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Why The Great Petrodollar Unwind Could Be $2.5 Trillion Larger Than Anyone Thinks

Tyler Durden's picture




 

Last weekend, we explained why it really all comes down to the death of the petrodollar. 

China’s transition to a new currency regime was supposed to represent a move towards a greater role for the market in determining the exchange rate for the yuan. That’s not exactly what happened. As BNP’s Mole Hau hilariously described it last week, "whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term." Of course a reduced role for the market means a greater role for the PBoC and that, in turn, means FX reserve liquidation or, more simply, the sale of US Treasurys on a massive scale. 

The liquidation of hundreds of billions in US paper made national headlines this week, as the world suddenly became aware of what it actually means when countries begin to draw down their FX reserves. But in order to truly comprehend what’s going on here, one needs to look at China’s UST liquidation in the context of the epochal shift that began to unfold 10 months ago. When it became clear late last year that Saudi Arabia was determined to use crude prices to bankrupt US shale producers and secure other "ancillary diplomatic benefits" (think leverage over Russia), it ushered in a new era for producing nations. Suddenly, the flow of petrodollars began to dry up as prices plummeted. These were dollars that for years had been recycled into USD assets in a virtuous loop for everyone involved. The demise of that system meant that the flow of exported petrodollar capital (i.e. USD recycling) suddenly turned negative for the first time in decades, as countries like Saudi Arabia looked to their stash of FX reserves to shore up their finances in the face of plunging crude. Of course the sustained downturn in oil prices did nothing to help the commodities complex more broadly and as commodity currencies plunged, the yuan’s dollar peg meant China’s export-driven economy was becoming less and less competitive. Cue the devaluation and subsequent FX market interventions.

In short, China’s FX management means that Beijing has joined the global USD asset liquidation party which was already gathering pace thanks to the unwind of the petrodollar system. To understand the implications, consider what BofAML said back in January:

During the oil-boom era, oil-exporters used oil earnings to finance imports of goods and services, and channeled a portion of surplus savings into foreign assets. ‘Petrodollar’ recycling has in turn helped boost global demand, liquidity and asset prices. With the current oil price rout, external and fiscal balances of oil exporters are undermined, and the threat of lower imports and repatriation of foreign assets is cause for concern.


Recycling of Asia-dollars might partly replace the recycling of petrodollars.  Asian sovereign wealth funds ($2.8tn) account for about 39% of total sovereign wealth funds, and will likely see their size increase at a faster clip. Sovereign wealth funds of China (CIC & SAFE), Hong Kong (HKMA), Singapore (GIC & Temasek) and Korea (KIC) rank in the Top-15 globally

Yes, the "recycling of Asia-dollars might partly replace the recycling of petrodollars." Unless of course a large Asian country is suddenly forced to become a seller of USD assets and on a massive scale. In that case, not only would the recycling of Asian-dollars not replace petrodollar recycling, but the "Eastern liquidation" (so to speak) would simply add fuel to the fire - and a lot of it. That’s precisely the dynamic that’s about to play out. 

A careful reading of the above from BofA also seems to suggest is that looking strictly at official FX reserves might underestimate the potential size of the petrodollar effect. Sure enough, a quick check across sellside desks turns up a Credit Suisse note on the "secular downtrend in EM reserves" which the bank says could easily be understated by focusing on official reserves. 

First, note the big picture trends (especially Exhibit 2):

And further, here’s why the scope of the unwind could be materially underestimated.

Taken into context, the year-to-date fall in EM reserves accounts for only 2% of the total stock of EM reserves. However, the change in the behavior of EM central banks from persistent buyers to now sellers of reserve assets carries important implications. Importantly, official reserves will likely underestimate the full scale of the reversal of oil exporters’ “petrodollar” accumulation.

 

Crucially, for oil exporting nations, central bank official reserves likely underestimate the full scale of the reversal of oil exporters’ “petrodollar” accumulation. This is because a substantial part of their oil proceeds has previously been placed in sovereign wealth funds (SWFs), which are not reported as FX reserves (with the notable exception of Russia, where they are counted as FX reserves).

  • Currently, oil exporting countries hold about $1.7trn of official reserves but as much as $4.3trn in SWF assets.
  • In the 2009-2014 period, oil exporters accumulated about $0.5trn in official reserves but as much as $1.8trn of SWF assets.

Now that the tide has turned, it is likely that not only official reserves drop but that SWF asset accumulation slows to nil or even reverses. SWF selling may be a slower process as assets tend to be less liquid, but the opportunity might still be taken to repatriate some investments, for instance to boost domestic rather than foreign infrastructure projects. 

 

In other words, looking at the total amount of official reserves for oil exporters understates the potential for petrodollar draw downs by around $2.5 trillion. Now obviously, it's unlikely that exporters will exhaust the entirety of their SWFs. Having said that, the fact that EM FX reserve accumulation turned negative for the first time in history during Q2 underscores how quickly the tide can turn and how sharp reversals can be. If one fails to at least consider the SWF angle then the effect is to underestimate the worst case scenario by $2.5 trillion, and if 2008 taught us anything, it's that failing to understand just how bad things can get leaves everyone unprepared for the fallout in the event the situation actually does deteriorate meaningfully. 

So that's the big picture. In other words, the above is a discussion of the pressure on accumulated petrodollar investments and is an attempt to show that the pool of assets that could, in a pinch, be sold off to finance things like massive budget deficits (Saudi Arabia, for instance, is staring down a fiscal deficit that amounts to 20% of GDP) is likely being underestimated by those who narrowly focus on official reserves. Switching gears briefly to consider what $50 crude means for the flow of petrodollars (i.e. what's coming in), RBS' Alberto Gallo has the numbers:

If petroleum prices continue in to year end at their current YtD average ($52), this would represent a 60% decline in Petrodollar generated in 2015 vs between 2011 and 2014. Assuming that 30% of gross Petrodollars generated per year are invested in financial markets, this would imply $288bn ready for investments in 2015 vs a $726bn average between 2011 and 2014. Lower purchasing power from oil-exporting countries may in turn reduce demand for $-denominated fixed income assets, including $ IG and $ HY. US IG and HY firms have issued $918bn and $220bn YtD, which in total marks a record-high vs past years. 

 

 

And while all of this may seem complex, it's actually quite simple: less petrodollars coming in without a commensurate reduction in what's going out means the difference has to be made up somewhere and that somewhere is in the sale of USD reserve assets which are prone to being understated if one looks only at official FX reserves. Contrast this with the status quo which for years has been more petrodollars coming in than what's going out (in terms of expenditures) with the balance being reinvested in USD assets.

Simplifying even further: the virtuous circle (for the dollar and for USD assets) has not only been broken, but it's now starting to reverse itself and the potential scope of that reversal must take into account SWF assets. 

Where we go from here is an open question, but what's clear from the above is that between China's FX reserve drawdowns in defense of the yuan and the dramatic decrease in petrodollar flow, the self-feeding loop that's sustained the dollar and propped up USD assets is now definitively broken and we are only beginning to understand the consequences. 

 

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Sat, 08/29/2015 - 18:14 | 6485610 JustObserving
JustObserving's picture

Obama's plan to attack Putin by crashing oil prices is backfiring.  But then Obama has failed at everything but killing brown people and defending the NSA/CIA infinte spying on the American people and signing NDAA.

Forward

Think about how the Obama administration sees the state of the world. It wants Tehran to come to heel over its nuclear programme. It wants Vladimir Putin to back off in eastern Ukraine. But after recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground. Instead, with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with.

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.

http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...

