Why Invest in Farmland? As an Inflation Hedge Against the Massive Debt Overhang in the UK and elsewhere

In looking at the rationale for farmland as an investment,  we just came across a pretty scary chart below on the total debt to GDP in some of the major global economies.  The numbers are scary, particularly in the UK and Japan where it is over 500pc.  How could this debt possibly be serviced?  The answer is, it cannot be, at least in any rational sense of the word.  We believe that governments will do what they have always done, which is to lower debt by printing additional money - probably through Quantitative Easing (QE) or some similar method - which will lower the real (as opposed to nominal value) of this debt.

Agricultural investments in land will provide investors an hedge against inflation as a "hard asset", whilst also providing a steady stream of good dividend income and offering excellent upside potential for capital gains due to the ongoing agricultural "super cycle" as coined by noted farmland and commodities investor Jim Rogers.

Massive Debt Overhang in Global Economy Ensures Addition QE and Printing of Money

Goldman Sachs and Bond King Bill Gross: QE3 is on the Way in the United States

Printed Money and Quantitative Easing

Yet another reason to consider real asset alternative investments.  Both Goldman Sachs as well as noted bond investor Bill Gross are now predicting that the the next round of Quantitative Easing - QE3 - is on the way for the US.

As the graph demonstrates, there has been a huge move vertically in the size of the US monetary base since the financial crisis began, all from newly created money by the US Central Bank the Federal Reserve.  However, lest those opposed to QE criticize the Americans too harshly, it is well worth noting, as we did in an earlier post, that both the ECB and the PBoC (the Central Bank of China) both have larger monetary bases then the American FED.  For those who may have been contemplating the notion of investing in real assets, the latest news from the markets is yet one more reason to look at this option to hedge against inflation.

Will the ECB Turn to Quantitative Easing to Rescue the Eurozone Europe?

If you look at the graph below, unemployment in Spain and Greece is at or above 20pc, and its nearly 14pc in Portugal and Ireland.  It seems inevitable that the ECB will need to embark on a massive QE program to save the PIIGS economies, most likely by printing money to buy the sovereign debt of these countries to keep the interest rates on that debt down.  Whatever the short term affect of this action, it still seems that at some point in the future this newly printed will leak into the real economy.  Hence, it makes sense to look closely at real asset investments now just as a hedge against future inflation.  The numbers below are tragic, and are more evidence of the madness behind the idea of a single currency for 17 separate and disparate nations.