Commodities & Deflation

Falling Commodities & Rising Deflation
(TOPICS: Currency Wars, Trade Wars, Devaluation of currency, Deflation, Commodity free fall)

Most of the world is experiencing deflation, hence the drop in commodities, primarily because China had been buying so much and abruptly stopped last summer. Deflation sets in when we have a lack of growth and too many commodities with too few nations and individual consumers buying them. Currently, we have too much food, steel, iron, oil, etc., too much stuff which has driven down retail prices, swelled inventories and caused commodity holdings to lose value. US consumers have already begun to reduce their purchases, hence the poor December retail figures.

Bankruptcies among oil and gas companies have reached quarterly levels last seen in the Great Recession, according to the Federal Reserve Bank of Dallas. At least nine U.S. oil and gas companies that accounted for more than $2 billion in debt have filed for bankruptcy in the fourth quarter. If oil and commodities continue to fall and deflation persists, more bankruptcies are expected in 2016. Since peaking in October 2014, U.S. oil and gas employment has fallen by 70,000 jobs, the analysts wrote in the report.

Manufacturing in the U.S. contracted in December at the fastest pace in more than six years as factories, hobbled by sluggish global growth, cut staff as 2015 closed out. Struggling overseas demand and declines in commodity prices that are hurting investment in energy and agriculture continue to limit orders for American manufacturers. Factories globally ended the year on a weak note, contributing to a selloff in stocks worldwide in the first week of 2016.

Adding fuel to the fire are the global currency wars which are driving down the value of currencies making one country exports less expensive than another, not because their goods actually more expensive, but their currency is stronger. Thus, the current strength of the USD is driving up the price on US exports. This is why the US trade deficit was the highest on record last month and why many nations are dumping their large commodity inventories into the global markets, further driving prices downward. As one countries exports under-cut another’s, the country being under-cut will attach a tariff which is an additional fee to sell that product to that county’s consumers to offset the difference between what a given product costs in that nation as compared to the foreign export price. This is what all these free trade deals are supposed to prevent, but when things get too difficult for too many nations they will be ignored. They call this trade wars. Thus, along with the military wars, we have the currency wars and trade wars being executed across the globe.

What Are the Market Risks If There Is More Easing (1-22-16) Bloomberg Video
Manufacturing in U.S. Contracts at Fastest Pace in Six Years (1-4-16)
Oil Bankruptcies Reach Highest Quarterly Level Since Recession (12-24-15)
The Trade Wars Begin US Imposes 256% Tariff on Chinese Steel Imports (12-23-15)
Fed-Induced Dollar Rally Sinks Commodities as U.S. Stocks Drop (12-17-15)

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