The Black Farmer, the CBC and Deflation II
If the problem of the Black Farmer is ever to be solved, U.S. monetary policy will have to be addressed. Last year, at the Congressional Black Caucus Agricultural Braintrust, I sat for nearly two hours in a room full of angry farmers as they expressed their concerns over their badly handled lawsuit against the U.S. Government in front of a panel of lawyers, Black Caucus members and farmers. Agricultural Secretary Dan Glickman was not even present as the most horrible problems and mistreatment that the farmers received from the U.S. Government were vividly depicted. 9-23-99 The Black Farmer, the CBC and Deflation II
When Glickman finally entered the room all of the farmers had vented their concerns and we all listened as he spoke around most of the issues of concern to the farmers. I was especially taken back by the words of praise that two members of the Black Caucus heaped upon Glickman prior to his talk. It was as if they were inoculating him from the anger of the farmers. Of course he returned the words of praise to these Black elected officials.
At the end of his talk I was stunned to see that the Secretary had not taken any questions from the farmers. I was even more surprised to see that the farmers sat in silence not willing to stand and approach the microphone. It was sad. I could not believe that this room of angry Black Farmers seemed almost afraid to take their heart-felt issue to the man at the point of the U.S. government's farm policy.
I could not allow the silence to continue and with the encouragement of the editor of BlackElectorate.com, Charles Muhammad, approached the microphone to at least raise the issue of U.S. monetary policy - what follows is a summary of my exchange with a startled Glickman.
At last week's Congressional Black Caucus annual conference I asked United States Department of Agriculture Secretary Dan Glickman why the Clinton Administration was not publicly admitting that the precipitous drop in the price of farm commodities such as wheat, corn and soybeans was due to the tight monetary policy of the Federal Reserve. In Sec. Glickman's address to the CBC's Agricultural Braintrust, he attributed low farm prices to an oversupply of farm commodities and the lack of demand for those products. I did not accept Glickman's rationale due to the fact that the drop in farm commodities had been preceded by a drop in the dollar price of gold. If one tracks the fall in the price of gold from a high in 1996 of $385 per ounce to its current low today of around $260 per ounce and links that 32% decline in the price of gold to the 30%- 40% decline in the price of commodities like soybeans and wheat, it becomes clear that there exists a connection between gold's fall and that of farm commodities.
Unfortunately, Glickman and the members of the United States Congress focus on the 30-40% drop in farm prices and ignore the drop in the gold price that took place prior to the drop in farm commodities. Furthermore, the Clinton Administration- beginning with Treasury Secretary Larry Summers and ending with Secretary Glickman- refuses to publicly admit that the drop in the price of gold is due to the monetary policy of the Federal Reserve over the last three years. Since 1996, the Federal Reserve has not supplied the quantity of dollars that the world has demanded and this has resulted in falling prices as an insufficient quantity of dollars chase after a world of goods and services. This is what is known as a deflation and it is characterized by a drop first in gold, then oil, metals, farm commodities, land values and finally wages. Fed Chairman Alan Greenspan is very much aware of the process and the order in which it occurs as he has been watching the value of gold for over 30 years and has referred to it as the best indicator of whether an economy is undergoing an inflation or a deflation.
My question to Sec. Glickman concerned all of the above and I prefaced it with a comment expressing my hope that the CBC would begin to make monetary policy arguments to the Clinton administration and Federal Reserve. Sec. Glickman responded that my question was a very good one and that the deflation was a factor but he countered that there were other factors that were creating a confluence of forces that were dragging farm prices down. Here are the three points that Glickman emphasized in response to my question. I include my counter argument in italics to each of his points.
The Strong Dollar. Sec. Glickman's initial point was that the strong U.S. dollar was making it difficult for U.S. farmers to export their products to countries around the world. This is because when the dollar is strong American goods cost more in foreign markets. Glickman's emphasis was on the value of the dollar relative to other currencies- which fluctuate in value. He failed to speak of the value of the dollar when measured in terms of gold- which is the best indicator of an inflation or deflation. The value of the dollar in terms of gold has increased and this is a result of the Fed's undersupply of dollars.
Oil. Sec. Glickman stated that if my argument was totally correct the price of oil would not have rebounded as it has from its initial drop. Glickman is correct to point out the unique nature of the behavior of the price of oil. The price of oil did fall dramatically over the last 3 years and subsequently rebounded but oil is being impacted by 3 short-term factors that provide a temporary buffer against deflationary pressures. These 3 factors which Glickman apparently is not taking into the consideration are 1) the impact the Gulf War had on the oil market 2) the fact that OPEC is able to temporarily affect the price of oil and 3) Y2K worries concerning oil are being included in its price. With suspicions that oil-producing countries are not Y2K compliant, the market is demanding oil in order to build up inventories in 1999 in the event that oil shipments are adversely affected by computer glitches. Senator Robert Bennett who heads the Senate's Y2K subcommittee has been informing others that he believes America's biggest Y2K worries will come from abroad and particularly from Venezuela- the country that sells the U.S. more oil than any other.
Asian Markets. Sec. Glickman added that the Asian financial crisis was a factor in the drop in farm prices due to the fact that Asian markets, since the crisis, have closed their doors to the exports of other nations. I informed Glickman that while this was true he was not going to the root of the Asian crisis which was the monetary policy of the Federal Reserve. I encouraged the Secretary to go back and look at when the first country in Asia devalued its currency That country was Thailand and I told Mr. Glickman that the Thailand baht was devalued in response to the deflationary pressures that were coming from the U.S. dollar when the dollar price of gold fell from $385 to $315 per ounce. Because the baht was pegged to the dollar it had to follow the dollar's downward trek and eventually found it too much to handle and thus the currency was devalued.
After my Q&A I discussed the impact of the deflation with a member of the Congressional Black Caucus who indicated that they were unfamiliar with such arguments but would have other members of the CBC look into them. Let's hope so, as the Black farmer, currently mired in a messy lawsuit with the USDA, does not have one monetary policy advocate from within the Black Political Establishment. The vulnerability created by such a vacuum in leadership was readily apparent during Sec. Glickman's 35-minute speech to the Black Farmers, where he did not mention the monetary deflation once. This was an especially glaring omission for Glickman to make before the CBC and the Black farmers because on Sept.15, before the Agricultural subcommittee, Glickman admitted that there indeed was a "worldwide monetary deflation" and that farmers were suffering because of it. Why didn't he do the same before the Congressional Black Caucus and furthermore why wasn't he pressed to do so by anyone other than me?
The Black Farmer, the CBC and Deflation II
Thursday, May 11, 2000