Thursday, April 18, 2019

Choking on the salt of debt

This is an interesting article that addresses how the credit bubble has been caught up in the situation I have described as "credit disinflation" and the way it is now bogging down the US and global economies.
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 both evaporates and collects mineral deposits. The combination of these factors concentrates the water’s salt content.  Then, as it is applied to irrigation, the residual salts collect in the soil.

After decades of this, along with the over-application of fertilizer through mechanized fertigation systems, 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.  There is no outlet for the salt to flush to; the valley is the basin’s terminus.  Thus, in this grand paradox, the relative freshness of the excess water that is keeping the farmland alive is, at the same time, the source of the salt that is killing it.  Reisner further explains:

 “Nowhere is the salinity problem more serious than in the San Joaquin Valley of California, the most productive farming region in the entire world.  There you have a shallow impermeable clay layer, the residual bottom of an ancient sea, underlying a million or so acres of fabulously profitable land.  During the irrigation season, temperatures in the valley fluctuate between 90 and 110 degrees; the good water evaporates as if the sky were a sponge, the junk water goes down, and the problem gets worse and worse. Very little of the water seeps through the Corcoran Clay, so it rises back up to the root zones — in places, the clay is only a few feet down — water logs the land, and kills the crops.”

 So, too, goes the U.S. economy.  After nearly a decade of rapidly expanding its balance sheet, and pumping cheap credit and excess liquidity into financial markets, the Fed has produced a similar paradox.  They must keep expanding the money base to keep the economy afloat… but in doing so they are ultimately killing it.
Both the credit problem and the salinity problem stem from the same cause: short term time preferences. And, as we know, civilization absolutely depends on long term time preferences, on men planting trees in the shade of which they will never sit. 

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Blogger Crunchy Cachalot April 18, 2019 5:22 AM  

The monoculture encouraged by large ag conglomerates exacerbates all these problems in the same way that the concentration of financial power in a few big banks does.

Blogger Lazarus April 18, 2019 5:29 AM  

Only several lifetimes – or more – of fallow conditions will restore economic growth and fertility to the country.

Having trouble envisioning what this means in economic terms.....Subsistence?

Blogger Lovekraft April 18, 2019 5:45 AM  

Socialism destroys incentive and unity. By removing ground-level associations in favor of an unaccountable state with uncertain goals, people 'check out.' Only natural reaction to being humiliated and attacked.

Obama represented a new phase - violence (hard and hidden) was introduced to enforce compliance. A despot like Obama doesn't care about the damage of allowing BLM shakedown rackets and Sorosian meddling into the public sphere.

Blogger ADS April 18, 2019 6:07 AM  

Salinity build up has been a problem of irrigation right from the very start of the "hydraulic civilizations". Infuriating that even such clear historical precedents don't stop us from repeating ancient mistakes, but we seem to be collecting the whole set of those.

Blogger Lukas Brunnor April 18, 2019 6:21 AM  


Blogger Amy April 18, 2019 6:49 AM  

The avocados must flow.

Blogger Zaklog the Great April 18, 2019 6:54 AM  

Off topic, and I apologize if I should have seen this answer elsewhere. When is the first Darkstream book club night? I read the preface of Mere Christianity already. That's where we're starting, correct?

Blogger Doktor Jeep April 18, 2019 7:10 AM  

Boomernomics 101

Blogger PJW Gent April 18, 2019 7:29 AM  

Isaiah had something to say about this debt problem, as well as a few other problems.

Isaiah 24 New King James Version (NKJV)
Impending Judgment on the Earth

1 Behold, the Lord makes the earth empty and makes it waste,
Distorts its surface And scatters abroad its inhabitants.

2 And it shall be:
As with the people, so with the priest;
As with the servant, so with his master;
As with the maid, so with her mistress;
As with the buyer, so with the seller;
As with the lender, so with the borrower;
As with the creditor, so with the debtor.

