This page has been archived and commenting is disabled.
The Utter Craziness Of Monetarism Is On Full Display
Submitted by Jeffrey P. Snider via Alhambra Investment Partners,
Why Can't Oil Be Oil?
For most commentary on the recent and sharp decline in oil prices, there is a serious ceteris paribus to it especially from those that don’t recognize that there are much deeper financial forces. The following is excerpted as an example of the closed system approach, as if there is a world of difference that can allow “decoupling.”
What matters is what’s causing prices to decline: an increase in productivity or a decline in economic activity. Only in the second case is there a serious danger that the Federal Reserve should try to respond to. Similarly, rising prices can be a sign that monetary policy is too loose, but can also reflect declines in productivity.
This is a tangential explanation to the second stage of oil price excusing. Some will “predict” that though demand has fallen, “unexpectedly” of course, it will not remain so weak for so long. This alternate but associated justification is that foreign demand, and only in discrete locales that are unrelated, is to blame as the US surges forward unobstructed (5% GDP and all that).
There are, however, two wrinkles worth noting. One is that although the fall in the price of oil doesn’t appear to reflect any weakness in the U.S. economy, weakness abroad may be a factor. But that’s a reason to loosen money elsewhere, not in the U.S. A second is that there is a reasonable argument that monetary policy in the U.S. has been a little too tight even leaving aside this price decline. If that’s correct, then some added pressure for loosening, even if that pressure is based on a mistaken worry, might not be such a bad thing.
And thus the utter craziness of monetarism is on full display, in that after arguing that declining oil prices are good for American consumers, they are also suggesting that monetary policy is “too tight”, and thus oil prices are contradictorily “too low.” That betrays the central aspect of this orthodox embracing of lower energy prices as nothing more than a shaky rationalization – they still are not comfortable with low prices but accept them lest anyone get worried about what they really suggest. Orthodox monetary theory is, when stripped of its academic trappings, dedicated to high oil prices and low wages.
Ultimately, oil prices do not operate in a vacuum, nor even a financial one. If oil prices were on their own declining as they have, this argument might have more merit (stress and overstress “might”). However, these closed-system masters, as they fancy, never address financial reality. Oil prices signal economic weakness and bond markets second that. The US bond market is not purely dedicated to Russian economic foundering or Brazilian inflation, but rather growing quite concerned in historical context of US economic cycles.
The yield curve itself has been shifted upward by the late 1980’s intrusion of interest rate targeting – where the Federal Reserve has obliterated the meaningful restrictions on private “money supply” (NOTE: we still do not know specifically when the FOMC switched to a pure interest rate target of the federal funds rate, but it certainly was evident before and heading into the 1990-91 recession). That is the problem with these closed system adherents because saying something like, “that’s a reason to loosen money elsewhere, not in the U.S.” is wholly unlike financial reality.
The credit markets are in tandem with oil prices, not on some distant shore but these United States. Despite the artificial and upward shift in the yield curve, the relative relationship of its shape has been a near-universal signal of contractionary tendencies. In that altered respect, the current flattening approaches what might fairly be called equivalency with past episodes.
The commonality is, of course, the modern “dollar” and its eurodollar aspects. The global exchange standard altered in the late 1960’s and then again in the 1980’s. There is no coincidence that bubbles, global credit bubbles, started under the latter as eurodollars began to “finance” not just trade but speculation. That is the nature of this artificially steepened yield curve – and its opposite position is that undoing.
Ambrose Evans-Pritchard, writing in The Telegraph in the UK, at least recognizes that the world is united under a “dollar” system, but then dismisses that very linkage.
The world’s financial system is on a dollar standard, not a euro standard. Global loans are in dollars. The US Treasury bond is the benchmarks for global credit markets, not the German Bund. Contracts and derivatives are priced off dollar instruments.
Bank of America says the combined monetary stimulus from Europe and Japan can offset only 30pc of the lost stimulus from the US. If you think that the sheer force of the US recovery will lift the whole global economy regardless of fading monetary stimulus, none of this may matter.
My own view is that a world awash with excess capacity cannot withstand a fully-fledged dollar tightening shock. The effects will ricochet back into the US eventually, but that could be a long time hence, and this in a sense is the problem for asset markets.
