AT THE HEART OF THE MATTER

http://www.prudentbear.com/index.php/commentary/creditbubblebulletin?art_id=10095

Last weeks DOug Noland, brilliant

"Wall Street and global speculator community travails are today at the heart of Acute Monetary Disorder. Global pricing mechanisms have turned dysfunctional. Crude oil, the most important commodity in the world, now sees its price fluctuate 30% over a few short weeks – to the upside and then to the downside. Currency values have become similarly unhinged. At the same time, liquidity conditions throughout the global debt markets have turned quite spotty at best. All these factors are working corrosively on the global economy.

The consensus view holds that the Fed should maintain today’s (grossly inequitable) negative real interest rates indefinitely. This, as the thinking goes, is how the financial sector will repair itself. Everything will then return to normal - eventually. Besides, inflation’s won’t be much of an issue. I contend that global financial and economic systems will not begin to “normalize” until this massive global pool of speculative finance deflates. Speculators have for some time been the marginal price setters for global securities, energy, commodities and many other asset markets. This is a precarious dynamic, especially considering that large numbers of speculators are impaired and will now be fighting to save their businesses. Things both financial and economic have become hopelessly unstable. And this Dysfunctional Pricing Backdrop has become the major impediment to unavoidable U.S. and global economic adjustment".