I hate debt. But I’m not naïve. I know and recognize that in some very capital intensive businesses (like production agriculture), properly managed debt can be a part of the equation that makes a successful enterprise. However, I think a great many people see debt as a means to get what they want sooner than they should be afforded. From my view, folks in this category often get themselves into trouble in the longer-term because of poor decisions and planning. In my opinion, such is the case at the present time with our state and federal governments. I’m not writing to make any judgment as to the quality/usefulness of the programs that have recently been funded, or those currently being funded with our tax dollars. However, I do see a train-wreck coming in future years, and to future generations, because of our current state of debt-financed spending and a lack of making difficult choices in what will be funded by our tax dollars.
Every household in America (and the world) knows it cannot indefinitely spend more than it makes. And those who argue that the government is the only entity that can “afford” to over-spend simply don’t seem to understand where tax revenues come from – that is, the collective group of households and businesses. When households and businesses are required to pay more tax to cover excessive spending, the tax-paying base will tighten its belt and budget to spend less in order to afford the extra tax they are expected to pay. Over-spending by a household, business, or government is simply an unsustainable long term trend.
What does all of this have to do with agriculture, and more specifically, the land market? Macro-economic forces. Put simply, the overall health of our economy dictates the ability of consumers to pay for the goods produced by agriculture and other productive industries. In eras of heavy debt financing, inflation of currency has often followed, which then spurs an increase in interest rates to hold inflation in check. Ask anyone who survived the 1980’s in agriculture what the key to their survival was, and you’ll often get an answer like “I wasn’t too heavily leveraged with debt when the good times broke.” And remember, it was a short 10 years between the “good times” of the mid-1970’s and the pain of the mid-1980’s.
DTN Editor-in-Chief, Urban Lehner, recently wrote an editorial that discusses “What the Government’s Debt Means for Agriculture.” To read the article, click here. While I recognize that agriculture has been on a remarkable roll in recent years, I think it is prudent to absorb what’s going on in our greater economy when making decisions in both our households and businesses.
We’re always interested in your comments – e-mail me at doug@loranda.com to let me know your thoughts.
