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Salting The Economy To Death
Submitted by MN Gordon via EconomicPrism.com,
One popular delusion that won’t seem to go away is the notion that policy makers can stimulate robust economic growth by setting interest rates artificially low. The general theory is that cheap credit compels individuals and businesses to borrow more and consume more. Before you know it, the good times are here again.
Profits increase. Jobs are created. Wages rise. A new cycle of expansion takes root. These are the supposed benefits to an economy that central bankers can impart with just a little extra liquidity. Unfortunately, this policy antidote doesn’t always work out in practice.
Certainly cheap credit can have a stimulative influence on an economy with moderate debt levels. But once an economy has reached total debt saturation, where new debt fails to produce new growth, the cheap credit trick no longer works to stimulate the economy. In fact, the additional credit, and its counterpart debt, actually strangles future growth.
Present monetary policy has landed the economy at the unfavorable place where more and more digital monetary credits are needed each month just to stand still. After seven years of ZIRP, financial markets have been distorted to the point where a zero bound federal funds rate has become restrictive. At the same time, applications of additional debt only serve to further the economy’s ultimate demise.
The fundamental fact is that the current financial and economic paradigm, characterized by heavy handed Federal Reserve intervention into credit markets, is dying. Debt based stimulus is both sustaining and killing the economy at the same time.
No doubt, this is a strange situation that has developed. For further instruction, let’s look to California’s San Joaquin Valley…
The World’s Richest Agricultural Valley
Dropping down the backside of the grapevine from the Tejon Pass, along Interstate 5 between Los Angeles and San Francisco, one is greeted by an endless sea of agricultural fields. However, the farms of California’s San Joaquin Valley are not the 160-acre family homestead farms rooted in the 19th century settlement of the Midwest. Nor are they in the yeoman farmer tradition envisioned by Thomas Jefferson. They are large-scale, highly productive, corporate farms.
While these massive agricultural operations are quite a sight, what’s more incredible is that they even exist at all. Given the natural resources of the area, the possibility for anything – aside from cactus and scrub – to grow here is a miracle.
“The southern part of the valley was a barren desert waste with scattered saltbush when first viewed by Don Pedro Fages in 1772 coming from the south over Tejon Pass,” wrote University of California Berkeley Professor Emeritus, James Parson. “Less than five inches of rain annually falls in southwestern Kern County, maybe ten inches at Fresno. Pan evaporation in a summer month on the west side pushes 20 inches.”
Nonetheless, a barren desert wasteland and parched conditions didn’t stand in the way of what was to come. For with a little imagination, several mega water diversion projects, subsidized water, and cheap migrant field workers, mankind was able to create what “has been called ‘The world’s richest agricultural valley,’ a technological miracle of productivity.”
Regrettably, endlessly dumping chemical fertilizers, pesticides and herbicides, and imported water on sandy soil underlain by indurated hardpan is not without consequences. What has stimulated the productive miracle of the San Joaquin Valley over the last century is the same blend of factors that has propped up American financial markets, and government debt, over this same period. Namely, cheap credit and excess liquidity.
Salting the Economy to Death
For example, in the San Joaquin Valley, vast irrigation networks convey water thousands of miles to make the desert bloom. But as surface water is conveyed along the open California aqueduct it collects mineral deposits and becomes saltier. Then, as it’s applied for irrigation, the residual salts collect in the soil.
After decades of this, the salt in the soil has built up so that it strangles the roots of the plants. To combat this, over-watering is required because the irrigation water – while salty – is fresher than the salt encrusted soil. By applying excess irrigation water, the soils around the plants are temporarily freshened up so that crops can grow.
Yet, at the same time, this over-watering accelerates the mass quantity of salt being applied to the soil. In this grand paradox, the relative freshness of the excess water that’s keeping the farmland alive is the source of the salt that’s killing it.
So, too, goes the U.S. economy. After seven years of rapidly expanding their balance sheet and pumping cheap credit and excess liquidity into financial markets the Federal Reserve has produced a similar paradox.
They must keep expanding the money base to keep the economy afloat…but in doing so they’re ultimately killing it. This, in short, is why it doesn’t matter if the Fed raises the federal funds rate next month or not. The present system is doomed either way. The crafty bankers are finally figuring this out.
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Black Friday!
Everything is Great!
Get your Ass's out there and Spend Bitches!
Today's problems were yesterday's solutions.
From its very inception, debt-based currency is fated to "die". The planners know this in advance. They put the scheme into place for one reason only... to eventually pilfer as much as they can from their feckless debt-prey and thus, gain as much power over them as possible. The cycles they strategically orchestrate are methodical and resolute. Only learned leaders can free the flock from this predation.
our echonomy is facing a Carrie Idleton event like it did in 1859.
