The volitility is coming to grains

[bucket]

I was looking for the rate cut to fuel grains, volatility tends to migrate from market to market. I was wrong so far but regardless, the .5% is bearish USD and bullish grains. We have a rally.

What's Errol going to do?

[Austrian Economics]

Re the question of why farmland prices are rising all out of proportion to farm income, the answer lies in the falling interest rate trend. There's an old saying that you don't buy a house, you buy a mortgage payment. It's the same for farmland. If the rate of interest gets cut in half, (and half again, and half again after that) the mechanism of arbitrage works to convert what would have been a saving in interest payments into a bid on the asset. The process is beginning to stall out at the present time as debt service is consuming too much margin. It will restart once interest rates are slashed again.

The long term fall in commodity prices is also the result of this same terminal decline in interest rates. If you are a seed breeder and your projected rate of return on a proposed business plan is 5% but interest rates are 6%, you won't borrow to finance any new ventures. But if the rate falls to 3%, your business plan is now viable. The result will be the introduction of new seed varieties with higher yields. Of course, the higher yields mean greater supply and thus lower prices. This process has been repeated over and over again for the current 39 year falling interest rate cycle. It's no accident that this cycle has seen a phenomenal increase in the number of companies creating improved farm inputs in every category from seed to equipment. The downside is that this puts downward pressure on commodity prices.

Lest anyone think that I believe that our present interest rate trend is sustainable, let me say that it is certainly not. A free market in credit without continual central bank intervention would never have seen interest rates rise to where they were in 1981, nor would you see them plunge all the way to zero. Capital does not self-replicate out of nothingness, so a zero interest rate is a blatantly false signal to investors.

[sumdumguy]

Where did Austrian Economics come from? You been lurking on here?

[Austrian Economics]

Years ago I posted quite often, but it's been so long I forgot my old username. I ran across some interesting topics recently that brought me back on board.

[jazz]

Years ago I posted quite often, but it's been so long I forgot my old username. I ran across some interesting topics recently that brought me back on board.

I will pitch a theory. The reason why more fed intervention is needed more often, more recessions, more volatility, more flash crashes.....is globalization itself.

We now have supply chains chased off our shores that now sit 10,000 miles away across an ocean and behind a communist curtain. The system has become much more fragile, more mismatched, more just in time, more currency based etc. Thus it needs more intervention, more steering and more stimulus to correct errors.

Some economic genius thought it would be a good idea to offshore 97% of our antibiotic production to china.

[Austrian Economics]

Production is being sent offshore for a fairly straightforward reason: who's going to invest in a country in which businesses are saddled with a punishing array of useless ingredients like carbon taxes, payroll taxes and endless environmental studies to name but a few? Add to that the now constant threat of a blockade of either your product outlet or your supply chain. If we got rid of these barriers, maybe companies would be willing to invest in Canada. As it stands, they are practically being told to get lost.

Otherwise, globalization in and of itself is not the problem. Because we have adopted an irredeemable fiat currency we have also adopted a regime of unstable (and presently falling) interest rates. This instability makes economic calculation more hazardous than it needs to be. In the falling cycle, business becomes manically obsessed with just in time production. As interest rates fall, the cost of inventory rises. What happens when they hit zero? Cost of inventory rises to infinity? That won't be good.