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Will The Fed Intervene In The Oil Market?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
In a larger sense, the Fed is already intervening in the oil sector via its zero interest rate policy (ZIRP) and its unlimited liquidity for financial speculation.
The problem with financializing a critical sector of the economy is the financialization process transforms it into a systemic risk. The trajectory of every financialized sector is the same: debt and leverage are piled ever higher on a base of collateral that eventually collapses as heightened risk becomes the Monster Id of a crowded trade.
Once the Monster Id burns through the firewalls that were supposed to limit risk, the crowded "safe" trade blows up and the conflagration quickly spreads throughout the financial system.
Every financialized sector thus has the potential to take down the entire financial system.
The mortgage sector is a prime example of this dynamic. The financialization of the mortgage industry created the subprime mortgage firetrap, which inevitably caught fire and threatened to burn down the entire global financial system.
The central bank that encouraged the financialization then has no choice but to intervene to save the system from the toppling dominoes of leverage and risk. Once the mortgage sector was fully financialized--securitized, tranched, packaged into collateralized debt obligations and other derivatives--the implosion of the weakest link (subprime mortgages backed by bogus collateral and liar loans) was baked into the financialization process.
As the systemic dominoes started falling, the Too Big to Fail (TBTF) banks had to be bailed out to the tune of trillions of dollars in guarantees, backstops and loans. As correspondent Mark G. has noted, the debtors are left to suffer the consequences of their risky debt, but the big creditors are saved from the consequences of their bad bets.
This is the essence of moral hazard--risk is disconnected from consequence by central bank intervention. Gains are privatized, losses are socialized, i.e. borne by the taxpayers and savers whose interest has been siphoned to private banks by the central bank.
Now the latest sector to be financialized, oil, has blown up, falling in a parabolic freefall from over $100/barrel to a recent low around $53. And once again, the sector's losses are threatening to undermine sectors with no direct connection to oil.
When central banks feign disinterest in intervention, it can be taken as a sign that they're either planning intervention or are already actively intervening via proxies.Central banks play two hands at all times: their propaganda campaign of talking up their intervention ("whatever it takes," etc.) and their sustained opaque interventions via proxies.
When it behooves central banks to appear actively engaged in saving stock and bond markets from melting down, their interventions are publicly flogged on a weekly or even daily basis-- for example, the QE campaigns 1,2 and 3.
When their interventions exceed their mandate for outright manipulation of markets--for example, buying future contracts in the S&P 500 within the last 15 minutes of trading to push the markets into the green--it's all kept far from the public eye, hidden behind proxies.
Given the systemic risks arising from the meltdown of oil, why would the Federal Reserve let this latest implosion spread to the entire over-leveraged system? After six years of continual intervention in financial markets, why would the Fed suddenly cease its labors to keep imploding sectors from destabilizing the rest of the rickety structure?
It beggars belief that the Fed would stand by doing nothing, while the financial dominoes from oil's 50% decline start toppling.
The question isn't, why would the Fed intervene in the oil market? The question is, why wouldn't the Fed intervene in the oil market?
The Fed, via proxies, might buy oil futures contracts to prop up the collateral, and (again through proxies) it might even start buying up impaired high-risk bonds based on oil.
In a larger sense, the Fed is already intervening in the oil sector via its zero interest rate policy (ZIRP) and its unlimited liquidity for financial speculation.Should the Fed turn the dial of intervention up by buying futures and oil-based bonds, it is not a new policy--it is simply a matter of degree. The intervention has been going on in every sector since 2008. The implosion of the oil sector is simply the latest outbreak of consequence following cause.
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Do they have a choice?
Hellllll, GDP made up to 5%..... Why not this black shit too.
Beam me up Scotty.... Ain't no one fucking intelligent down here.
I said it a couple weeks ago....
Get to work Mr. Yellen!
Hold up! What if the Fed was part of the orchestration slamming oil to maintain USD strength and "isolate" Russia? When has any other nation in the last 30 years EVER been left untouched when they chose to sell oil in something other than USD?
My gut is that the Fed is a part of this financial war to protect itself.
This:
McCain's 'Too Many Thanks'
"We should thank Saudi Arabia, which allowed the price of a barrel of oil to fall to the point that it significantly affected the Russian president, Vladimir Putin, [and] the [Russian] economy," McCain said.
http://www.arabworld360.info/2014/12/mccains-many-thanks.html
Yeah - in many ways I respect McCain - but he may end up getting millions of people killed.
he served and was tortured? is that worthy of respect? all of his nefarious deed since get pass? does not compute.
The original Manchurian candidate.
d'soivice is d'tortchah...he ca stop any time, now be good...
