Mike Krieger Sees Widespread Panic

Tyler Durden's picture

Submitted by Mike Krieger of KAM LP

Widespread Panic

Right now, thanks in large part to Federal Reserve policy, Uncle Sam can borrow at an average cost of just 2.5 percent. The average borrowing cost over the last three decades was 5.7 percent. Our debt is now $14 trillion and scheduled to grow to $25 trillion by the end of the decade. If interest rates normalize over that period the added interest costs in 2021 alone will be $800 billion—more than 20 times the mere $37 billion in budget cuts that tore up Congress in March. It would take virtually all of the cuts in the Ryan budget just to cover that added interest, much less to start bringing down the national debt. Unfortunately, the Fed is now in a fiscal box. A normalization of interest rates would break the Treasury. Hence, a normalization of rates really can't happen—we're stuck in a world in which the Fed must keep rates artificially low in order to prevent a budget disaster.

- Lawrence Lindsey writing in the Weekly Standard June 13, 2001 (and you think we won’t print more!!!)

QUESTION: During the Japanese lost decade in the 1990s, you strongly criticized Japan's (inaudible)policies . Recently, Larry Summers suggested in his column that the U.S.is in the middle of its own lost decade. Based on those points, with Q.E. II ending, what do you think of Japan's experience and the reality facing the U.S.? Are there any historical lessons that we should be reminded about?  Thank you.

BERNANKE: Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.

- Q&A During The Bernank’s Second Press Conference Yesterday

The Bernank Flop:  Part Deux

That’s two press conferences laden with softball questions from “the press” and two epic flops by The Bernank.  Two extremely important things that came out of the disaster that was this event yesterday.  First, I want to point your attention to the quote I pasted at the top.  In response to the question of where The Bernank stood on monetary policy in light of his prior arrogant and cocksure statements a decade earlier about how the Japanese were being too passive in their methods he stated “Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.”  BINGO.  That was far and away the most important thing he said the whole press conference.  Why?  Well, for several reasons.  First, it was pretty much the only spontaneous unscripted thing he said the whole time.  Second, because this is him basically admitting that sitting in an ivory tower telling others how to save the free world via monetary policy was a naive and idiotic thing to do (why people still believe in central banking, I mean planning, is beyond me).  Talk is cheap and The Bernank now has had time to test his sad statist theories and guess what happened?  He failed miserably in front of the entire world.  By saying that he is “more sympathetic to central bankers” he is saying that theories are one thing and he now realizes that.  This is HUGE.  The Bernank has no clothes.

Ok, so what else did we learn?  Well, what happened after the press conference was very significant.  For one thing the stock market tanked.  Interestingly, guess what else happened?  Oil prices started to soar and closed up.  While off their highs gold and silver were also strong on the day and the gold miners were up.  This drove these guys absolutely nuts.  Remember what happened after the first disastrous press conference?  Gold soared and then flew higher again the following day.  What was The Powers That Be (TPTB) response to that?  Well they miraculously rolled out Bin Laden and then initiated the monster raid on silver immediately afterwards.  The lesson that we all learned from that prior episode is that TPTB are petulant little children.  When markets do not act as they decree they whine and lash out.  Since they possess all of the mechanisms of control they can create certain moves in the short term and “pain” for those that bet against them.  In light of that, we should have all expected a panicky response today…and boy did we get it. 

Widespread Panic

So right on cue, TPTB freaked out and showed their desperation by coordinating a 60 million barrel release of oil from OECD inventories (of which 30 million barrels is to come from the U.S Strategic Petroleum Reserves).  Brilliant strategy guys.  First of all, the world consumes around 85 million b/d of oil so this release isn’t even one day’s worth of demand.  It’s a joke.  Second of all it just demonstrates how completely desperate they are to just delay the inevitable.  Just like global leaders have shown no interest in dealing with the economic imbalances of the globe resulting from a pyramid scheme global monetary system where money consists of digital confetti that can be and is being printed into oblivion, they have NO INTEREST in dealing with the real issues of peak cheap oil.  Just as the solution to every other structural problem has been to pretend it doesn’t exist and place band-aids on cancerous tumors, their solution to real, serious long-term issues in oil are to release reserves?  My lord this is sad.

