Notes From Underground: Tomorrow the FOMC–extended period expected to stay

The FOMC statement will be released Wednesday and it will reinforce the discussion about the uncertainty of deflation/inflation. Bernanke and his fellow output gappers will stay the course as long as unemployment stays too high to comfort the Washington politicos. As we head into the Toronto G-7 and G-20 photo ops this weekend, the FED will not wish to create any type of uncertainty into what will prove to be a raucous weekend.

The other interesting news out tonight is an article about Marcos Jank, president of the BRAZILIAN SUGARCANE INDUSTRY ASSOCIATION, the major Brazilian lobbying group in Washington D.C. Jank called on President Obama to remove the tariffs on imported sugar-based ETHANOL that protects the U.S. maize industry. The current tariff is 54 cents and is also reinforced by a 51 cent subsidy per gallon to U.S.-based ethanol producers. We alerted our readers to the Brazilian recantation of the WTO-sanctioned penalties on U.S. cotton. We thought that the Brazilian action was interesting and may mean that something was up on an ethanol deal. Pay attention, especially to sugar prices, and the possible negative impact on corn prices.

AN ASIDE: We wish to advise our readers to read Martin Wolf’s column in tomorrow’s Financial Times. It is a beautiful piece on the need for central banks to keep their foot on the monetary stimulus pedal. One statement that really was well thought out:

“In current circumstances, the belief that a concerted fiscal tightening across the world would prove expansionary is, to put it mildly, optimistic.”

Wolf is referring to the argument that fiscal austerity will put optimism into global financial markets. He does a very credible job of challenging the models on which this thinking is based, and our readers know all too well of the dangers of relying on questionable models.

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2 Responses to “Notes From Underground: Tomorrow the FOMC–extended period expected to stay”

  1. brendo Says:

    Nice article Yra,
    Very interesting view. I think it will become so much clearer after this weekend G20 in Toronto as well. If Europe tightens…will the Americans be the only ones willing to again have a stimulus package…..What would that do to already frayed relations…

    What do you think the effect on the Dollar would be? The states budget gaps are bigger than Greece’s and would question the US’s rating stability….yet it would lead to a staving off of a economic downturn…
    Keep it up!

  2. yra Says:

    brendo–good question about the Dollar.been thinking along those lines.Some investors will view it Dollar positive as it will be construed that the U.S. is acting to turn the situation and that will be growth positive–but i think the bigger picture is that the U.S. will not tolerate deflation and that will be the bigger story—eventually but when I wish I knew

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