Commodity bubble - Soviet-Empire.com U.S.S.R.

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Soviet cogitations: 4340
Defected to the U.S.S.R.: 20 Jul 2007, 06:59
Ideology: Marxism-Leninism
Forum Commissar

07 Oct 2011, 10:10

A very interesting interview with an apparently reputed economist:

http://www.benzinga.com/content/1954634 ... es-complex

Quote:
Everyone remembers that we had the high-tech bubble and then the collapse. Money managers started trying to find an asset class that wasn't highly correlated with stock prices. You don't want to "put all of your eggs into one basket," into the stock market or things that are correlated with the stock market. You want to diversify into something that is not correlated with the stock market. The CFTC--commodity futures regulators--and the industry itself did empirical studies, and they showed that commodities prices had not been correlated with the stock market, up to that point. They went around the country and they told money managers--like people who manage pension funds--that, "Hey! Commodities prices aren't correlated with the stock market. You've got to diversify."

Then, Congress, in its infinite wisdom, deregulated pension funds. They actually wrote the law in a way that pretty much forced [pension fund managers] to diversify into commodities. So, the pension funds started flowing in the early 2000s into commodities. This sort of caught my attention in the mid 2000s. I started looking at it, and you started having the strange thing that financial market participants were buying up, or renting, grain silos to store the wheat they had been buying. They actually were diversifying into the physicals. The problem with that is that it costs money to store the physical commodities. Storage costs hit an all-time peak, so they looked around. How could they buy commodities without storing them? Well, you do it in the futures markets.

So what pension funds did is they decided, "We're going to diversify, just like we're supposed to, into commodities. We're going to buy pieces of paper rather than the commodities. What we'll do is allocate, let's say, 5 percent of our total assets into commodities." Now, that all sounds good, but you have to remember that pension funds are huge. Pension funds have assets equivalent to 75 percent of GDP. So even if it's only 5 percent of total pension fund assets, it's huge amounts of money, and you can easily get five times as many dollar bets as there actually is of a physical commodity. As long as pension funds are continually allocating ever more money into commodities, they will drive the price up. It's a self-fulfilling prophecy because the financial flows will drive the prices up.

What's impressive is not only how these speculations and completely abstract loops (M-M' or money begetting money) have very concrete effects (rising cost of living, especially harmful in the developing world), but also how massive the global money system has become.

I wonder if we are reaching a limit of capital. Capital as money has to continue gowing, but it is so big that it is too large to fit anywhere or to be absorbed by any market, so it has to have these ficticious loops (like the increasingly complex slush funds), away from any real market, where it lands only to create and blow bubbles.

"It does not suffice to reject the error; we must overcome it, explain it and outgrow it." - Antonio Labriola
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Marshal Konev

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Soviet cogitations: 2868
Defected to the U.S.S.R.: 16 Nov 2005, 17:55
Party Bureaucrat

07 Oct 2011, 13:21

That is a very acute observation. Most people's conception of how capitalism works (i.e. seed capital begets productivity, which begets better wages, which begets consumer spending, which begets reinvestment into enterprises, which begets higher productivity, etc.) is pretty much outdated now.

Growth in capitalism for the past 20 years, if not longer, has been achieved by inflating bubbles through easily available credit, to divert people's attention from the fact that their real wages have been in decline, relative to cost of living. I hate how every time we see rises in food and fuel prices, most mainstream economists rationalize that as "Indians and Chinese are richer and consuming more"; yet, with every hike in food and fuel price, there is a sudden crash followed by a re-inflation. This is just a manifestation of mini-bubbles inflated because, as the article suggests, pension funds and other money managers, using hedge fund services, are frantically looking for places to park their money (known as tactical asset allocation), and banks are more than willing to extend these funds leverage (allowing them to inflate bubbles on credit). For much of the past decade, it was global real estate that had the bubble, now it's commodities.

I am sure many of you agree that in an interconnected, globalized economy, where hundreds of millions of people are homeless and undernourished, real estate bubbles and commodity should be nothing short of human rights violations, but this is the world we live in.

Keep an eye on the biggest commodity bubble of them all: gold. For the past two/three years, as confidence in most currencies has gone down the toilet, speculators' "flight to quality" has thrown money at gold (as well as the Swiss franc, which has disrupted the Swiss economy by making Swiss exports expensive), which is now heavily overvalued.

"History is a set of lies agreed upon."
--Napoleon Bonaparte

Comrade Gulper

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Soviet cogitations: 9625
Defected to the U.S.S.R.: 18 Apr 2010, 04:44
Ideology: Marxism-Leninism
Embalmed

10 Oct 2011, 01:25

No one will admit that the entire structure is fictitious. From bottom to top, fiction. All of it. Capitalism= malicious fiction, the stuff of nightmares. It's a fiction designed to do one thing and one thing only: divide mankind into classes for the purpose of exploitation. The textbook definition of capitalism should read: malicious fiction imagined by misanthropes to give an after-the-fact justification for the continuance of cannibalism by subtler means.

Marshal Konev

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Soviet cogitations: 2868
Defected to the U.S.S.R.: 16 Nov 2005, 17:55
Party Bureaucrat

10 Oct 2011, 14:26

Well, George Carlin said it best in his own rant about the owners of capital: "Its called the American Dream, because you have to be asleep to believe it."

Quote:
I wonder if we are reaching a limit of capital. Capital as money has to continue gowing, but it is so big that it is too large to fit anywhere or to be absorbed by any market, so it has to have these ficticious loops (like the increasingly complex slush funds), away from any real market, where it lands only to create and blow bubbles.

It is highly possible, but then again, it might also be that because of the free market system, surplus value is not in the right hands and therefore not allocated into productive investments.

"History is a set of lies agreed upon."
--Napoleon Bonaparte

Comrade Gulper

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Soviet cogitations: 9625
Defected to the U.S.S.R.: 18 Apr 2010, 04:44
Ideology: Marxism-Leninism
Embalmed

10 Oct 2011, 17:09

I can't imagine anything being able to destroy the concept of money, short of war and/or revolution. No one's even able (outside of Syndicalism) to speculate on what could replace it.

The Lone Gunman

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Soviet cogitations: 5
Defected to the U.S.S.R.: 24 Mar 2011, 01:23
New Comrade (Say hi & be nice to me!)

12 Oct 2011, 02:15

I couldnt agree more with what's being said here.

Ive been doing quite a bit of reading at my university about the development and research of replication technology. Basically the same thing from star trek, except its becomming a reality. In a perfect world, this would make money obsolete. Nobody would want for anything, and there would be no more class struggle.

Unfortunately the realist side of me believes the people in control will no doubt aqcuire the patents for said technology, and then quietly ensure its not released and that nobody learns about it.

Its a sad system, when those in control need to lie and deceive to hang onto power so they can continue to be greedy and get even richer.

Comrade Gulper

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Soviet cogitations: 9625
Defected to the U.S.S.R.: 18 Apr 2010, 04:44
Ideology: Marxism-Leninism
Embalmed

12 Oct 2011, 02:25

The fiction that humanity labours under states that without challenges and endless agitations (hunger, war, disease, etc.), mankind will become terminally complacent and lazy and no longer to strive to better itself. The truth of the matter is that, without these endless material miseries that are actually holding us back from fulfilling our real potential, the artificial economic and class divisions between man and man would disappear. That's really what worries Those In Command...the fact that without classes, exploitation becomes likewise superfluous, and thus their grip on power and wealth dissipates. It's pointless to be "Number One" in a world of equals.