Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Surging Commodity Prices the Unintended Consequences of Printing Money

Commodities / Quantitative Easing Jun 12, 2009 - 09:33 AM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleMike Larson  writes: So let me see if I get this straight. From their recent lows …

Crude oil prices have more than doubled — to $72 a barrel from $33.55.


Crude oil prices have more than doubled — to $72 a barrel from $33.55.

Gasoline prices have surged 62 percent to $2.62 a gallon from $1.62.

Gold prices have tacked on $147 an ounce. Platinum is up 27 percent and silver has soared 45 percent.

Wheat prices are up 17 percent, soybeans have jumped 49 percent, and corn has rocketed 25 percent.

At the same time, the difference in interest rates between 2-year and 10-year Treasuries has vaulted to 260 basis points. That’s just shy of an all-time record — a warning sign from the bond market that investors are mad as hell, and not willing to buy longer-term debt.

Meanwhile, the 10-year TIPS spread, or the difference between yields on 10-year nominal Treasuries and yields on 10-year Treasury Inflation Protected Securities, has blown out to 210 basis points from close to zero a few months ago. That’s another warning sign of rising inflation fears.

Rising prices for agricultural commodities, like wheat, are the unintended consequences of the Fed’s attempts at bailing out anyone and everyone.
Rising prices for agricultural commodities, like wheat, are the unintended consequences of the Fed’s attempts at bailing out anyone and everyone.

The unambiguous message: Federal Reserve money printing is out of control!

We’re seeing a replay of the 2007-2008 easy money-driven commodity and resource inflation — the unintended consequences of the Fed’s attempts at bailing out anyone and everyone.

Warning Signs Everywhere …

While Fed Chairman Ben Bernanke and his buddies are whistling Dixie in Washington, those of us in the real world are seeing warning signs of these unintended consequences everywhere …

From The Financial Times, June 10:

“After a year of worrying about the piggy bank, the world economy is turning its attention to the cupboard.

“Almost unnoticed, agricultural commodities prices have returned to levels last seen at the start of the 2007-2008 food crisis, prompting concerns about a fresh rise in food costs.”

Or how about this story from The New York Times, dated June 8:

“After just a few months of relief at the pump, cheap gasoline is disappearing.

“Gas prices have risen 41 days in a row, to a national average of almost $2.62 a gallon. That is a sharp increase from the low of $1.62 a gallon that prevailed at the end of last year … The national jump in prices, far larger than the normal seasonal increase, is pulling billions of dollars from the pockets of drivers. It threatens to curtail a modest recovery in consumer spending on items like apparel and electronics.”

The common thread here: Speculation, driven by easy money.

The Fed is debasing the value of our currency, driving investment dollars into dollar hedges. There’s so much money coursing through the markets, in fact, that it’s almost impossible to grasp!

Consider the following from The Wall Street Journal, also on June 10:

“About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base — which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash — by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position.

“The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10. It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base.”

Yikes!

Helicopter Ben is dropping money from the sky. The problem is he can't control where it lands!
Helicopter Ben is dropping money from the sky. The problem is he can’t control where it lands!

In other words, Helicopter Ben is flying toward the coastline, guns blazing — kind of like Colonel Kilgore in Apocalypse Now. I can almost hear the strains of “Flight of the Valkyries” every time I login to my computer in the morning.

See, the real problem with Bernanke’s approach is this …

You Can Create More Money … You Just Can’t Channel Where It Goes!

The real problem with all this pump-priming, money printing, or whatever you want to call it is simple: It’s like lava flowing downhill. It steamrolls everything in its path, despite all your best efforts to re-direct it.

Look …

  • The Fed tried to paper over the Long-Term Capital Management blow up with easy money and rate cuts. That helped launch the last leg of the dot-com bubble …
  • The Fed tried to paper over that bust with easy money and low rates, and helped create the biggest housing bubble in U.S. history …
  • Then the Fed tried to paper over the housing bust with easy money, and that helped inflate commodities bubble #1 …

Now, it’s trying to paper over the deep recession with … you guessed it … a gigantic wave of easy money! That’s giving us “The Son of Bubble” in some markets and laying the groundwork for a bigger inflation problem down the road.

I hear a lot of talk about how the Fed will supposedly be better this time. Some argue that it will pull back all this excess liquidity at just the right time, helping steer the economy through the twin threats of inflation and deflation with the greatest of ease.

As the Fed tries papering over the deep recession with a gigantic wave of easy money, consider protecting yourself with dollar hedges, such as gold.
As the Fed tries papering over the deep recession with a gigantic wave of easy money, consider protecting yourself with dollar hedges, such as gold.

All I have to say is, “Are you kidding me?”

These guys have been getting it wrong for years now, and we’ve lived through rolling bubbles as a result! Now they, along with the Treasury, appear to be working on a new one, devaluing our hard-earned dollars, and burying our children under the biggest debt burden in world history.

My suggestion: Consider protecting yourself from this monetary insanity with the right combination of gold, other dollar hedges, and investments targeted at the world’s hottest resources markets. And please, please, PLEASE continue to avoid the long end of the bond market, which has gotten absolutely thrashed — just as I predicted it would months ago.

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in