More than sad; however, this move makes me much more bullish on oil over the next two years than I was before.  First of all, the Saudi’s just said that they would increase production to 10 million barrels of day on their own (from 9.3 million b/d), effectively ending OPEC as an organization.  Because this didn’t do what the petulant children in charge wanted they resorted to this tactic.  First it was speculators.  Now it is supply and demand.  What is it really?  I’ll tell you what it is.  They have no freaking clue what they hell they are doing.  Just like The Bernank.

As a result of this action and the direction that TPTB are heading in (price controls), my ultimate forecast for where crude might go is now higher than it was.  Whereas I previously thought we would see $150-$200/b oil within the next two years I now think that it will be over $200/b.  The reason for this is simple.  The reason price controls like this do not work is because they destroy supply/demand signals, which then ends up causing supply shortages down the road.  Let’s think about this pathetic move from two angles.  First, from the perspective of an oil company.  Oil exploration, development and production is extraordinarily capital intensive.  From the exploration to the development phase of a large field we are talking at least 5-10 years.  So let me ask you.  If you are running an oil company and you see this type of action are you more or less willing to drill that marginal production or exploration well?  The answer of course is much less willing.  Furthermore, we have recently seen cost overruns all over the commodity space.  Let’s look at what just happened with Woodside Petroleum’s flagship Pluto project offshore Australia.  They just announced a 25% cost overrun and a 15 month delay to the project and Standard & Poor’s took down the credit outlook for the company as a result.  I will tell you without any shadow of a doubt that this policy by the “authorities” to control oil prices via manipulation will kill the supply side relative to demand and cause oil prices to ultimately soar to unimaginable heights.  Sad but true.  This is Why Central Planning Fails 101. 

Then what about the demand side?  Well of course by unnaturally knocking down the price of the most important commodity in the world demand will be maintained at artificially high levels for longer.  So demand is kept up artificially while supply growth constrained.  Can you say complete unmitigated disaster.

This is all quite timely since it touches upon issues I discussed with Max Keiser last week.  Here are the links, please have a listen.

Speaking of Panic…

Speaking of panic, it looks like after a couple of weeks of begging and pleading I have scored a ticket to the Widespread Panic show at Red Rocks this weekend.  Apparently some guy that was driving up from Memphis for the show can’t make it so I get his seat.  I am supposed to pick it up at the show so we shall see how this works out…Anyway, have a great weekend!  God Bless the Central Planners.  They are gonna need it. 

Peace and wisdom,

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Hugh G Rection's picture

complete unmitigated disaster

schoolsout's picture

Widespread Panic....for the SpreadHeads out there


Don't tell the band, the devil's on his way....

Don't tell the band, just let the music play....



schoolsout's picture

How are you going to junk a post that features Widespread Panic (which was brought up by Mr. Krieger in the post) and is the song that defines our times?


Hugh G Rection's picture

Never sweat the junk touchers

Doña K's picture

Desparately looking to discredit Zerohedgers

Mr Lennon Hendrix's picture

Bernanke is desperately tring to confuse the rational consumer, which is funny, because the consumer is not rational.  The Bernanke Paradox!

Spirit Of Truth's picture

People are missing the bigger picture IMHO.  The strategic petroleum reserve is only supposed to be tapped if there's some sort of disruption to the global oil supply.  There is no current disruption of significance in the world oil supply.  Hence, that the Obama Admistration is tapping it may be a sign that a major disruption is being ANTICIPATED rather than this being a response to high oil prices. 

Something may be up w/Iran:



IQ 145's picture

 My response; buying votes; as usual.

Mr Lennon Hendrix's picture

If anyone has bought a vote for Obama, they were ripped off...except the banksters that bought him off, they are happy with their purchase.

nope-1004's picture

Tapping SPR due to "Anticipated" disruptions?  LMFAO.  I don't think so.

This is another one of those manipulative "gotta show no inflation" tools the govvy is instituting.  Further evidence that QE3 is coming.

If the gov't didn't anticipate the largest credit bubble of all time, nor anticipate banks going tits up unless bailed out, nor anticipate unemployment skyrocketing, all of which are domestic problems, what makes you think this idiotic gov't led by Mr. "HOPE" can anticipate foreign events?

No.  You're wrong.  This is total, unbridled market manipulation to save face, ass, and anything else the fraudulent elite have done to mankind by helping their insolvent banking buddies.


