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spoon

Commodites, Inflation, And Interest Rates

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think of money, yes the money in your pocket, as a competing asset class like any other. like any asset it competes via the yield one can earn by holding that asset class.

the amount of money now being poured into commodities including gold, that by the way pays almost zero yield to it's owners, is an indication of where the interest rates on money need to get to before some balance is restored.

the Fed has one eye firmly set on commodities. the further they rise the higher interest rates will need to rise.

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think of money, yes the money in your pocket, as a competing asset class like any other. like any asset it competes via the yield one can earn by holding that asset class.

the amount of money now being poured into commodities including gold, that by the way pays almost zero yield to it's owners, is an indication of where the interest rates on money need to get to before some balance is restored.

the Fed has one eye firmly set on commodities. the further they rise the higher interest rates will need to rise.

Spoon, let me Devil's Advocate here.

The question here is how does this reflect in consumer price inflation? Many central banks seem to have a mandate that is centered around CPI rather than raw commodities. Wage inflation bargaining and imported goods seem to fit between the two?

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well i think central banks have a mandate to look ahead and assess the risks. to quote Fed governor Kohn earlier today commodity prices are at levels that threaten to add upward pressure to inflation.

as a sidenote, if you believe the UK is approx 1-2 years ahead of the US then should we expect the Fed to go to 5.50% then pause or perhaps cut, and then start hiking again? it's a view held by quite a few.

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There's no question in my mind that when money supply is out of control and supply of commodities is tight then eventually inflation will turn up everywhere. It's just a matter of when. Central banks IMO have to take difficult decisions before inflation is apparent by considering raw commodity prices etc. If they don't then they have to raise more aggressively and go higher, which is bad for everyone in the long-run. Spotting the signs of inflation early and acting are crucial for sound monetary policy.

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commodity price rises are certainly the biggest threat to inflation GLOBALLY.

outsourcing helps US and UK primarily by lowering the wages for domestic personnel(by way of increased competition for jobs)

but the secondary factor is we can export most of the commodity price "hit" away.manufacturers take most of the hit of commodity rises,but with a less affluent customer base cannot fully pass on price increases.

"customers" will drive a much harder bargain for the goods.

the REAL inflationary part of the cycle has yet to begin,while our countries(US/UK primarily) are in cost-cutting mode inflation will be fairly tame,but when the revival begins and new jobs emerge,it will really start to ramp-up....and so will interest rates.

Asia will do some of the job for us,as will germany......we are destined for a repeat of 1970's/1980's!!!!

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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