US Monetary Policy Causing Massive Rise In Commodities, Not Demand


Some (Like Nutting) Really Are Nuts

From Marketwatch:

As much as he might like to take credit for the march of democracy, Bernanke wouldnt do it when he was asked about it on Thursday. He said higher prices reflect strong global demand for commodities due to high growth rates in the emerging economies, not to anything the Fed is doing.

Right.  This is why the following charts are what they are:





We can keep going, but I think you get the point.  When did all of these charts start to move like this?

Right around the time that Bernanke started chattering about QE2.

High “growth rates” in emerging markets started….. when? 

Remember, the global economy allegedly came out of recession more than a year earlier, in 2009, and in fact China posted an 8.7% full-year 2009 growth rate, including the first two quarters – their 4th quarter figure from 09 was 10.7%.

So why did the price ramp not start until more than a year later, when QE2 was talked about?

Kudlow and other critics of the Fed are confused. They think that because many commodities are priced in U.S. dollars that means that any price movements can be traced back to U.S. policies. But the fact that oil and other commodities are priced in dollars is irrelevant in a world of floating exchange rates.

It is?

The Egyptian Pound (EGP) has been pegged to the dollar on an effective basis since 2005.

Their compound inflation rate over the last three years is 45%. 

That is, the cost of living has risen 45%.

Their per-capita GDP is 1/17th of ours, and hasn’t materially expanded during that time.

Our per-capita GDP is $47,000, which is quite close to median household income (right near $50k.) 

Their per-capita GDP is $2,700 (both from the CIA World Factbook.)

Would you like to run the numbers on what a 45% increase in the CPI would do to someone living here with a $2,700 per-capita domestic output (which likely closely approximates household income there too)? 

That person would starve…. and maybe riot, eh?

Just because it costs more dollars to buy a barrel of oil or a bushel of wheat doesnt mean that it will also cost more euros, or Egyptian pounds, or Chinese yuan to buy that barrel or bushel. Its the exchange rate that matters, not the level of the federal funds rate.

The Egyptian Pound is pegged to the dollar. 

You can argue that it shouldn’t be, but right now it is and has been on an effective basis since ’05.

Bernanke 0, everyone else who has pointed out the facts (that you refuse to look at) 1.

Before blowing smoke out one’s butt, one should check the facts, especially when they’re right under your nose.

The Market-Ticker