Cross-posting this from the Mad Max thread...
It is complete nonsense for Martin Armstrong to assert that the banksters do not have a long-range plan to take over the world. Armstrong's own models are based on the fact that coincidence becomes a statistically valid pattern given enough repetition. They sell these commodity derivatives in order to give them more political control. Just look how they timed the collapse in the oil price and lobbied right on time to repeal Dodd-Frank with the timing of the massive spending bill. They know what they are doing and Armstrong is confused because he thinks their losses are due to ineptness. No Martin! Their losses are planned out in order to maximize the failures that concentrate more power and control into their hands.
http://armstrongeconomics.com/2014/12/16/russian-ruble-collapses-conspiracy-or-warning-of-things-to-come/...spinning the blogs claiming this is a “Zionist banker” conspiracy...
http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.htmlBank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expect to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.
What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.
These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including Fed officials themselves.
http://www.huffingtonpost.com/2014/12/16/russia-ruble-collapse_n_6333546.htmlRussian GDP might shrink by a terrifying 4.5 percent next year, the central bank said Monday, especially if the price of crude oil hangs around $60 a barrel.
Russia's central bank jacked up interest rates in the middle of the night, desperately trying to stanch the bleeding by enticing investors to keep cash in the country. The bank raised its key rate to 17 percent from 10.5 percent, the biggest hike since Russia's ruble crisis in 1998. If that effort did any good, it was hard to tell.
So, mission accomplished, right? We've punished Putin. But beware of blowback.
The 1998 crisis brought down hedge fund Long Term Capital Management, which shook the entire financial system. The Federal Reserve had to ride to the rescue of LTCM, recruiting banks to bail it out. The current ruble collapse is starting to look worse than the 1998 debacle
So far we don't know that anybody has bet so big on the Russian ruble that it could bring down the whole system. Then again, it's early yet. In 1998, Russia's central bank raised its key rate to 150 percent, notes Joseph Cotterill of the Financial Times. The current situation has a way to go before it gets that desperate. And you never know if and where contagion will spread. In 1998 it was a big dumb hedge fund. In 2014-15 it could be a bunch of European banks, already in not-so-great shape after a succession of various crises.
http://armstrongeconomics.com/2014/12/16/russian-ruble-collapses-conspiracy-or-warning-of-things-to-come/| http://i1.wp.com/armstrongeconomics.com/wp-content/uploads/2012/12/1931-sovdebtdefault.jpg?resize=584%2C437 | There was nothing that survived during the Great Depression from stocks, bonds, commodities, tangible assets, to currencies. This is what we are facing. The complete meltdown of the world economy thanks to the convergence of many factors. Just about anything that can go wrong is going wrong and the end game is not looking pretty. As we can see from this chart of the bond market, while Andrew Mellon first bragged when the stock market crashed “gentlemen buy bonds”, those who ran into the bond markets either were left with nothing as sovereign debt defaulted, or their US bonds were suddenly devalued by FDR and the gold redemption closes were reneged upon.
The Middle East has become addicted to high energy prices and thus they have increased their budget taking into consideration expectations of perpetual high energy prices. [meaning OPEC can't cut production because they need the revenues]
During the Great Depression, stocks rallied into 1929 but commodities peaked in 1919. The tangible commodity sector declined into 1932 coinciding with the stock low. That 13 year decline was profound. It wiped out much of the commodity industry.
We are dealing with a very serious crisis within the global economy that is by no means limited to Russia or oil.
We are witnessing the unraveling of the world economy because we have pervasive corruption in government... |
Crude oil has two numbers we must now pay close attention to for year-end $75 and $57. A closing BELOW $57 warns that we are in serious trouble with oil and
we may not see the final low until 2016-2017. The real critical level of support lies at $32. We should see this type of decline send crude back to retest the 1980 high of about $40 similar top gold retesting the $875 high of 1980. Welcome to the land of DEFLATION as all the promises of socialism with government taking care of you from cradle to grave is over and done with.
Consequently, additional proof that this is not limited to Russia is just open your eyes.
There is a crisis in ALL EMERGING markets. As the dollar rises and commodities decline, this is part of the cycle that sets in motion the Sovereign Debt defaults.
We are looking at a major decline within the world economy. This is part of Big Bang. We will produce a major and very serious report on this entire subject matter after the closing of 2014.
Just
this past week the too-big-to-fail banks were able to get Dodd-Frank partially repealed so they can charge their coming derivative losses to the government! Read the following and weep...
http://www.zerohedge.com/news/2014-12-10/anyone-still-believes-collapsing-oil-prices-are-good-economyAre much lower oil prices good news for the U.S. economy? Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street. Yes, lower gasoline prices are good news for the middle class. I certainly would rather pay two dollars for a gallon of gas than four dollars. But in order to have money to fill up your vehicle you have got to have an income first. And since the last recession, the energy sector has been the number one creator of good jobs in the U.S. economy by far. Barack Obama loves to stand up and take credit for the fact that the employment picture in this country has been improving slightly, but without the energy industry boom, unemployment would be through the roof. And now that the “energy boom” is rapidly becoming an “energy bust”, what will happen to the struggling U.S. economy as we head into 2015?
