Economic pressures

[Danny B]

Crashing oil,,, crashing finances

The Saudis precipitated a crash in the price of oil. I suspect that they didn't think it through. The price drop has taken on a life of it's own and is falling much faster than the drop in commodities; Global Economy: Top-Down - Business Insider

This has made life very difficult in Venezuela;" Experts predict the situation in Venezuela will worsen as early as the first half of 2015."

"It will be a year of extreme scarcity," Venezuelan economist Angel Garcia Banchs said. "What's coming to Venezuela is chaos that will probably lead to barbarity and people looting. " http://www.cnbc.com/id/102227316

It appears that OPEC has killed the profitability of investors at the same time that it has dropped the price of oil. " Banks' $650bn bet on oil backfires as Brent prices slump" Banks' $650bn bet on oil backfires as Brent prices slump - Telegraph
Ron Insana says that GOV must subsidize oil frackers; Insana: US Must Shield Fracking Industry 'At All Costs'
The financial fallout from the oil crash may be worse than the oil crash itself.
David Stockman has an EXCELLENT article on "financialization". At it's simplest definition, it means; taking a safe investment and making it more profitable BUT, less safe. This has been done to oil. The profits are made outsized but, the risk is made outsized also.
The Oil-Drenched Black Swan, Part 2: The Financialization of Oil | David Stockman's Contra Corner

[Danny B]

Funding fight

It's that time of the year,,, AGAIN. "Funding the government. The government will shut down Dec. 11 unless a funding bill is passed

Read more: Congress on the brink - Jake Sherman and John Bresnahan - POLITICO
This promises to be a nasty fight. The obummer EO is unpopular, to say the least. There is a threat to limit funding for DHS since they would be the ones to execute the EO on immigration. DHS chief: Short-term funding a 'very bad idea' - Seung Min Kim - POLITICO
Corporate taxes are at an historic low,,, the economy has crashed,,, FED GOV claims that tax collections are very high. I must have missed something. Just the same, there is going to be a big fight, mock or otherwise. The FED claims that QE has ended. Yeah, right.
The PPT and the ESF are pumping liquidity in as fast as ever. Wait and see.

[Danny B]

Tax deposits in public banks

As everyone knows, sate and local GOV collect taxes and deposit them in a bank. The bank charges interest on loaning those funds. The bank can throw those funds around wherever they want.
North Dakota is different.
"According to an analysis done of the Bank of North Dakota by the New England Public Policy Center back in May 2011, a majority of the state bank’s deposits are from tax collections and state fees. Last year the only state bank in the nation reported out its ninth year of record profits with a total asset base of $6.1 billion. The state got a 17.6 percent rate of return on its investment."
These numbers show why establishment banking so so DOWN on state banks.
Big banks broke America: How to achieve the ultimate revenge against them now - Salon.com
That 17.6 % return is a pretty good investment.

[Danny B]

Dollar denominated debt

I found a couple more good articles; A great article on the divergence between TLT and ELD
I’ve Been Thinking About How the Current Madness Will End | Wolf Street
" Nobody knows how (or when) it will end. Not even former Fed Chairman Alan Greenspan. I asked him these specific questions when I saw him last month at a conference in New Orleans. What he told me was frightening: He said that the central banks have no idea what they’re doing and that they will not be able to control the inflation that will inevitably result from this massive experiment."
Porter Stansberry seems to think that this will all end when emerging Markets blow all to bits.
Gross national debt is increasing $3 billion a day; US Debt Jumps $181 billion in Two Months, hits $18 Trillion | Wolf Street
The FED printed like mad after the 2008 collapse. This worked to service dollar-denominated debt in Europe. The FED is currently buying up 50% of treasury debt issuance to keep interest rates low. Since treasury bonds are used as dollars to service dollar debt, there is a shortage of dollars. The FED isn't likely to produce extra dollars to service the emerging markets so, Stansberry could very well be right.

[Danny B]

Destruction of capital and wages by ZIRP

"Irredeemable currency is the ultimate cause of unemployment, as
the central bank's monetary policy makes the marginal productivity of labor rise, thereby making marginal wage earners dispensable"
http://www.professorfekete.com/artic...ptedInsInd.pdf
"To add insult to injury, wage earners are bombarded
by government and central bank propaganda. “Stand still little lamb, the ‘haircut’ is good for you! You will love the lower interest rate environment that is yours free of charge, courtesy of the Fed!” The truth is that, in effect, a great injustice has been inflicted on all wage earners. They have been victimized."