Sat, 08/29/2015 - 18:15 | 6485619 CaptainAmerika
CaptainAmerika's picture

An empire founded by war has to maintain itself by war
 http://www.philiacband.com/propaganda.html

Sat, 08/29/2015 - 18:21 | 6485642 johngaltfla
johngaltfla's picture

Nicely done Tyler. And the funny part is all the nations stupid enough to buy and peg reserves to the USD which will get destroyed in the process. When Singapore and Hong Kong de-peg, it is over boys and girls.

Sat, 08/29/2015 - 18:37 | 6485689 Slave
Slave's picture

Only when the Chosens are done buying up US shale producers, will oil return to the new normal.

Sun, 08/30/2015 - 00:11 | 6486433 pretty bird
pretty bird's picture

Deflation, deflation, deflation.  The petro-dolla is here to stay.  Learn it, live it, love it.

Sun, 08/30/2015 - 09:52 | 6486934 Perimetr
Perimetr's picture

Temporary deflation, due to a loss in liquidity, which causes the Central banks to send an even larger tidal wave of electronic fiat currency to "fix" it

Hyperinflation follows, the dollar self-destructs, Treasury notes follow, which rapidly devalue while the world abandons the dollar and returns to the gold standard

Leaving the US in the third world.

Remember the jokes about Russia being a "third world country with nukes"?

Shoe soon to be on the other foot . . . only unlike Russia, the US is likely to use them.

Sun, 08/30/2015 - 07:47 | 6486779 Klemens
Klemens's picture

please read this book:

The Globalization of War

https://store.globalresearch.ca/store/the-globalization-of-war-americas-...

the Petro-Dollar is the war against all humans!

 

Sat, 08/29/2015 - 18:25 | 6485654 KnuckleDragger-X
KnuckleDragger-X's picture

Trade value, no trade = no value. The fun part is when the rest of the world tells us to go away and then ignores us......

Sat, 08/29/2015 - 18:35 | 6485663 Son of Captain Nemo
Son of Captain Nemo's picture

And what a fine strategy it is?...

Create massive over capacity to the market by looting the hell out of every other ME country's reserves (which has been non-stop since 9/11) to destroy Russia and Iran's revenue "party" which everyone by now knows was the objective 14 years ago... Trouble is according to the town crier of the Aspen Institute General "Let's start a nuclear war over an airport in the Balkans"... It was only supposed to take 5 years and ended up taking much longer and at a much more exorbitant price than was previously anticipated!

That "overcapacity" can be systematically fucked in a major way... Sabotage to those reserves comes to mind and will be the perfect segue for either side in the event the Anglo-American team decides to get another "wild hair up it's ass"to put it's helmet back on again only this time for the last major ass kicking unlike any they have ever had before!!!

I guess for the truly delusional and criminally insane it's a fun way to end both the party and your life!

Trouble with this behavior is that the rest of the 99% probably don't see it this way?!!!

Sat, 08/29/2015 - 21:31 | 6486092 Jack Burton
Jack Burton's picture

Always good posts Captain Nemo! The Iranians have said that should Israel, the USA or Saudi Arabia participate in an attack on Iran, then Saudi oil fields would see a hail of missiles arrive on refineries, Shipping facilities , key pipeline junctions. Iran has build crusise and ballistic missiles to spread their attack around both low altituded and high altitude. So YES, IF the USA plays it's cards Too hard, Iran will burn the fucking Saudi Oil.

Russia, while still bending over backwards to please the EU, can be counted on to burn some Saudi Oil if need be. Russia has till now been peaceful. But they might just begin to fund their own favorite anti Saudi groups! Then things will change fast.

Sat, 08/29/2015 - 21:44 | 6486137 wrs1
wrs1's picture

All they got to do is hit an electric plant.  Didn't you see whree the Houthi's aimed the Scud?  Saudi electric plants are all oil fired, they will go up like a ball of flames if hit by a scud and then it's lights out and pipelines stopped.

Sun, 08/30/2015 - 02:20 | 6486548 MSimon
MSimon's picture

Russia is peaceful? Really?

Sun, 08/30/2015 - 04:39 | 6486642 Nexus789
Nexus789's picture

US versus Russia country kills - the US wins hands down since the end of WW2.

Sun, 08/30/2015 - 09:52 | 6486938 Stuck on Zero
Stuck on Zero's picture

Russian AK47s have been the biggest killer of all weapons so far.

Sun, 08/30/2015 - 10:35 | 6487056 Zwelgje
Zwelgje's picture

The US has killed three million people during the war against Viet Nam alone. AK's get nowhere close to this lone number.

But I shouldn't even reply because you perfectly know that AK's and its ammo are produced all over the world.

Sat, 08/29/2015 - 20:51 | 6486004 New_Meat
New_Meat's picture

"... But then Obama has failed at everything but killing brown people and defending the NSA/CIA infinte spying..."

You think that the other outcomes are NOT a part of O and his Masters' plans?

Silly child.

- Ned

Sat, 08/29/2015 - 22:08 | 6486173 ZD1
ZD1's picture

"... But then Obama has failed at everything but killing brown people"

WTF? Who the hell are the brown people? If you are referring to Arabs, many of them are as light as Europeans.

The U.S. Census Bureau classifies "White" as a person having origins in any of the original peoples of Europe, the Middle East, or North Africa.

 

http://www.census.gov/topics/population/race/about.html


Sat, 08/29/2015 - 23:12 | 6486328 NoDebt
NoDebt's picture

Northern Europeans and points north = white people.  Brown people are everyone else in that group.  I'd even include Indians (with the dot, not with the feathers) as brown people.

If you think what I just said is racist you've completely missed the point.

Sat, 08/29/2015 - 18:14 | 6485615 Son of Captain Nemo
Son of Captain Nemo's picture

And what fucking difference does another $2.5 trillion make after 8 "hardcore" years of printing?...

Sat, 08/29/2015 - 18:20 | 6485641 buzzsaw99
buzzsaw99's picture

yeah, if it's just a matter of clownbux the maggots don't have a problem

Sat, 08/29/2015 - 18:31 | 6485672 Bluntly Put
Bluntly Put's picture

Just guessing, but it seems to me the fed doesn't print currency directly, they issue credit, reserves at least in loans. I agree when they monetize debt like buying MBS they are essentially printing money, but what if they sold those assets?

So, some of their actions result in hot currency, while other actions are more related to the interdependent network of banks as capital flows related to interest and principle payments on outstanding loans/bonds/debt.

If all those channels get mucked up, then liquidity freezes and you get a credit crisis. If the fed actually just printed money it would retain it's value however much that value might drop over time and depreciation via debasement.

Sat, 08/29/2015 - 18:47 | 6485708 Son of Captain Nemo
Son of Captain Nemo's picture

Good points BP

The problem is we know how derivatives laden those "assets" are, especially with respect to paper vs. physical in the COMEX.

Suffice it to say eventually the "Emperor" will default what is underneath the "kimono"...And when he does the ladies (shall we say) will be disappointed!

Sun, 08/30/2015 - 10:38 | 6487063 SheHunter
SheHunter's picture

Say it isn't true.  You mean to suggest the emperor has been going with the male measurement of 6 inches?

Sat, 08/29/2015 - 19:08 | 6485778 tmosley
tmosley's picture

It's completely unsterilized and will get dumped directly on the economy.

Sat, 08/29/2015 - 20:54 | 6486011 New_Meat
New_Meat's picture

"Sterilize" is a term in the intervention realm that has not been brought  up in the modern regime.  Worth explaining if you would.

Thanks,

Ned

Sun, 08/30/2015 - 10:22 | 6487006 conscious being
conscious being's picture

Money supply neutral. Twist was sterile.