In recent years, energy companies have been pouring massive amounts of money into capital expenditures. In fact,
the energy sector currently accounts for about a third of all capital expenditures in the United States according to Deutsche Bank…
Unfortunately, when the price of oil crashes those investments become unprofitable and capital expenditures start getting slashed almost immediately.
For example, the budget for 2015 at ConocoPhillips has already been reduced by 20 percent…
And Reuters is reporting that the number of new well permits for the industry as a whole plunged by an astounding 40 percent during the month of November…
According to the Perryman Group,
the energy sector currently supports 9.3 million permanent jobs in this country…
And these are good paying jobs. They aren’t eight dollar part-time jobs down at your local big box retailer. These are jobs that comfortably support middle class families. These are precisely the kinds of jobs that we cannot afford to lose.
In recent years, there has been a noticeable economic difference between areas of the country where energy is being produced and where energy is not being produced.
Since December 2007, a total of 1.36 million jobs have been gained in shale oil states.
Meanwhile, a total of 424,000 jobs have been lost in non-shale oil states.
Even more ominous is what an oil price collapse could mean for our financial system.
The last time the price of oil declined by more than 40 dollars in less than six months, there was a financial meltdown on Wall Street and we experienced the deepest recession that we have seen since the days of the Great Depression.
And now many fear that this collapse in the price of oil could trigger another financial panic.
According to Citigroup, the energy sector now accounts for 17 percent of the high yield bond market.
J.P. Morgan says that it is actually 18 percent.
In any event, the reality of the matter is that the health of these “junk bonds” is absolutely critical to our financial system. And according to Deutsche Bank, if these bonds start defaulting it could “trigger a broader high-yield market default cycle”…
Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.
“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialized,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.
In addition, plunging oil prices could end up absolutely destroying the banks that are holding enormous amounts of energy derivatives. This is something that I recently covered in this article and this article.
As you read this, there are
five “too big to fail” banks that each have more than 40 trillion dollars in exposure to derivatives. Of course only a small fraction of that total exposure is made up of energy derivatives, but a small fraction of 40 trillion dollars is still a massive amount of money.
These derivatives trades are largely unregulated, and even Forbes admits that they are likely to be at the heart of the coming financial collapse…
Unfortunately, that does not seem likely any time soon. Even though
U.S. energy companies are cutting back on capital expenditures, most of them are still actually projecting an increase in production for 2015. Here is one example from Bloomberg…
Continental, the biggest holder of drilling rights in the Bakken, last month said 2015 output will grow between 23 percent and 29 percent even after shelving plans to allocate more money to exploration.
Higher levels of production will just drive the price of oil even lower.
At this point,
Morgan Stanley is saying that the price of oil could plummet as low as $43 a barrel next year
.
So the oil companies that have locked in high prices for their oil in 2015 and 2016 are feeling pretty good right about now. But who is on the other end of those contracts? In many cases, it is the big Wall Street banks, and if the price of oil does not rebound substantially they could be facing absolutely colossal losses.
It has been estimated that the six largest “too big to fail” banks control $3.9 trillion in commodity derivatives contracts. And a very large chunk of that amount is made up of oil derivatives.
In fact, as I have written about previously, the “too big to fail” banks have collectively gotten 37 percent larger since the last recession. At this point, the five largest banks in the country account for 42 percent of all loans in the United States, and the six largest banks control 67 percent of all banking assets. If those banks were to disappear tomorrow, we would not have much of an economy left.
http://theeconomiccollapseblog.com/archives/new-law-make-taxpayers-potentially-liable-trillions-derivatives-lossesThis provision would allows these big banks to trade derivatives through subsidiaries that are federally insured by the FDIC. What this would means is that the big banks would be are able to continue their incredibly reckless derivatives trading without having to worry about the downside.
| https://gailtheactuary.files.wordpress.com/2014/12/us-dollar-index-from-ino.png?w=640&h=411 | When the tide of inflation of commodities was rushing in over the past 13 years, debt was getting cheaper, but now as the tide rushes out debt will become much more huge burden than it already is given $200 trillion of global debt and 250% of global GDP.
http://ourfiniteworld.com/2014/12/07/ten-reasons-why-a-severe-drop-in-oil-prices-is-a-problem/
Issue 9. A major drop in oil prices tends to lead to deflation, and because of this, difficulty in repaying debts.
If oil prices rise, so do food prices, and the price of making most goods. Thus rising oil prices contribute to inflation. The reverse of this is true as well. Falling oil prices tend to lead to a lower price for growing food and a lower price for making most goods. The net result can be deflation.
