Mike Krieger On When Central Banking Dies: China and Oil

Tyler Durden's picture




 

From Mike Krieger of KAM LP

No quotes today.  Just this image.  This applies to everyone in every country on this planet.  You are being herded.  The gate is closing. 

“Rise and Rise Again until Lambs become Lions.”

 

When Central Banking Dies: China and Oil

China

China is a topic on which I have differed greatly from many analysts and macro commentators with whom I generally share a similar economic philosophy.  What I have heard from many in this camp is this story about how China was the next great power and that they are going to revalue the yuan higher.  In that process, they would be able to shift their economy away from a dangerous overemphasis on fixed asset investment and toward consumption.  There was this notion that China had its house in order and was about to totally shift the balance of economic power in the world as the West melted away.  In the middle part of the last decade I heard this argument yet it always seemed a little preposterous.  In 2007/2008 as the Western housing markets and banking systems came apart this view was expressed in the now much maligned (and rightfully so) “decoupling thesis” which turned out to be nothing but a fantasy.  Nevertheless, in the aftermath of the implosion in the West there was still this notion that China was ok.  That they had figured it out and were about to take over the world.  This concept was furthered by the very robust bounce back that they had compared to the weak recoveries in the Western world.  Nevertheless, I was extremely disturbed from day one by the manner in which they were going about achieving this recovery.  First of all, almost none of it was related to a sudden preeminence of currency strength based consumption that would have potentially allowed the economy to actually restructure.  In fact, the yuan stopped appreciating relative to the dollar in July 2008 and didn’t begin strengthening again until June, 2010.  the interim, the Chinese did absolutely nothing to restructure and instead went on a Keynesian orgy of stimulus packages and fixed asset investment.  Million person cities with no one living in them were built seemingly overnight.  The biggest mall in the world was built and there was no one shopping in it.  I saw all of these things and immediately called them out on it.  I was writing about how China’s recovery was a total sham by the first half of 2009, yet there were all these China bulls talking about how they are “the best capitalists in the world.”  What a ridiculous statement.  That economy is total command and control at the top, just like EVERY single major economy on earth today.  To say China isn’t is total delusion and their response to the crisis proved it to me 100%.  They didn’t allow market forces to take over, the flooded the system with liquidity and tried to direct it as well.

In light of that, there was always going to come a time where China suffered the affects of it absurd policies and that time seems to be now.  Anyone that watches markets and pays attention to economic statistics understands that China’s economy is in the midst of a serious slowdown.  In fact, I wouldn’t be surprised if they are already experiencing close to negative real growth if you strip out true inflation.  The bottom line is nobody knows because the data is so clouded in a centrally planned haze.  The more interesting question is what are they going to do about it?  So far not that much.  So why is that?  Well, they are in a similar predicament to the Western world (no surprise there as this is what happens in centrally planned ponzi economies).  Do they triple down on the prior policies or do they try something different?  That question has yet to be answered and the reason I think they haven’t responded is they hope inflation can come down enough to triple down on prior policies.  This of course is very dangerous because with each passing day the economy will get worse and worse and they risk things getting totally out of control.  The main point I am trying to make here is that no major country ever restructures because if any of them tried the entire global ponzi that has benefited all these “leaders” would rapidly unravel in their faces.  This is why the U.S. never does the right thing and it is also why China never does the right thing.  This ponzi is global and it will not be dismantled from the top.  Rather it’s dismantling will be fought by TPTB all the way and to the end because they know when it unravels everyone will see they were just little greedy central planning bureaucrats who brought death and destruction to the world as they played out their fantasies with our lives hanging in the balance.   

Recently there were rumors of a coup in China that turned out to be unfounded.  This story got me thinking and although this turned out to be untrue I think that with each passing day the odds of a genuine coup or outright revolution in China increases exponentially.  Here is why.  The people that are actually pulling the strings in China at the moment are clearly in bed with the Western PTB.  The elites in China benefitted greatly by agreeing to use their citizens as slave labor to fatten up Western multinational profits.  That said, you can be sure there is a growing faction of powerful people in China that see these characters as traitors and the longer they do nothing and the economy slumps lower the more the person on the street will become enraged and the more vocal and powerful those that oppose these Western Keynesian lapdogs will become in Chinese society.  With each passing day that the leadership does nothing with the economy, the greater the threat of a political and social change of massive proportions becomes in China.  I expect historic political and social change to come to every country including the United States I just think China’s power structure may fall before ours does.  This is something everyone should keep a very close eye on. 

