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The Financialized-Oil Dominoes Are Toppling
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The drop in oil revenues has triggered a self-reinforcing feedback dynamic.
Oil is not just something that is refined into fuel--it is capital, collateral, debt and risk. In other words, it is intrinsically financial. As I noted in The Oil-Drenched Black Swan, Part 2: The Financialization of Oil, oil has been financialized to the point that few outside the industry understand the dominoes that are currently toppling.
Let's start with the obvious fact that the impact of lower oil is financial, political and geopolitical. Lower oil revenues are negatively impacting:
1. Oil-exporters’ revenues
2. Monetary policy of central banks
3. Trade flows
4. Global financial markets
Lower revenues are pressuring oil-dependent governments such as Russia, Venezuela and Iran, and destabilizing the geopolitical order as weakened oil exporters sink into recession and political turmoil.
Lower revenues are also kicking the financial supports out from under the debt-dependent, enormously capital-intensive oil exploration and development projects in North America.
Simply put, the sharp drop in oil revenues has knocked over a line of financial dominoes whose end is not yet in sight. These issues have been addressed by a number of analysts; here is a small selection of recent stories:
Why US Shale May Fizzle Rather Than Boom (research by Mason Inman)
The drop in oil revenues has triggered a self-reinforcing feedback dynamic. As the financial dominoes fall, there is less capital available to maintain production, so oil output falls, further reducing income. As the collateral,income and impaired debt dominoes topple, risky debt in sectors completely unrelated to oil start falling as institutions trim risk throughout their holdings.
Gordon T. Long and I discuss the highlights of this complex set of issues in this video program, The Oil-Drenched Black Swan (28 minutes):
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No shit -- next up --
The USSA trying what the French and the Germans already figured out is a really bad idea
http://rt.com/news/213747-latvia-us-armored-vehicles/
Russia and the Arabs didn't think we had it in us anymore
http://y2u.be/VI6tBwVjyOY
Excuse me brother.....could you spare a cup of Dakota crude?
Russia = Libya/Iraq
Because Russia is dropping the US Dollar fiat and gearing back to Gold back currency.
.. W W 3 in...5..4...3.2...1
Current FED policy attempts to weaken them, first. Thus, killing 2 birds with one stone. Stop Dollar abandonment and Russian enrichment. They may have decided huge US deflation is their only real alternative if they want to remain in power, like they did in the 1930's.
Russia and the Arabs didn't think we had it in us anymore
http://y2u.be/VI6tBwVjyOY
Version 1.01 Big Bang Therory
Yawn. Looks like we're in for another green day today.
Jewish oil.
Fuck them all.
YAY for Bitcoin!!!!!
-snark
"political turmoil."
where in RU and Iran?
Politicians here in USSA running roughshod over the populace better than ever.
Crude black swan dive.
IEA warns on social unrest as oil plummets... The potential for financial defaults
http://investmentwatchblog.com/iea-warns-on-social-unrest-as-oil-plummets/
I hate every single one of you who upvoted this asshat and his idiotic aggregator "blog".
The fall in oil will clean out a lot of malinvestment and speculation, forceing that money to seek out investments elsewhere. Its not all a bad thing.
As long as the yield curve is this busted, there is little probability of efficient investment. In all liklihood, capital will just be poured into another bubblicious market segment.
Yup.
Gold, guns, and ammo.
+100. US beef going to Kobe prices.
Amen. Fuck em
PEAK ZH OIL PRICE CRASH ARTICLES ?
Hey, I'm just teasing' ok.
You know, after 6 years of getting raped at the pump and watching as the economy stagnates to feed these bastards manipulating oil futures, my empathy level is less than zero. Congress did squat, allowing the pillaging of the consumer to go on. They had within them the power to stop this, simply by requiring anyone holding an oil futures contract for more than 3 days to have to take delivery, and they didn't. A bust in the oil sector? Boo-fuckin'-hoo. If it defunds Islam, I'm all for it.
And I'm weeping tears of purple piss....
Drank some of that diesel fuel with the dye in it, did you? Say no!
Lol, Friday afternoon Red Diesel Daquiris.
the dropping of crude oil price could lead to the failure of its huge derivatives, which would have chain reactions to other financial derivatives. therefore, the interest rate would go down much futher, to protect trillions dollars cds. the rate will not go higher for many years, even could become negative in the us. the defletion will be so strong. with negative rate, au could be the choice for assets protection. au does not pay interest, but, better than negative interest.
Dont worry about it. See the comments above about there being language in the spending bill to put derivatives losses on the taxpayer. If the US taxpayer isn't good for $1.4 Quadrillion, then the Fed will just print it anyway.
You worry too much.
lol
Good.
“...line of financial dominoes whose end is not yet in sight.”
Sticking with the "game" metaphor: This is either a very bad checkers move by the US, or a very clever chess move by Russia, with the Saudi’s as the piece-being-moved in either case.
Whatever the game, and whichever the moves, the final result will be the destruction of all the boards along with the scattering of all the pieces.
The "financialization" of oil was that same as the "financialization" of everything else, namely the runaway triumphs of ENFORCED FRAUDS driving globalized civilization towards MAD self-destruction, since the basic systems are MAD Money As Debt, backed by MAD Mutual Assured Destruction.