WonderDawg's picture

Obama has gone full tard. Dimishes the emergency supply and provides hardly a ripple in the global supply.

Spirit Of Truth's picture

By 'anticipate' I mean that Israel has informed the U.S. or the U.S. will even be an active participant in air strikes on Iranian nuclear sites. 

FrankDrakman's picture

Silly rabbits; instant spike down in oil prices. Of course, it's temporary, and will be right back where it is now in August (or even mid-July), but...

In the meantime, they calculate CPI. Especially the "volatile energy component". Now Bambam and Ben can tout that "inflation has been tamed", so they can resume printing. Oh, and they'll save billions in SS and other inflation-adjusted benefits by using the manipulated number.

They're evil, but not stupid.

(BTW: captcha was -32 x 24, and then tells me that -768 is wrong because it's four characters long, and can only be two. What am I supposed to do, round it?!)

Mr Lennon Hendrix's picture

World production has peaked.  That is pretty huge.  Yet that is an unmitigatable problem, so Obama acts foolishly once again.

monkeyshine's picture

I think you are on to something there.  But if you are right, it is mostly in spirit.  I, like others who replied to you, don't believe there is something overt that will happen.  But all too often we forget just how big a stage this really is. 

If it has to do with Iran, then it has less to do with us and more to do with Saudi Arabia.  (Though then I guess it does have to do with us) Let us not forget that SA is pretty much as war with Iran right now.  Sunni vs Shia.  Iran is backing revolution in the Saudi Penninsula particularly Yemen and Bahrain.  Saudi sent troops to Bahrain. Iran basically took over Gaza and Lebanon, and is backing Syria's Assad. Assad comes from a sect sympathetic to Shia though his country is majority Sunni.  Point of it all is that this so-called "Arab Spring" is nothing of the sort, and these two regional powers Iran and SA are jockeying for the power position, and fighting proxy battles.

NOW what does that have to do with the oil? Well, Saudi oil is much cheaper to dig up than Iranian oil, so lower prices hurt Iran more than Saudi.  Saudi has a lot more Sovereign Wealth, along with their partners in the GCC. Iran has a lot of oil but they also have 75 million mouths to feed.  SA has only 25 million. 

So I'd day there is something there.  Anything they can do to put the pinch on Iran they will do.  If they can get the price of oil back under $80 (doubtful, but they will try and try even lower) they will cause much more damage to Iran than any of the sanctions so far. 

FreedomGuy's picture

Yeah, when Joseph was advising the ancient Egyptians to store grain for the seven bad years coming he would've settled for a 10% grain release to stabilize prices, right? And then during the famine...oops!

trav7777's picture

well he did, and because his clan had favored nepotistic access to grain, they were able to dispossess the entire egyptian nation of their land, becoming barons.  Eventually, there was another holocaust as a result.

macholatte's picture

Bernanke is desperately tring to confuse the rational consumer, which is funny, because the consumer is not rational.  The Bernanke Paradox!


here ya go......

Rand Paul vs Bureaucrat




Herd Redirection Committee's picture

The band name is fitting for our times as well!

I think I need to buy a gun's picture

geez did they hire someone from goldman sachs to junk everyone today


The writing is on the wall...this weekend or next weekend we will have a new system in place looks like by 4th of july

gold to the moon

HungrySeagull's picture

The Butterfly should now say One word....



Get it up and running. And all our troubles go away.... I'll fly away... oh...

Nathan Muir's picture

Give ole Palin's talking points a rest bud.  All the oil in ANWAR is at best a short term fix. 

HungrySeagull's picture

Fuck you. Palin was in Diapers when they were arguing about ANWAR back in CARTER's Adminstration.

sun tzu's picture

The oil everywhere is a short term fix. Maybe we should stop all drilling for oil. You fucking dimwits don't even know why the land in ANWAR is any more precious than the Bakken fields in North Dakota or the deserts in Saudi Arabia. Some dipshit enviromental told you it was off limits and you shit-for-brains blindly repeat

ian807's picture

"...In 1998, the USGS estimated that between 5.7 and 16.0 billion barrels (2.54×109 m3) of technically recoverable crude oil and natural gas liquids are in the coastal plain area of ANWR"

The USA uses 9 billion barrels of oil a year. All of Anwar, even if it actually produced the maximum amount of 16 billion barrels, isn't even 2 years of supply for the USA.

