We’re upgrading to the latest Wordpress release.. Minor glitches are inevitable.

Sat a.m. Seems to be fine now; Wordpress 2.2.2 changes have been assimilated.

Futures are up huge, apparently based on some combination of Dell’s earnings reports, Bush’s announcement of what seem to me extremely modest measures to support the mortgage market and Bernanke’s forthcoming speech. If these gains hold, the markets will close up for August. Yes, that is the same August when the credit markets fell apart. Yet the stock market, which entered the month overbought, overvalued and overbullish, leaves the same way, within 3-4% of its highs before the credit mess became apparent. Amazing, is all I can say.

The reality is that the housing market is nearly frozen. Inventories are ballooning and financing is hard to obtain, except within the GSE limits. Anyone who thinks that this is not going to affect consumption (and those beloved tech companies) is smoking something really good.

Paul Kasriel points out that spreads have not come in all that much since the fed’s discount rate cut. Turbulence is still very much out there.

Kasriel certainly thinks that Ben will find a way to rationalize a cut. So do I.

FRANKFURT (Reuters) – “The U.S. Federal Reserve is not rushing to cut benchmark interest rates because it wants to break investors of the view that the central bank is there to bail them out, an article in the Wall Street Journal said on Thursday.

Officials acknowledge the perception of bailing out investors exists and if allowed to grow, could erode the credibility they need for keeping inflation low and encourage lax attitudes toward risk.

They hope that taking time to weigh the economy’s need for rate cuts will help discourage investors from thinking Fed officials are overly concerned with falling asset prices.”

We’ll see. This was through Greg Ip, a well-known mouthpiece for things the Fed wants to say but can’t. So it is credible, in the sense that I believe that is what Bernanke might think today, but I doubt that he has the political courage to stick to it. He’ll find a way to cut at the September 18th. meeting.

Since 1990, financials have roughly tripled their share of the S&P market cap, from about 7% to over 20% today. This is a proxy for what I call the debt industry. This massive industry with all its other associated services – lawyers, consultants and so forth – is going to collapse as the credit bubble ends. It is the basis of the so-called services economy. When it is (largely) gone, the error of encouraging the export of the US manufacturing base will be brutally clear.

Believing in the services economy is akin to taking seriously the joke about communities surviving difficult times by taking in each others’ laundry. Not that I’m against trade, countries should recognize comparative advantage and exploit it. But in the case of services that means exportable services. Creating debt, which is the U.S. specialty service now, is probably not going to be in huge demand.