That’s precisely the point, as “long time hence” has never been such with the yield curve drawing as it is now. Oil and credit are not pricing in some far distant reverberation backward into the US, but one that is far more local than anyone would like to admit (GDP is 5%!!!). This was reinforced, strongly, just today by more “unexpected” “supply gluts”:
Global oil markets sold off again on Wednesday after a one-day pause as large build in U.S. crude stockpiles surprised investors who had expected a draw, adding to worries about a supply glut that has battered prices for six months.
That would seem to suggest that energy usage in the US is actually more consistent with credit market indications than GDP. “Tight dollars” is a bank balance sheet reflection of global risk that is not sliced by location, but rather a universal expression. We are one economy and it is feeling Japanese.
* * *
Everything is else is WRONG, and stocks are right?
- 16870 reads
- Printer-friendly version
- Send to friend
- advertisements -






Banks are holding the bad end of the oil derivatives. Oil is going down and American taxpayers are on the hook. Give me $1.00 gas and a front row at the shit show with my organic popcorn. Btw, bought a 500 gallon gas tank yesterday....
my neighbor's step-mother makes $68 hourly on the laptop . She has been out of work for 10 months but last month her pay check was $15196 just working on the laptop for a few hours. try here... www.works3.com
My sister makes more than that...but she's an engineer...tell your neighbor's mom to get into MIT or Stanford and do 6 years. She won't have to work on her laptop so much.
Barry, stop bugging us and get back to your golf.
I strongly suspect that while some banks are holding, the majority of them are with Pension funds.... which are insured by joe taxpayer..... Calpers year end will be interesting.
Year end? Just wait until earnings report next quarter.
Gasoline works, but diesel is much safer to store and lasts a long, long time.
Diesel tastes better too.
I guess you don't get out much... diesel prices have hardly dropped. Nothing like gas price drops.
1 year storage for diesel. enclosed.
This link explains how changes in Lincoln ammendment for Bail-Ins of Oil Derivitives puts the tapayer on the hook -again.
http://truth-out.org/news/item/28207-russian-roulette-taxpayers-could-be...
The power relationship is private bank money, and their central bank apparatus working with and over government.
In the U.S. several groups work in tandem: 1) Extraction Industry (Oil, Minerals, Power). Power is Extraction because it consumes things extracted from Earth. 2) Agribusiness and corporate farming 3) Private Money Power and Zionism Zionism is included along with Israel lobby, because private money power controls the credit of country through various linkages, ultimately pyramiding to Bank of International Settlements (BIS).
Derivitives are bets, and credit money itself is a bet against the future. It comes into being with hypothecation, and disappears as debtors grab it back in future, to then have it disappear. If the disappear rate is too high, then that causes instability, which makes it a good candidate for insurance.
Therefore Insurance should be grouped with private Money Powers.
Note that none of these players are voters. Real voters have almost no voice. Instead these power groups vote and influence civil government through bribes and other means. Note in linked article how Obama is doing the bidding of his handlers.
Ambrose Evans-Pritchard is as much of a fuckwit as the rest of them. If GDP includes Government spending, then make EVERYONE UNemployed and send government spending up through the roof (errm. MORE than it already is) and GDP will be positive. If there is ANY inflation then in dollar terms GDP will appear go up. Include such items (stupidities) as R&D, drugs and prostitution (as in Europe - how does one actually MEASURE these?) and GDP will go UP. Meanwhile, in the REAL world, people cannot save and if they can the savings rate is miniscule so they become worse off over time.
It's not rocket science but these fuckwits cannot see beyond the end of their noses.
DavidC
Yes, including drugs and prostitution in EU member states GDP's sure is paying off: it has now officially enabled the UK economy to surpass France.
What baffles me, is that people read such things without giving it a second thought: within the EU we are now using illegal practices not only to continue to lie about the health of our economies, but even to boast that we are surpassing those of other member states.
We are truly sheeple for not challenging such utter nonsense.
Next up a new reality television show entitled "The Ultimate Whore."
(With a feeder show entitled Goin on the Down Low.)
All for GDP improvement of course...
what gobbleygook.
going to go out on a limb here, Oil sees 70 before it sees 50.......Nothing gets cut in half like that without a dead cat bounce....
snap!
