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Secular Stagnation Bulletin, 2015

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[Mar 05, 2019] Goldman Sees 15 Years of Weak Crude as $20 U.S Oil Looms

No we can check the quote of Goldman forecast. forecast of those arrogant and clueless jerks ;-)
Is squid talking his book again ? Compare with China Is Hoarding the World's Oil - Bloomberg Business. They are slightly schizophrenic those squid stooges, aren't they ;-)
Notable quotes:
"... with shale fields as an important source of output, he said. While Goldman's official forecasts extend to 2020, there is a "very high probability" prices will stay depressed until the end of next decade, he said. ..."
"... U.S. benchmark West Texas Intermediate crude futures fell 25 cents to settle at $46.90 on the New York Mercantile Exchange. Prices are down 12 percent this year and 50 percent over the past 12 months. ..."
Bloomberg Business

... ... ...

Goldman cut its crude forecasts this month, saying the global surplus of oil is bigger than it previously thought and that failure to reduce production fast enough may require prices to fall near $20 a barrel to clear the glut. Prices may touch that level when stockpiles are filled to capacity, forcing producers in some areas to cut output, Currie said Wednesday.

"The last time we saw a period that was similar to today was 1986, 29 years ago," he said. "We waited 15 years" for oil to start rising again.

Lower iron ore, copper and steel prices as well as weaker currencies in commodity-producing countries have reduced costs for oil companies, according to Currie. The world is shifting from an "investment phase" of a 30-year commodity cycle to an "exploitation phase," with shale fields as an important source of output, he said. While Goldman's official forecasts extend to 2020, there is a "very high probability" prices will stay depressed until the end of next decade, he said.

U.S. benchmark West Texas Intermediate crude futures fell 25 cents to settle at $46.90 on the New York Mercantile Exchange. Prices are down 12 percent this year and 50 percent over the past 12 months.

Should oil fall to $20, it would be "one touch," he said. Inventories would top out in parts of the world, some producers would shut production and the market would come into balance.

[Nov 30, 2017] Will Robots Kill the Asian Century

This aritcle is two years old and not much happned during those two years. But still there is a chance that highly authomated factories can make manufacturing in the USA again profitable. the problme is that they will be even more profible in East Asia;-)
Notable quotes:
"... The National Interest ..."
The National Interest

The rise of technologies such as 3-D printing and advanced robotics means that the next few decades for Asia's economies will not be as easy or promising as the previous five.

OWEN HARRIES, the first editor, together with Robert Tucker, of The National Interest, once reminded me that experts-economists, strategists, business leaders and academics alike-tend to be relentless followers of intellectual fashion, and the learned, as Harold Rosenberg famously put it, a "herd of independent minds." Nowhere is this observation more apparent than in the prediction that we are already into the second decade of what will inevitably be an "Asian Century"-a widely held but rarely examined view that Asia's continued economic rise will decisively shift global power from the Atlantic to the western Pacific Ocean.

No doubt the numbers appear quite compelling. In 1960, East Asia accounted for a mere 14 percent of global GDP; today that figure is about 27 percent. If linear trends continue, the region could account for about 36 percent of global GDP by 2030 and over half of all output by the middle of the century. As if symbolic of a handover of economic preeminence, China, which only accounted for about 5 percent of global GDP in 1960, will likely surpass the United States as the largest economy in the world over the next decade. If past record is an indicator of future performance, then the "Asian Century" prediction is close to a sure thing.

Jobs mystery

Unemployment rates in the U.S. and the U.K. might be low, but a stall in productivity proves that both economies are far from full health, according to Nobel prize-winning economist Paul Krugman.

The noted Keynesian said Thursday that there had been an "unprecedented stall in productivity" in the U.K. since 2006, adding that the U.S. wasn't "doing great either."

There were several reasons for this shortfall, according to Krugman, who was speaking at the University of Oxford's Saïd Business School. These included a lack of improvement in technology and also the possibility that the U.K. was in a "disguised depression."

"All technology from the iPhone onwards has had zero impact on the British economy. It's made no progress whatsoever despite all of this stuff," he told the audience.

Productivity has been a hot topic this week in the U.K., with Mark Carney, governor of the Bank of England, also raising concerns. Economists have spoken of low-income, low-skilled occupations and new employees doing jobs they're not yet accustomed to.

Krugman joked that the Apple (NASDAQ: AAPL) iPhone - launched in 2007 -- might not have driven advancements in labor productivity - rather, it may have had an adverse effect on people's attention spans.

He also said that the mystery of high employment but low productivity could be explained by semi-employed people, or "lots and lots of people calling themselves consultants."

"Employment is pretty good and that's the really, really weird thing," he added.

The widely-watched economist has been a vocal critic of the U.K. government's policies over the last five years. The ruling Conservative Party's program of fiscal retrenchment has been praised by the International Monetary Fund (IMF), however, and the party was re-elected last week with even more parliamentary seats than in its first term.

Krugman's main argument is that the supposed fiscal tightening actually stopped in 2013, which allowed the economy to recover, thus winning over voters at the ballot box.

"The largest challenge (for the U.K.) is that the government believes its own propaganda," he said at the discussion panel. "(They've been) given the chance to make the same mistakes again."

He referred to "disruptive, destabilizing policies" and advocated major public investment programs for the U.K. He even urged students in the audience to build a movement against the current policies of austerity.

"Try to build a foundation, because the wheel does turn and there will be another chance, however hard it may be to see that a week after the election," Krugman said.

Fellow panelists at the University of Oxford event were equally scathing about the ruling Conservative Party. Martin Wolf, chief economics commentator at the Financial Times, said the country wasn't being governed by "sane people" and that the U.K. economy was a "complete mess."

He called on policymakers to support innovation, reform corporate governance and liberalize land-use planning laws so more houses could be built. David Hendry, a professor at Oxford University's Oxford Martin School, called for more immigration to offset an ageing U.K. population and better education of new skills.

Not all analysts and economists believe that governments should spend more, however. Harvard historian Niall Ferguson launched a stinging retort at Krugman last weekend, arguing in the Financial Times that Keynesian economists had been "ignominiously humbled" by the results of the U.K. election.

G

Actually another way of dancing around this May pole is to say that what you are calling unemployment is something else and thus saying its lower than it actually is. As long as your driving force is employment and quality of jobs don't count on much going forward into the future. You no longer can raise prices forever in a continual cat and mouse game of inflation and wages. But what we have not talked about is underemployment. Which needs to be factored in here as well. Lots of people with university education ends with McJobs. AKA large personal efforts producing little results.

R

Productivity in the workplace is the highest it's ever been. Companies are doing more with less everyday. you can say people surf the net and you lose hours..

30 years ago, you would have a secretary that would type a document, management review and with changes, retypes, One page could take 20 minutes or more of man hours.

The same page now, would be typed, saved on a server. a manager not even in the same office can review, make changes him/herself or notify the assistant. 20 years before that, you would have a whole secretarial pool just to type documents...snail mail to another office to find out changes had to be made.

Automation and processes have also ramped up productivity tremendously.

Commenter

It's beautiful. they mimic us at every turn. British conservatives will cry that all improvement in jobs are low wage ones and that a mysterious true unemployment is hidden from the people in a grand scheme to bring about socialism. QE and the banks will hoard and not lend, while analysts warn of an impending crash in their market. Meanwhile their market roars to new highs and they'll fixate on the immigrant as the leading cause for their economic doom. Brilliant man, but fails to explain how productivity can be improved absent demand for their products. I do feel the same about Apple, but again hear the same old rhetoric without solutions to follow it up.

Joe

As wage decrease the workload increases productivity will go down. I do not know anyone who will work as hard or voluntarily give their knowledge for a lower wage. Especially when after 25 years or more experience you have to report to a snot nosed punk with a college degree that is worth no more than high school!

Tom S

He is right. Many, many people are obsessed with their smartphones. Whether at work, with family and friends, at the restaurant, everywhere their faces are buried in their smartphones. They are addicted to these toys - and they are expensive toys for most people.

BrunoD

But wait a minute... Didn't they say that hiring H1B's would be more productive than Americans because they're more brilliant? So now they're back-peddling because a productive economy would mean they wouldn't get any more SUBSIDIES, OR QE OR ZERO INTEREST RATES.

Joe

As wage decrease the workload increases productivity will go down. I do not know anyone who will work as hard or voluntarily give their knowledge for a lower wage. Especially when after 25 years or more experience you have to report to a snot nosed punk with a college degree that is worth no more than high school!

Tom S

He is right. Many, many people are obsessed with their smartphones. Whether at work, with family and friends, at the restaurant, everywhere their faces are buried in their smartphones. They are addicted to these toys - and they are expensive toys for most people.

None

The UK has actually been implementing huge public works projects over the past 5 years - so the story of austerity there is not quite true. They have been massively investing in infrastructure to help get the economy going.

christophero

couldn't agree more about the crapple iPhone. never even owned any cell phone. like sir clive Sinclair I don't want any tech around me when I am trying to be creative (in tech design). as soon as all my attention is diverted to trying to make a damned application simulation work I stop trying to get the design right.

Phil

Krugman is right. Austerity doesnt work in a highly leveraged economies. Of course the argument against Keynesian policy is that it is inflationary which is wrong cause the Fed continuously monitors inflation and will tighten when this occurs.

So as long as we have a low inflation environment deficit spending should proceed. These larger deficits could finance tax cuts and infrastructure spending for example which will stimulate growth.

The Ron Pauls and Peter Schiffs of the world are completely wrong on this point.

freda

Any "productivity" gains from 2000 on were driven by workers simply working harder/longer/off the books. there is a limit krugman.

the fact is we are working 7 days a week to feed the .01 percent vampires and subsidize their sub 20% income tax rates on "carried interest" that Obama just loves

(while our tax rates on labor have SKYROCKETED both federally and state wise in the last few years - gotta love the democrats - always looking out for the working man like colonel sanders cared about chickens)

Bo Yo

U.S. stock run up won't hold.... has tried this multiple times and always FALLS back.....

$19 TRILLION debt, earnings not so good even with bailouts given to Co., especially U.S. banks, which would probably be bankrupt without the bailout...

Retail sales sux, earnings not soooo good...and interest rates rising soon..

something is AMISS.... U.S.stocks UP 100%, economy UP barely 1%...??
earnings UP barely 1%....??? and that's with HUGE TRILLIONS in bailouts given these Co.
WATCH OUT PPL...HUGE selloff coming...
(g)ayhoo, retail sales has SUXED for years now..????

Bo Yo

barack Obozo/Hilary clinton supporters, and market TYCOONS, Buffett,cook, Soros, Gates, Zuckerberg have done GREAT on you the middle class taxpayer's stock market BAILOUT....

100s of BILLIONS given to already BILLIONAIRES.....????

who's left to pay this HUGE $19 TRILLION taxpayer DEBT..???

you the POOR middle class.

Jim

As a former manager and recruiter I can name 3 major things holding back productivity. Most employees spend a majority of their time surfing the Internet and on social media all day. Cell phone use is rampant and wastes many hours daily.

Good training opportunities are becoming fewer as all the good teachers are retiring in droves and taking all the institutional knowledge with them.

One last issue is over educated employees are working part time with few benefits then we had 20 to 30 years ago lowering morale.

JOSEPH

I saw a factoid recently, I believe on the PBS NewsHour, that China had used more concrete in one year than the US had used in the last century. You can see what that means when you drive US streets and highways as I did between Baltimore, MD and Boston, MA this week, that took me through some of the richest states in America.

We support our military to the hilt but we let our inner wellbeing, both socially and structurally eat us alive. But then again, we have all those billionaires to make us feel good. And can't justify a living wage for anyone who works. But can criticize and eat each other up, as I am sure many of the comments below do. Our politicians reflect us. I feel sorry for America..

Smartest Guy in the Room

As a near 60 year old Engineer my anecdotal evidence over the years has led me to believe that the more liberalism seeps into our society the worse off we get...

It started in the late 60's (America had the highest avg SAT scores in the world in 1968) and has been on a steady march ever since...

From my perspective it seems to have reached critical mass about ten years ago...and so here we are where the average High School grad can't even do long division and yet the libs want us to pay for their college education for them to get a degree is sociology...

And then we wonder why our economy is limping along.

BrunoD

I am fed up with these people whining about the corporate tax rate. Who cares what the rate is. It's the ACTUAL rate they pay after deducting their endless tax credits. Romney only paid 12%.

A working class citizen still pays over 30%. Why is that exactly? And, corporate millionaires get MILLIONS in SUBSIDIES (not for being poor). Why did the American people have to pay for Fracking when big energy makes hundreds of billions in clear profit every quarter?

What justifies THEM to get all that FREE WELFARE WHILE THEY'RE THE RICHEST IN THE WORLD????

Martin

I love Krugman but don't understand what the British economic challenges are or if the current policies are helpful.

I do know if you are a conservative in the US and somehow identify with a conservatives in England then you are a fool.

Not the same at all and if you don't think so ask a Tory if they want to privatize health care.

[Nov 29, 2017] Debt: War and Empire By Other Means

This is an old article by Jesse, but today it sound even more pertinent then two years ago, before Trump ascendance to power.
"... Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects. "
.
"...would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward."
.
"...The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control."
.
"... "Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which becomes the only rule." Francis I, Laudato Si "
Jun 19, 2015 | jessescrossroadscafe.blogspot.com

This video below may help one to understand some of the seemingly obtuse demands from the Troika with regard to Greece.

The video is a bit dated, but the debt scheme it describes remains largely unchanged. The primary development has been the creation of an experiment called the European Union and the character of the targets. One might also look to the wars of 'preventative intervention' and 'colour revolutions' that raise up puppet regimes for examples of more contemporary economic spoliation. From largely small and Third World countries, the candidates for debt peonage have become the smaller amongst the developed Western countries, the most vulnerable on the periphery. And even the domestic populations of the monetary powers, the US, Germany, and the UK, are now feeling the sting of financialisation, debt imposition through crises, and austerity. What used to only take place in South America and Africa has now taken place in Jefferson County Alabama. Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects.

It would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward. It is an old, old story. And then there is the mass looting enable by the most recent financial crisis and Bank bailouts. If the people will not take on the chains of debt willingly, you impose them indirectly, while giving the funds to your cronies who will use them against the very people who are bearing the burdens, while lecturing them on moral values and thrift. It is an exceptionally diabolical con game.

The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control. You might ask yourself why the House Republicans, who have fought the current President at every turn, blocking nominees and even stages many mock votes to repeatedly denounce a healthcare plan that originated in their own think tank and first implemented by their own presidential candidate, are suddenly championing that President's highest profile legislation, and against the opposition of his own party? The next step, after Greece is subdued, will be to extend that model to other, larger countries. And to redouble the austerity at home under cover of the next financial crisis by eliminating cash as a safe haven, and to begin the steady stream of digital 'bailing-in.'

This is why these corporatists and statists hate gold and silver, by the way. And why it is at the focal point of a currency war. It provides a counterweight to their monetary power. It speaks unpleasant truths. It is a safe haven and alternative, along with other attempts to supplant the IMF and the World Bank, for the rest of the world. So when you say, the Philippines deserved it, Iceland deserved it, Ireland deserved it, Africa deserves it, Jefferson County deserved it, Detroit deserved it, and now Greece deserves it, just keep in mind that some day soon they will be saying that you deserve it, because you stood by and did nothing.

Because when they are done with all the others, for whom do you think they come next? If you wish to see injustice stopped, if you wish to live up to the pledge of 'never again,' then you must stand for your fellows who are vulnerable. The economic hitmen have honed their skills among the poor and relatively defenseless, and have been coming closer to home in search of new hunting grounds and fatter spoils.

There is nothing 'new' or 'modern' about this. This is as old as Babylon, and evil as sin. It is the power of darkness of the world, and of spiritual wickedness in high places. The only difference is that it is not happening in the past or in a book, it is happening here and now.

"Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which becomes the only rule." Francis I, Laudato Si

https://www.youtube.com/watch?v=p7gxkgssngU

You may also find some information about the contemporary applications of these methods in The IMF's 'Tough Choices' On Greece by Jamie Galbraith.

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus, Agricola Posted by Jesse at 11:46 AM Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest

Category: currency war, debt peonage, debt slavery, neo-colonialism, new world order

[Dec 28, 2015] Secular Stagnation

Notable quotes:
"... General Theory of Employment, Interest and Money ..."
"... Wall Street Journal ..."
"... Secular Stagnation: Facts, Causes and Cures ..."
Dec 28, 2015 | Monthly Review
... ... ...

Summers's remarks and articles were followed by an explosion of debate concerning "secular stagnation"-a term commonly associated with Alvin Hansen's work from the 1930s to '50s, and frequently employed in Monthly Review to explain developments in the advanced economies from the 1970s to the early 2000s.2 Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often referred to simply as "stagnation." There are numerous theories of secular stagnation but most mainstream theories hearken back to Hansen, who was Keynes's leading early follower in the United States, and who derived the idea from various suggestions in Keynes's General Theory of Employment, Interest and Money (1936).

Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers, endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and Michael Spence soon weighed in with their own views.3

Three prominent economists have new books directly addressing the phenomena of secular stagnation.4 It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty's high-profile book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5

Seven years after "The Great Financial Crisis" of 2007–2008, the recovery remains sluggish. It can be argued that the length and depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it were extraordinary. This has resulted in a widespread sense that there will not be a return to "normal." Summers/Krugman's resurrection within the mainstream of Hansen's concept of secular stagnation is an attempt to explain how extraordinary policy measures following the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.

But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance capital theory?

... ... ...

In "secular stagnation," the term "secular" is intended to differentiate between the normal business cycle and long-term, chronic stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle.

In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry Kasparov and Peter Thiel.6 Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the past. Moreover, demographic changes place limits on the development of "human capital." The focus is on technology, which orthodox economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon's position is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system. In Gordon's supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished absolutely the long-run potential growth.

The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937, Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs' confidence and optimism.7 Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best "explained by policy uncertainty" and "increased regulation" that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully argued that political uncertainty can hold back private investment and economic growth.8

Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes's famous liquidity trap theory, which contends that the "full-employment real interest rate" has declined in recent years. Indeed, both Summers and Krugman demonstrate that real interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a more endogenous explanation of secular stagnation.9 The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed to equate saving and investment with full employment.

However, "interest rates are not fully flexible in modern economies"-in other words, market-determined interest rate adjustments chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from becoming negative; hence, full employment cannot be realized.10

Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.

Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in the demand for loanable funds for investment. One mainstream explanation offered for this is that today's new technologies and companies, such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.

Edward Glaeser, focusing on "secular joblessness," places severe doubt on the first pillar of MISS, but then makes a very important additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply "unrelenting." Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. "Therefore," contends Glaeser, "stagnation is likely to be temporary."

Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar of MISS: "The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend." Somehow, then, the problem is due to a misfit of skills or "human capital" on the side of workers, who thus need retraining. "The massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address" with targeted policy.11 Glaeser's argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when human capital depreciates due to unemployment, overall abilities and "talent" are "lost" permanently. This may be because the skills required in today's economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused by recessions, whereby recession-linked joblessness is not fully reversed during recoveries-and all this is related to skills (the human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness is further exacerbated by the U.S. social-safety net, which has "made joblessness less painful and increased the incentives to stay out of work."12

Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers and Krugman are off-base.13 Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives to work need to be radically improved through targeted investments in education and workforce training.14 Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.

The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure, education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have "cut to the bone" federal government spending devoted to infrastructure, education, and training.

The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain that the imbalance between public and private investment spending, hence secular stagnation, "is not inevitable." For example, Eichengreen contends if "the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country's failure to address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to bring the long-term unemployed back into the labour market."15

The sixth pillar of MISS argues that the "debt overhang" from the overleveraging of financial firms and households, as well as private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16 Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008. Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17

As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually and in combination.

