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Molycorp, Inc. Message Board

  • mbaes mbaes Sep 12, 2013 7:46 PM Flag

    Another question for a newcomer

    How do the rare earth prices trade when compared to other commodities (gold, silver, platinum...) ? Are they as dependent on the fed stimulus for their current prices? And if so, what would the impact of the coming QE taper mean?

    Thanks in advance!

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    • Rare earths are more like copper, aluminum, iron ... common base industrial metals rather than precious metals. QE tapering has too many possible effects to really guess. If the tapering slows economies ... then consumer demand for consumables drops, and base raw materials likely drop as a secondary effect.

      I don't expect much speed in any tapering. The Fed is currently pushing money into banks and taking treasuries from them. If they just slow that ... I think the current rate is $85 billion per month and I have seen speculation that they will reduce to $70 billion per month. I don't expect that to have much effect on the economies. $70 billion per month is still $840 billion per year ... which is higher than the projected debt. So essentially all new treasury debt can be assumed to be purchased by the Fed, albeit indirectly. Interest rates should stay low, and yields shouldn't rise.

      I think the QE was a poor tool for economic stimulus but it was all that was available after the political gridlock arrived. The Fed can push the money supply, and raise inflation fears, trying to get unemployment down. I think there will eventually be inflation but it won't be the extraordinary thing many project. I am hopeful that the inflation is low enough that the current treasury debt in the Fed can simply be destroyed, erasing a large bit of the US debt.

      In the same confusing way that the Fed "creates" money to buy the treasuries, the treasuries become "retired' when they are in the Federal Reserve Bank. Interest paid to the Fed ends up being paid back to the Treasury department.That closed cycle could be used to officially retire that debt. Currently the Fed balance sheet has over $2 trillion in treasuries. And they are buying faster than new treasuries are being issued.

      I digressed. Ultimately I think the tapering being considered is inconsequential.

 
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