Beef Magazine is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Bad Politics, Or Too Many Variables?

After several years without a budget and unprecedented growth in the national deficit, one rating company recently downgraded the U.S. credit rating. Another issued an ultimatum that if the deficit was not reduced substantially, it would downgrade the U.S. as well.

Many of us knew that the European socialist model we have adopted wasn’t sustainable. Socialism works great until you run out of other peoples’ money to spend.

Greece, Spain and Portugal are prime examples that profligate spending has a price and eventually those bills come due. The financial irresponsibility of these countries has threatened to collapse the Euro and plunge the global economy into another deep recession. Though it now appears that wealthier European countries will step in and prop up these countries to avert economic default, that window will eventually close.

The dire predictions of economic ruin may not be wrong, and the situation remains very tenuous. Yet, in trying to enact measures to right the dire financial situation – such as longer work weeks, fewer vacation days or more austere social benefits – the governments of these financially beleaguered nations have been answered with violent street demonstrations.

Let’s say a college kid is given his parents’ credit card to buy schoolbooks, but ends up amassing $20,000 worth of charges. The parents are forced to mortgage their house to pay off the debt, and the kid is forced to spend the next five years working full time while attending class to pay back his parents. That’s the way things should work.

The model that governments are using, however, is merely paying off someone else’s debts by incurring more debt, even though the current debt load is already insurmountable. The U.S. government essentially mandated that Fannie Mae and Freddie Mac make bad loans. These, in turn, created a housing bubble and a resulting real-estate crash that threatened to bring down our entire financial system. Once again, the government stepped in, bailed things out with more borrowed dollars, and we continue headlong down the same merry path.

The downgrading in our rating was supposed to increase interest rates, making it more difficult to pay, and causing the world to move away from the dollar and reconsider loaning us their money. None of this happened; in fact, interest rates continue to decline and the world’s money has continued to flood into the U.S. to finance our debt. That’s because, despite all our problems, the U.S. sadly still appears to be the safest bet out there.

Sure, we transferred the debt created by the meltdown to the U.S. government, which borrowed it from China and others, but it’s merely a postponement of the inevitable.

All politics, all the time

The supposed government shutdown over the budget crisis was all politics. While the Republicans were accused of being draconian, cruel and overzealous in their attempts to cut the deficit, the reality was that even the adoption of their original proposal would not have decreased the deficit; it would just have slowed the growth in debt. The truth is neither party proposed doing anything substantive; it was merely political posturing for their bases.

The U.S. merely took out a third mortgage on its house. It bought itself a little time, but still has no way of making the balloon payments that are coming due.

The U.S. cattle industry is a little like this as well. We’re looking at price levels at absolutely unprecedented levels over the next five years, which understandably creates some deserved excitement. Very good money will be made by those who are in the business, but we have no plan to address the fundamental issues that have caused this industry to decline so precipitously in numbers.

Yes, it’s true that we are at the mercy of Mother Nature. And, the subsidization of ethanol is being played out at such a high level that cattlemen's objections have virtually gone unheard. I must admit, however, that the realization by the environmental movement that ethanol subsidies are bad policy, its rejection of its long-term viability by the energy industry, and the concern over the debt have made ethanol mandates more precarious than we once thought possible.

Still, I would argue that we should continue to fight for free-market solutions and support measures that will limit the impact of the ethanol program. These include the bills that would tie subsidy levels to corn price, and the attempts to end some of the credits and tariffs, and limit increases to the mandate. But, we also must accept that ethanol is real and that the livestock industry will be smaller as a result.

Nonetheless, we should spend the bulk of our time focused on building demand and growing our industry, as those are outcomes we can affect. It’s time to take a hard look at the numbers and the facts, whether as a country or an industry, and begin to address the underlying realities that will affect us over the long term.

For whatever reason, the U.S. government seems incapable of addressing the fact that it continues to spend far more money than it has. We’ve already made withdrawals from our children’s future that nobody believes we can pay back.

Is the beef industry any different?

Meanwhile, the cattle industry continues to spend inordinate amounts of time trying to blame the markets when the markets are actually working. I’ve spent a lot of time this summer and fall at the evil corporate feedyards, and even some time at the ruthless multinational packing conglomerates, that are supposedly the problem. And, I have to tell you that, while I harbor no illusions about the fact that they are margin operators and as such try to buy their inputs as low as possible and sell their outputs as high as possible, I also can unequivocally state they are fiercely competitive, and amazingly efficient in helping us create value for our product.

Every time I go there and see the technology they employ, the economies of scale and the sophisticated business acumen they bring to maximizing the value of our product, I’m truly thankful they exist. I honestly believe the fact that there will be fewer of them is a much bigger concern.

Ironically, it’s not that hard to pinpoint the real issues, problems and opportunities. Nor is it very difficult to come up with plans to address them. The difficulty is finding the will and commitment to make it happen.

TAGS: Legislative