3 The land shall be entirely emptied and utterly plundered,
For the Lord has spoken this word.

Blogger Unknown April 18, 2019 7:29 AM  

Electrolytes, it's what plants crave.

Blogger LZ April 18, 2019 7:36 AM  

Funny because some have proposed using seawater to hydrate land using the same process, but their thinking is capture the evaporated water and remove the salt.

Blogger Johnny April 18, 2019 7:50 AM  

You can irrigate forever in the right conditions. You have to put enough water on so that some of it drains away. Apparently that isn't possible in the San Joaquin Valley. And it may not be economic in other areas.

And, by the way, in some areas out west we are draining out aquifers that are not being replenished.

What they used to call the business cycle is a credit cycle. People borrow more (or spend more) when they feel confident. The economy booms. And then there is credit contraction. The big deal is that both of them are self driven. You expect things to get better when they get better, and worse when they get worse. Thus the instability.

Blogger Dave Dave April 18, 2019 7:53 AM  

Long term time preferences are why the German people are so effective at what they do. It's fundamental to our culture to think long term. The Chinese and Japanese are also quite good at long term planning. America is destroying itself because they are unable to think beyond the present. Heavy consumerism. Horrible financial management. Pathetic legislation. Americans can laugh at the European nations and say that it's too authoritarian, but they're completely missing the problems at home.

Blogger RedJack April 18, 2019 7:53 AM  

Grandpa never put irrigation in for this reason. He saw it as a short term solution to a long term problem. He was thinking in generations, not decades. Land still is some of the most productive in the area.

Now that my cousin has charge of the corporation, he is putting massive amounts of chemicals Into the land. Yields have peaked and are starting to decline. He says that it won't exhaust till after he is dead....

Blogger Silent Draco April 18, 2019 8:01 AM  

Doktor Jeep, back up two generations. The ag analogy and financial poisoning are applicable and at the dawn of both problems.

Blogger Ransom Smith April 18, 2019 8:04 AM  

California was a mistake.

Blogger Stilicho April 18, 2019 8:13 AM  

Jewish "intellectuals" say Britain needs more Africans...I'm sure they'd all vote "remain" when they weren't getting all stabby:

Blogger Ominous Cowherd April 18, 2019 8:13 AM  

Dave Dave wrote:America is destroying itself because they are unable to think beyond the present.

They? Who is this they who are suddenly running things here? My ancestors had no problem thinking of the future - we built this land. It's as if a group of stealthy aliens have taken over.

Time to clear out the ruling class and start over.

Blogger RC April 18, 2019 8:31 AM  

@RedJack: He says that it won't exhaust till after he is dead...."

Going to be a lot more piss on certain graves than flowers, that's what living off the Monsanto Monster gets you. And their new Dicamba herbicide is yet another self-made disaster, further pitting farmers one against the other.

Blogger Stilicho April 18, 2019 8:40 AM  

@VD is it the limitation of most of the credit to the financial institutions that prevents widespread inflation? Whereas we do see sector specific inflation where that credit does flow through to consumers (education costs/student loans and auto prices/auto loans), correct?

What happens when the credit flow to the financial sector becomes practically ineffective? Do they collectively push more credit to consumers to stay afloat? Do they compete for credit from the Fed in order to limit the total availability of credit at the expense of their competitors? Where will the banks push the credit? Productive sectors could create some benefit and a base from which to rebuild, but since the 08 crisis, all I've observed has been banks mostly directing that excess credit to the financial sector (themselves) to fund further financialization of everything (think derivatives, side bets on everything under the sun on a scale that would embarrass a mafia bookie). Interested in your current take on all this.

Blogger OGRE April 18, 2019 8:43 AM  

The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of an modes of getting wealth this is the most unnatural.

