This page has been archived and commenting is disabled.
Jobs, Shale, Debt And Minsky
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
OK, I don’t see a whole lot of comprehension out there, so let’s try and link the obvious: employment to shale to plummeting oil prices to the debt the shale industry was built on (and which is vanishing). I know, people look at the US jobs report today, and at the stock exchanges (Europe up some 2% across the board), and think salvation has landed on their doorstep, but the true story really is very different.
The EU markets are up because of US job numbers + the expectation that Draghi will launch a broad QE in January. But US jobs are far less sunny than meets the eye at first glance, and the Bundesbank will not all of a sudden do a 180º on ECB stimulus options. Ergo: a lot of European investors are set to lose a lot of money.
Anyone notice how quiet Angela Merkel has become about the QE debate? That’s because she doesn’t want to be caught stuck in a losing corner. Even if the Bundesbank would give in to Draghi, and chances are close to zero, there would be multiple court cases in Deutschland against that decision, and chances are slim the spend spend side would win them all. That’s the sort of quicksand an incumbent leader like Merkel wants to avoid at all cost.
But let’s leave Europe to cook itself, and its own goose too.
What’s happening stateside is more important today. First, Marc Chandler has a good way of putting what I have said for as long as oil prices started testing ever deeper seas: the danger to the industry is not even so much falling prices, it’s financing both existing and future endeavors. Shale is a leveraged Ponzi, that’s its most urgent problem. Even if shale could break even at low prices, financiers and investors would still leave the building.
Both shale oil and gas have two big problems:
1) projects are based on highly optimistic returns, and
2) they are financed with very large and leveraged debt loads.
With WTI prices now at $66 a barrel, and the first Bakken prices below $50 a barrel having been signaled, the entire industry starts resembling a house of cards, a game of dominoes and/or a pyramid shell (pick your favorite) more by the day. Chandler:
[..] Marc Chandler says the energy sector has just suffered its own Minsky moment. And while he doesn’t expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market. Minsky moment is a term coined by Pimco economist Paul McCulley in 1998, and it refers to a point when a period of rapid growth and risk-taking leads to a sudden turn lower and a crisis. Chandler, global head of markets strategy at Brown Brothers Harriman, says that is precisely what is happening in crude oil.
“Many people a couple years ago, a year ago, were saying that oil prices could only go up – ‘we’re in peak oil’ – meaning that we’re running out of the stuff. So a lot of things were leveraged based on oil prices that can only go up. Sort of like house prices—’they can only go up.’ So what happened is, because people held this as a deep conviction, they leveraged up,” Chandler said.” [..] “The big risk now to our shale is not going to be that the price of oil drops so far that it’s not going to be profitable,” he said. “The weakness, the Achilles’ heel, is that they don’t get the cheap funding anymore.”
Even Nature magazine this week gave it a shot, and tried to lend scientific credibility to a certain view of shale. Here’s the editorial:
[..] The International Energy Agency projected in November that global production of shale gas would more than triple between 2012 and 2040, as countries such as China ramp up fracking of their own shale formations.
[..] Academic journals are filled with earnest projections about future energy dynamics, which usually turn out to be wildly inaccurate. Even worse, governments and companies wager millions of dollars on dubious bets. This matters because investment begets further investment. As the pipework and pumps go in, momentum builds. This is what economists call technology lock-in.
[..] Nature has obtained detailed US Energy Information Administration (EIA) forecasts of production from the nation’s biggest shale-gas production sites. These forecasts matter because they feed into decisions on US energy policy made at the highest levels. Crucially, they are much higher than the best independent academic estimates. The conclusion is that the US government and much of the energy industry may be vastly overestimating how much natural gas the United States will produce in the coming decades.
[..] The EIA projects that production will rise by more than 50% over the next quarter of a century, and perhaps beyond, with shale formations supplying much of that increase. But such optimism contrasts with forecasts developed by a team of specialists at the University of Texas, which is analysing the geological conditions using data at much higher resolution than the EIA’s.
The Texas team projects that gas production from four of the most productive formations will peak in the coming years and then quickly decline. If that pattern holds for other formations that the team has not yet analysed, it could mean much less natural gas in the United States future.
And then an article:
Natural Gas: The Fracking Fallacy
When US President Barack Obama talks about the future, he foresees a thriving US economy fuelled to a large degree by vast amounts of natural gas pouring from domestic wells. “We have a supply of natural gas that can last America nearly 100 years,” he declared in his 2012 State of the Union address. [..]