Of course they are dude. Wait till this fucking santa rally is over and see what "they" do to oil. THAT will tell everything. And mother fucker, I am tired of this stupid ass santa rally. I need the volatility to come back so I can make some money. This fluff upwards is boring. Crash oil to the 40's, give us a massive panic in oil stocks again to new lows though(shales), have the vix skyrocket, lets get the world markets to crash, lets get some fucking action going on boys and girls. This shit is BORING me to death.
ell, it looks like this administration will get what it wants...ultimately it will be everyone's employer, printing money for paychecks as they go. First toxic mortgages, then ZIRP to pump up assets and now pumping up oil? Where will it all end...well we know that...when is it going to hit us all in the mouth?
The Oligarchs already control the oil market, the price is where they want it to be.
My theory is they are using this oil price crash as a fuse to finally blow up the quadrillion dollar derivatives complex.
I mean why else did they just put the taxpayers on the hook for derivatives in that Cromnibus budget they just passed. Probably means they are ready to blow it up.
I think they're going to let the price stay where it's at or maybe make it even lower.
that's for later, right now, economic war with russia is the current front
"The question isn't, why would the Fed intervene in the oil market? The question is, why wouldn't the Fed intervene in the oil market?"
Because unlike stocks and the "wealth effect", cheap gasoline percolates through the entire real economy and is good for it.
The FED won't support the price of oil. They will selectively bail out parties negatively effected by the price drop e.g. any large bank.
Others will be left to the mercy of the "free market".
That's pretty much how it's going but don't bet on them being very successful, too many other variables in play.
Others will be left to the mercy of the "free market".
Exactly.
Other being anyone in a Republican oil state or Russia.So, bye bye cheap gas again? That was short lived. Too bad for you Mr. Middle Class 'Merican.
I guess oil was NEVER high because of shortage. Only because of manipulation.
Ask T Boone Pickens. He's the expert, not you.
Good old T Boone, there are places in Texas he won't go because of previous screwings. Think of him as a energy Carl Icann.
What market don't they intervene in?
https://www.youtube.com/watch?v=V0GDcA-gqY4
Yes, at the bank level. Per S.O.P.
Pay $100+ a barrel for all existing TBTF contracts, socialize the losses...
The Fed and its proxies have already intervened to knock down oil prices in a full spectrum war against Russia and Putin with Venezuela and Iran as additional victims. The Saudis forcing oil prices down to $10 a barrel in 1986 caused the collapse of the USSR. Why will the Fed intervene to support oil prices now and save Russia?
The Oil Coup US-Saudi Subterfuge Send Stocks and Credit Reeling
“John Kerry, the US Secretary of State, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.” (Stakes are high as US plays the oil card against Iran and Russia, Larry Eliot, Guardian)
U.S. powerbrokers have put the country at risk of another financial crisis to intensify their economic war on Moscow and to move ahead with their plan to “pivot to Asia”.
Here’s what’s happening: Washington has persuaded the Saudis to flood the market with oil to push down prices, decimate Russia’s economy, and reduce Moscow’s resistance to further NATO encirclement and the spreading of US military bases across Central Asia. The US-Saudi scheme has slashed oil prices by nearly a half since they hit their peak in June. The sharp decline in prices has burst the bubble in high-yield debt which has increased the turbulence in the credit markets while pushing global equities into a tailspin. Even so, the roiled markets and spreading contagion have not deterred Washington from pursuing its reckless plan, a plan which uses Riyadh’s stooge-regime to prosecute Washington’s global resource war
http://www.globalresearch.ca/the-oil-coup/5420293
Saudi Oil Minister Says Russia Doesn't 'Deserve Market Share'http://www.businessinsider.com/saudi-oil-minister-hints-russia-doesnt-de...
I'm reminded of what the late Michael Ruppert states in the documentary Collapse with respect to the Fed going broke: "Certain things are inevitable right now. FDIC insolvency I will tell you is coming. Insolvency of the Federal Reserve is coming. The Federal Reserve can go bankrupt. T-Bill defaults. We're looking at major bankruptcies, starvation, dislocation, all these things are already on the way. Everything is going to breakdown."
http://olduvai.ca
Stop it. I'm getting all misty.
I pretty much thought Madonna would die and go the fuck away, but like the Fed that nasty whore just keeps hanging on and on and on ...
Sadly Joe Cocker lost his battle to cancer today.
Yea, she found religion, as in a crooked banker running a front organization. Think Bernie Madoff.
http://en.wikipedia.org/wiki/Kabbalah_Centre
The founder, of the modern day movement, was a rabbi turned insurance salesman. Well, sign me up!
'It is not recommended that men masturbate, as the sperm are abandoned souls that become demons. When a woman's insides come into contact with a man's sperm, they are coming into contact with the essence of their energy and are affected by this for several years.[12] The man should not orgasm before the woman, as it injects selfishness into the act of love making.[12] A couple should not engage in sex with the woman positioned above the man, as she is then drawing energies into herself from below, instead of above.[12] The most Light is derived from sex that occurs early Saturday morning.[12]'
Why doesn't .gov do a QE for oil and start filling up the strategic reserve at these low prices? Hell if Bush liked it at $140, El Presidente Zero should love it at $55
Alas, SPRO is almost full. See http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-res...
