Comments on: The Risks of 21st Century Stagflation

By: Política y Economía » Brasil: el gran éxito de América Latina?

Política y Economía » Brasil: el gran éxito de América Latina? — Thu, 08 Apr 2010 17:40:22 +0000

[...] del consumo y el hecho que la caída del precio de los commodities no fuera significativa, (ver artículo de Jayati Gosh) explican el porqué de la rápida recuperación de economía brasilera después la crisis global. [...]

By: ML SONI, Asstt. Registrar,Indian Association for the Cultivation of Science, Jadavpur, Kolkata-India

Tue, 16 Mar 2010 09:33:32 +0000

Thank you Ms Ghosh for clarifying the positon as outlined by Matías Vernengo. I do agree that high flier of commodity prices like essential food grains, oils, vegetables, fuels and other commodities of essential needs have paralysed the economy of the developing countries like India due to steep recession in the financial markets.The statement once made by Indian Agriculture Minister, that the rising price of sugar especially,can be controlled by controlled usage of it, would it not be a non-considerate view from the angle of ordinary people of any nation. The financial recession and descending mark of unemployment added the cause of inflation gloabally. Banning food trading or limiting it to stengthened margin only will help in the present scenario. The heavy expenses on security of celebrities-leaders, top bureucrats/technocrats and other diginitaries added with corruption at all most all levels,hiding black money and misusing the government funds in petty functions are also the factors in this context.

By: Sasha Breger Bush

Sasha Breger Bush — Wed, 10 Mar 2010 15:48:28 +0000

Thanks so much for this important discussion of commodity prices!

I agree that there is a strong case for banning futures/options trading especially in food commodities. The government of India until very recently banned all options trading in the country as a means of limiting the sort of dangerous speculation that you reference above. The US has banned trading in certain commodities at certain times as well.

I would be very concerned, however, if trading was allowed only “with high margin requirements” as is also suggested above. In my opinion, this will not do much to restrict the activity of commodity speculators. Margin requirements are generally only a portion of the costs borne by large traders, and for the most part these costs are manageable. High margin requirments will likely be most exclusive of smaller hedgers, smaller commerical actors trying to manage price risks on these markets. For about twenty years, development instituions like the Bank have made headway in linking up smaller, Southern actors to futures markets as a substitute for real efforts to socialize risk and improve economic security (e.g. exporters, millers and other small processors, small rural banks, and farmers are increasingly linked to both global and domestic derivatives exchanges). For this reason, raising margin requirements may have negative consequences for precisely the population that you are looking to help, while not restricting access for those you wish to.

By: Jayati Ghosh

Jayati Ghosh — Tue, 09 Feb 2010 18:31:13 +0000

Matias, You are right that wage-price spirals are less likely because of the poor bargaining position of workers today. But it is still possible to have commodity price inflation – and more specifically, food price inflation – along with stagnant or even declining output and employment. This is different from the 1970s stagflation but nonetheless there is no obvious trade-off between inflation and activity in this case. To stop this it is necessary to tackle the roots of this particular type of commodity price inflation, including through controlling speculative activity in commodity markets. I think the Volcker Rule does not even begin to solve this problem because many non-bank financial players are involved in commodity futures through OTC contracts – futures trading should be allowed only in regulated commodity exchanges with high margin requirements, and probably absolutely banned for some commodities.

By: Matías Vernengo

Matías Vernengo — Wed, 03 Feb 2010 18:03:57 +0000

Hi Jayati:
I don’t disagree with anything you said substantially, but I think the risks of stagflation are less significant than what you suggest. Yes there might be some cost push inflation associated to commodity prices, but in contrast to the 1970s the labor movement is less strong and the sort of wage-price spirals that were central for inflation acceleration then are less likely now. I think the serious risk is that fear of inflation will be used to constrain the ability of governments to expand demand, and we’ll have to live with higher levels of unemployment for a long period.
Best,
Matías

By: Kevin P. Gallagher

Kevin P. Gallagher — Wed, 03 Feb 2010 14:41:04 +0000

Though not as comprehensive as the full ban on OTCs outlined here by Ghosh, former US Fed Chairman Paul Volcker has taken the financial world by surprise this week by advocating for limits on the amount of derivatives trading that commercial banks can engage in with general deposits.

Interestingly, what has quickly become known as the “Volcker Rule” was enthusiastically endorsed by President Obama and formed a core of the President’s State of the Union address last week. Since then however, the proposal has received only lukewarm support in the US Congress–even by members of the Democratic party.

Many of us probably think that even the Volcker Rule doesn’t go far enough. But perhaps the most significant thing this development raises is the fact that President Obama is more open to a diversity of economic ideas than previously thought. Earlier this year both Larry Summers and Tim Geithner opposed Volcker’s ideas. Yet, they were sidelined by the President on this one, and even told to go out and defend it…

By: Daniel S. Zbytek

Daniel S. Zbytek — Wed, 03 Feb 2010 09:55:39 +0000

Thank you, it is a crucial point in a global economy that financial realm departed from a real one establishing itself as independent. Crisis of 2008/9 has shown enormous waste of money but also confirmed that real economy investment in developing countries has been directed by profits to be gained in the developing world notwithstanding to the needs of the Third World and diregarding innovative needs of the Globe economy. New order in global ecomony is a must. Brgds

By: J. George

J. George — Wed, 03 Feb 2010 01:15:44 +0000

First of all congratulations on launching this triple crisis blog and indeed is a timely creation. The financial market driven machinations on the commodities has been rightly highlighted as it has severe ramifications on the production landscape. For instance,under record breaking headline food price inflation in India the commodity trade sector raised or tried unsuccessfully to scuttle the monitoring by the Prime Ministers Economic Advisory Council.The misinformation campaign by these involved in the futures trading the standaoften quote a report that was paralysed by lack of data in the first place and a host of extraneous considerations in the second place.
The oft prescribed recommendation to developing countries is to increase productivity in the agriculture sector while the pathways to doing that is fraught with ecological damages. The recommendations/exhortations of Secretary Clinton to the World on the World Food Day on 16th October 2009 is a csase in point. The factory farm’ model of ‘productivity’ gains therefore is flawed as it only suits the big processing units with considerable financial muscle. The question did not get highlighted at the Copenhagen but the key is financing the mitigation as well as adaptation strategies. I am sure these issues will be part of the discussion on this blogs Best of luck and happy blogging.