Over the next 20 years, US industry and electricity producers are expected to invest hundreds of billions of dollars in new plants that rely on natural gas. And billions more dollars are pouring into the construction of export facilities that will enable the United States to ship liquefied natural gas to Europe, Asia and South America.
All of those investments are based on the expectation that US gas production will climb for decades, in line with the official forecasts by the US Energy Information Administration (EIA). As agency director Adam Sieminski put it last year: “For natural gas, the EIA has no doubt at all that production can continue to grow all the way out to 2040.”
But a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government’s predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small ‘sweet spots’ where it will be profitable to extract gas.
The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.
The scientific ring to it is commendable, but this misses quite a few things. They cite David Hughes, but leave out the work of Rune Likvern, without whom in my opinion no true – scientific or not – view of the shale industry is complete. But okay, they tried, in their own way, and their conclusions may be a bit softened, but they’re still miles apart from those of either the industry’s PR, or the EIA.
And then we move to the next link: that between shale and jobs. Because that’s where falling oil prices start to go from joy for the whole family to something entirely different.
What happens if the US shale industry crumbles under the weight of its own leverage? Most people will probably think: we’ll just start buying from that oversupplied world market again. But it’s not that easy, that leaves out one big issue. American jobs.
And we can take it straight from there to today’s hosannah heysannah BLS report. Which, however, has issues that don’t show up at the surface. Tyler Durden:
Full-Time Jobs Down 150K, Participation Rate Remains At 35 Year Lows
While the seasonally-adjusted headline Establishment Survey payroll print reported by the BLS moments ago may be indicative of an economy which the Fed will soon have to temper in an attempt to cool down, a closer read of the November payrolls report shows several other things that were not quite as rosy. First, the Household Survey was nowhere close to confirming the Establishment Survey data, suggesting jobs rose only by 4K from 147,283K to 147,287K, and furthermore, the breakdown was skewed fully in favor of Part-Time jobs, which rose by 77K while Full-Time jobs declined by 150K.
And then for those keeping tabs on the composition of the labor force, the same adverse trends indicated over the past 4 years have continued, with the participation rate remaining flat at 62.8%, essentially the lowest print since 1978, driven by a 69K worker increase in people not in the labor force.
So according to the BLS Household Survey, the US lost 150,000 jobs, while the Establishment Survey, prepared by the same BLS, shows a gain of 321,000 jobs. Yay! pARty! But we’ve been familiar with all the questions surrounding the jobs reports for a long time, so that’s not all that interesting anymore.
Still, when you see that again most of the jobs that were allegedly created are low paid service jobs, and that wages are not going anywhere, you have to wonder what is really happening. Well, this. The vast majority of new US jobs since 2008/9 have come from energy- and related industries, which makes them a dangerously endangered species now oil prices or down 40% and falling.
Tyler Durden ran the following on Wednesday, and I think this is very relevant today:
Jobs: Shale States vs Non-Shale States
Consider: lower oil prices unequivocally “make everyone better off”, Right? Wrong. First: new oil well permits collapse 40% in November; why is this an issue? Because since December 2007, or roughly the start of the global depression, shale oil states have added 1.36 million jobs while non-shale states have lost 424,000 jobs.
The ripple effects are everywhere. If you think about the role of oil in your life, it is not only the primary source of many of our fuels, but is also critical to our lubricants, chemicals, synthetic fibers, pharmaceuticals, plastics, and many other items we come into contact with every day. The industry supports almost 1.3 million jobs in manufacturing alone and is responsible for almost $1.2 trillion in annual gross domestic product. If you think about the law, accounting, and engineering firms that serve the industry, the pipe, drilling equipment, and other manufactured goods that it requires, and the large payrolls and their effects on consumer spending, you will begin to get a picture of the enormity of the industry.
Simply put, this means 9.3 million, or 93% of the 10 million jobs created since the recession/depression trough, are energy related.
The links above, jobs to shale to oil prices, are intended to give people an idea of what’s in store if oil prices stay where they are or fall more. It’s 4 to 12 for US shale, and its saving grace is nowhere to be seen. And if 93% of all new American jobs since the recession, even if they are burgerflipping ones, come from the oil and gas industry, what’s going to become of either of the BLS reports?