Sun, 08/30/2015 - 05:58 | 6486695 Farqued Up
Farqued Up's picture

Not even chump change.

Sat, 08/29/2015 - 18:18 | 6485632 Spiritof42
Spiritof42's picture

Looking forward to the day when gasoline is once again thirty cents a gallon.

Sat, 08/29/2015 - 18:34 | 6485682 Latitude25
Latitude25's picture

And houses are $10k

Sat, 08/29/2015 - 18:46 | 6485722 Mister Ponzi
Mister Ponzi's picture

The way the Fed is likely going to react house prices will rather be in the area of 10 trillion USD...

Sat, 08/29/2015 - 18:56 | 6485754 Latitude25
Latitude25's picture

Yes and that will be your monthly wage also.

Sat, 08/29/2015 - 19:30 | 6485834 Taint Boil
Taint Boil's picture

 

 

A $1.00 silver eagle with a silver value of $14.60 per eagle.

$14.60 x 10,000 = $146,000.00

 

House are about 10,000 eagles now .....

Sat, 08/29/2015 - 19:51 | 6485887 Latitude25
Latitude25's picture

Now you're thinking right.  I want my next house for 1000 ASEs or better.

Sun, 08/30/2015 - 09:27 | 6486881 TahoeBilly2012
TahoeBilly2012's picture

Muahahahhaa

Sat, 08/29/2015 - 20:01 | 6485911 noguano
noguano's picture

I'm a Realtor in South Jersey and the market is extremely active for this time of year.   Outflow from stocks IMO.  Lot's of cash deals for single family, condos, and townhomes.  And rentors with really good credit buying and getting major concessions from sellers.  At this point it's better to buy than rent in my area of operation if you have good credit.  I sold a home to someone who brought $150 to the table and has a monthly payment of 1,500 compared to the 1,800 to 2,200 it would cost to rent.

Prices aren't as inflated at they were in 07' in my neck of the woods.  In fact just the opposite.  

Regards,

SJ Realtor

Sat, 08/29/2015 - 20:22 | 6485950 Latitude25
Latitude25's picture

I'm in S FL and paid $70k cash for my house in 09.  Now it's supposedly worth $240k whereas in 06 it was worth $300k.  I'd say the bubble here has mostly reflated.  Lots of new construction also.  Looks ripe for another crash to me.

Sun, 08/30/2015 - 14:16 | 6487656 RafterManFMJ
RafterManFMJ's picture

SELL SELL SELL

Sat, 08/29/2015 - 21:21 | 6486063 wrs1
wrs1's picture

And employees with jobs make $2/hr

Sat, 08/29/2015 - 19:25 | 6485821 Taint Boil
Taint Boil's picture

 

 

Three mercury dimes with a silver value of $1.05 per dime = $3.15 …… gas IS about 3 dimes per gallon.

Sat, 08/29/2015 - 21:23 | 6486068 wrs1
wrs1's picture

I am paying $2.65 for premium and unleaded is going for $2.45.  By my math that is two and a half dimes which is about what gasoline was when I was a kid in the mid 60s.

Sun, 08/30/2015 - 09:28 | 6486883 TahoeBilly2012
TahoeBilly2012's picture

$2.45?? Where is that, Mobile AL? Come on up to Tahoe and get ur $3.49 out....

Sun, 08/30/2015 - 10:00 | 6486957 jerry_theking_lawler
jerry_theking_lawler's picture

No, Mobile is down to $2.04...yesterday afternoon around 3pm'ish.

Sun, 08/30/2015 - 11:12 | 6487161 gizmotron
gizmotron's picture

That's about right. Oil is about 2.5x higher, today, than when oil was stable priced. But won't last. It costs more to extract oil (net, global) today than its current retail price. ha... Oil always returns to trend. Always. no exceptions. The question is: what is trend? I say $70-80, some say $100, others $60.

Sun, 08/30/2015 - 10:46 | 6487094 roadhazard
roadhazard's picture

I have paid .35 for a gallon of gas and my Father paid .11 and got a free set of dishes one time when I was nine or ten. Gas had lead and smelled wonderful.

Sat, 08/29/2015 - 18:28 | 6485652 falak pema
falak pema's picture

well according to you then its 2 trillion larger than the shale unwind!

Saud is a bigger fish than shale especially if you throw the Chinese TNs unwind into the petrodollar pond!

When Pax Americana's ex surrogates on the Financial Titanic decide they need their OWN lifeboats !

Sat, 08/29/2015 - 18:33 | 6485661 Latitude25
Latitude25's picture

Yes.  Kill the dollar and blame it on China and other countries.  Seems like a plan.

Crash the stock markets and get the sheep into treasuries in 3....2....1

Got Au and Ag?

Sat, 08/29/2015 - 18:30 | 6485669 cherry picker
cherry picker's picture

Everything is so convoluted I don't understand it.  Maybe it is designed that way so main street can't see it.

I can understand shipping tonnages dropping, means less goods bought and sold.

I can understand selling oil at margins to kill off competition.

I can understand China selling Treasuries to either bolster their finances or to "pay' back the USA for 2008 and sticking their noses in the South China Sea.

I can understand tax revenues going down among other recession/depression indicators as people have no money, affecting business, labor markets and so on.

I don't understand at all how this 'reserve currency' stuff will play out and the above post really does not clarify it in my mind.

 

Sat, 08/29/2015 - 18:37 | 6485691 Latitude25
Latitude25's picture

AS an administration official told Kyle Bass a few years ago: "We're just going to kill the dollar".

Sun, 08/30/2015 - 06:05 | 6486700 Farqued Up
Farqued Up's picture

The dumbasses are even having trouble killing the dollar.

Sun, 08/30/2015 - 14:20 | 6487667 RafterManFMJ
RafterManFMJ's picture

... so easy, a Kenyan can do it.

Sat, 08/29/2015 - 18:40 | 6485702 Winston Churchill
Winston Churchill's picture

Same way it always has in history, war throughout the known world.

Grab some popcorn,  you have a ringside seat to history being made.May

as well enjoy the show, sod all else you can do.

Sat, 08/29/2015 - 22:55 | 6486261 DanDaley
DanDaley's picture

I don't understand at all how this 'reserve currency' stuff will play out and the above post really does not clarify it in my mind.

 

I think of it like this:

As other countries decide that they prefer something other than dollars for trade settlements, all of those FRNs sitting in foreign banks (estimated to be several trillions) will make their way home. When they do, you get big-time inflation.

Also, when noone overseas wants to take dollars any more for payment, then our we have less cheap stuff...our standard of living takes a nose-dive. Everything that you need or want becomes more expensive and harder (or impossible) to obtain. 

 

There are going to be a lot of surprised and unhappy muppets out there, and none of them will have the faintest clue of what went wrong.

Sat, 08/29/2015 - 23:27 | 6486364 cherry picker
cherry picker's picture

Thanks Dan;

You put in in a way that someone can comprehend and makes sense.

Sun, 08/30/2015 - 09:09 | 6486852 nosam
nosam's picture

Also, there is a lot of these overprinted dollars from QE's stored in Banks. When they decide to destroy the dollar, the banks will flood the market with this money. This is all part of their evil plan to destroy America.

Sun, 08/30/2015 - 12:16 | 6487352 Funny Money
Funny Money's picture

Serious question: If they don't take dollars in payment, what will they take?

Is there something holding hte Yuan up beside its peg to the dollar?   

Sun, 08/30/2015 - 10:07 | 6486937 Oscar Mayer
Oscar Mayer's picture

There are going to be a lot of surprised and unhappy muppets out there, and none of them will have the faintest clue of what went wrong.

And you'll be one of those muppets.  

