Stop Me Before I Vote Again

the context of this may escape our radical red humanists fb

http://krugman.blogs.nytimes.com/2011/01/29/commodities-this-time-is-different/

But I don’t think it’s reasonable to demand that the Fed stop fighting US unemployment in order to keep Chinese currency manipulation from leading to cotton hoarding by Chinese farmers.

Since when is the Fed fighting US unemployment? Neolibs use unemployment as a tool to fight inflation, which is their only concern, noises off notwithstanding.

I probably should give a synopsis of the whole sorry affair, since I refer to it often enough.

OK, so early 2008 Bear Stearns collapses. We know that the housing market is in free fall and that the contagion has spread through the MBS. We know that most of the major financial institutions are insolvent, and that the hole in the aggregated corporate balance sheet is enough to cause a serious recession once it is recognized.

Now here's the thing: none of this had really spread to the real, non-financial economy at this point, although everyone knew it would. There is strong growth still happening in China,a healthy level of inflation in America, and strong commodity prices.

So, the MBS market collapses, and then Bear Stearns. In the midst of this, Ben Bernanke panics and starts cutting the interest rate like mad. But its too early. Everyone knows the losses are out there, but they haven't yet been recognized on paper, so the deflation that Bernanke was hoping to address hadn't even arrived yet. To many market participants it looked as if Bernanke had lost it and was going to cause inflation. After all, when inflation is already running pretty high, and you see the Fed cutting, what do you expect?

So tons of hot money flowed into commodities, since inflation was expected, interest rates were low, and TARP gave the bankers a whole pile of money to speculate with. Commodities were just the natural choice under those conditions, and so we got a huge bubble in late spring 2008. Oil basically doubled in price to almost $150, giving us an oil shock and a recession where we might have just had a recession. Bernanke was like a bush pilot who, upon seeing an approaching mountain, pulled back way to hard on the stick and stalled his plane.

Enter Paul Krugman. His claim? "This ain't no bubble! We're really running out of everything, right now! No one noticed last month, but this month suddenly the whole world was struck by the realization that we are running out of everything!" Of course this was greenie wishful thinking.

Within one month, the bubble -- and it was a bubble -- completely collapsed under its own weight. So what happened to that shortage? Like in May of 2008 were we running out of oil, but in August 2008, with no material change in economic conditions, we just weren't anymore? It was all supply and demand? Yeah right. It was the most obvious bubble in recent history -- more obvious than the housing bubble or the dot com bubble.

Krugman's response to the real world demonstrating that he is clueless, to the biggest commodity crash in history: silence. Two and a half years of silence. Until now, when commodity prices have finally recovered. Now he's still trying to deny that he was dead wrong by citing one weak paper. I read the paper and the authors even admit that it does not even come close to proving what Krugman claims that it proves.

Bottom line: Everyone has brain farts. There's no shame in it, but Krugman just can't ever admit that he is ever wrong about anything... ever. Look for it. Can anyone find me one instance, anywhere, ever, where Krugman has actually admitted an error? Nope.. in his mind he only gets right and righter, even when his new ideas contradict the old ones he still carries on as if he was right then and right now.

tarp ???

no not then

just the usual slatternly fed
not clamping the spec bubble
my guess the banks themselves could fund
with funds in part moving from elsewhere
ie as u say
hot dollars

" So what happened to that shortage? Like in May of 2008 were we running out of oil, but in August 2008, with no material change in economic conditions, we just weren't anymore"

pk has no good answer for the sudden collapse
if he sticks to the explanation for the rise
unless he sez

"well at that time it looked like chindia would go down for the count"
exactly the opposite outcome from the one we got
and i would contend
smart money could forsee
but smart money never backs a long run trend against a sudden panic
but if it was a sudden irrational panic
accelerated by short moves
-- however short moves are made on today's commodity markets my knowlege
is from the 70's --
then what was the prior springs up bubble ???
a sudden irrational burst

a bubble was perhaps waiting to soar given the story of chindian demand explosions
circulating the fish wife circuit
for couple three years b4 hand
but why then ??

i've seen accounts that suggest a hot money move as fb implies
i don't know
but it makes more sense then a sudden awareness
fast chindian growth might effect more then just fiutre oil demand
recall that blew high well earlier

here's the gold sack line circa june 08

http://seekingalpha.com/article/247737-revisiting-speculative-commodity-bubbles

"Q12: How do we know if fundamentals support prices at these levels, or how do we know this isn’t a speculative bubble?

