So, while there is a long-term issue with raw materials there is something else happening at the moment. The talking heads blame it on "speculation", which like all good economic terms they don't bother to define. Who is speculating? What are they speculating in and how are they speculating?
It's one thing to run up the price of gold, the amount bought because it is shiny far exceeds the amount needed for industrial purposes, so many buyers (or "speculators") can quickly cause a bubble, but the situation with oil and gas isn't the same. I can hoard gold, I can't hoard oil.
The countries that have been parking their excess funds in US Treasuries are going to start behaving differently as well. They can't dump their holdings, they have too much, so they will have to take steps to see that dollar deflation doesn't go too far. I would guess this means further bailouts of US financial firms, but I'm not sure.
All I can say, is that those who have a 5-10 year investment horizon and who have a strong stomach can probably make a killing if they buy sound, but oversold financial firms. Citibank, for example, is down by over 50% for the year. If anyone thinks they are going to fold, they don't understand how things work. The US was willing to send in the Marines to prevent them from losing their investments in developing countries, why should the pols be any less willing to help this time?
The thing about panics, is that no one can see the flip side, while everyone is running for the door. Either "don't panic" and stand pat, or be bold and invest for the longer term. Policies not Politics ---- Daily Landscape
The ramp up in consumption of key natural resources is not great enough to account for the huge rise in prices. In addition supply has been stable to increasing as well.
This is actually false. The ramp up in demand has been enough to slowly eliminate any spare capacity. In normal times, with some spare capacity, prices will only increase to the production cost of the remaining marginal production - but when you get in a situation when demand can temporarily outstrip supply, the price will be driven by the cost of destroying demand - a much level price level, as oil is so convenient that it needs to be a lot more expensive to be given up (think about what kind of price level will push someone to give up their car for your commute and walk 10mn to wait for a bus, change to another, and walk to their office).
With a tight market, prices are very volatile. Speculators can accelerate an underlying trend, but cannot cause it on their own - or not for very long. We're now in the 6th year of steady oil prices increases - that's not driven by speculators. In the long run, we're all dead. John Maynard Keynes
the two year treasury yield fell to 1.45% on Friday. Everyone is trying to prop up the dollar and the banking system in America. Maybe they will succeed, but I am skeptical. No one but foreign governments are willing to supply cash or buy debt in the states. The problem is the lack of transparency with the various debt packages. No one is willing to buy any debt except the best quality debt because no one knows what the real risk involved in those packages are. The banking issues will become increasingly dire and be more of a catalyst for real economic problems than the inflation of natural resources.
Jerome definitely has a great solution for the woes facing America. But the truth is I don't see it happening until its too late. The times are gonna have to get real bad before Americans become that progressive again and its no guarantee they will go left. I think the times will get real tough every where. If the great depression went world wide in the 30's with so little worldwide trade what will happen now? All the economies are so inter-linked. So far it has been an orderly slow decline because everyone is trying to keep the US propped up. But it can't go on for ever. along with Jerome's suggestion, basic changes in the banking system need to be put in place, but its probably already too late. "Looking for my Lo and Behold" The Band
Jerome definitely has a great solution for the woes facing America.
As I understand it, that is a conventional banking solution leaving the existing institutions eg Central Banks in place. No deficit-based solution is IMHO mathematically sustainable in the long term.
Credit intermediaries aka Banks are - like all intermediaries - obsolescent in the age of the Internet and the direct "peer to peer" connection that is the consequence.
That's the truth of it IMHO.
Keynes' proposal at Bretton Woods for an International Clearing Union and a "Bancor" style value unit is the only long term solution. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
and most importantly the buying and selling of debt has to be regulated. FDR regulated the banks, created inusrance for the banks, etc.. which calmed every thing down. This now has to be updated to the modern financial system where there is too little transparency in the buying and selling of debt. The panic has been controlled so far, but it could get out of control soon.
Esperanza exists, its called English. The Bancor system is a great idea which I support. I guess for now the Euro is all we have. "Looking for my Lo and Behold" The Band
I said nothing about banking, but you know I disagree with you both on the way banking works right now (at least in the "old-fashioned" parts of the system) and more generally about the usefulness of intermediaries. In the long run, we're all dead. John Maynard Keynes
It's "old fashioned" banking servicing Public (leaving aside differing views as to whether "Public" need be "State") investment that I advocate.
But I don't think that it is necessary - in fact it is downright inefficient - to have banks as intermediaries in the sense of middlemen.
Middlemen intermediaries are obsolescent - this is Migeru's Telluric / tectonic paradigm shift: credit unions are already being "napsterised" ( www.zopa.com etc) - Banks will be next.
I see Banks in the future as service provider intermediaries:
(a) managing the creation of bilateral credit and default pools funded by provisions (not a million miles away from "Trust Banking" eg Japan, TSB as was);
(b) bringing together investors with investment (not a million miles away from investment banking).
As I understand it, the latter is pretty much what you do.
What I am bringing to the table is simply the thought that the conventional deficit-based Financial Capital split between "Equity" and "Debt" may be reconfigured into new "asset-based" forms of Financial Capital that may work more effectively, and equitably.
The same banking disciplines will still apply: it's the "enterprise model" that changes. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
All I can say, is that those who have a 5-10 year investment horizon and who have a strong stomach can probably make a killing if they buy sound, but oversold financial firms.
