Debt Rattle December 30 2014
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DPC Times Square seen from Broadway 1908 • Greece Comes Back To Haunt Eurozone As Anti-Troika Rebels Scent Power (AEP) • Syriza Can Transform The EU F
[See the full post at: Debt Rattle December 30 2014]It looks like the Obama has been listening to that magic mirror on the White House wall again. BBC reports:
https://www.bbc.com/news/world-us-canada-30629200
How full of oneself can one get (rhetorical question, no answer needed)?
I am vindicated.
This came to my attention just this morning:Syriza and Greeks don’t like austerity any more than the French did but it doesn’t matter. Austerity is not the fashion it is inescapable reality.
Also reality: euro = gasoline. If Greece wants to de-car itself it should go back to the drachma and see how many oil exporters will accept it … Syriza looks to be part of another positive feedback loop that reinforces dollar preference. A depreciated euro = less gasoline, conservation by other means.
One of the concepts that has been stressed here at TAE over the years is that rising or falling prices are not necessarily indicative of the direction of the money supply (rising or falling). This is borne out in spades with respect to the recent drop in oil prices.
Oil prices are down due to a massive glut on the market. The glut is not due to a fluke discovery of a massive new field. It is due to the presence on the market of heavily subsidized oil, mainly in the USA. The shale oil and other marginal production is on the market (but not for long) due to favorable tax treatment, zero bound interest rates, and the Bernanke-Yellen ‘put’ that encourages absurd risk taking. As one would expect it has lead to a junk bond market where uneconomic energy plays are priced as if they have zero risk.
The ongoing hyperinflation of the money supply has allowed this uneconomic production to creep onto the market. This concept of uneconomic oil production is explained, in part, by Jay Hanson. (see link on front page of TAE).
The destruction of this uneconomic production is being brought about by another economic concept: the reluctance of exporters to let go of market share. If the World’s economy continues to slow, or heaven forbid contracts, look for other classes of prices to drop as well, even as major governments continue to deficit spend many trillions of dollars (and Euro, yen, yuan, etc.) into existence every year.
At some point governments like the USA federal govt. might opt to default of their social security and medicare obligations, at which point we will have massive deflation. We are not that close to a decision point on that matter, yet. Give it another couple of years, I figure.
Oil prices have declined b/c customers lack access to sufficient credit to bid the prices higher.
Credit system appears to be broken, partly a consequence of major countries’ monetary easing, which shifts purchasing power from customers to big businesses and their lenders. There are two outcomes: customers are broke, ballooning big business debts cannot be serviced either by the businesses themselves or their broke customers. After that = insolvency.
The problem in our economy has been energy shortages all along. Oil availability ‘peaked’ in 1998 and it has been downhill ever since.
The current price decline has fingerprints of Bank of Japan all over it. More easing = more declines. Draghi’s promise of euro QE has affected the price, actual easing will knock another $20 off Brent; (the price in euros will remain as current as depreciation of euro will = decline of dollar price of fuel.)
Keep in mind, what is being priced in oil markets is not cost of extraction but the actual return on consumption (most of which is simply non-remunerative automobile waste). About 5% of energy consumption since beginning of industrial age has been/is directly remunerative (farm tractors, delivery, transit, construction and emergency vehicles, etc.) only returns from these uses are available to bid for- and purchase fuel. Look for about $8 – $10/barrel when all is said and done.
Oh yeah … and it stays down there, too. Nobody has any money; no real productivity.
I note that the CEO of AirAsia is blaming “climate change” for the loss of QZ8501
“Referring to floods in Malaysia and Thailand, he suggested that climate change may have played a part in more dangerous conditions for air travel: “There’s a lot of rain, so that is something we need to look at carefully because the weather is changing. The weather is changing”.”
I find this bizarre in the extreme. What a cop-out!
I also note that no bodies were ever recovered from the disappeared Malaysian Airlines MH370. I guess that aircraft did not break up on hitting the water – or some such nonsense.
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