I’ve been saying for weeks that lower oil prices would not be a boon but a scourge for the US economy, for several different reasons, and this is a big one. The losses to investors, the restructurings and bankruptcies, and perhaps even the bailouts, are a very much interconnected and crosslinked other. There’s no resilience – left – in a system like this, it bets all on red, and that makes it terribly brittle.
»
- 15071 reads
- Printer-friendly version
- Send to friend
- advertisements -
my best friend's ex-wife makes $60 /hour on the computer . She has been fired for 8 months but last month her income was $16723 just working on the computer for a few hours. try this web-site... www.yelptrade.com
Fuck off Euro-trash.
Redirects to 178.62.12.197 United Kingdom - http://globalprofitreport.biz/?bo0538
I smell another debt time bomb ticking
http://y2u.be/tOW5eljyjms
Linking to a vegan video again asshole? Junk this fucker.
The future has no need for jobs.
We now have the technology.
"while he doesn’t expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market."
Yes, which makes it NOT a Minsky moment. That would be a systemic economy-wide event, which this is NOT.
I've posted up many times now about how falling oil/energy prices are NOT going to be the collapse trigger signaling the end of the economy (or more importatly, of a cascade of bank collapses). Here in that quote maybe we see the first cracks in the "everyone is going to die due to falling oil prices" argument. Whatever. The Tylers can post up more articles than I can reply to in this area, but it doesn't change reality (if there is such a thing any more).
This is a TRANSFER of income from energy producers to energy consumers. Producers will feel the pain more quikcly. Consumers/users will benefit (admittedly with a significant time delay). The US as a whole is still a MASSIVE consumer/user of energy.
like I've said before, the RTylers will fuck this chicken until there's nothing left but feathers... and yet, they're still wrong
"Yes, which makes it NOT a Minsky moment. That would be a systemic economy-wide event, which this is NOT."
I agree, but the oil industry does affect a broad range of secandary and tertiary industries, one of which is mine. I am partially in the business of making a tool called chasers. They are used to cut the thread on the pipe. We made a ton of them and they are slowing way down. Pipe is changed out on a regular basis due to regulations on the cycling of the pressures in the pipes as they are used. After so many cycles of so many PSI the pipe must be replaced. Its a steel fatuige issue. Pipes busrt after so many cycles. Its an ongoing business and its drying up right now. We are a leading indicator and I remember 2008. We were the first to get slow and the very first to come back. Its going down right now.
2 years of cheap oil, then less oil, less oil, less oil...
As long as demand falls faster than supply, prices may not rise. Of course, if 99% of the contracts are settled in dollars instead of delivery, prices don't have to follow fundementals at all.
Yeah, fuck off mother fucker. If I want vegan I will Google vegan.
cool, looks legit.
Is that your shitty Bulgarian restaurant in NYC? Or are you the stained glass "artist"?
Hahahhha
Report back to us in a week and let us knw how well you did. Don't forget to show us a picture of your new Corvette.
.
Hey masteryi
They will delete your account for posting jokes about your ex-wife's keyboard commando skills and getting paid lark.
Oil will be so affordable no one will even need a job....
this article is a scare-mongering peak-gas swindle
probably more of that thorium molten salt reactor troll crowd
https://www.youtube.com/results?search_query=thorium+molten+salt
This is a rare opportunity to pick up some long-term investments in "big oil". Not many assets reasonably priced these day.
PGH baby!
Pengrowth Energy is at a 52 week low asshole. Junk this fucker.
PWE (Penn West Energy) stated they will keep the dividend in place by reducing capital spending in 2015.
Also, PGH has oil and natural gas hedged out to 2016.
Does one BTFD, BTFATH, both, or neither?
As Gail Tverberg's articles, which were republished on Zero Hedge, outlined, it is in the financial system where the problems show up first, although those real problems are much more profound than that! Another relatively recent discussion about how the financial repercussions will be first and foremost manifestations of the deeper disruptions concerns how the biggest banks have entered into speculations based on the price of oil, that could add up to trillions of dollars in losses, because those banks were legally allowed to make "money" out of nothing to gamble with in those ways:
Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives
"It is like a patient with an extremely advanced case of cancer. Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process."
Banksters being able to make "money" out of nothing to speculate with, while everyone else had to use the same "money" supply to live, has created an endless series of concatenated systemic risks, which have accumulated to astronomical SIZES. The derivatives contracts related to the price of oil have become too ridiculous to imagine, since their real SIZE appears like a preposterous cartoon when one attempts to imagine them!