A: If commodity futures price were too high relative to the underlying supply and demand fundamentals, we would expect to observe large inventory builds, which we do not observe. The simplest way to address the question of whether the underlying supply and demand fundamentals support prices at these high levels is to ask what would happen if they did not. Suppose commodity prices were too high, then we would expect to see those high commodity prices curbing demand too much, bringing too much supply to the physical market and the resulting excess of supply over demand generating a large build in the physical commodity inventories. Consequently, increasing physical commodity inventories would be the main indicator that current prices are not supported by current fundamentals. The fact that across the commodity markets, we are not observing anything approaching sustained growth in physical inventory indicates that current prices are supported by supply and demand fundamentals.

Therefore, we find the concerns that commodity markets are in the midst of a speculative bubble unwarranted. Physical commodity inventories are not growing, and in fact remain near the bottom of the historical range for many commodities. Net speculative length in the petroleum futures markets has not increased significantly since 2004, even as WTI crude oil prices have risen from $40/bbl to near $140/bbl. In sum, the commodity markets are not behaving in a way that a speculative bubble would suggest. (emphasis added)"

after the collapse
the gold sackers backed off ..just a tad

"Conversely, speculators bring fundamental views and information to the market, impacting physical supply management and facilitating price discovery." horse feather flurry

" As a result"
non sequitor alert

".. speculators have a loose relationship with price. In other words, as speculators buy, prices generally tend to rise, and vice versa."

get it specers can drive prices

"Accordingly, speculators also contributed to the extreme price movements over the last two years."
admission by gs where's your pk ??

of course they weasil

" new data "

---new data indeed i bet fellahs i hear ya in anguish crying out
"gosh if we'd had this data then ..we'd never write that stuff we wrote in june 08"---
at any rate

"new data suggests that speculators increased the price of oil by $9.50/bbl on average during the 2008 run-up. Thus, speculators exacerbated the volatility that was nonetheless rooted in the fundamental imbalance"

---exacerbated eh ?
only added 9.50/bbl .....sure ---

but even that tad of walk back
exceeded pk's... till recently
and pk is still trying to claim
the possible role of specs
without the use of hording or build up in inventory
is secondary

so its still
errr ... almost all ....about real demand expectation eh paul ??

just wrote this as a comment
at a econ con blog site :

hey

will pk ever get past hir hunt for commodity horders
some one must have a model that shows with futures markets
actual hording becomes un necessary you simply see the price pop immediately as the future price feeds back
on the spot price

maybe if this commodity price scare keeps up he'll think to go beyond the cover story
---chindian demand surge ----
to the function of spec markets in commodities

one must realize any premium above supply regulating revenue
at the producer level is pure waste
in other words
what series of spot prices
is likely top induce maximum expansion of output
with slow responding supply systems
and most commodities are such
and inelastic short run final markets
again a feature of lots of commodity products
regulation/taxation are called for to cut off the self sustaining bubbles and bubble profit lust
the super imposition of commodity paper towers
can create

sure bad weather and forecasts of faster then expected growth in den\mand will always require a price response
not just for rationing purposes but for strategic investment planning
however that is about a path of prices not some weird convulsive surge in today's spot price --beyond rationing needs-- because a futures market is under attack by boomers
with too much cheap credit looking for a bubble play

for god's sake

it bubbles up house lots why not cotton and copper ???

it amazes me pk is so cock sure on this

to me commodity market price formation with spec overlays
remains a deep mystery

hell price formation in general by corporate outfits isn't clear either

what is clear or should be clear
is the proper social mechanisms that out to be in place
to curb excessive non supply regulating price increases
since when they happen we know it even if we don't know how it happened

i oughta add
demand here is for consumption
of the commodity
not for spec storage
pk is right spec storage CAN matter
and it needs to be regulated where and if possible
fortunately with nice calculations
one might find a path that both induced increase in supply growth while discouraging excess storage

fb
i fear this is all seeds broadcasted
to a stoney barren unfruit baring ground

SMBIVA is for pink humanist radicals
masters of attitude
and mongers of
cultural darkness

"tarp ???

no not then "

sorry.. I was thinking of the original TAF, but it's not really a big part of the story either way, as you point out

"for god's sake

it bubbles up house lots why not cotton and copper ???

it amazes me pk is so cock sure on this"

Exactly. I call it selective belief in bubbles.

Krugman is arguing as if the other side is claiming that old fashioned speculation alone drove the prices, but he ignores bubble part of speculative bubble. That's the "x factor" and as far as I know noone has a real solid explanation or model of bubbles. But that doesn't stop Krugman from believing in bubbles in the absence of inventory when it suits him.

It's easy to deny the existence of any bubble based on mainstream economics because mainstream economics denies the possibility of a bubble. Krugman just switches from bubble beleiver to skeptic as it suits him.

On our side all we really have is comparisons to trend, such as Dean Baker used to identify the housing bubble, or similar PE ratios that signalled the dot com bubble.

