This are confusing and complex issues that even economist don't agree upon.. However, I believe your hunting dogs are hot on the trail in this area..

A) The US/World Economy was built around a debt bubble.. demand was built upon Credit... "Go ahead and buy that $600,000 California home.. even if you don't have a job or the income to afford it prices are always going to go higher and you can sell it for a profit if you get into a pinch."  Whole industry built around pushing paper.. repackaging it and the money flows.. "just find a borrower.. real or not to loan more money than we know what to do with to..."

B) The bubble popped and the fire escape isn't big enough as overextended borrowers/debt holders try to "exit the premises." 40,000 homes on the market in Las Vegas NV...  Assets are being foreclosed upon and values are falling. Foreclosed properties are auctioned off as overextended creditors dump assets in an effort to raise capital.  (Some areas have reached bottom and are starting to stabilize now...)

C) As a matter of policy the Gov't injects liquidity (Quantitative Easing.. lower interest rates oxymoronic "Fiscal Stimulus")

D) Fears of debasing the currency lead to a brief bout of inflationary investing..  Long bond rallies 150 bpa over a four week period in late May early June... (http://www.bankrate.com/brm/publ/30yrmolg.asp)  Can we carry the debt load as a Country?  Who will buy the bonds?

E) Collapsing deflationary forces overwhelm economy...  Bonds are the only choice as debt bubble collapse FORCES investment into safety.. other options deemed to risky in this environment/economy.

F) Debt default/asset vaporization continues... economy contracts.. While gov't increase tax rates in order to fund "stimulative/progressive" programs.

As is well noted in the article... this diverts private investment that is market driven into centrally planned "shovel ready" (Lol) beaureacratic government spending largess... can the gov't "invest" that dollar better than the market? Government Motors, Bank bailouts, Cap and Trade, political paybacks...???? This is why the recession will be extended... the "cure" is worse than the illness.

G) Tax receipts plummet as business activity is constrained in the credit/tax investment squeeze and layoffs mount.. further contracting the economy and increasing gov't gap between receipts and expenditures...

H) where we are today.


Money was scared to the sidelines during last falls Stock Market collapse.. Investors are searching for assets that won't devalue (Stocks, Housing, Bonds???) So we have actually seen the savings rate increase... which is a good sign.. but business investment is really depressed.. so it is hard to jumpstart the economy. There are waves of contraction working through the economy... car sales, real estate values, employee furloughs... not everyone is depressed at once but there are spill over effects from one sector to another.. instead of a rising tide lifting all boats.. the tide is moving out.

This too will pass but you have to survive it first.

I) economic indicators start to improve..

It now appears to have reached the commodity sector as a modest crop will now probably be "big enough."

J) lower interest rates/commodity prices start to ease burden on industries dependent upon cheap resources.. people start to go back to work...

Okay what to do about it...??? Everyone's over investment into the "value added" sector of Ag... remember the reason we invested in that ethanol plant a couple of years ago was to capture more of that middleman's margin... positive or negative return.

Well now in overabundance maybe margins will start to improve.. although there will be headwinds of deflation even in the fuels sector.. but finally users of commodities will have their day.. vs producers of commodities...???

K) When Demand starts to recover will investment leave bonds for better returns?  Will Gov't continue large deficits?  Will Quant Easing and inflationary scares continue?  Will interest rates move higher or stay depressed...????????????????????????????????? 

It will take time for the economy to reach a NEW NORMAL given the deflationary collapse within certain sectors and the "Stimulative bowell movements of our Government."  But there's light on the other side of this tunnel... just got to keep plugging away and roll with the punches..

I don't know if any of this is true/accurate... just my "gut feeling"/instincts... warning: at one point I thought investing in ethanol was a good thing... lol... so consider the above at your own risk...  maybe the ethanol overbuild will work out.. we eventually should have the right size capacity of the industry to convert a big enough crop into a right sized demand base... First we didn't have enough plants.. then not enough crop... now not enough demand... sooner or later... everything has to even out and work.. we are closer today than we have ever been... but... "not there yet."

Good luck.

Good article Zen... and good food for thought... some might even be useful.

jmho... I could be wrong.