On Thu, Aug 14, 2008 at 1:54 AM, boddi satva <lbo.boddi at gmail.com> wrote:
> While there is some structural change in the use of commodities, of
> course, this last bit was a bubble.
>
> It's not that slowing growth is going to bring down commodity prices
> in the way described. It's that when the "global super-growth" and
> "commodity scarcity" story broke down, the bubble popped.
>
> The commodity scarcity story just does not hold water.
>
> Most importantly, the rise in commodity prices saw incredible
> correlation among futures markets representing commodities with
> totally different economics. There won't be a shortage of grains next
> year if people plant more. In fact, I'll bet there will be an excess
> of grain next year because people have planted more.
>
> The article makes simplistic, bogus conclusions based on half-truths.
> China, for example, pegs its currency to the dollar, but regulates the
> price of petro-products.
>
> Of course peak oil is either happening or going to happen - so what?
> The peak oil concept - if true - predicts a very slow decline in the
> amount of oil produced after the peak - not sudden rises of 50-100%.
>
> The exchange-rate stuff is interesting, but the headline stuff is junky.
>
> I would predict that the problem the world will face is DE-flation.
> Yes, it's true that the developing nations are producing more for each
> other, independent of the rich nations. But it's also true that their
> growth has been tied to production for the rich nations. EU and US
> deflation would and likely will kill that growth, leading to further
> panic unwindings of the "scarce commodities" bubble trade.
>
> On Wed, Aug 13, 2008 at 8:03 AM, Marvin Gandall
> <marvgandall at videotron.ca> wrote:
>> The traditional strategy of cutting interest rates to cope with a financial
>> crisis hasn't worked this time because the core capitalist countries no
>> longer dominate the global economy as they once did. The devalued USD
>> coupled with rapid economic growth in in China and other newly emergent
>> economies whose currencies are pegged to the dollar have sent food, energy,
>> and other commodity prices soaring. Central bankers have "awoken to an
>> uncomfortable reality that focusing on a regional financial shock (has) led
>> them to ignore a global commodity shock", says Jean Pisani-Ferry in
>> yesterday's FT.
>>
>> Even if a global downturn temporarily brings down commodity prices, "a
>> lingering scarcity of fossil energy and agricultural commodities is likely
>> to remain", requiring greater international coordination of monetary and
>> fiscal as well as trade policy. "Success, however, will only be possible if
>> the G7 countries admit that the days when they were running the show are
>> over", Pisani says. He could have added that today's interwoven class and
>> national conflicts stem from the contradiction between this need and that of
>> a declining US empire desperate to maintain its hegemony in a unipolar
>> world. The article can also be read as a faithful reflection of the views of
>> European policymakers, and a source of their tactical disagreements with the
>> Bush administration. (MG)
>>
>> * * *
>>
>> Policy is a matter for the world, not just a rich club
>> By Jean Pisani-Ferry
>> Financial Times
>> August 12 2008
>>
>> As the collapse of the trade talks in Geneva in July made clear, there is no
>> longer any meaningful trade negotiation without the main nations from the
>> emerging world. The year 2008 may go down in history as the one in which
>> rich countries discovered that this applies to macroeconomic policies, too.
>>
>> In January it looked as if the opposite lessons could be drawn from events.
>> For a while, Ben Bernanke at the US Federal Reserve and Jean-Claude Trichet
>> at the European Central Bank seemed to be the only relevant policymakers in
>> the world – and they were, as far as liquidity strains were concerned, if
>> only because the US and Europe account for about two-thirds of the global
>> supply of financial assets.
>>
>> But as months went by, it became clear that countries affected by the shock
>> represented merely a half of world gross domestic product, two-fifths of
>> global energy demand and not even a third of world cereal consumption.
>> Furthermore, rich countries have significantly less weight at the margin:
>> their contribution to world growth is about half their share of world GDP,
>> so one-quarter of the total, and the same rule of thumb applies even more to
>> the demand for oil and foodstuffs. So in the market for scarce commodities,
>> the effects of the slowdown in the US and Europe were offset by domestic
>> booms in the emerging world.
>>
>> By the end of spring, policymakers in the Group of Seven leading nations had
>> awoken to an uncomfortable reality that focusing on a regional financial
>> shock had led them to ignore a global commodity shock. Worse, thanks to the
>> fact that most emerging and developing countries in Asia and the Gulf were
>> part of a de facto dollar zone, actions taken by the Fed to address
>> financial stress in fact compounded runaway domestic demand in those
>> countries and fuelled global hunger for commodities. In spite of rising
>> inflation, real interest rates in the main emerging countries are still
>> inappropriately low or even negative.