-Aristotle, Politics, Book I

Blogger Azimus April 18, 2019 8:59 AM  

Credit is an incredibly powerful weapon - in war and business. The company with the good balance sheet and no outstanding debt can grow something like 5-6% per year through expansions and acquisitions by reinvesting profit. The company that piles up credit like a mercenary army then goes on a growth spending spree could grown 20-25% per year through acquisitions, or even more. The unfortunate reality is, if going head to head, the company that grows/competes responsibly will lose to the company that piles up debt to defeat them. So it becomes a race to the bottom in terms of leveraging.

Blogger Guitar Man April 18, 2019 9:01 AM  

RedJack, is your cousin a boomer?

Blogger Nobody of Consequence April 18, 2019 9:12 AM  

A lot left out of this story. I was there in 84-86 as a CSUF Prof.

The cause - San Francisco! The progressives in the bay would not let the valley set up a drainage system to carry the saline waters to the bay because it "might" impact bay life. So the water is ponded in the valley. The area is known as the Kesterson Wildlife Refuge. In the 1980s, concentrations of Selenium went so high that the fish and fowl had impacts on their DNA and reproduction.

Using a leaching fraction and treating with sulfates to form ion pairs generally produces the removal of excess salts. BUT the wastewater has to be removed through drainage as is done all over the West. Progressives = no drains

Blogger Brett baker April 18, 2019 9:20 AM  

When you import looter populations, that's what you get.

Blogger Brett baker April 18, 2019 9:21 AM  

He's too cheap to spread lime?

Blogger Lazarus April 18, 2019 9:24 AM  

Johnny wrote:What they used to call the business cycle is a credit cycle. People borrow more (or spend more) when they feel confident. The economy booms. And then there is credit contraction. The big deal is that both of them are self driven. You expect things to get better when they get better, and worse when they get worse. Thus the instability.

This is where a structured Jubilee comes in. Borrowing would be high at the beginning, and almost non-existent at the end, because all debts are wiped out in the Jubilee year. Biblically, however, God has to guarantee a harvest in the last year big enough to cover the fallow year as well.

Blogger swiftfoxmark2 April 18, 2019 10:07 AM  

This is a great time to get out of debt. All of it.

Because when the economy crashes, at least you won't have your stuff being defaulted on.

Then again, you may still have to shoot the looters.

Blogger Balam April 18, 2019 10:10 AM  

''Having trouble envisioning what this means in economic terms.....Subsistence?''
Im an amateur but with the soil you either build the drainage, move, or import soil. In financial terms you build in the debt jubilee to flush it out, leave (Jews going to China or New Zealand), or import fresh assets and money (I think the influx of foreign esp. Chinese money was the try at this).

If you do the 2nd two choices they are incredibly unsustainable

Blogger Azimus April 18, 2019 10:21 AM  

Part of the issue is the pathology of the lender - it seems that at some point they no longer wanted to actually be paid the principal back. I wonder if this would be fixed if it were illegal to trade or sell debts?

Blogger The Masked Menace April 18, 2019 10:41 AM  

Capitalism requires capital. Capital is the store of value. When "capital" is no longer a store of value, it is no longer capital. The inability to store value reduces time preference substantially.

The foundation of civilization is widespread long term time preferences among the population. The widespread reduction of time preferences among the population destroys the foundation of civilization.

If I knew at 18 years of age what I know today, I wouldn't have invested such a significant portion of my youth to obtain the education and certification that my chosen field of future employment required. Simply put, the ROI doesn't justify the investment. My standard of living is less than that of the working class men in the 1960s blue collar neighborhood where I grew up.

What would I do differently you ask? I would attempt to get a government job - with a pension - right out of high school... and that speaks volumes.

Blogger JG April 18, 2019 10:41 AM  

Salting your own lands. Nice. No wonder western civilization is doomed.

Blogger Grady Houger April 18, 2019 11:02 AM  

Wow, this is what I'm dealing with, fields starting to suffer from years of cheap and easy fertilizer, and filling out credit applications to keep the business floating.
The market isn't much interested in sustainable farming methods yet, unless its something you can deceptively market to people afraid of chemicals.