Thousand of years of exponential growth of the social successes of backing up lies with violence became the foundation, as well as the trajectory of the political economy. "Money" made out of nothing has "paid" for everything, in ways which were automatically becoming more criminally insane every day! The overwhelming vast majority of people have adapted, for generation after generation, to go along to get along with those who specialized in backing up frauds with force, which has resulted in our political economy having a fundamentally fraudulent financial accounting system, which enables "financialization" based on ENFORCED FRAUDS to oscillate wilder and wilder ...
Most people want to continue to believe that there still some rational players, making some intelligent moves, within some intelligible games. However, what has actually happened is that civilization as a whole has become runaway criminal insanities.
The root SOURCE of that, which in turn became the SOURCE of the "money," was the history of warfare, in which success was based on deceits, and spies were the most important soldiers. That resulted in the most important and necessary things being accomplished through the maximum possible deceits. After thousands of years of that, growing at an exponential rate, human civilizations are so totally based on systems of legalized lies, backed by legalized violence, that they are psychotically out of touch, but continue to automatically get worse, as bigger lies are backed up with more violence.
There would be nothing else sufficient to better resolve these problems than profound paradigm shifts in militarism, which enabled enough people to perceive the degree to which thousands of years of social successes based on backing up lies with violence could be transformed, to become manifestations of militarism which operated death controls which were not so completely demented and psychotic. However, at the present time, the established systems suffer from the double whammy that the death controls are done through the maximum possible deceits, which back up the debt controls done through the maximum possible frauds, while, at the same time, the only publicly significant controlled opposition groups to those established systems promote the impossible ideals that there should not be any death controls backing up any debt controls, or at least none that human beings are conscious of participating in.
Human civilization has become games in which the way to win was CHEATING, so much, for so long, that those games have become psychotically insane, in the sense of out of touch with any more relatively objective truths, due to degree to which social success was achieved through ENFORCING FRAUDS, such as that "financialization" is basically the ability of "money" made out of nothing to "pay" for everything, so that bubbles about everything, like the "price" of oil, can be blown and pop, in more and more spectacular ways, while the vast majority of mainstream morons have been conditioned to not perceive that central social fact.
The deeper problems are that human civilizations must necessarily have some murder systems, that back up some money systems, however, our civilization has developed to do that through the maximum possible deceits and frauds, to the degree to which there is barely any publicly significant opposition that does not continue to operate inside of the same frame of reference of taking for granted those deceitful and fraudulent ways of perceiving everything.
Meanwhile, science and technology keeps on pumping up and UP those social systems based on backing up lies with violence, to constantly become more criminally insane, because the triumphs of those ENFORCED FRAUDS become more psychotically disconnected from the relatively objective physical world, the more that social successes continue to be based on those ENFORCED FRAUDS.
The "financialization" of petroleum resources was the processes whereby the fraudulent money system, backed by the deceitful murder system, was able to grow at an exponential rate. During those processes, there used to appear to be relatively rational games, inside of which relatively rational moves could be made, although those were always how the combined money/murder systems doubled down on backing up bigger lies with more violence.
The problems that our civilization faces are the degree to which there MUST necessarily be some systems of organized lies, operating robberies, in which the death controls, backing debt controls, are the central feature. However, the degree to which those were socially successful, on the basis of being the best at deceits and frauds, has so totally dominated our society, including its controlled opposition groups, that there is barely any way to ever imagine how anything else could happen but the psychotic breakdown of those systems, which are too criminally insane to face any of the relatively more objective facts about themselves and the physical world that they actually operate within, since the ways those social systems developed was to be based on the maximum possible ENFORCED FRAUDS about themselves, which is euphemistically referred to as "financialization," and which applies to all natural resources, with petroleum currently being the first and foremost example of that.
The only reason why economic bubbles of those magnitudes can be blown, and then pop, are that they were based on ENFORCING FRAUDS. However, by and large, the ruling classes would never admit that, while the people they rule over do not want to admit that, since pretty well their entire world view would have to change, if they did not continue to take for granted that frame of reference whose foundation is based on ENFORCING FRAUDS, which central social facts they continue to manage to never admit nor address.
Human civilization has driven itself so criminally insane, due to social successes being based on ENFORCING FRAUDS, that there appear no ways for it to recover, other than going through psychotic breakdowns, which are extremely unpredictable. (Furthermore, one has to doubt that anything will survive through that, other than some seeds of the current systems based on ENFORCING FRAUDS, which will then, perhaps, recover to become new systems of ENFORCING FRAUDS, which will then continue to be immaculately hypocritical about themselves.)
The basic dilemma continues to be that natural selection always exists, as long as any life exists, and therefore, the death controls are always the central feature, which in the human cases were developed to be done with the most social success through the maximum deceits, which then became the foundation upon which to build a political economy based on the maximum frauds, which was therefore able to deliberately ignore its general environmental ecology, because the crucial core to that was necessarily the human ecology, whose energy systems were developed through the history of warfare to become based on backing up deceits with destruction, which then developed to become an economic system based on ENFORCING FRAUDS, where the most successful people tended to become the best professional liars.