There's this thing called "Google" and these new fangled inventions called "calculators." You really ought to give them a try. You'll avoid a lot of personal embarrassment.


Monedas's picture

It will take them 20 years to get that 2 year supply to market ! The pipeline is already built ! 5% a year of Anwar's oil is something when added on to existing sources !

HungrySeagull's picture

Libya's oil was reported to be what? Half of Italy's use and hardly anywhere else? ANWAR is bigger than Libya.

sun tzu's picture

Saudi Arabia has enough oil to supply the world for only 3 years, so they should stop drilling for oil and it wouldn't affect the world supply at all. You fucking idiots are hilarious. Any one oil field by itself is a very small part of the market, but if you shut dozens of them down for environmental reasons, it becomes a huge part of the market.

DRT RD's picture


What it's like washing windows when you know that there are pigeons on the roof!

doesmybuttlookfatinthis's picture

WWIII?  I can see it over oil.  It would be simple for them to grab it once we're out of Afghanistan. First Russia and China will declare war on isreal and march across Iran, Iraq, and of course we can't forget Saudi Arabia.  The dumb shit arabs and persians would open the doors wide for this, and once the ruskies and chi-coms get to the boarder of Israel *BANG* Peace. At least for a while. But just to be sure they will stay and negotiate (with a gun) a new oil contract. Now whats left of the oil fields belong to China and Russia.

Partisan's picture

Are you serious?  China can't even transport its troops across its nation, let alone twice that to the Levant.  Both nations lack force projection.  That's just dumb.

hambone's picture

US has 11 active aircraft carriers plus 2 more in construction...China is just completing it's first (it purchased an old Soviet carrier and is supposedly retrofitting it...and that's it...no more planned).  US also has 3 "amphibious assualt" ships (helicopter aircraft carriers).

That means rest of the world now has 11 carriers (UK, Brazil, France, Italy (2), India, Spain (2), Thailand, Russia, and now China.

And China is our great worry? - what a joke.

We are our own worst enemy.

Bringin It's picture

General Hambone - you are fighting the last (century's) war.  Carriers are the new battleships.  Look up 'Sunburn missle'.

sun tzu's picture

Ever heard of Phalanx and Seadart?

HungrySeagull's picture

That is what you think Sir.

The Chinese snap a finger a millions are putting boots on the ground that week.

How do you think they managed to fill North Korea with such vast numbers while Mc Arthur was shooting off his big gold bejeweled mouth about the successes.

ratso's picture

Mao has been dead for a while now and China Inc has become the new dynasty papered over with a thin veneer of socialist rhetoric.

China a threat - hardly.  Evidence will emerge over the next 18 months as they will have a really hard economic landing.

Ancona's picture

I predict mayhem. Any day now....

eureka's picture


"This is HUGE.  The Bernank has no clothes..." 

This is HUGE - US EMPIRE HAS NO CLOTHES - US collapses next 12 months.

ratso's picture

Just for the record

There is no world conspiracy in the works.

Economic collapse is not on the horizon.

The sky is not falling.

Bernanke is not a moron.

Those who sow fear are invested in that outcome.

We will just muddle through until the next technological epoch unfolds.

Rusty Shorts's picture

I think this is the great example of why so many pin their hopes on the "as-yet-unknown-future-technology-fix". We just pop together the as-yet-unknown free energy device into the as-yet-unknown spaceship and fly to the as-yet-unknown destination and *wham!* populate the galaxy.

Bringin It's picture

Those who sow complacency in the face of chaotic, violent, systemic break down are invested in that outcome.  You and the Bernark for example.


Timmay's picture

Let's clean that up  bit, -US collapses Dec 21, 2012.

Mr Creosote's picture

How 'bout a riot?

Note the fine print on the album cover


The Axe's picture

ZH continues to provide excellent info..on the sad state of the economy...However..the tenor of the market tells me the turkey is very far from being done...

baby_BLYTHE's picture

So you expect more upside in stocks?

Who will buy US debt when the FED stops QE2?

Where will the capital flow from to pump up the markets?

Americans are broke!

Hugh G Rection's picture

Operation Iranian Liberation


problem solved...