Blogger Brett baker April 18, 2019 11:08 AM  

Dicamba has been around for decades.

Blogger Nate April 18, 2019 11:22 AM  

would you expect anything less of California?

Blogger Ominous Cowherd April 18, 2019 11:27 AM  

Brett baker wrote:He's too cheap to spread lime?

Lime removes salts? I don't think so.

Blogger pyrrhus April 18, 2019 11:44 AM  

Irrigation is a civilization destroying practice..There are areas in the Fertile Crescent that salted up 3000 years ago and still can't be farmed...

Blogger pyrrhus April 18, 2019 11:50 AM  

Interestingly, when we were in Tuscany last year we were told that irrigation is not allowed by law...Quite a bit of what's grown there is also organic, and organic olive oil is a big thing..Much of Tuscany still looks the way it looked in 15th century paintings.

Blogger dc.sunsets April 18, 2019 12:31 PM  

What is always missed is that credit cycles, like economic cycles themselves, are simply phases of mass psychology. It's the only explanatory foundation that makes sense. For this I respect Bob Prechter's expansion and promotion of R.N. Elliott's breakthrough insights. (I don't respect funding it by promising the impossible, i.e., market forecasting.)

Mass psychological (herding) embrace of Openness and Trust is everywhere we look. What is $71 trillion in on-budget TCMDO at less than 3%! but an expression of collective trust the size of a galaxy? What is Magic Dirt/Open Borders but an expression of trust and belief that (our) resources are unlimited?

Borrow-to-Spend was a "wealth creation" machine from the bond market low of 1981 through this morning. Borrow a dollar, spend it and you get at least two dollars in wealth (one or more in GDP, But wait, that's not ALL! a second dollar of wealth, an asset, that appears in the creditor/bondholder's balance sheet.

For all practical purposes, all savings generated by economic activity (including that fueled by deficit-spending itself) has flowed ultimately into the bond market. Unlike stocks, where there is no net movement of money when prices go up or down, total debt expands as savings flows into bonds. It was the engine of keeping bond prices high and rates low.

Because so much savings accrued from economic activity bought with debt, it is a pyramid scheme in every way, a bubble in search of a pin. The "pin" will be when social mood finally comes off this near-40-year cocaine-high mania and a new fashion sweeps the world, one where pathological trust, altruism and complacency turns to its polar opposite.

Just as one day the crops will fail, so too will this mania. But predicting that timing has been a Fool's Errand for decades. When interest rates break north in earnest, we'll know that Humpty Dumpty lays in crystalline shards all over. Nothing any POTUS, any Central Banker or any Oligarchy will do will reverse that when it happens. I thought it was over in 2008, and called the low of 2009 within a week. But I thought what was coming was just a rally within a bear market and missed the boat entirely. No one can predict effectively the only part of the future that matters: the timing.

Blogger dc.sunsets April 18, 2019 12:33 PM  

@31 If you knew in 2009 (or 2002, or 1982) what you know now, you'd pyramid S&P Futures contracts for a few years following any of those dates and you'd literally own your own private island.

That's not an exaggeration.

Blogger RedJack April 18, 2019 1:23 PM  

@23. No, but very close to the cut off.

There is a lot of land in the midwest that is going to stop producing in the near future. Between the floods, the mismanagement, and the outright fraud things are declining.

Blogger RedJack April 18, 2019 1:31 PM  

He is spreading lime. Fertilizer, pesticides, herbicides...

The last family corporate meeting was rather interesting. The 300 acres my father controlled till his health gave it to my mother was farmed in "Grandpa's" methods since 1900. Yields were steady, but not the peaks that the other land was. Now, 5 years after my cousin took control, the yields have declined. Lots of chemicals, but it seems for every one you spray you have one to make it go away. At some point, the P/L flips and you can make cash flow.

My other cousin, who is NOT part of the corp (family fight from 40 years ago) DOES farm the old way. He makes more money with less yield. Of course, that only works till you get the banks involved. Then they will write into the covenant that you MUST apply X,Y,Z to get the loan.

