One of the main stories coming out of the financial markets this year has been the commodities boom. Be it corn or copper, the prices of agriculture, energy, and metals have been popping in the first half of 2021, leading to meteoric gains for investors and higher costs for consumers. But has the red dragon extinguished the red-hot sector – or is this a correction following massive gains in a short period?
China's Commodities Crackdown
China, the world’s largest importer of soybeans, wheat, crude oil, and other commodities, is unhappy by how much everything is costing these days. Authorities have announced that they intend to take action, including clamping down on the futures market, cracking down on hoarders, reining in speculation, and releasing reserves of critical metals (copper and aluminum). This would be the first time since the last commodities rally about a decade ago that Beijing is taking action to cool down the monumental surge.
While Chinese officials have yet to take action, the verbal warnings were enough to trigger selloffs. In the week of Jun. 14 to Jun. 18, here is how some of the hard commodities performed:
Copper: 7.9%
Corn: -21.3%
Crude Oil (WTI): -0.9%
Gold: -5.7%
Lumber: -9.8%
Soybeans: -15.1%
Lean Hogs: -10.7%
Are the massive declines finished? Many of the commodities rebounded to end the trading week, but what was an almost certain market in 2021 has now been turned upside down. Still, strengthening global demand, shrinking inventories, and limited output remain the core ingredients for a recipe of a roaring commodities market.
Shock: Minimum Wage Has Consequences
Despite the treasure trove of evidence proving that it is harmful to workers and the broader economy, advocates of the minimum wage keep repeating that there are no adverse side effects to establishing a wage floor. From job loss to a reduction in net pay, defending the mechanism is a challenge.
Once again, another study is added to the case against the government-mandated minimum wage. According to a new report titled "Evidence of The Unintended Labor Scheduling Implications of The Minimum Wage," every $1 per hour increase leads to a myriad of negative outcomes. What were they? Here were some of the primary findings: a 20.8% drop in the average number of hours each employee clocked in, a 23% decline in the percentage of employees working more than 20 hours, and average net losses of nearly $1,600 annually per employee.
The study authors – Qiuping Yu, Shawn Mankad, and Masha Shunko – urged public policymakers to be cautious when considering minimum wage hikes, adding that they need to add measures to ensure sufficient hours and regular schedules.
"When it comes to assessing the impact of minimum wage on worker welfare, economists and policymakers tend to emphasize employment rates alone. But our study shows that other factors, such as benefits and worker schedules, can make a major difference. Even if overall employment rates remain constant, increasing the minimum wage can lead firms to make strategic shifts in their labor scheduling practices that can ultimately have a substantial, negative effect on the welfare of the very workers these policies aim to protect."
Are the results surprising? For those who have a rudimentary understanding of economics, the answer would be a resounding no. This type of information has been disseminated repeatedly for years. Yet, politicians, bureaucrats, and activists continue regurgitating the myth that the minimum wage is harmless.
The World Bank’s Tantrum
El Salvador recently approved a plan to make bitcoin legal tender, making it the first nation to do so. By the fall, the peer-to-peer decentralized virtual currency will compete with the U.S. dollar, which has been the official currency for the South American country for 20 years. Supporters, including President Nayib Bukele, assert that it would be a boon for the economy and help residents living abroad send remittances back home. Critics argue that it would affect the government’s negotiations with the World Bank.
It turns out that both sides have been somewhat correct on this one.
The international financial institution announced that it would not help El Salvador roll out its aggressive attempt to generate prosperity by adopting bitcoin as legal tender. Finance Minister Alejandro Zelaya had informed the press that he hoped the World Bank would offer technical assistance and advice on implementation. However, the global body issued a statement, clarifying that it is not something the organization can do right now:
"We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes. While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings."
The International Monetary Fund (IMF) also spotlighted its concerns about the unregulated cryptocurrency, noting that it "raises a number of macroeconomic, financial and legal issues that require very careful analysis." Some financial analysts believe El Salvador embracing the digital currency could lead the IMF to reject the country's appeal for monetary aid.
Whatever the case, the nation might ignite a tidal wave of other countries embarking upon a journey of competing currencies, allowing consumers to choose between fiat money, crypto, and anything else. Economists Friedrich Hayek and Milton Friedman would be intrigued.
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Read more from Andrew Moran.
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