Oil

Besides gold and silver, there is nothing that scares Central Planners (Bankers) more that oil.  In their delusional world where they play god with our futures, they think they can make the sheeple do whatever they want by adjusting the settings on a printing press and can thus determine the fate of the global economy and humanity itself.  What they hate more than anything else is when all of their money printing causes things like oil to rise because it exposes them for the charlatans that they are.  This is why Obama is constantly attacking speculators and oil companies.  It is all an attempt to scapegoat someone else for the financial nightmare that is hitting everyone’s wallet.  This is why they floated the absurd idea of releasing more oil from the U.S. Strategic Petroleum Reserve and then denied it once the market failed to react vigorously enough to the rumor.  This is also why Obama surely has called the Saudis up repeatedly as of later to remind them that they might see regime change unless they ramp up oil production to help his reelection. 

This brings us to one of the most important aspects of the entire global economy at the moment.  Saudi oil production is hitting record highs at the moment.  In fact if you look at the chart below you will see that the Saudis have never consistently pumped more oil than they are right now.     

Saudi Oil Production 1980-Present

Now this chart has been going around the street for weeks now, but I am not convinced people really understand the significance of it.  There has been a tremendous amount of debate in the oil world over the past decade about what the Saudis can actually pump.  Many such as the late Matt Simmons repeatedly claimed that the situation on the ground there was much worse than people understood and that the Kingdom might be on the verge of experiencing a major peak in production.  Others, such as the Saudis themselves claim they have plenty of room to grow and indeed claim to have the ability to ramp production to 12-12.5 million barrels per day relatively quickly.  Well if I am right we are about to find out.  The Bernank knows he needs to launch QE3 because without it interest rates could rise and officially bankrupt the government.  He also knows that QE3 will be seen by the market as proof that the economy still sucks and they were just lying and that it will just prop up more mal-investment.  Mal-investment will support unproductive consumption and of course result in flying oil prices.  The Bernank and Obama will want to make sure the Saudis come in and raise production further along with the commencement of QE3 so that the rise in gasoline prices is not as severe as it otherwise would be.  Check out the chart of wholesale gasoline prices below.    

Gasoline Prices 2002-Present

As you can see from the chart above, gasoline prices are already at last year’s highs (right before the stock market experienced a correction) and also back very close to the 2008 highs when the whole system imploded.  So what I take away from this is that we may be about to see what the Saudis really have.  In order to print the massive amounts of new money the Central Planners want (need actually) to save their delusional little system they will need Saudi Arabia to pump more oil.  If the Saudis cannot do so, it will create a total panic attack in the markets everywhere.  Why?  Because this will mean that the Central Planners have finally hit the brick wall.  It will mean that any more money printing will result in nothing less than exploding gasoline prices and ultimately judgment day when we finally find out if the world will spiral into uncontrollable inflation or deflationary collapse.  Saudi oil is a major key to this equation.      

The Most Ominous Chart in the World

The Chinese Yuan 2005-Present

 

Take a look at the chart of the Chinese currency above.  When it is declining it represents appreciation versus the U.S dollar.  What you can see is that the appreciation trend from June 2010 has stopped.  It has been flat since the end of 2011.  Recently, such behavior has foreshadowed major negative events.  I think the reason is because it signals a resource wall has been hit that therefore constrains central planning printing and liquidity expansion.  The last time it stopped appreciating was in early July of 2008.  This coincided perfectly with the collapse of the commodity bubble.  Three months later the entire financial system imploded.  We don’t have a commodity bubble this time but we have other ones.  We have a luxury goods bubble.  A retail sector bubble.  A treasury bubble and then the biggest bubble of all the fiat money bubble.  Which of them will collapse this time?

Good luck out there.