The first rule of Fight Club should be: No posting spam about how much your sister/etc makes working part time.
or at least post interesting pictures.
Do not talk about Fight Club.
Teacher. I have a question. No not that.
When the financial system is based on FRAUD why consider such nonsense? First arrest the fraudsters imprison them and stop the fraud. Once the rule of law has been re-established and facts become known then maybe articles like this may mean something.
"One is that although the fall in the price of oil doesn’t appear to reflect any weakness in the U.S. economy"
The only thing that says the US economy is not weak is the GDP. Profit growth is down in the low single digits for the S&P 500.
For the overall economy, after taxes, corporate profits are down year over year.And nearly every other piece of data either shows weakness or confusing numbers.
There is no clearcut sign that things are improving at all.
Quit ignoring the obvious.
It's the economy, stupid!
but...5%...
When is the XAU/XAG monkeyhammering scheduled to begin?
Leave the 'X' out of your statement and your worries will lessen.
Selling the X to buy the physical is just too damn easy...
All the charts and sound reasoning in the world cannot answer questions concerning this or any other manipulated market.
You have to goto the manipulators to get the answers and I'll bet A: they'll be very hard to find and B: won't have too many answers.
I think what you are seeing is a massive fraud in the reported numbers somewhere, and my money is on the GDP being the source. It need not even be intentional, but with unorthodox methods being employed, you are seeing a huge gap open up in nominal output vs real physical output at the economic level. At some point, only the real matters.
Russia is in Crisis and Putin is Fighting to Survive It
REUTERS/Vasily Maximov
The risk of a financial crisis in Russia has risen because of a precipitous fall in the rouble in mid-December. Recession, falling living standards and rising economic uncertainty look set to be key sources of political instability over the near term.
But despite differences between the economic and security elite, it seems unlikely that financial instability, at its current level, will be enough to produce a political revolution in Russia similar to the one that undid the Yanukovych government in Ukraine in February 2014. However, the desire to avoid such an outcome will continue to inform the actions of the Kremlin at home and abroad.
And even if a full-blown financial crisis were to send the economy into a slump, bringing Vladimir Putin, the president, down with it, security hardliners look better placed to choose his successor than either the economic liberals or a vibrant popular protest movement that has yet to emerge.
Russia finds itself in the middle of a multi-dimensional crisis. Even before the bust-up with the West over Ukraine, Russia's economy had been running into trouble, growing more slowly each year since 2011, owing to the government's failure to undertake structural reforms crucial for innovation and investment.
In the second half of 2014 structural deficiencies have been exposed by a precipitous drop in global oil prices, Russia's main source of export revenue. The rouble followed the oil price down until mid-December, when the Russian currency plummeted owing to a loss of confidence in the exchange-rate policy of the Russian Central Bank (RCB).
In turn, this has exacerbated the debt burden of foreign-currency loans taken out by Russian firms. But because Russia's military actions against Ukraine have led to the imposition of Western economic sanctions, Russia is cut off from Western capital markets.
The rouble edged lower against the dollar on Thursday, with traders saying President Vladimir Putin had offered few concrete measures at his end-of-year news conference to pull Russia out of a crisis.
Riding high
So far, however, Mr Putin remains popular. Before Russia's annexation of Crimea in March, his ratings touched a low point; afterwards, they soared. In early December opinion polls indicated 85% approval for Mr Putin's work as president, with more than 62% of Russians expressing trust in him.
Among the next most trusted politicians, four are members of the government, and one, Vladimir Zhirinovsky, is a deputy in the State Duma (the lower house of parliament) who supports Mr Putin on most issues. Their ratings are in single digits, in line with a generally low level of trust in government overall.
In addition, Mr Putin has spent years building a structure of power that minimises the opportunities, and raises the risks, of challenging his authority. Federal districts-large administrative divisions that comprise several provinces-are controlled by a presidential representative, each with their own dedicated administrative staff. Moreover, Mr Putin's administration also controls the key companies that generate export revenue, either because the state owns a majority stake in them or because their top managers are appointed on the basis of loyalty to Mr Putin.