[Danny B]

Bubbles and stagnation caused by too much dbt

The oil crisis has caused a financial crisis. The speed of collapse is picking up. I'll try to add articles that explain the reality of our situation.
"THE Crisis concerns the biggest bubble in financial history: the epic Bond bubble… which as it stands is north of $100 trillion… although if you include the derivatives that trade based on bonds it’s more like $500 TRILLION."
http://www.zerohedge.com/news/2014-1...s-thats-coming

This is a long, comprehensive article that covers many subjects.
"Walter Bagehot the founder of the Economist magazine and big thinker on central bank policy said a central bank should only give credit to institutions, which are solvent against first class collateral and at punishing interest rates. Today central banks give money to institutions, which are not solvent, against doubtful collateral for zero interest. This is not capitalism."
http://www.zerohedge.com/news/2014-1...ut-next-person

This is a repost of an excellent article on secular stagnation;
FOFOA

[Danny B]

Yen, repo and gold

In the monetary plane, there is a general recognition that too much money printing never fixes a problem. Why then did Shinzano Abe print so much "money"?
"It's been 2 year since Abenomics began, and the November 20 New York Times article confirms "its failure." Since its inception:

Japan's government debt has increased to 250% of GDP
The index of Japanese industrial output is 96.8, the exact same reading as 1989
Real household income has fallen by 6%
And Japan has an 11 trillion yen trade deficit -vs.- a 5 trillion yen trade surplus in 2010"

Read more: http://www.elliottwave.com/affiliate...#ixzz3LAdH7Yx6
Follow us: @elliottwaveintl on Twitter | ElliottWaveInternational on Facebook

OK, this outcome was / is expected. Why did Abe do it? Japan was conquered, occupied and garrisoned. But, why all the printing?

"If we are correct, the liquidity in the gold market, with well over US$100.0bn of gold instruments traded daily, implies that substantial financial firepower has been required to maintain the intense pressure on the short side of the trade during the last two years. "
"If we are correct about gold being the short side of a large, leveraged long/short trade, the key question is what is on the long side of this trade?
It was almost certainly a large, liquid market too. But which one?
Here is the chart of Gold versus the Nikkei since September 2012. There is not much to see......until you invert the Nikkei axis and the remarkably close correlation becomes obvious."
http://www.zerohedge.com/sites/defau.../PM%2011_0.jpg
Abe is blowing up Japan so that the Nikkei can supply the liquidity,, through the repo market, to create an enormous short on gold.
http://www.zerohedge.com/news/2014-1...old-new-normal

[Danny B]

Fracking financing

Here is a chart of the required price of oil to break even in the various shale plays. http://media.peakprosperity.com/imag...-12-3-2014.jpg
"Our view here at Peak Prosperity is that the days of rapid economic growth are behind us, and that if we do experience rapid growth again it is from much lower levels as we rebound from some major slump.

But to grow even more from here, even if that's just 4% annually across the globe implies that we'll find a way to fully double the entire world's consumption of resources in just the next 18 years."
Oil And The Global Slowdown | Peak Prosperity
"Unfortunately nobody - and I mean nobody - in any central bank is even remotely talking about or in any way displaying that they are even dimly aware of the role of energy in economic growth. To them it is all about the banks."
Wages are sliding towards a very low global mean. Effectively, this means that the price of energy is going up. The West is slipping down to where it's level of consumption is equal to other third-world countries.
The financial system needs growth at ANY cost. The original plan was to extend out our payment terms and have our children pay the bill.
https://www.youtube.com/watch?v=MqoGORXAv2o

This is no longer possible,,, if it ever was. U.S. aggregate wages are falling. The usual "plan A" is to inflate away the debt so that the payment isn't near so difficult. The FED is unable to create a wage-price spiral because it can't force wet-ink money into the lower loop of the economy. There is no possibility of creating high paying jobs because they would be immediately be outsourced. They have to settle for pumping money into GOV jobs. Diversions of resources to feed the mega-parasite doesn't cause inflation at this late state in the game.
We slide towards default like any other third world country run by thieves.

As fracking crashes and brings down parts of the financial system, a lot of jobs will go with it. Jobs, Shale, Debt and Minsky - The Automatic Earth

"Simply put, the sharp drop in oil revenues has knocked over a line of financial dominoes whose end is not yet in sight. "
oftwominds-Charles Hugh Smith
Keep that in mind, "NOT in sight"

[Danny B]

oil boom and bust,, whodunit

During the construction days of the Alaska pipeline, Pastor Lindsey Williams volunteered his services to the oil barons at pipeline headquarters. They had him sit in on their meetings so he would know where things were going. He was the chaplain to the roughnecks working on the pipeline. They fed him quite a bit of information and really opened his eyes. He wrote and published a book, "The oil non-crisis". If you consider that the original GOV lease at Prudhoe was a 10 Mile by 10 mile area, you get the idea that GOV didn't want to discover too much oil. The petroleum reserves in the arctic are ENORMOUS.
Many years ago they drilled "Gull Island" and found a huge bonanza. It was capped. Williams reported this and just recently, it was uncapped.

