I got this message below from Paul Dorr today. The “friend in the SE” he referrs to sending him the original message is me; so, I’ll return the favor & post his comments here.
Paul’s analysis of the coming debt collapse is both profound & chilling. His background in banking in a rural area & family ties to the inner circles at the Federal Reserve/ USDA only adds credibility. . . .
If you haven’t read my earlier post on the Food Crisis & it’s Effects please check it out. People I’ve talked to around the country in farming & commodities businesses confirm my concerns (more on this later).
Friends of Paul Dorr
A farmer reader from the SE part of the U.S. sent me this recent post below. The text in bold blue (toward the bottom of this post) is a frighteningly sad harbinger of what is coming soon to rural America….again. It comes from John Phipps’ blog. Phipps writes for Farm Journal and Top Producer and farms 1700 acres in Chrisman, Illinois. The end of credit bubbles often come swiftly and without notice. It is now descending upon certain elements of agriculture. Things fall apart suddenly. This will spread.
Phipps believes, in his understanding of what is beginning to unfold in agriculture, that “lenders are panicking and leaping to harsh financial triage”. It is amazing how little our leaders/influencers know that our dishonest (fiat) money system is strongly prone to such panic and harsh reactions, as they are often trying to save their own institutions. Often such leaders have to continue living a delusion, as they’ve so often promoted the “prosperity gospel” side of the inflationary bubble and suckered many into the game with them.
My brother Tom Dorr, Undersecretary of the USDA for Rural Development in Washington, is at the top of this list of economic illiterates. Years ago, I asked him how the Federal Reserve expands the money supply. He couldn’t give me a cogent answer, at least one that was logical and didn’t involve stealing from the middle class. Frustrated with my follow up questions, he cut off the conversation. He should have been able to provide clear answers, because at the time he was serving as on the Board of Directors of the 7th Federal Reserve System Bank, Chicago, IL. Two years ago, as Undersecretary of Agriculture he told a group of farmers in Waterloo that they should mortgage the farm and invest in ethanol. See http://webstar.agrinews.com/agrinews/304292925088801.bsp Sadly, I fear the farmers around Hartley, IA and Welcome, MN listened to that advice…which was designed mostly to expand the credit bubble and stimulate agricultural debt/spending. (Oh, yes, yes the cash flow projections always look great…don’t they always during such inflationary expansion?) Yet, we learned a few weeks ago that VeraSun is “delaying” the opening of their brand new ethanol plants…lack of profitability. And Tom said they should mortgage the farm to invest in this shell game? I tried to warn farmers not to listen to him.
My brother, as a senior federal government official, was selling fool’s gold and based on conversations we had 25 years ago, I am convinced he knew he was doing it.
All such people like Phipps and my brother can say with illusive vagueness to the real reason for commodities prices/food going up through the roof is because the “dollar is weakening.” That is often the limit of their knowledge. Why is it weakening? The dollar is going down because the Fed creates so many of them out of thin air (trillions) while producing little else of real value. Thus, the value of the dollar must collapse and the limited goods and commodities are then run up in price.
The Fed/bankers are stealing your fixed income from your job and farm by diluting the value of your current income stream. Massive amounts of phony new “money” have to go somewhere so they chase up the cost of commodities. Sellers demand more because the value fo the dollars they receive are being diluted by the Fed. As monetary inflation creates price inflation, local bankers and GSE’s (government special enterprises…FannieMae, Farm Credit, etc.) get on board, throw out reasonable credit quality rules and everyone rides the inflationary rocket. Real earnings be damned, we can always roll the non-performing loans in to a new bigger loan as price stimulation keeps pushing asset values higher.
Phipps provides no knowledge that his own local banks in Edgar County, IL, have contributed to this mess, going from 67.5% loans to core deposits in 1992 to 106.8% the end of March 2008, according to www.FDIC.gov For those of you who remember the mid 1980s with me here in the bank in Eastern Osceola County, let me put this in perspective. With all the farm sales and families moving out during the 1980s the banks of Osceola County probably ran a 45% loans to deposits ratio. This was likely very close to the statewide average in Iowa and Illinois at the time.
But when the Fed floods cash into an economy and the inflation takes off they expect everyone else to get on board with it. If the banker doesn’t make the loans his profit margin will collapse and falsely-stimulated debt-driven economic spending will leave him behind. If he doesn’t get on board his customers will go elsewhere. Soon his loan portfolio is looking poorer, so he must get on board and start refinancing and making news loans.
The entire mess is a growing nightmare that is only stopped with great human suffering. But when it stops the first rats off the banking ship will be the ones who might hold things together. Keep in mind, I was a leading failed-bank acquisition and troubled bank turn-around consultant in the mid to late 1980s here in Iowa and often worked directly with the FDIC. Let me put the current banking situation in perspective.
