en How Japan Bankrupted Itself - Lessons For Europe <p><a href=""><em>Submitted by Daniel Stelter via The Globalist blog</em></a>,</p> <p>Following the start of Abenomics in 2012, Japan moved back to the center of attention of global financial markets. After two and a half decades of economic stagnation, hopes were high that Japan would escape its long stagnation and deflation.</p> <p><strong>Plenty of economists around the globe hoped that, in so doing, Japan would show the western world, mainly the Eurozone, the way to do the same and avoid a similar long period of low growth and stagnating incomes.</strong></p> <p>Conversely, the failure of Abe&rsquo;s plan for Japan&rsquo;s recovery would not only be a disaster for the country of the rising sun.</p> <p>It would also be very bad news for central bankers and politicians in the west as well. <strong>It would prove that Keynesian policies don&rsquo;t work in a world of too much debt and shrinking populations.</strong></p> <p>To assess the probabilities of these scenarios, it is worthwhile to have a deeper look on how Japan ended up in the current economic malaise.</p> <h4><u>The erstwhile poster child</u></h4> <p><strong>Japan served globally as a role model for economic development in the 1980s. </strong>After an economic miracle following the Second World War, Japanese companies started to dominate in leading industries like machinery and equipment, automotive and consumer electronics.</p> <p>Similar to today&rsquo;s views on China, back then books explaining the Japanese miracle and describing the unstoppable rise of the nation to the leading economic powerhouse of the world were highly popular around the globe.</p> <p>Japanese corporations also began to invest in prestigious artwork and trophy real estate assets around the world. When the Japanese bubble &ndash; like all bubbles &ndash; deflated from 1990 onwards, asset prices collapsed. However, credit levels in Japan remained high.</p> <p><strong>Japan acted just as the Keynesian textbook prescribes.</strong> It compensated a deep drop in domestic demand with higher government expenditures. As a result, many companies, which in reality were insolvent, were not restructured &ndash; but kept alive with low interest rates and bridge financing.</p> <p><strong>What happened over the past 25 years is simple</strong>: <em><u>Japan&rsquo;s corporate sector was a net saver and reduced its leverage. Private households also reduced their savings significantly, from levels of 20% to 3% today. Finally, the Japanese government built up a huge debt load, rising from about 50% of GDP at the end of the 1980s to close to 250% today.</u></em></p> <h4><u>Shrinking workforce and debt service</u></h4> <p><strong>Despite all of this, the efforts to reignite growth in Japan failed.</strong> The only results were a significant increase in the overall debt burden of the country and a change of the principal debtor. That debtor is now the Japanese government &mdash; instead of Japanese corporations as before.</p> <p><strong>At the same time, the workforce in Japan started to shrink. </strong>Actually, Japan reached the peak in its workforce at the same time as its financial bubble peaked. That suggests that the peak in the workforce became an additional driver for the build-up of the bubble.</p> <p>If so, this would be another disquieting parallel to Europe, where the labor force also peaked in parallel to the credit bubble in 2007.</p> <p><strong>One fact is often overlooked.</strong> Precisely because of the Japanese population&rsquo;s shrinking, on a GDP per capita basis the Japanese economy has been outgrowing the U.S. economy in the quarter century since 1990.</p> <p>That seems to be good news. Why then worry? Unfortunately, GDP and debt are nominal quantities. Debt can only be served out of nominal income. It thus does not help a country if its GDP per capita grows and at the same time the population shrinks.</p> <p><strong>Here again, Europe has reason to worry.</strong> Europe is in the beginning of a similar demographic development &ndash; albeit one that is not as severe in all European countries as it is in Japan, thanks to the European Union&rsquo;s more open immigration policies.</p> <h4><u>A bankrupt nation</u></h4> <p>Japan can therefore be described as a country that has the following features:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>1. Above average per capita productivity growth.</p> <p>&nbsp;</p> <p>2. Shrinking population (from currently 127 million to 87 million inhabitants by 2060).</p> <p>&nbsp;</p> <p>3. Low real economic growth for decades to come (as demographics continue to deteriorate).</p> <p>&nbsp;</p> <p>4. Shrinking savings rate, due to an older population which will start dissaving soon and therefore will not continue to fund the deficits of the government as in the past.</p> <p>&nbsp;</p> <p>5. Corporate sector with a strong balance sheet after 25 years of deleveraging, but with low investments and no inclination to invest in Japan (given demographics). Corporations are thus a net saver.</p> <p>&nbsp;</p> <p>6. A government with record high debt of nearly 250% of GDP.</p> <p>&nbsp;</p> <p>7. Debt service already consumes 43% of the Japanese government&rsquo;s revenues, just to cover interest on the outstanding government debt &ndash; and in spite of interest rates being close to zero.</p> <p>&nbsp;</p> <p>8. A central bank, which adapted quantitative easing already in 2001 and is willing to do everything that is necessary to support its economy.</p> <p>&nbsp;</p> <p>9. A country that has failed to generate inflation until now, but has rather seen a long period of stable consumer prices and slightly falling overall price level as measured by the GDP deflator.</p> </blockquote> <p><strong>Simply put, such a country is bankrupt.</strong> No economy can sustain a total debt level (for the government, households and non-financial corporations) of more than 400% per cent of GDP without having a nominal growth rate that is significantly higher than the level of interest rates.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="905" height="718" alt="" src="" /> </div> </div> </div> Abenomics China Consumer Prices Demographics European Union Eurozone Japan Quantitative Easing Real estate Reality recovery Savings Rate Tue, 23 Dec 2014 00:00:37 +0000 Tyler Durden 499453 at Monday Humor: Now Available With A 30 Year Fixed-Rate FHA Loan <p><em>&quot;Because moar is always betterer...&quot;</em></p> <p>&nbsp;</p> <p><a href=""><img height="488" src="" width="559" /></a></p> <p><em>h/t @Stalingrad_Poor</em></p> <p>&nbsp;</p> <p><strong>It seems the reviewers had more to say...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 423px;" /></a></p> <p>&nbsp;</p> <p><strong>And the Q&amp;A also provided some insight...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 666px;" /></a></p> <p>&nbsp;</p> <p>So sure enough - too much demand...