Pastor Williams regularly carried messages that his elite friends wanted aired out. A few years ago, they told him that they were going to drive oil down to $ 25 a barrel. Against the advice of his colleagues, he reported this. It came to pass. Many firms that had contracts locked in had to declare bankruptcy.
Both GOV and the speculators make more off a barrel of oil that the oil companies do. The oil companies are losing a lot of money and are probably unhappy about that.
GOV controls the leases and the taxes. The banks have financialized energy,, inflated the price and are making a killing. Only the oil companies produce oil. They can manipulate the output. Much of the Alaskan oil has sand in it and is abrading the pipeline. The oil majors were going to put in a new pipeline and use the existing pipeline to transport natural gas. They never did it.

The oil majors crashed the price already one time. Once again, the speculators have driven up the price. An old figure that I had is that; the speculators add $ 26 per barrel. Once again, the price has been crashed down. Once again, it is trashing the speculators. This time is different. The highly leveraged and (can't lose) bets are pushed into other areas with oil profits as the base of finance. Since $ 100 oil was a sure bet, everybody took their sure-to-appear profits and invested in everything else.

A couple more headlines; "Oil drops $2 to five-year low on oversupply"
Oil drops $2 to five-year low on oversupply

"Energy companies sold $50 billion in junk bonds through October, 14% of all junk bonds issued! But junk-rated energy companies trying to raise new money to service old debt or to fund costly fracking or off-shore drilling operations are suddenly hitting resistance.

And the erstwhile booming leveraged loans, the ugly sisters of junk bonds, are causing the Fed to have conniptions"
I suspect that the buyers of these junk bonds have very little protection. So, energy companies sold junk bonds to banks.
This is how those loans are performing;
http://wolfstreet.com/wp-content/upl...3_Nov-2014.png
Oil and Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next | Wolf Street

From The Automatic Earth; "This is what makes the falling oil prices so dangerous. As I must have said a million times in just the past few weeks, it’s not about the energy, it’s about the money."
"Oil, Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next "
"Smaller drillers are in trouble. All of them had horrific single-day plunges, some over 30%, on “Black Friday” after OPEC’s Thanksgiving decision [..] Traders who tried to catch these stocks have gotten their fingers sliced off since then:

Goodrich Petroleum -88% since June. Energy XXI -86% since June. Sanchez Energy -78% since June. Oasis Petroleum -75% since July. "
"even the 43 largest, most diversified players in the energy sector that are part of the S&P 500 are grappling with the new reality: analysts chopped earnings estimates by 20.5% since September 30, according to FactSet. "
More Than A Quantum Of Fragility - The Automatic Earth
These elite friends have e-mailed Lindsey to tell him that they are going to crash the economy in October.

The Bank of international Settlements seems to be getting quite worried; " The highly abnormal is becoming uncomfortably normal. Central banks and markets have been pushing benchmark sovereign yields to extraordinary lows - unimaginable just a few years back. Three-year government bond yields are well below zero in Germany, around zero in Japan and below 1 per cent in the United States. Moreover, estimates of term premia are pointing south again, with some evolving firmly in negative territory. And as all this is happening, global growth - in inflation-adjusted terms - is close to historical averages. There is something vaguely troubling when the unthinkable becomes routine."
http://www.zerohedge.com/news/2014-1...ts-have-become

If you remember the plot line from Atlas Shrugged, Francisco d'Anconia had his own ships sunk to deprive the GOV of copper ore. At one point, the elites told Lindsey Williams that they would crash the economy when obamacare was fully implemented.
The big slowdown in China hit about the same time that fracking boomed. It boomed big enough to draw in all the hot money. The next problem is that all this volatility will keep most investors from coming back.
Armstrong says that October, 2015 is when the major riots start in America.