Hans G. Despain teaches political economy at Nichols College, where he is the chair of the Department of Economics.

[Dec 19, 2015] Depletion of Earth resources

peakoilbarrel.com
Peter, 12/18/2015 at 2:01 pm
In ten years time I doubt very much most people around the world will care about small changes in shale oil production.

The United States uses 19 million barrels of oil per day. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 million.
The United States could reduce it's exorbitant consumption by firstly having the sort of extensive bus services that most European countries have. Ever time a train system can be built up and people would still get to work etc without any real hardship.
http://www.bueker.net/trainspotting/map.php?file=maps/germany/germany.gif

The real problems facing the world are far more difficult to adapt to.

http://www.worldwildlife.org/threats/overfishing

85% of fishing stock is being over fished and many stocks are collapsing, billions of people will be effected.

http://www.theguardian.com/environment/2015/dec/02/arable-land-soil-food-security-shortage

Due to over plowing, over use of fertilizers and not allowing land to lie fallow, vast areas of arable land is being turned into wasteland or lost.

[Dec 17, 2015] FED 5 year experiment in string pushing and do-nothingism is coming to an end

Notable quotes:
"... L. Summers claims the fed faces asymmetric risks, because failure of a too-loose policy can more easily be corrected than failure of a too-tight policy ..."
economistsview.typepad.com
Dan Kervick -> Pinkybum, December 16, 2015 at 07:08 PM
Why? What the Fed did today was raise the Fed funds rate. The Fed funds rate is the rate at which banks lend their excess reserves to one another in the interbank lending market. Interbank lending is at an all-time low because banks are already holding such a staggering quantity of excess reserves that they have very little need to borrow any of them from anybody else. Many banks could increase their lending 5 or 10 fold without acquiring a single additional dollar of reserves.

https://research.stlouisfed.org/fred2/graph/?g=2W6C

The prevailing effective Fed funds rate was at a historically unprecedented 0.12% rate that was only half of the historically unprecedented target rate of 0.25%. Now that the target rate has gone up to 0.50%, the Fed funds rate will still be *far* lower than it was at any time between 1954 and 2009.

https://research.stlouisfed.org/fred2/graph/?g=2Qva

So the Fed has slightly increased the rock bottom price in a market few people are availing themselves of because of gross excess supply in that market for something they don't need to obtain. It increased that rock bottom price to a slightly higher rock bottom price. And yet there are people who are concerned this is going to make money too "tight".

The number and convoluted complexity of the tall stories the neo-monetarist and New Keynesian quacks have had to tell to sell people on this patently absurd confusion and hysteria is breathtaking. Now those people are all quite sad, because their 5 year experiment in string pushing and do-nothingism is coming to an end, and they weren't able to prove their conservative theory that the nation's economic goals can be achieved with central bank rate twiddling and verbal exercises in expectations management.

Ben Groves -> Dan Kervick...
Milton Friedman was a very very very bad man.
am -> am

The early BBC take on the move. I think we will see currency movements against the dollar and matching interest rate moves, especially in the developing world. If they do proceed to normalisation over the next several quarters then this instability will continue world wide over the next several quarters. Its effect on the US and the world economy will be depressive although probably not recessive. That will show it should have been avoided. Apologies for the crystal ball.
http://www.bbc.com/news/business-35117405

JF said...

What happens with the FED's book of assets? At the end of the press release they indicated that they will continue to roll-over their book of assets as the bonds mature - " it anticipates doing so until normalization of the level of the federal funds rate is well under way."

That is a significant alteration in their policy - it ties the redemption of the maturing book of assets to increasing interest rates - targeting something they call normalization.

So does this mean that interest rates have to come up to 3% or so before they will stop the roll-over?

spencer said...

Maybe the interesting thing is that almost all of them expect 2.0%, or maybe a bit higher, real GDP growth over the next two years. That is about the same as it has been. Does this imply that they expect higher rates to have little of no impact?

pgl -> spencer...

Some suggest potential real GDP is growing at only 2%. Let's say that is correct. The GDP gap is over 3%. So are they saying they want this gap to continue? If so - a bad decision.

don said...

L. Summers claims the fed faces asymmetric risks, because failure of a too-loose policy can more easily be corrected than failure of a too-tight policy. Not sure I see this. For example, I would expect a reverse course by the fed now to quickly bring dollar weakening and exuberance in equity markets...

[Dec 17, 2015] The Feds decision to raise interest rates today is an unfortunate move in the wrong direction

Notable quotes:
"... The Feds decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the Fed to conclude that the greater risk at the moment is too many jobs. ..."
"... While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002. ..."
"... While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent. ..."
"... One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. ..."
economistsview.typepad.com
Peter K. -> RC AKA Darryl, Ron... December 17, 2015 at 10:12 AM
"Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004."

There isn't much of a difference between signaling tighter money to a market that is skeptical of Fed forecasts and actually tightening.

http://cepr.net/press-center/press-releases/statement-on-fed-and-interest-rates

Washington, D.C.- Dean Baker, economist and a co-director of the Center for Economic and Policy Research (CEPR) issued the following statement in response to the Federal Reserve's decision regarding interest rates:

"The Fed's decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the Fed to conclude that the greater risk at the moment is too many jobs.

"While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002.

"If we look at employment rates rather than unemployment, the percentage of prime-age workers (ages 25-54) with jobs is still down by almost three full percentage points from the pre-recession peak and by more than four full percentage points from the peak hit in 2000. This does not look like a strong labor market.

"On the other side, there is virtually no basis for concerns about the risk of inflation in the current data. The most recent data show that the core personal consumption expenditure deflator targeted by the Fed increased at just a 1.2 percent annual rate over the last three months, down slightly from the 1.3 percent rate over the last year. This means that the Fed should be concerned about being below its inflation target, not above it.

"While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent.

"Furthermore, it is important to recognize that workers took a large hit to their wages in the downturn, with a shift of more than four percentage points of national income from wages to profits. In principle, workers can restore their share of national income (the equivalent of an 8 percent wage gain), but the Fed would have to be prepared to allow wage growth to substantially outpace prices for a period of time. If the Fed acts to prevent workers from getting this bargaining power, it will effectively lock in place this upward redistribution. Needless to say, workers at the middle and bottom of the wage distribution can expect to see the biggest hit in this scenario.

"One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. If it is the case that the economy is not strong enough to justify rate hikes, then the hike today may be the last one for some period of time. It will be important for the Fed to carefully assess the data as it makes its decision on interest rates at future meetings.

"Recent economic data suggest that today's move was a mistake. Hopefully the Fed will not compound this mistake with more unwarranted rate hikes in the future."


RC AKA Darryl, Ron said in reply to Peter K....

I like Dean Baker. Unlike the Fed, Dean Baker is a class warrior on the side of the wage class. He makes the point about the path to normalization being critical that I have been discussing for quite a while. Let's hope this Fed knows better than Greenspan/Bernanke in 2004-2006. THANKS!

likbez said in reply to RC AKA Darryl, Ron...

Very true !

pgl said in reply to RC AKA Darryl, Ron...

"Longer-term bond rates barely moved, showing that there was very little news." This interest rate rose from 4.45% to 5.46% already. So the damage was already done:

https://research.stlouisfed.org/fred2/series/BAA

RC AKA Darryl, Ron said in reply to pgl...

"... This interest rate rose from 4.45% to 5.46% already..."

[Exactly! Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004. Yellen's Fed waited until the bond rate lifted off on its own (and maybe with some help from policy communications) before they raised the FFR. So far, there is no sign of their making a fatal error. They are not fighting class warfare for wage class either, but they seem intent on not screwing the pooch in the way that Greenspan and Bernanke did. No double dip thank you and hold the nuts.]

[Dec 17, 2015] Full employment is important for long-term reduction of inequality

Notable quotes:
"... Full employment is important for long-term reduction of inequality. Periods of high unemployment not only do damage to workers who lose their jobs and see their skills atrophy, but also cause those who keep their jobs to experience weaker wage growth. This is especially hard on those with lower incomes, who see larger cuts in working hours during periods of high unemployment. ..."
"... The elites like Feldman seem to be fine with golden parachutes for the wealthy but want to give the poor a lottery in place of a pension. Social Security is insurance that provides a safety net. Replacing SS with investments that allow people to fall through the cracks is not a good idea. ..."
economistsview.typepad.com

pgl said... December 17, 2015 at 01:46 AM

...

Full employment is important for long-term reduction of inequality. Periods of high unemployment not only do damage to workers who lose their jobs and see their skills atrophy, but also cause those who keep their jobs to experience weaker wage growth. This is especially hard on those with lower incomes, who see larger cuts in working hours during periods of high unemployment.

...As it looks like the economy will be weak, and interest rates low, for the foreseeable future, this is a problem that won't go away on its own. And as she concludes, "excessive emphasis on low and stable inflation at the expense of a strong labor market is unwarranted. Privileging low inflation over maximum employment means that more people are likely to experience unemployment, underemployment, or stagnant wages."

bakho -> pgl...
Our wealthy elites like cheap labor. High unemployment leads to cheap labor.
The newly employed are not likely to take up a collection to hire an outgoing Fed member. A banker might be willing to hire at a premium.
BenIsNotYoda -> pgl...

The Fed can not reduce inequality. This should be done with fiscal action - taxes, min wage hikes etc. To push Fed to consider inequality is pure mission creep and delusional. They will create more problems trying. What is next on the list? Cancer?

pgl -> BenIsNotYoda...

I'm not against fiscal stimulus but that is not decided by the FED. Congress is run by gold bug idiots. So the point that the FED should not be run by gold bug idiots stands...

BenIsNotYoda -> pgl...

The rule should be - do not do stupid things. And by absolving congress and pushing the Fed to do things they can not, you are part of the problem.

Peter K. -> BenIsNotYoda...

"The Fed can not reduce inequality."

Why not?

"This should be done with fiscal action - taxes, min wage hikes etc."

Why not all of the above?

"To push Fed to consider inequality is pure mission creep and delusional."

Why?

"They will create more problems trying."

Not true.

"What is next on the list? Cancer?""

reductio ad absurdum

William -> Peter K....

A Reductio is not actually a fallacy, it's an acceptable form of refutation.

His actual fallacy was a Slippery Slope.

That being said, I agree with pgl. Just because the person behind the steering wheel is trying to drive you into a ditch doesn't mean the person controlling the pedals can't hit the breaks.

(Though our current situation is more like the person behind the wheel is refusing to steer, and is instead spending their time drilling holes in the gas tank to keep us from going anywhere.)


Sanjait -> William...

His fallacy was in the original claim that the Fed can't do anything to reduce inequality. It's an especially obtuse claim at this moment in time.

Syaloch -> BenIsNotYoda...

Binder: "Privileging low inflation over maximum employment means that more people are likely to experience unemployment, underemployment, or stagnant wages."

Sure sounds to me like the Fed can reduce inequality.

Or do you think unemployment, underemployment, and stagnant wages have no impact on inequality?

RGC -> RGC...

Pushing on a string

From Wikipedia, the free encyclopedia

Pushing on a string is a figure of speech for influence that is more effective in moving things in one direction than another – you can pull, but not push.

If something is connected to someone by a string, they can move it toward themselves by pulling on the string, but they cannot move it away from themselves by pushing on the string. It is often used in the context of economic policy, specifically the view that "Monetary policy [is] asymmetric; it being easier to stop an expansion than to end a severe contraction

According to Roger G. Sandilans[1] and John Harold Wood[2] the phrase was introduced by Congressman T. Alan Goldsborough in 1935, supporting Federal Reserve chairman Marriner Eccles in Congressional hearings on the Banking Act of 1935:

Governor Eccles: Under present circumstances, there is very little, if any, that can be done.

Congressman Goldsborough: You mean you cannot push on a string.

Governor Eccles: That is a very good way to put it, one cannot push on a string. We are in the depths of a depression and... beyond creating an easy money situation through reduction of discount rates, there is very little, if anything, that the reserve organization can do to bring about recovery.[2]

The phrase is, however, often attributed to John Maynard Keynes: "As Keynes pointed out, it's like pushing on a string...",[3] "This is what Keynes meant by the phrase 'Pushing on a string.'"

https://en.wikipedia.org/wiki/Pushing_on_a_string

BenIsNotYoda -> Syaloch...

To all of the above,

The biggest factor increasing inequality is not high unemployment right now. It is sky high asset prices that is raising the net worth and income of the top 1% or 0.1%. Piketty documented this as well - asset prices and inequality cycles are highly correlated.

So what is Fed to do? They caused it in the first place.

Letting the economy run hot so wages go up - this way will take forever to reduce inequality to any appreciable degree.

Cascatore Хачатурян -> BenIsNotYoda..

"
Fed can not reduce inequality. This should be done with
"
~~BenIsNotYoda~

Do FG have 4 trillion $$$$ of assets still on their balance sheet? What happens when they auction these off into the free market? All asset prices drop? By supply/price/demand? As asset prices drop what happens to buying power of 1% jokers? Drops?

As buying power of 1% dudes drops they are able to buy less thus to some extent they cease to price 99% out of the market. Do you see the mechanism involved?

When the benBernank pushed onto the top of the stack first high rates then middle rates then low rates then small balance sheet as he expanded sheet with *twist*, you are thinking that the graniteJanet will pop balance sheet off the top of the stack first later pop 0% rates off top of the stack as we come out of the inner loop then revert to the parent process. This is subtle but important.

The graniteJanet used an offset on the stack pointer to dip into the middle of the stack to access higher rate first, bypassing the 4 trillion balance sheet. Do you see how all this fits together?

You now have 64 micro-seconds to crunch the numbers.

Good
luck
!

JohnH -> pgl...

As usual, pgl opposes any ideas that carry of whiff of criticism of the Fed and its ineffective, redistributive monetary policy. He must be responsible for PR for the Fed...

In fact the criticisms are spot on--its focus is more on higher inflation than on legally mandated maximum employment, it refuses to enforce regulations, and it is rife with cronyism, as Bernie's audit of the Fed revealed years ago.

Stiglitz advocates reform, noting that "The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken...Access for small and medium enterprises to credit is too expensive. That's why it is so important that the transmission mechanism work." And of course, consumer credit rates barely budged since the Fed cut rates to zero, so ordinary people don't see the benefit, except for affluent mortgage holders.

http://www.cash.ch/news/alle/stiglitz-billiggeld-lost-kein-problem-3393853-448

Ellen Brown would go further--reinvent the entire banking system and cites Russia, Iceland, Ireland and Ecuador as places experimenting with new ideas.
http://ellenbrown.com/2015/12/11/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuador/

Of course, all of this is anathema to Fedbots like pgl, who insist that everything is hunky dory...if only the Fed would feed free money to his cronies forever, it would be heaven on earth.

Instead of taking any criticism of the Fed off the table, as pgl and his coterie fervently desire, it's long past time for a thorough debate about the Fed, its failed policies, and ways to extensively reform it.

bakho said...

Noah Corrects Feldman's funny numbers on entitlements and wealth inequality and comes to the opposite conclusion. The elites like Feldman seem to be fine with golden parachutes for the wealthy but want to give the poor a lottery in place of a pension. Social Security is insurance that provides a safety net. Replacing SS with investments that allow people to fall through the cracks is not a good idea.

[Dec 17, 2015] Update of CBOs long term SS projections

www.cbo.gov

"CBO's Publications - CBO's 2015 Long-Term Projections for Social Security: Additional Information"

New From CBO

pdf 446.38 KB

"CBO's 2015 Long-Term Projections for Social Security: Additional Information"

"Under current law, CBO projects, Social Security's trust funds, considered together, will be exhausted in 2029. In that case, benefits in 2030 would need to be reduced by 29 percent from the scheduled amounts."

Summary

"Social Security, which marked its 80th anniversary in 2015, is the largest single program in the federal government's budget. About 72 percent of the roughly 60 million people who currently receive Social Security benefits are retired workers or their spouses and children, and another 10 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The remaining 18 percent of beneficiaries are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits.

In fiscal year 2015, spending for Social Security benefits totaled $877 billion, or almost one-quarter of federal spending. OASI payments accounted for about 84 percent of those outlays, and DI payments made up about 16 percent."

[Dec 15, 2015] FOMC Tomorrow, Cargo Cult Economics

Notable quotes:
"... So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. ..."
Jesse's Café Américain

...There is a heavy lean towards believing that the Fed will raise rates 25 basis points.


Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next year. Let's see if they can pull that one off. It seems aspirational, if one wishes to have room to cut when their latest folly falls back upon them.

The idea that since recoveries are often accompanied by inflation, if we can only use monetary policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.

Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the organic form of growth in the economy that will provide all the inflation that one might expect.

But to pursue this effete, top down stimulus focused primary on the still unreformed Banking system and the wealthiest top few percent is beyond policy error, and more policy malpractice. And of course, if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore Toto.

So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. The miners have been beaten bloody.

[Dec 15, 2015] This Is How The Credit Crisis Spreads To Stocks

Notable quotes:
"... Yeah but its junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong? ..."
"... The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational. ..."
"... Charts: Bloomberg ..."
"... And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations. ..."
"... Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia? ..."
"... ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves. ..."
"... What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy." ..."
"... Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber. ..."
"... if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia. ..."
"... Our DC Beltway and NYC elites are wildly delusional about their ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated. ..."
"... The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat. ..."
"... Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population ..."
"... The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that Americans from all walks of life are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake. ..."
"... Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a fight against Islam ; TPTB certainly seem to be giving this angle their best shot these days. ..."
"... What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity. ..."
"... Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you. ..."
Dec 14, 2015 | zerohedge.com

"Yeah but it's junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong?"

The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational.

Here is Goldman's David Kostin explaining who the biggest buyer of stocks is (and will be) - as a reminder, it's not "mom(o) and pop".

We expect corporations will continue to be the largest source of demand for stocks, with net purchases by US companies totaling $450 billion, equal to about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($225 billion), equity mutual funds ($200 billion), life insurance ($50 billion), and foreign investors ($25 billion). We forecast net outflows from households ($25 billion) and pensions ($150 billion).

Well, the cost of funding that carnival of financial engineering and artifice (just ask Nordstrom, Macy's, IBM and so on) is soaring, as high-yield decompression pukes over into investment grade markets, spiking the cost of funding and crushing the 'economic feasibility' of debt-funded shareholder-friendliness:

Charts: Bloomberg

And, in case you thought "well, cost of funding has only gone up 30-40bps in IG, they can handle that," you are wrong! To all those who claim US corporate balance sheets are in great shape - they are not! Leverage is at record highs and interest coverage near record lows for the IG universe. And judging by today's collapse in Investment Grade bond prices, the market just woke up to this reality.

Simply put, the Fed's policies enabled massive releveraging and now corporations are stuck with few options to escape a vicious circle - which by the way, is why it's called the credit 'cycle'.

And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations.

Selected Skeptical Comments

strannick

Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).

Wow, the foremost scholar on Russia is one dumb motherfucker. Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia?

sam i am

The Western nations underestimated the horrible trauma that the Russian society experienced in 1990s when the Russians peacefully surrendered their society, their lands, their economy to the West, hoping to be accepted and treated as equals by the "world" community. Instead, the West dealt with the Russian skillfully, decisively, and mercilessly, just like the American Indians were dealt with by the colonizers. The Russia was gutted, scalped, and hanged on a cross to die slow and painful death. Some say that Russia like a cat has nine lives. Others say that Russia died and resurrected like Phoenix or Jesus. Open wounds have not healed yet, when after the February 22nd 2014 putsch in Kiev, and publication of the US Department of Defense tenders on the constructions of facilities in Sevastopol for the US fleet and NAVY everyone in Russia, including its government, understood that it was a declaration of war, and stood up in arms.

http://thesaker.is/ukraine-sitrep-december-13th-2015-by-scott/

Global Observer

...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves.