Like everything else, for instance, where the amount of physical gold is exceeded by a couple of orders of magnitude by the amounts of paper and/or electronic gold, the basic ability of the banksters to make the public "money" supply out of nothing to speculate with has created a world where their gambling debts are at least a couple orders of magnitude BIGGER, in their virtual world, than in the still relatively physical real world, which they were supposed to be operating within.
Fracking, etc., were primarily plays enabled by the banksters' power to create the "money" out of nothing, to "pay" for strip-mining the planet's natural resources, which pushed the envelope of doing that further and further, towards becoming even more absurd than that system always basically was.
Not only
"Shale is a leveraged Ponzi,
that’s its most urgent problem."
EVERYTHING ELSE HAS BEEN TOO!
The physical world of matter and energy has been removed a long way from the social systems based on backing up lies with violence, because the ability to back up lies with violence created an extremely entangled, hyper-complicated relationship between the physical world versus the human world. We have NOT sanely adapted nor prepared to live inside of the real context the physical world, because, instead, we adapted to live inside the social world dominated by ENFORCED FRAUDS.
The MAD Money As Debt system HAS become like a thoroughly metastasized cancer. Since the established systems are based upon ENFORCED FRAUDS, which were enabled by the application of the methods of organized crime to the political processes, while everyone else, for generation after generation, adapted to live inside of those systems of ENFORCED FRAUDS, which grew worse at an exponential rate, everything regarding how human beings related to the relatively more objective physical world around them has been totally dominated by attitudes of evil deliberate ignorance, related to being able to operate inside of economic systems based on ENFORCED FRAUDS.
As far as I can tell, the vast majority of people do not know, because they do not want to know, how utterly sick and insane their society has actually become, because their lives depended upon adapting to live INSIDE ENFORCED FRAUDS, which required they develop the maximum possible attitudes of evil deliberate ignorance towards those CENTRAL SOCIAL FACTS!
The lives of flesh and blood people have become like relatively trivial background features in the VIRTUAL WORLD OF FINANCE, wherein unimaginable trillions of "dollars" were created out of nothing to speculate with, all of which added up to practically impossible to imagine aggregates of quadrillions of notational units.
TRIUMPHS OF RUNAWAY "LEGAL FICTIONS" HAVE ENABLED THE CREATION OF A FICTIONAL WORLD, THAT CONTROLLED THE REAL WORLD, BECAUSE "MONEY" MADE OUT OF NOTHING CONTROLLED THE REAL LIVES OF REAL PEOPLE!
Radical Marijuana
You have some interesting take on things but you make your posts too long.
Anyway, to complement your 10th paragraph:
“Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.” -- Sigmund Freud
And this was one of his shorter tomes.
Radical needs to stop smoking the darn thing!
that's harsh
If Gail Tverberg could tear herself away from trading oil derivatives for a minute (and accumulating a handsome fortune) and comment on ZH, I'm quite sure she she would be effusive in her praise for my theory of the proliferation of the criminally insane and the sundry enforced frauds.
Gail knows how shocked and demoralized the PTB and their minions became, when M King Hubbert's prediction in 1956 that the US would hit peak oil in the early 70's, and which was borne out by the more accurate and honest records kept 40 years ago. Hubbert's peak oil theory never denied that jumbo discoveries and improved recovery technology could remove a country or the world from a peak oil classification, but only temporarily. Unless our neo-alchemists found a way of converting dirt into oil.
Geologist and petroleum engineers knew about shale oil then and they also knew it's limitations. So even though geologists estimate that shale represents almost ¾ of the sedimentary rock on the Earth’s crust, most of that shale is not frackible and for it to yield oil, must be put to an expensive and time consuming process.
Shale is soft and easily broken into small pieces. Consequently, a process of heating it (in situ) is needed to remove kerogen from shale in the form of liquid oil and natural gas.
While the industry hasn't begun removing oil from the small pieces of shale that we all have seen sliding down a hillside, around 2006, when global peak oil was declared, small producers began to frack the small percentage of shale formations which immediately will produce small amounts of oil for large investments of cash.
This was not the ''solution'' to the world's problem. Rather a comb over on a rapidly balding man.
Today the oil rich Bakken formation produces some 1,120,031 barrels of oil a day from 8500 wells each producing an average of 132 daily barrels. HUH?
The oil is collected by laying down perforated pipe horizontally into which the oil, which has pooled, seeps and is sucked to the surface by an industrial shop vac.