Foreign banks are holding about $700-Billion in U.S. Legal Tender, all the rest is debt backed credit held aloft by asset values <=== (that's a clue as to why they fear deflation)

97% of all 'money' in circulation is debt backed credit, which is totally dependant upon asset values and the solvency of the institution's that maintain it, for it's continued existence.  

Asset values decline, institutions go insolvent and the credit they've generated and maintain goes "POOF!".  That's what happened in 2008 and that's what they're attempting to avoid happening again.  They don't fear price deflation, they fear asset value deflation and another cascading collapse of credit as currency, one that they will not be able to stop once it gets started, again.

And remember, all deposit accounts are 'credited' accounts, not a penny of 'money' in any of them, and they only exist for as long as the banks remain solvent, and the bank's solvency is totally dependent upon asset values, its capital.

From that, we can extrapolate that; when you use your debit card to make a purchase, you're not drawing upon anything in your deposit account, there's nothing there, you're actually utilizing your bank's line of credit with the amount you used being deducted from the debt the bank owes you, which is represented as your deposit account.  Now, can you extrapolate what will happen to your ability to draw upon your bank's line of credit onece it goes insolvent?

Funny stuff.

the Frog

 http://carl-random-thoughts.blogspot.com/ 

 

Sun, 08/30/2015 - 10:15 | 6486985 DanDaley
DanDaley's picture

What you post is ALSO correct; the two posts are not mutually exclusive. BTW, your website is non-functional. 

Sun, 08/30/2015 - 10:29 | 6487030 conscious being
conscious being's picture

Btw, when you lead with italics, the vote script fails.

Sun, 08/30/2015 - 10:45 | 6487068 Oscar Mayer
Oscar Mayer's picture

The is no "ALSO" about it.  You either have credit or you don't, there is no middle ground.  And if they can't generate enough new credit/debt to keep their ponzi fraud thievery going, it's going to POOF! out of existence, leaving nothing behind but the debt.

And, thanks for letting me know about that link, which I can't correct now.  Try this:

http://carl-random-thoughts.blogspot.com/

If that one doesn't get you there, just copy and paste it into a google and it will pull up the "Random Thoughts" page.

 

**And thanks conscious being, I lead with a quote, I wasn't aware that it would screw up the vote.

Sun, 08/30/2015 - 11:04 | 6487139 DanDaley
DanDaley's picture

Oscar, I'm not arguing with you, because I'm here to try to figure things out as well. So, given your comments about credit, and collateral-based credit, which make sense, please explain the return of dollars to the us (treasuries sold by China and SA, as well as dollars repatriated to the US by foreigners, say, snapping up all sorts of goods -land, etc. here in the US), when and how does the "poofing" take place? I just want to see the logistics of this thing a bit more clearly.

Sun, 08/30/2015 - 14:28 | 6487651 Oscar Mayer
Oscar Mayer's picture

It's all credit/debt denominated in dollars, and it will work right up to the moment, it doesn't.  We had one of those moments in 2008.

zerohedge recounts the many ways it could fail, has failed and will continue to fail, until the failures reach critical mass and the whole fraud of a ponzi scheme collapses in upon itself in an orgy of debt and claims.

In the meantime, people and nations are gonna do with, what they believe they have, right up to the moment reality slaps them upside their pointy little heads.

My blog has several links that provide lots of relevant info, just keep in mind, that when they are talking 'money', the majority of the time, they're talking about credit/debt.  And once you start discerning the difference between money and bankster credit/debt, a lot of what's going on will start to make a lot more sense.

Sun, 08/30/2015 - 15:23 | 6487821 DanDaley
DanDaley's picture

Right. Things will work until they don't. In the mean time, a lot of those FRNs (nasty little credit/debt instruments that they are) will flood back to the the US and cause problems until things really come unglued. 

Sun, 08/30/2015 - 23:38 | 6489131 Oscar Mayer
Oscar Mayer's picture

Damn, are you getting treatment for that memory disorder?  Why am I asking, you probably wouldn't remember.

The FRN is not a credit/debt instrument, and they're not spending FRN's, they're spending credit denominated in dollars, and their spending will have little, if any, impact upon the economy, just as all the credit spent by Japan buying up all those assets everybody fretted over back in the 80's.  They can't "dump" the dollar denominated credit into our markets as it would drive the US banking system into insolvency.  They do that and all their credit goes "POOF!".

Sun, 08/30/2015 - 09:59 | 6486951 natty light
natty light's picture

The bold part toward the end sums it up in an understandable form.

Sat, 08/29/2015 - 18:30 | 6485670 bbq on whitehou...
bbq on whitehouse lawn's picture

At what point do SWFs cut bait? -20%, -50% or do they holdon to -90% losses. As soon as news hits that SWFs are selling, their goes their assets and likely their currencies.
All of that STOCK becomes FLOW rather quickly.

Sat, 08/29/2015 - 18:39 | 6485697 Latitude25
Latitude25's picture

Yup.  The SWF that panics first, panics best.

Sat, 08/29/2015 - 19:13 | 6485793 bbq on whitehou...
bbq on whitehouse lawn's picture

Who do you think will be first? When does cashing out to save your currency become politically acceptable even if it feeds the debasement ( less assets to back up your currency position ).
Reminds me of the movie "Rollover".
Who is the weakest link? Follow the protests .

Sun, 08/30/2015 - 09:16 | 6486858 de3de8
de3de8's picture

It's about the last one standing

Sat, 08/29/2015 - 19:14 | 6485797 itstippy
itstippy's picture

I'm not worried.  The U.S. has had the mightiest economy in the World for many decades.  It's dwarfed everyone else.  We must have a MASSIVE Sovereign Wealth Fund built up.  

Sat, 08/29/2015 - 19:30 | 6485837 lasvegaspersona
lasvegaspersona's picture

The US SWF is an 18 trillion dollar hole and an even bigger sum due to a shitload of people and other entities.

I really hate to break it to you (but actually I assume you just left out the sarc tag)but debtor nations do not need SWFs, they need another loan.

Sat, 08/29/2015 - 19:50 | 6485885 itstippy
itstippy's picture

The U.S. Federal Reserve has over $4T on its balance sheet.  We just tap 'em for a 25% bail in, transfer $1T to the U.S. Treasury, and we've got the budget deficit covered for TWO YEARS!

Then, we've got about a hundred pounds of moon rocks stashed in the Smithsonian's basement worth a gazillion dollars a gram.  Transfer those to the Treasury and we can deficit spend TO THE MOON!

Next, congress authorizes the minting of three $1T coins (Reagan, Bush2, and Obama on the faces, the U.S. Federal Reserve building on the reverse).  Put those in the Treasury's vault and start cutting checks!

Easy peasy.   We've got a shitload more unconventional tools in our monetary bag of tricks.  You ain't seen nothing yet.

Sat, 08/29/2015 - 20:51 | 6486006 Professorlocknload
Professorlocknload's picture

Ha! So much for deflation.

Sat, 08/29/2015 - 21:09 | 6486037 New_Meat
New_Meat's picture

Yo, Prof, u ever actually fired a weapon?  Just wonderin' - Ned

Sat, 08/29/2015 - 21:35 | 6486111 itstippy
itstippy's picture

Deflation is very bad.  Both the Fed and Nobel-prize-winning economist Dr. Paul Krugman agree on this.  With deflation the cost of consumer goods goes down, increasing the citizens' purchasing power and destroying growth.

The answer is quite simple.  Form a bipartisan blue-ribbon commission of seasoned Washington politicians and task them with finding new and creative ways of spending money.  The U.S. has a vast talent pool of veteran spenders at the National level who would rise to the challenge and come up with the most innovative spending packages you've ever seen.   