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 72px;" /></a></p> <p>&nbsp;</p> <p><a href=";ie=UTF8&amp;qid=1419277996&amp;sr=1-1&amp;keywords=samsung+105+inch+tv"><em>Source:</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="925" height="748" alt="" src="" /> </div> </div> </div> Mon, 22 Dec 2014 23:30:37 +0000 Tyler Durden 499452 at The Doom Boom: US Families Increasingly Prepared For "Modern Day Apocalypse" <p>From the outside America may seem to be a land of endless optimism and confidence. But, <a href="">as Sky News reports,</a> an increasing number of Americans seem to think it is danger of falling apart, and they&#39;re preparing for the end. <em>&quot;We&#39;re not talking about folks walking around wearing tin foil on their heads,; we&#39;re not talking about conspiracy theorists. I&#39;m talking about professionals: doctors and lawyers and law enforcement and military. <strong>Normal, everyday people. They can&#39;t necessarily put their finger on it. But there&#39;s something about the uncertainty of our times. They know something isn&#39;t quite right</strong>.&quot;</em></p> <p>&nbsp;</p> <p><em><strong>A now-privately-held ex-nuclear-missile base in Kansas has been turned into luxury &quot;post-apocalyptic refuge for the very rich&quot;</strong></em></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 444px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 400px;" /></a></p> <p><em><u><strong>&quot;It&#39;s an undergorund complex straight out of a bond flick&quot;</strong></u></em></p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="//" width="560"></iframe></p> <p>&nbsp;</p> <p><a href=""><em>As Sky News reports</em></a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>They call themselves preppers. <strong>Mainstream suburban Americans hoarding supplies and weapons while leading otherwise perfectly normal lives.</strong></p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>[they are] afraid of some impending catastrophe but also what that will do to American society.</p> <p>&nbsp;</p> <p>&quot;I think that is what I&#39;m scared of the most,&quot; he told Sky News, <strong>&quot;Not the actual events. I&#39;ve already prepared for that. It&#39;s the aftermath, when there are no police, there are no military to protect us, we&#39;re going to be protecting ourselves.&quot;</strong></p> <p>&nbsp;</p> <p>The trigger could be a terrorist attack, a monetary collapse, cataclysmic failure in power generation, or a natural disaster. Preppers fear what comes next and<strong> have no faith in either their government or human nature.</strong></p> <p>&nbsp;</p> <p>&quot;Once people use up all their resources,<strong> they&#39;re going to come after the people that prepared and had more resources. So basically we have to take care of ourselves.</strong>&quot;</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><u><strong>&quot;We&#39;re not talking about folks walking around wearing tin foil on their heads,&quot; Jay tells Sky News. &quot;We&#39;re not talking about conspiracy theorists.</strong></u></p> <p>&nbsp;</p> <p><u><strong>&quot;I&#39;m talking about professionals: doctors and lawyers and law enforcement and military. Normal, everyday people. They can&#39;t necessarily put their finger on it. But there&#39;s something about the uncertainty of our times. They know something isn&#39;t quite right.&quot;</strong></u></p> <p>&nbsp;</p> <p>Jay is a celebrity in the strange but increasingly mainstream world of preppers, writing prepper books and touring America, speaking at prepper expos where a bewildering range of survival supplies and techniques are on offer.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><u><strong>But it&#39;s also arguably a sign of a country coping with economic decline. The end of the American Dream has left people more uncertain about their future, and their country&#39;s.</strong></u></p> <p>&nbsp;</p> <p>Katy Bryson is in Jay&#39;s prepper network. Prepping, she says, puts Americans back in charge of their destiny.</p> <p>&nbsp;</p> <p><strong>&quot;They&#39;re not in control of whether they lose their job or not but they are in control of whether they are prepared. So I feel like that&#39;s why the industry is just booming right now for preparedness,&quot;</strong> Katy added.</p> </blockquote> <p>*&nbsp; *&nbsp; *<br /><a href=""><em>Read and watch more here...</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="477" height="318" alt="" src="" /> </div> </div> </div> Bond Mon, 22 Dec 2014 23:00:37 +0000 Tyler Durden 499451 at Ukraine Central Bank Conned Into Swapping Its Gold For Lead Bricks <p>Just when one thought the story of Ukraine and its (now non-existant) gold could not get any more surreal, it did. </p> <p>As a reminder, it was <a href="">about a month ago </a>when we learned courtesy of an interview on Ukraine TV with the country's central bank head Valeriya Gontareva, that Ukraine's gold was virtually all gone, when she made the stunning admission that "<strong>in the vaults of the central bank there is almost no gold left. There is a small amount of gold bullion left, but it's just 1% of reserves</strong>."</p> <p> <iframe src="//" width="500" height="375" frameborder="0"></iframe></p> <p>That in itself would have been sufficient to explain why just a few short days later, the Netherlands shocked the world when it announced it had secretly repatriated 122 tonnes of gold from the NY Fed, and had the story of Ukraine's missing gold ended there (or even with the <a href="">criminal probe launched </a>by Ukraine whether the central bank head had abused her power and misused her office when she "intentionally committed an extremely unfavorable transaction for the gold and forex reserves of Ukraine"), it still would have been one of the most bizarre, surreal stories of 2014. </p> <p>Luckily, the story just got far better, and far, far more bizarre and surreal. </p> <p>As Bloomberg reports, Ukraine opened a criminal probe <strong>after several gold bars at the central bank’s storage in the southern city of Odessa turned to be painted lead.</strong> </p> <p>"The management of the central bank’s branch in Odessa asked us to investigate fraud by their employee," Volodymyr Shablienko, head of the Odessa police’s press office, said by phone today. "We are conducting a forensic audit now."</p> <p>As Bloomberg explains, the latest gold fraud involved a central bank employee passing lead bars covered with golden paint to the storage unit, registering them as gold, the Vesti newspaper reported today, citing an unidentified person with knowledge of the matter in Odessa’s police department.</p> <p>According to additional <a href="">information from RT</a>, the central bank was actually <em><strong>conned into buying </strong></em>the gold-plated lead.</p> <p>Yes <em>lead</em>, not even tungsten.</p> <p>RT adds that the National Bank of Ukraine (NBU) has confirmed the theft of several kilograms of gold in the Odessa region. The cashier involved has apparently fled to Crimea, Vesti Ukraine reports. Criminal proceedings began on November 18, even though the scam apparently took place between August and October. </p> <p>In other words, when Ukraine still, allegedly, had some gold left. Now it has no more gold, but at least it has some very expensive lead.</p> <p>A preliminary investigation suggests the gang had someone working for them inside the bank that forged the necessary paperwork to allow the sale of the fake gold bullion. It’s also been discovered that bank staff were not regularly checked when entering or exiting the premises. </p> <p>Altogether some 11 kilograms of gold worth about $420,000 are missing.