Peace and wisdom,
Mike

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Thu, 03/29/2012 - 17:15 | 2301903 Arius
Arius's picture

the picture definetly true!  best one that captures it all ... its always the same ... the only piece missing is the part when the sheeps gets slaughtered ...

the dog remminds me of Timmay!

Give us Timmay or give us Death!

Thu, 03/29/2012 - 17:20 | 2301911 LuKOsro
LuKOsro's picture

We`re not in Kansas anymore...

Thu, 03/29/2012 - 17:46 | 2301985 LaLiLuLeLo
LaLiLuLeLo's picture

We're on another planet and acting like it. no wonder aliens haven't come here: "these guys sUck"

Thu, 03/29/2012 - 18:43 | 2302073 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

BUY SILVER

Thu, 03/29/2012 - 19:01 | 2302104 BoNeSxxx
BoNeSxxx's picture

And then, there is this: http://endoftheamericandream.com/archives/why-does-the-department-of-homeland-security-need-450-million-hollow-point-bullets?utm_source=rss&utm_medium=rss&utm_campaign=why-does-the-department-of-homeland-security-need-450-million-hollow-point-bullets

Why DOES DHS need this much ammo if they just grope children and old ladies at the airport?  And, if they need ammo at all, why hollowpoint rounds?

 

NOTE: unvetted and unverified... I am in Sao Paulo where, evidently, the internet is run byte-by-byte by carrier pigeon.  Not enough broadband for anything other than my beloved ZH.

Thu, 03/29/2012 - 20:22 | 2302322 Hagbard Celine
Hagbard Celine's picture

all else being equal, hollow points are safer in these crowds. less likely to go through the person you're shooting to hit the person behind them

Thu, 03/29/2012 - 21:27 | 2302476 BoNeSxxx
BoNeSxxx's picture

Which begs the question:

Just why does DHS believe they will be shooting people any time soon?

Thu, 03/29/2012 - 22:02 | 2302545 BobPaulson
BobPaulson's picture

Uh, what else do security forces shoot at? Clay pigeons? Deer?

The question is why do they need to stockpile ammo.

Fri, 03/30/2012 - 00:15 | 2302723 RafterManFMJ
RafterManFMJ's picture

Oh my god yeah! Those highly trained precision HomeLand Sekuirity types - yup, I'm FIN sure they are the masters of controlled fire - probably like Imperial Stormtrooprs X10.  Nothing says to me 'controlled fire' more than some sub-80 IQ troglodyte finger fucking a 90 year old granny in her wheelchair;  And only 450 million rounds? Come now, we have a population of at least 270 million...

You're worried about over-penetration, get a shotgun or buy frangible ammo.  Pop quiz for those who have cable/buy the paper...how many rounds have HS used in the last 5 years killing the unending waves of terrorists attacking us like a bad remake of Zulu Dawn? Divide 450 million by that number...I'm guessing that ammo supply should last till the sun burns out.

Sat, 03/31/2012 - 00:33 | 2305751 ruffles
ruffles's picture

Um,

What the fuck are you talking about?

Cheers!

-ruffles

Thu, 03/29/2012 - 22:20 | 2302571 Dermasolarapate...
Dermasolarapaterraphatrima's picture

DHS?

Report: Officers lose 243 Homeland Security guns (CNN)

 

http://articles.cnn.com/2010-02-18/politics/government.guns_1_firearms-c...

 

Gives me a warm and fuzzy feeling....

Thu, 03/29/2012 - 22:56 | 2302631 Vint Slugs
Vint Slugs's picture

First, DHS are not the airport gropers, that's TSA (you're comment is excusable since you're out of the USA).

Even if you figure that only one-third of DHS ("employees") carries and can/will shoot, that figures out to better than several hundred rounds/day for more than a year.  There's no way that they can go out to the range and blow off that number of rounds every day annually.  Just isn't possible in a peacetime environment.  Obviously, they believe that war is coming and it's coming HERE.  What they will do is ship out those millions of rounds to their satraps in the local gestapo - you know, your friendly militarized local police department.

To answer your question, which surely is rhetorical, hollow points are anti-personnel.

