Time to Think Farming (to solve the economic crisis)
By Benjamin Gisin
While the financial industry tries to figure out how to save itself and the economy, perhaps it should take its own advice – it’s in the cash flows.
Every farmer that has ever applied for credit was approved primarily on one condition – the farm’s cash flows. The farm had to have cash flowing through the farm on one end as income and going out the other end to pay expenses. The economy is no exception.
The economy’s failure is due to insufficient cash flowing between businesses and consumers and the financial industry’s failure to provide a means of exchange capable of doing such. The financial industry should be the first to understand that bailing out banks is one of the least effective solutions to creating cash flows. It is money, robustly moving through the economy, that sustains jobs and people’s ability to pay their loans.
So how does money move robustly through the economy? One of the secrets lies in finding the most efficient place where income (money) is inserted in the economy to percolate throughout. For some it is no surprise that place is agriculture. The most prosperous years in American economic history were eras when farmers were not deprived of crop prices sufficient to cover expenses.
If income at the farm level is sufficient, studies have proven that cash flows through the economy, to sustain everything else, were the most optimum. And more optimum cash flows also means less reliance on debt to keep things moving.
This body of knowledge, its ongoing research and application is maintained by an organization called the National Organization for Raw Materials. (NORM: http://www.normeconomics.com)
Of the actions directed at solving the economic and financial crisis to date, the one with the most potential has yet to be effected: stimulus payments to facilitate spending. It is spending in that manner that will start cash flows moving again between businesses and consumers to restore jobs and prosperity. To be even more effective, agriculture is the place to target stimulus payments for spending.
Agriculture is the world’s largest physical activity, consuming 38 percent of the world’s land and 70 percent of it’s fresh water use. The production and consumption of food turns rapidly every day. Sufficient income to cover farming costs means cash flows through the economy to facilitate food’s consumption creating waves of cash flows through the entire economy. Even the Federal Reserve Bank understands this as it still has mechanisms in place to insert money directly into the agricultural economy using its “discount window” operations.
Spending at the farm level is the key issue today as a new food crisis is forming in the wings. In 2008, the world’s farmers achieved the largest agricultural production in history. The crops produced were also the most expensive. The fall in commodity prices, particularly grains and dairy products, has farmers retreating from maximum production. As the world enjoys living off the agricultural bounty of 2008, no one is paying attention that prices are not giving farmers an incentive to do a repeat performance. And global food stocks are still at historical lows. In fact, many farmers are still trying to figure out how to finish paying for the 2008 crop, let alone start making investments into the 2009 crop. U.S. winter wheat plantings are down 9 percent, while unprecedented droughts in California (the nation’s produce basket) and South America are impacting yields.
Fixing the economy, the financial system and food security is totally about cash flows. To solve all three, stimulus payments at the farm and food sector provides the quickest and greatest economic good.
In addition, the U.S. Government, the WTO and the United Nations must mandate a sane level of grain and other food stocks. Using stimulus payments to build strategic food reserves for 90 to 120 days and getting money to the food insecure is the most effective way to re-invigorate the national and global economy while still eating.
It is also the humanitarian thing to do. The number of starving people in the world climbed from 850 million people in early 2007 to 963 million today. Talk about covering losses from toxic loans does not address what the economy needs – robust cash flows that begin at our most basic need – food. It’s time to tell Washington it’s about cash flows and agriculture. ■
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 promise of local food first and grass-roots economic issues.