</p> <p>And while one can laugh at the stupidity of a central bank duped into believing gold-plated lead is the real deal, the real stunner is that according to the First Deputy Central Bank Governor Oleksandr Pysaruk, the central bank “took a principal decision that we will not buy gold any more from the population. We are making conclusions internally, including changing our procedures."</p> <p>In other words, until December, the central bank would buy any gold-plated lead, or tungsten, without any authenticity tests from any member of the population, or in other words, exchanging its existing reserves, i.e., gold (which it no longer has after converting most of it into dollars), into lead. </p> <p>There is a potential silver lining here in that whoever ended up <a href="">getting the bulk of Ukraine's gold reserves</a>, is now also the proud owner of a few hundreds kilograms of gold-plated lead.</p> <p><a href=""><img src="" width="500" height="379" /></a></p> <p>One really couldn't make this up, which is perhaps the point. Better for the public to be focused on the stupidity of its central bankers, than on their criminality for selling out the people's gold (or worse, giving it away for free in exchange for political favors of the current class of US State Department muppets) to unknown buyers in exchange for a few pieces of green paper. </p> <p><em>h/t Marco</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="496" height="376" alt="" src="" /> </div> </div> </div> Netherlands Newspaper Ukraine Mon, 22 Dec 2014 22:26:52 +0000 Tyler Durden 499459 at NYC Mayor de Blasio Slams Reporters For "Enabling" Racial Hatred <p>New Yokr Mayor de Blasio had strong 'not-my-fault' words for the media during today's press conference about the assassination of 2 NYPD cops over the weekend. De Blasio begins blasting media, <strong><em>"What are you guys gonna do? ... Are you going to keep dividing us?"</em></strong> He then gets on a roll and blames reporters for inciting protesters to confront police - "you all<br /> [reporters] enable that [racial divide]... that's how you want to<br /> portray the world." <em>Yep - all their fault...</em></p> <p>&nbsp;</p> <p>At around 51:30 De Blasio begins blasting media, <strong><em>"What are you guys gonna do? ... Are you going to keep dividing us?"</em></strong></p> <p>At 53:00, De Blasio blames reporters for inciting protesters to confront police - <strong><em>"you all [reporters] enable that [racial divide]... that's how you want to portray the world."</em></strong></p> <p>At 56:30, Commissioner Bratton notes <strong><em>"do some officers not like this mayor?&nbsp; Guaranteed!"</em></strong></p> <p>&nbsp;</p> <p><iframe src="//" width="560" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="485" height="404" alt="" src="" /> </div> </div> </div> Mon, 22 Dec 2014 22:03:20 +0000 Tyler Durden 499450 at This Is For You Steve Liesman... Welcome To Economics <p><a href=""><em>Submitted by Thad Beversdorf via First Rebuttal blog</em></a>,</p> <p>I stumbled onto&nbsp;one of Peter Schiff&rsquo;s radio shows and it was the one where he discusses CNBC chief economic correspondent, <strong><a href="" target="_blank">Steve Liesman&rsquo;s call</a> that the American economy needs more consumer debt, which is right in line with the Keynesian theory of spending our way to prosperity. </strong>&nbsp;I expect most non-liberal arts degree carrying economists would agree that Steve, once again, out did himself to put economic analysis through a meat grinder and serve it up as a David Burke&rsquo;s Primehouse 40-day-bone-in ribeye. &nbsp;I&rsquo;m going to prove&nbsp;that such a theory is simply impossible, and show how it has become that basis of American economics. &nbsp;This is going to get a bit heavy so grab a coffee.</p> <p><strong>Steve says consumer debt is the bridge between working hard and playing hard.</strong> &nbsp;<strong><u>America was built on consumer debt he argues. </u></strong>&nbsp;He claims that debt levels are very low in America which he claims is a sign of a bad economy. &nbsp;Now he also seems to have a hint of understanding that too much debt can cause bubbles and he uses student loans as an example, yet he says that a bit trepidatiously despite the fact that we&rsquo;re still trying to crawl out of one of the worst credit induced recessions in history. &nbsp;&nbsp;<strong>However, despite his caution with student debt he claims the over leverage from the mid 2000&prime;s &ldquo;has been unwound&rdquo; and that we are now at the &ldquo;bottom of the credit cycle&rdquo;. &nbsp;And that is why, he claims, the American economy needs more consumer debt.</strong></p> <p><strong><u>Ok so lot&rsquo;s of interesting claims there by Mr.&nbsp;Liesman. &nbsp;What I&rsquo;d like to do here is have a very deep look into the American economic psyche and de-engineer some understanding about GDP, the economy and the American standard of living.</u></strong>&nbsp; To some extent I think we&rsquo;ll find that Liesman is not all wrong. &nbsp;However, his call for more consumer debt might actually be the worst piece of economic analysis I&rsquo;ve ever witnessed on national television. &nbsp; &nbsp;But Liesman is just a symptom to the larger problem in our distorted understanding of economics here in America. &nbsp;In any case let&rsquo;s dig into the matter.</p> <p><strong>Why don&rsquo;t we start by having a quick long term look at American consumer debt levels.</strong></p> <p><a href=""><img alt="Screen Shot 2014-12-19 at 4.09.33 PM" class="alignnone size-full wp-image-1339" src="" style="width: 599px; height: 314px;" /></a></p> <p><img alt="Screen Shot 2014-12-19 at 3.59.31 PM" class="alignnone size-full wp-image-1338" src="" style="width: 600px; height: 309px;" /></p> <p>And well it becomes pretty obvious that we have in no way de-levered. &nbsp;In fact, growth in consumer debt since the bottom of early 2009 has been extraordinary, adding about $750 billion or 30% more to total outstanding. &nbsp;This is actually an all time high to go along with the nation&rsquo;s public all time high debt levels. &nbsp;So not sure where Liesman is getting his view of de-leveraging. &nbsp;But let&rsquo;s do some analysis on consumer debt and see if indeed Americans do need more.</p> <p><strong>I recently wrote a piece discussing the idea of GDP and indicators, generally. &nbsp;My point is we focus so much on indicators that we lose sight of what they are meant to represent.</strong> &nbsp;Most of the indicators that are discussed in the media today point to GDP and if the indicator suggests growth in&nbsp;GDP then we are very happy. &nbsp;However, in my previous article I go on to explain that GDP itself is just an indicator and so GDP growth in and of itself is not the end objective. &nbsp;The objective is that, we the people, are better off and we use GDP as a proxy. &nbsp;But while GDP used to do well to represent improving living standards, we will see why today GDP growth doesn&rsquo;t always lead to improved living standards and so&nbsp;we must look beyond GDP growth to gauge our real objective.