[lbo-talk] Fed driving commodities bubble?

[brad]

Wow, that graph is pretty convincing.  However you nail it when you
point to the 2008 bubble.  There is a great graph in this
http://www.wdm.org.uk/food-speculation/great-hunger-lottery  report on
page 11 that shows the correlation between the number of long
positions by index traders and IMF food price index.  So what are the
mechanisms by which QE would drive up food prices, if any.  First, in
both the 2008 and this food bubble the US dollar value declined which
raises food prices.  Last time I checked there wasn't really a tight
correlation between QE and the devaluing of the dollar.  The second
argument is that it is fueling liquidity that flows into commodities
as an investment.  Of course the financial press has been harping that
QE will lead to inflation for a couple of years and investment firms
selling commodity index funds have been pushing them as a hedge
against inflation since 2006 or so (if you watch financial shows you
will quickly see them featuring advertisements making this claim).  So
it is unclear what is the dog and what is the tail.

Brad