Seen that game played on the other side. Told my family corp that if we keep this up, the bank and Bayer will end up with the land we might get a stipend to farm it. But they want the trip to Hawaii and the big truck to drive into to coffee. I had hoped to hand on to the land, but I have a pretty good idea that once my Dad losses the rest of his mind, the corp will quietly push me out. Thank God grandpa had the trust written in suck a way that at least 40 acres of hunting ground has my personal lifetime use. Small change, but it is where I will be buried.

Blogger dc.sunsets April 18, 2019 2:00 PM  

@41 Now's a great time to compost as much as possible and learn to garden and to store food. No telling how nasty the passage through the Upcoming Valley of Difficulty will become.

Farming in the USA is a joke, it's all under the corporate model (high time preference.) Not a bad time to learn to DIY at least enough to get by in an emergency. Of course, keeping looters off ones garden plot might be difficult indeed. There's a reason that throughout history farmers have NOT been on the top of the social food chain.

Blogger justaguy April 18, 2019 2:01 PM  

I am missing something? The quote describes in great detail a problem with irrigation in CA, but other than a atated analogy, never really links it to the credit issue. There is no description of why they must still expand the credit or manage it and how that kills the economy. Maybe I am after a more detailed explanation of the economic side.

I agree with the Austrians about credit cycles and we seem to have been on the credit cycle ride for over a century. I am probably closer to Stockman's view to let the cycle happen and the pieces will reshape in a more efficient form after the bubble passes. Go Calvin Coolidge theory of government intervention.

Blogger Amy April 18, 2019 2:21 PM

@justaguy, here is the full article

Blogger Amy April 18, 2019 2:32 PM  

But muh almond milk.

I haven’t bothered to check if almonds are grown in the San Joaquin Valley. The point isn’t really agriculture but the analogy.

In the Current Year, we really should not have been able to afford a house, but through a VA loan and courtesy of a desperate seller, we got one. And I love it, it’s a nice home, but rapidly becoming a place to *not* put down roots (browning down, section 8, ten miles from a much hailed sanctuary “city” that is just VSing because college town).

Eventually you get to a point where debts cannot be repaid, and then the banksters have to get people queued up behind you to pay your debts. Like social security. You pay it forward and hope someone is behind you, too.

That’s a precarious system. Build the tower but put it on stilts on toothpicks on sand. Talk about running out of other peoples money.

Blogger Azimus April 18, 2019 3:11 PM  

44. justaguy April 18, 2019 2:01 PM
I am missing something?...There is no description of why they must still expand the credit or manage it and how that kills the economy.

It is animal addiction, pure and simple. There is no mechanical necessity to keep expanding debt to pay for debt. But if you are accustomed to living on 120% of your income for you entire life, how much willpower do you have to downshift to 75% of your income? Many strong individuals can. But what if, instead of an individual, its a married couple? The degree of difficulty in self-imposed austerity is the square of the number of people involved.

It is incredibly, incredibly difficult to cut your spending by a third as a married couple. Now compound that to a church board of deacons. Or a municipal government. Or a County Board. Or a state. The US has 129,000,000 voters at least - how can they possibly agree on how to cut the budget by 1/3, just so the debt can be paid off 50 years after they are dead? There is NO POLITICAL WILL for this. So, you ride the elevator all the way to hell - hence "short term preference."

Blogger Azimus April 18, 2019 3:52 PM  

43. dc.sunsets April 18, 2019 2:00 PM
Of course, keeping looters off ones garden plot might be difficult indeed. There's a reason that throughout history farmers have NOT been on the top of the social food chain.

Dogs do an incredible job. They just need some backup in case the looters are prepared for them.

After that, all you need is a pike, and the will to put a warning on top of it to all potential future looters.

Blogger Kat April 18, 2019 4:41 PM  

RedJack wrote:@23. No, but very close to the cut off.

