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Blame the Fed for the Commodities Slump

July 28, 2015

Blame the Fed for the Commodities Slump

When we left you at the end of last week the world was falling apart.

As you know, the economy functions on electronic credit… not cold, hard cash. Without the banks pumping more credit into the system – by way of loans – it sags.

The Dow fell 163 points – or about 1% – on Friday.

More significant is the action in the gold market. At this morning’s price of $1,103 an ounce, gold is now trading $100 below what we thought was the “floor” under the price.

Why?

It could be that gold is signaling a global recession/depression. People tend to buy gold when they fear inflation. All they see today is a global deflationary slump.

The People’s Daily newspaper – the official organ of the Communist Party – tells us that Chinese electricity consumption is accelerating at the slowest rate in 30 years.

 

We all know China’s GDP figures are untrustworthy, but electrons don’t lie. They flow with the economy. And they’re now only increasing at a sluggish 1.3% a year – suggesting a big slowdown in the Chinese economy.

According to economists’ estimates compiled by Bloomberg – as opposed to the official spin from Beijing – China’s economy is growing at the slowest pace in 25 years.

 

A Pileup in Commodities

Meanwhile, on the commodities highway, there’s a huge pileup.

The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.

A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.

And the coal miners have slid on the cheap oil and gas.

In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.

…click on the above link to read the rest of the article…

 

 

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