Sunday, November 21, 2010

Monetary Policy

One of the most important sets of data to follow is the U.S. Dollar Index. The U.S is in a bind. With high debt levels, the U.S. needs to export more products. When the Almighty Dollar was high, we imported a great deal. Monetary policy is a key factor driving the value of the dollar. Under Reagan, interest rates were driven up to slow inflation. As a matter of fact, that policy destroyed manufacturing in America.

So now, interest rates are in the basement, for those who can borrow, and the value of the dollar against other currecies has fallen dramatically.

China's currency is fixed. Essentially, this has created an artificially low exchange rate, which, as long as the U.S. Dollar was high, China's economy grew by leaps and bounds.

The Feds "quantitative easing" has lowed the value of the dollar which in turn impacts china's economy downward. Since, November 12, 2010 corn at the CBOT has lost 8% value. Soy at the CBOT has lost 10%.

Good for those who buy grain.

But, fertilizer imports (quantities)have risen 75% in the first nine months of this year and the prices are rising too. The same can be said of fuel.

While it is all well and good to talk about "risk Management", the total number of risk are unknown. Under those conditions, someone had better get a grip on the activity on the CME.


  1. John,

    Any advice on how to familiarize ourselves with the CME shenanigans?

  2. The CME is understandably paranoid about information getting out. The CFTC is probably the best bet for clearing up the mess. Beyond that, just keep asking those in power for transparency.