There is a lot of land in the midwest that is going to stop producing in the near future. Between the floods, the mismanagement, and the outright fraud things are declining.

Get to know your local regenerative farmers. Give them as much money (buy from them) as you can. Make them a meal when the wife has a baby. Ask how things are going. Tell your friends to join their CSA or buy from their farm stand.

In our case we're forming connections to people with similar values, who are actually building their soil instead of depleting it willy nilly, and are people who might be willing to work with us via barter and/or training for us to join the local agricultural network. When things get bad I want to be part of the solution and not the problem.

Blogger Jack Amok April 18, 2019 8:17 PM  

Do they collectively push more credit to consumers to stay afloat?

Yes. The key thing to realize is that financial institutions tapped in the Fed are not in the business of making interest off of pooled money, like George whats-his-name said in It's a Wonderful Life. They're in the business of collecting transaction fees off the transfer of money. They don't need the loans to be paid back. Even if they didn't expect to get bailed out in the event of another disaster, the executives making the decisions are making decisions to maximize their pay, not the long-term health of the corporation they've hooked into.

So they'll keep pushing the credit anywhere they can find an outlet. It doesn't matter if the borrower can pay it back, or even really make any payments at all. The Fed creates the money, the bankster passes 60% of it on to anyone who will take it, pockets the other 40%, and Bob's your uncle.

Blogger Rhys April 18, 2019 11:44 PM  

Just find a way to destroy it if anybody else gets a hold of it. I understand that's zero sum game, but people respond to brutality. I'd rather burn food than let NPCs take it from me.

Blogger Ominous Cowherd April 19, 2019 3:19 PM  

Rhys wrote:Just find a way to destroy it if anybody else gets a hold of it. I understand that's zero sum game, ...

Life is like that sometimes.

Rhys wrote:I'd rather burn food than let NPCs take it from me.

Never reward bad behavior.

Blogger Pathfinderlight April 20, 2019 12:20 PM  

California created a farming boom off of other states' water supplies. They then turn around and sell off 90% of their crop for cheap, to feed their already unsustainable economic bubble. People are already leaving as it's becoming a standard practice to use non-potable (read: waste) water to spray people's gardens. Californians know this is going on, but still can't stop the crazy. That's why they have to go back.

Blogger Unknown April 20, 2019 1:43 PM  

#1 It seems they could cover or shade the canals at a great cost, but a cost lower than destroying the land the water is salting over.

#2 Along those same line State Sponsored Usury with free trade seems the most efficient way to create overproduction in the short term, but it leads to Democratic Socialism as the means for the losers to get some of the wealth distributed, in fact once State Sponsored Usury manages to collect the wealth they need people to democratically demand socialism in order to create a market, to create buyers for the overproduction.

A classic example of this is Agriculture going into debt buying 500 horsepower machines and commercial fertilizers and hybrid seeds renting large acres to make their 500 horse machines pay for themselves and they produce so much food that they have to have the food stamp program feed the poor who used to be doing the farm work.

#3 So I don't want to go backwards just to go backwards and that isn't even an option actually, but I think God is telling us something about how we need to proceed in the future in way that values labor over the shortcuts Usury opens up to us. And I bring God into it because it was from the Bible that you get the ideas that Usury is not good and that "the laborer is worthy of his hire" and that there are things to value more than efficiency and a more egalitarian distribution for the destroyed families.

I don't think we need to reinvent the wheel or throw out everything like Marxist revolutionaries, we can do something as simple as starting to modify the existing Lib-Cap overproduction with new restrictions on Usury and loosening bankruptcy laws to bring it closer to Biblical values, and also we can bring in some Distributist innovations such as Credit Unions,Co-ops, and Trust-Busting to compete against and in extreme cases outright limit the tendency of Capitalism to collect wealth and power.

Once you put this new economic theory into place it will slow movement and it will make people more interested in what is local rather than global and the people in any given place will become a people of that place.

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