Akcieatrhy (Akcieatrhy.cz)
Markets  |  November 08, 2012 14:32:30

What we carry commodities? Part One

“Akcieatrhy.cz“Over the past 200 years, faced prices of commodities several large bubbles, but none of these commodity bubble, including the last one rising in the last decade, has not been driven by economic growth, demographic changes, and a region of intense industrialization. All of these bubbles were driven by monetary inflation.

When real economic growth declines or does not grow, it has an impact on prices
oil, because the economy consumes more inputs than it produces. The solution is then productivity growth, benefiting from technological innovation, and this requires a capital investment. However, if productivity increases, this technology positively affects productivity growth and other sectors. This mechanism explains why commodity prices adjusted for inflation, over the last 200 years of decline, despite the fact that the population of the Earth in the same period increased from 1,000,000,000 to 7,000,000,000.

It would seem that incredibly rapid industrialization of China and increased Chinese interest in commodities change this common scheme that will run out of resources, leading to higher commodity prices. However, the data show otherwise. In fact, took place during the last two centuries very rapid industrialization in several different regions, and if there is a depletion of resources, have been replaced by technological advances by others.

The following chart shows the above situation, inflation-adjusted CRB index shows that despite the massive development of China over the past ten years, is currently the value of the index on the lower level, and the index value is roughly the same as fifty years ago.

mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-no-proof: yes; '> Graph - CRB Index

It turns out that the only threat to commodity prices pull inflation is monetary policy of the state intervention, or printing money. State intervention distorts the market environment, which leads to an incorrect evaluation of resources, and improper valuation prices to their depletion, despite the noble motives of state policy.

To be continued ...

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