Sun, 08/30/2015 - 05:27 | 6486669 falak pema
falak pema's picture

Sounds very STATIST and FDR ish...we'd need a new Keynes to plan that outside the current Casino web!

WHo is gonna "bell the cat" and get those pesky billionaires to chip into the SWF which will finance "the most innovative spending packages you've ever seen"...Thats very "TVA type infrastructure to Mars" thinking, that would make Dr Krugman proud of you! 

But the private wealth (both corporate and individual, hidden in SPVs) is in the Caymans, OUTSIDE US jurisdiction, just like "foreign Yuan" is for the China Inc. -- statist combine etc...the legacy of supply side Reaganomics gone NWO global.

TRY BAILING IN THAT wealth to the SWF in the anglo Western economies; notably in the US.

It'll take an FDR type revolution that can only be kick started as it was in 1932 : by a GREAT DEPRESSION...

So after helicopter money get ready for the great depression before you see a SWF being legislated in the US of A !

Sat, 08/29/2015 - 23:10 | 6486322 JD59
JD59's picture

www.usdebtclock.org

The U.S. debt is well over 100+ TRILLION FIAT dollars if you add in the unfunded liabilities.

 

 

Sat, 08/29/2015 - 21:51 | 6486153 stormsailor
stormsailor's picture

duh, yeah in dollars.  exactly the point of the article.  everyone else will be selling dollars too.  is it painful to be so stupid?  perhaps that is why we have such a problem with pharmaceuticals in this country

Sat, 08/29/2015 - 22:26 | 6486223 Glorious Kataifi
Glorious Kataifi's picture

Why would the US have a SWF, when in America all wealth is private, only the costs (such as bank bailouts or imperial wars) are socialized.

According to Wikipedia, the US does not have a federal SWF, but several of its constituent states have their own SWFs and one state, Texas (who else), has two. The total value of the US state funds listed in Wikipedia is 142 $billion.

Compare this with Kazakhstan SWF at 156 billion, Russia at 181, Hong Kong at 400, Singapore at 537, tiny Kuwait at 592, Saudi Arabia at 677, Norway at 882, UAE at 1214, and China at 1534 $billion. 

 

 

 

 

Sat, 08/29/2015 - 18:35 | 6485684 Winston Churchill
Winston Churchill's picture

Missing a big piece of the puzzle here Tyler.A very  big piece.

$14tn in shadow banking 'assets'.

Some is within the Venn intersection, but how much ?

The elephant sitting in the room.

Sat, 08/29/2015 - 18:52 | 6485741 Urban Redneck
Urban Redneck's picture

Counter parties, custody chains, leverage and capitalization ratios... at this point, what difference does it make?

Sat, 08/29/2015 - 19:01 | 6485758 Winston Churchill
Winston Churchill's picture

Not much, my lawyer was advising me against what he thought was something rash this week.

He's a bright guy, when I explained my macro view and rationale, he did some research for a couple of

days and basically said,at this point ,what difference does it make.

Go for it.He asked where was best to buy gold as well.

Sat, 08/29/2015 - 19:54 | 6485884 Urban Redneck
Urban Redneck's picture

After MF Global blew up, I stepped up my atypically thorough and anal due diligence to full retard.  I discovered that the physical certificates for JBSICA I own through through a US trust with a US account at EuroPac are sitting in a vault at ShitiBank in London!  I couldn't find any documentation of the custodial relationship between the two entities even after going though mountains of account/fund paperwork and corporate disclosures and filings.  Ratscam tested taking physical delivery of JBSICA here in Switzerland a while back and I have friends at Julius Baer who can do everything short of breaking Swiss law to reissue certificates...  But if this thing actually blows up, it won't make any difference, there's simply too much interdependence and complexity to reverse direction if it starts gaining momentum.  Midnight harvesting of yesteryear's midnight gardening and wreck diving past boating accidents will be about it. 

Hope your lawyer didn't bill you too much and only confirm what you already knew.

Sat, 08/29/2015 - 20:23 | 6485953 Winston Churchill
Winston Churchill's picture

He's on retainer at what he calls the family rate.God help non family.

I have known him since he was a spotty teenager.The scrapes I got him out of

would have precluded the law profesion if I hadn't..First court case he ever won

was one of mine.

He owes me big time, and I collect now and again..

Sat, 08/29/2015 - 21:28 | 6486084 wrs1
wrs1's picture

Land ownership is recoreded in the county courthouse where the land is located.  No problem figuring out who owns what.  You really can't own much gold but if you have enough money you can own a lot of land.

Sat, 08/29/2015 - 21:42 | 6486131 Winston Churchill
Winston Churchill's picture

MERS put paid to that.

Sat, 08/29/2015 - 21:53 | 6486154 wrs1
wrs1's picture

No it didn't.  The buyer gets the warranty deed when they buy the house.  It's the deed of trust that represents the mortgage and which goes to the mortgagee.  Two separate instruments.  Anyway, I am not talking about homes, I am talking about unincorporated land, there is a difference.

Sun, 08/30/2015 - 07:52 | 6486783 Winston Churchill
Winston Churchill's picture

If MERS is anywhere in the title chain it doesn't matter if its land, or a home,

incorporated, or unincorporated.You stand the chance some lender will come forward and

say they were not paid.You better have plenty of spare money if that happens.

900 years of recording property rights,starting with the Doomsday book, went out the window

with the creation of MERS.

Bad enough that you only rent via property taxes, without a clouded title in the mix.

Sun, 08/30/2015 - 09:33 | 6486876 wrs1
wrs1's picture

Do you take out a mortgage to buy gold?  No, my point is that you can pay cash for land and protect more money with a real physical holding which has a clear possession trail, than is possible with gold but you went off track with the MERS comment.  No one should buy land wihtout a proper title search and if there is not a clear title, they should not close.  In fact, sellers generally provide warranty deeds and buyers purchase title insurance.  Let me help you out on buying foreclosures, it's caveat emptor, because what you get at a sherrif auction is a quitclaim deed.  Better go look that one up because I bet you don't know the difference.  It's generally the case that the MERS issue came up when buying foreclosures AFAIR.

Sun, 08/30/2015 - 10:16 | 6486990 Winston Churchill
Winston Churchill's picture

You need to do a lot more research my friend.

Your title insurance insurance and, search wont save you.

Read the fine print.

Sun, 08/30/2015 - 13:40 | 6487572 wrs1
wrs1's picture

What fine print?  I transact land deals on a fairly regular basis and we write contracts and do title search and get abstract deeds.  It's really not that complicated but I bet you have never been to a county courthouse or gotten a runsheet for a property or looked at the index.  I suspect you are just posting on the internet without really knowing anything or you wouldn't post shit like that.

Sun, 08/30/2015 - 06:18 | 6486706 Farqued Up
Farqued Up's picture

Courthouses do burn or have planes fly into them.

Sun, 08/30/2015 - 09:32 | 6486889 wrs1
wrs1's picture

Yes, there were cases in the past here in Texas where people attempted to destroy the land records of one county by burning down the courthouse.  Eventually they failed.  Today, there are both physical records and electronic so there are backups.  However, the originals are not kept in the courthouse anyway, those are the property of the buyer and seller.  If you own land, you should have an abstract deed for all of your holdings.

Sat, 08/29/2015 - 23:06 | 6486311 JD59
JD59's picture

http://www.gainesvillecoins.com/

 

Is who I use, and take physical delivery.

 

 

Sat, 08/29/2015 - 18:40 | 6485699 Sudden Debt
Sudden Debt's picture

And let's not forget that every secret nazi service in America can print it's own money to and did so for decades.

