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Cooperative Network


Troubling U.S. Economic Trends Likely to Continue, says Kluempke

The United States’ precarious economic position is not on course to improve significantly any time soon, despite slight growth in the third quarter of 2011, warned Patrick Kluempke, executive vice president of corporate administration at CHS Inc., St. Paul, Minn., the nation’s largest cooperative. Kluempke, who is also a member of the Agriculture Advisory Board for the Federal Reserve Bank of Minneapolis, presented a grim overview of the nation’s economy at Cooperative Network’s annual meeting.

Kluempke opened his remarks by reviewing the country’s decreasing wealth from 1999 to 2010. He explained the U.S. national public debt, which stands at more than $15 trillion, consists of money owed to foreign investors, predominantly China, as well as intergovernmental debt held in accounts such as Social Security and Medicare. Those debts started becoming due in 2007. In addition, gross domestic product has been declining in all sectors except service, unemployment and especially underemployment are high, and consumer confidence has been regressing or in a negative mode since 1970. Consumer debt outstanding, including mortgage debt, also keeps growing and now stands at approximately $37,200 per person.

With these troubling trends, Kluempke said it is becoming an accepted fact that by 2018 China will have surpassed the United States as the world’s wealthiest country. While this change in status would take some getting used to, he said it would become alarming if the currency of global trade ceases to be the U.S. dollar and becomes instead the Chinese Yuan or the Euro. “That would not in our best interests, all bragging rights aside,” Kluempke said.

Kluempke listed four percentage points as significant factors in understanding the extent of the nation’s economic struggles. The first, 3–3.5 percent, refers to the growth rate in gross domestic product needed to simply maintain the current level of employment.

The second, 16 percent, refers to the number of households in the United States that are now below the poverty level.

The third, 62 percent, is the portion of households that now have home ownership. Kluempke pointed out that in most western developed countries, the home ownership level ranges from 39 to 51 percent, and many economists state that 68 percent is unsustainable. The United States’ figure was as high as 69 percent in 2006, the height of the housing boom.

The final, 101 percent, refers to the United States’ debt to the wealth creation of the economy. Kluempke noted that lenders start to get nervous when this level reaches triple digits. “We are in the yellow zone,” he said.

Kluempke called the current recession the deepest and most prolonged the country has seen since 1929, due in part to the housing collapse occurring alongside the financial crisis, as well as 10 years of international conflicts that have been funded solely by borrowed money. Economic recovery, he said, will depend in part on a stabilized housing market, increase in consumer confidence, increase in balance of trade, capital investments by private business, and implementation of a balanced approach to fiscal neutrality.

In a question-and-answer period, Kluempke addressed the agriculture sector, which also faces future challenges despite its relative strength in the nation’s economy. He said the world’s population growth will result in a 26 percent greater demand for food in the next 10 years. However, the United States is projected to increase food production by 38 percent in the next 10 years. At the same time, other countries are now investing in agriculture technology and developing the one-third of cultivatable land that is not currently being used for food production.

“There will be volatility in the ag market,” Kluempke said. “Get ready for overshoot and under correction.”

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