Ghordius

"It is the basis to America's and Europe's claim to exceptionalism and leadership". seriously?

"What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy.""

so? yes, King Hussein is right, in the very beginning it was mainly the Soviet Union that fostered Ba'athism. and again, so? the Soviet Union is no more

junction

Obama is stark raving mad, and his female neocons - Nuland, Powers and assorted other power hungry bitches - are too busy following orders from Israel to realize they are on a treasonous path to World War III. Putin will vaporize Raqqa with one of his new nuclear weapons that works like a neutron bomb. In all likelihood, when the first Kalibr cruise missiles hit ISIS/Bush's Captagon meth plant in Raqqa, the U.S. National Reconnaissance Office couldn't even detect them to warn CIA black ops spies in the drug facility to run. Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber.

Global Observer

NOBODY WINS A NUCLEAR WAR.

I hope that Putin and his Military Advisors are smart enough to figure that out.

They are. But what the Americans don't seem to be aware of is that for some there are worse things than being dead and in order to avoid these worse things, people are prepared to die and nations willing to risk annihilation.

Russia is willing to risk annihilation in order to be able to live peacefully and with dignity. Is the USA willing to risk annihilation in order to be able to continue to insult Russia and bully the world? If the USA is indeed willing to risk annihilation to continue to do that, it would be silly for Russia not to attack the USA while she still can, because if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia.

monk27

If the US will be stupid enough to start a war with Russia or/and China, it will lose such a fight big time. That will be the end of America as we know it, and also the end of the contemporary Western "elite" whether they believe it or not. Their move...

MrPalladium

"and also the end of the contemporary Western "elite"

Our DC Beltway and NYC elites are wildly delusional about "their" ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated.

No intelligent power like Russia is likely to waste a perfectly good nuke on Paducah Kentucky, but it is certain that the entire population of Manhattan Island, and the DC beltway will be vaporized along with West Los Angeles (propaganda production central) and Silly Valley. The effluvia of the silos in Iowa and Nebraska can be intercepted. Remarkably, our elites and their supporting substrata still believe that the main combatants will be rural boys from Texas and Tennessee which in a strange turn of justice will be the safest places to hide. Our 400 or so billionaire oligarchs who control this country are concentrated in about 20 zip codes. Do you really think that Russia hasn't already targeted them? The whole point of nuclear war is to decapitate the regime but spare the resources and general population for future use, and the real regime, the oligarchs, occupy a very modest and easily cleared amount of territory.

The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat.

August

I do like the way you think, Mr. P, and it's entertaining to speculate about war, TEOTWAWKI etc.

Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population (which is also rather dumbed-down, infantile and irresponsible). The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that "Americans from all walks of life" are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake.

Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a "fight against Islam"; TPTB certainly seem to be giving this angle their best shot these days.

monk27

"They" (i.e. the Russians) stand a better chance to survive than us. Ours is a much more complex AND violent society than theirs. The Mad Max way of living works only in movie...

Tall Tom

NO. THEY DO NOT. NUCLEAR WINTER, PAL.

You will either freeze to death or succumb to suffocation due to LACK OF OXYGEN.

The ash will blot out most sunlight. Plants require sunlight to photosynthesize Carbon, from CO2, into complex sugars and starches.

They transpire OXYGEN. Without the plants...YOU ARE DEAD.

Watch this video. Even the former Soviet Academy of Sciences concur with this modeling. NOBODY WILL SURVIVE. It is GLOBAL EXTINCTION. It is a God Damned Extinction Level Event.

https://www.youtube.com/watch?v=WCTKcd2Ko98

I am a physicist. This is valid science. My warning is not without a solid foundation.

Volkodav

Soviet did not so much invade. Soviet was already, support moderate government, building infrastructure, schools and other. Girls attended school in dresses.

Search for photos Kabul in 60's 70's

Moderate leader was murdered in coup by extremist backed from outsiders. Russians, moderates and monorities were slaughtered. That is when Soviet, after much concern debate, sent additional forces. Soviet was not defeated, but withdrew orderly result of collapse of funds, problems.

Soviet controlled more of country than west coalition ever did and alone, against outside interferences aiding radicals there was some beginning of what is today, some nasty creations. You never understood there was other side, moderate and civil

https://www.youtube.com/watch?v=Xc2KeSkl5H0

ebworthen

What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity.

Insurrexion

Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you.


[Dec 15, 2015] How to Invest in Bonds as Interest Rates Start Rising

Notable quotes:
"... For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss. ..."
TheStreet

Keep in mind that the Fed's first rate hike won't really change much. Rates will still be at historic lows. It all depends on how much the central bank raises rates in the coming months. So you don't have to rush to do anything.
An increase of 0.25 percentage point on Wednesday will almost certainly not result in big swings in bond values, especially given how many in the market expect the hike. And the Fed is likely to say that the pace of future increases will be slow.

Still, higher rates lessen the value of the bonds you currently own. That's because newly issued bonds under those higher rates will pay out more than older ones. So the price of your older bonds falls as a result.

For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss.

But it's a different story if you hold bonds through a mutual fund, as most investors do. The value of the fund declines with any interest rate hike because the fund becomes less attractive to investors.

The drop in value is closely linked with the term of the bonds, known as duration. Those durations are usually indicated as short term, intermediate term, or long term. In theory, short-term bonds will drop the least in value, and long-term bonds will drop the most when rates go up.

So what should investors do?

Larry Swedroe, author of The Only Guide to a Winning Bond Strategy You'll Ever Need, urges investors not to make big moves without making a plan first.

"Inaction is almost always better" than making a sudden shift in strategy in a panic, he said.

"The most anticipated event of any we can think of is that the Fed is going to raise interest rates on Dec. 16," Swedroe said. "The market must already have that information incorporated into the current price" of bonds (and stocks too, for that matter).

Don't try to outsmart the market, said Swedroe, who also is director of research for the BAM Alliance of financial advisers.

Investors "stretching for yield" can make "very bad errors," Swedroe said, including investing in real estate investment trusts, dividend-paying stocks, emerging-market bonds, and other securities that are much more risky than bonds.

If the economy falters and investors flee those asset classes and move to high-quality investments, investors in riskier assets "get crushed, just when you need the safety the most," said Swedroe.

Swedroe suggests three possible strategies for investors looking for yield in this market.


1.Stick to the middle. For bonds, the "sweet spot" for balancing risk and reward is via intermediate-term bonds with about a 5-year duration, Swedroe said. Investors there can get "most of the term premium without the longer-term inflation risk." Consider any low-cost, intermediate-term, high-quality bond fund, he said. That could include the Vanguard Intermediate-Term Bond ETF (BIV) or the Fidelity Spartan U.S. Bond Index Fund (FBIDX) -- there are many such funds available.
2.Move to CDs. Investors who really want yield but can't stomach the market fluctuation of bond funds should look at certificates of deposit, "where you can have much higher yields" than bonds but with very low risk and no mutual fund fees. For example, 5-year CDs can pay up to 2.45% in annual percentage yield, while 5-year U.S. Treasury securities pay a yield of a mere 1.56%. Swedroe said CDs are most useful for investors with IRAs, who can choose where they hold their assets.
3.Embrace the wisdom of the markets. This is the most Zen option. Swedroe said investors should take a page out of Warren Buffett's book, ignore market forecasts, and simply develop a financial plan. Find the best way to implement the plan -- with simplicity and low costs. "Stop worrying and stick with your plan," he said. Forever.

If investors really do want to rely on the consensus judgment of the markets, they should consider the world's largest bond fund, the Vanguard Total Bond Market Index (VBMFX) (VBTLX) (BND) . (In April, Vanguard's fund surpassed Pacific Investment Management's Pimco Total Return Fund (PTTAX) , which had been the largest bond fund for decades.)

Must Read: Why Wall Street Won't Be Pouring Cristal on New Year's Eve

Vanguard's Total Bond index fund is totally market weighted, with no active calls about which types of bonds will outperform and which will not. The investor class charges a 0.2% fee annually, and the ETF class charges 0.07%. The fund's SEC yield is 2.27% and its average duration is 5.8 years (in the "sweet spot"), and its pretax return for the past 12 months as of Sept. 30 has been 2.64%. It's hard to get cheaper or simpler.

Investors can also buy Treasury bonds directly from the government via Treasury Direct -- and pay no fees. The bonds available there are high-quality and simple to buy. There are some caveats: EE and E savings bonds must be held for at least one year, and you'll pay a penalty of three months' interest if you sell them within five years of buying them; they earn interest for 30 years. Other Treasury notes and bonds can be bought directly through Treasury Direct, but if you want to sell them before their term is up, you'll need to move them to a broker for sale. You can also buy resold Treasury securities at auction on Treasury Direct.

And investors should also maintain perspective, according to Vanguard.

"Many people look at bonds independently from their stocks," Fran Kinniry, of Vanguard's Investment Strategy Group, said in a statement. "But it's more beneficial to think, 'How do my bonds complement my stocks and fit into my whole investment picture?' You really want to put the two types of investments together and see how they interact as a whole. Ask yourself: 'What's my risk level for all my holdings? Does it align with my risk comfort if there's a downturn?' If you answer no, make the appropriate adjustments."

In other words, investors should hold bonds to manage volatility, to provide consistency in a portfolio, and to earn a reasonable return. Using bonds for speculation or to take more risk makes an entire portfolio more volatile.

So investors may want to stick to plain-vanilla bonds. If they plan to hold a bond fund to its average duration, which is listed on the prospectus, they will likely come out ahead even after an interest rate hike -- being paid more in interest than they have lost to reduced principal (or the face value of the bonds).

Investors hold bonds for safety -- or at least they should. If you have too much money tied up in junk bonds or in long-term bonds, be prepared for swings in the value of the principal. If you can wait out the duration of the bonds, you will likely be OK. If you can't stomach big swings, face that about yourself and move to shorter duration bonds or CDs. They could pay less, but they will also fluctuate less in value.

Must Read: 8 Winning Financial Stocks Once the Fed Raises Interest Rates

Fixed-income investing is about reducing risk and receiving a predictable payment on schedule. Remember that the bonds will keep paying the same even if their face value has dropped.

Now's the time when bond investors should verify that they have enough -- not too much, not too little -- in bonds, then sit back and collect the interest.


[Dec 15, 2015] You can open your own company, but your can not predict the risks you are taking when economy is stagnant

Notable quotes:
"... Many people are merely worried about having a job and getting by rather than profoundly changing the system or being organized under shrewd far sighted leadership. ..."
"... Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra money. That's the money they spend on pizza. And it still feels very fragile." ..."
"... The Fed didnt demonstrate technical know-how. The corrupt politicians appointed the wrong technocrats. ..."
"... You regulate the financial sector to decrease risk and increase sustainability. You dont starve it of credit so the entire thing collapses. ..."
economistsview.typepad.com
Peter K. said... December 13, 2015 at 06:18 AM
Many people are merely worried about having a job and getting by rather than "profoundly" changing the system or being organized under "shrewd far sighted" leadership.

http://www.nytimes.com/2015/12/14/business/economy/in-denver-worries-that-the-fed-will-chill-a-sizzling-recovery.html

In Denver, Worries That the Fed Will Chill a Sizzling Recovery
By BINYAMIN APPELBAUM

DEC. 13, 2015

AURORA, Colo. - William Harris tapped his retirement savings to open A-Town Pizza, a Neapolitan pizzeria, in this Denver suburb three years ago. He borrowed $200,000 to open a second location this year and now employs 60 people. On a good Friday, his shops sell 1,200 pies.

In such stories, the Federal Reserve finds evidence that its seven-year campaign to reboot the American economy is succeeding. So on Wednesday, the Fed, which has held short-term interest rates near zero since December 2008, will most likely announce that it will start nudging rates upward, slowly ending what has amounted to a once-in-a-lifetime sale on money.

Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra money. That's the money they spend on pizza. And it still feels very fragile."

Monetary policy is conducted in a language of bloodless abstraction, and most Americans pay little, if any, attention. But the Fed is about to make a big bet, and the decisions it makes in Washington have large consequences, here in Colorado and across the nation.

Janet L. Yellen, the Fed's chairwoman, and her colleagues have concluded that the economy is finally strong enough to grow with a little less help from the central bank. Indeed, they worry inflation will rise too quickly if they do not start raising interest rates. The first rate increase will be small, then the Fed expects to raise rates about one percentage point a year for the next few years.

The Fed's move is coming in the face of worries about the health of the stock market and falling commodities prices. Still, by itself, the increase probably will not matter much. The Fed is expected to set short-term rates in a range from 0.25 to 0.5 percent, a small jump from the current range of zero to 0.25 percent.

It is what follows that will make the difference.

Denver seems ready for higher rates. The area's economy has enjoyed one of the nation's strongest rebounds from the recession. The local unemployment rate fell to 3.1 percent in October. There are new skyscrapers downtown and new subdivisions in every direction. The former oil town is now at the center of one of the nation's largest booms of technology start-ups.

Yet the local mood is fragile. Housing prices have climbed 24 percent above the precrisis peak, but whereas that once would have encouraged economic optimism, now people fret that home prices are due for a fall.

Optimists say that the economic expansion is just gaining steam and that modestly higher rates will probably not slow the region's growth.

Pessimists see evidence of fragility in the same facts. Josh Downey, president of the Denver Area Labor Federation, says the resurgence of development has created construction jobs for a new generation of workers. They need cars to reach their jobs, and jobs to pay for their cars. "If those buildings stop going up in Denver, they're going to be out of a job and a car," he said.

Mark McKissick, director of fixed-income research at Denver Investments, says he is waiting to see how quickly the Fed raises rates before he adjusts the firm's investment holdings. The economy, he says, does not seem strong enough to handle higher rates, and he expects the Fed to reach the same conclusion. Otherwise, he worries it could push the economy back into recession.

"The Fed threw a bunch of money into the financial system, but it hasn't stimulated growth or inflation the way it might have in earlier periods," he said.

Builders, for example, will start construction on about 9,000 single-family homes in the Denver metropolitan area this year, according to Metrostudy, a real estate research firm. That is up 14 percent from last year - but less than half the 20,000 home starts in the Denver area at the peak of the bubble in 2005.

Some workers will be getting raises. Bakery and deli clerks at King Soopers, a grocery chain, will earn a minimum wage of $10.50, an increase of as much as $2 an hour, under the terms of a new contract negotiated by the United Food and Commercial Workers Union. The previous four-year deal held wages steady.

Others, however, are still waiting for prosperity to affect them.

Ethel Ayo's landlord raised her rent this year by $400 a month, to $1,126. Ms. Ayo has a part-time job as a home-care worker and her son, a college student, works at Enterprise Rent-a-Car. Together they can barely afford the rent - and then only because the landlord does not require full payment at the beginning of the month. "And you didn't hear me talk about food," Ms. Ayo said. "After I work two or three days, I buy $50 of food and make it last two or three weeks."

Mr. Harris, the restaurateur, says Denver's growth feels nothing like the boom he lived through in Southern California a decade ago. He is struggling to repay his start-up costs, particularly during the holidays, when people eat less pizza. The Fed will most likely raise rates before his risks have paid off. If it has overestimated the recovery and moves too fast, people would have less money to spend, and Mr. Harris said he could lose his restaurants and his retirement savings.

On South Broadway, a commercial strip south of downtown lined with dilapidated auto dealerships and freshly painted marijuana shops, those worries seem far away. Khalid Sarway, sales manager at Famous Motors, says he is selling about 25 used cars a month, and he does not think higher rates will bother his customers.

"The people, they don't care about the rate," said Mr. Sarway, who added that he was making more money now than in the best years before the recession. "They just want a vehicle. They just want to be able to get back and forth between their jobs and school, or whatever their lifestyle is."

North of downtown, Denver's tech entrepreneurs also see little immediate danger from higher rates.

Steve Adams, the 62-year-old chief executive of Leo Technologies, runs a start-up, his sixth, in a former produce warehouse that has been renamed Industry, where the nearest thing to manual labor occurs when people play table tennis in the atrium.

Uber has its Denver office in one corner of the sprawling building.

Mr. Adams is trying to raise $500,000 to test a biometric device that uses blood pressure readings to measure hydration levels - data he says could help athletes as well as people with medical conditions, like those on dialysis.

Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies to raise money from investors seeking higher returns. Denver is also a technology frontier town, reliant on coastal capital, so it may be more vulnerable if the availability of funding begins to recede.

But Mr. Adams said he expected the money to keep flowing even as rates on safer investments like corporate bonds started to rise. "The people I'm pitching want to get in early and make a big multiple," he said.

Some in the real estate business similarly insist that the local market will probably remain hot. Greg Geller, the owner of Vision Real Estate, says builders are struggling to keep pace with population growth because it takes years to find land, obtain permits and train replacements for workers laid off during the recession.

Others are less sanguine. Mitchell Goldman, the owner of Apex Homes, said customers rushed to buy houses in recent years because they worried prices would climb. Now people are holding back, wondering if prices will fall.

"I've been getting asked the question a lot, 'Should we wait?'"

Mr. Goldman said he expected that higher rates would also push some buyers out of the market. The math, after all, is inexorable. If mortgage rates increase by one percentage point, the monthly cost of a $300,000 mortgage increases by $177.

He added that he was looking for land to build a home for his own family. They have moved several times in recent years, but with higher interest rates on the horizon, he wants to build "a more permanent forever home."

"I'm a little more anxious," Mr. Goldman said. "Interest rates are never going to be what they were when I was growing up, but every little bit makes a difference."

djb said in reply to Peter K....
"Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies to raise money from investors seeking higher returns."

yes exactly how monetary policy is supposed to work

Peter K. said...
More Beckworth on the Fed tightening during 2008:

....

Again, the Fed tightening in 2008 was not just about the absence of a 2% interest rate cut. It was about an expectation that the Fed was going to raise rates going forward, even though the economy was weakening. This development was huge because current spending decisions are shaped more by the expected path of interest rates than by current interest rates.

So why did the public expect this tightening? Because the Fed was signalling it! Among other places, this signalling was clear in the August and September 2008 FOMC statements. Here is a gem from the August FOMC meeting (my bold):

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee."

And from the September FOMC meeting we get a similar warning:

"The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee"

This was forward guidance at its worst and points to a far more intense tightening cycle than is apparent by looking only at the current policy interest rate. The Fed was willing to strangle the already weak economy over inflation concerns and the market knew it.

It was this severe tightening of monetary policy that turned an otherwise ordinary recession into the Great Recession. As I noted before, this tightening of policy occurred before the worst part of the financial crisis in late 2008. Recall that many of the CDOs and MBS were not subprime, but when the market panicked in late 2008 a liquidity crisis became a solvency crisis for all. Had the Fed not tightened during the second half of 2008 the financial panic probably would have been far less severe and the resulting bankruptcies far fewer. So no, it is not obvious that a severe financial crisis was inevitable.

P.S. The Fed was not the only central bank to tighten in 2008 because of inflation concerns. The ECB did as well and repeated the mistake two times in 2011. These experiences illustrates the the limits of inflation targeting and why it is a monetary regime that has outlived its expiration date.

Peter K. said in reply to Peter K....
This is policy malfeasance by Bush's Fed. Once can think of it as macro policy rather than strictly monetary policy. The Fed needs its independence b/c politicians don't have the technical know-how? The Fed didn't demonstrate technical know-how. The corrupt politicians appointed the wrong technocrats.

Imagine there was one of Wren-Lewis's fiscal councils deciding on fiscal spending for the year. As the housing bubble deflated, they should have increased fiscal spending to replace lost home builder jobs and lost housing wealth, instead of tightening fiscal policy over inflation fears.

