So how do you like the free market now? For those of you who expound the virtues of capitalism, take note of last weekend. Answer me this question. How does the 158 year old Lehman brothers go from never having a quarterly loss before last June and being valued at 41 billion last year but suddenly vaporize over the weekend into bankruptcy protection? Everybody, including Barack Obama, Joe Biden, John McCain, Sarah Palin and Stephen Harper has chimed in.
Of course as I’ve said many times, “its easy to be the smart guy now. Our Prime Minister has responded by saying everything is fine, and if we were going to have a recession it would have happened by now. Translation, clearly, this is a wildcard for him in this election campaign. It has the capacity to send him hind end over teakettle out of government.
In agricultural markets we were on the verge of bullish news last Friday when the USDA cut their August predictions and said there would be less corn and soybeans this coming fall. Last Friday commodity markets were way up. However, with the problems at Lehman brothers, AIG and Merrill Lynch come Monday I felt grain markets would tank. Simply put credit is the lubrication that runs our global economy. When it is free and easy everything works, unless of course you have a sub-prime mortgage mess. However, with the big financial meltdown over the weekend, global credit dried up significantly. Cash is king and all the pinstriped pirates in the grain market cashed their chips to rob Peter to pay Paul.
We’ll see. This thing might be far from over. For instance AIG, the largest insurance company in the US got bailed out by $85 billion in bridge funding to keep afloat and some of my economist cousins say there is still half a trillion dollars worth of sub-prime debt “blobbing” around in the global economy. Where it will go next, is our next problem.
The question of course is how did it come to this? Simply put, several years of cheap money or cheap credit and poor regulation in the United States made money so easy, some people thought it was free. For those of us who cut our teeth on 23% interest rates in 1981, it seems that way. However, for others, especially those fat cat American bankers who should of known better, it was like they were printing money. Needless to say, they were fools with the money and now its parted. The bad part is their actions continue to negatively affect our grain markets. For those of us who try to interpret them for other people, it makes the job that much more difficult.
So let me ask the question again, do you still believe in the free market? I don’t think there is one of us out there in farm country who doesn’t believe in our own acumen and strength to get things done. The last time I checked there was still 24 hours in a day and that makes things even with all my competitors. However, even still there are limits to the free market. The events of the sub-prime mortgage drama are testament to that.
Case in point is Canada. It’s easy to point our self-righteous fingers at American politicians and regulators who didn’t have their finger on the button. It’s also easy to point the finger at former Federal Reserve Chairmen Alan Greenspan and Ben Bernacke. We’ve always known it was easier to “get money” in the United States. I’ve always thought it had to do with the breadth and scope of the American financial system. There is/was so much competition. Meanwhile in Canada we had our five big banks with their billion dollar profits treating the Canadian public more like a fiefdom. Of course it’s all done under the auspices of the Bank of Canada, which is always at arm’s length from our federal government.
What it has given us in Canada is a stable financial sector. However, when Canadian farmers sit down with their banker in the next few months, they might not find them as crazy wild about lending money to buy a tonne of MAP priced at $1500 to $2000. With the lack of competition in this country’s banking sector they don’t have to like it. They can tell farmers to fly a kite like they’ve done many times before. Our American friends have always had many more options.
The secret of course is striking the right balance. However, with the US dollar being a default currency and the United States being the richest country in the world, I don’t think anybody down there is looking up here for guidance. Let this be a lesson for us all. As harvest beckons keep in mind, nothing is so perfect, it can’t be made better and everything is not always as it seems.