There's still room for 36 million barrels, and with a little creativity I'm sure they can come up with some other options for storage.... Oh never mind, I just associated creativity with .gov. My bad.
And yet they don't. Why?
because that would be something done for the people and the country as opposed to the leash handlers
Would it be possible for a group of folks to start a class-action against the Fed?
I don't see why it couldn't happen. They aren't a 'government agency', they're a private bank that just works for the government.
What they are doing is so harmful to this country, the hell with auditing them. They need to be sued and put out of business.
In fact, why couldn't 'the people' start class action lawsuits against government for violating their Constitutional mandates? What IS the legal recourse against bad government? The Constitution says we the people CAN get rid of a bad government...so how are we to do it? I'd prefer to skip all that "riots and revolution" thing, and just use those remedies we have available...
What ARE they? If "the people" have the right to get rid of bad government, how do the exercise that right?
"The Constitution says we the people CAN get rid of a bad government"
Nope.
That was the Declaration of Independence.
Ooops, my bad...I got caught up in the moment.
there is no gov, there is no country and there is no constitution.........its all gone.......its just a PONZI and everything you see in the news is an attempt(s) to maintain said ponzi for just a little longer
the exponential function is coming home to roost........
Keep your savings outside the reach of their puppets in government. This means hard assets(even real estate can be taxed away by gov). That's why metals were written into the Constitution.
Someone has been heavily defending the $54/55 handle. Not sure who,it is...but they have some serious $ to chuck around.
Christmas Story-Fa ra ra
Without higher oil prices, America cannot pay their interest bearing coupon bill.
Firstly, not being government companies, there is no 'America' there.
Secondly, there is no coupon.... That is what ZIRP MEANS... ZERO INTEREST.
In the 1980s, which everyone is comparing this oil environment to, there were very high interest rates. Oil Rig companies had to be profitable quick, or bust. And they busted.
Despie the comparisons, that is why today is not like the early 1980's. ZIRP.
If they borrow the money, and haven't spent it, they can simply give it back. If they borrow the money and have spent it, then they can give MOST of it back...or they can borrow more to make payments for a few months.
Interest rates in 1980 were 20%. The lowest rate during the last oil boom was 8% interest.
Today the rate is 0%.
This is not at all the same situation as the 1980s.
ZIRP loans have a negative interest rate courtesy of inflation.
What other projects might be unprofitable when the worm turns?
The answer to that question is why the Fed cannot really raise rates other than as a temporary psychological measure.
indexes are social mood, cheaper oil is good for social mood - yellen won't touch oil
Fed saw a bubble forming and like any thumb sucking juvenial delinquent could not resist blowing it up bigger and bigger because that is what they do.
Question is will they pass the losses on to the public? Actually I guess thats not really a question at all is it?
Everybody focused intently on oil as a food fight is about to erupt. South American exports of agricultural commodities to the US has another "buyer". Ukraine the "bread basket of europe" is in dissarray. One can live without oil but food is somewhat neccessary. Argentina is going to stick it to western banks and the IMF very shortly.
Looks like I might make a profit selling my garden produce to the local grocery store.
If you check deep enough you will find a law against that. I sure a swat teem will meet you on your way to the store.
The un-fed monster squid is everywhere in everything financial. Banksters run amock!
Soon the word quadrillion will come into vouge. Trillion will be put out to pasture.
Just think how swell things will be then!
Volcker blasts delay in banks' compliance
Is there one market the FED don't interfer ?
We have no choice Batman, we are the Global Growth Leader, we must keep printing the growth or we lose our status as the printer of last resort.
We will never know. They won't open their books.
I'm 'confruzed'...
I thought the low oil price was a manipulation Ketchup Kerry worked out with the Saudis to tweak the nose of Putin.
But the instability effect of low oil on the stock market means that Janet the Ponzi Munchkin must get her lackeys to buy oil futures so the price won't continue to fall..
So has Putin's nose now been tweaked 'enough'?
This is all bullshit. Oil will resume down once xmas is over.
Why don't they fill the Strategic Oil Reserve at these prices instead of when it's $110 a bbl?
Little by little they'll buy up all the natural resources on the cheap with printed pieces of paper that cost them nothing to create. That's the plan. The whores of Babylon are almost ready to drop the hammer.
AUDIT THE FED..!!!!!!!!!!!!!
I would cut off my pinky to see what shenanigans they've been pulling to try to keep the titanic from sinking....
WHy would the Fed intervene when this is obviously US policy?