Commodities: 'epic rout' or the new normal?
The "epic rout" in commodity markets in recent days has left some traders and investors in a state of shock. But, if the damage turns out to be localised, Ben Bernanke will consider it useful - and we probably should as well.
The fall in prices - which has pushed the main US benchmark price of oil below $100 a barrel and saw the biggest ever one day fall in the price of Brent crude - has been linked to fears about the pace of the global recovery. That isn't good news. But nor is it strictly news.
The economic statistics have been showing signs of weakening in the real economy in the US and Europe for several weeks. The question is whether falling commodity prices make the situation better, or worse. Again, assuming there's limited collateral damage to the broader financial system, the answer ought to be better, for two reasons.
First, remember that one of the reasons we've been worried about the pace of recovery in the big advanced economies has been the rising price of oil and the rest, and the knock-on effect for inflation at a time when central bankers would rather not be raising rates.
It's early days yet - I wouldn't assume that the oil price will stay at this level. But if the global price of oil averages, say $110 a barrel over the next year or two, and not the $120 forecasters had been pencilling in, that could take about 0.2 percentage points off the rate of inflation in 2011 and 2012, relative to what was previously thought. If you're the ECB or the Bank of England, or the Federal Reserve, every little helps.
The other reason why Ben Bernanke and other central bankers will not be unhappy to see this week's price falls is that it suggests the first stage of unwinding the US central bank's emergency support for the US financial system is already quietly under way - and having the desired effect.
Though the ECB is the only major Western central bank to have formally raised interest rates, central banks around the world have been quietly mopping up some of the short-term liquidity that's been injected into the market since 2008. By signalling firmly that there were no plans for QE3, Ben Bernanke has made clear that the US is on that path as well, assuming there's no big market shock between now and June to make him re-think.
If the fall in commodity markets is part of the markets taking this information on board, Mr Bernanke and his central bank colleagues would probably think that was all to the good. In the current circumstances, the past few days of commodity market mayhem may actually be what "normalisation" looks like.
However, a lot depends on how long this price tumble continues - and the impact on other parts of the system.
Some have drawn comparisons with the spectacular fall in commodity prices in the early summer of 2008 after an equally dramatic run-up. This played an important role in the Lehmans meltdown a few months later: depending on whom you talk to, perhaps a decisive one.
The hope is that the past few days show the global economy moving further away from crisis and the emergency policies that it produced - NOT a premonition of another downward lurch. But we're all learning that nothing about this global recovery can be taken for granted.