</p> <p>I recently gave an&nbsp;example to make the point. &nbsp;Consider an economy that has a doubling of the population in one year leading to 5% GDP growth. &nbsp;That growth rate we would consider extremely good in this day and age. &nbsp;However, <strong>under that scenario it would mean that the median standard of living had actually declined significantly</strong>. &nbsp;Understanding and being cognizant that GDP growth is not our objective is extremely important. &nbsp;When it is overlooked, it can result in incredibly destructive policies that increase GDP but devastate American&rsquo;s well being. &nbsp;The reality is every part of society from technology to new medicines to new music is to induce a betterment of lives. &nbsp;That is really the whole point of our&nbsp;entire societal&nbsp;system, economics obviously included.</p> <p><strong>It is important then to understand growth factors of&nbsp;GDP, specifically which factors actually improve standard of living and which simply grow GDP. &nbsp;And so then it is important to understand standard of living.</strong> &nbsp;It is somewhat subjective in nature but we must come to some quantitative proxy that we agree reasonably represents standard of living. &nbsp;Now if we remember back to our first economics class the second&nbsp;chart we were shown, after our work/leisure indifference curve, was the following chart (sourced from Wikispaces, classroom).</p> <p><a href=""><img alt="Screen Shot 2014-12-20 at 10.54.32 AM" class="alignnone size-full wp-image-1348" src="" style="width: 600px; height: 394px;" /></a></p> <p><strong>The&nbsp;chart essentially depicts our ideal level of standard of living.</strong> &nbsp;Specifically if you look at the Labour Supply Curve 2, precisely where it meets the L2 dotted line, it depicts the point of our ideal standard of living. &nbsp;So that if you pay me any more I will actually work less beyond that point. &nbsp;Meaning no amount of money will entice me to work more hours because my marginal utility for leisure will trump my marginal utility for any amount of money. &nbsp;But up until that point as long as my&nbsp;wages increase sufficiently I&nbsp;will work more hours meaning I haven&rsquo;t hit my ideal standard of living and most of us will never reach that ideal conceptual point. &nbsp;And I believe it provides good proof that wage or real income is a very good measure of standard of living in that once we get to a certain point we actually choose to work less implying we are fully satisfied and money then becomes a matter of choice not need.</p> <p><strong>So how can we determine whether or not American&rsquo;s level of satisfaction or standard of living in the real world is improving, given the chart above is only a conceptual tool of academia.</strong> &nbsp;Well I would suggest we look to real median household incomes. &nbsp;I think it is safe to suggest that the vast majority of Americans have yet to reach that ideal point of standard of living and thus are still willing to work more hours to move toward that ideal point of satisfaction. &nbsp;As such we can also safely suggest that as real median household incomes increase American&rsquo;s standard of living or satisfaction is improving toward that point.</p> <p>Now for those that want to jump on me for suggesting money equals happiness, that is not what this implies. &nbsp;It implies more money, given it meets my requirement to work more does provide more satisfaction, however, just paying me more, if it doesn&rsquo;t meet my requirement means less satisfaction and thus I will choose not to work more. &nbsp;Please think about that for a moment before going on if it is not clear as it important we agree that real median income is our&nbsp;measure for standard of living.</p> <p>I know some of you are also thinking consumption may actually be a better measure of standard of living. &nbsp;And this a very good thought. &nbsp;Because what is income other than a representation of what we can ultimately consume? &nbsp;While that is true, income provides a sense of security above what consumption does. &nbsp;That is, savings provides me future consumption which I know is uncorrelated to consumption today. &nbsp;Me eating today doesn&rsquo;t mean I eat tomorrow. &nbsp;However, savings today does mean I eat tomorrow.</p> <p><strong>This idea of consumption also leads to the&nbsp;concept of&nbsp;debt. &nbsp;</strong>That is, debt means even more consumption than perhaps even my savings would provide. &nbsp;And so isn&rsquo;t that the real measure given it provides me the most consumption? Therefore shouldn&rsquo;t we consider both income and debt given that equates to my total consumption? &nbsp;Mr. Liesman and most Keynesians would certainly agree with such a proposition&nbsp;otherwise he wouldn&rsquo;t purport that more consumer debt is needed. That is of course assuming he wouldn&rsquo;t recommend something he feels is detrimental to American&rsquo;s standard of living, and thus must believe consumer debt does improve standard of living.</p> <p><strong><u>Well let&rsquo;s think about how debt works.</u></strong> &nbsp;Consumer debt allows me to borrow money today so that I can consume today that which I otherwise wouldn&rsquo;t. &nbsp;However, there is an interest charge to debt. &nbsp;And so my future consumption is going to be less by the principal amount borrowed plus the real rate of interest I&rsquo;m paying on it. &nbsp;So let&rsquo;s say I borrow $100 today at a real interest rate of 5% in order to have a nice dinner. &nbsp;That means at some point in the future I will have to forego $105 of consumption. &nbsp;And so I will only do it if I believe consuming $100 today is worth more than consuming $105 in the future. &nbsp;The cost of borrowing then is very important in determining if we will choose to consume today over tomorrow. &nbsp;This helps us understand why ZiRP or NIRP policies will be fairly permanent. For if interest was 50% I would probably not think eating $100 of food today is better than eating $150 of food in the future. &nbsp;So then does this mean we can improve our&nbsp;standard of living with debt consumption or not?</p> <p><strong>Well it means we&nbsp;can give up&nbsp;future consumption to have some lesser amount of consumption today.</strong> &nbsp;Now in the case of education, and student loans are considered consumer debt in the Fed calculation, for a small and decreasing amount of borrowers, consumer debt&nbsp;can lead to future and overall improvements to standard of living. &nbsp;Unfortunately it is the one area of consumer debt Liesman does not advise taking on. &nbsp;And in fairness to Liesman, a vast amount of student debt in recent years is being used as an alternative source of income rather than an investment. &nbsp;Also due to tuition costs skyrocketing while incomes decline it becomes much harder to make the investment in education pay off these days. &nbsp;And so student loans are frequently leading to declining standard of living. &nbsp;Cars, dinners, clothes, vacations, etc these are typically what consumer debt is used for in America and again while they appear to have an immediate improvement to our lives the future cost tends to be far greater.</p> <p><strong>As we take on more consumer debt our interest rates increase leading to exponentially more future consumption being given up for each dollar consumed on debt today. &nbsp;&nbsp;And so we would conclude that consumer debt does not lead to a higher standard of living but a lower standard. &nbsp;It is the very reason we don&rsquo;t use debt as an indicator of an individuals financial success whereas we do use income. </strong>&nbsp;And while all that may sound slightly confusing it&nbsp;is, in fact, very simple. &nbsp;Your mother doesn&rsquo;t brag to her bridge club about how much you consume each year but how well your job pays. &nbsp;If consumption from debt did, in fact, raise our&nbsp;standard of living your mother would brag about it.