Peter K. said in reply to Peter K....
You regulate the financial sector to decrease risk and increase sustainability. You don't starve it of credit so the entire thing collapses.

[Dec 14, 2015] Dan Balz and the Pew Research Center Discover Wage Stagnation

economistsview.typepad.com
Peter K. said... December 13, 2015 at 06:58 AM
http://cepr.net/blogs/beat-the-press/dan-balz-and-the-pew-research-center-discover-wage-stagnation

Dan Balz and the Pew Research Center Discover Wage Stagnation

by Dean Baker

Published: 13 December 2015

Okay, this one is a bit personal, but it reflects a larger issue. The Pew Research Center just put out a study showing that declining share of the U.S. population is middle class, with greater percentages falling both in the upper and lower income category than was the case four decades ago. Washington Post columnist Dan Balz touted this declining middle class story as an explanation for the rise of Donald Trump.

The problem here is that there is zero new in the Pew study. My friend and former boss, Larry Mishel, has been writing about wage stagnation for a quarter century at the Economic Policy Institute. The biannual volume, The State of Working America, has been tracking the pattern of stagnating middle class wages and family income (for the non-elderly middle class, income is wages) since 1990.

The Pew study added nothing new to this research. They simply constructed an arbitrary definition of middle class and found that fewer families fall within it.

Perhaps having a high budget "centrist" outfit like Pew tout this finding is the only way to get a centrist Washington Post columnist like Balz to pay attention, but it is a bit annoying when we see someone touted for discovering what was already well-known. Oh well, at least it creates good-paying jobs for people without discernible skills.

[Dec 12, 2015] Robert Reich to the Fed: this is not the time to raise rates

Notable quotes:
"... Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you. ..."
www.facebook.com

Robert Reich

Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you.

Dwight McCabe

According to Paul Krugman the banks desperately need rates higher so they make more profits. With these very low rates they are stuck in low profit. The Fed lives in the financial culture and all the learned people around them, bankers, are convinced that the economy needs higher rates. The economy will not benefit but the financial community sure will.

David Van Dyne

...By the way, how about the negative returns on money market funds invested through a 401(k) plan?

[Dec 11, 2015] Dangers of reaching for yield

The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. Add to this fake earnings and share repurchases that weaken many companies including such stalwart as IBM and you get the message.
Notable quotes:
"... A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street. ..."
"... All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk. ..."
"... "Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap." ..."
"... Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500. ..."
economistsview.typepad.com

BenIsNotYoda said... Friday, December 11, 2015 at 03:42 AM

Another leg of the reach-for-yield/carry trade crumbling. Emerging markets, commodities and now corporate high yield. No bubbles here. Carry on.

http://www.wsj.com/articles/as-high-yield-debt-reels-mutual-fund-blocks-holders-from-redeeming-1449767526

Junk Fund's Demise Fuels Concern Over Bond Rout

Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond market swoons

A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street.

The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more.

BenIsNotYoda said in reply to BenIsNotYoda...
of course, biotech has to be added to this list; down 20%.
pgl said in reply to BenIsNotYoda...
Amgen shares trading at $145 and Gilead shares trading at $102. Not feeling sorry for these dudes.
pgl said in reply to BenIsNotYoda...
Talk about burying the lead:

"The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low in mid-2014, reflecting investors' confidence in companies' business prospects. But spreads have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated companies' ability to repay debts. All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk.

"Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap."

The Securities and Exchange Commission has been warning mutual-fund managers who purchase illiquid securities-those that may be difficult to buy or sell at stated prices because of a lack of willing investors-to prepare better for potential redemptions and is drawing up new rules requiring such measures."

Simply put - people who go into the junk bond market get a very high return but they also take the risk. No feeling sorry for these guys especially given that the SEC gave them fair warning.

Peter K. said in reply to pgl...
"All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk."

Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield.

The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data.

http://cepr.net/blogs/beat-the-press/matt-o-brien-takes-obama-to-task-on-fed-appointees

Dean Baker again:

"Preventing the rebirth of housing bubbles in these markets was a very good thing in my book. I will add the qualification that high interest rates is not my preferred way of bursting bubbles. The first recourse should be talk, as in using the Fed's bully pulpit, coupled with its research, to warn the markets of rising bubbles. Janet Yellen did this successfully in the summer of 2014 when she used congressional testimony to warn of bubbles in social media companies, biotech stocks, and junk bonds. She did not follow through with subsequent warnings, but all three markets did take a hit in the weeks following her testimony.

For some reason most economists reject the idea of having the Fed talk down bubbles. I guess it is considered impolite. This seems more than a bit bizarre given the enormous damage done by bursting bubbles compared with the virtually costless effort to talk them down.

Of course the Fed also has substantial regulatory powers which can be used to curb bank lending to support bubbles. This is also a policy option that should be pursued before deliberately slowing the economy with higher interest rates.

Anyhow, I was not happy to see the economy slowed by the Taper Tantrum, but I was very happy to see that it prevented the growth of another bubble. It is unfortunate that almost no one knows this story - I guess it is difficult for reporters to get access to the Case-Shiller data on the web."

pgl said in reply to Peter K....
"The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data."

Yep! And the lack of QE of late has driven up both government bond rates and credit spreads. Now wonder these vulture investors lost money. I'm not feeling for them a bit. And yes - BenIsNotYoda was being a drama queen.

likbez said in reply to Peter K....
"Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield."

Yes, very true.

Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500.

Conservative investments like TIPS suffered.

[Dec 11, 2015] Demand, Supply, and what is new after 2008

Notable quotes:
"... Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. ..."
angrybearblog.com
Angry Bear

... ... ...

The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation.

Krugman posted a graph showing how the US graph of inflation and unemployment has changed (just click the link and look). In the past high unemployment gradually lead to lower inflation and then to lower inflation and unemployment - this is the pattern predicted by Friedman, Phelps, Tobin (and discussed already by Samuelson and Solow in 1960). But in the recent past extremely high unemployment has come with low and stable core inflation.

Things used look very different here in Italy than in the USA. Here is a graph of data from before January 2008. Extremely high unemployment was consistent with moderate and then with low inflation. The only clear shift in inflation occurred in 1996 and 1997 (which may or may not be when Italians began to think they might actually earn the wonderful reward of being allowed to adopt the Euro).

filipograph

By 2008, The flat Phillips curve (the Fillipo curve?) was already very clear to anyone who read Italian newspapers.

Here are all data which are available on FRED (yes I sit in Rome and surf to St Louis for Italian data). Oddly the harmonized unemployment series is only available (at FRED) from 1983 on.

filipo2

In this graph there is also very little sign of Friedman-Phelps cycles. The old pattern was a steady decline from extremely high inflation - it looks almost like an expectations unaugmented Phillips curve. But then (really from 1986 on) there was fairly stable moderate to low inflation along with extreme swings in unemployment. I stress that this is CPI inflation including food and energy not core inflation. the peak oil spike in 2007 and the collapse in 2008 are clearly visible. It is possible that the most recent observations show a slide to actual persistent deflation, but it is more likely that the recent decline in inflation is due to the collapse of the price of oil.

Unlearning economic paradigms | Bruegel , November 30, 2015 7:22 am

[…] Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. […]

[Dec 10, 2015] The Feds Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The Casino

As long as oil stay low I think there will be no recession...
Notable quotes:
"... Submitted by David Stockman via Contra Corner blog, ..."
Zero Hedge

Submitted by David Stockman via Contra Corner blog,

Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.

So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino - the very outcome that has filled them with fear and dread all these years.

... ... ...

But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

... ... ...

According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain't going to happen this time.

Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

Katherine Schock, 1 year ago
Just spent the major part of my day putting together the records to file the old man's tax this year. We have contributed mightily to the insurance industry, the pharmaceutical industry, the medical industry and yes, a major part of our income that makes up our yearly retirement amount has ended up in the pockets of these Wall Street bums! Therefore, I am posting this song as a tribute to Wall Street...thanks to you guys we barely have a dime left over! Hope you choke on your fucking bonus!

Gene Burnett - Jump You F#kers (A Song For Wall Street) - YouTube

[Dec 10, 2015] Regarding the Future is Bright

Notable quotes:
"... We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time. ..."
"... the crucial indicator being real wage growth. ..."
"... Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be bright for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes. ..."
"... Clintons tech stock bubble popped and morphed into Bushs housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didnt help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existenc ..."
"... The simple tool for reining in our excessively top-heavy financial sector is deflation! ..."
"... Its generally useful to talk about macroeconomic factors in terms of cyclical and structural factors. Its a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous core problem that leads to recessions, I am very suspicious. Usually, such claims are about someones hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions. ..."
Economist's View
bakho said...
Regarding the "The Future is Bright ".

We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time.

cawley said in reply to bakho...
Agreed. Also with the crucial indicator being real wage growth.

ken melvin said in reply to bakho...

Yup, housing is the effect, not the cause.

RC AKA Darryl, Ron said in reply to ken melvin...

Exactly!

New Deal democrat said in reply to bakho...

Thanks.

My post at Bonddad was an elaboration on a comment I made here two days ago. I had been meaning to reply to CR last year when he made the same argument, but never got around to it.

In fairness, I think Bill makes an excellent case that we won't have another recession brought about by a housing bubble, and/or too much consumer leverage any time soon. But there are plenty of other reasons why the economy might tip back into recession, as comments here have already mentioned.

Dan Kervick said in reply to New Deal democrat...

Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be "bright" for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes.

Dan Kervick said in reply to JF...

Well I said the prospects are bleak only absent major structural political and economic changes. And they are. American society is killing off whole classes of people. The prisons are full; there are epidemics of substance abuse going on, and rising suicide rates. The Financial Times reported today Even if there is no recession, that just means that these people are not also laid off, and can trudge back and forth every day from their Wal-Jobs to their hardscrabble communities, slums and trailer parks and afford more booze to drink themselves to death or buy lottery tickets to win imaginary pots of gold that will never come, and to have a functioning TV so they can watch people scream at each other all night. Oh, and the prices of hookers and drugs are down. Bright times!

Why should any of these people care what the "Bonddad" thinks about how bright the future is for people who ... well, own bonds; or who party in Manhattan and Silicon Valley with their fortunes; or who make use of their abundant low-anxiety leisure to talk to their college chums all day in the establishment punditariat?

The up and down cyclical motions of the pretty horsies going up and down mean little to the people who sleep in the dark machinery underneath the merry-go-round.

If US society keeps its basic overall shape, the future isn't bright. But it does contain just enough glare to make sure that the party boys with their ever-evolving fashion lines of fancy sunglasses will continue not to see half of the world.

Dan Kervick said in reply to Dan Kervick...

Incomplete sentence. I meant to say, "The Financial Times reported today on the further hollowing out of the US middle class and growing income stratification."

Dan Kervick said in reply to Dan Kervick...

America, 2015:

http://www.theguardian.com/us-news/2015/may/14/homan-square-detainee-police-abuse

JF said in reply to Dan Kervick...

Yes, we absolutely have the opportunity to do better. We ought to try.

Julio said in reply to JF...

We are rich beyond belief. We just have to get used to the idea. Then, new vistas open up.

JF said in reply to Julio...

Yes. Net Wealth of US residents is nearly $85 T with an annual flow of economic activity over $17 T.

We have a rising population, not a declining one.

We produce more food than we can eat and have access to immense energy sources.

And we have one of the better judicial systems and at least historically a governing set of institutions that brings up to the pragmatic middle that has made sound currency and nationwide payment systems, lots of supportive infrastructure including some good literacy levels from the educational system part of it.

We can do better, but I'd take the US over any other place (we even have a moderate climate).

This election might change my thinking on this last point about taking the US over say Canada - but I think I'll be happy to remain.

Julio said in reply to JF...

Yes, I went through some of the same thoughts when we reelected Bush-Cheney. But here I am.

Dan Kervick said in reply to JF...

JF, I agree that the aggregates and net numbers are great. But our cruel, stratified, inegalitarian social system is the problem. The way those aggregate quantities are spread out over the population is a global scandal.

America is good for me too, personally. My wife and I live in a well-off upper middle class community in New Hampshire. Very good schools, no crime to speak of, a town full of healthy and advantaged kids 95% bound for colleges. We had and still do have various recession-related anxieties, but they are the anxieties most people in the world only dream of.

But my life isn't America. It's a privileged and charmed part of it. If I get pulled over by a policeman for driving a bit too fast, I just get a courteous and smiling warning from Officer Friendly. Many others run a good chance of getting tasered, shot or sodomized in a police station. And that's just the tip of the iceberg of the savage inequalities.

anne said in reply to New Deal democrat...

http://bonddad.blogspot.com/2015/12/the-future-is-bright-or-perhaps-not.html

December 9, 2015

The Future is Bright . . . or perhaps not
By New Deal democrat

[ Really nicely done. ]

Peter K. said in reply to bakho...

Clinton's tech stock bubble popped and morphed into Bush's housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didn't help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existence.

The solution is not to raise interest rates in a depressed economy.

As DeLong has written the housing bubble was deflating and housing jobs were being replaced by export jobs.

Then the whole thing short-circuited with the financial crisis.

At the time the Fed was passively tightening over inflation concerns.

Peter K. said in reply to Peter K....

Another solution is more fiscal policy so that monetary policy doesn't carry all of the burden.

Tax cuts for the rich isn't good fiscal policy.

pgl said in reply to Peter K....

Greg Mankiw links to some report on the effects of the Jeb! tax cuts but does not comment (Krugman did comment in this report). I followed the link and read the abstract. It is not exactly what Mankiw usually says about the wonders of tax cuts for rich people.

Peter K. said in reply to pgl...

I avoid Mankiw's website. No comments.

:D

Interesting though. Didn't Krugman blog that the report backs up his (everyone's) claims?

pgl said in reply to Peter K....

Krugman did. Abstract of the report and Krugman's comment below. I just found it funny that Mankiw gave a hat tip to something that I doubt he even read first. I guess Greg is getting a lot like JohnH in that way.

Peter K. said in reply to pgl...

"I guess Greg is getting a lot like JohnH in that way."

So much trolling to do, so little time. It's hard to keep up with all the misinformation.

PPaine said in reply to Peter K....

Pay roll tax cuts and increased retirement payments

Plus a greatly expanded earned income subsidy aka tax credit

These are job class macro moves

Bernie gets this

Hillary ???

PPaine said in reply to PPaine ...

The fed needs to be captured first before we can rely on. It to operate in sync with a pro job class macro policy

ilsm said in reply to PPaine ...

ARAMCO and the pentagon need the cash!

Norovirus said in reply to Peter K....

"tax the financial industry to prevent"

~~Peter K~

When you need less of something, tax it. This will shift the supply/price/demand curve of financial "services". We need more of sawmills but less of banks, brokers and quants. Production we need. Casino we don't need. Hell!

If you want casino then go to Vegas -- more bells and whistles for you money!

Guten
fahrt
!

Laundry Bank & Trust said in reply to Norovirus...

Most efficient way to tax financial services is a simple tool.

"simplicity is the meaning of life.
"
~~Ockham's axiom~

"
Simplicity is more sustainable than complexity.
"
~~Ockham's first theorem~

The simple tool for reining in our excessively top-heavy financial sector is deflation!

sanjait said in reply to bakho...

It's generally useful to talk about macroeconomic factors in terms of "cyclical" and "structural" factors. It's a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous "core problem" that leads to recessions, I am very suspicious. Usually, such claims are about someone's hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions.

PPaine said in reply to sanjait...

Well a chronic trade deficit And. Spontaneous over accumulation are clearly structural problems that may well require significant if varying full employment budget deficits over the whole cycle

The inter action of structural and cyclical requires composite macro policy programs using multiple instruments

The dollar should stay at the assumed long run balanced trade forex thru out the cycle
Over accumulation suggests a ceiling of zero real for the policy rate

Etc etc

Sanjait said in reply to PPaine ...

Rich developed countries are supposed to have a chronic trade deficit.

But sure, let's humor that concern for a sec:

What then, do you claim, is the structural factor that causes chronic trade deficits? This should be interesting.

RC AKA Darryl, Ron said...

RE: The Evolution of Work

[This piece is sort of like the David Warsh broad brush economic history short form pieces except that it is focused purely on the plight of the proletariat instead of elites.]

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

Dani Rodrik seems to be on the side of the weebles.

ken melvin said in reply to RC AKA Darryl, Ron...

Are we still evolving?

RC AKA Darryl, Ron said in reply to ken melvin...

Yep. Evolution never seems to be happening when most of what one sees is within their own generation, sort of by definition. What the millennials are evolving into is something I want to learn, but have not had the chance to duly observe for myself yet. Jealousy between my current wife and the mother of my children created an atmosphere too tedious for my current wife to be subjected to. You should know though that I am not the father of my children either. I just raised them from 4, 6, and 12. Husbands number one and two of the mother of my children were the biological fathers. She had no children with husbands number three (me) nor four. She is still hunting for number five but her powder is too wet now to fire.

So, what have you learned from your grandchildren?

From our three girls I learned that progress is mighty slow.

PPaine said in reply to RC AKA Darryl, Ron...

Yes

I love his strong advocacy for cross border labor mobility. Control the borders but increase the OECD inflow

We should set a huge quota for middle easterners

But let them in very slowly
Meanwhile those that apply
Get to stay in a safe area provided by lady liberty

Inside the us !

RC AKA Darryl, Ron said in reply to PPaine ...

That would trump Trump.

ilsm said in reply to PPaine ...

Wll st banks already get a cut on banking al Qaeda!

bakho said in reply to RC AKA Darryl, Ron...

Dani does not address hours worked or time off.
The US has one of the worst leave policies in the developed world.
When was the last reduction in the work week?
There are a lot of services that are not being provided due to lack of money. Some of the underemployed could move into low level service jobs if other workers moved up to a higher level.

It is a failure when large numbers of people do not have productive work. They have too little money to sustain potential output, leaving employment far below potential. It is a vicious downward spiral. The spiral is fixed by intervention that reverses the spiral. We have a failure of fiscal policy to address the root problem.

Dan Kervick said in reply to bakho...

He's a development economist and his article is about work in the developing world.

RC AKA Darryl, Ron said in reply to bakho...

We have a lot of failures and I don't have time enough to make a full list. Changing stuff requires political action on behalf of and usually orchestrated by those that have the needs that require addressing. We need massive working class majority electoral solidarity. Until then the political establishment is safe to treat us as second rate constituents and focus on the desires of the elite.

JF said in reply to bakho...

The Tim Taylor piece is helping to remind people to focus more attention on economic policies related to work practices being seen in society. More talk about this the better.

My two cents, is that society is better when people are hired for stable, full-time jobs. All kinds of definitional matters attend to just saying this, but I still think it needs to be a predominating focus. Society wants more people to have full-time jobs, however you define full-time. So we need to watch developments in the gig economy carefully.

By predominating full-time employment as a policy-making factor, I'd say this view means that in serious downturns, for instance, we do not want govts eliminating full time, stable jobs if we can somehow do fiscal sharing to avoid this as much as can be done.

The largest employer segment in the US (well at least it used to be bigger than retail, last time I studied this) is state and local govt employment. These employers don't pay out of whack high-salaries and for the most part the hiring has had a stable and proportional growth rate (political bosses in the US don't hand out jobs to create voters much anymore). These employers create floors in the labor marketplace and this forces other employers to compete on stability factors and on the notion of being full-time. I think we want this type of competition.

The right-wing Machiavelli ones understand this dynamic and that is why they are very happy to undermine govt employment (cut it, they are lazy anyway, ugh-bureaucrats don't do real things, etc.) - they don't want the competition as it raises the costs of their decades long control over wages.