IT IS NOT SLANT DRILLING AS WE KNOW IT.
We might get another 5 or 6 years out of this fictitious solution.
Fracking oil was the third and last leg of America's enforced fraud on mankind, RM, but it's late now and I must get some rest. If you are interested in hearing the rest of my rant, give me a sign.....
Horatio, for
RM. it's not a pretty picture.
With your extensive knowledge of how the criminally insane control everything from the value of the world's currencies to how their motley allies vote in the General Assembly, NATO, the EU, and all the varied congresses and parliaments, which sit to enact the laws controlling the comings and goings of the citizens of this planet, this should reinforce your long held mindset.
It first appeared in my consciousness sometime in 2010 and since then time and events have corroborated its truthfulness. If Gail Tverberg were only here, she would vouch for all the assertions concerning crude oil in my proposition.
1) no one as far down the information ladder as we are can possibly know the proven reserves of oil available for consumption.
2) while the most powerful people have a more accurate delineation of the supply, their accuracy passing that info on to us may or may not be in doubt.
3) that M. King Hubbert's development of The Peak Oil Theory in 1956, when proved accurate in 1972, changed the world as much as the atomic bomb in 1945.
4) that in 1972 when the POT was seen, the nation that consumed more oil than any other nation and its army which consumed more oil than any other single organization on the planet, suffered an upheaval of jumbo proportions.
5.a) this jumbo upheaval was made moar jumbo by the flight of the Shah in 1979 and earlier, now repetitive theories that white Americans would be in the minority in 3 or 4 decades, costing some white folks the keys to the empire.
5.b) and the first good news for TPTB, the election in November 1980 of Ronald Reagan, a mindless, but brilliant reader of scripts written by paranoid conservatives, who saw their main chance.
5.c) soon clones of Grover Norquist appeared in all branches of government and the military. America's goose was cooked. The American National Debt which had stood at less than a trillion dollars for around 200 years shot up to $18 trillion today.
By the 1980's, America's plan to survive PO was a three legged stool.
The first leg was the US Military and America's right to invade countries on False Pretenses. Ergo, Iraq.
The second leg was the demolishment of the demand for oil. Hello, Everybody.
The third leg was the Snake Oil of the Great Plains -- or should I say -- Shale Oil? In January 1954, in the Bakken Formation, there was 1 well producing as much as 274 barrels of oil a day in February and as little as 154 bbpd in September. By 2014 there were 8500 wells producing an average of 132 bbpd for a total of 1,120,031 bbpd.
Shale Oil production of low three figures per well per day was going to make America the largest producer of crude oil until the end of time. Or so the MSM believes.
These are the three legs of Reagan's stool. We saw them at work in Iraq in 2003. At work with the destabilization of the Middle East, in Libya, Egypt, Syria, South Sudan, Iran, etc. Cleverly named Arab Spring. That's Spring as in Mel Brook's "Spring Time for Hitler."
And the rise, hype and fall of shale oil as the salvation of the American Dream.
And the destruction of the demand for oil that we see now with oil prices in the below $70.
Ask yourself, RM, where the price of oil would be today if Libya was at full production, if Iraq was at full production, if Iran could sell its oil on the market, if South Sudan's was on the market, etc.
And if you want to hear how America created the subprime housing bubble to strangle demand (and conseve what's left for it's greedy, selfish self, just let me know. :o)
I agree, bid the soldier, that the destruction of the demand for oil, including wiping out many suppliers, appears to have been aspects of an overall criminally insane plan ...
Of course, I an NOT any kind of insider, but only speculate upon different ways to connect the dots, or possibly put the puzzle pieces together.
But nevertheless, to go further along those lines, I have no doubt that the financial crises in 2008 caused by the runaway subprime frauds, were also an INSIDE JOB.
In the end, I think that these events will go out of human control, however, there is no doubt that the rulings classes are struggling to control things so that the social pyramid systems keep them in power during each increment in the short-term, regardless of my view that will become impossible in the longer term, because systems of enforced frauds will drive things to go out of control for everyone!
RM
I owe you one.
I seem to be having an attack of lightheartedness. I should be better Monday. :o)
but, but, but, RM,
you were silent about my theory that there are only a few decades of easy oil remaining and the military has begun its plan for the gradual impounding of it after the global economy crashes.
The dearth of oil is responsible for everything.
Fric(king) frac(king) is fuc(ked).
