Comments on: World Growth Can No Longer Explain Soaring Commodity Prices.

By: M Chandan

M Chandan — Fri, 23 May 2008 14:14:29 +0000

The High Commodity Prices and INFLATION - FOOD/OIL CRISES:

is directly link to commodity exchanges having LOWER MARGIN
REQUIREMENT on LONG PURCHASE POSITION around the world.

If MARGINS are increased to 100% of Value of Commodities..
Oil, Wheat, Corn, Gold, Metals, Rice……..
the PRICE will certainly come down to the levels where they were before 3-5 years.

MARGIN MONEY OF 8-10% can BUY full Value of commidity
on this Exchanges with LONG POSITION of 3-12month !!

While in REAL LIFE we need to pay Full 100% value.

By: George Tallabas

George Tallabas — Wed, 09 Apr 2008 01:23:10 +0000

I was raised on a large row crop farm in Idaho and I can say that farm commodity prices remained nearly stagnant for nearly 3 decades through most of the 90’s. The only reason commodity prices have gotten so much attention is because the increase was so sudden, instead of a steady increase over the years. If commodity prices had risen over the past decades at least commensurate with the CPI, commodities would likely cost more that they do today. Many don’t realize how good this country had it for so many years with the cheapest food in the world. The demand of grain and specifically corn for ethanol production has been the reason grain prices have risen so much so quickly. The largest oil field in the world has not been tapped and either have the oil reserves of this country. There are obviously some very powefull people and companies that are keeping oil prices at the levels they are at because they know they can.

By: Patricia Beck

Patricia Beck — Mon, 31 Mar 2008 04:55:16 +0000

Jeff, I will have to read your post on what your answer is to the “why” The cost of gas and basic commodities has really increased. I can’t believe how expensive groceries are lately and I have been hearing the cost of basic commodities is going to increase even more! You make such a good point in this post.

By: Assorted Links « Mostly Economics

Assorted Links « Mostly Economics — Mon, 17 Mar 2008 04:20:26 +0000

[...] Jeff Frankel questions why commodity prices continue to rise despite the world economic growth slowing down? The answer [...]

By: World Growth Can No Longer Explain Soaring Commodity Prices. at Sub Prime on The Finance World For News and Information Around The World On Finance

Mon, 17 Mar 2008 03:01:48 +0000

[...] World Growth Can No Longer Explain Soaring Commodity Prices. …global growth rate for 2008 has been marked down by 1.1% (from 5.2 % in July 2007, just before the sub-prime mortgage crisis hit, to 4.1 % as… [...]

By: Patrick Fitzsimmons

Patrick Fitzsimmons — Sun, 16 Mar 2008 22:24:54 +0000

If you look at the M3 statistic for the money supply, you can see that the Fed and banking system dilute the currency at a rate of about 10% a year. The only way to protect your money is to put it into assets - ie - stocks, real estate, or commodities. The problem with putting your money into assets to protect from dilution is that it triggers over production. Once over production set in, the value of the asset starts to collapse, and people move their money onto the next asset. Technology stocks overheated in the 90’s, real estate in the past couple of years, so now the herd has moved on to commodities.

The core problem is that when the Fed inflates the currency, is does not do so by throwing money of a helicopter. It inflates via complicated risk subsidization schemes. This distorts the economy. We will continue to see asset bubbles as long as the fed maintains this practice.

The high gold prices have a different explanation. People are effectively hedging against the complete collapse of the dollar. In such an occurrence, there would be a flight to use gold as a currency, driving its price upwards of $10,000 an ounce. A 10% dilution rate might not be enough to trigger this collapse, but it definitely approaches the danger zone.

By: glory

glory — Sun, 16 Mar 2008 19:35:01 +0000

one word http://www.morganstanley.com/views/gef/archive/2008/20080303-Mon.html - numeraire