Transcript Document

The G20 Agenda – Speculation
Demand and Global Economics
Alan S Alexandroff
Director Online Research & Director of Strategic
Partnerships Digital20, Munk School of Global Affairs
Summary
• The multiple explanations for food
security issues
• Speculation and Poverty
• Looking at exchange rate
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The Threat to Food Security
• French President:
“The day there are food riots, what country at the G20
table will say this does not concern them? I don’t see
a single one.” (January 24, 2011)
• food security and volatility in commodity
prices – the role of derivatives in commodityprice swings - are a priority for the French
President. The President has called for the
regulation of commodity markets – and the
effort to avoid food riots in the world’s poorest
countries
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Factors in Food Prices
and Volatility
• Supply
• Speculation
• Demand
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Structural Factors – A Growing
Era of Consumption
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Grains and land in biofuel
Population growth effects
Income increase large emerging markets
Urbanization of population
Government income support programs
High oil prices
Production shortages – weather, water usage,
plagues & diseases, low prices
• Dollar devaluation
• Investment fund speculation
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Alternate Views
• The view from the IFIs
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More wide-spread price increases than 2008
Supply shortfalls – weather
Policy reactions (Russia) raised amplitude
More short run impacts
• The view from a Central Banker
– Avoid a two tier system – one of market driven
exchange rates; the other managed exchange
rates
– A demand phenomenon
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Canada’s Mark Carney
GBC
• While there have been supply disruptions due
to geopolitical unrest and natural disasters, and
while speculative pressures have reinforced, on
occasion, the direction of fundamentally driven
price moves, the Bank’s view is that a large,
sustained increase in demand is the primary
driver of this boom. The breadth and
durability of the commodity rally underscores
this conclusion.
“The Paradigm Shifts: Global Imbalances, Policy and
Latin
America” (March 26, 2011)
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Not Just Speculation &
Poverty
• Volatility in Commodity Prices
– According to the WB the rise in food
prices 36% during the past year has
added 44m people have fallen in to
extreme poverty
– Food price inflation hits the poor the
hardest – they spend a greater proportion
of their income on food
8 – The impact on Algeria and Tunisia
More Regulation –
The French President
• Trade through exchanges – rather
than over the counter
• Traders of commodities must put
down a deposit for part of the
financing for the commodities
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The Other
French Priorities
• Monetary Reform – The US Dollar as
an International Reserve Currency
• The Depreciation of the Current Int’l
Reserve Currency
• The Dilemma of Moving from Here to
There
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Exchange Rates and
Imbalances
• The impact of the exchange rate
• The reaction to quantitative easing
and persistently low interest rates
• The reaction to capital flows in
emerging markets – Brazil, Korea,
etc.,
• Chronic undervaluation
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Still Moving Apart - China
• Growth – 9.7% for the first quarter
year over year (fourth quarter 9.8%)
• Consumer Price Index- 5.4%(from a
year earlier in March 2010) – target
4%
• Foreign Exchange Reserves – rose
$197.4B in this first quarter reaching
$3.0447Trillion – marks the highest
level of inflow from both foreign
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investment and speculation
China’s forecast
• China for the 4th time orders banks to raise
reserves – large banks to set aside 20.5% of
their cash – an increase of half percent
• Food prices are rising as are wages,
housing and raw material prices
• Inflation partly a product of stimulus
spending in 2009 - infrastructure spending –
this is monetary stimulus not unlike the US
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China forecast
• Rising commodity prices – including
food - now feed wage demand and
underlying inflation
• Transmittal of inflation to RoW
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Still Moving Apart - US
• S&P Outlook – Monday (April 18th) US
sovereign debt - remains triple A but for the first
time in 70 years moves from stable to negative
(1 in 3 chances of an actual downgrade in the
next two years)
• 2011 – deficit of 10.8% of GDP
• US Treasury – higher prices are not from US
policy but rather emerging market efforts to
down the value of their currencies in the face of
growing capital inflows
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US forecast
• The emerging markets have led to
lower prices in the US – but with
rising prices and inflation the
opposite may now be the case
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Still Moving Apart - BRICS
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40% of the global population
18% of global trade
45% of current growth
20% of the global GDP
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