"My view is that the Fed and the other central bankers will leave interest rates far too low and far too long," Faber said.
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From the WSJ: Farm Real-Estate Values Post Rare Drop
The U.S. Agriculture Department said in its annual report that the value of all land and buildings on U.S. farms averaged $2,100 an acre Jan. 1, down 3.2% from last year. The decline in farm real-estate values was the first since 1987, the agency said.
The Chicago Fed had a similar report a couple of months ago: Farmland Values and Credit Conditions
There was a quarterly decrease of 6 percent in the value of “good” agricultural land—the largest quarterly decline since 1985—according to a survey of 227 bankers in the Seventh Federal Reserve District on April 1, 2009. Also, the year-over-year increase in District farmland values eroded to just 2 percent in the first quarter of 2009.
And here was a graph I posted in May based on the Chicago Fed report:
Farmland Prices Click on graph for larger image in new window.
This graphs shows nominal and real farm prices based on data from the Chicago Fed.
In real terms, the current increase in farm prices wasn't as severe as the bubble in the late '70s and early '80s that led to numerous farm foreclosures in the U.S.
And as I noted in the earlier post, it was not surprising that John Mellencamp wrote "Rain On The Scarecrow" in 1985 after the farm bubble burst.
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China moves to internationalise its currency
Leo Lewis, Asia Business Correspondent
China is rapidly accelerating its efforts to internationalise its currency with a series of manoeuvres that could see the renminbi soar to become one of the top three traded monetary units in the world.
By 2012, say analysts in Shanghai, as much as $2 trillion (£1.69 trillion) worth of trade flows may be settled using the “redback” as China stretches its commercial tentacles throughout the commodity-producing world and the emerging economies of Asia, Latin America and the Middle East.
The radical change in attitude may arise from a desire to protect China from the “dollar trap” — the problem that emerges when exporting countries are effectively forced to shovel large chunks of their reserves into the US treasury and suffer the consequences in times of high volatility.
The rising financial power of the renminbi may also prove to be the salvation of Hong Kong in its intensifying rivalry with Shanghai for international relevance.
The former British colony, say economists at Barclays Capital, may be able to secure its status as a premier global financial hub by rebranding itself as China’s offshore renminbi banking centre. Renminbi internationalisation is essential if Hong Kong “is to have any long-term hope of being like London or New York,” according to the bank.
Political analysts believe full international currency status for the renminbi could take some time to become politically acceptable to the full spectrum of views within the Communist Party, warning that there would be significant policy hurdles surrounding the perceived loss of currency control.
However, China’s soaring economic growth and global financial turmoil could be pushing the process ahead faster than the market expects. Recent measures, including currency swap agreements with several central banks and the allowing of renminbi-denominated crossborder trade, have significantly changed the environment, HSBC said in a research note.
If, as some predict, China overtakes Japan to become the world’s second biggest economy next year, the pressure for the renminbi to internationalise will mount faster. Wensheng Peng, chief China economist at Barclays Capital, believes that market turmoil and the Wall Street crisis has changed the terms of a debate on the renminbi that has been brewing for years.
“The global financial crisis, and along with it increased concern from the Chinese perspective on the reliance of the global monetary system on the US dollar has brought to the fore the importance of increasing the use of the renminbi in international trade and finance,” he said.
A consensus among policymakers has grown from the grudging acceptance that one of the fundamental reasons the country has fallen into the dollar trap is that China’s currency is not international and the global crisis has made the dollar less predictable.
Others believe that raw economic growth makes the globalisation of the renminbi inevitable. “If the history of sterling and the dollar’s ascendancies as international currencies are any guide, said Hongbin Qu, HSBC’s chief China economist, the internationalisation of the renminbi is “long overdue” because of China’s rising economic power relative to the limited use of the renminbi overseas.
Most significant are the policy gambits in the past few months as the global financial crisis has given motive and opportunity for Beijing to test out renminbi internationalisation. China has signed bilateral currency swap agreements with Korea, Malaysia, Indonesia, Belarus and Argentina worth 650 billion renminbi (£57 billion). Last month, China selected five mainland cities — accounting for 45 per cent of the country’s foreign trade — that can trade with Hong Kong and Macau in renminbi. The programme, said Mr Qu, could be rolled out to cover all of China’s trade with Asia except Japan.
