Repeat once again, where there’s production, there’s money. That’s why a decline in “money supply” in the early 1920s wasn’t some catastrophic event. It was a normal event. Production had fallen, thus a decline in the supply of money. But thanks to a relatively wise political class at the time, the recession was left alone. Actually it was more than left alone. Federal spending was cut in half thus reducing the tax on production that is government spending, tax rates came down slightly, and Treasury maintained the dollar’s integrity as a measure of value. The result was a major economic boom.

Q: What would you have done in the financial crisis if you had been in Bernanke's position?

A: Resign. I don't know. I have great faith in the price mechanism, in the mechanics of markets. I think there should have been much less intervention and we should have let some chips fall, many chips fall.

Before the Great Depression, there was a great depression (lower case 'g') in 1920-21. Within 18 months, the GDP was down double digits and commodity prices collapsed. Harry Truman lost his haberdashery in Kansas City. It was very painful, but it ended. And the Fed, during that depression, actually raised its discount rate and the Treasury ran a surplus. The reason it ended was the so-called real balance effect — that is, prices came down and people with savings saw things that were cheap and they invested. That's the fast and ugly approach.

--Jim Grant 2011 interview...

As I round out my preface to this note, let me add that this is added just show the diversity of opinion and analysis that goes into market forecasting. Markets are ultimately a function of emotion and psychology. Economic investment courses are almost by definition structured to keep a number of variables constant and then focus on the change in the one or two variables focused on.

No one in academia builds models where currencies are moving during the analysis period coupled with the interest rate curve moving in all of the major countries and then add on additional variables of economic expansion and contraction, consumer purchasing proclivities. Governmental outlays of spending. The contributory effects of working age people saving in IRA's/ retirement plans. vs. the drawdowns of retired people using and diminishing their retirement savings.

forget about PhD's and MBA's.... the people getting Nobel Prizes in economics are not building models that have 10 different variables that are changing at the same time.... BECAUSE it defies our ability to analysis that type of model..... when you stick in 10 or 15 variables and then realize that they can have different behavioral characteristics, or rates of change we realize why beyond banks and businesses with the built in money accruing ability of having a bid - ask spread, and making money buying low and selling high.... how unpredictable returns on risky assets are.

And the upcoming currency debacle will totally redefine what is a risky asset. by risky asset I mean that a Tbill in USD is defined as the risk free rate of return, It's in every current MBA textbook that if you have TBills, you have a risk free investment. Period. Go take a graduate course in Finance in the US and tell me where by definition this is not the case... the entire starting point of all investment analysis starts with well we have a risk free return.... which is the TBILL rate and then we look at achieving a higher return by moving into higher return "risky assets"...... It is beyond the point of discussion that the USD could in fact experience a period of depreciation in which holding anything denominated dollars could be a "risky Proposition"

It's simply ridiculous that if you go to CFA or advanced money manager that they are going to pull up a very complex model of your investment allocation, asset allocation, duration of your bond holdings etc and it's all predicated on the USD being stable during the holding period. That's all well and good but it's not accurate.

well, I have diatribed the two people who are still reading this too death.......... I would throw in JFK's executive order 11100 as a topic I have been researching and something that merits discussion. That's for another day. I have become a bigger and bigger fan of John Kennedy as I have researched more about him... he was a very smart guy, a pulitzer prize winning author, and I'd have to give him the nod as the most adept thinker and US leader of the past century. Teddy Roosevelt was an excellent president as well.

but now on to views of the proverbial "Long Hot Summer"