Does Canada need a wheat board?

Canada farmers voted "No" to the end of the Canadian wheat board. Of course, this was a vote taken by the wheat monopoly.

Unlike the US, Canada has all farmers sell wheat to a single board (Canadian wheat board CWB) controlled by the government who then markets wheat and barley internationally. The vote was non-binding but is supposed to send a message to the government that farmers are comfortable with the current structure.Wheat growers were 62%  in favor of the status quo and barley grwoers were 51% in favor.  Other surveys have suggested that many would like a dual system which will allow growers to market on their on or use the wheat board.

The US has had WTO complaints about the marketing board; however, past Canadian governments have viewed the monopoly power afforded the CWB as getting a better price for farmers. The current Canadian government views that farmers should have to individual right to market thier product as they see fit. The economics of a wheat board are less clear. Here is simple economic video on the CWB. There is little evidence that the board is able to get better prices given the CWB sells into a competitive market. The results would be different if there was monopoly supplier who could reduce the amount of product that comes market.

A choice of how to market seems to be a very simple and reasonable alternative to a monopoly.

Is a single ECB mandate hurting Europe?

The policy mandate for the ECB is to only stabilize the price level and control inflation. The Fed has a dual mandate of controlling inflation and maximizing employment. It may be time that the ECB has a explicit dual mandate for monetary policy. The ECB has a de facto dual mandate given their operations to stabilize the bond markets from sovereign risk. However, because it is not explicit both the bank and the investors are unsure of the next move by the central bank. For example, rates should be lowered but the inflation target will not allow for this action. It may happen but only after inflation declines below the 2% mark. If there was a dual objective of economic stability and growth as well as inflation, it would codify what is already happening.

Carry trades over for now

Carry trades are out of fashion with slower growth around the globe. A significant portion of the carry trade flows were coming from investors who believed that growth in high yielding countries would continue. This view may now be misplaced.  The link with carry and growth is through monetary policy. 

The high yielding countries have also been those countries with stronger growth. These are also the countries where the central banks have been tightening. It was assumed that as long at the central banks were responding with raising rates to control growth, there would be a positive premium for holding these currencies.On the other hand, if there are slower growth forecasts, there will be less tightening. Expectations will be that high yielding countries will see more rate declines.

Additionally, there is the view that a global slowdown will favor the dollar over other currencies. We have seen the safe havens perform better, so the short leg of the carry trades have been especially unfavorable.

New talk on inflation target

QE2 is done so now what? There is growing talk of an inflation target for the Fed, but this has some interesting implications. CPI is up to 3.6% on a YOY basis with the latest numbers. The CPI ex food and energy is still at 1.5% which is below what has been the previous target of 2.0%. The CPI is not the usual measure used by the Fed as their preferred inflation measure but it is what many still look to as a benchmark. Perhaps there should be a movement to a higher target as a way to get money to move out of cash. A 4% target? A higher target may be a simple way to get movement of asset flows in the US economy.