An American, not US subject.
"I'm with stupid...
"I'm with stupid...
Never mind the Minsky Effect. I was wondering about the Maidan Effect.
Oh, but that requires external intervention and orchestration; never mind.
When can we expect AlCiadah to cause a colour revolution in Saudi Arabia? As that would be cheaper and faster to fix the US Fracking Blues.
We heard just a couple years ago that Poland was energy independent and was telling Russian gas producers to fuck off. The American EIA was one of thos telling Poland to fuck Russia, their figures showed Poland gas rich! Sadly, independent analysist arrived after the American boys from EIA, and their test wells, and geology drills proved that 90% of Poland energy wealth was a hoax! A sad, but true story. So for Poland, it is back to brown coal, and Russian gas.
EIA is a political agency, a cheeleader for Fracking, I suggest they tell lies to encourage favorable laws on the state level for frackers. Time will tell, but I am betting the USA has plenty of oil and gas to be fracked, fracked at huge cost, and not profitable at any rate below 100 dollar long term.
"Independent Poland" like a disconnected colon requires a carryon poop bag.
" The losses to investors, the restructurings and bankruptcies, and perhaps even the bailouts,"
I can smell the bailouts coming! Tax holiday for frackers. Bailout for junk bond holders of their defaulted paper. Our government has plenty of Communists in positions of power who will, chuck the free markets, and make whole bond holders and frackers both. In the morning after fucking the tax payers again, our Government Communists will call it all "free enterprise".
"I can smell the bailouts coming!"
The bailouts will be coming, but not out of communism. It seems the USA, along with the usual suspects (Saudi Arabia, Qatar et al) is trying to wreck the Russian oil business. That has to come with painkillers to the US shale business and its investors, which are otherwise bound to be wrecked in the process.The painkillers will be bailouts paid with US taxpayers money (and some billions added to the already nightmarish American debt).
The American taxpayer is a milk cow like no other: all out of your pockets right into those of your private sector.
No communism there. All corporate interests.
employment to shale to plummeting oil prices to the debt the shale industry was built on (and which is vanishing)
Debt of the shale industry is vanishing?
Well that is great for them! Forward shale industry! /s
Shale won't go broke.
Only the current owners and investors will.
Once these assets change hands, the price of oil will magically go up once again.
Which does nothing to the cost of extracting these resources which is the problem in the first place. Today's economy can't function as efficiently on high cost energy...period.
Market Makers : I have heard that MM's can manipulate "buys" to show up like "sells" and the stock price shows decline. Gold miners etfs, anybody?
So lower oil prices means fewer jobs. Thanks.
and fewer jobs means less money which means less demand which means cheaper gas. the crux of the problem here is that the US in its hayday relied on cheap oil. and there was tons to be had, that shit would just gush out of the ground if you poked the right spot. massive gushers dumping oil everywhere meant nothing. those gushers are long since played out. having cheap oil from overseas helped buck the trend a bit, but turning inwards again, it's NOT cheap oil anymore, it's epensive, and unfortunately, it's not state-owned and the state does not have massive reserves to stave off a downturn. the us requires low oil prices to survive, but with shale, it also requires high prices. saudi sees this obvious weakness and is turning up the heat to have a replay of '85. Get the shale out of business, create such crippling losses to us industry that it scares them off for the next 30 years again. when that goes poof, all that hype about the oil boom will vanish overnight and come crashing back to earth.
Who knew the Black Swan would be lower priced Black Gold?
It's an interesting article but it only tells us what the Austrian school told us all along. Printing money causes malinvestment and bubbles. It is unsustainable in the long term. The meteoric boom in fracking was the precursor to the bust.
Eventually it has to unwind in order for the economy to return to a sound footing. Low oil prices are good for the economy in the same way vomiting is good for food poisoning. It's very unpleasant at the time but is entirely necessary.
There will be job losses, company bankruptcies, investor losses and a credit squeeze which is entirely consistent with the unwind. Proof-if any were needed-that academic career economists and governments should never again be permitted to control money.
We are going to have such a headache from this next bust that we really will give up the money sauce.
Not only junk bonds will go down if the fracking phenom ends. The japanese banks just signed financing commitments of $10 billion (the largest nonrecource financing in history per http://freeportlng.newsrouter.com/FLNG_News_Releases_view.asp?editid1=78...) for the freeport, tx lng export plant. And there's a twin just 100 miles up the coast at cheniere's sabine pass facility. Add in $3 billion for phillip 66's ngl export project (also at freeport) and you have around $20 billion betting on continuing large volumes of fracking output over a very long timeframe.