Fri, 03/30/2012 - 08:01 | 2303005 DanDaley
DanDaley's picture

Some of you guys are just a little too paranoid.  "They" are not coming after you, but just after everyone who looks, acts, walks, and talks like you...but not you.

Fri, 03/30/2012 - 10:31 | 2303410 Seer
Seer's picture

Maybe they figure they're going to take a hit to their budget, or otherwise won't be able to obtain ammo (due to everyone else stockpiling), so they're putting in one big order now?

HS also includes the CG and border guards.

I always find it interesting that some govt entity acts just like regular humans and everyone thinks it bizarre.

I don't find it appealing, but hey, things are only going to get weirder and weirder as the maddening crowds expand.

Thu, 03/29/2012 - 18:01 | 2302005 theXman
theXman's picture

Very good article by Mike Krieger.

Thu, 03/29/2012 - 18:18 | 2302033 DoChenRollingBearing
DoChenRollingBearing's picture

There are between 70 and 90 brands of CHINESE cars and trucks in Peru.  That is more brands than ALL OTHER BRANDS PUT TOGETHER in that country.  Chinese cars have a general reputation of being POS.  There is going to be a bloodbath at the lower end of the market for cars and trucks there.

And probably in China we well...

"Vehicles in Peru"

"Some bearings we sell in Peru"

Google the above articles or gmail me at my name for link.

Thu, 03/29/2012 - 18:19 | 2302034 4horse
4horse's picture

NO DOUBT
yet NO ACTION

SHUT DOWN THE BANKERS

The Owners of the 12 Central Banks:
- Rothschild Bank of London
- Rothschild Bank of Berlin
- Lazard Brothers of Paris
- Israel Moses Seif Banks of Italy
- Warburg Bank of Amsterdam
- Warburg Bank of Hamburg
- Lehman Brothers of New York
- Kuhn Loeb Bank of New York
- Goldman, Schs of New York
- Chase Manhattan Bank of New York

 

NO ACTION

whether there are about 300 3000 or 3000000 VERY POWERFUL__ individuals who Own The FED
http://whistleblowers.freehosting.net/federal_power.htm

SHUT THEM DOWN
or
STFU

Wed, 04/04/2012 - 07:42 | 2315746 BlackVoid
BlackVoid's picture

SHOT not SHUT.

Thu, 03/29/2012 - 18:39 | 2302070 bank guy in Brussels
bank guy in Brussels's picture

A really advanced perception in this article is when Mike Krieger writes:

« This is also why Obama surely has called the Saudis up repeatedly as of later to remind them that they might see regime change unless they ramp up oil production to help his reelection. »

This is one of the most un-discussed, but significant themes in geo-politics, the US - Saudi dark connections ... and the fact that the US will eventually turn the heavy hammers onto them, too.

Those mediaeval torturing Saudis only survived these last few decades because the US was propping them up, for the sake of the 'petrodollar' scheme ... now in decline ...

And though the Saudis don't seem to realise it, Saudi Arabia itself is on the longer-term regime change 'hit list', even though they have been all supportive of the US-Nato hit programmes on Libya, Syria and Iran.

Occasionally one of those US CIA think-tank people even blurts it out: Yes, eventually, the US will take down Saudi to get the final siphons out of those oil wells there.

Thu, 03/29/2012 - 19:50 | 2302226 americanspirit
americanspirit's picture

Bank guy in Brussels - I want to say that IMO you are consistently among the most perceptive posters on this forum. Thank you. Don't stop contributing.

Thu, 03/29/2012 - 19:54 | 2302239 DaveyJones
DaveyJones's picture

yup, no honor amongst thieves

Thu, 03/29/2012 - 22:54 | 2302635 CrazyCooter
CrazyCooter's picture

Oh, I think they know it very, very well. It is hard to be in power and not see the obvious writing on the wall. Nations in the MENA who don't play along with the petro-dollar seem to have "issues" with staying alive/in power. As you point out, that is very likely to change soon.

Iran is clearly next, particularly since they are going with a non-dollar oil market (like Iraq under SH).

I think what will happen, when TSHTF with Iran, is that SA will destablize and it will be game on for rolling up all the oil producing regions under a new boot heel that will take care of the host country and toss the rest to the wolves.

