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Corn+Soybean Digest

Headwinds in the Economy: Part 2

Last time we discussed some of the components running against the wind in the domestic and global macro-economies. Let’s continue the discussion.

Stimulus
What happens when the U.S. and world governments take the training wheels off the economy? Stimulus packages have been coordinated around the world in major economies. The results have been more apparent in China and other emerging countries – which represent 18% of the world economy – than in the U.S. In North America, the stimulus boost has been less noticeable; however, it appears growth in the Gross Domestic Product (GDP) and will be moving toward a positive number in the third and fourth quarters of this year. A major question that still has not been answered is what are the new engines for economic growth when the economy turns around? Perhaps someone needs to let our leaders know that it may be agriculture. The agriculture industry produces something tangible that can be exported, and, if positioned correctly, creates employment. The industry is very broad in the production of food, fiber, fuel, products for the life sciences and life experiences.

Taxes
In my so-called “town hall” conferences, which expose me to many corners of the planet, there is major concern about tax increases. These include the local, state/provincial, regional and federal levels of taxation. If one examines the Great Depression era, it is interesting that a tax increase contributed to a second economic downturn in the late 1930s just before World War II. In agriculture, many increases are likely to occur in the next 18-24 months as tax laws change.

New Federal Programs
Finally, the wide range of government sponsored programs, including cap and trade, health care reform and regulations on business and banking, has many individuals uneasy. When people are concerned, confidence in investment spending and business direction becomes quite conservative.

Only time will tell whether these headwinds will create business conditions akin to a joyless, jobless recovery, or whether we reinvent ourselves and move on.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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