>>
>> Stagflation is not here to stay. East Asia is unlikely to remain immune from
>> current near-zero growth in Europe (to where it exports about 5 per cent of
>> its GDP) or, even more, from forthcoming deterioration in the US (to where
>> it exports almost 7 per cent of its GDP). Commodity prices have started to
>> decline. However, the underlying issue will not go away, for two reasons.
>>
>> First, lingering scarcity of fossil energy and agricultural commodities is
>> likely to remain and to change the macroeconomic scene significantly. For
>> about two decades, since the start of the current wave of globalisation, it
>> seemed that there were no real speed limits to global growth.
>> Disinflationary forces coming from the increase in the global labour force
>> and the weakening of organised labour were powerful enough to ensure an
>> environment of low prices worldwide. This Goldilocks era has ended and the
>> world economy is likely, over and again, to test the speed limit stemming
>> from constraints on the supply of commodities.
>>
>> Second, in the same way German unification revealed the fault lines in the
>> European monetary arrangements of the 1980s, the current episode has exposed
>> the fault lines in the so-called "Bretton Woods 2" arrangement, whereby a
>> large part of the emerging world pegs to the US dollar. But for the
>> direction of the shock (a boom then, a slump now), what is happening now is
>> in many way a repetition of what happened then to the European exchange rate
>> mechanism: here, a shock to the anchor country that desynchronises it from
>> its monetary bedfellows.
>>
>> So the question is: what do we need to manage interdependence better? A
>> straightforward solution would be for the main countries or groupings to
>> target domestic inflation independently in the context of flexible exchange
>> rates. The proviso is that for such a solution to work participants would
>> have to target total, not core, inflation (this may seem obvious but it has
>> apparently escaped some policymakers, who claim that there is nothing they
>> can do about inflation because it is not home-made). This is more or less
>> the arrangement industrialised countries came to a decade or so after the
>> collapse of Bretton Woods. It involves minimal co-ordination and can
>> accommodate differences in preferences. In the European case, it has proved
>> compatible with tighter regional agreements – including a single currency.
>>
>> The problem is that a large part of the emerging world, starting with China,
>> is not ready for independent floating. There are genuine obstacles to it,
>> such as incomplete financial liberalisation and resistance stemming from the
>> fear of uncontrolled appreciation. However, there is no reason why a
>> preference for managing exchange rates should imply the status quo remains.
>> Adjustments are needed and the current de facto dollar pegs are often at
>> odds with the countries' foreign trade. From basket pegs involving
>> currencies other than the dollar, especially the euro, to innovative
>> solutions such as the commodity peg advocated by Jeffrey Frankel of Harvard,
>> there is a large menu of options to choose from for reformers looking to
>> strengthen domestic and world stability.
>>
>> But with managed exchange rates comes closer policy interdependence. If they
>> are to remain prevalent in one form or another, there will need to be more
>> co-operation in setting reference rates and monitoring aggregate demand.
>> This implies multilateral discussions on exchange rate arrangements as well
>> as on domestic demand policies and domestic subsidies to oil and food
>> consumption. From an institutional standpoint, this also implies going
>> beyond the existing loose arrangements or mere lunch invitations such as the
>> last G8 summit in Hokkaido. The G7/G8 is not the appropriate forum for
>> macro-financial matters any more. A frank policy dialogue between emerging
>> and developed countries requires an appropriate venue.
>>
>> The one option that is not advisable is to ignore the lessons from this
>> year. For some time now, globalisation has been increasingly difficult to
>> sustain politically, in spite of having brought income gains and low prices
>> to the citizens of the advanced economies. It will already be much harder to
>> convince the same sceptical citizens that they must accept it despite the
>> fact that it brings higher commodity prices and lower incomes. It would
>> simply be impossible to make the case for it if, in addition, it were to be
>> perceived as a source of enduring instability.
>>
>> Exchange rate arrangements and their implications for global macroeconomic
>> management should thus be a priority topic for the international community
>> and especially the International Monetary Fund. The Fund is looking for a
>> renewed purpose; here is one that belongs to its core mission and where it
>> has no substitute. Success, however, will only be possible if the G7
>> countries admit that the days when they were running the show are over.
>>
>> The writer is director of Bruegel, the European think-tank
>>
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>