Barclays Channels ‘New Deal’ Lesson in ‘Shaky’ Commodities World

  • Roosevelt’s ‘New Deal’ boosted commodity demand, bank says
  • Extra monetary easing won’t help raw materials, Barclays says

The outlook for most commodities remains shaky even after investors poured more than $50 billion into raw materials this year, and it may take fiscal stimulus to get things going, not more central bank easing, according to Barclays Plc, which reached for the history books to make a case.

Additional monetary easing by the central banks is unlikely to support the outlook for global commodity demand or prices over the medium term, though more fiscal stimulus might, Kevin Norrish, managing director for commodities research, said in a weekly report on Monday. As possible evidence, the bank cited the impact of President Franklin D. Roosevelt’s “New Deal” policies to fight the 1930s Depression.

Commodities have rallied this year as energy prices climbed, gold rallied and shortages emerged in some base metals, especially zinc, with central banks in Europe and Japan embracing negative interest rates and policy makers in the U.S. standing pat on borrowing costs. Whilst the monetary stimulus in recent years has boosted financial assets like equities and property prices, the impact on the real economy has been very modest, according to Barclays.

“One only needs to look at the huge increase in commodity prices that previous sustained fiscal expansion programs have engendered to see what is missing this time around,” Barclays said. While the role of Roosevelt’s New Deal in ending the U.S. Great Depression in the 1930s is open to interpretation, “there is no doubt it resulted in a massive increase in U.S. capital stock and a dramatic increase in commodities demand,” it said.

China’s Program

The bank added: “A more recent example of successful stimulus from a commodity perspective was China’s, $800 billion 2009-2010 stimulus, focused on infrastructure building.” That program sent local demand soaring and played the key role in the initially robust recovery commodity prices enjoyed over the same period, it said.

“More Q.E. won’t help commodities...,” Barclays said in the Aug. 8 report, using initials for the quantitative easing, such as the bond-purchase programs used by central banks in a bid to kick start growth and fire up inflation when conventional monetary pools met their limits. It added: “Further fiscal stimulus just might.”

— With assistance by Jake Lloyd-Smith

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