</p> <p>But then why has consumer debt moved&nbsp;to such incredible all time highs and why is it&nbsp;that guys like Liesman believe America needs&nbsp;more consumer debt? &nbsp;The answer is because it increases GDP. &nbsp;On the one hand&nbsp;guys like Liesman fail to understand that GDP growth is meaningless. &nbsp;Our policymakers on the other hand have been educated in economics. &nbsp;They understand very well the&nbsp;role consumer debt is playing in America. &nbsp;Now because both private and public funds have increasingly been misallocated for several decades, consumer demand has been falling due to declining real median incomes. &nbsp;It beg&rsquo;s the question, how is it that while families are brining home less income,&nbsp;GDP has continued its valiant march higher? &nbsp;The answer is&nbsp;consumer debt. &nbsp;Consumer debt is actually the bridge between demand deterioration and rising GDP, not working hard and playing hard.</p> <p>This is exactly what I meant when I recently wrote about the largest con job in the history of the world. &nbsp;The government and its appointed policymakers have the market, the working class, the media muppets, everyone so narrowly&nbsp;focused on the indicators that we have failed to notice the very thing the indicators were ultimately meant to indicate, i.e. our well being,&nbsp;is deteriorating at an accelerating rate. &nbsp;When was the last time you heard the media muppets or the Fed discuss the epidemic of falling real median incomes? Exactly, it is never mentioned. &nbsp;In order to keep the con going the American working class&nbsp;has been flooded with consumer debt to prop up GDP growth and to defraud us into believing our lives are improving.</p> <p><strong>We take on more consumer debt because it&rsquo;s made available to us no matter what our credit is. </strong>&nbsp;We&rsquo;ve all seen the adverts that say &ldquo;No money down and no credit check&rdquo;! &nbsp;We take on more consumer debt because our policymakers tell us things are vastly improving and that the job market is as strong as it&rsquo;s ever been. &nbsp;And we take on more consumer debt because of the irresponsible &lsquo;chief economic correspondents&rsquo; like Steve Liesman who preach it&rsquo;s what we need.</p> <p><strong>We are bombarded with the idea that we need more consumer debt. &nbsp;This is all part of the giant con.</strong> &nbsp;For if we were to recognize that consumer debt actually degrades our living standards&nbsp;and that GDP growth is not inherently good, well the con would be over. &nbsp;While the policymakers are deathly frightened of it,&nbsp;I don&rsquo;t expect&nbsp;most have taken the time to truly comprehend the bloodbath that awaits us once the jig is up. &nbsp;Let&rsquo;s move on to some charts that pull&nbsp;this all together for us. (Subsequent chart data sourced from St. Louis Fed)</p> <p><a href=""><img alt="Screen Shot 2014-12-20 at 12.42.17 PM" class="alignnone size-full wp-image-1350" src="" style="width: 601px; height: 356px;" /></a></p> <p><strong><u>The chart indicates that standard of life peaked in the late 1990&prime;s and has dropped since.</u></strong> I expect, even anecdotally,&nbsp;most of us old enough to do so, reminisce about&nbsp;the late 1990&prime;s as being very good economic times indeed. &nbsp;Now in order to alleviate short term bumps we can look at the longer term trend and it tells us that standard of living was improving through the late 1990&prime;s at which time it generally plateaued through 2007. &nbsp;However, subsequent to 2007 even the long term trend has turned negative. &nbsp;Meaning our standard of life, even after smoothing for bumps in the road is truly on the decline. &nbsp;&nbsp;This does not bode well for millennials and I expect they understand that more than we give them credit.</p> <p><strong>But so how can this be when we see real GDP still accelerating?</strong> &nbsp;We are constantly being led to believe that as long as&nbsp;GDP is growing, America is doing well. &nbsp;So let&rsquo;s have a look at real GDP.</p> <p><a href=""><img alt="Screen Shot 2014-12-20 at 1.13.15 PM" class="alignnone size-full wp-image-1352" src="" style="width: 601px; height: 334px;" /></a></p> <p><strong>We see a very different story here with real GDP than we saw with real median household incomes. &nbsp;Real GDP is currently at all time highs and the long term trend is very much positive. </strong>&nbsp;Now as we discussed in the example earlier simple population growth could potentially explain this so let&rsquo;s see if it really is that easy.</p> <p><a href=""><img alt="Screen Shot 2014-12-20 at 1.31.41 PM" class="alignnone size-full wp-image-1353" src="" style="width: 600px; height: 394px;" /></a></p> <p>We see that even GDP per capita continues along a strong growth trend, so we cannot chalk it up to population growth. &nbsp;<strong>However, I added real median incomes to the above chart to show a rather disturbing trend that ties in to our discussion.</strong> &nbsp;Notice that&nbsp;real GDP per capita is now almost higher than real median household income. &nbsp;Real median household income is an aggregate measure of income from all earners in a household, while GDP per capita splits the nation&rsquo;s total income among each&nbsp;individual in the nation. &nbsp;And so we&nbsp;would expect that real median household income must be larger than real GDP per capita, and 30 years ago that was very much the case.</p> <p>What is so scary about the chart above is that we are almost to the point that real GDP per capita is higher than real median household income. &nbsp;How can that be?? &nbsp;That is exactly what we need to find out!</p> <p><u><strong>But so how does GDP grow so much faster than real median household incomes? &nbsp;Well it is with debt that this can happen. </strong></u>&nbsp;You see consumption makes up around 65% of GDP, but GDP does not differentiate between consumption and debt consumption. &nbsp;And so while real median household incomes are declining taking our&nbsp;standard of living with it, we are using consumer debt to synthesize a higher standard of living via our GDP proxy. &nbsp;In reality, and it will become realized, we are only trading away higher amounts of future comforts to falsify our current lifestyles. &nbsp;The problem is that because of debt service, we are burning up larger and larger amounts of future comforts to get smaller amounts of current comforts.</p> <p><strong>Now this is all starting to make sense. </strong>&nbsp;So because real total consumption cannot be increased through debt we don&rsquo;t include debt consumption in our measure of individual or household income. &nbsp;Is there a way then that we can look to GDP to sort of equalize it to represent our real median household incomes but for the nation? &nbsp;I expect that we can and to know&nbsp;that we&rsquo;ve got it right we should look to see a high correlation between the nations, let&rsquo;s call it &lsquo;Adjusted Real Change in GDP&rsquo; that will incorporate only true growth factors, and our real median household income.