Some of these managers share a similar background to Mr Putin in the Soviet-era state security service. Now, both Western sanctions and the rouble crisis have increased the dependence of key firms on state support, pushing them closer to Mr Putin's administration. In control of central and regional bureaucracies and with his popularity rating still high, the chances of Mr Putin's rule being brought to an end by either mass anti-government protests or through a "palace coup" currently look slim.
Amid high energy income, competitiveness was neglected
During his almost decade and a half as president (a post that he has held three times) and prime minister (a post that he has held twice), Mr Putin's political popularity has been underwritten by Russia's continued economic growth, as well as by the semblance of a return to order after the lawless 1990s.
Real GDP per head doubled between 2000 and 2013. However, this was explained more by the overlap of Mr Putin's rule with a rise in global oil prices than by the success of the government's development policies.
The Russian economy is made up of a combination of state-controlled enterprises, companies owned by politically connected businessmen and genuine privately-owned firms. This economic structure conditions the kinds of policies that are politically feasible.
Rapid growth in oil and gas revenue discouraged reforms of the real sector. Government finances, supported by a current-account surplus, as well as growing gold and foreign-exchange reserves, remained healthy. Beneath the surface, however, it has become more difficult for agriculture and manufacturing to compete with imports made cheaper by the rising rouble, itself lifted by rising hard-currency earnings.
At the same time, an economy dominated by companies run by the state or by politically linked oligarchs has not been an attractive destination for capital investment, outside of the high-risk, high-reward energy sector. But whereas Russia's current account has stayed in surplus, its capital account has recorded mostly deficits, sometimes large, throughout the past decade. On paper, lower oil prices might be just the incentive required to drive economic reform and diversification.
However, this will have been made much harder by the deterrence of investors, perhaps for some time, owing to the apparently arbitrary and unpredictable behaviour of the Russian leadership, at home and abroad, over the past year.
Perhaps aware of his own limitations, Mr Putin has delegated the administration of Russia's finances to experts with liberal economic credentials. In contrast, key businesses in the real sector are largely administered by officials with more statist views. Ahead of the latest jolt to the rouble, Russia's public finances looked solid-with debts low and reserves high.
The fall in the rouble earlier in 2014 was in large part because of investor perception of the economy's underlying structural problems, long in gestation. This time, a misstep in the timing of monetary policy adjustment in relation to fast-changing external conditions greatly accelerated the pace of depreciation, exacerbating Russia's already worsening terms of trade (the cost of imports in terms of exports).
As the contradictions in the economy unwind, for the general population a sharp boost to inflation will be felt in early 2015.
In part, the overthrow of the Yanukovych government has given Mr Putin an opportunity to distract attention from the problems beginning to emerge from his neglect of the economy. Linked to this, the drop in the rouble and the approaching recession are officially explained as attempts by Western powers to force Russia to halt support for anti-government militias in the east of Ukraine.
Mr Putin presents the current stand-off with the EU and the US as yet another step by the West designed to humiliate Russia and to cut it down to size on the international stage. To this end, Russians have been admonished to mobilise for the country's defence, and the expected fall in living standards is portrayed as a necessary sacrifice to protect Russia's independence.
For now, people have been busy exchanging roubles for consumer durables, lest the rouble fall further. So far, there are few signs of discontent with the president's explanations of the causes of the economic crisis.
Could be worse
Even if most of the spillover from the rouble crisis is averted-as we think it will be-in the coming year government efforts will be directed at minimising the effect of recession on the population. Mr Putin will also need to mediate between two different groups in his entourage-the liberal financial managers, and hardliners in the security apparatus and the real sector, who are broadly inclined to more nationalist and state-centred positions.
The more liberal technocratic group has the best chance of keeping the country's finances under control-and the reputation of Elvira Nabiullina, the governor of the RCB, may even be enhanced if the rise in the interest rates in mid-December stabilises the rouble for long enough to maintain reserves until the oil price picks up (which we expect to happen in the first half of 2015).
On the one hand, Mr Putin will need Ms Nabiullina's kind of expertise during the downturn-which, at his annual press conference on December 18th, he said would last two years. On the other hand, he will need the hardliners to maintain control over law enforcement, the armed forces and security apparatus, which, among other things, will be needed to suppress the insurgent and terrorist activity in the Caucasus and keep the lid on any signs of a resurgence in the democratic opposition in Moscow.