I think that one issue here is that Krugman can't admit that oil, the one good with a huge, liquid full set of markets could be mispriced. I mean, if the most advanced, important well functioning markets screws up this badly, then what does that say about the whole Walrasian system, and PK's beloved New Keynesianism.

I almost want to ask him if we would never have had a housing bubble if there were housing futures.

"fb
i fear this is all seeds broadcasted
to a stoney barren unfruit baring ground"

Well, it was mostly for your benefit anyway

Monetary-talk is fine with me, OP & FB. Monetary politics is politics, after all.

Andy Xie (english.caing.com) oberved years ago that loose money policies in developed countries were not stimulating the target economies, but rather were overheating the developing world.

The Austrians were also all over this problem, and that's just too much indignity for the likes of Krugman or Delong to cope with.

It's funny how Delong still insists on seeing inflation targets as national phenomena, even in his beloved global economy where capital is mobile.

Not sure I get all your connecting wires
Particularly the Austrian bit
And in general Folks talking monetary policy
Puts my back hairs up
But you are dead on in my estimation
About the globalization of the us price level dynamics
Far from the RBC cats fantasy
Not only do we not have a vertical Phillips curve here in the freedom Mecca
We have a horizontal Phillips curve
As Joe stiglitz has quipped

But taking away the wage price spiral bugaboo
Would complicate trans nat apologetics
For stuff like the present stag in the job market
Not to mention
The taboo line called NAIRU

"Net speculative length in the petroleum futures markets has not increased significantly since 2004, even as WTI crude oil prices have risen from $40/bbl to near $140/bbl. In sum, the commodity markets are not behaving in a way that a speculative bubble would suggest. (emphasis added)"

whoever wrote the above would have no way to know 'net spec length...' without taking account of commodity index funds entrance, their increasing size and positions through swaps dlrs, acquisition of the lipe, development of the intercontinental exchange, hedgies, et cetera. Not available through nymex until much later and still quite incomplete.

price of oils became financialized; same goes for many other commodities -- but most theory remains stuck in the 1930s.

SMBIVA is for pink humanist radicals
masters of attitude
and mongers of
cultural darkness 

There is no shortage of other venues.

Fellas, OP is half correct - yes, those were barren seeds most likely, particularly for me - I'm currently failing the FB/Wylie Godfrey course badly, am thinking of downloading a fake paper or cheating off my neighbor to get a D to get by somehow in that seminar, with my whole future in doubt...
Pink humanist radical? Sure, why not? But cultural "darkness"? There's plenty of light to be found in whatever niches are left to explore in our "culture." Culture is what's left after everything else, besides companionship, is taken away. And SMBIVA is pure culture, and at such a great price!

"most theory remains stuck in the 1930s.'

well at least the stuff pk uses
and since it well serves gold man sack
they too

i think a clever greek manipulator could dig up a few relevent papers written in the last 40 years and wire em together in away that produces the quick and large price rise without demand expectational shock
we're looking for here
again it amazes me pk can see this in equity markets for example
and decide the thinking can't be modified to apply to commodity markets

if you don't really really want an alternative answer
its often hard to think of one
and pk really really wants the resource limits come uppins
to bite here
and save the planet ...maybe

Yeah, Keith Hernandez really was a better hitter than Mark McGwire.

Yep, food riots, famine and revolution... it's all no more meaningful than a game of baseball... Not worth discussing at all, really...

some corn-spiracy

bit more than 40 yrs ago, in re. probable winding down of viet nam war contracts, james ling [LTV] noted 'first create the problem then sell the solution'; this was ahead of the first green party and widespread ecological concerns in u.s. but might help justify continued fed funding to aerospace, et cetera.

so it becomes 1972 and we have the white house conference on the industrial world ahead, naturally falling after club of rome [erlich?] limits to growth. malthusianisms reborn.

"The President addressed some 3000 guests, including members of the Cabinet, Judiciary, Diplomatic corp, governors of various states, leaders of industry, labor, the Academic community and citizens from other phases of American life..." [Add MSM]

One speaker, Simon Ramo [the R in TRW] spoke not only of environmental improvement in general but cleaning Lake Erie, high speed inter and intra urban surface transportation, cable TV, what sounded like an early internet and a number of other things which seem to have come about.

The president of Litton Industries commented/summarized:

"...state capitalism may well be a form for world business in the world ahead; that the western countries are trending toward a more unified and controlled economy, having a greater effect on all business; and the
communist nations are moving more and more toward a free market system. The question posed during this conference on which a number of divergent opinions arose, was whether `East and West' would meet some place toward the middle about 1990."

Rxpectations for a long-run 'peace dividend' or, as a few put it; development of a 'social industrial complex' with funds, of course, flowing to prior or same sector recipients while 'fordism' slunk away with extra billions.

black and red humanist radical may be better combo when faced with some thoughtless calibre or when trying to save a life