</p> <p><strong>What we&rsquo;ve just unravelled is that real GDP is growing significantly faster than real median household income because real GDP includes debt consumption whereas real median household income does not. </strong>&nbsp;So let&rsquo;s take real GDP and exclude all of our spending that is beyond our means to&nbsp;see if we are still growing or if we find a similar negative trend in the adjusted real GDP figure. &nbsp;So in order&nbsp;to adjust GDP to represent a standard of living for the nation rather than just simply inflating GDP with debt we have to amend the calculation of GDP. &nbsp;We will need to subtract the annual budget deficit because that just represents borrowed money or essentially what equates to the nations consumer debt and then add back government transfers because they are already excluded and some of those transfers may be caught up in the deficit so we don&rsquo;t want to subtract them&nbsp;twice. &nbsp;Lastly we have to subtract out changes in consumer debt. &nbsp;So the calculation will look like this:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><u><strong>Adj GDP Growth = Change in GDP + Surplus/Deficit + Change is Gov Transfers &ndash; Change in Consumer Credit</strong></u></p> </blockquote> <p>Then we can use the implicit GDP deflator to get Real Adjusted GDP Growth, which is what I&rsquo;ve done in the following chart. &nbsp;What we should find remember, is that Real Adjusted Change in GDP should&nbsp;look very similar to Real Median Household Income.</p> <p><a href=""><img alt="Screen Shot 2014-12-21 at 4.27.20 PM" class="alignnone size-full wp-image-1373" src="" style="width: 599px; height: 358px;" /></a></p> <p><strong>And voila! &nbsp;I&rsquo;d say we have a winner. &nbsp;You see the key to understanding what is happening is really by looking at&nbsp;GDP per capita vs real median household incomes.</strong> &nbsp;It depicts an unnatural divergence between the delta&rsquo;s of each.&nbsp; As consumer debt levels grew it meant we were adding consumption purchased on debt in GDP whereas it was not being included in real median household income. &nbsp;That is where the divergence laid. &nbsp;And that is the con. &nbsp;We falsify the well being of the nation by inserting debt consumption into our national income figure, which we use as a proxy for the well being of the nation and then we keep everyone focused on that proxy. &nbsp;However, at the individual level, we all know not to include our debt as income and thus it does not mislead us about our standard of living. &nbsp;For we understand debt consumption is rarely better than a zero sum game and almost always a net negative.</p> <p><strong>From here the next step is to understand why real median household incomes continue to decline and then how to correct it.</strong> &nbsp;I&rsquo;ve written extensively about that topic in previous articles. &nbsp;It all comes back to financial policies that incentivize investors to avoid economy-boosting investments and toward financial investments that have no economic benefit. &nbsp;The result is a narrowing of income distribution exasperating the down spiral, while inflating wealth to the already wealthy. &nbsp;<strong>As long as these policies remain intact the American quality of life will continue to spiral downward while the wealth at the top continues to accelerate until one day when the top pops off and all that wealth goes abroad. &nbsp;And that Mr. Liesman is what we call&nbsp;economics.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="540" height="274" alt="" src="" /> </div> </div> </div> Budget Deficit Consumer Credit ETC Fail Peter Schiff Reality St Louis Fed St. Louis Fed Steve Liesman Student Loans Mon, 22 Dec 2014 21:34:36 +0000 Tyler Durden 499449 at S&P 500 Surges To Record High As Black & Yellow Gold Battered <p>Who was buying today? Were they feeling lucky?</p> <p><iframe frameborder="0" height="360" src="//" width="480"></iframe></p> <p>&nbsp;</p> <p><strong>Stocks went up - again - with the Dow extending to almost 900 points in 4 days and pressing towards record highs...and S&amp;P 500 hitting new record highs. At the same as bonds rallied back close to unchanged, USD was bid, and commodities collapsed led by Silver and Crude.</strong></p> <p>&nbsp;</p> <p>S&amp;P closed at record highs but missed out on intraday highs by 1 point...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 340px;" /></a></p> <p>&nbsp;</p> <p><u><strong>This is the biggest 4-day surge in over 3 years...</strong></u></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 382px;" /></a></p> <p>&nbsp;</p> <p><strong>with everything up 5-6% off the pre-Fed close...</strong> in 4 fucking days!!!</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 605px;" /></a></p> <p>&nbsp;</p> <p>Who could have seen that coming?</p> <blockquote class="twitter-tweet" lang="en"><p>S&amp;P record high needs USDJPY &gt; 120. Let&#39;s do this Kevin</p> <p>&mdash; zerohedge (@zerohedge) <a href="">December 22, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>As USDJPY did indeed lead the way - as 120 was all that mattered</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 356px;" /></a></p> <p>&nbsp;</p> <p>Because Fun-durr-mentals...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 356px;" /></a></p> <p>&nbsp;</p> <p>Trannies love lower oil prices (and higher ones)...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 514px;" /></a></p> <p>&nbsp;</p> <p>Energy and Utes sold off but Tech surged and <strong>homebuilders rallied 0.5%</strong> on the back of a total freaking collapse in existing home sales... very bullish</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 709px;" /></a></p> <p>&nbsp;</p> <p>The USD rose notably from the European Open to the US close...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 319px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields roundtripped with 10Y and 30Y unch by the close...rallying during US session</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>and the decoupling since FOMC is becoming a joke... in Treasuries...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 358px;" /></a></p> <p>&nbsp;</p> <p>and crude...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>Credit notably unimpressed today... <strong><u>HY spreads closed at the wides of the day as stocks ripped to record highs</u></strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 351px;" /></a></p> <p>&nbsp;</p> <p>and shorts set out positions today again too...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>Commodities were clubbed like baby seals with silver and oil synced... mirroring The USD (with plenty of beta)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 310px;" /></a></p> <p>Crude continues to swing between $59ish and $55ish...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 439px;" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <p><strong>Bonus Chart: Stocks losing their FX Carry pillar of support...