In total there are trillions of more dollars out there then people may think!

And when they all come back home, it won't be pretty.

In the end, the bad guys always lose and most people don't realize they're standig on the wron side.

 

If you're paid not to understand, you won't understand.

You just never bite the arm that feeds you.

 

 

Sat, 08/29/2015 - 18:52 | 6485737 847328_3527
847328_3527's picture

This some GREAT worker protection, eh?

 

A Fluor BWXT spokesman has verified that approximately 1,400 WARN Act notices were being sent out Wednesday to employees at the decontamination and decommissioning (D&D) project at Piketon. In addition the notices were sent to community and government leaders such as mayors and city managers of cities where employees live.

Worker Adjustment and Retraining Notification Act (WARN Act) is a United States labor law which protects employees, their families, and communities by requiring most employers with 100 or more employees to provide 60 calendar-day advance notification of plant closings and mass layoffs of employees.

 

http://portsmouth-dailytimes.com/news/1718/500-layoffs-possible-at-piket...

 

" You're fired, Mr Cratchit !! "

 

... but not today, in 60 days. Merry Christmas !

 

Luckily for them, the economy is "strong" with a "robust rekovery" according to Barry, even "awesome!"

Sat, 08/29/2015 - 18:54 | 6485749 Chuck Knoblauch
Chuck Knoblauch's picture

Evergreen treasury naked shorting.

Derivative failures.

Failure to deliver.

Fed bailouts continue.

$1 trillion per month.

Sat, 08/29/2015 - 19:13 | 6485789 eeaton
eeaton's picture

So how does a little guy like me profit from this? I own plenty of gold and silver coins, shares of the top mines and Jan 17 call options on the top miners.

I'm also short the 10 yr treasury via eft. Is there anything I'm missing on?

 

Sat, 08/29/2015 - 19:45 | 6485869 jvetter713
jvetter713's picture

Sounds like a reasonable plan.  Unless the air conditioner goes out or hard drives fail at the location where the servers are hosted for your online brokerage.  Might have a hard time selling for a profit if you are not allowed to.  Regarding the miners...I just don't know.  Worried about nationalization at all?  Or outright theft from the PTB?

Sat, 08/29/2015 - 21:13 | 6486047 New_Meat
New_Meat's picture

"So how does a little guy like me profit from this?"

Hickey has been hosed for years with this plan, but you'll be fine, just fine.

- Ned

Sat, 08/29/2015 - 21:35 | 6486095 wrs1
wrs1's picture

Are you hoping to get $ for that stuff?  Isn't the article about some sort of demise of the petrodollar?   Actualy what it's about is the demise of the value of assets denominated in $ and which have no real value in themselves such as financial stuff and useless chunks of metal.  The number of $ available to purchase such stuf is limited and these petrodollar countries are looking to sell such things to obtain $.  I don't see anyway you come out well positioned that way.  The arabs have lot's of gold, so does china.  Treasuries are directly denominated in $ and are the equivalent of $ on a one to one basis plus an interest coupon premium.  Other junk gets sold to raise $.  You can get $ reserves for Treasuries at a one to one swap, not so with financial assets and hunks of metal.

Sat, 08/29/2015 - 23:26 | 6486363 madbraz
madbraz's picture

You will be missing principle by shorting the 10 yr during an epic risk asset collapse and safe haven treasury yields plunge.  You deserve it by following this zerohedge nonsense.  Hope you didn't do the same when he said gold was going to $5k.

Sun, 08/30/2015 - 10:15 | 6486986 Imagery
Imagery's picture

You are doing exactly what you should NOT do, ie, buying stock in these public cos that then perpetuate this scam.  Buy the phyz and take delivery!  Do NOT buy the scrip of the USG (USTs) or US Multinationals (US Public Stock Certs) as they are THE PROBLEM.

Sat, 08/29/2015 - 19:13 | 6485790 Freewheelin Franklin
Freewheelin Franklin's picture

SDRs, bitchez

Sat, 08/29/2015 - 19:15 | 6485794 IronForge
IronForge's picture

 

 

 

 

IMHO, "when" the following events occur:

  • CHN refocuses, recovers, and begins a nice GDP growth of 5% or greater
  • IND's Economy grows large enough to consume (at least) double its 2007 BTUs

Then they should be able to start pulling up the Energy Producers again.   KSA should be able to wait everyone else out - even after the aforementioned events take place - then raise Px

What's taking IND so fracking long? In 2007, they've consumed only a Quarter of what CHN Consumed.

Sat, 08/29/2015 - 19:40 | 6485857 lasvegaspersona
lasvegaspersona's picture

The problem is the dollar. As long as the dollar governs global monetary activities (and brings with it the huge debt of the entire world) people cannot afford to consume the commodities that make life  better.

Once the dollar has hyperinflated many of these problems will be resolved as well as the problem of the US government being able to act like it can just print money instead of earning it (that was supposed to be a humorous comment because obvioulsy they actually do that). 

Votes may actually mean something again and the states will probably tell the federal government to buzz off if they can't keep providing all the funding for state programs that they do now.

I, for one, am looking forward to a possible bright new way of doing business.

Sat, 08/29/2015 - 19:14 | 6485795 AC_Doctor
AC_Doctor's picture

What do you think King Salman is going to say to Obozo, when he visits next week?

A.  We are going to start taking Yuan for payment of crude

B.  We are going to start liquidating US Treasurys like our buds the Chinese

C. Both A & B and Oboza doesn't get a reach around

Sat, 08/29/2015 - 19:35 | 6485846 Aaron Hillel
Aaron Hillel's picture

Neither.

Obamas handler will answer *well, my dear king, look out to the sea, do you see the MAU cruising out there, and that? oh thats just a carrier group, nothing to be afraid of, its for your protection.Of course, if they ever land on your hallowed shores, they could install a TrueDemocracy(c) in here and what would you do then?So, what were you saying?*

The rotten house of Sa'ud is as much puppet of Washington-TelAviv axis as Merkel or Hollande, perhaps more.

Sat, 08/29/2015 - 20:52 | 6486007 Infinite QE
Infinite QE's picture

House of Saud: zionists in sheets. 'dats all.

Sat, 08/29/2015 - 21:16 | 6486053 New_Meat
New_Meat's picture

Y'know, I'd bet that both you and the O-shill would say:

"Obamas handler will answer *well, my dear king, look out to the sea, do you see the MAU cruising out there, and that? oh..."

Not very current, are ya?

- Ned

Sat, 08/29/2015 - 21:40 | 6486127 Aaron Hillel
Aaron Hillel's picture

Yes, well, I stand corrected.

Old habits die hard.

MEU.

Sun, 08/30/2015 - 08:20 | 6486806 New_Meat
New_Meat's picture

There's a handful of misguided children hangin' around this joint.  S/F.

Sat, 08/29/2015 - 23:02 | 6486302 JD59
JD59's picture

Bath house Barry is sending the U.S. Carrier Group back home, no more on station in the Persian Gulf.

Sat, 08/29/2015 - 21:37 | 6486117 wrs1
wrs1's picture

What are they going to buy with Yuan?  If so, wasn't it utterly stupid to dump crude at way below market for $ they didn't want anymore?  Seems really, really unlikely that your scenario in anyway connects wth their previous actions.  Will they sell other assets before Treasuries to get $?  You bet and the first thing on the list is stocks and HY bonds no doubt.

Sun, 08/30/2015 - 04:37 | 6486639 StychoKiller
StychoKiller's picture

Hmm, how much is an Au-Toz in RenMinBi?

