generating competitive ideas for the infrastructure-stimulus plan being contemplated by the new administration?  Or will we be fussing with loan rates and insurance payments while the billions are being handed out?

It's a new world for fertilizer, too...

Despite strong skepticism by fertilizer execs, farmers aren't buying their arrogant pricing or their products either.  Taking ammonia for one example: [from The Market - an excellent source for fertilizer information.] 

Storage tanks at Tampa are brimming and ships have nowhere to unload, while the pipeline
to the midwest has not be drawn down. The Mississippi river barge market is at a complete
standstill.

The weakness in demand has forced the shutdown of two plants operated by Agrium and
Mosaic, but a third plant operated by Terra Industries in Donaldsonville is defying market
predictions by staying open.

Agrium's 280,000 tonne/year Redwater 1 unit in Canada's Alberta province is considered a
swing plant. Agrium will not bring the plant back up until there is a market rebound. A
second Agrium unit at Redwater has a capacity of 680,000 tonnes/year and is still in
operation.

Mosaic's Faustina plant in Louisiana has been down for two weeks. The plant has a capacity
of 510,000 tonnes/year of ammonia. 

A steep fall in industrial demand for ammonia is contributing to negative sentiment.
Ammonia is used as an intermediate in the production of nylons, acrylonitrile for fibres and
plastics, isocyanates for polyurethanes, hydrazine and explosives. This means ammonia is
partly exposed to the steep decline in the US housing and construction, automobile, pulp
and paper industries, via a range of chemicals including caprolactam, nylon, melamine, and
acrylonitrile-butadiene-styrene. One bright spot is the mining sector demand for explosives,
which is said to be holding up reasonably well among coal producers in particular, as a peak
production season begins.
 Even more stunning is the outlook for phosphate products.

The phosphates market remains in search of a price floor. All major exporters have
significantly curtailed production in the face of virtually non-existent demand globally. 

These comments tie to a website for the fertilizer retailing industry, and it appears all is not well among the ranks.  Here's one dealer comment:

Q: “…what is the mood of the Ag-retailer going into deeper and perhaps uncharted water?”

A: “As for the mood of the Ag retailer…it is degrading as we get keel-hauled by our customers for cost increases promulgated by our suppliers who are clearly capitalizing on the situation. We all hear about how the global market situation is entirely responsible for this, much as we hear how the global situation is responsible for the price of gasoline and diesel. Our suppliers apparently think we are too naive to look at their quarterly earnings reports. Yes, we realize we are in a global market situation and yes, we realize that our suppliers are capitalizing on the situation while we are getting our butts chewed off by the people who have to actually pay for this stuff. As I told one supplier the other day…it is my fervent hope that the folks managing their company are still in place when the seeds they are now sowing have ripened for harvest. They are systematically destroying demand that has taken years to build all in the name of short term gain. I have never seen such unbridled gluttony (and ignorance) in XX years.” [More]

Does the seed industry honestly think they can shrug off deflationary pressures in their corner of ag? Probably, given the fanatical mindset of absolute certainty in their business plans, but color me doubtful.  Seed price too will come under even more intense pressure, and just as I'm trying to figure out how to grow corn for $3, they will be struggling to learn to sell seed for $150.  That's my guess.

Watching soy prices fade rapidly, one has to wonder if the repeatedly-forecast "bidding for acres" has become a Dutch auction.