As commodity prices are getting out of control, producers are no longer able to absorb costs and a wave of consumer price inflation is threatening to explode. Established economists are explaining such price inflation as a “supercycle” or simple supply-demand dynamic. In reality, exactly what Lyndon LaRouche had forecast is occurring: the expanded liquidity of the two upper curves of his 1995 “Typical Collapse Function” (monetary and financial aggregates) has poured in the modern equivalent of commodity hoarding, i.e., Future speculation.
As a Bloomberg article explains, “At a time when interest rates are feeble and bond yields remain historically depressed, rolling positions along the commodities futures curve offers passive investors tempting returns. It’s a proposition that has gotten some of the biggest research departments on Wall Street, from Goldman Sachs Group Inc. to Citigroup Inc. talking up commodities returns this year.”
Hedge funds have bet on rising commodity prices after the pandemic and have poured money into so-called “positive carry"; “it’s a trade that draws speculative money into commodities, driving further price gains.”
A graph shows that the spike in commodity prices started in early 2020 and has allowed speculators to gain as much as 9% in oil and 3% in copper. Another chart shows a parallel surge in bull bets.
So far, producers have managed to contain consumer prices, but we have reached a threshold. If commodity prices keep rising, producers will be forced to transmit increased costs into consumer prices. Construction companies interviewed by EIR say they are conveying price rises on to customers as commodity prices increase. They have reduced the cost estimate for customers from 60 to 15 days.
Italian construction companies are reporting copper and iron prices at a 10-year high, insulants out of control with insulating pipes nowhere to be found. The plastic industry is receiving letters from suppliers of granules saying that the “commodity situation is out of control both in terms of prices and availability … currently, granules producers must declare ‘force majeure’ and strongly reduce commitments. Due to the seriousness of the situation we are forced to review commercial conditions, implementing major increases on the whole range of our products.”