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> Crude Mon, 22 Dec 2014 21:07:23 +0000 Tyler Durden 499448 at It Has Never Been More Expensive For 'Average Joe' To Buy Stocks <p>When all is said and done, the swing factor in the decision to work (or not work) is the income it generates (and lifestyle it supports). So we found it intriguing that, as the following chart shows, <strong>the number of hours or work required for the average American to buy the S&amp;P 500 has never been higher</strong>...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="467" /></a></p> <p>&nbsp;</p> <p><strong>Perhaps that is the goal?</strong> Price the plebians out of the market and maintain the tax-paying workforce to support government largesse...</p> <p>&nbsp;</p> <p><em>Source: Goldman Sachs</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="683" height="532" alt="" src="" /> </div> </div> </div> Goldman Sachs goldman sachs Mon, 22 Dec 2014 20:49:20 +0000 Tyler Durden 499447 at Belarus In Full-Blown Hyperinflation Panic: Blocks News, Online Stores; Bans All FX Trading For 2 Years <p><em><strong>&quot;We have to do something with these Belarussian rubles,&quot;</strong></em> exclaims one Belarussian as she shops to turn worthless rubles (BYR) into physical assets. <a href="">As AFP reports,</a> The Belarussian currency was dragged down by the slide of the Russian ruble last week, leading authorities to impose draconian measures, forbid price increases even for imported goods, and warn people against panic. Now, however, in an effort to stem the flood of hyperinflating domestic prices,<strong> authorities have blocked online stores and news websites to stop the run on banks and shops</strong> as people scramble to secure their savings. One of the blocked news websites noted, it <strong><em>&quot;looks like the authorities want to turn light panic over the fall of the Belarussian ruble into a real one,&quot; </em></strong>calling the blockages &quot;December insanity.&quot;</p> <p><a href=""><strong>And indeed they have stepped up the insanity, extending the halt in FX trading...</strong></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Today the Belarus central bank shocked its own population when it also announced full-blown capital controls designed, releasing additional measures to stem the &quot;negative trends of currency and financial markets &quot; including raising mandatory sales of FX revenue to 0%, suspending all OTC FX trading (so pretty much all FX), <strong>introducing a 30% fee on all FX purchases</strong>, &quot;recommending&quot; that banks halt BYR lending until February, and sending 1-yr interest rates on liquidity operations with banks to a eyewatering 50% in hopes this leads to an increase in BYR deposit rates. It will. What it won&#39;t lead to is stabilization in the deposit market as the natives realize they too are next up on the hyperinflation train.</p> <p>&nbsp;</p> <p>End result:</p> <p><a href=""><img height="260" src="" width="499" /></a></p> </blockquote> <p>through 2017...</p> <ul> <li><strong>BELARUS HALTS OTC TRANSACTIONS IN FX UNTIL 2017: INTERFAX</strong></li> </ul> <p><u><strong>UPDATE: Belarus Overnight Deposit Rate surges to 49%</strong></u></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p><a href=""><img height="562" src="" width="369" /></a></p> <p>&nbsp;</p> <p><a href=""><em>As AFP reports</em></a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Belarus blocked online stores and news websites Sunday, in an apparent attempt to stop a run on banks and shops as people rushed to secure their savings.</strong> In a statement Sunday, BelaPAN news company, which runs popular independent news websites and, said that the sites were blocked Saturday without any warning.</p> <p>&nbsp;</p> <p>&quot;Clearly the decision to block the IP addresses could only be taken by the authorities<strong> because in Belarus the government has monopoly on providing IPs,&quot;</strong> it said.</p> <p>&nbsp;</p> <p><strong>Other websites blocked Sunday were,, and others with an independent news outlook.</strong> The blockage started on December 19, when the government announced that purchases of foreign currency will be taxed 30 percent and told all exporters to convert half of their foreign revenues into the local currency.</p> <p>&nbsp;</p> <p><strong>&quot;Looks like the authorities want to turn light panic over the fall of the Belarussian ruble into a real one,&quot;</strong> Belarus Partisan website wrote, calling the blockages &quot;December insanity.&quot;<strong> Internet shopping websites were also blocked en masse.</strong> Thirteen online stores were blocked Saturday for raising their prices or showing them in US dollars, deputy trade minister Irina Narkevich said, Interfax reported.</p> <p>&nbsp;</p> <p>The government announced a moratorium on price increases for consumer goods and ordered domestic producers of appliances to &quot;increase deliveries&quot; and keep prices the same at the risk of their management being sacked.<strong> Belarussians lined up for hours to clear out their bank accounts and swept store shelves to secure their savings</strong>, stocking up on foreign-made appliances and housewares.</p> <p>&nbsp;</p> <p><strong>The Belarussian ruble has lost about half of its value since the beginning of the year</strong>, having been hit hard by the depreciation of the Russian ruble since its economy is heavily dependent on its giant neighbour. With foreign currency swiftly depleted in exchange offices, <strong>Belarussians even launched a black market website</strong> where individuals could buy and sell dollars and euros.</p> </blockquote> <p>This follows the previously noted implementation of a 30% FX transaction tax, which however now that all OTC FX trading is banned for 2 years or longer, will hardly be collected<a href=""><span style="text-decoration: underline;">.</span></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>$ 460 million will bring to the Belarusian budget introduction of a 30% tax on the purchase of foreign currency in Belarus.</strong> This is the TV channel &quot;Belarus 1&quot; said First Deputy Minister of Finance of the country Maxim Ermolovich.</p> <p>&nbsp;</p> <p>&quot;Given the daily supply and demand in the foreign exchange market budget revenues will amount to about 5 trillion Belarusian rubles, or $ 460 million at the exchange rate of the National Bank&quot;, - he said.<strong> </strong>Recall, December 19 NBB announced the introduction of December 20 temporary levy of 30% on the purchase of foreign currency for individuals and legal entities in connection with the sharply increased demand for foreign currency in the domestic market of Belarus. Legal persons will pay the tax on the stock exchange, and individuals - in the form of bank commission when buying foreign currency.</p> </blockquote> <p>As a result, expect to see more of this...</p> <p><a href=""><img alt="" src="" style="width: 527px; height: 395px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 531px; height: 527px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 531px; height: 523px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 525px; height: 528px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 549px; height: 325px;" /></a></p> <p>&nbsp;</p> <p>Keep in mind that the scenes shown above are what the BOJ, the ECB and the Fed would dub &quot;<em><strong>success</strong></em>.