The Federal Reserve issued its semiannual Financial Stability Report yesterday. Although EIR has not yet reviewed the full 86-page report, notable is what Fed Governor Lael Brainard chose to highlight in the short, two-paragraph summary statement. The second paragraph reports that the Fed is focusing attention on large price movements and margin calls in the commodities market serving as “a potential channel through which large financial institutions could be exposed to contagion.” That is, they could collapse.
“From a financial stability perspective, since most participants access commodities futures markets through a large bank or broker-dealer that is a member of the relevant clearing house, these clearing members are exposed to risk when clients face unusually elevated margin calls. The Federal Reserve is working with domestic and international regulators to better understand the exposures of commodity market participants and their linkages with the core financial system,” she explained.
The Fed’s concern stems from the March crisis in the speculative commodity futures markets, provoked by soaring commodity prices, which forced the liquidation of at least one over-extended hedge fund which could not “pay up.” While certainly a serious threat to the trans-Atlantic financial system, it is but one of a myriad such threats — as the Schiller Institute made clear in its manual released on March 28, for how to escape from this dying speculative system, “The LaRouche Plan for a New International Economic Architecture,”
