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.