But any employer offering stability and full-time jobs - this is good, and economic policies for our society ought to take this into account as a predominating factor.

sanjait said in reply to JF...

Hey JF.

I didn't have time to write up a solid reply the other day, but I did want to eventually respond to your question and comments about whether the central bank has control of long term interest rates ("it's own instruments...") through purchases.

My quick answer:

It influences their prices, but not through inducing scarcity. That is because, unlike commodities, securities are not priced based on their scarcity, they are priced based on their expected returns.

So when the Fed buys $40b in bonds per month, in a $500+b per month liquid market, it's hardly going to move the price.

But, the Fed does influence long term bond rates both by modulating the entire money supply and by setting expectations for how it will modulate the money supply in the future (aka., the reaction function.)


One very huge observation apropos of all this: every time the Fed announced a new round of QE, longer term bond rates went UP rather than DOWN. Why? Because it showed the Fed's reaction function was looser than previously thought, and also they were more committed to staving off disinflation.

Though I will concede, not everyone sees it this way. Even inside the Fed many of them had a simple model that says: buying more bonds = pushing down the price. But I get the impression they generally abandoned that model after operation twist utterly failed to work in that way.

JF said in reply to sanjait...

OK. Yield, price, cost to the govt - not always the same thing, but each has a perspective.

Assuming you are correct that the later QE, and I don't know myself, just assumed that the cost to the govt of a new 10 year moderated a bit in a later QE, I think this evidence points to why they don't use new-QEing now.

It dawned on them that its initial cost-to-govt effects, lowering interest rates, was just not happening. So why subsidize the dealer networks and stuff more assets on to their books using electronic entries into reserve accounts as payment when we (the FRB) have no idea what to do with assets of this magnitude.

But off the thread's topic.

[Dec 09, 2015] Short Term Energy Outlook

Notable quotes:
"... EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. ..."
www.eia.gov

[Dec 09, 2015] JPMorgan Fed could trigger 'massive stop loss order' in the S P 500 if liftoff goes awry

finance.yahoo.com

This important event falls at a peculiar time–less than 48 hours before the largest option expiry in many years," wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor's 500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.

"Clients are net long these puts and will likely hold onto them through the event and until expiry," the strategist wrote. "At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market."

When a put is close to expiry, the writer of the option becomes a seller of the underlying security as it hits the strike price in order to mitigate the exposure. Thus, a negative reaction in the S&P 500 index to the Fed decision could trigger a wave of forced selling, potentially agitating markets.

No one knows better than Kolanovic how systematic selling can amplify price changes in financial markets.

However, it's fair to quibble with the premise: Is Janet Yellen really monitoring open interest in options linked to the S&P 500?

[Dec 09, 2015] Something Did Blow Up In Junk

Junk is really goes down. But with low oil price how really probably is the recession?
Zero Hedge

Thought Processor

...Seriously though, aren't HYG's always the canary in the coal mine...... No better buzzer for an incomming slowdown.

anti Oligarchy

I work right in the thick of the real economy... construction / utility / etc. It is happening right now on the ground floor, sales are drying up, inventories going up. It is as serious as you are projecting in these articles.

Paint By Number

My experience exactly. The industrial market (except for the flash in the pan oil boom) has been struggling since 2008. But something changed in September/October of this year. I can't tell you how many times I've heard "it's like someone flipped a switch."

Most people have no idea of how many highly technical and specialized products (valves, cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water going to their homes. Many of these manufacturers are teetering on the edge. If this situation does not change for the better in the next few months we will begin to see major and spectacular failures in our infrastructure.

I can't overstate the potential devastating social and environmental chaos. It's all great fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go out and don't come back on, there won't be much laughing.

kelley805

J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

Here are some signs of a coming recession.

1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

2. Factory orders continue to drop

http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

3. Default risk spikes

http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

4. M&A set record

http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/

5. Iron ore prices tumble

http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

6. Baltic dry shipping index tumbles

http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19


[Dec 09, 2015] The Endless Parade of Recession Calls

Notable quotes:
"... We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. Weve also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians. ..."
"... .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi. ..."
Dec 06, 2015 | Calculated Risk
Note: I've made one recession call since starting this blog. One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month - the recession started in December 2007). That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a "recession is no longer a serious concern". Ouch.

For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.

... ... ...

Also on Friday I posted an excerpt from a Citi's research piece also suggesting a 65% chance of a recession in 2016.

Here is the Citi research piece.

Citi Recession Call

[A] statistical approach is shown in Figure 46 and highlights the cumulative probability of a recession based on data from 1970-14 across US, UK, Germany and Japan. As the U.S. economy enters year seven, the cumulative probability of a recession in the next year rises to 65%.
This is just an historical statistical approach based on elapsed time.

Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.

Rob_Dawg

We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. We've also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians.

sum_luk

Rob_Dawg:

all the old metrics are useless.

.... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi.

sum_luk

Rajesh:

I don't expect the U.S. economy to boom except on a relative basis.

... of course, Janet's theory is domestic US will carry on despite the fact that a strong dollar makes for cheap imports.

Rob_Dawg

Eventually China will have a shadow banking crisis that will leave the rest of the world with the problem of deciding how much to contain it. Very dangerous. 2016? No way of telling.

sm_landlord

Rajesh

I'm with you on that, Rajesh. To the extent that I'm doomy about the macro economy, it's mostly about the rest of the world. The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.

On the middle/micro level, I see a lot of government spending on things like street/road maintenance, which should prop some things up. Also, auto traffic seems to be back to pre-GR levels. Based on my recent visit to SM, anyway, most of the downtown area is approaching gridlock for much of the day again...

Can't say the risk is zero, though, because I still see a lot of fragility and testing of limits.

Cinco-X

Rajesh:

My no recession call for 2015 is looking good. I'm making a no recession in 2016 call now.

I was in Walmart on Friday evening picking up a prescription, and the place was a ghost town. Drove by Best Buy the previous evening and the parking lot was about 25% full

yuan

sm_landlord:

The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.

Umm...so pretty much business as usual since 2008 (and the republican plan to sabotage obummers by opposing anything that might benefit working class 'merkins).

curious
HHNW_GDP.jpg 1920x1080 105 KB

Early on in the housing bubble, Bill made a number of comments about bubbles using a plot of Household Net Worth to GDP ratio. Early on, he wrote that the ratio had been stable for nearly 50 years. He then changed his tune and started talking about a gradual increase since the 70's.

Here's the raw data series.

CitizenAllenM

Funny how the Boomer generation peak is going to change the economics of so much, just like I predicted.

I also predict a stunning comeback for Wal-Mart as the cost of living cuts really get going, and the Social Security Day Sales and Foodstamp sales kick off the monthly sales.

The America of limited everything, as free riders are eliminated.

Now, have you written off your skybox for 2015?

LoL- business has so much fat they will need to cut to survive the increase in poverty that will be the boomer retirement.

Already planning to shed vehicles as fast as Google Cars become available in 10 years

Someday this war's gonna end...

CitizenAllenM

LoL- you have paid more to store that organ than any value it has--- http://phoenix.craigslist.org/wvl/msg/5329410176.html3

Yup, $250 bucks for the middle class 1950s fantasy item!

Can't really give them away- Upright Pianos are the worst- worth more as parts for creative reuse than as instruments.

Grand Pianos still have some marginal value- unless a decent name brand and in excellent condition.

One of my friends was talking about how valuable the family Steinway was, and I told them to contact the local piano dealer to get an idea of the value, and then see how much it was going to cost to have shipped down from Minnesota- after she made the calls she decided it was no prize and stopped negotiating for it in the estate settlement :wink:

Technology is ruthlessly destroying mass books next, along with vinyl records, dvds, cds, etc. 8 tracks are worthless, cassette tapes even more worthless.

Printers and scanners are the junk of America.

Someday this war's gonna end...

[Dec 04, 2015] But It's Just A 0.25% Rate Hike, What's The Big Deal - Here Is The Stunning Answer

Notable quotes:
"... So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S P along with a Treasury market crashing in parallel and no buyers. ..."
Zero Hedge

johngaltfla

Fascinating article Tyler. Because if the math is correct, which I believe it to be or damned close, then the Fed is about to drain several hundred billion dollars from an illiquid credit market leaving no bid at year end.

So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S&P along with a Treasury market crashing in parallel and no buyers.

Shit could get real between the next two Fed meetings, that is for certain.

FireBrander

Bernanke did a little "draining" of his own; and brought down the global financial system...

THEN "SAVED IT", AND HE WAS HAILED AS A FUCKEN HERO!

Yellen my just be trying to secure her spot on the cover of Time for "Saving Us Again".

Fish Gone Bad

In October of 2008 there was a fairly large drain of money and things got scary (https://research.stlouisfed.org/fred2/graph/?chart_type=line&height=600&...[1][id]=MULT&width=1000).


[Dec 04, 2015] About those possible limits to creative destruction…

You need to distinguish "creative destruction" due to new technologies invented from "greed based" destruction caused by financization and outsourcing... In both cases old job dissaper, but in case of finanzition based destruction of jobs no new jobs are ever created. It's just plain vanilla wealth transfer to upper 1% of the society.
ftalphaville.ft.com
The social instability that comes alongside creative destruction - or 'disruption' - is often justified by the notion that unemployment effects are only temporary since in the long run a multitude of new jobs (many of which we can't even imagine yet) will inevitably be created.

Well, a new Oxford Martin School study by Carl Benedikt Frey and Thor Berger has found…

This, in other words, is the reality of the new "zero to one" tech world, where moving fast and breaking things (including jobs), then not worrying about the consequences until you're a billionaire who can give his wealth away in one billion dollar tranches, is the acceptable norm. (Even though, arguably, the accumulation of those billions in the first place is often the job-destroying problem.)

Dr. Frey adds the valuable commentary that:

"Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as economies become increasingly digitized. Major economies like the US need to think about the implications for lower-skilled workers, to ensure that vast swathes of people don't get left behind."

Very fair point.

Limited capital investment equals extremely low barriers to entry. This in turn equals absolutely ruthless competition, which - somewhat ironically - leads to the "why should I bother investing in anything at all since there's nothing in it for me in the long run" effect. The real-world equivalent, if you will, of the Grossman Stiglitz Paradox.

As a consequence, faddy network effects - a.k.a who's first to benefit from natural monopoly formation or old-fashioned populism by another name - increasingly mean everything, reducing successful entrepreneurial enterprise to a simple lottery/gambling game or (at best) a highly politicised popularity contest, wherein marketing spend stands equivalent to political campaigning outlay.

Except, whereas political campaigns pay off electorate loyalty with promises of better lives in material terms, the most successful technology campaigns tend to do the opposite: pay off users for network loyalty with the promises of better digital returns, at the same time as transferring a greater share of material wealth to a tiny platform owning elite.

Indeed, because tech firms are mainly focused on redistributing existing wealth rather than creating more of it, for them to profit, some share of real economy product must be snatched from those who actually worked to produce it. That's Schumpeterian creative destruction in action, albeit at the cost of producers who tend to share their profits with workforces through wages.

The lowest cost producer will always be the one with smallest human workforce.

All of which then sparks a dangerous race to the bottom focused on cutting out the most expensive material input: the human.

What's worse, once that race starts, there's little to no incentive for anyone to invest in any business which ever involves human capital again.

The irony is, without any beneficiary workforce within the new business structure, it's only capital owners (or lucky billionaire charity cases) who get to benefit from the dividends created by the system. Demand for products and services is destroyed. To wit, a vicious deflationary cycle begins, which shrinks the pie rather than grows it.

Regarding the labour-destroying digital/tech trend, Frey and Berger's paper says specifically:

Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities: while IBM and Dell still employed 431,212 and 108,800 workers respectively, Facebook's headcount reached only 7,185 in 2013.

To be blunt, that arguably means it's not looking good for three of the core Schumpeterian presumptions, namely:

It is, however, looking better for the Schumpeterian conclusion that eventually capitalism must give way to socialism if it's to create a widespread commonwealth.

Why? Because, whilst it's never been easier, cheaper or less risky to grab yourself a ticket for the 'monopoly reward' lottery - and thus more profitable when you do win - these cheap tickets are only available to businesses redistributing existing wealth that's focused on contracting consumer surplus as a whole.

In the digital tech era, that's at best an exercise in political-populism (marketing spend to get consumers to support this platform rather than another, for as low a consumer surplus cost as possible to the platform leader) and at worst an exercise in total utter randomness. Neither, consequently, really justifies outsized rewards to any winning party.

To the contrary, if you're in the business of creating new value utilising real human workforces or focused on creating new areas of demand, it's arguably never been more difficult, expensive or risky to take a punt on success - and thus less profitable if you do win. And that's because the very concept of rewarding a large workforce or consumer base with a steady, dependable and secure consumer surplus is considered to be a fundamental competitive disadvantage.

Related links:

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

[Nov 30, 2015] Corporate and Sovereign Bond Defaults to Send Shock Waves into Currency Markets

Nov 28, 2015 | Safehaven.com

Mr. Long stated that the credit cycle is now changing, taking its signals from the business cycle. This was agreed upon by Mr. Laggner who in his own words said:

"We're at the end of the credit cycle, the whole mal-investment in shale oil...tens of billions of dollars in lost wealth"

For the future, Mr. Laggner anticipates a massive series of defaults, resulting from huge deflationary pressures and a tightening by the market place, which is basically an unintended result of constant intervention. We are looking at corporate bond defaults, sovereign defaults which will send shockwaves into the currency system.

[Nov 29, 2015] A Brief Word to Forecasters: STFU!

Notable quotes:
"... Washington Post Business Section ..."
"... Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future? ..."
"... This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. ..."
"... Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. ..."
www.ritholtz.com
My Sunday Washington Post Business Section column is out. This morning, we look at the annual forecasting foolishness so prevalent in the media.

By now, you know the drill: A bunch of analysts make their annual predictions, and of course, they are utterly useless. Here's an excerpt from the column:

"It's that time of year again when the mystics peer deep into their tea leaves, entrails and crystal balls to divine what's ahead.

Which means it's also time for my annual reminder: These folks cannot tell the future. Ignore them.

Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?

This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. The odd person gets these forecasts about the economy and stock markets right each year, but the lack of any sort of consistent winners and losers means that, mathematically, it is a random outcome."

I speak with numerous experts about the subject, including:

They name names and dates and forecasts; hilarity ensues . . . Source:
Would you let a mystic manage your investment portfolio?
Barry Ritholtz
Washington Post, November 29, 2015

http://wapo.st/1PQDCVz

willid3, November 29, 2015 at 11:15 am

Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. Like the folks who predicted the end of the US economy that was supposed to happen back in September, you will notice they now predict it will be in 2016 (which of course means they will just keep changing the year when that doesnt happen) eithe

[Nov 26, 2015] WSJ Goes Long on the Hard to Get Good Help Story

Notable quotes:
"... those of us who warned of the housing bubble and predicted that the resulting downturn would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall in aggregate demand. There was no source of demand to replace the construction and consumption demand driven by the bubble. ..."
"... We later get the strange statement: Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers. ..."
"... Actually, these are two very different stories that need to be considered separately. Suppose companies dont have enough customers. This is a story of inadequate demand. How do we solve it? Spend money. The private sector can do it, the government can do it, counterfeiters can do it. In this story, more demand will create more supply. The only obstacle to generating the demand is our own stupidity. (We can also all decide to work fewer hours, since we are producing more than we need, we should be able to all work less and still meet our needs.) ..."
"... The story of too few workers is a story of inadequate supply. We have needs that we just cant meet because there is no one to do them. The problem with this story is that it only focuses on half of the equation, and by far the less important half. The ability of the working population to meet the needs of the total population depends on both the size of the workforce relative to the whole population and also its productivity. The productivity portion of the story swamps the population portion of the story. ..."
www.cepr.net

Peter K. said...

http://www.cepr.net/blogs/beat-the-press/wsj-goes-long-on-the-hard-to-get-good-help-story

WSJ Goes Long on the Hard to Get Good Help Story
by Dean Baker
Published: 23 November 2015

The usually astute Greg Ip gets derailed in a high production values piece that tries to tell us that our problems stem from not having enough kids. For those left scratching their heads while sitting in traffic jams or standing in over-crowded subway cars, the basic story is that we somehow don't have enough workers to do all the work. (Where are those damn robots when we need them?)

Anyhow, the piece starts out quickly on the wrong foot:

"Ever since the global financial crisis, economists have groped for reasons to explain why growth in the U.S. and abroad has repeatedly disappointed, citing everything from fiscal austerity to the euro meltdown. They are now coming to realize that one of the stiffest headwinds is also one of the hardest to overcome: demographics."

Umm no, those of us who warned of the housing bubble and predicted that the resulting downturn would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall in aggregate demand. There was no source of demand to replace the construction and consumption demand driven by the bubble.

And, I don't recall being at all troubled by slower aggregate growth, the issue was that we were seeing insufficient growth to fully employ the population. The United States and many other wealthy countries have seen a sharp decline in the employment to population ratio. This is true even when we look at the employment to population ratio for prime age (ages 25-54) workers. This is down by three full percentage points from its pre-recession peak and by more than four percentage points from its 2000 peak. It is pretty hard to explain the drop in the percentage of people working by demographics.

We later get the strange statement: "Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers."

Actually, these are two very different stories that need to be considered separately. Suppose companies don't have enough customers. This is a story of inadequate demand. How do we solve it? Spend money. The private sector can do it, the government can do it, counterfeiters can do it. In this story, more demand will create more supply. The only obstacle to generating the demand is our own stupidity. (We can also all decide to work fewer hours, since we are producing more than we need, we should be able to all work less and still meet our needs.)

The story of too few workers is a story of inadequate supply. We have needs that we just can't meet because there is no one to do them. The problem with this story is that it only focuses on half of the equation, and by far the less important half. The ability of the working population to meet the needs of the total population depends on both the size of the workforce relative to the whole population and also its productivity. The productivity portion of the story swamps the population portion of the story.

Here's what I wrote in response to a Washington Post piece on China earlier in the month.

"To see why this is not true, we will take a very simple story where we contrast a country with moderate productivity growth and no demographic change with a country rapid productivity growth and a rapid aging of its population. The figure below shows the basic story.

[graph]

"We assume that in 1985 there are five workers to every retiree in both the Washington Post and China story. If we set output per worker in 1985 equal to 100, then the amount of output per worker and retiree in 1985 is 83.3 (five sixths of the output per worker). We then allow for different rates of productivity growth and population growth over the next three decades.

"In the China scenario, we have 5.0 percent annual productivity growth. This is somewhat slower than the actual rate of growth of output per worker over the last three decades, but it is still sufficient to make the point. The calculation assumes the ratio of workers to retirees falls to just two to one, a sharper decline than has actually been the case.

"In the Washington Post scenario, we assume a moderate 2.0 percent rate of productivity growth, roughly the average rate for the U.S. economy over the last three decades. To make the case extreme in the other direction, it is assumed there is no change in the ratio of workers to retirees so that in 2015 the ratio is still five to one.

"As should be obvious, in the high productivity case output per worker is far higher in 2015 than in the Washington Post scenario. Output per worker reaches 432.2 in 2015 in the China scenario, compared to just 181.1 in the Washington Post scenario.

"Because of the extraordinary differences in output per worker, China is still much better capable of supporting its retired population in 2015 than a country following the Washington Post scenario. Its output per person is equal to 288.1 in 2015. This means that both its workers and retirees can enjoy an income that is 188.1 percent higher in 2015 than it was in 1985. By contrast, in the Washington Post scenario output per person in 2015 is just 150.9 in 2015, meaning that its workers and retirees can only enjoy an income that is on average 50.9 percent higher than in 1985.

"In this case, it should be evident that China will have a much easier time supporting its retirees than a country that had enjoyed just moderate productivity growth and no demographic change. It is also worth noting that some demographic change was inevitable. Regardless of what policies China had pursued it was going to see an aging of its population, which would have meant a decline in the ratio of workers to retirees.