With all the turmoil – the shooting of bankers, farmer suicides and depopulation we saw in the mid 1980s the rural banking system still had twice as much internal liquidity then, as it has today. Again, notice the banks in Mr. Phipp’s own county – Edgar County, IL. By early 1992 they were up to 68% (likely from the low 50’s six to eight years before). Today the banks in Phipps’ own county are at 107% loans to core deposits. THEY HAVE NO INTERNAL CASH LEFT. For those of you who live in Osceola County, Iowa the Osceola County Taxpayers Association are doing depositors a favor by posting these same trends for locally chartered banks on their website found at http://www.osceolataxpayers.org/?q=node/17 (Click on the “here” tab in the article to see the bank’s graphed trends.) You will note, though even historically high for them, the Melvin Savings Bank has been the most prudent bank in the county. This has been true for years.
The internal liquidity of the Midwest banking system is gone. Iowa and Minnesota bank averages are both above 100% That means for every $1 of core deposits left in the local banks, the banks have loaned out all of it and borrowed even more cash to fund the loans they make. This would have been considered highly reckless, if not criminal 25 years ago, when we lost more banks in the Midwest then anytime since the great depression. I imagine most younger bankers today can’t fathom the reality that is to come.
Further – from Sallie Mae to Freddie Mac, from Farm Credit System to Sub-prime pools….the entire liquidity system has only now become – rightfully – alarmed (or worse) that this runaway lending system can no longer be serviced. It is unhinged from reality. They only kept it propped up by making more loans. But all inflating balloons eventually pop.
So why is this hog farmer’s banker (cited below) pulling the plug so fast? My guess – he sees it coming at him like a freight train. If the Fed and FHLB stop lending him overnight cash, he has no internal cash left. (If his lender’s funding source is a GSE, then he knows how rapidly their sources are backing off and/or running up the cost of funds.) He has decided to be one of the first rats off the ship and get as much of his cash back as soon as he can!
My fear is that it’s going to get much uglier. I pray to Almighty God I am wrong….but the liquidity system is broken. Even today, see – http://www.ft.com/cms/s/0/3d1a93e2-4c61-11dd-96bb-000077b07658.html
It was broken in 1913 with the making lawful that what God calls an abomination…unjust weights and measures. That is the year the Federal Reserve Act was passed. Historical Note: The father of Warren Buffet (richest man in the world), Nebraska Congressman Howard Buffet, strongly opposed our fiat money system, in Congress in the 1940s. World famous pilot and Minnesota native Charles Lindbergh’s father, Charles A. Lindbergh was a US Congressman who actively opposed the Federal Reserve Act in 1913.
Fiat money will destroy our economy and society. We need to repent of it.
–Paul
http://johnwphipps.blogspot.com/2008_06_01_archive.html
The human face of demand destruction…
I think we have reached the tipping point for the pork industry. And it is worse than I feared.
I received this e-mail from a hog producer who won’t be buying any more $7 corn.
My wife and I are in our Mid 40’s with two grade school boys that work on the farm as much as we do. After graduating from college I worked in Ag Business for 10 years before returning to the farm full time. During our 21 years of marriage we have purchased 387 acres and paid it off. We were able to build swine contract grower facilities and paid them off. Two years ago we started a 1200 sow unit, Mortgaged our other assets and secured a contract with a farm family two counties away to finish the pigs. On June 12, 2008, we were notified not to ship pigs on Friday as they could no longer pay for them. Now we are faced with a cash price of $10-$12 per head instead of the contract price of near $50. Working capital ceased to exist. As I have been up front with our Cooperative Lending Firm, I notified our lender of our inability to make our monthly payment. We have never missed a payment in 21 years. His suggestion was to sell all of our land, liquidated our sows and seek off farm employment. 30 Days earlier he told up ” they’re in it for the long haul.” To bad our Cooperative Bank is no longer interested in livestock loans. We are looking at liquidation. My youngest son is in the first year of 4-H and doesn’t want to attend the fair next week because he is afraid this lender will repo his garden and puppy. We are hearing of generational livestock family farms in our community that do not know if they will survive the summer. The loan officer has a FSA guarantee on our loan, the crop farmers have the LDP safety net, and we have nothing but speculators driving us off the farm. We need action now as we can’t wait for congress to deliberate for weeks. The war between hog farmers, crop farmers and loan officers has begun. It is too bad we are the first casualty.
This is only one anecdotal data point, of course. [If any of you have other stories , please forward them to me] But my early read is lenders are panicking and leaping to harsh financial triage that at the very least seems at odds to the words of commitment and trust that have flowed at annual meetings and customer appreciation days where I have spoken.
Meanwhile, another front is becoming more active in our battle with our best customers.
A debate is raging within the state and nation’s agriculture industry about the high costs of food and how much ethanol is contributing to it.
With Nebraska feedlot owners facing feed costs of as much as $300 per head, Nebraska Cattlemen is asking the U.S. Environmental Protection Agency to reduce the nation’s renewable fuel standard (RFS) within the Clean Air Act to 4.5 billion gallons.
On the other hand, Nebraska Farm Bureau is urging EPA to deny the recent request from the State of Texas for a waiver of the Renewable Fuels Standard (RFS). [More]
Grain farmers are not only getting rich, they have effectively decided to join with food critics and lower our meat consumption
