DR Barani in # 11-India Shining:
Asset value wise rich. But earnings(cash flow) wise highly unpredictable and erratic. This in short is the story of agriculturists in India. I am talking about small and medium size land-holdings in the rural India. The large/rich farmers and estates are a different ball game altogether. I am not talking about them. They are more than capable of solving their problems. I have witnessed from close quarters how my father used to pledge ornaments and spend the money for the annually twice agricultural operations and then go borrowing from left and right for meeting social(attending marriages, upanayanams, deaths etc.,) and personal(like medicines, hospitalisation etc.,) needs. Later came the cooperative societies which used to lend for short term on reasonable rate of interest that too against the security of personal guarantees alone. This brought about a remarkable change in his life. He was no more at the mercy of the money-lender and his greed. So giving loans to farmers is a need and if it is addressed by the Government it is good. Even if the Govt. does not address this problem there are usurious mondylenders who will address this need and make money. The theory that Short term loan helps is indeed well founded. Please explain as to the reasons for your saying the opposite.
It was a hundred percent bailout for the banks and 50% bail out of farmers.
Information at the right time in the right hands is money. But then just information alone without cash will not be of much use. Our small and medium farmers need cash for inputs and consumption and that is not available adequately. This at times results in such funny situations like the farmer cooking and eating away all the hybrid seeds given at a subsidy for sowing and cultivating.
In agricultural operations bribe is not such a burning issue and we are able to workaround the corrupt and manage. The farmers credit card is an innovation which helps in this(you don’t have to pay a bribe for every instalment of loan given to you).
Lending to farmers has been happening from time immemorial, but the farming community has remained poor. Poor, illiterate, living on uncertainty, living under the duress of lenders, living under the mercy of middlemen and government. Why didn't the lending to farmers convert them into a rich class? Because, lending, by its design is not investment. It is a scheme to rob the small margin of the farmer of his produce. And if the rains fail even once, if the water supply goes missing due to politics, if the inflation hits their bottomline with rocketing labour costs and sizzling fertilizer prices, no amount of bank loan will help them recover. It is an uncertain industry. This is why banks never lend to farmers on their own, and only under orders from government they lend. And Government is only looking for short term political gains but no interest on improving the comfort levels of the farmers.
Debt has been a trap not only for farmers. Even US government has ended up in unchartered financial territories.
The money itself is a fraud when it is represented by a fiat currency.
1. The money is already borrowed when it gets created. That is how Federal Reserve Bank is involved in the game. It "Creates" a dollar when there is a demand and lends it to the Banks. The banks borrow from Fed at a very low rate (Libor) and forward it to the borrower. The money creation is done by "expanding the balance sheet" of Federal Reserve Bank. When the money is repaid by the borrower to his bank it returns back to Fed which is supposed to "shrink the balance sheet" and "destroys the dollar". Thus the creation of money is already tied to a lending scheme. It is called M1 (money supply 1).
2. Now as the created money is revolving around the capital markets there are times it is temporarily at rest (deposited in a bank). This deposited money is once again loaned to another borrower (to keep it moving instead of resting). This is the Second Level Lending of the dollar. This is called M2 (Money Supply 2). The same dollar is now under multiple obligations. That is not an economically viable model. When Mr.X borrows 1 dollar at 1% and lends it to Mr.Y at 2% it becomes a
lending Pyramid Scheme and eventually becomes unsustainable. The cost of that pyramid scheme ends up as a entropy factor and a loss to the net worth of the dollar.
Hence the fundamental assumption that creation of money must be tied to a lending scheme is flawed when money is easily created at one end. No matter how much effort is taken to justify "value creation" from the borrowed money still doesn't eliminate the entropy factor.
Borrowed economy with fiat currency is at best a Zero Sum game and at worst it is a loss making game. It is close to Zero Sum game if Gold is used as a currency. The only beneficiaries of the lending pyramid schemes are those sitting at the top - the banks. This is why the banking sector ended up owning over 64% of all the liquid wealth. No other industrial sector comes anywhere close to that.
Hence, in the overall scheme, debt is BAD for everyone and farmers with all their weaknesses are most vulnerable.
First of all, people must shed their belief that the only way farmers can survive would be by borrowing in short term. That is an invalid claim. There are better methods and unfortunately both time and resources (as well as intellectual property rights) do not permit me to delve into those methods.