The hardliners would be more amenable to restoring Soviet-style controls over the economy and to imposing currency controls. But Mr Putin seems to realise that this would not be sustainable, and his economic experts are doing their best to keep the country's economic rules compatible with international financial markets.
Therefore, while steering clear of currency controls if at all possible, he is likely to placate hardliners by expanding weapons procurement for the armed forces and continuing to foment low-level military action in the Donbas, thereby channelling the energies of Russian nationalists who otherwise might have forced him to make counterproductive economic policy choices.
As long as a financial meltdown and economic slump are avoided, Mr Putin could succeed in this balancing act-preventing a build-up of economic grievances, as well as intra-elite rivalry, that might otherwise threaten his administration.
If not, the most likely of the other possible outcomes could be a defeat of any popular protests and the economic elite by the hardliners, possibly also involving the replacement of Mr Putin. In politics, this would mean a still tighter crackdown than has been seen already in 2014, and the administration of more populist economic policies by centralised bureaucracy.
hey bob hows about spinning your own views not jewreutuers stop clogging up the fucking screen and leave a link (not that I'll read the shit)
He's just too stupid for that...
Stop whining and just scroll through it. Pay him no attention.
He pays by the word for the privilege of spamming us.
What a load of rubbish...another example of delusion from the Western media - just as delusional as the reporting of the fantastic (imaginary) growth in the US economy.
Prediction: Vlad will outlast Obama, Cameron..
Meanwhile, you can register your displeasure at your government's shameless aggression and propagandising here: www.dearputin.com
Is it me or do all these damn charts look like the outcome of a politicians polygraph.
Bank stress test polygraph always passed to receive more bailout money.
AA-12. World's deadliest shotgun!
Add a suppressor and dragon breath ammo. A banker has no chance to read from the teleprompter on more lies that the financial system is going tits up without a new bailout.. We'll need more good taxpayer money to remove a corrupt speculate dealings on bad Wall Street gambling deals.. winks
I still like AK's and AR's.. If you happen to corner one, use a towel and 12 fresh oranges.
/LOL
Futures up again.
ZH'ers are caught between doing what is right for themsleves and what is right for society. The Federal Reserve is destroying America ... but yet we can profit from it.
It takes a principled man to do what is right and NOT profit from the demise.
Well said. This is no more than a fantasy Central Planning football gamble on which NFL football player comes out of the closet to drive media ratings.
BTW: 12 Gauge Dragons Breath , end of video.
i don't feel bad now, people with business, and financial degrees from big colleges, are going around trying to fit a square peg, into the round hole.
put your assets in, what you consider a safe place, take a vacation, or stay home with your family, check the markets twice a day, you pick the times.
if your in charge of other peoples money, i can't see anyone winning or losing in this crap game for awhile, when you start trying to make historical equivulants to todays markets, and any thing in the past, or learned at school, it's time for a break.
there are no markets anymore, but there are still business models, supply and demand, you just can't invest in business models, (ie gold), not knowing if their fed. appoved, or not.
opec has oil, and sand, and at least a dozen countries were drilling more, and more oil daily, i would liked to have been in the room with opec members when the news was broadcast, america will be energy self-sufficient in 2 yrs..
we have a world-wide ression, (slow-down), that means less oil used, saudis seen it's market share disappearing, those dozen other countries were producing enough to take up the slack, (at $90-$100 a barrel), not so much at $60-$70 a barrel.
there is a demand for $60-$70 dollar a barrel oil, and saudis can deliver it, and make money, (the wal-mart of oil), but $60-$70 dollar a barrel, but it won't sustain the saudis lifestyle.
whats going on now with oil will bring back the big question, what causes oil prices to go up in america, shortage of oil, or speculation.
i wouldn't want to be long energy, fake numbers don't buy oil.
BIS, (the fed.), is putting america behind the 8 ball, their squeezing america to fight ww111 for opec lng pipe-lines, not for oil this time, or opec may join the brics, lose, lose for america, but BIS wins if it's war, loses if opec joins the brics, guess which is more likrely to happen.
the author is advocating moar central bank meddling, chicanery, & thievery? i think they've done MOAR THAN ENOUGH DAMAGE ALREADY.
