Thursday, October 02, 2008

It May Be a Little Late For This...

It seems that no matter where you turn the only thing you can hear about right now is the financial "crisis" (yeah, I put that in quotes because I just don't do financial "crisis'"). I hear about it on the radio, on TV, through the internet, at church, around town, and just when I thought I had found a safe place I even found Allan Nation writing about it on his blog! But, I suppose it is a pretty big deal even if I haven't been following it too closely so I was interested to hear what Allan Nation had to say on the subject.

Of course you can read about it by checking out the blog for yourself, but I'll give you the basics right here... There is some bad stuff going on out there and lots of investors have lost theirs (and other peoples) money. A lot of that investment advice seems to be coming back empty right now. But, if people would have just focused on getting out of debt then we wouldn't be in the place we are right now.

Okay, that is my over-simplified summary of his short post, but I do think it has some good nuggets for agriculture and beginning farmers. First of all it points out that it is a crazy world that we live in and things are likely to change all of the time, so we need to be diversified and prepared for change. I am already seeing posts and comments pop up over on the Epi-Log about people planning on buying less expensive food, eating out less, and so on. So, things change from time to time and that leads to changes in the lives people live.

But, I believe Mr. Nation's short posts also underlines one of the most important aspects for agriculture and beginning farmers (and everyone else) ... minimize debt. Of course there is a time for it (that has been hashed out on here before), but that doesn't mean we need to go overboard with it. My wife and I are in debt for the first times in our lives right now and although it was a little scary we do believe it was a wise choice. The thing about it though is that while going into debt to buy land and build the house we have tried to minimize the amount of debt we have at all costs.

We have only borrowed money for the land and the house and will be putting in infrastructure as we have money, time, and resources. This means everything won't be set up right away and we will have to improvise in some areas, but it also means we won't be saddled with debt that comes calling for payments! I have mentioned before that we have tried to purchase this place just like we would if we were buying our first house in town for a growing and active family. In our case we just have a REALLY BIG backyard where we can keep cows!

I'm not sure what is going to happen through all of this, and on one hand I don't really care because I have bigger fish to fry. But, it does remind me of my old Boy Scout motto, "Be Prepared".


Steven said...

There is a positive note in all of this for you, especially just getting into debt. If the Fed keeps printing money and putting it into the system it will surely cause more inflation. This means that you'll be able to pay back yesterdays money with tomorrows money and mostly likely yesterdays money will be worth more. This is likely to hurt people that are saving money or have adjustable rate mortgages alot more because their nest egg will be worth less or their payments can go up.

Yeoman said...

"But, if people would have just focused on getting out of debt then we wouldn't be in the place we are right now."

Actually, I think this is slightly in error, it would be better to state:

"But, if people would have just focused on not getting in to debt then we wouldn't be in the place we are right now."

Subtle, but real, difference.

I don't think we're in a genuine crisis to start with, but if we are, it's a crisis of poor thinking. Basically, the supposed emergency is:

1. A lot of banks loaned to people they shouldn't have loaned to, as those people lacked the real means to pay the loans; and

2. Those banks sold the loans to other banks, which was smart on the sellers part, but not so much on the buyers part;

3. A lot of people took out these loans knowing that they couldn't really afford them, but that was okay as they planned on the price of real estate, which was a big part of this, ever increasing; and

4. It didn't.

So, what we now have is a crisis caused by real property sinking back to its actual value, not a superheated one, meaning that people who were way over their heads in the first place now can't bank on selling their house to an equally delusional future buyer.

Now, why is this a "crisis"? In the past few days we've learned that:

1. If the banks can't make good on these loans, they'll have to clamp down and only give loans to people who can actually afford them; and

2. That'll mean that people can only buy stuff they can actually afford; and

3. That'll slow the whole economy down, as people will only be buying what they can afford, not everything they simply want to "consume"; and

4. Real estate prices will go down to their actual value, making them more affordable (oops, that wasn't the argument train). . um, which will be bad because the tax value of the property will go down, which will mean your local government will not have enough money to do all that stuff you wish it wasn't doing in the first place.

Hmmm. . . .

I don't mean to make light of all of this, but frankly, if ever there was an instance in which the government ought to do absolutely nothing, this is it. We have no interest, as people, in propping up this whole "you must buy stuff on credit" system. If it slows things down, well, they ought to slow down.

And if it is a crisis, then perhaps rather than patching it up with bondo and bailing wire, and firing it all back up, we ought to actually fix it. That, in my mind, would mean dismantling the Walmartobanks, and making lending local. I doubt banks would be so foolish with their money if they couldn't pass these loans on. Indeed, I'd be in favor of dismantling the entire mega-corporation nature of our current economy, and restricting corporate size, which is part of the problem here.

Well, how does this impact us in agriculture? It probably doesn't as much as we might fear. I doubt inflation will ramp up, deflation is more likely. Be that as it may, there will not be an economic disaster so severe that people will quit eating. But perhaps they might stop subdividing farmland so rapidly, and perhaps farmland itself might no longer be such an attractive investment for Wall Street Cowboys, and be available for actual farmers and ranchers.

Steven said...

I agree with you Yeoman, on everything except... why do you think that inflation isn't going to go up? Won't adding 1 or 2 trillion dollars to the economy, out of nowhere water down the supply of money that we already have?

Mellifera said...

Now if only we can get rid of ethanol and hit the Midwest with a real estate crisis of its own, then we might be able to afford to start farming. ; )

Yeoman said...

"Won't adding 1 or 2 trillion dollars to the economy, out of nowhere water down the supply of money that we already have?"

It's already in the economy, in the form of bank manufactured money.

That's a big difference between the 1945 to about 1975 economy and the present. Credit is so easily resorted to, that bank effectively create money without hindrance by the extension of credit. What money, in other words, existed for most of this credit to start with? Not much. None, really. So the government purchase of the debt, financed through loans and taxes, really doesn't add much money, if any, to the economy.

The collapse of the system, on the other hand, really does subtract money from the economy. But that's not a wholly bad thing. We've rarely seen deflation, but if we had a true collapse of the system, we'd see some deflation.

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