Maybe it's something about the chair...

Former Federal Reserve Chairman Alan Greenspan is deservedly famous for two things: cryptic pronouncements that somehow proved all things to all listeners, and easy money. For a while, it looked like his successor Ben Bernanke was going to be another breed of cat.

But the recent announcement by the FOMC (short for "Op Loan Interest Rate Czars") was notable in that, in the face of some inflation pressures, the Fed appears to be opting for growth. One succinct summary was part of my advisory message from Roach Ag Marketing (I carefully ignore advice from several quality sources):

First, it is not what they did that was important but it is what they said that made all the difference. Fed chief Ben Bernanke basically said that he is more willing to consider the fall off in the housing market and the blow up in the sub prime lending market as a more important consideration short term then inflation. Translation: he is likely preparing the market for the potential for rate cuts in the weeks ahead.

The reason this has significance is because it is telling you the Federal Reserve is ready to put the foot on the liquidity pedal and let Japan decelerate its liquidity pump. This lit a fire underneath the equity markets globally yesterday and has a profound impact on the likely acceleration of global growth as we head into the back half of 2007 and especially into 2008. It does not mean that the transition will happen with out some further disruptions but it does mean the Fed is aware of the danger of the yen-carry trade distortion and is looking to minimize, the best that it can, the effects of its eventual unwinding. Have no illusions of grandeur here: Japan will continue to raise rates in the year ahead and the yen-carry trade will unwind from its current amebic state. So expect the yen to strengthen significantly against the dollar and expect the US dollar to stay under pressure against most other currencies as well.

These comments line up well with my own take - in itself a scary thought for the author Shawn Hackett. We are already seeing significant ag inflation: rents, fuel, fertilizer, etc. Now that could be matched with modest consumer inflation: food (of course, that's partly ethanol's fault), anything imported (dollar plummeting), and services.

I have opined before about fixed-rate penalties for ag loans. As you write loans for the machinery now flying out of dealer lots and land you can now almost pay for, make sure you don't lock in a very expensive unneeded interest rate guarantee.

I think Ben's a chip off the ol' block...