Sat, 08/29/2015 - 19:20 | 6485808 lasvegaspersona
lasvegaspersona's picture

The flow of surplus oil revenues reversing course does not surprise me. What does is the quantities. We are talking about a few trillion probably over a few years. That is a lot but compared to the 16 trillion in currency swaps and other dollar movement the Fed is said to have engaged in during the 2008 to 2009 period it is trivial.

I'm thinking that if the Fed could play hide the weiner with 16 trillion or so they can probably pull this off. 

The difference of course is that then the money was probably used to buy worthless assets to prevent global deflationary collapse.

This time it will be dollars hitting the international currency market and being spent into the economy. 

16 trillion protecting bad assets did not change the number of dollars being spent. A few trillion affecting prices at the margin...that could be an inflationary force to be reconned with.

Sat, 08/29/2015 - 19:42 | 6485851 wizteknet
wizteknet's picture

As I ride my mountain bike to work I can just laugh at it all... emp bitchez

Sat, 08/29/2015 - 19:42 | 6485863 lasvegaspersona
lasvegaspersona's picture

not if you don't have a job....global monetary system 'readjustments' can be 'disruptive'.

Sat, 08/29/2015 - 20:05 | 6485917 wizteknet
wizteknet's picture

no pain no gain

Sat, 08/29/2015 - 20:07 | 6485921 MontgomeryScott
MontgomeryScott's picture

"As I ride my mountain bike to work I can just laugh at it all... emp bitchez"

As I weave my way through stalled traffic on my Chinese-built mountain bike on my way to my corporate job at mcDonald's, I am slightly irritated that my Ipod doesn't seem to work and that the traffic lights all have gone out. No big deal, though. (GOD! people are wandrering in the streets! Watch out...)

What the HELL? Armed guards are waiting at work! The lights are off, and there's a white bus... they're pointing a gun at me... on the side, it says 'FEMA'...

Sat, 08/29/2015 - 20:19 | 6485942 wizteknet
wizteknet's picture

Well it had to happen sometime, better late then never! Getting to old for this sheet. lol

Sat, 08/29/2015 - 19:51 | 6485888 slightlyskeptical
slightlyskeptical's picture

Rate hike will keep the dolalr from falling too severly.

Sat, 08/29/2015 - 19:53 | 6485891 cherry picker
cherry picker's picture

It is humorous to note that the words "In God We Trust" are printed on the greenback.

Does that mean "In God We Trust" is only true if there is money?

If there is no money you can't trust "God" anymore?

A few decades ago all the evangelicals were always crying for donations to help with "God's Work" and Goldman Sach's states it is doing "God's" work too.

I think that may be a problem for many.  They may feel God can't do anything without money, which strips the divine out of the "God" belief, doesn't it?

For many, God is the big financier in the sky :)

Sat, 08/29/2015 - 21:10 | 6486038 roccman
roccman's picture

"suppose two men at cards with nothing to wager save their live. Who has not heard of such a tale? A turn of the card. The whole universe for such a player has labored clanking to this moment which will tell if he is to die at that man's hand or that man at his. What more certain validation of a man's worth could there be? This enchancement of the game to its ultimate state admits no argument concerning the notion of fate. The selection of one man over another is a preference absolute and irrevocable and it is a dull man indeed who could reckon so profound a decision without agency or significance either one. In such games as have for their sake the annihilation of the defeated the decisions are quite clear. This man holding this particular arrangement of cards in his hand is there by removed from existence. This is the nature of war, whose stake is at once the game and the authority and the justification. Seen so, war is the truest form of divination. It is the testing of one's will and the will of another within that larger will which because it binds them is therefore forced to select. War is the ultimate game because war is at last a forcing of the unity of existence. War is god." Cormac McCarthy blood meridian

Sat, 08/29/2015 - 21:40 | 6486125 wrs1
wrs1's picture

So you don't know what GOD stands for?  Gold on Demand.  It's written in all caps which makes it an acronym.

Sat, 08/29/2015 - 19:57 | 6485905 nah
nah's picture

If China is economically slowing down exploding and poisoning people

.

the world economy will see lower oil prices still $20-$40 could be back, US banks may face the reality's of shale oil and "good government"

.

corruption has no more to add to the market bend or break

Sat, 08/29/2015 - 20:08 | 6485925 VW Nerd
VW Nerd's picture

A few years ago, the Social Security fund went into the negative also, meaning that extra revenue used to mask the Federal deficit was gone.  I'm thinking that between these two major changes, the American way of life (social and economic) might experience some profound changes going forward.  Much more than we've witnessed thus far.

 

Also, for decades the petrodollar monopoly has been used by USG, Wall St. and Corp. USA as a political and economic weapon, fomenting hatred toward the US.  The only ones who don't get this are the American public.  They keep believing "they hate us for our freedom".

Sun, 08/30/2015 - 10:00 | 6486953 Imagery
Imagery's picture

Private Companies and entreprenuers, what was once teh backbone of the American experiment, are also locked out of the bene's of this corrupt Petro$ system.  It's beyond me why NFIB, etal, does not get how this Crony Corp Capitalist system that has demanded their participation while putting up blockades for their own competitiion to the US Multinationals and TBTF does not sway more influence.

are we truly a nation of idiots?  Even the millions in private enterprise?

Sat, 08/29/2015 - 20:19 | 6485945 22winmag
22winmag's picture

I'm not skerd.

 

I have a shitload of guns, ammo, and 100-can cases of sardines ready to go.

Sat, 08/29/2015 - 23:55 | 6486412 JamaicaJim
JamaicaJim's picture

Tuna dude...canned in water.....excellent diversification son...

Mackeral also....menu plan man.....shit

Sat, 08/29/2015 - 20:20 | 6485946 q99x2
q99x2's picture

2,5 Tril. Hell that ain't nothing. Think of all the money the central banks gave to the TBTF. Yellen print that up no problem.

Sun, 08/30/2015 - 09:56 | 6486945 Imagery
Imagery's picture

So long as the dumbass 'muricans let them, teh CB will simply keep on a printin' and bail out not only the US TBTF WS Banks but again, like in 2007 cycle, the RoW Banks.

Sat, 08/29/2015 - 20:31 | 6485968 artichoke
artichoke's picture

The post says essentially that the petrodollars are levered.  That the disappearance of one petrodollar has more than one dollar of total effect in the delevering.

But where is this leverage?  The article identifies none that I can see.  If there is none, I think their speculation is proven wrong by this argument.

Sun, 08/30/2015 - 07:32 | 6486771 Baldrick
Baldrick's picture

the land of shadow banking. check zh search and learn.

Sat, 08/29/2015 - 21:12 | 6486044 steveo77
steveo77's picture

Why are we even worrying about oil, when solar gets the job done so much cheaper....there is a sea change every 2 years.

http://nukeprofessional.blogspot.com/2015/08/solar-pv-is-getting-cheaper...

Austin Energy's recent request for 600 MW of solar yielded multiple declining bids. The most recent was under $40 per MWh (less than $0.04 per kWh). That's 20% lower than 2014’s $0.045 per kWh price for a 150 MW solar project and only 25% of 2008’s $160 per MWh ($0.16 per kWh) bid for a 30 MW project.

Sun, 08/30/2015 - 02:59 | 6486575 MSimon
MSimon's picture

You have to multiply the cost of solar by 4X to 6X to account for 24/7 power. Then add in the cost of all the backup plants or batteries required.

 

They are lying their asses off about the real cost of solar.

Sun, 08/30/2015 - 08:08 | 6486797 MilwaukeeMark
MilwaukeeMark's picture

Solars only value is as a back up for essential appliances in the event of a national grid failure. Any other personal cash outlay for it IMHO is a total waste of money.