"These numbers also overstate the benefits of the Washington Post scenario for two other reasons. The numbers treat retirees as the only dependents. Of course there are also children. The ratio of children to workers would be far larger in the Washington Post scenario than in the China scenario. Incorporating children into the calculation would further increase the gap in the change in output per person between the two scenarios.

"The other difference is that the Washington Post scenario of more rapid population growth would imply much greater strains on China's natural resources. The country would require much more food and water and emit a much larger amount of greenhouse gases into the atmosphere. This would further reduce the standard of living in the Washington Post scenario relative to the China scenario shown here.

In short, China is actually extraodinarily well-prepared for the aging of its population. It should in principle have no problem generating enough output so that both its workers and retirees can enjoy much higher standards of living in ten years than they do today. (This does require setting up a good public pension system.) Countries with a slower rate of aging but worker productivity growth will find this more difficult.

In keeping with the confusion throughout the piece we also get the complaint that builders are suffering from a shortage of labor:

"For example, home builders are simultaneously suffering from shrinking demand since the homeownership rate is declining, and from labor shortages as the baby boomers retire."

A shortage of labor would imply construction workers' wages are rising rapidly. They aren't.

[graph]

There is some uptick in the rate of nominal wage growth, but it remains below 3.0 percent annually, which is well below pre-recession levels. In short, not much evidence of a shortage here.

Just to repeat, the question we have to ask is whether the problem is a shortage of demand or supply. If the problem is demand, then we can easily deal with it. If the problem is supply then we have to explain why in the era of computerization and robots we aren't seeing productivity growth. If the economy is broken and unable to sustain productivity growth, this is the real problem. Getting more people to make our cities and natural spaces more crowded is not the solution.

[Nov 25, 2015] Antonio Fatas on the Global Economy Counting backwards to the next recession

fatasmihov.blogspot.com

In the case of the US (using the NBER business cycle dates), in the post-WWII period expansions have lasted from 12 months in the expansion ending in 1981to 120 months in the expansion ending in 2001. The current expansion is already 77 months long, longer than the previous expansion of 2001-2007.

... ... ...

And this second reading the chart reminds us of the risk that we are facing if the next recession is somewhere in the near future and monetary policy has not had the time to go back to normal, to go back to levels of short term rates that allow for a decrease in these rates that is consistent with what we have seen in previous recession. And entering the next recession in Europe or the U.S. with interest rates that are too close to zero does not sound like a good idea and in addition there is a lot of uncertainty given that we have not seen such a case in the recent business cycles.

[Nov 23, 2015] Thoughts on NPRs Discussion of the Weimar 70s: Deflating Inflation Myths

Notable quotes:
"... Higher unemployment reduced workers bargaining power and lowered demand in the economy. This slowed inflation. In fact, the skipping from Gerald Ford to Paul Volcker, misrepresents the actual course of inflation over this period. Inflation did in fact come down. After peaking at 10.4 percent in 1974, it fell back to 5.5 percent in 1976 before it started to rise again. The main factor bringing inflation down was a steep recession in 1974-1975, so the method for bringing inflation under control was not quite as difficult to figure out as the piece implies. ..."
"... In sum, the inflation in the 1970s was nowhere near as debilitating as this piece implies. It was not in the least mysterious and would likely have come down even without the magic of Paul Volcker. The Volcker recession destroyed the lives of millions of workers and their children. It is very much an open question as to whether a more rapid reduction in the rate of inflation was worth this pain. ..."
economistsview.typepad.com
anne said... , November 23, 2015 at 05:17 AM
http://www.cepr.net/blogs/beat-the-press/thoughts-on-npr-s-discussion-of-the-weimar-70s-deflating-inflation-myths

November 22, 2015

Thoughts on NPR's Discussion of the Weimar 70s: Deflating Inflation Myths

National Public Radio had a piece * on the horrible inflation of the 1970s and how the country was rescued by the herioics of Paul Volcker who was Federal Reserve chair at the time. The piece raises several points that could use a bit more context and leaves out some important information.

First and most importantly, the piece implies a world that did not exist. It begins with a discussion of a speech by President Gerald Ford in 1974. It told listeners:

"Inflation was the silent thief, and every year it got worse. Inflation got worse. It went from 10 percent to 11 percent to 12 percent. It wasn't clear exactly why and no one could agree on a simple way to fix it."

Neither part of this story is especially true. Inflation was hardly silent. It was widely reported, so people did know about it. Nor was it obviously a thief. Many, perhaps most, wage contracts were indexed to inflation, which meant that wages rose more or less in step with prices. While this was not true for everyone, a substantial segment of the population was able to insulate itself from the effects of inflation. This is one of the factors that made it harder to contain inflation.

It is also not true that no one knew how to fix it. Higher unemployment reduced workers' bargaining power and lowered demand in the economy. This slowed inflation. In fact, the skipping from Gerald Ford to Paul Volcker, misrepresents the actual course of inflation over this period. Inflation did in fact come down. After peaking at 10.4 percent in 1974, it fell back to 5.5 percent in 1976 before it started to rise again. The main factor bringing inflation down was a steep recession in 1974-1975, so the method for bringing inflation under control was not quite as difficult to figure out as the piece implies.

Then we get this account of the period from New York University economist Bill Silber:

"SILBER: It sort of took over your life. You had to worry about buying things before they went up in price. Every time you turned around you'd say, well, I mean, I better buy it now rather than later and of course that's the process, which makes the inflation accelerate because everybody starts thinking that way. Just buy something because you know if you buy it now you're better off than if you wait.

"KESTENBAUM: Do you remember that happening with you? Did you buy anything for that reason?

"SILBER: I think I bought a house.

"KESTENBAUM: People buying houses just because they think they'll be more expensive the next year - that is not good...."

Perhaps inflation took over Mr. Silber's life, but this is not likely true for many other people. House price inflation peaked at 16.3 percent in the year from February of 1978 to February of 1979. This is not good, but there are two points worth noting. First, it was already on its way down by the time our hero, Paul Volcker, enters the stage in the fall of 1979. On a year over year basis the rate of house price inflation was down to 14.8 percent and if we annualize the rate for the immediate three months before Volcker took the job it was down to 11.8 percent.

The other point is that we have seen comparable rates of house price increases more recently. For example, in the year from August 2004 to August 2005 house prices rose by 14.5 percent. Did it take over your life?

The other point worth noting here is that most prices were not rising anywhere near this fast. For example car prices were rising at a 7.5 percent annual rate when Volcker took the job. This meant that if you were considering buying a car for $20,000 (in today's dollars) and waited a month, it would cost you $150 more. Clothes were rising at less than a 4.0 percent rate. This meant that it would cost you $1.30 if you put off buying that $400 suit for a month. Waiting a month on a $20 shirt would cost you 7 cents. This was not Weimar Germany where inflation was reaching the point people could not do ordinary business.

In addition to the misrepresentations, there is an extremely important part of the story left out of the discussion in this piece. Oil prices quadrupled in the early 1970s as OPEC first flexed its muscle as a cartel. They quadrupled again in the late 1970s as the Iranian revolution took the country's production, then the world's second largest exporter, off the market. At the time the economy was both more dependent on oil and less flexible than it is today.

These price increases played a huge role in driving up inflation as there was no easy way for the economy to deal with this jolt. The impact of the oil price rises was widely known and discussed at the time so there is nothing mysterious in this story. Oil prices plunged in the 1980s as increased supply and reduced demand, both due to the recession and conservation efforts, put downward pressure on prices. Lower oil prices would have dampened inflation with or without Paul Volcker's magic.

The other important piece of the inflation puzzle left out off this discussion is that official consumer price index seriously overstated the rate of inflation at the time, with the gap approaching 2 full percentage points in 1978 and 1979. This mattered both because many contracts were legally tied to the rate of inflation and also because many workers would likely have seen the official CPI as setting a target for wage increases. This overstatement disappeared in the 1980s, first because the factors driving it went into reverse, and second because the Bureau of Labor Statistics changed its methodology. This also had nothing to do with Paul Volcker's magic.

In sum, the inflation in the 1970s was nowhere near as debilitating as this piece implies. It was not in the least mysterious and would likely have come down even without the magic of Paul Volcker. The Volcker recession destroyed the lives of millions of workers and their children. It is very much an open question as to whether a more rapid reduction in the rate of inflation was worth this pain.

* http://www.npr.org/templates/transcript/transcript.php?storyId=456855788

-- Dean Baker

djb -> anne...

it wasn't just the collusion of the oil producing nations that played a role in the rising oil prices of the 1970's. The American oil companies were part of that collusion as well. Tankers full of oil stayed parked off the cost and prices went up every 15th and 30th of the month like clockwork. That from an industry insider, my father.

Those factors were not controlled by opec nations or market forces other than collusion

anne -> djb...

https://research.stlouisfed.org/fred2/graph/?g=2EcA

January 4, 2015

Price of Oil, 1968-1990

djb -> anne...

For the oil company he worked for the price increases during the 79 crisis would come in on the 15th and the 30th of each month during the period when the oil prices were increasing

this was not what normally happened

he found it fishy

Dan Kervick ->anne...

"Many, perhaps most, wage contracts were indexed to inflation, which meant that wages rose more or less in step with prices."

This is a good piece by Dean Baker. I was only in high school in the mid-seventies, but I was an undergrad from 77-81, and was taking a bunch of economics courses at the time when inflation was a big issue. And Baker's telling more closely resembles the way I remember it going down.

The main economic theme I remember being in the air at the time was the idea of the "wage-price spiral". the analogy was with the arms race. Basically everyone had come to have high inflation expectations, and the high expectations were self-fulfilling. Producers continually raised their prices both to keep up with actual increases in the prices they paid for their own supplies and labor, and to be ahead of the curve on the increases they expected to occur in the near future. Workers negotiated hefty COLAs into their contracts to keep up with the anticipated price rises, which caused their employers to raise their prices, which caused labor to demand higher wages, etc. - and on and on it went.


I also remember the economics professors emphasizing very strongly the difference between inflation and changes in the "cost of living" - basically consumer prices. This is a distinction that seems frequently lost in many contemporary discussions. It is possible to have high persistent inflation without any change in the cost of living whatsoever. Similarly, if there is a change in the relative prices of labor and consumer goods, then the cost of living could go up or down, even if there is no general inflation.

The reason the high inflation of the period was considered "bad" was that inflation at that high a level tends to be very jerky and somewhat unpredictable, and the size of the prediction uncertainty potentially very significant. Since contracts of all kinds have inflation expectations priced into them, then the inability to accurately anticipate nominal changes added an extra element of risk to ordinary business dealing.

The picture many people now have is that Volcker "broke the back" of inflation. But the way I remember it, the decline in inflation rates was a much more complex process having to do with (i) trends in the decline in union membership and labor bargaining power, (ii) unions being convinced to back off COLA demands, or replace them with other demands - especially in industries that were under heavy international competitive pressure, (iii) subsiding of the impact of the OPEC supply shocks. Volcker's attempt to re-set inflation expectations via shock treatment was only one of several factors.

pgl ->Dan Kervick...

"The reason the high inflation of the period was considered "bad" was that inflation at that high a level tends to be very jerky and somewhat unpredictable"

One of the reasons it was "jerky" had to do with really dumb periods of monetary restraint as in those stupid Ford WIN buttons. And yes Volcker killed off inflation but creating a massive and prolonged output gap. No magic - the kind of economic waste a model by James Tobin predicted. I was taking a class from Tobin back then and he loathed the Volcker regime.

Peter K. ->Peter K....

Steve Randy Waldman is an interesting and articulate blogger. I liked his take:

http://www.interfluidity.com/v2/4561.html

Paine ->Dan Kervick...

Cola cost of living adjustments in major contracts were capped back then

If you look at inflation patterns cost of living was hit very hard

Hint food and fuel

What is missing here. The solution

A Lerner type mark up market

Some day we collectivists will implement one

Paine ->Paine ...

I was in grad school from76 to 80

The hay day of NIARU
That folk loric sweet spot
where the rate of unemployment
just kept output price changes on a steady predictable path

Paine ->Paine ...

Of course the agenda called for ever lower cycle by cycle steady rates of out put inflation

And a bias in forecasting became de rigour

And the employment gap kept higher then post war targets

And
And

And it ended in fall 2008 !!

pgl ->anne...

Gerald Ford and those WIN buttons. I was young and naive back then but 1974 was the year I realized that we are ruled by idiots.

[Nov 21, 2015] Global Trade Just Snapped Container Freight Rates Plummet 70% In 3 Weeks

Notable quotes:
"... Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. ..."
"... Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum.. ..."
Zero Hedge
In fact, as the chart above shows, growth in global trade has been slowing down for some time, as Acting-Man's Pater Tenebrarum notes,

But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy's narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.

Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all.

More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum...

[Nov 21, 2015] Ilargi The Great Fall Of China Started At Least 4 Years Ago

Notable quotes:
"... The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today. ..."
"... "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything." ..."
"... This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure. ..."
"... The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold. ..."
"... In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom! ..."
"... China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign. ..."
"... They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China. ..."
"... Except that China ain't Iowa, they can create a middle class as big as Europe and US combined. ..."
"... It's just anathema for the ruling class to give the little guys a break. ..."
"... The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like. ..."
"... We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it. ..."
"... It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market. ..."
"... Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman? ..."
Nov 20, 2015 | naked capitalism
Keith, November 20, 2015 at 7:41 am

We shouldn't be too surprised at falling commodity prices.

Using raw materials to make real things is all very 20th Century, financial engineering is the stuff of the 21st Century.

When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.

Central Bank inflated asset bubbles will provide for all.

The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.

We are nearly there.

fresno dan, November 20, 2015 at 10:59 am

"When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything."

+1000
Ah, that glorious day when we're all rich, rich, RICHer than Midas from interest, dividends, and rents!!!
Just to amuse myself, I intend to be a dog poop scooper – and pick up some pocket change of 1 million dollars a poop…

MyLessThanPrimeBeef, November 20, 2015 at 12:37 pm

Money making money.

Be careful.

It's like 'light seeking light doth light of light beguile.'

Money seeking money and money will be of money beguiled.

skippy, November 20, 2015 at 8:29 am

Who cares about Brent when transport is going poof….

financial matters, November 20, 2015 at 8:45 am

This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure.

I liked how Wray and Mazzucato linked the two in their Mack the Turtle analogy.

"Underlying all of this financialization was the homeowner's income-something like Dr. Seuss's King Yertle the Turtle-with layer upon layer of financial instruments, all of which were supported by Mack the turtle's mortgage payments. The system collapsed because Mack fell delinquent on payments he could not possibly have met: the house was overpriced (and the mortgage could have been for more than 100% of the price!), the mortgage terms were too unfavorable, the fees collected by all the links in the home mortgage finance food chain were too large, Mack had to take a cut of pay and hours as the economy slowed, and the late fees piled up (fraudulently, in many cases as mortgage servicers "lost" payments).

The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold."

Mission Oriented Finance

Carlos, November 20, 2015 at 9:34 am

Interesting, the supposition here is that China is heading for a depression similar to the Great Depression.

In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom!

China could well be headed down that road, there isn't enough money getting into the pockets of ordinary Chinese that's for sure. Elites everywhere just can't bring themselves to give a break for those at the bottom.

China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign.

Then again they may just realize in time, someone needs to be paid to buy all the junk.

James Levy, November 20, 2015 at 12:51 pm

They were counting on us and the Europeans, but we've let them down. The race to the bottom erased the global middle class that could buy Chinese consumer products.

They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China.

Carlos, November 21, 2015 at 1:54 am

So the corn growers need to eat more corn, that's my logic.

Except that China ain't Iowa, they can create a middle class as big as Europe and US combined.

It's just anathema for the ruling class to give the little guys a break.

James Levy, November 20, 2015 at 12:56 pm

The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like.

susan the other, November 20, 2015 at 2:22 pm

Where were you in 2011? I was here reading NC. One of the Links posted was a graph of the abrupt shutdown of China's economy – It was a cliffscape.

Very long vertical drop off. So dramatic I could hardly believe it and I said I was having trouble catching my breath. Another commenter said it looked like a tsunami. Of exported deflation as it turns out.

Things have been extreme since 2007 when the banksters began to fall; 2008 when Lehman crashed (just after the Beijing Olympics, how convenient for China…) and credit shut down. China was doin' just fine until then. In spite of the irrational mess in global capitalist eonomix.

The only way to remedy it was to shut it down I guess. That's really not very fine-tuned for a system the whole world relies on, is it?

ewmayer, November 20, 2015 at 6:09 pm

Related, this Pollyanna-ish laff-riot op-ed from Ross Gittins, the economics editor of the Sydney Morning Herald:

Don't buy the China doom and gloom stories just yet

Proceeds from the laughable assumption that official China economic numbers 'may not be as reliable as we'd like' rather than being 'persistently and hugely faked,' (especially during slowdowns) and ignores that the housing-market slowdown and huge unsold-RE-overhang will also necessarily be accompanied by a price crash, hence a huge amount of toxic debt being exposed – really basic boom/bust dynamics.

And no demographic boom coming to the rescue, either. (But he does repeatedly invoke the magic 'service economy boom' mantra mentioned by Ilargi.) Thankfully most of the commenters rightly take the author to task.

MyLessThanPrimeBeef, November 20, 2015 at 6:32 pm

Not too long ago, some here were still not buying the doom and gloom stories.

I don't have if they have been persuaded otherwise since.

RBHoughton, November 20, 2015 at 7:50 pm

Couple of thoughts:

Firstly, its only China's buying that stops oil falling even further Sr Ilargi.

Secondly its a Peoples' Republic – employment must be maintained.

We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it.

Don't worry, be happy. It will be OK.

ewmayer, November 21, 2015 at 2:29 am

Tangential Friday night funny: What's in a name?

Received a small airmail parcel today containing some replacement attachments for my Dremel moto-tool … package was addressed from Shenzen, specifically the "Fuming Manufacturing Park".

Wade Riddick, November 21, 2015 at 4:57 am

It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market.

Ggg, November 21, 2015 at 6:53 am

Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman?

[Nov 20, 2015] Some Big Changes in Macroeconomic Thinking from Lawrence Summers

Nov 20, 2015 | Economist's View

Adam Posen:

Some Big Changes in Macroeconomic Thinking from Lawrence Summers: ...At a truly fascinating and intense conference on the global productivity slowdown we hosted earlier this week, Lawrence Summers put forward some newly and forcefully formulated challenges to the macroeconomic status quo in his keynote speech. [pdf] ...
The first point Summers raised ... pointed out that a major global trend over the last few decades has been the substantial disemployment-or withdrawal from the workforce-of relatively unskilled workers. ... In other words, it is a real puzzle to observe simultaneously multi-year trends of rising non-employment of low-skilled workers and declining measured productivity growth. ...
Another related major challenge to standard macroeconomics Summers put forward ... came in response to a question about whether he exaggerated the displacement of workers by technology. ... Summers bravely noted that if we suppose the "simple" non-economists who thought technology could destroy jobs without creating replacements in fact were right after all, then the world in some aspects would look a lot like it actually does today...
The third challenge ... Summers raised is perhaps the most profound... In a working paper the Institute just released, Olivier Blanchard, Eugenio Cerutti, and Summers examine essentially all of the recessions in the OECD economies since the 1960s, and find strong evidence that in most cases the level of GDP is lower five to ten years afterward than any prerecession forecast or trend would have predicted. In other words, to quote Summers' speech..., "the classic model of cyclical fluctuations, that assume that they take place around the given trend is not the right model to begin the study of the business cycle. And [therefore]…the preoccupation of macroeconomics should be on lower frequency fluctuations that have consequences over long periods of time [that is, recessions and their aftermath]."
I have a lot of sympathy for this view. ... The very language we use to speak of business cycles, of trend growth rates, of recoveries of to those perhaps non-stationary trends, and so on-which reflects the underlying mental framework of most macroeconomists-would have to be rethought.
Productivity-based growth requires disruption in economic thinking just as it does in the real world.

