Conditions ripe for global commodity super-cycle: Steve Hanke

ECONOMYNEXT – Conditions are ripe to the return of a commodity super-cycle with supply constraints, low inventories from earlier low prices, inflation and economic activity set to pick up amid a weaker US dollar, Steve Hanke, a top US economist has said.

For several years commodity prices had been depressed and some have been “annihilated”.

“And when that happens, you start running down inventories, a lot of producers go the wall and shut down so supply gets very constrained,” Hanke, Professor of Applied Economics, Johns Hopkins University, Baltimore, told Kitco News, a commodity data and news portal.

“And then the economy starts kicking in and moving forward, commodity prices go way up and you do start a super cycle. And we are seeing the initial signs that might be in the wind.”

Hanke was speaking in the last week of December 2020, before Federal Reserve chief Jerome Powell said the agency would buy 140 billion dollars of securities a month to print money.

Hanke said the fundamental behind some ‘exotic’ metals gives an insight to underlying conditions.

He said in the last quarter of 2020 nickel rose 22 percent, molybdenum was up 18 percent, lithium carbonate 25 percent, aluminium 19 percent, antimony 19 percent, silicone metal 15 percent and Magnesium 26 percent.

“And my favourite – because I am involved in producing Ferro vanadium -, that is up 8 percent,” he said.

“So watching these very carefully, you can see all these coming off the bottom with substantial strength after being totally wiped out in the past year and a half or two.

Hanke said broad money measured by Divisia M4 calculated by the Centre for Financial Stability was growing at 27.4 percent a year.

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“They are goosing this thing big time,” he said. “That means nominal GDP will be goosed big time.”

In general Divisia M4 had been a better guide than Fed calculated money supply numbers, he said

Since the actual gross domestic product was constrained, conditions were ripe for an inflation surge.

“That co-relates with a super cycle. We are going to have more inflation. That is always good for commodities. We will probably have continued weakness of the dollar.

“If you put all of that together, more inflation, more economic growth, supply that has been very constrained, inventories that have been very down, that is a formula to crank up the commodity market.”

Responding to a question on unemployment and inflation, Hanke said it was ‘rubbish’ but was repeated in the financial press. About 95 percent of what was reported in the financial press was false or irrelevant, he said.

In the 1970s there was stagflation, with both unemployment and inflation rising.

American unemployment numbers may not reduce due to stimulus cheques discouraging people from working, Hanke said.

He said employment numbers will begin to pick up after stimulus cheques end.

During the ‘Trump economy’ unemployment had fallen but there was no inflation, he said.

At the time Janet Yellen was bringing down excess liquidity, data show. (Colombo/Feb10/2021)

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