I think it is often overlooked how much FOOD the US exports. Check out food production and population in MENA. At any time, the US can crush any government in the world without the ability to feed its own people domestically. But, this was called a long, long time ago ...

http://www.youtube.com/watch?v=P0q4o58pKwA

Regards,

Cooter

Thu, 03/29/2012 - 23:31 | 2302669 Sizzurp
Sizzurp's picture

When you take a hard look into what living on the far side of the peak oil production curve actually means to civilization as we know it, the geopolitical events we are witnessing depict, with ominous and desperate clarity, just what it is we are facing.  The power elites have seen the future and they are scared shitless. They are aware of what is happening, and it would seem that they are willing to go all in at this point.  Their brand of "prepping" is a bit different however.  Mitigation is water under the bridge, the prepping they are doing is for resource wars abroad, and civil unrest at home.  They appear dead serious about it.   

Fri, 03/30/2012 - 07:09 | 2302944 Green Leader
Green Leader's picture

Global depopulation is well on its way, but not at the pace they planned due to unforseen 'outside interference'.

 

Fri, 03/30/2012 - 10:29 | 2303405 DaveyJones
DaveyJones's picture

this was a great chain of comments.

Fri, 03/30/2012 - 11:37 | 2303621 Seer
Seer's picture

"Saudi Arabia itself is on the longer-term regime change 'hit list',"

More realistically is the long-known issue of "transition of power."  It's why I believe that Iraq was invaded: TPTB figured that the House of Saud was getting a bit old and creaky, with no clear way of transitioning in new power (that's what the Osama bin Laden stuff was really all about).

But obviously this still avoids the elephant in the room: high dependance on non-renewable resources (when you fuck up the fundamentals it'll never end up well).

Thu, 03/29/2012 - 19:01 | 2302105 vast-dom
vast-dom's picture

When oil hits $125 the shit will start to clog the fan. That simple folks. 

Thu, 03/29/2012 - 23:39 | 2302678 Mr. Mandelbrot
Mr. Mandelbrot's picture

Brent's already there . . .

Thu, 03/29/2012 - 17:34 | 2301939 ChrisFromMorningside
ChrisFromMorningside's picture

"The man" = The Banking Cartel

"The dog" = The Police State

 

Thu, 03/29/2012 - 17:42 | 2301958 King_of_simpletons
King_of_simpletons's picture

Goldman Gods making Godly decisions to do God's work.

http://tinyurl.com/7w68wxl

Thu, 03/29/2012 - 18:09 | 2302018 Gully Foyle
Gully Foyle's picture

ChrisFromMorningside

Well that sheds a whole new light on the old saying 'going to see a man about a dog".

Now that I think about it all metaphorically means the same thing.

Thu, 03/29/2012 - 19:23 | 2302145 Al Gorerhythm
Al Gorerhythm's picture



"The man" = The Banking Cartel

"The dog" = The Police State

"Trevor"    = The Homeland Security Informer

Thu, 03/29/2012 - 17:37 | 2301954 Future Tense
Future Tense's picture

I don't understand why people are focused on China and oil, future problems, when they should be focused on Spain: the "here and now" problem.  The clip below shows what is taking place today on the streets of Spain and discusses their coming meltdown:

http://www.ftense.com/2012/03/checking-in-with-spain.html

Thu, 03/29/2012 - 17:42 | 2301967 SheepDog-One
SheepDog-One's picture

OH right, Spain is gonna be real scary and dangerous....just like the GREECE state of panic for 18 months. Yea Im not buying their bullshit anymore myself.

Thu, 03/29/2012 - 18:00 | 2302004 Calmyourself
Calmyourself's picture

Oooo, so scary, the Euro's cannot even make a decent molotov all flash no last..  Wake me when the Germans get pissed, I'll open one eye for those domesticated she men that pee sitting down..

Shit all the Euros are pussy pee twits..

http://www.thenakedscientists.com/HTML/articles/article/to-sit-or-not-to...

Thu, 03/29/2012 - 18:21 | 2302040 Gully Foyle
Gully Foyle's picture

SheepDog-One

Dude it might impact the filming of next seasons Benidorm!