Here is that negative marginal utility of debt I was explaining upthread is the reason QE can't continue indefinitely.
The obvious way around this problem is to lower interest rates to practically zero, through Quantitative Easing (QE) and other techniques.
(Increasing debt is a big part of pumps up “demand” for oil, and because of this, oil prices. If this is confusing, think of buying a car. It is much easier to buy a car with a loan than without one. So adding debt allows goods to be more affordable. Reducing debt levels has the opposite effect.)
QE doesn’t work as a long-term technique, because it tends to create bubbles in asset prices, such as stock market prices and prices of farmland. It also tends to encourage investment in enterprises that have questionable chance of success. Arguably, investment in shale oil and gas operations are in this category.
http://royaldutchshellplc.com/2014/12/13/oil-prices-continued-their-collapse-on-friday/
The new rout began Friday morning after the International Energy Agency, the organization based in Paris that advises industrial countries, cut its forecast for global demand for crude oil in 2015 by 230,000 barrels a day. The agency cited less oil consumption in countries that produce it like Russia and a weaker-than-expected global economy. |
| http://news.bbcimg.co.uk/media/images/79298000/gif/_79298601_oil_breakeven_prices_v3a.gif | http://www.bbc.com/news/business-30393690
"Investment by the oil companies in the North Sea will likely be halted on the basis that it is not economical to either invest - let alone pump oil - below $60," said analyst Howard Wheeldon in a recent note.
Deloitte's Mr Sadler says the North Sea production costs have been rising because much of the easy-to-get oil has been extracted. Some fields will "start to struggle" if the price remains below $70 for a lengthy period, he says.
http://www.rigzone.com/news/oil_gas/a/136374/Norwegian_Oil_Firm_Noreco_to_Restructure
Norwegian Oil Firm Noreco to Restructure
by Reuters | Monday, December 15, 2014
OSLO, Dec 15 (Reuters) – Norwegian oil firm Noreco proposed a restructuring as low oil prices and persistent production problems at its key assets are threatening its ability to remain a going concern, it said on Monday. Noreco, which holds stakes in a handful of British, Norwegian and Danish fields, said it needs to fully convert its outstanding bond debt as it was burning through cash rapidly and cannot pay interest or service its debt.
http://www.rigzone.com/news/oil_gas/a/136404/Norways_Statoil_Approves_610M_North_Sea_Development
OSLO, Dec 16 (Reuters) - Norwegian energy firm Statoil ... has delayed several new developments as low oil prices and high costs have reduced its profitability, eating into its cash. |
The North Sea oil dependent countries have a huge problem with the ability to finance
HUGE per-capita external debt levels as their export oil revenues wane.
http://www.telegraph.co.uk/finance/comment/edmundconway/6505670/North-Sea-oil-is-dragging-us-into-the-red.html for the past quarter of a century, Britain has been a petro-economy. In 1999, we were producing more oil than Iraq, Kuwait or Nigeria. The following year, we pumped out almost twice as much natural gas as Iran – a country with reserves that are the envy of the world.
The result is that while we are apt to attribute the sudden spurt in Britain's prosperity in the mid- to late-1980s to a deregulated and reinvigorated City, it owed far more to the massive windfall from the North Sea. Take a look at the numbers. In 1979, when Margaret Thatcher came to power, the amount Britain owed, as a nation, was £88.6 billion. In the subsequent six years, taxes from the North Sea (which had been pretty much non-existent previously) generated an incredible £52.4 billion.
The benefits went far beyond the public finances. Were it not for the cushion provided by oil exports, the deficit in Britain's current account – its international ledger – would have been one of the worst in the Western world. Moreover, much of the massive rise in business investment in the years before the financial collapse was due entirely to spending in the North Sea.
There are two problems, however. The first is that the stuff is running out. Production of North Sea oil has halved in the past decade; Britain has gone from being comfortably self-sufficient in oil and gas to being a net importer.
The second issue is that since the oil arrived, we have treated it not as a luxury but as a staple of economic life. Unlike the Norwegians, who diverted a slice of their North Sea revenues into an investment fund designed to provide for them when the oil started to run dry, chancellors of every political hue treated North Sea taxes as current income.
So serious is this problem that some are inclined to see it in apocalyptic terms: Jim Rogers, a renowned investor, has predicted that the demise of the North Sea will send the pound crashing downwards, taking the UK into banana-republic territory. This year, the Government's revenues from oil will almost halve, partly due to lower oil prices, partly to the inexorable decline in activity as old fields become exhausted.
http://gcaptain.com/norway-reviews-gdp-growth-estimates-oil-plunge-continues/A 41 percent drop in oil prices from a June high is proving to be the worst since the financial crisis erupted in 2008. The slump has put pressure on a nation [Norway] that relies on energy resources for about 22 percent of its [GDP] output.
