In the pre-financial crisis era, urbanization of farmland doesn’t wait for harvest as a healthy wheat crop is bulldozed. Strangely, in order to create and distribute the money needed to by food, our system requires that we must pave the land that raises the food.
Farmland (A casualty of the financial crisis)
By Benjamin Gisin
The financial crisis is teaching us that the process by which banks create money and by which investment bankers distribute money throws off more debt than economic activity. Said in another way, the processes of money creation and distribution throw off more debt than the money those processes created can ever repay. This is why the U.S. Government is being asked to solve the problem of unpayable debts. It’s kind of like trying to get out of debt by getting a new and bigger loan. We wish our lawmakers all the success in the world.
While this sounds like Wizard-of-Oz talk, students of the financial system understand well the nation’s primary money supply is in the form of bank deposits. And a bank deposit is born out of a loan or debt of some kind. This process is explained in volumes of text and charts the Federal Reserve publishes – the reading of which can be more confusing to the uninitiated than Wizard-of-Oz type explanations.
A key ingredient of a loan is its collateral. It is no secret real estate is one of the most preferred forms of collateral for banks and other investors. So voila, the quickest way to create and distribute money, whether for stable economic activity or for housing speculation, is the urbanization of farmland for higher value collateral for loans. Loans that must stand behind the creation and distribution of the nation’s money supply.
Historical estimates by the Federal Reserve bank are that over 70 percent of all bank loans are secured by some form of real estate. And outside of banks, the single largest pool of investments are into bonds secured by home mortgages.
Understanding these concepts, makes it easier to understand that every major financial crises (Savings and Loan crisis, Sub-Prime Lending crisis) are accomplished, in significant part, through rapid and unsustainable loss of farmland for urbanization. Said in another way, to create and distribute the money we use to buy food, we must continually pave the farmland that raises food.
The USDA just released its estimates of land in farms. For 2008, America farmed 330 million acres of primary crops and 590 million acres of pasture and rangeland for a total of 920 million acres (919.9 million acres to be exact).
The peak farmland year for America was 1954, when it farmed 1,206 million acres. In 2008, America farmed 286 million acres less. Of this amount, only 33.6 million acres are in the Conservation Reserve Program where the government pays farmers to idle highly erodible and other environmentally sensitive land.
This loss of farmland is dramatic when calculated on a per-capita basis. In 1954, America farmed 7.39 acres per person. In 2008, America farmed 3.02 acres per person – a 59 percent drop. Compared to 1900, America today farms roughly one fourth of the acreage on a per capita basis.
The world can urbanize in other locations and cook up a new financial system, but it can’t bring back lost farmland.
So while the nation’s lawmakers are working to crank up the credit machine (banking and secondary lending sectors) to make more loans, Efforts at finding ways to direct urbanization around and away from farmland should be re-doubled. It’s just the right food-security thing to do.
Based on programs coming out of Washington D.C., our lawmakers seem convinced that more debt and less farmland are the solution for a stronger America. A sobering realization when the facts speak to the contrary.
Unfolding economic and food realities may well push law makers and policy makers to get a lot more creative. This gives hope for the future.
Benjamin Gisin has visited hundreds of farms in his banking, farm consulting and publishing careers. He writes and lectures extensively on the global and domestic food situation, the banking system and solutions for a more workable economy.
For more information call Ben Gisin at (208) 523-2717