Thu, 03/29/2012 - 18:22 | 2302038 Gully Foyle
Gully Foyle's picture

Future Tense

"future problems"

Aging world population, low birth rates in the industrial nations, peak population about 2050 then a decline, and in the US a rapidly aging prison populace requiring expensive care.

Those are future problems that nobody ever talks about.

The worst part is if you wait twenty years to start discussing any of them it is already far too late.

Thu, 03/29/2012 - 19:23 | 2302146 WillyGroper
WillyGroper's picture

GF-----prisoners are already exploited for corporate labor. With CXW & GEO taking hold of many prisons, it's only a matter of time before they pop a cap in their head & steal their organs to sell them with the claim that they came from a 20 yr old. No different than China.

Thu, 03/29/2012 - 19:52 | 2302234 americanspirit
americanspirit's picture

And Gully may I add - water.

Thu, 03/29/2012 - 18:32 | 2302058 ChrisFromMorningside
ChrisFromMorningside's picture

Spain is already doomed. They're goners. Name one industry that could be poised for growth, even post-Great Reset, that would allow them to rebuild their standard-of-living? It's not going to be tourism or leisure-related industries (restaurants, etc.) and that's what they mostly know. I don't see the culture in Spain welcoming in Foxconn-type assembly jobs.

As for a revolution ... I don't see it happening. The youth put on a great show with the black blocs and the hoodies but I have yet to see them really challenge the state in a fundamental way. It's all show. At the end of the day, they go home and play with their iPads. Really challenging the state would involve risking a lot more. China is going to be way more explosive. Simply because of the enormous political dissent that already exists within the PLA ... which is already armed and already has influence over the central state. Not to mention that the people have far less to lose. I bet there are thousands of labor riots in China yearly that we never hear about in the West that eclipse the most violent confrontations in Spain (or probably even Greece).

Thu, 03/29/2012 - 18:34 | 2302065 Calmyourself
Calmyourself's picture

One industry, heck I can name two.. Solar power and usurious banking..

Thu, 03/29/2012 - 20:03 | 2302266 ChrisFromMorningside
ChrisFromMorningside's picture

Solar power is not a mass-employment industry. Solar may have an impact on Spanish GDP and Spanish energy costs but it's not going to solve 50%+ youth unemployment in any reasonable time frame.

 

Thu, 03/29/2012 - 21:59 | 2302541 Calmyourself
Calmyourself's picture

oop's did I forget again,  "sarc"

Thu, 03/29/2012 - 18:59 | 2302100 blu
blu's picture

Interesting points.

Thu, 03/29/2012 - 19:24 | 2302149 WillyGroper
WillyGroper's picture

Saffron

Thu, 03/29/2012 - 22:09 | 2302553 masterinchancery
masterinchancery's picture

Completely true. From what I have seen in Spain, they don't have a business except tourism, and they sure as hell don't have a work ethic.

Thu, 03/29/2012 - 19:01 | 2302107 walküre
walküre's picture

Sure, they have problems.

But as soon as Jose, the old unionista started talking about "achievements" and "irreversible damage" I tuned out.

Jose will never understand that none of his "achievements" were ever meant to be sustainable and that one man's "achievements" are another man's ticket to massive wealth on the back of a Central Banking camel.

Fri, 03/30/2012 - 11:40 | 2303628 Seer
Seer's picture

"I don't understand why people are focused on China and oil, future problems, when they should be focused on Spain"

Maybe because Spain doesn't have any resources, nor is it looking like it's going to be gobbling them up...

You're referring to virtual/fiat stuff, which, well, it's all fake.  PHYSICAL, on the other hand, well, sticks and stones...

Thu, 03/29/2012 - 17:49 | 2301991 Kaiser Sousa
Kaiser Sousa's picture

for the collective....

"The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday."

http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106

Thu, 03/29/2012 - 19:06 | 2302115 Peter Pan
Peter Pan's picture

The article definitely diplays real thinking but the funny thing in all this is that China thinks it's communist and the USA thinks it's capitalist, yet in reality both nations have become plutocracies in the extreme and this is what threatens both the viability and stability of the system.

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