I'd follow the analogy of irrigation and Fed money pumping a bit better if the Author inidcated that 99% of the fields were drained of water so that the 1% could have private lakes.
If you choose to lessen your personal pains with an effective method to do so, well say heroin, then there is always the chance that the use can become habit that leads to chemical or physical dependence. So, your body (economy) becomes used to the effect (QE policy) after repeated use that unfotunatley leads to a situation of a dependency (QE cycles being viewed as 'normal').
These economists are neurotic in the physcological sense and their habits reak of it such dissonance.
"Today's problems were yesterday's solutions" may I quote you on that? That is the best statement about society that I have ever heard from anyone.
look mo' like da staytmunt be 'bout d'govahnmunt, not d'societee...
From canetoads to ZIRP...
https://en.wikipedia.org/wiki/Cane_toads_in_Australia
The problem is all we have left is salt.
I see the Soros disinformation bots are working even on Black Friday. Must suck to live your life to go to web sites and thumbs down everyone. I wonder when the sense of being a traitor sets in?
Take it as I do,,, A badge of honor!
These are disgusting traitors of the People, the Constitution and the Declaration, denigrating those which pay their daily fiat and only desire a free nation.
Nah...just bots. Some days, I miss Captcha.
Sometimes I wish salt was saltier.
Bulldozers drag heavy long hooks to rip deep furrows into the field. Then, the field is over-watered to flush the chemicals and salts deep into the soil and hopefully below the root zone of the next crop of plants. My understanding is that the salt residues do not disappear but continue to accumulate. I do not know how long this process can continue. If you can not leach the salts deep enough, the field is poisoned and nothing will grow. If the groundwater table is shallow, then that water will eventually be poisoned. Your analogy is correct. Our economy is saturated with un-repayable debt. Only those without debt will survive.
I always chuckle when I see people use the term bulldozer in regards to agriculture.
I once heard a lawyer refer to a milk cow's udders as breasts. I was a little surprised since I expected a lawyer, of all people, to know about milking.
What!?!?!? Milk comes from cowz?
Life support is not living........The pilfering by government with debt has killed this country. We are on life support. The only cure is a debt reset. There will be chaos when entitled minds are made to accept personal responsibility.
money lenders can only make a profit if they take out more than they put in
online you can find pages of anti-semitic quotes made by famous people from Roman times onwards and 99% of them are purely practical comments related to the harm caused by money lending.
usury is financial heroin and money lenders are financial heroin dealers.
Ahh, the price of cheap food...
The lake is empty, quick fill it with ocean water.
Now we have water, but we cant drink out of the lake because the water is salted.
-Economics
QE may sustain the economy, but it taints the economy and makes it less equitable for participants and creates hazardous obstacles, while poisoning all the participants, its the kind of medicine that kills the patient or rather keeps them alive but in a coma.
“All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.”
-Ludwig von Mises
Its a self fulfilling cycle, especially if the 'product' is food.
Bankers were always supposed to be servants to the real economy, lending money to businesses that grew, produced real products and services and paid off their debts to the bankers.
Somewhere along the line we thought that banks could lead the economy.
They only have one real product, debt, which when used sensibly can grow an economy through lending to businesses to grow the real economy.
With the bankers in charge, they just look for opportunities to shift their debt products, loans, mortgages, etc.
This leads to unproductive lending into real estate, stock markets and other asset bubbles.
Fictitious wealth is created as the asset bubbles inflate.
Soon the bubble bursts and the fictitious wealth is destroyed.
The bankers product, debt, must always be used sensibly and cautiously so as the repayments don’t over-whelm the system and the lending is channelled into the productive economy.
Somewhere along the line we forgot.
Bankers must always be servants and never masters of the economy.
Fictitious banker wealth creation and destruction:
A house worth $1,000,000
Bankers lower lending criteria and flood the market with their mortgage, debt product.
5 year later the same house is worth $2,000,000
Interest rates rise and the housing boom busts.
Another 5 years later and the same house is worth $1,000,000 again.
It always was exactly the same house.
Bernanke said the Fed's next trick in it's bag is to hand out money to people that deserve it.
Guess that means illegals, low earners and middle eastern refugees.
The melt-up will continue until banks are no longer TBTF, i.e. 2019 when Basel III asset ratios are deemed to have been satisfied.
Nothing to see here.
Been there, done that, waiting on the proprietary rights.
Saving the world is easy, making profits for our slave masters while doing it is.... Impractical.
Let the fuckin thing burn. It's our destiny.
Insanity is doing the same thing over and over expecting the SAME result
They'll keep doing it because it's proping up stocks.
"Debt based stimulus is both sustaining a few very rich peoples' economies and killing everyone elses' economies at the same time."
wud somebuddy gon' put me back in da powah plant?