Sat, 08/29/2015 - 21:25 | 6486077 tarsubil
tarsubil's picture

A trillion here, a trillion there, pretty soon, you're talking real money.

Sat, 08/29/2015 - 23:49 | 6486400 JamaicaJim
JamaicaJim's picture

I use this to mystify the unwashed....

99% have NO earthly clue what the difference is between a million, billion and trillion...

Use time.....gets them thinking

http://www.nytimes.com/1986/09/28/opinion/l-just-how-long-is-a-trillion-...

Sat, 08/29/2015 - 21:50 | 6486149 cornflakesdisease
cornflakesdisease's picture

Wow.  It's called a rachet effect.  It's all planned.  You forget that dollar Inc owns the whole world's banking system, and that includes China.

 

Sorry, the posh kids always win.  If you spent 100 years building a money minting operation, would you just throw it away?  Get real.

Sat, 08/29/2015 - 22:50 | 6486268 Glorious Kataifi
Glorious Kataifi's picture

I agree. The US has already destroyed Iraq, Lybia, and Syria to secure oil flows and ensure the dollar supremacy. Only Iraq cost them over 2 trillions, projected to go as high as 6 trillion over the next decades once veteran medical care and pensions are factored in, says Reuters.

But according to ZH, they are somehow going to allow the Saudis to break the dollar regime as if it was a cheap plastic toy. They will just stand by and watch how their world domination project goes down the drain because of a small desert kingdom of 18 million people. How realistic is this scenario?

Whatever the game is, the US elites are certainly running it. At least that's my two pennies.

Sun, 08/30/2015 - 01:19 | 6486505 Uchtdorf
Uchtdorf's picture

And who is running the US elites?  Two possibilities, neither pleasant. Red is the dominant color or theme in reality and in folklore.

Sun, 08/30/2015 - 04:26 | 6486636 crashguru
crashguru's picture

Only Iraq cost them over 2 trillions

Congrats, brain successfully washed:)

In my reality THEY made some billions on Iraq and you, i.e. US the tax payer, was paying for it. With money and some had also paid with their blood.

 


Sat, 08/29/2015 - 22:32 | 6486235 DontWorry
DontWorry's picture

Don't worry.  Petrodollar recycling is the old paradigm, before the massive intervention of central banks.  Now economies can be self funding.  Theres no need for other countries to purchase our debt, our own central bank can serve this purpose.  This monetary perpetual motion machine will guarantee steady and sustainable growth of our economy.

Sat, 08/29/2015 - 23:53 | 6486404 AbbeBrel
AbbeBrel's picture

Yeah yeah yeah $2.5 trillion, BFD.

This is matched by the famous $10 trillion of OFFSHORE US dollar denominated debt (see Zulauf, Ambrose, and the BIS paper).

So the debt is 4X the "Petrodollar" thing. Hence BFD.

The formerly vaunted BRICS, now are what I call the Squirm-merging markets. Buried in local and US dollar shorts, also known as US dollar debt.

Remember that when assets meet debt, you get a violent flash but no heat or energy out. They just annihilate each other and leave NOTHING. Just a reduction in people's perception of "wealth". The dudes that are sneaking cash out of China understand this - they are trying to poke the assets into something real and leaving the debt part of the balance sheet buried in some ghost city (formerly a rice paddy) back "home".

This whole comedy will go on - but in short (LOL) the HUGE dollar short, aka US denominated debt overhang, is going to keep this game of international musical chairs playing on for a LONG LONG time. With intermittent moments when the music stops, the winners and losers are assessed, and then the music starts again.

Remember what a much wiser dude than me said, in 2007!!!

"As long as the music is playing, you’ve got to get up and dance." Mr. Charles Prince, The New York Times. 2007-07-10 (wikipedia)

Sun, 08/30/2015 - 00:21 | 6486449 scatha
scatha's picture

All of this is about confidence if people stop believing in petrodollar this will be the end i.e. massive flows of crony capital and freezing and capital controls for the rest of us while inflation will be raging screwing us all.

 

I see that very few acknowledge the true reason for oil price collapse. The reason, which was repeatedly stated by Saudis, Russians and Chinese.

 

All of them say this is the demand collapse stupid

 

And demand collapses because of rampant inequality in societies throughout the world since people are loosing income, paying off the ever-increasing debt and cut the investments and expenses to the bone or desperately engage in gambling on stocks.

 

The financial world is teetering over the abyss of the financial illusions just look at global cumulative production numbers (not sales) over last 5 years while rigged it could not be totally denied and number of the items sold while population grows. Anything with the price in it is meaningless. It is a secular collapse of demand due to collapse of the standard of living we are witnessing.

 

That's why Saudis are trying to suppress fracking and tar sands not to completely lose influence on US market after they lost Chinese and Indian market to Russians and Iran as a part of trade dedollarization efforts. As far as fracking itself is concerned, the industry is extremely over-leveraged, massively loosing money as we speak regardless of any technological improvements.

 

We see this desperation with unsound mining practices technically maximizing production over existing rigs, shortening their longevity to pay bondholders and survive another day. As soon as interest rates normalize (if ever) or banks will not be able to sell their junk bonds, they all will go bankrupt if Saudis keep the price low and they will for their own survival. We are just waiting for all the $90 hedges to expire and that’s will be it or another massive FED bailout, this time it would be junk bond holders.

 

As a result of geopolitical tension between US and Russia Saudis are step by step moving towards accommodation with the eastern powers to balance Iran support by Russia and China. 

 

Just recently the number two sheik, defense minister of Saudi Arabia is in S. Petersburg, Russia talking about energy and military cooperation and perhaps purchasing weapons. It is clear political shift indicating much more independent new monarch who rebuked Obama just few weeks ago and without clearance from Washington attacked Iranian interests in Yemen.


The Saudis even substantially reduced purchasing of US treasuries while china is selling en mass, a historical development challenging of petrodollar. Saudis even started selling bonds to cover budget deficit due to their currency peg which will break soon as in China mostly due to war spending and invasion of Yemen, since one cannot wage a war without freely printing money.

 

One way or another with big oil companies abandonment of the projects, the future of the shale industry is bleak and probably will be with marginal importance in the US. Already fracking has been almost abandoned in Europe since nobody want to challenge Saudis.

 

For more on China and commodity collapse:

https://contrarianopinion.wordpress.com/economy-update/

Sun, 08/30/2015 - 03:07 | 6486579 MSimon
MSimon's picture

As far as fracking itself is concerned, the industry is extremely over-leveraged, massively loosing money as we speak regardless of any technological improvements.

 

Bankruptcy reprices assetts.

Sun, 08/30/2015 - 03:16 | 6486584 MSimon
MSimon's picture

Europe abandining fracking? They have barely started. A new fracking project was announced in the UK.

 

Oil/gas has been discovered in Eastern Europe.

 

What you need to look at is the oil-socialism regimes. The Saudis need $70 oil to break even. Iran is worse and Venezuela is a basket case. Cost is not the important metric.

 

NEED is what counts.

 

What we are seeing is an unwind of resource socialism.

Tue, 09/01/2015 - 00:46 | 6493882 scatha
scatha's picture

You are not up to date they are almost completely abandoned in Poland and Ukraine UK would frack some to offset North sea production collapse.

Sun, 08/30/2015 - 01:00 | 6486490 Barley Burnside
Barley Burnside's picture

New american phrase,, "I'm chink-eyed I can't see!!"

Sun, 08/30/2015 - 06:01 | 6486698 Ungaro
Ungaro's picture

There is no problem, nothing to see, move along folks! Belgium (or was it Luxembourg or Liechtenstein?) will buy the float of US Treasury paper.

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