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By WSJ Staff
By Elisabeth Behrmann
Advanced economies are showing signs of bottoming in response to massive financial and fiscal government stimulus but the global economy will stay in a recession until the end of the year, U.S. economist Nouriel Roubini said Monday in Kalgoorlie, Australia.
roubini20090803_E_20090803035728.jpgBloomberg News/Landov
Nouriel Roubini delivers the keynote address at the Diggers and Dealers Mining Forum in Kalgoorlie, Australia, on Monday
His comments came a day after Alan Greenspan said in an ABC interview that he is “pretty sure we’ve already seen the bottom” and that “Collapse now, I think, is off the table.”
In Roubini’s remarks, he predicted the global economy would contract by 2% in 2009, staying in a recession until the end of the year, but would grow by 2%-3% next year, he said.
That will offer a boon to commodity prices, which should trend higher from current levels but still run the risk of a correction should the global recovery surprise on the downside.
“In addition to the green shoots, we see worrying signs. There’s a risk of relapse, of a double-dip recession in the second half of next year,” Roubini said, tipping U.S. house prices to contract another 13% next year, on top of a drop in prices of 27% since their highs in 2006.
With the U.S. still the world’s largest economy by far, consumption trends will be key for the global recovery, and signs from labor markets and the outlook for consumer demand remained worrying, he said.
He said he expects U.S. unemployment to rise further to reach 11% next year - unemployment had reached 9.5% in June - and that, while the labor market continued to show signs of severe weakness, the U.S. consumer would remain ’shopped out’ and keen to increase the rate of household savings.
With the global economy tipped to recover next year, commodity prices should benefit and trend higher. However, there’s a risk of correction should that recovery surprise on the downside, while waning Chinese restocking and strategic inventory builds during the second half of this year should take some steam out of commodity markets. Turning to record levels of Chinese bank lending during the first half of this year, Roubini said he wasn’t concerned about a financial crisis on the scale of the U.S. crisis happening in China, but said that excessive liquidity was wasteful and ultimately damaging to the economy. The Chinese government’s stepping up bank lending was necessary but it’s time for the excessive lending to be scaled back, Roubini told reporters.
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From Matt Taibbi's "The Great American Bubble Machine" in Rolling Stone Issue 1082-83.
Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
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On the face of things, markets last year were adjusting exactly as economic theory predicts they should: prices rose, drawing investment into farms; supplies then rose sharply, pushing prices down. But that was not the whole story. The price fluctuations of 2007-09 suggested that uncertainty in the world of agriculture was deepening under the influence both of oil prices and capital flows. The fact that prices are still well above their 2006 average, even in a recession, suggests that the spike of 2008 did not signal a mere bubble—but rather, a genuine mismatch of supply and demand. And this year’s price increase suggests that there is a long way to go before that underlying mismatch is eventually addressed. “I don’t see that anything has fundamentally changed,” says Mr Abbassian. “That means we cannot go back to where we were in 2007.”
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Our economy’s lights, if not switched off in a rehash of the 1930s Depression, have certainly been dimmed in a 21st century version likely to be labeled the Great Recession. Much like John McSherry, U.S. and many global consumers gorged themselves on Big Macs of all varieties: burgers to be sure, but also McHouses, McHummers, and McFlatscreens, all financed with excessive amounts of McCredit created under the mistaken assumption that the asset prices securitizing them could never go down. What a colossal McStake that turned out to be. Now, however, with financial markets seemingly calmed and an inventory-based recovery in store for the balance of 2009, there is a developing optimism that we can go back to the lifestyle of yesteryear. PIMCO’s driving thesis however, if not a juxtaposition, is succinctly described as a “new normal” where growth is slower, profit margins are narrower, and asset returns are smaller than in decades past based upon the delevering and reregulating of the global economy, which in turn should substantially inhibit the “gorging” of goods and services that we grew used to in decades past.
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