Fed President Cranks Up Deflation Fight

I wrote about a year ago how I could not understand where inflation would come from as all I saw was excess capacity in everything from factories, to houses to roads that are empty to commercial real estate that is empty.

So now we the fed is worried about deflation mmm!


Aivars


Fed President Cranks Up Deflation Fight


By MICHAEL S. DERBY

BOSTON—Policymakers must act vigorously to counteract the risk of deflation, a Federal Reserve official said Saturday at a conference conducted by the Federal Reserve Bank of Boston.

"A policy of gradually adjusting monetary and fiscal policy, as conducted in Japan after deflation first occurred, may not be as effective as an active policy response taken before deflation has become embedded in the economy," Eric Rosengren, president of the Fed bank, said.

"Should deflation occur, it can be quite difficult to overcome," he said in a speech to be delivered at the conference. "Insuring against the risk of deflation may be much cheaper than waiting until it has occurred and then trying to address it," Mr. Rosengren said. "Financially fragile economies may be particularly vulnerable to negative impacts from premature austerity measures."

The conference, attended by people from academia, Wall Street and the Federal Reserve, was designed to impart an understanding of how to conduct policy in a low-inflation environment.

The Fed is confronting a weak economy beset by ebbing levels of core inflation and persistent high levels of joblessness. Most believe that the Fed will address this through a resumption of its buying of long-dated assets, as part of a bid to drive down borrowing costs and fuel more economic activity. There are other strategies the Fed may employ, but it is the asset-buying that is that the center of Wall Street's attention right now.

Mr. Rosengren expressed confidence that asset purchases can still be effective. He said research supports the view that such action "can influence the market rate of the asset being purchased."

"The scale of the program should be sensitive to the prevailing conditions, and the size of the program would need to vary to accomplish a particular interest-rate outcome," he said.

While most expect the Fed to buy Treasurys, the central banker said that focus may be misplaced. "The precise focus of the program's asset buy may be less critical than the broader fact that the central bank is purchasing long-duration securities, and that rates on all long-duration securities will be impacted by the program."

Write to Michael S. Derby at michael.derby@dowjones.com

Cotton Hits Record High

Another Commodity driven up in price by traders with very little to do with demand.
Read the story below it plays out like the normal story as the market makers drive the price up.

Crops wiped out in a foreign land.
Demand going crazy in a foreign land.
Strong Production in America.

Any bets for how long it takes before the price crashes?

Aivars

Cotton Hits Record High .Article NewStock

Text By ADAM CANCRYN
NEW YORK—Cotton prices are at their highest in the 140 years the commodity has traded on an exchange, as heavy Chinese buying and poor harvests are expected to keep global supplies tight.

The ICE December cotton contract hit $1.1980 a pound minutes after trading opened, eclipsing the previous record high set in 1995 by more than 2 cents.

Cotton prices began rising in July on a post-recession rebound in demand. When flooding in Pakistan and heavy rains in China wiped out parts of the major producers' harvests, futures pushed past the $1 a pound level as traders feared a world-wide shortage.

.While worries eased slightly after India and the U.S. reported strong production, Chinese mill demand has shown no signs of slowing and continues to boost the market. The U.S. Department of Agriculture said China bought 267,700 running bales of U.S. upland cotton last week, more than half of the total bales exported.

"We've never had a set of factors like this," Country Hedging analyst Sterling Smith said.

Manufacturers throughout the cotton production line cut costs during the recession by reducing inventories, forcing a scramble for supplies this year. And the U.S. dollar's steady fall has also encouraged exports and drawn investors to hard assets, including commodities.

"Inventories of yarn and fabric got low because of the recession, cotton inventories were low because production sank and all of the sudden demand comes back," said Andy Ryan, an analyst at FCStone Fibers & Textiles. "It's the perfect storm."

Cotton first traded on the New York Cotton Exchange in 1870, and is now offered on IntercontinentalExchange Inc. Prices reached their previous all-time high at $1.1720 a pound on April 24, 1995.

Analysts said the record prices are expected to damage profit margins for mills and merchants, with some fraction eventually passed on to consumers. Jeans maker Levi Strauss & Co. said earlier in the year higher cotton costs would result in price increases, and lower-end apparel retailers are expected to follow suit.

"The cost of buying at a wholesale level will rise," Mr. Smith said. "We'll start in February or March seeing a little bit of increases where [retailers] can get away with it."

