Inflation is leading to market distortions, serious signs
of which are showing up in grain markets.
Follow this link to the original source: "'Panic'
wheat buying across the US"
Speaking to Congress on Feb. 27, Fed Chairman Ben Bernanke
indicated that the U.S. economy was facing yet more trouble
and that further rate cuts were on the way. According to the
Los Angeles Times, "Bernanke said the nation might also
have to cope with more inflation...."
Naturally, when interest rates decrease because the Fed increases
the money supply, the value of money decreases meaning it
takes more dollars, relatively speaking, to purchase any given
item. In other words, when the Fed talks rate cuts, it is
talking about creating additional inflationary pressure in
the economy.
(Article continues below)
That's just what the economy does not need. Consider, for
instance, the turmoil in agricultural commodities markets
right now.
"'Panic' Wheat Buying" was the headline in the
North Queensland Register above a report from Arlan Suderman,
a Farm Progress grain markets analyst, on the U.S. wheat market
this week.
Suderman noted that wheat "prices rallied by $5.75 a
bushel on Monday, being up by nearly 30pc at one point compared
with Friday’s close."
The reason:
This is exactly what tends
to happen in an inflationary economy that is tending toward hyperinflation.
As the result of rapid devaluation of the currency, those holding
cash are penalized as the value of their cash holdings decreases.
To counter this, actors in the economy are eager to trade their
cash holdings for commodities (wheat, gold bars, etc.) in order
to decrease their exposure to the risk of further currency devaluation.
This can lead to perceived hoarding of commodities, something
Suderman senses is in the offing. "Sentiment in the marketplace
is changing from, 'buying just-in-time' to one of, 'buy what
you need at any price' and then to 'buy even more to restock
the shelves'," he writes. "In other words, there’s
evidence to suggest that we’re beginning to enter the
hoarding phase of the inflationary cycle."
And that is very bad, if not unexpected, news.
