California’s Drought Could Tip America Toward Economic And Social Turmoil

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Drought

“We never know the worth of water, till the well is dry.” — saying No. 5451, as collected and listed in Gnomologia by Thomas Fuller, M.D.

Some of the worst drought conditions in recorded history have stricken California, and this will have a blistering effect on America’s economy.

California is into its third year of severe drought, a situation that promoted U.S. Agriculture Secretary Tom Vilsack to announce $9.7 million in new agriculture aid. This will top the Barack Obama Administration’s aid to the Golden State at more than $50 million dollars, a total that will undoubtedly grow because of Washington’s worries of a perfect storm — a tsunami of illegal immigrants and a dearth of water.

Last Saturday, the Los Angeles Times carried a story headlined, “California drought will only get worse, experts say.” The story reported that 80 percent of the State is suffering extreme drought, and Brian Fuchs of the National Drought Mitigation Center believes that conditions are not likely to improve. When asked if it is possible that the State is suffering its worst water shortage in 50 years, Fuchs suggested it could be the worst drought in 200 to 300 years and then understated the situation by saying, “It would be a significant event.”

Fuchs echoed what B. Lynn Ingram, a professor of earth and planetary sciences at the University of California, Berkeley told The New York Times in February, “We are on track for having the worst drought in 500 years.”

An understanding of the implications of a major weather change dating back half a millennium on a crucial region of the world is difficult to understate.

The Most Precious Commodity

Economic implications in themselves from such drought have to be seriously weighed. California Ag-growers are a critical part of the State’s economy, which is the largest in the Union. Besides being the No. 1 agriculture-producing State in the U.S., California has the world’s eighth-largest economy, with a gross State product of more than $2 trillion, or more than 13 percent of the total U.S. gross domestic product. A key component to California’s economy is agriculture.

As a cattle and grain writer for my first few years out of college, I can tell you water is the key component in being able to raise livestock or grow crops. And I know the stories that my father and uncle told about the Dust Bowl and how it endured in their memory because of the personal hardship they saw.

Given that California is the fifth-largest supplier of food and agriculture commodities in the world with annual sales of more than $44 billion, a catastrophic drought will have serious implications that will be felt throughout North America and beyond.

Fortune reported last week that the drought will cost the State $2.2 billion alone this year. And if dry conditions persist as expected, that total will escalate quickly, leaving the U.S. particularly vulnerable to inflation. Already, the dollar has been severely undermined by the Federal Reserve’s campaign of buying U.S. Treasuries, creating escalation in the money supply over the past few years. Inflation has been offset to a large degree because of the excess of cheaply imported manufactured goods (particularly from Asia) and a surplus of farm commodities within North America.

However, the first indicators of inflation are already present. The U.S. Department of Agriculture reported that the cost of food has increased 2.5 percent in the past year. That is a good number, but the Federal government is predicting — overly cautiously, I believe — that food prices will rise by an additional 3.5 percent in 2014, with prices for dairy and fresh vegetables expected to increase the most.

This is still modest inflation compared to what we can expect in 2015, and that is because California’s agriculture industry is desperately tapping groundwater. This cannot persist forever; because like oil, groundwater is a finite resource.

Last week, The Associated Press reported on the escalating West Coast drought and a study from the University of California, Davis, Center for Watershed Sciences. :

“It’s tougher than we thought,” Richard Howitt, a University of California, Davis professor emeritus of agriculture and resource economics.

The drought has not driven up food prices because crops such as corn and grain can be grown in other areas of the country, and farmers in California can use their more expensive water on specialty crops such as almonds that already fetch a high price from consumers, Howitt said.

To nourish those crops, farmers have been pumping more groundwater as the mountain snowpack sends less water to state reservoirs and canals. Howitt urged farmers to take the lead in managing their scarce groundwater.

The groundwater is not being replenished…

La-La Land Is A Smelting Pot For Social Unrest

The media and the markets are looking at the global unrest in Eastern Europe and the Mideast. My worry is a domestic uprising. California has a bad record when it comes to riots. Given the social and political problems presented by wave upon wave of illegal immigrants and now this looming water crisis, an explosive fuse may have been set at the Nation’s southwestern edge. It is important to consider that this California catastrophe did not begin this decade with a drought. It manifested itself with race riots in the 1960s and economic upheaval in the 1970s.

In many ways, the promise that was plump for California in the 1950s has been rotted away by liberal evangelists who have packed their propaganda inside the entertainment industry in wanton disregard for the Nation. For its part, much of the country has too easily inhaled California’s crass culture, loose morals and progressive agenda. And the establishment in the East has made it an easy sell over the past half century. But influence and wealth will not take way this impending catastrophe. So it is again that California will be a trend setter for America — not in fashion, taste or culture, but in displacement, unemployment and urban violence.

It all starts and ends with water — the shortage of water in California that could spark violence and the necessity of water to survive it.

Yours in good times and bad,

–John Myers

John Myers

is editor of Myers’ Energy and Gold Report. The son of C.V. Myers, the original publisher of Oilweek Magazine, John has worked with two of the world’s largest investment publishers, Phillips and Agora. He was the original editor for Outstanding Investments and has more than 20 years experience as an investment writer. John is a graduate of the University of Calgary. He has worked for Prudential Securities in Spokane, Wash., as a registered investment advisor. His office location in Calgary, Alberta, is just minutes away from the headquarters of some of the biggest players in today’s energy markets. This gives him personal access to everyone from oil CEOs to roughnecks, where he learns secrets from oil insiders he passes on to his subscribers. Plus, during his years in Spokane he cultivated a network of relationships with mining insiders in Idaho, Oregon and Washington.