[Danny B]

The Hindenburg omen,, the perquisites of blue-bloods

Her majesty's GOV of Great Britain knows that everybody will have to cut back. This includes expenditure from the public purse. The House of Commons and the House of Lords each have a catering service. It was proposed to combine them to save money. The House of Lords refused to go along, saying that they feared the quality of their champagne might suffer. The House of Lords has bought 17,000 bottles in the last 4 years.
http://i100.independent.co.uk/articl...er--gkRgp-6Cux

You wonder if it is even possible for the stock market to crash considering that the FED, ESF and PPT are pumping in $ trillions. We may soon find out.
"We Got an Official Confirmed Hindenburg Omen on December 2nd, 2014"
"This Omen has appeared before all of the stock market crashes, or panic events, of the past 30 years"
We Got an Official Confirmed Hindenburg Omen on December 2nd, 2014 | Robert McHugh | Safehaven.com
Supposedly, this Hindenburg Omen indicates a crash in the next 4 months.

[Danny B]

The recurring Big Bang,,,, 26 years

Big Bang 2015.75 | Armstrong Economics
Surprisingly, Russia is second after America on the volume of transactions executed in the SWIFT system. They will fire up an alternative system next week to test it.
Sanctioned Russian banks begin testing national payment system next week — RT Business

[Danny B]

Fighting the deflation war

The bankers and GOV are hard at work to prevent deflation. They are SERIOUSLY afraid of a default. In a default, the bankers stand to lose a lot. If they can cause hyperinflation, the loss is spread to everyone who holds U.S. money or debt notes. Here are a couple of headlines on the deflation / inflation battle.
"Deflation Is Winning
And central banks are running scared"
Deflation Is Winning: Brian Pretty - PeakProsperity.com | Peak Prosperity
AND;
"Major central banks will together add almost three times more liquidity next year than they did in 2014, according to Credit Suisse Group AG analysts. "
Think Central Banks Are Done? Stimulus to Accelerate in 2015 - Bloomberg
This is an interesting battle. The FED has created something like $ 26 trillion. But, they were only able to inject it into the upper loop of the economy. The BOJ has injected a very respectable amount also. If the CBs continue to pump liquidity in to the stock market, they may get only stagflation because wages will never rise. The question is; can the feds buoy the stock market eternally?
"So many of the exact same patterns that we witnessed leading up to the financial crash of 2008 are happening again.

I have written more than 1,200 articles about the economy on my website since 2009, and right now our financial system is more primed for a crash than at any other time since I started The Economic Collapse Blog."
Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?...
OK, so we have had a "Hindenburg Omen" and a return to the 2008 conditions. Some aspects of the economy are about 5 times worse now that the weeks previous to the 2008 crash.
Just how long can the upper loop of the economy remain independent of the lower loop? How long can the upper loop continue to inflate while the lower loop is deflating? I don't have a thorough understanding of this but, I believe that leverage is the key.
If I buy something with paper dollars, they will never disappear. if I make a digital investment ( bet) with just 4% placed to secure my bet, no paper money is involved. If the debt goes bad, I get a call to make good on the bet. I have to pay up with real paper money. Digital ( prospective) money evaporated and had to be replaced with real paper money. This is deflationary. There are supposed to be 10 Quadrillion worth of contracts denominated in dollars. People spend or don't spend based on the notional value of the assets that they hold.
If the market crashes, money isn't so much destroyed as much as notional value is destroyed. The FED can pump money into stocks to resurrect the notional value that was lost in the crash. The FED can't very well pump money into commodities because the increased price will just cut back on consumption.
Oil and commodities are falling in price now and this is vaporizing hundreds of $ billions of investor money. This is deflationary. The CBs plan to pump in trillions of new currency units.
Europe complains that it has screaming deflation. If you look at the monetary base, it has risen sharply. http://upload.wikimedia.org/wikipedi...etary_base.png
The CBs can create money but, they have little control where it goes. The FED is creating about $ 3 billion a day but, it isn't actually doing any good.
Since digital money is far more subject to vaporization, through the reversal of leverage, it is far more difficult to get it to actually "stay" in the economy.
That is why the CR proposed the idea of sending everyone a check for ?$ 25,000. This is an admission that they can't create inflation with the tools that they are using now.