In the “short term, the disturbances in the Norwegian economy will not be as large,” Solberg said. Norway funnels its oil riches into an $870 billion sovereign wealth fund, the world’s largest. The government follows a self-imposed cap of 4 percent of the fund when it plans [deficit] budget spending.
‘Dark Clouds’
Over the past decade, Norway’s reliance on oil has been its main strength. Booming prices helped keep unemployment below 3 percent even as other parts of Europe suffered double-digit jobless rates.
https://en.wikipedia.org/wiki/List_of_countries_by_external_debt (sorted by highest per-capita first)
| Rank | Nation | External Debt | Per Capita |
| 5. | United Kingdom | $9.6 trillion | $160,158 |
| 7. | Norway | $737 billion | $131,220 |
Note that 22% of GDP for oil quoted above doesn't include the Norwegian government which is
44% of the GDP and gets most of its revenues from taxing oil! Thus
greater than 50% of Norwary's GDP is dependent on oil and it is claimed to be fiscally strongest country in Europe!
https://en.wikipedia.org/wiki/State_budget_of_NorwayTotal costs: $160 billion
Tax Income: $124 billion
http://www.theguardian.com/commentisfree/2014/sep/04/oil-tax-norway-could-teach-australia-a-thing-or-two-about-managing-wealthIn Norway, companies drilling for North Sea oil pay a 78% tax rate on income...
All commodities are affected. The total debt of the world has been pushed to 250% of GDP, which has created a huge false (misallocated, unsustainable, not really profitable without the debt bubble) demand for energy and commodities, while the bankers have provided ZIRP and derivative hedges to push over investment in supply. While simultaneously the nations have gorged on this oil and commodity boom and radically expanded their socialism budgets. OPEC can't reduce production, because they can't meet their obligations without pumping out every barrel they've invested in producing.
As the tide turns on the global debt bubble, this leads to massive deflation as all the forces that caused the ride up the inflation mountain reverse and debt become a HUGE burden that destroys all demand.
http://www.nytimes.com/2014/11/16/opinion/sunday/warning-signs-from-commodity-prices.html?_r=0Over all, commodity prices have fallen nearly 15 percent since late June, according to a Bloomberg index. Last week, the price of crude oil dropped to a four-year low, about $74 a barrel, down from about $107 a barrel in June. The prices of metals like copper, platinum and silver have also fallen sharply since the summer.
The big losers in all this are nations that depend on commodity exports, like Russia, Brazil and Iran. Some of these countries, particularly Russia and Iran, already have substantial economic problems because of Western sanctions and government mismanagement. Brazil’s economy was slowing before the decline in commodity prices, and it faces a difficult 2015.
But America’s economy could struggle in the coming year if Europe and Japan slip into another recession. About 25 percent of all American exports went to those two markets in the first nine months of the year.
The economic recovery from the financial crisis was uneven and disappointing. Now, in many countries, it is stalling.
https://www.imf.org/external/pubs/ft/wp/2014/wp14154.pdf#page=9The current market based outlook for 2014 - 19 is characterized by a sharp decline in NCPI growth rates across LAC [Latin American Countries], with an annual growth rate (averaged over time and across economies) about 6½ percentage points lower than during the commodity boom — and actually negative for most countries.
http://www.ipsnews.net/2014/05/china-sneezes-latin-america-gets-flu/Regarding China’s growth rate and commodity prices, the report states, “Whereas from 2006 to 2011 the IMF primary commodity price index soared by an average annual rate of 9.8 percent and the Chinese economy grew at an average annual rate of 10.5 percent, in 2012 commodity prices fell by 3.2 percent and the Chinese economy slowed to 7.7 percent.”
The fall in commodity prices disproportionately affects LAC, as 86.4 percent of LAC exports to China are primary goods, while 63.4 percent of Chinese exports to LAC are manufactured.
“As prices rose, exports grew and growth improved significantly. Latin America can thank China and the commodity boom for not being so affected by the [global] financial crisis [of 2008-2009]. However, exchange rates appreciated, investment concentrated in commodities, manufacturers couldn’t compete with imports from China and beyond, and commodity-led growth led to numerous social and environmental conflicts,” said Gallagher.
According to the GEGI report, average annual export growth from LAC to China averaged 23 percent between 2006 and 2011, but dropped to 7.2 percent in 2012. These exports are mainly concentrated in copper, iron, and soy. The metals exports are densely concentrated in two countries: 86 percent of iron exports came from Brazil and 92 percent of copper comes from Chile.
China’s exports to LAC are significantly more diverse, coming mostly from manufactured goods like electronics and vehicles that are less sensitive to pricing variables than commodity goods. Effectively, commodity price declines have created a trade imbalance between LAC and China inChina’s favour.
