Interviews
News Flash
Unabated decline continues in New York cotton futures
10 Oct '08
5 min read
".... I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit zero."
What this means in plain English is that the government will, as a last backstop, resort to printing money and use this money to buy shares in companies or real estate and thereby inflate the country out of its crushing debt problem.
The flip side of this plan is that the currency will eventually come under severe pressure, although it is possible that if other economies were to choose the same course of action, it might take a while until we see pronounced dislocations on the currency front.
This 'last resort' plan by Bernanke would be much more effective in the real economy, because if the Treasury/Fed were to act as buyers of real assets they would directly inflate the prices of such assets, while rescue efforts so far have primarily been aimed at helping insolvent financial institutions.
The problem with pumping money into banks is that it isn't finding its way into 'Main Street'. We have at this desperate stage no doubt that the government will sooner or later have to act on Bernanke's 'buyer of last resort' idea. We expect to see some indications in that direction at the G7 meeting this weekend, with other nations possibly acting in concert.
Time is of the essence and as long as there is no such direct effort to inflate the world out of this mess, the ongoing implosion is likely to continue with no end in sight. To make a price prediction in such an environment is nearly impossible, although with prices about to slip into the 40's, we should not lose sight of the fact that it becomes nearly impossible for farmers to successfully grow cotton without government support.
Some countries have this support, while others don't and it will be interesting to figure out over the coming months how much supply and demand destruction we are dealing with next season.
What this means in plain English is that the government will, as a last backstop, resort to printing money and use this money to buy shares in companies or real estate and thereby inflate the country out of its crushing debt problem.
The flip side of this plan is that the currency will eventually come under severe pressure, although it is possible that if other economies were to choose the same course of action, it might take a while until we see pronounced dislocations on the currency front.
This 'last resort' plan by Bernanke would be much more effective in the real economy, because if the Treasury/Fed were to act as buyers of real assets they would directly inflate the prices of such assets, while rescue efforts so far have primarily been aimed at helping insolvent financial institutions.
The problem with pumping money into banks is that it isn't finding its way into 'Main Street'. We have at this desperate stage no doubt that the government will sooner or later have to act on Bernanke's 'buyer of last resort' idea. We expect to see some indications in that direction at the G7 meeting this weekend, with other nations possibly acting in concert.
Time is of the essence and as long as there is no such direct effort to inflate the world out of this mess, the ongoing implosion is likely to continue with no end in sight. To make a price prediction in such an environment is nearly impossible, although with prices about to slip into the 40's, we should not lose sight of the fact that it becomes nearly impossible for farmers to successfully grow cotton without government support.
Some countries have this support, while others don't and it will be interesting to figure out over the coming months how much supply and demand destruction we are dealing with next season.
Plexus Cotton Limited
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