[Danny B]

Bankruptcy of the pension benefit guarantee corporation

As everyone knows, GOV bought a LOT of bullets. Who are they going to use them on? GOV is pushing through a plan to cut pensions in a big way.
Congress considers plan to allow pension plans to cut benefits for retirees - Dec. 10, 2014
Pension plans have been severely underfunded and the obvious answer is, just cut them.
The Daily Bell - So It Begins: Congress to Cut Pension Plans
A branch of GOV guarantees a huge number of plans and GOV is broke. Pension Benefit Guaranty Corp - PBGC Protects America's Pensions
The bill is being pushed through pretty fast. Is there some kind of urgency? Maybe GOV knows something that we don't know. http://www.zerohedge.com/news/2014-1...its-us-bankers
Things are really warming up with the financial crash initiated by the oil price crash. It's definitely bad news for the banks. https://www.youtube.com/watch?v=Ey20x-VlDYQ

[Danny B]

Fraud

"So the Fed kept filling up the punch bowl[referring to the period between 2002 and 2005] . And as opposed to going into inflation of goods prices, it went into an inflation of asset prices. That's inflation in the same way, but its not called inflation. So if the stock market goes up we don't say, 'Oh my god, there has been inflation', or if housing prices double we don't say 'oh my god, there has been this enormous inflation', we say, 'How much richer we are!' But the problem is that we are not richer, it is simply an illusion of richness."Dave Colander - Professor of Economics at Middlebury College (Money for Nothing: Inside the Federal Reserve"
http://www.bestmindsinc.com/document...w_Dec11.14.pdf

"Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.
The reality is that this practice is far more endemic than the 20% discovered in this study (it’s likely over 50%)."
"So… the prices of assets are fraudulent, the value of balance sheets is fraudulent, and earnings are fraudulent. This means that stock market caps, balance sheets, and income statements are all inaccurate representations of reality."
http://www.zerohedge.com/news/2014-1...em-based-fraud

The main question that occupies my brain lately is; can you create hyperinflation in a digital currency the same as you would create hyperinflation in paper currency? The FED has failed to raise wages. Considering the attraction that capital has towards global-wage-arbitrage, that isn't a surprise. Can a CB create hyperinflation if it fails to create a wage-price spiral? If you look at velocity, employment, credit and savings, the inflative actions of the FED have only created mega-stagflation. Hyperinflation seems to go hand-in-hand with WAGE and price controls.
Stockman makes a good argument that; if you inflate one area, you deflate another area. If you contrast asset prices with consumer spending, this seems true. The FED promotes credit inflation which is a zero-sum game if the producing economy does not demand credit. There is a big demand for credit in the financial industry but, they don't create anything tangible. I suspect that hyperinflation can not occur if it can't move into tangibles. The oil bubble is a good example. Ultimately, the price of oil depended on consumption. The financial industry has unlimited demand for credit because leverage is ephemeral and unlimited. We will have a cascade of credit collapse as/when valuations return to reality. I don't expect a currency collapse. When credit dies, currency is all that is left.
How It Fits Together——QE, Deflation And Malinvestment | David Stockman's Contra Corner

[Danny B]

Commons debate on money creation and society

At one time gold was our standard of a store of value. The bankers eventually succeeded in making debt notes a store of value. This has never worked out before and is not doing too well at the moment.
There was a debate in the house of commons on money creation. VERY few were in attendance. I found a good quote from Zac Goldsmith.
" An obvious question is: why is our economic system unconnected from the natural world? Could the reason lie in the institution of money [ ie, the unit on a scale which measures the value of things which have real value ] has been proclaimed by law to be a store of value (the thing that it measures)? No bona fide unit of measurement can store the thing that it measures.
Units of measurement are abstract concepts which ( because they are abstractions) can not store the concrete dimensions which they measure!

In this unique departure from ethical practice, the institution of money has enabled the economies of all societies who have been made dependent on money to have been disconnected from the natural world.
My understanding is that the existing amount of money (all of it repayable debt) in our world is equal to many, many times the annual production of the entire population of the planet.
Such being the case, we actually do need to start again. And we need to try to correct the social and environmental ills that our current system will leave us afflicted with.

Steven Baker (in his introductory speech) : a. after some penetrating questions, he came out with the following astonishing rhetorical question "What is money? well, I think that money is the basis of a moral existence."
"After 15 years of studying these matters, and now having made it to the treasury committee, I'm even more convinced that there is no way to change the present monetary order until the ideas behind it have been tested to destruction; and I do mean tested to destruction; and it's an extremely serious issue; but, it will not change until it becomes apparent that the ideas behind the system are not tenable."
James Goldsmith went to Eton but dropped out in 1949 aged 16, after he had bet £10 on a three-horse accumulator at Lewes, winning £8,000. With his winnings he decided that he should leave Eton immediately; in a speech at his boarding house he declared that, "a man of my means should not remain a schoolboy."
Zac Goldsmith (son)went to Eton College in Berkshire,[9] and later earned four A Levels as a student at the Cambridge Centre for Sixth-form Studies,[12] after having been expelled from Eton for possession of cannabis.[14]

This gets to the heart of the problem. If you can't offer people a safe store of value, they have no reason to produce an excess.