Commodity Corner

Commodities by definition1. A raw or primary agricultural product that can be bought and sold, such as copper or coffee.  2. A useful or valuable thing, such as water or time.  3. A limited physical valuable resource

Commodities are great indicators when we desire to know how a fiat (paper) currency system is doing.  Typically, when fiat currency is holding its purchasing power, commodity prices remain stable or low.  When fiat currencies are losing their purchasing power, it then takes more of this paper currency to buy the commodity.  When commodity prices rise, it isn’t that they are becoming more valuable in most cases where supply isn’t an issue.  It is more a case of paper currency becoming less valuable, requiring more of that paper currency (more dollars) to purchase the commodity.  This is why we are seeing rising prices today. 

The Federal Reserve has been engaged in TARP programs, Bail-Outs, QE1, and QE2, and now a program keeping interest rates at 0% until 2013, all requiring the creation of more money.  Over the past two years, our money supply here in the USA has almost tripled due to these programs.  Whenever you have more money, chasing after the same amount of goods (or commodities), prices rise.  These are symptoms of the inflation created by the Federal Reserve.  I expect commodities to continue their steady rise, and I expect prices to really accelerate in the second half of 2011 on into 2012. 

The government uses what is called the Consumer Price Index (CPI) to determine what the approximate inflation rate is here in the USA.  The CPI is a way for the government to say- your cost of living is going up X% this year, and this is used to determine pay increases across the nation.  They have been keeping the CPI around 1-3.2% over the past year, basically meaning your cost of living has only increased 1-3.2% in that time.  These values have been craftily manipulated ever since the Boskin Commission of 1995.  Instead of using a fixed basket of goods to determine CPI, the basket of goods is always changing or being manipulated.  Through geometric weighting, hedonics and substitution effects, CPI can now be whatever government would like it to be at any given time.  CPI currently doesn’t include food and energy price increases.  Let’s take a look at the US Dollar and commodity prices, and you can decide if the government is reporting accurately. 

Commodities Year Over Year- Updated Monthly (Last Updated 9/1/2011)

                     

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Comments
  1. It was a awe-inspiring post and it has a significant meaning and thanks for sharing the information.Would love to read your next post too……

    Thanks

    Regards:

    Commodity Market

  2. Share Market says:

    It was a awe-inspiring post and it has a significant meaning and thanks for sharing the information. Would love to read your next post too…

    Thanks

    Regards:

    Share Market

  3. Christiana says:

    A few years ago I’d have to pay soeomne for this information.

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