Zero-Hedge
On one side complaining about central bank interferance
on
The other side telling the central banks that they have no choice but to continue the interference and expand on it to stave off collapse for as long as possible ^^...
There is a cure for the monetary madness, the funny munny that is in circulation is more or less just paper and nothing backs it at all.
If you have silver content in the coinage system and it is ninety percent with ten percent copper, the system stabilizes and all the madness comes to a screeching halt.
However, it is more fun to watch the shitshow develop into an even bigger shitshow, it just don't get no better.
Some nitwit called me one day a couple of years ago and wanted me to buy a silver contract at 33. I laughed and said it was going to probably fall to 25, I was right and knew it wouldn't go higher.
Gotta have the physical, have possession, not the paper, it ain't worth shit.
Only one way and one way only out of this madness, sound money principles with silver and gold in the coins AND in circulation. If it isn't that way, you get what is there now, madness.
The labor participation rate is at its lowest since 1978. (That's the jimmy carter era). Yet Wall Street thinks the future looks bright.
The true unemployment rate is North of 10% (just once I'd like a news outlet to explain the difference between the U-3 and U-6). But our GDP is up?
Oil drops (and there's been no 'cause and effect' explanation. Even fracking doesn't explain it) and the Occam's Razor is the global economy is horrid. But I'm told low prices are "bad" for the American consumer. (Lamest explanation was that oil companies would have to lay people off)
A Silver mine in Colorado (that produced 25% of all Silver) suffered a collapse. Good luck getting physical silver. But SIlver prices are down?
I'm no "conspiracy theorist" or Alex Jones disciple, but things just aren't adding up.
The term conspiracy theorist originated when people disbelieved that JFK was shot in the manner that the officials stated. You are either a CT or a willful idiot for the system.
Oil, gas, and energy prices at these levels is deflation, big time, happening right before your eyes. And just like every other meaningful economic event, the Fed never saw it coming. This time there is nothing they can do about it, because, they have already printed more money than anyone needs or wants.
OIL has much further to go to find a bottom but should soon find some temporary support...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
But more importantly, the massive credit bubble will collapse prices of everything for years as government intervention sucks global markets into the deflationary vortex ...
http://www.globaldeflationnews.com/jaguar-inflation-a-laymans-explanatio...
And thus the utter craziness of monetarism is on full display, in that after arguing that declining oil prices are good for American consumers, they are also suggesting that monetary policy is “too tight”, and thus oil prices are contradictorily “too low.”
With a properly managed Medium of Exchange (i.e. unmanaged) there is no such thing as "monetary policy".
Money, the Medium of Exchange (MOE), is trading promises. Traders make trading promises of their own free will. Money allows them to commit to delivery over time and space. Their trades are certified (recorded and monitored). These certificates (money) then circulate as the most widely preferred item of simple barter. They are favored because they are guaranteed to "never" lose their value over time and space; to be "universally accepted by will of the traders ... not by law"; and to be in "free supply" (anyone can make a trading promise any time and any place they like and get it certified).
How can this be?
Well, under proper management, there is always a perfect balance between money supply and demand ... it's the nature of trade. When the trader delivers on his promise, he returns the certificates and they are extinguished. If he fails to deliver as agreed (and a roll over is a failure to deliver as agreed), the certificates remaining in circulation (DEFAULT) are immediately recovered through INTEREST collections. This guarantees zero INFLATION all the time everywhere. The operative relation is: INFLATION = DEFAULT - INTEREST.
Inflation cannot be measured. However, it can be known to be (and guaranteed to be) zero. And that is exactly what traders want inflation to be. They don't want their trading promises made complicated by someone diddling the MOE to target some inflation target (like that idiotic 2% some claim to be desirable). The don't want their MOE diddled to obtain someone's goals for prices, employment, trade balance, economic stimulus, or anything else. A properly managed MOE has "no knobs to turn". It cannot be manipulated. It can not be counterfeited.
Todd Marshall
Plantersville, TX
These CRIMINALS have tweaked themselves in some big trouble!...me thinks
that ball of yarn is loose and all over the place