The full text explains these points in more detail (I left out one point on the measurement of productivity).

[Nov 20, 2015] How information technology is shrinking the pie

FT Alphaville

An essential read from Martin Wolf this Thursday on the manner in which corporate surpluses are contributing to the savings glut problem and causing all sorts of distributive chaos in the process.

So, whereas it used to be the sovereigns over-hoarding international claims and under-consuming/under-investing in their own infrastructure for the benefit of getting a leg up in the global hierarchal order, it's now corporates over-hoarding retained earnings for the sake of protecting their dominant positions instead (retaining earning piles being different to explicit cash piles, which can be generated with debt not just profit).

Says Wolf:

The observation that a structural surplus of savings over investment appears to have emerged in the corporate sectors of the big high-income countries is highly significant. It is significant for the growth of potential supply, since it reflects relatively feeble investment, but it is also significant for the shape of aggregate demand.

If the corporate sector runs a structural surplus of savings over investment, other sectors must run offsetting structural deficits. If the government is to be in financial balance, either households or foreigners must run these deficits. In the eurozone, this logic has led to huge current-account surpluses (a financial deficit for foreigners). For the UK and US, it is likely to mean renewed household deficits - a perilously destabilising possibility.

Why is corporate investment structurally so weak then? Wolf proposes a few reasons. One is the ageing of societies, which lowers the level of investment needed. The other is globalisation, which motivates relocation out of high-income countries. But the one we think might be most relevant is his proposition that technological innovation is quietly killing the incentive to invest. This is critical:
Much investment today is in IT, whose price is collapsing: constant nominal investment finances rising real investment. Again, much innovation seems to reduce the need for capital: consider the substitution of warehouses for retail stores.
We've taken for granted that "technology" is a force for good in the world. But perhaps the reality is a little different? Perhaps for every 'good' information tech creates, an equal and equivalent 'ungood' is created too? Or perhaps more so, the reason we're seeing the computer age everywhere but in the productivity statistics is precisely because information technology is and always has been another manifestation of a rent-extracting financial type of business.

Here's a chart by way of Iren Levina at Kingston University to cement our argument that banks were the original network-based technology platform unicorns - with business models equally focused on gathering privileged data about customer behaviours for the purpose of influencing more profitable behaviours elsewhere:

It is with good reason, then, that banks dedicate the biggest chunk of operating expenses to personnel, algorithms, IT infrastructure and hardware equipment. Banks, like information tech firms today, are and always have been information processing businesses.

On which note, Diana Hancock, of the Fed, argued convincingly in the 1990s that the Financial Firm is a financial technology which takes input (data), processes said input, and then creates monetary goods which distribute existing capital to sectors which can draw returns more effectively than others, in exchange for a leasing fee for that matching service.

But as Hancock says, financial profits can only be assured only if the purchase cost of one unit of the capital good less the rental received during the period is equal to the discounted depreciated value of the capital good in the rental period.

That's another way of saying bank profits are only justifiable if the added value from redistributing leased capital more than compensates for its natural depreciation - something that's only possible if the total value add is over and above total lease fees charged by the intermediaries. If at the end of the rental period society has no more capital (or less!) than it had to begin with, fees charged on an ex-ante basis will have proven unjustified.

The parallels between banks and technology platforms are thus uncanny.

In the banking process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate more constructive consumption elsewhere. By the time capital is returned, enough new capital is supposed to have been created to ensure both the original investors can be paid back as well as the banking/intermediary layer compensated for. Banking crises emerge when it turns out investments have failed to compensate for the natural depreciation rate.

Shrinking the pie?

In the unicorn IT process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate less constructive consumption at source.

In other words, instead of using information about long-term non-consumption to benefit value-adding industries which grow the pie for all, tech firms are focused on using information about fleeting periods of non-consumption to draw down existing capital more efficiently.

The better tech firms are at predicting or shaping behaviours through their information processes, the less new capital investment is needed, because reduced consumer optionality allows for increased supplier predictability. To wit, those who can predict their customer's behaviours best or mould them, become the lowest cost marginal producers - deferring more risky capital investment (by way of retained earnings) to the moment they can be sure they're the last monopolists left standing.

The pie as a whole stops growing, with only information tech providers - the modern-day rentiers of the system - benefiting from the structure.

To conclude, some points from Hancock's book which incidentally highlight the parallels between financial firms and modern-day unicorns:

The amount of profit generated, depends upon the strength of the banking system's monopoly position.

And..:

The traditional reason given for deposit rate ceilings is that bank competition for deposits allegedly leads to a high rate of bank failures. According to this view, bank competition for deposits led individual banks in the 1920′s and early 1930′s to offer higher interest rates in order to maintain or increase individual share of the market. The banks were forced to rely on higher yielding riskier assets to offset incurred deposit costs. This placed the banks in a vulnerable position. Any adverse economic developments, either national or local, would be sufficient to make these risky assets uncollectible by the bank. Deposit rate ceilings affect consumers, since they receive less for deposits than would otherwise be the case, but the accompanying increased monopoly power of financial institutions makes them allegedly more sound.

The techies would argue they're just making the world more efficient.

We can't help wonder if solutions based on substituting new goods for pre-existing goods (or virtual ones) are somewhat different to solutions which grow the pie for everyone. There seems to us an inherent risk in creating monopolistic systems which overstretch themselves to the point they essentially run on empty.

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Related links:
When a man cannot choose, is he still a consumer? - FT Alphaville
Assessing "Abenomics", again - FT Alphaville

[Nov 17, 2015] Economists View Links for 11-17-15

Notable quotes:
"... And again! We are no longer saw mill mules, aircraft designers, and porno actresses. We have become the Bankers of World -- ..."
"... The idolatry of US capitalism profit from exploiting labor and collecting rents assured by the gumint that is paid only by labor. ..."
economistsview.typepad.com

pgl

How much sake did Noah Smith drink when he wrote this about Japan:

"Sustained higher inflation would represent a net transfer of resources from the old to the young. That would increase optimism, and hopefully raise the fertility rate, helping with demographic stabilization."

Optimism leading to more fertility - OK!

RC AKA Darryl, Ron said in reply to pgl...

"...Any of these solutions for raising inflation -- electronic money, "escape velocity," Neo-Fisherism -- would represent a dramatic departure from standard monetary policy. The latter two would also require a deep rethink of everything we know about macroeconomics..."

[Wouldn't a fiscal expansion backed by printing debt-free money create the inflation that they want? Why doesn't the Japanese government just print money to buy free sake for all of its married young people and solve both the inflation problem and the fertility rate problem at the same time? (joke)]

pgl said in reply to RC AKA Darryl, Ron...

Fiscal stimulus is the right solution to secular stagnation.

But whenever we suggest this - JohnH freaks out over the debt/GDP ratio. And yet he also says he is the only one for fiscal stimulus. Go figure.

likbez said in reply to pgl...

"Fiscal stimulus is the right solution to secular stagnation. "

Much depends on the price of the energy. There is a hypothesis that when EROEI crosses a certain threshold stagnation inevitably follows.

I think if the current drop of energy prices was engineered by Obama administration, we need radically rethink the statue of this "change we can believe in" President.

DrDick said in reply to pgl...

"That would increase optimism, and hopefully raise the fertility rate, helping with demographic stabilization"

This of course completely ignores the historical evidence that greater prosperity and economic security actually *lowers* the fertility rate. Indeed, the low birthrates in Japan, most of Europe, and white Americans (all generally below replacement rate) are a direct result of that.

RC AKA Darryl, Ron said in reply to DrDick...

We have actually had both. Off the top of my pointed little head the WWII post-war baby boom lasted through to the late fifties. That was more than just horny GIs returning home from war. It was a period of widespread prosperity that lifted all boats.

Now of course subsequently man invented more user friendly birth control than had in the immediate (WWII) post-war period, but we also urbanized the previously more rural black population and then we created poor family economic support with single-parent eligibility requirements. Children added, but dads subtracted from (total) income (including transfer payments) for poor families. More affluent families took advantage of birth control to increase their per capita wealth by keeping kiddy capita low.

That said then you are most probably quite correct about Japan. Japan's Gini coefficient is lower than the US but still higher than most of Europe. It seems like the more inequality that wealthy people have then the more inequality that wealthy people want. Increased prosperity can grow families when that prosperity is widespread and shared rather than narrowly distributed under stiff competition and hoarded.

Pharaoh's Joseph said in reply to Anonymous...

"now that credit spreads are back down to normal why should the Fed NOT raise rates?
"
~~Anonymous~

Is Our Most Important Export, Deflation?

How much framing lumber do we export? What is PM, profit margin on lumber? PM on aircraft? PM on B Movies? Which of our exports offers us our highest PM? That's it!

Highest PM is on our GTF. Using slight of hand, fed governors put ink onto paper to generate enough GTF, global Triffin fiat to foreign-exchange for Chinese Checkers, Canadian Checker Cabs, Korean Sports Cars, and Germanic VW Factories for Chattanooga.

ooga ooga!

Do you see how works? Brilliant foreigners exchange their counterfeit trash for our authentic cash. And we let them get away with it. Why?

We can afford to act lenient to them because of our 99% profit margin on GTF.

We must be careful, however, to print up less supply of GTF, less than demand. Smaller print job drives the buying-power-denominated-price of $$$$ up thus packing more deflation wallop into each dollar we print. More deflation you print, more popular our product becomes. When our product popularity increases then we get to play the game again.

And again! We are no longer saw mill mules, aircraft designers, and porno actresses. We have become the Bankers of World !

run75441 said in reply to Pharaoh's Joseph...

Profit without Labor

ilsm said in reply to run75441...

The idolatry of US capitalism profit from exploiting labor and collecting rents assured by the gumint that is paid only by labor.

[Nov 15, 2015] The Nobel Prize winning economist who ate cat food

Notable quotes:
"... And the moral of this tale, he says, is that he had been phished for a phool - or manipulated into buying something. ..."
"... we live in a constructed world thats filled with deception like this. Fools or not ..."
"... Phishing was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term phools to describe its victims. ..."
"... The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society. ..."
"... Most people will pick little shortcuts, little dishonesties, says Prof Shiller. You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. Nobodys making a stink.... of course you do it, and the ones who dont do it are failing and going out of business. Thats a phishing equilibrium. ..."
"... Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want... ..."
November13. 2015 | http://www.bbc.com/news/business-34788197

"Once upon a time a Nobel Prize winning economist had a cat called Lightning.

Now, Lightning appeared to like his cat food, a rather pricey gourmet dish which claimed to be a cut above the rest. But maybe, thought the Nobel Prize winning economist, I have been fooled into thinking this cat food is a cut above the rest - when it isn't. There is only one way to find out, said the economist. And that is to eat it myself. And so he did. It was, he said with a giggle, pretty much like any other cat food.

And the moral of this tale, he says, is that he had been "phished for a phool" - or manipulated into buying something.

Now the economist in question, Robert Shiller and his fellow Nobel laureate George Akerlof, have written Phishing for Phools, about how the sellers of cat food and thousands of other products and services "phish" us into buying things we do not want or need.

"Of course they do it," he says. "If you had a cat food company you wouldn't say 'Dried Dead Fish' on the label...we live in a constructed world that's filled with deception like this." Fools or not

"Phishing" was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term "phools" to describe its victims.

Being gulled into paying more for cat food is hardly a serious affair. But the two economists see it as a microcosm of something much bigger in society.

The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society.

So the sale of deeply flawed mortgage-backed securities and their accompanying credit-default swaps flourished on the back of free markets and the reputations of the banks and finance house that sold them.

... ... ...

Profs Shiller and Akerlof argue that if people were fooling themselves there were plenty of others happy to help them on their way. ...The two authors are behavioral economists, who inject psychology and sociology into their economics. There's nothing new about that, but this latest foray into the "dismal art" has a distinctly dismal view of human nature.

"Most people will pick little shortcuts, little dishonesties," says Prof Shiller. "You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. "Nobody's making a stink.... of course you do it, and the ones who don't do it are failing and going out of business. That's a phishing equilibrium."

... ... ...

Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want..."

[Nov 13, 2015] Goldman Decline in Oil Prices boosted GDP by 0.2% in 2015

Notable quotes:
"... cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months. ..."
"... Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory. ..."
"... Can't wait until Goldman tells us that higher oil prices lead to higher GDP. ..."
"... Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it. ..."
"... This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really. ..."
"... Credo: Economic Beliefs in a World in Crisis ..."
Calculated Risk

A few excerpts from a Goldman Sachs research piece by economist Daan Struyven: Shale, States and the Shrinking Oil Stimulus

... ... ...

Our state-level analysis suggests that a 50% decline in oil prices is associated with an eventual rise in aggregate output of 0.4% and 400,000 to 500,000 extra jobs. These estimates are broadly consistent with our most recent research, but below the impact implied by many earlier studies. Taking together our new state-level estimates as well as our earlier work and a few back-of-the-envelope calculations, our best estimate would be that cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months.

sm_landlord

Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory.
http://www.moneyandmarkets.com/retail-rout-take-two-heck-going-742471

Sporkfed

Can't wait until Goldman tells us that higher oil prices lead to higher GDP.

JackSnap

Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it.

gdd9000

This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really.

The book: 'Credo: Economic Beliefs in a World in Crisis' is written by Brian Davey and published by Feasta, 2015. ISBN 9780-9540-5103-7. £20.

[Nov 12, 2015] The Quantum of the Soulless - Trickle Down Bubble

Notable quotes:
"... There may be little doubt that the trickle down stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven. ..."
"... the huge increase in corporate debt that has been facilitated by the Feds easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few. ..."
Jesse's Café Américain

"To know and to serve God, of course, is why we're here, a clear truth, that, like the nose on your face, is near at hand and easily discernible but can make you dizzy if you try to focus on it hard. But a little faith will see you through. What else will do except faith in such a cynical, corrupt time? When the country goes temporarily to the dogs, cats must learn to be circumspect, walk on fences, sleep in trees, and have faith that all this woofing is not the last word.

What is the last word, then? Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music and books, raising kids - all the places where the gravy soaks in and grace shines through. Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people."

Garrison Keillor

The economic data continued in weakly this morning, with an oversized number of newly unemployed, and a continuing unemployment number that was higher than expected. Tra la.

There may be little doubt that the 'trickle down' stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven.

On the right is a chart that shows how the huge increase in corporate debt that has been facilitated by the Fed's easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few.

But such abuses of policy and regulation can go quite far. And the further it goes, the more messy the reversion to the mean may be.

... ... ...

[Nov 12, 2015] A Closer Look at All Those New U.S. Jobs Elliott Wave International

Notable quotes:
"... In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included. ..."
"... The labor force participation rate is at its lowest level in 38 years. ..."
"... This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work ..."
"... A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here. ..."
"... the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets. ..."
Safehaven.com

U.S. labor force participation rate is at its lowest level in 38 years

Editor's note: You'll find a text version of the story below the video.

https://www.youtube.com/watch?v=B9qPHWirD9o

In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included.

The labor force participation rate is at its lowest level in 38 years.

This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work:

A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here.

Even those who are working are struggling to make headway.

And what about the 2.95 million new jobs that were created in 2014, and the slightly more than 2 million so far in 2015?

The numbers sound impressive until you dig deeper. This is from the Atlantic magazine (September 4):

According to new research, between 2009 and 2014, wage loss across all jobs averaged 4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ... The [jobs] where declines in real wages have been the most acute -- are also the jobs that have hired the highest share of new workers during the recovery.

It's true that average hourly earnings increased by nine cents in October. Even so, the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets.

Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the Producer Price Index declined by 0.5%.

All told, our stance remains that deflation is knocking at the door.

Get the full picture of what we see as a worldwide deflationary trend in our new report, Deflation and the Devaluation Derby .

Here's what you will learn:

Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate that the next global financial crisis could be even more sudden and severe.

[Nov 12, 2015] Oil price collapsing, could set new low

www.cnbc.com

West Texas Intermediate crude futures was down 2.75 percent at $41.75 per barrel. WTI set an intraday low of $37.75 on Aug. 24. Brent crude was down nearly 3 percent Thursday at $45.23 per barrel.

[Nov 12, 2015] World risks 'persistently' weak growth IMF

finance.yahoo.com

Real gross domestic product (GDP) growth is seen averaging 3.1 percent year-on-year across the globe in 2015 and 3.6 percent next year by the IMF. This is down from the international body's July forecasts, which suggested economic expansion of 3.3 percent in 2015 and 3.8 percent in 2016. It is also marginally slower than the growth rates of 3.3 percent and 3.4 percent seen in 2013 and 2014, respectively.

"Growth remains fragile and could be derailed if transitions are not successfully navigated. In an environment of declining commodity prices, reduced capital flows to emerging markets, and higher financial market volatility, downside risks to the outlook remain elevated, particularly for emerging economies," the IMF said.

... ... ...

Overall, growth is seen declining in emerging economies for a fifth year in a row in 2015, before strengthening next year. Notably, Russia's economy is seen shrinking 3.8 percent this year and 0.6 percent next, while Brazil's economy is declining by 3.0 percent this year and 1.0 percent in 2016.

[Nov 12, 2015] MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION

Notable quotes:
"... "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil." ..."
"... Wow, thats an average decline rate of about 18% per year (since 2003). ..."
peakoilbarrel.com

Doug Leighton 11/08/2015 at 10:27 am

MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION

"The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil."

Meanwhile Ku-Maloob-Zaap remains on a production plateau of about 850,000 bpd which is expected to continue until 2017.

http://www.shanghaidaily.com/article/article_xinhua.aspx?id=308285

FreddyW, 11/08/2015 at 11:45 am
Wow, thats an average decline rate of about 18% per year (since 2003).
Doug Leighton, 11/08/2015 at 12:01 pm
Yeh, so much for the long fat tail theory. Mind you, there are extenuating circumstances (Aren't there always?). I.E., PEMEX started shifting resources away from Cantarell a year or so back.

[Nov 12, 2015] OPEC countries, Russia and International Oil Companies are all losing billions

Notable quotes:
"... It's perhaps more so high yield paper issuance ..."
"... We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red. ..."
peakoilbarrel.com
Euan Mearns, 11/08/2015 at 10:32 am

Oil Production Vital Statistics October 2015

The "big news" this month is that the banks granted over leveraged, loss making shale oil drillers a stay of execution by continuing to provide credit lines. Consequently, there was no major move in US oil drilling or production though both are trending down. Elsewhere, the story is one of production plateaus and stabilisation of rig counts. The modest production rises and falls detailed below are simply noise on these production baselines.

Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia and International Oil Companies are all losing billions and look set to continue doing so throughout 2016 as over-supply now looks set to continue until early 2017. The situation is one of stalemate as opposed to checkmate.

Watcher, 11/08/2015 at 12:28 pm

I think I would modify this a bit.

"Banks". It's perhaps more so high yield paper issuance, and we have seen at least one story indicating a bank (JP Morgan) orchestrated placement of the issuance in order to service debt JPM had actually loaned. So this would mean banks are selling debt to the public (with their powerful sales force), and doing so to protect their own loan portfolios. One might also wonder about their managed accounts (client money entrusted to in-house advisors) and if those accounts were put into this HY paper.

There was that JPM quote in response to a question about the risks to their loan portfolio. "We have offloaded that risk to investors."

To a certain extent it all says that I forgot my own mantra: Nothing relevant to money is going to be allowed to destroy civilization, because it can be created from nothingness.

