True. And the government lost faith in the people be creating legislation that forced Banks to make sure an IRS agent was on hand every time a person wanted to open up their safety deposit boxes.

Excellent analysis of Ben’s moment of truth. 100% correct.

Ben Bernanke is making it up as he goes along—and that’s a good thing. An adherance to orthodoxy or cant are the last things needed. The problem is that he has no solution for the way the pieces are cobbled on the chess board, and not enough pieces to begin with. The Fed has gone too low for the current problem set as a whole, and would actually be in a better place 100 basis points higher. To turn around on a dime would wreak havoc, particularly in equities, so that’s out until late in the year at the earliest. In my view, this will be the first best point to be raised when the history of _this_ crisis is analyzed and published: the Fed has overshot too fast low and is now clinging to the tightrope in a strong wind rather than standing upon it.

Ben, here’s some advice from the third tier cheap seats: yah gotta let something go if you’re going to crawl ahead outta this thing, you can’t hold everything up. So what’s it gonna be: house prices, equities, the currency, or the banking system? If you don’t make a choice and bloody soon, your arms are gonna get tired, and you’ll go down into the abyss with all of them. Come on, friend . . . we’re waiting.

I think we can forget about what he’s written and watch what he does, because he’s having to bushwhack off the map and seems to realize that.

Regarding Von Mises, credit expansions _follow_ cyclical trends, not lead them. That, for example, is the thesis of G. Soros, but I think one can make a far better historical argument for it, too. I see this very much with the kind of cycle models I’ve worked with myself, but that’s a contention I can’t support without a bunch of discussion that doesn’t belong here, really. The historical examples in the linked post for ‘crack up’ booms are all massively influenced by war-induced price and commodity dislocatins; they aren’t good historical comparables for our situation. Personally, I’m deeply skeptical that the major driver in commodity prices is a ‘flight to substance’ following a panic flight of capital from ASB securities. For one thing, the real problem with those securities is that capital _can’t get out of them_ though it would desperately love to flee anywhere other. The big ‘flight to safety’ appears to be into money market instruments. Sure, some speculation shifting out of trainwreck securitized atomic glass has gone over to commodities. I’m more of the view that speculative flows into commodities are following a prepared strategy then a reactive one, but I’m only guessing there.

I do not place any faith in ad hoc explanations for behaviors with large underlying trend functions. That’s not to say I completely disagree with you, but the argument as you frame it is anything but convincing, to me. You speak of how agricultural commodities and minerals “can’t be in a bubble” because they plateaued earlier this year. That time point you chose has its back turned to the huge run-up these commodities had had to that point, rather like saying in later 05 that house prices couldn’t be in a bubble because price rises were flattening. I do wonder whether many of those holding those high-bid commodity futures are having stomach cramps over whether demand will be there to meet them come delivery time; that might be an alternate understanding of the plateau. The supply of greater fools may have proved unequal to demand in these markets.

“Pent up demand in China” for oil worth $20 a barrel? Really? Like, all the experts in the world got demand growth there soo wrong that they missed $20 worth, and then suddenly caught on during a few weeks in April? And these ad hoc issues in China right now with diesel and whatnot: the supply to meet them is already in the supply chain at a lower number, so why are we seeing a huge price spike on oil which will be delivered about the time you are positing a Chinese buyer’s strike later this year? Where were these ad hoc arguments six months ago when oil was knocking around the $90s? Either the price rise from there to ~$135 and more follows a real trend function or it doesn’t, but ad hoc undulations don’t move the number by 50% without something like Nigeria tilting on end and sliding into the Atlantic Ocean.

Ad hoc explanations, even if everyone is valid, and I’m doubtbul regarding some you advance, do not explain trends; at most they respond to trends. Now, I am not convinced that oil is in a bubble per se since global supply and demand are simultaneously undergoing major shifts over the last half dozen years, making good estimates about where a non-arbitrary ‘real price range’ might lie. The issues you and the later poster make regarding actual real if modest production declines this Spring, Nigeria aside, do speak to endogenous drivers in the market price. At the stame time, this tight coupling of supply-demand would also serve to firm a floor under an upward bounce: all the producers know how to play this game very, very well, and a seet little clinch just when the summer buying season has to come to market is more like an exogenous disturbance to me—and we always, always get these ad hoc ‘explanations’ in these circumstances. If short covering can knock $8 off the per barrel price in a day I’d say there is plenty of speculative money in the game.

Then there is the issue that the spot price has no downward pressure on futures to speak of because futures look to be in a hard collar with very little excess supply able to reset to spot marginal pricing. Would you care to comment on that?

“When money’s tight and hard to get
And your horse has also ran,
When all you have is a heap of debt -
A pint of plain is your only man.”

http://www.maths.tcd.ie/~bradyn/flann.html

I agree — velocity is hard to predict much less control. What is interesting about this juncture is that velocity sits on a knife’s edge: on one side a deflationary spike in the savings rate; on the other an inflationary hoarding of goods. To complicate matters, the knife’s edge exists globally and velocity may go one way in China and another in the U.S..

Volume 3, Number 3 · May 2008

Morality: An Evolutionary Account
Dennis L. Krebs

Seen from an evolutionary prospective of this type, we may be able to get a more real idea of “economic man”.
And of course as we have been learning recently from interbank lending, there needs to be some more emphasis i developing a trusting relationship within our economic system
Plschwartz

In each human heart terror survives
The ravin it has gorged: the loftiest fear
All that they would disdain to think were true:
Hypocrisy and custom make their minds
The fanes of many a worship, now outworn.
They dare not devise good for man’s estate,
And yet they know not that they do not dare.
Wikipedia