A question that has frustrated even the most experienced economists in the last few decades is how the dollar has remained the most prominent reserve currency in the world despite the global share of U.S. output eroding away.
The Bank for International Settlements (BIS), a Basel-based institution that is known as the central bank of central banks, thinks it has found the answer.
"We argue that the dollar's role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates – the 'dollar zone'," it said in its new quarterly report released on Sunday.
In 1978, economists Robert Heller and Malcolm Knight were credited as first to draw attention to the fact that countries held an average of 66 percent of their foreign-exchange reserves in dollars. Even today that number hasn't budged much with the latest statistics from the International Monetary Fund showing that just over 60 percent of allocated funds are held in the greenback.
The higher the correlation in price between a given currency and the dollar, the higher the economy's dollar share of that country's official reserves, according to Robert McCauley and Tracy Chan, the two authors of the BIS report. The report adds that the dollar's robustness comes despite an 18 percent decline against major currencies since 1978 and the U.S. economy's share of global GDP (gross domestic product) shrinking 6 percent in those 36 years.
"The 'dollar zone' still accounts for more than half of the global economy. In countries whose currencies are more stable against the dollar than against the euro, reserve composition that favors the dollar produces more stable returns in terms of the domestic currency," they said.
"This alternative interpretation implies that currency shares could shift rapidly, as happened between the world wars."
The survey covers 24 different economies which represent 28 percent of the official foreign exchange reserves from nations outside of the top three biggest economies. it also included samples for the private sector and found a similar correlation in reserve holdings.
"The logic underlying both private and official behavior is straightforward. The dollar looks less risky as an investment or a borrowing currency the more closely the domestic currency moves with the dollar," McCauley and Chan said. "If correct, these findings have implications for the future of the renminbi."
Rapid growth of the Chinese economy might therefore not be sufficient for the renminbi to eclipse the dollar in official reserve holdings, they added. This would only be possible if it showed "substantial independent movement" against the major currencies and if its neighbors, they said, calling it a possible "renminbi bloc."
US consumption of others overproduction is why it is King. We take your stuff you get our Dollars. When you have too many dollars we sell you bonds.
Having the dollar as the world reserve currency is both a blessing and a curse. While I agree with most of what you are saying I think it is important to consider that the other three major world currencies are all in worse shape than the dollar. I contend they will fail first and bolster the dollar while they fail. In the end a new system will most likely emerge.
The world is currently engaged in a massive game of speculation and chance that contains a lot of risk. Political considerations and insider deals between both nations and Central Banks play a big roll in this game. A chart I saw recently touted how the percentage of funds held by foreign governments in dollars has fallen in recent years. Even after many countries have reduced their holdings in dollar reserves the dollar still carries a major wallop and place in the world economy and will effect everyone going forward. More on how the dollars role as the reserve currency effects all of us in the article below.
http://brucewilds.blogspot.com/2014/11/reserve-currency-status-both-blessing.html
It would be wise not to underestimate how important currency moves are in this unstable economic environment.
Good piece on subject. http://www.strategic-culture.org/news/2014/12/05/oil-prices-and-energy-wars-empire-frack-versus-russia.html
Garbage article. The recession was started with skyrocketing oil prices and they have gone up and down since then. To suggest that this latest change in price is the end of the world is naive. I am tired of something good, lower prices at the pump, being touted as bad.
When financial problems occur in the energy sector it is often accompanied by political instability and sometimes her ugly sister war. As a rule the economy loves stability, bottom-line dropping oil prices means more risk for an already shaky world economy. All this is being complicated by the recently strong dollar. The dollars strength and the rising American stock market could also be taken as a sign of an unstable global economy.
When a strong shift in currencies occurs someone usually gets hurt and this can lead to bankruptcy, default, or contagion. A great deal of the shadow banking world overlaps and falls into the grey world of derivatives. The total derivatives market has grown to a massive size. It includes hundreds of trillions of dollars in over-the-counter non-reported agreements and private contracts and is estimated to be over 20 times larger than the global economy. Everyone paying attention knows that even a slight problem in a market this size could collapse the whole economic system. The article below delves deeper into the problems caused by falling oil prices.
http://brucewilds.blogspot.com/2014/11/dropping-oil-prices-increase-risk-to.html