The "price" of petroleum has become an insane, around the world, yo-yo, because the "money" used to "pay" for that is made out of nothing, as ENFORCED FRAUDS. The deeper truths about those processes are things that both the ruling classes, as well as those they rule over, want to continue to deliberately deny and ignore, as much as possible, for as long as possible. Therefore, the history of political and economic games which appeared to have some relative rationality have more and more rapidly become criminally insane games, within which nobody can make any moves which are not merely more criminal insanities!
Why do you think they just passed this bankster derivative waiver in the budget bill. Someone is getting their head handed to them with oil dropping and they want to hand the losses to the taxpayers.............
Molon labe.
Your comment is the first on this story that touches on what is happening in the derivatives markets. This is the big story here. The moves to put the public on the hook coming after the undisclosed derivatives meltdown in the oil markets seem more than coincidental. It would be great to see who lost what in oil futures in the last 3 months.
Yeah AZ, that thought occured to me as well, but I just figured I'm a hopeless cynic.
Hell, the taxpayers arent REALLY on the hook, theyll just chalk it up as another few trillion "owed" to (someone?) who will never be paid. US debt is a joke and anyone who thinks it will ever actually be paid is retarded. Wake me up when they stop EBT, SS, Medicaid, Medicare payments.
Oil down > 2%. CHK up > 2%. algoz gone wild bitchez.
self-reinforcing feedback dynamic is the deflationary spiral taking hold. this is where you must worry that the Fed doesn't understand itself. even before 2008 fed guys like Wayne Angell were saying publically that raising interest rates is not the way to fight inflation. the fed has been surreptiously fighting inflation (all the while it promises a 2% inflation target, but thats a lie, and the employment benchmark was a lie as well)
now they have abandoned one lie, and soon they will abandon the other. (why you must worry a.) the fed doesn't control the market or the economy, they are only following the deflationary tail wind with zero interest rates. they might have RAISED rates in 2008 to reflect market risk, it must have been clear to them that the crash in 2008 cleared up a lot of the derivative mess, that most of the risk had been taken out of the markets, and they could safely manage rates lower, to avoid the deflationary spiral syndrome which happened in the 30's.
all the time you thought they were stimulating the economy, they were pumping money into a black hole that threatens to consume us all.
now Yellen is thumbing through her Fed Reserve Almanac, and it says that this many years after the crash the economy should start to recover. okay, now the fed can raise rates approximate to what the market is telling her. fine, still tracking this deflationary hurricane, and hoping that the worst is over (so we don't raise rates like they did in 37, which allowed the spiral to reassert itself)
(why you must worry b.) this is just the eye of the storm due to structural changes, in employment, malinvestment, and rebuilding the old derivative overhang, we could as they like to say slip back into recession.
on the fiscal side neither party has done anything to deal with the structural problems and considering oil, the problem is the same as it is on the investment side, the us government / military is the buyer of first and last resort. now if there is not enough government demand, oil prices will continue to slide and drag down the other asset classes with them, as oil workers get laid off. (who were they working for, the government and the military?, where is the military? home cooling their heels)
the next potus will have to cancel fracking, if the fed doesn't curtail QE the malinvestment will continue, because NG is the governments secret energy ingredient, they use NG to offset costs. now they need to buy more oil. oddly enough it should help NG but dont expect usg to push infrastructure build out, so private NG distribution companies will do well, very well i think. but its still a deflationary spiral, and the fed will fight it by raising rates. if they raise its why you must worry c.
Lower revenues are pressuring oil-dependent governments such as Russia, Venezuela and Iran, and destabilizing the geopolitical order as weakened oil exporters sink into recession and political turmoil.
What's it been, 3 months since oil really started it's slide? Only really took a dump after Thanksgiving. They're falling apart already? If that's true, I'm gonna need lots more popcorn next year.
WTF? Now IEA says oil demand is falling since price is down. Shouldn't that work the other way around?
Of course this is all very bullish for low end retailers like wall*mart since gas prices posted in fron of the stores tell the sheep to buy more chinese crap but it is going to hurt the high-end retailers. They don't sell gas....
Nobody knows how long it will take for this charade to play out. But I suspect when all is done, our domestic oil supply is going to be more foreign owned.
Given Big Oil are multinationals..
Try charting the RUB vs the SAR (Russian vs Saudi) currencies for the last year, and you get an amazingly close oil-driven correlation: Both are in lockstep.
Thus, the Saudi budget is hit just as hard, if not harder -- given the Russia does not have all those demanding and pampered mouths to feed that the Saudis do. Plus, the latter has to import just about everything.
Two birds with one war against Russia: More angry neo-con voters in 2016 for the dictatorship and ReadyReserve.
An American, not US subject.
gold has been going through the same, for 2 yrs., as oil is now, saudis running the paper oil, and weak players out of the market, then the price will stablize, then rise, when, how much, and how fast is why depends are hot sellers now.
in my opinion gold has stabilized,(maybe the reason for the limit buys), people are selling stocks not gold to cover, looks as if stocks are the weak commodity now.