Since hitting its high, the benchmark contract has backed off throughout Friday morning on profit taking. It recently traded 2.63 cents, or 2.3%, below Thursday's settlement at $1.1224 a pound.

First Capitol Group's Sharon Johnson said she suspects the market has hit its top, but cautioned that the rally up until now is unprecedented.

"I've seen a lot of big moves and this exceeds everything," she said. "This is history in the making, it's not something you're going to see again in your lifetime."

Wall Street's snake oil salesmen are at it again

Thanks Sue, my darling wife for the contribution. Manipulation of markets that is why that are making the profits. Watch it all unfold in my book coming soon. "This time it is different not!"

Aivars Lode

Wall Street's snake oil salesmen are at it again
Charles Purcell
October 13, 2010

Comments 42

The fat cats on Wall Street have not learned anything from the global financial crisis.

Sometimes you read the news and you have to wonder if this is really happening. It was reported yesterday that Wall Street's banks, hedge funds and financiers are preparing to pay a record $US144 billion ($147 billion) in compensation and benefits to executives and employees.

What the? This group of snake oil salesmen and flim flam artists who brought the world to what people are calling the Great Recession — and very nearly a world depression — are receiving record bonuses a mere two years after the disaster, after their speculation helped drive Greece to the wall causing riots in the streets, and the financial meltdown of Iceland, former home to the financial vikings of Europe?

But it gets worse. "The payout, according to a study published in The Wall Street Journal, covering bonuses, premiums and stock options for the firm's executives and employees, is a 4 per cent increase over the previous record $US139 billion that was paid last year."
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So a mere one year after property bubbles and the excessive speculation of financial instruments so complex that barely anyone on Wall Street understood how they worked, let alone the laymen, one year after the US Government was flinging billions of relief money to institutions crying out for saving, one year after some of the major car companies of America almost went bust, Wall Street's fat cats were already pocketing record bonuses. In the space of 12 months they went from desperate supplicant to serial complainers about how government was stifling free enterprise.

In Japan, chairmen or chief executives of disgraced companies have the decency to resign (or worse) when hit by scandal. In the West, we hire PR companies to spin the disaster, wait for the world to forget, and continue on as normal with seemingly no shame at all.

In his book Collapse, American scientist and author Jared Diamond shows how societies destroy themselves from within long before external invaders hasten their collapse. The US is certainly making enough crazy decisions to hasten its own economy decline — and by extension, the rest of the world who are victims of the predations of Wall Street. And as the case with Greece, the world's pain is merely delayed, bailouts postponing the carnage for the length of a bond or a loan until we suffer another mini-global financial crisis a few years down the track when the loans and interest are due. What will the minions of Wall Street do then? Beg for more money?

If I had to pick two reasons for the decline of Western civilisation, I would choose financial irresonsibility (whose damage creates spiralling debt, allowing non-Western countries such as China to purchase our prime assets and industrial knowhow at bargain basement prices) and global warming as the two prime candidates. So why are the people who brought us the global economic crisis being excessively rewarded? And being penalised less than a footballer who broke a salary cap?

When someone robs your house, they go to jail. When someone threatens you, you can slap an apprehended violence order on them. Where is Wall Street's equivalent of an apprehended violence order? Where is the punishment meted out to those who have caused long-term harm to the wealth and competitiveness of Western society? Where is Obama's promised crackdown on Wall Street?

Surely one year is hardly enough time for Wall Street to pay penance for its role in the biggest financial disaster since the Great Depression, a global collapse that reached our very shores, Australia weathering it partly due to our robust mining industry and a much more prudential and secure banking sector.

I don't really know what the solution is. Certainly applying "stress tests" to US (and Australian) financial instutions to test their ability to endure future economic turmoil is a good idea. Eliminating or banning trading in a whole lot of financial instruments that create nothing but are little better than high faluting crap shoots is another. A small tax on share trading might reduce the millions of unneccesary trades made each day and make the market less of a giant casino. The thing they all fear, of course, is government ownership. The Gordon Gekkos of America couldn't wait to pay back Obama's loans so they could get out from under the "oppressive" hand of government.

Some might say it's best to let the market work things out. But the market brought us to the brink of financial doom. And if these overpaid captains of industry are intent on driving us towards another iceberg, it's time they were replaced at the wheel.

Charles Purcell is a Fairfax writer.