&quot;</p> Hyperinflation OTC Transaction Tax Mon, 22 Dec 2014 20:33:36 +0000 Tyler Durden 499423 at Kazakhstan Prepares For $40 Oil, Gary Schilling Says "Oil Going To $20" <p><a href=""><strong><em>&quot;People should not be worried,&quot;</em></strong> explained Kazakhstan President Nursultan Nazarbayev in a TV address over the weekend</a>, <em><strong>&quot;we have a plan in place if oil prices are $40 per barrel.&quot;</strong></em> Kazakhstan, the second largest ex-Soviet oil producer after Russia, explains &quot;there are reserves which could support people, preventing living conditions from worsening.&quot; However,<a href=""> if A. Gary Schilling&#39;s reality check of $20 oil</a> being possible comes to fruition, as he explains, <strong>what matters are marginal costs</strong> - the expense of retrieving oil once the holes have been drilled and pipelines laid. <strong>That number is more like $10 to $20 a barrel in the Persian Gulf...</strong> We wonder who has a plan for that?</p> <p>&nbsp;</p> <p>The Kazakh President says &quot;don&#39;t worry&quot;,<a href=""> as Reuters reports...</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Kazakhstan, the second largest ex-Soviet oil producer after Russia, has plans in place should global oil prices fall as low as $40 per barrel, President Nursultan Nazarbayev told local TV channels.</p> <p>&nbsp;</p> <p><strong>&quot;Kazakh people should not be worried. We have a plan if oil price are $70, $60, $50, $40 per barrel,&quot; </strong>he said, according to a transcript published on his website <a href="" title=""></a>.</p> <p>&nbsp;</p> <p>&quot;There are reserves which could support people, preventing living conditions from worsening,&quot; he said, without providing any details.</p> <p>&nbsp;</p> <p>Kazakhstan&#39;s National Fund, which collects oil revenues, stood at $76.8 billion at the end of November. Separately, the central bank&#39;s net gold and foreign exchange reserves stood at $27.9 billion.</p> <p>&nbsp;</p> <p><strong>Nazarbayev has also urged the Kazakh people not to worry about the slide in Russia&#39;s rouble currency, which has lost some 45 percent of its value versus the dollar this year.</strong></p> </blockquote> <p>But A Gary Schilling is less sure... (<a href="">via Bloomberg View</a>)</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>When the U.S. Federal Reserve <a data-web-url="" href="">ended</a>&nbsp;its quantitative-easing program in October, it also ended the primary driver of U.S. stocks during the past six years. <strong>So long as the central bank kept flooding the markets with money,<a data-web-url="" href=""> investors</a> had little reason to worry about a broader economy limping along at 2 percent real growth. </strong></p> <p>&nbsp;</p> <p><strong>Now investors face more volatile markets and securities that no longer move in lock-step. </strong>At the same time, investors must cope with <a data-web-url="" href="">slower growth in China</a>, minuscule growth in the euro area and negative growth in Japan.</p> <p>&nbsp;</p> <p><strong>Such widespread <a data-web-url="" href="">sluggish demand</a> -- along with ample supplies of oil and most everything else -- is the reason commodity prices are falling.</strong> They have been since early 2011, but many people failed to notice until recently, when crude oil prices nosedived.</p> <p>&nbsp;</p> <p>Normally, less demand and a supply glut would lead the Organization of Petroleum Exporting Countries, beginning with Saudi Arabia, to cut production. As the de facto cartel leader, the Saudis would often reduce output to prevent supply increases from driving down prices.</p> <p>&nbsp;</p> <p><strong>Of course, this also cost the Saudis market share and encouraged cheating by OPEC members. Saudi leaders must grind their teeth over the last decade&#39;s unchanged demand for OPEC oil, while all the global growth has been among non-OPEC suppliers, principally in North America. </strong></p> <p>&nbsp;</p> <p><strong><u>That may explain why, while Americans were enjoying their Thanksgiving turkeys, OPEC <a data-web-url="" href="">surprised</a> the world. </u></strong>Pressed by the Saudis and other rich Persian Gulf producers, it refused to cut output despite a 38 percent drop in the price of Brent crude, the global benchmark, since June.&nbsp;</p> <p>&nbsp;</p> <p>OPEC, in effect, is challenging other producers to a game of chicken. Sure, the wealthier producers need almost $100 a barrel to finance bloated budgets. But they also have huge cash reserves, which they figure will outlast the cheaters and the U.S. shale-oil producers when prices are low.</p> <p>&nbsp;</p> <p><strong>The Saudis also seized the opportunity to damage their opponents, especially Iran and what they see as Iran-dominated Iraq, in the Syria conflict. They also want to help allies Egypt and Pakistan reduce expensive energy subsidies as prices fall. </strong></p> <p>&nbsp;</p> <p><strong>Then there&rsquo;s Russia,</strong> another Saudi opponent in Syria, with its dependence on oil exports to finance imports and 42 percent of government outlays. With the ruble collapsing, the Russian central bank let the currency float in November after blowing through $75 billion to support it. Then the central bank tried to stop the free fall by raising interest rates by 6.5 percentage points to 17 percent on Dec. 15.&nbsp;</p> <p>&nbsp;</p> <p>Still, the Russian currency is floundering, along with the<a data-web-url="" href="">&nbsp;economy</a>. Consumer prices in Russia rose 9.1 percent in November from a year earlier. The economy will be in recession next year, the website of the Russian economy ministry acknowledged for a few hours on Dec. 2, before the posting was deleted.</p> <p>&nbsp;</p> <p>Venezuela is also suffering. The government needs $125-a-barrel oil to cover its spending, of which 65 percent depends on oil exports. Its crude production is down a third since 2000. With inflation raging, the bolivar officially sells for 6.29 a dollar, but for 180 on the black market.</p> <p>&nbsp;</p> <p>In Nigeria, where oil and natural gas account for 80 percent of government revenue and almost all its exports, the naira has fallen 11 percent versus the greenback so far this year.</p> <p>&nbsp;</p> <p><u><strong>How low can oil prices go?</strong></u> In the current price war, the global market price needed to support government budgets isn&#39;t really the main issue. Nor are the total costs for exploration, drilling and transportation.&nbsp;</p> <p>&nbsp;</p> <p><strong>What matters are marginal costs -- the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf, and about the same for U.S. shale-oil producers. The estimated $50 to $69 a barrel break-even point for most new <a data-web-url="" href="">U.S. shale-oil production</a> is less relevant.&nbsp; </strong></p> <p>&nbsp;</p> <p>Developing countries that depend on commodity exports for hard currencies to service foreign debt will produce and export even at prices below their marginal cost. Until some major producer chickens out and cuts production, oil prices should remain low. <u><strong>They could decline a lot more than the 50 percent drop so far. </strong></u></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="228" height="157" alt="" src="" /> </div> </div> </div> China Consumer Prices Crude Crude Oil Federal Reserve Iran Iraq Japan Kazakhstan Market Share Natural Gas OPEC Reality Recession Reuters Saudi Arabia Mon, 22 Dec 2014 20:27:14 +0000 Tyler Durden 499446 at