We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red.

[Nov 12, 2015] Excerpts from several articles in Bloomberg and Reuters

Notable quotes:
"... Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said. ..."
"... "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said. ..."
"... The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha. ..."
"... "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition." ..."
"... "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline." ..."
"... "We're near the bottom at $40, and there's a potential upside that's much higher." ..."
peakoilbarrel.com

AlexS, 11/09/2015 at 10:48 am

Excerpts from several articles in Bloomberg and Reuters:

Saudi Vice Oil Minister Sees Price Surge After Cutbacks

http://www.bloomberg.com/news/articles/2015-11-09/oil-investment-cuts-at-200-billion-as-saudi-prince-sees-rally

The scale of the global oil and gas industry's spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.

Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday. Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.

Just like high oil prices can't last, a prolonged period of low prices is "also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise," the prince said in the remarks. "As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price."

Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said.

"But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said.

"Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust."

-------------------------

OPEC's Badri says oil market to be more balanced in 2016

Nov 9, 2015
http://www.reuters.com/article/2015/11/09/us-asia-energy-opec-idUSKCN0SY0TN20151109

The oil market is expected to become more balanced in 2016 as demand continues to grow, OPEC Secretary-General Abdullah al-Badri said on Monday ahead of the producer group's policy meeting next month.

"The expectation is that the market will return to more balance in 2016," he said in a speech at an Asian ministerial energy roundtable in the Qatari capital Doha.

"We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude," Badri said, according to the text of the speech published on the OPEC website.

Most of the oil supply increases in recent years have come from high-cost production, Badri said, in a clear reference to supply sources such as U.S. shale oil.

"The market is now taking on board this new reality and gradually resetting itself, as we can see with falling non-OPEC supply growth and stronger demand," he said.

----------------------------
Yergin Joins OPEC in Seeing Market Balanced as Soon as 2016

http://www.bloomberg.com/news/articles/2015-11-09/yergin-joins-opec-in-seeing-oil-market-balanced-as-soon-as-2016

Global demand for crude will bring more balance to the oil market as soon as next year, according to Pulitzer Prize-winning author and energy consultant Daniel Yergin and OPEC Secretary General Abdalla El-Badri.

The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha.

"The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition."

Current market volatility was caused by oversupply, mostly from high-cost producers, and oil stocks are above the five-year average, El-Badri said. Energy industry investment in exploration and production fell 20 percent, or by about $130 billion from 2014 to 2015, he said.

"The expectation is that the market will return to more balance in 2016," El-Badri said Monday. "We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude."

Oil prices are unsustainable at current levels and will rise gradually as international companies defer projects and production plans, United Arab Emirates Energy Minister Suhail Al Mazrouei told reporters .

"We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline."

The U.S. is now the new swing producer of oil, with much room for efficiency gains, Yergin said. If U.S. law would allow it, the nation could be a major oil exporter by the end of decade, he said. Canada's oil sands production will add more than 800,000 barrels a day by the decade's end, and Iran will add 400,000 to 600,000 barrels a day to world markets within a few months of sanctions ending.

"The market will have to deal with a very significant overhang of inventories," Yergin said. "There's more volatility in this process."
--------------------–
Speculators Share Andy Hall's Optimism That Oil Prices at Bottom

http://www.bloomberg.com/news/articles/2015-11-09/speculators-share-andy-hall-s-optimism-that-oil-prices-at-bottom

Andy Hall and Daniel Yergin think oil prices are bottoming out. Hedge funds agree.
Money managers' net-long position in West Texas Intermediate crude rose 20 percent in the week ended Nov. 3, the most in seven months, according to data from the U.S. Commodity Futures Trading Commission. Bets on rising prices increased to the highest level since June.
U.S. onshore oil production fell for the fifth month in a row in August and supplies grew at the slowest pace since September in the week ended Oct. 30. Inventory data don't indicate a surplus in the crude market and prices are set to rise, said Hall, one of the world's best-known oil traders. Global supply and demand will begin to move into balance by late 2016 or 2017, according to Yergin.

"The fundamentals are starting to play out," said David Pursell, a managing director at investment bank Tudor Pickering Holt & Co. in Houston. "You've got greater recognition that U.S. supply is falling and maybe falling faster. Inventories are building, but the pace of that build is more manageable."

Onshore production excluding Alaska fell to 7.25 million barrels a day in August, down 334,000 barrels a day from March, according to Energy Information Administration data. U.S. oil inventories grew by 2.8 million barrels a day the week ended Oct. 30, the smallest gain since Sept. 18.

U.S. output will retreat by about 10 percent in the 12 months ending April, according to Yergin, vice chairman at IHS Inc.." Prices may rise to $70 to $80 a barrel by the end of the decade, he said in an interview.

Hall, the crude trader, said Saudi Arabia is producing close to capacity while Iraq is struggling to maintain output, while U.S. rig counts will continue to decline.

"We think the degree of negativity is unwarranted," Hall, who runs $2.6 billion hedge fund Astenbeck Capital Management, said Nov. 4.

"The economy is on the rebound, China is coming out of a bear market, people are saying let's get long oil," said Carl Larry, head of oil and gas for Frost & Sullivan LP.

"We're near the bottom at $40, and there's a potential upside that's much higher."

[Nov 12, 2015] At the current price level some shale companies may stop completing wells and may stop drilling

Notable quotes:
"... I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole. ..."
"... At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015. ..."
"... I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up. ..."
"... "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d." ..."
"... Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. ..."
"... In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels. ..."
"... Oil and gas debt held by US banks is over $270 billion, but that would include conventional production. ..."
"... Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA. ..."
"... Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
"... A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017 ..."
peakoilbarrel.com
shallow sand, 11/11/2015 at 9:52 am
Heinrich. Your point about CAPEX v operating expense is on the money.

I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole.

Heinrich Leopold, 11/11/2015 at 4:49 pm
shallow sand,

Thank you for your reply. My point is also that many shale companies have published low operating expenses over years by moving most of their expenses into the category 'capex'. By the recent impairments they have moved a big chunk of their capex into the category expenses. So, basically they are saying to investors: sorry folks you have invested your money, but actually it is not invested anymore we have spent the money already on producing gas and oil and you will see a big part of your money never again. This is in my view a very unfair way to pretend to have low operating costs.

Dennis Coyne, 11/11/2015 at 12:34 pm
Hi Heinrich,

Enno Peters posts charts each month showing the well productivity. It has not decreased.

At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015.

FreddyW, 11/11/2015 at 4:36 pm
Hi,

I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up.

Newer wells produce more in the beginning, but has higher decline rates for at least the first year. My guess is that the earlier wells will eventually have recovered more oil than the later ones.

New data will probably come out on Friday. Maybe I have something to show after that.

AlexS says:
11/10/2015 at 2:24 pm

IEA World Energy Outlook 2015 on U.S. tight oil:

"The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d."

"The short investment cycle of tight oil and its ability to respond quickly to price signals is changing the way that the oil market operates, but the intensity with which the tight oil resource is developed in the United States eventually pushes up costs. US tight oil production stumbles in the short term but resumes its upward march as prices recover, helped by continued improvements in technology and efficiency improvements. But tight oil's rise is ultimately constrained by the rising costs of production, as operators deplete the "sweet spots" and move to less productive acreage. US tight oil output reaches a plateau in the early-2020s, just above 5 mb/d, before starting a gradual decline."

Change in production (2015-2020) of US tight oil for a range of 2020 oil prices
mb/d

shallow sand says:
11/10/2015 at 5:57 pm

Anecdotal re US conventional.

Company near us, 2012-14 drilled and completed many conventional wells. 2015 drilled no wells and completed the few remaining ones in first quarter.

Decline from Q3 2014 to Q3 2015 14.5%. Had grown production annually 2012-14.

Wonder how many conventional oil wells were completed 2011-14? New conventional wells may have a high decline too.

I know dwarfed by shale, but it all adds up.

AlexS says:
11/11/2015 at 8:13 am

In its short term energy outlook, the EIA sharply revised its U.S. C+C production estimates for 2H15 and forecast for 2016.

Estimate for this year's growth was increased to 580 kb/d from a 540 kb/d in previous month STEO, due to stronger than expected performance in onshore production. The biggest upwards revisions were made for August 2015: +187 kb/d, September: +160 kb/d and October: + 108 kb/d. The new production forecast for 2015 is 9.29 mb/d vs. 9.25 mb/d in October STEO.

Despite these revisions, the EIA still notes that "monthly crude oil production started to decrease in the second quarter of 2015, led by Lower 48 onshore production. From March 2015 through October 2015, Lower 48 onshore output has fallen from more than 7.6 million b/d to about 7.1 million b/d. EIA estimates total crude oil production has declined almost 0.5 million b/d since April, averaging 9.1 million b/d in October", down 43 kb/d from September.

The EIA expects declines to continue through September 2016, when total production is forecast to average 8.54 mb/d. This level of production would be almost 1.1 mb/d less than the 2015 peak reached in April.

Doug Leighton says:
11/11/2015 at 9:35 am

WHY THE OIL SANDS NO LONGER MAKE ECONOMIC SENSE

"Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. OPEC, home to the world's lowest-cost oil, is pretty much producing what it always has. The market glut is from increased output from high-cost producers like the oil sands. Their existential dilemma in today's market is that it is they, not OPEC, who must cut production to clear the glut.

http://www.theglobeandmail.com/report-on-business/rob-commentary/oil-sands-no-longer-make-economic-sense/article27170104/

shallow sand says:
11/11/2015 at 10:08 am

I wish I knew more about production costs for the four Gulf OPEC members plus Iran and Iraq.

I also wish I knew how much of KSA's increase in oil production, for example, which began in March, 2015, was oil from storage as opposed to produced.

In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels.

AlexS says:
11/11/2015 at 12:58 pm

shallow sand,

KSA's production was increasing from March and peaked in June. Since then, it has slightly declined.
I don't think they will (and can, and intend to) increase it further.

Saudi Arabia's oil production
Source: JODI, OPEC (direct communications)

shallow sand says:
11/11/2015 at 1:48 pm

AlexS. Thanks. Surprisingly, KSA has really not increased oil production that much, especially in relation to the United States.

Euan's post above indicates there is negligible spare capacity and it is almost all heavy oil with no refining capacity available for it. Given KSA interest in shale tech, would appear 10.6 may be their conventional peak.

Russia has been able to continue to slowly increase production. Do you think Russia is nearing conventional peak? Any recent news on Russian LTO efforts?

Will interesting to see how this plays out.

AlexS says:
11/11/2015 at 2:06 pm

shallow sand,

The IEA estimates Saudi capacity at 12.26 mb/d and sustainable spare capacity at 2.06 mb/d (in September). However these numbers can be overstated and actual capacity may not exceed 11-11.5 mb/d.

Euan is right that most spare capacity consists of heavy oil with high sulphur content.

3 other Gulf states have very small spare capacity of around 100 kb/d.

Hence production increases in 2016 can be expected only from Iran and Iraq. Libya is a big unknown, which potentially can add up to 1 mb/d

I think Russia could further increase production in the near term, but not by much. In the medium to long term it will try to maintain production at current levels, so it's probably not a peak, but a plateau.

Russian LTO is a long-term story, similarly to the Arctic projects. No significant additions are expected until next decade.

Among other non-OPEC, non-US sources, some growth may be expected from Canada and Brazil, but in both cases it will be slower than previously expected due to lower oil prices.

With the declining US output and continued (albeit slower) growth in demand, the market will begin rebalancing next year.

In 1H15, that will mean lower excess supply vs demand, and from 2H15 demand will likely exceed supply.
This scenario implies that additional supplies from Iran do not exceed 500-700 kb/d, Libya remains in doldrums, and there is no dramatic slowdown in global economic growth.

shallow sand says:
11/11/2015 at 5:50 pm

AlexS. Thanks for the post. I agree with you that Iran and Iraq appear to be able to add much more production than Saudi Arabia, Kuwait, UAE and Qatar combined.

Iraq in particular has many areas to be developed, subject primarily to political instability.

For example, Rumalia oil field production has ramped up significantly and it appears there is much room to run at a very low price.

dmg555 says:
11/11/2015 at 10:10 am

Does anyone here have a source for how much money was loaned to the tight oil fracking industry?

Watcher says:
11/11/2015 at 12:19 pm

You will find this number is fuzzy, as is true for all long term debt everywhere, because issuance rolls over on maturity and that may not be tracked.

shallow sand says:
11/11/2015 at 1:45 pm

Oil and gas debt held by US banks is over $270 billion, but that would include conventional production.

I have read in excess of $1/2 trillion, a number off the top of my head.

John S says:
11/11/2015 at 3:22 pm

Shallow: I think you will find the press release at the link below from FDIC interesting:

https://www.fdic.gov/news/news/press/2015/pr15089.html

Here is an excerpt:

"Oil and gas commitments to the exploration and production sector and the services sector totaled $276.5 billion, or 7.1 percent, of the SNC portfolio. Classified commitments-a credit rated as substandard, doubtful, or loss-among oil and gas borrowers totaled $34.2 billion, or 15.0 percent, of total classified commitments, compared with $6.9 billion, or 3.6 percent, in 2014."

I went looking for this because a local bank is seeking to increase is liquidity via a preferred stock offering. It is trying to raise a multi-million $ amount. The offered terms are a 5% dividend, 5 year term, and share repurchase at redemption date. The bank is 30 + years old.

I am told another local bank is doing a similar offering.

Hmmm…..liquidity issues and off balance sheet financing. Where has that been tried before in the oil patch?

Watcher says:
11/11/2015 at 4:23 pm

Banks do preferred offerings all the time.

Quick example, go to finance.google.com and enter stock symbol bac. and that's a period after the c and look at all the preferred offerings/issues.

Quick lesson for the partially washed. Preferred stock is equity that usually has no voting rights for corporate governance determination. Speaking practically it's usually priced about $25/share and pays a higher yield than any common dividend. Preferreds get their dividend first. If there isn't enough profit to pay preferred divvies and common, common has to get zero.

There are cumulative preferreds and convertible preferreds. Cumulative means if a quarter's dividend is missed, ya gotta make up that quarter's missed payout before you can pay to common shares. Convertible means can convert to XXX shares of common. blahblah

Anyway, a bank issuing preferred stock is not eyebrow raising in any environment. That is, excluding issuance bought by Buffet in 2009. Anything at all done that year was eyebrow raising.

shallow sand says:
11/11/2015 at 5:55 pm

John S. Thanks for the link! That is the release I was referring to earlier.

WTI below $43. Wow. Have to think the substandard or worse oil and gas backed loans are only going to grow.

Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA.

Watcher says:
11/11/2015 at 6:46 pm

KSA has said repeatedly shale is no threat to them and they are no threat to shale. Shale oil can't export. It CAN'T compete. And almost all US imports are coming from Canada and Mexico and Ven and Nigeria. Only about 1 mbpd from KSA.

They're right - besides which shale oil isn't the medium / heavy oil out of KSA. It's not even the same product to envision as competing.

oldfarmermac says:
11/11/2015 at 8:34 pm

Watcher, you occasionally make some sense, sorta kinda.

But you know better, or at least you ought to know better, than to say shale oil doesn't matter because it cannot be exported.

Oil is a fungible commodity traded in a brutally competitive world market.

A million barrels a day of domestic yankee production above and beyond "the usual" is a million barrels somebody formerly exported to us Yankees looking for a new home in some other importing country.

Taking a million barrels a day off our Yankee production would have approximately the same effect on the world market as if Saudi Arabia were to cut back by a million barrels a day.

But your remarks about oil supposedly going into storage recently seem to be very reasonable.

SURELY TO SKY DADDY the tank farms of the world must be getting pretty damned close to overflowing by now, and every rusty old tanker that will hold a few thousand barrels is probably full as well, sitting anchored someplace.

Doug Leighton says:
11/11/2015 at 1:49 pm

OIL GLUT DEEPENS WITH 100M BARRELS AT SEA

"Patrick Rodgers, the chief executive of Euronav, one of the world's biggest listed tanker companies, said oil glut was so severe traders were asking ships to go slow to help them manage storage levels."

http://www.ft.com/cms/s/0/f763a6da-8859-11e5-9f8c-a8d619fa707c.html#axzz3rD5Ye7ss

ezrydermike says:
11/11/2015 at 2:25 pm

wti futures 11-11-2015

Watcher says:
11/11/2015 at 6:50 pm

And btw all you supply and demand worshippers . . . just who is buying oil to store, when storage has throughput? You aren't buying to store it for future higher price. You buy it to store it to flow it outward incrementally to consumption, with new oil coming in to refill the tanks. FIFO. That's how Cushing works. If price rose, the oil getting sold from storage just went in there last week or 2 weeks ago. It didn't get there in January. There's no big profit.

dmg555 says:
11/11/2015 at 3:13 pm

From the Financial Times on Energy Debt

http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico

Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

Watcher and Shallow: Your numbers on total debt look a bit low, but I'm only siting the Financial Times.

shallow sand says:
11/11/2015 at 6:01 pm

dmg555. I was just throwing out things off the top of my head, which is probably not the best thing to do.

A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017.

[Nov 12, 2015] Monthly legacy shale production declines accelerates

Notable quotes:
"... Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin. ..."
peakoilbarrel.com
AlexS, 11/09/2015 at 7:02 pm
Combined oil production from 7 shale plays is expected to decline by 558 kb/d, from 5507 kb/d in April to 4949 (these numbers include ~800-900 kb/d of conventional production, mainly from the Permian basin).

New combined estimates for 7 plays were revised down by about 25-35 kb/d from March to May, and by 40-50 kb/d from June to December.

AlexS, 11/09/2015 at 9:05 pm
Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin.

Monthly legacy production declines as % of total production by 4 key LTO plays
Source: EIA DPR

[Nov 12, 2015] Oil Majors Don't Share OPEC's Optimism On Oil Prices In 2016

Notable quotes:
"... Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering. ..."
"... So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price. ..."
"... If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable. ..."
Zero Hedge

OPEC's meeting in Vienna is less than a month away, and oil producers – countries and companies alike – have been raising their concerns at an energy conference in the United Arab Emirates over the cartel's strategy to keep prices low.

The issue arose on Monday when Mohammed bin Hamad al-Rumhy, the oil minister of Oman – not a member of OPEC – told the annual Abu Dhabi International Petroleum Exhibition and Conference that oil production is at "irresponsible" levels, leaving little latitude for variations in production.

"This is [a] man-made crisis in our industry we have created," al-Rhumy said. "And I think all we're doing is irresponsible."

Al-Rhumy added, "This is a commodity that if you have 1 million barrels a day extra in the market, you just destroy the market. We are hurting, we are feeling the pain, and we're taking it like a God-driven crisis. Sorry, I don't buy this, I think we've created it ourselves."

The next day, al-Rhumy's concerns, if not his criticism, were shared by executives of leading international oil companies: ExxonMobil of the United States, BP of Britain and Total of France. All said they expect the current glut of oil, and the resultant depression in oil prices, to last longer than anyone expected – months longer, if not years longer.

"I'm not sure we will exit from low prices before many months," Total CEO Patrick Pouyanne said.

Lamar McKay, the director of exploration and production for BP, said he expects oil prices will stay low for some time, and Michael Townshend, the company's director for Middle East operations, said he expects the price of a barrel of oil will rise no higher than about $60 for three more years.

These gloomy forecasts contrasted with the OPEC view. The group's secretary general, Abdullah al-Badri, told the conference on Tuesday that 2016 is likely to be a year for positive momentum in oil markets. And on Monday, UAE Oil Minister Suhail al-Mazrouei, said a decision by OPEC to cut production to shore up oil prices would only play into the hands of its competitors.

As a result, al-Mazrouei said, he doesn't expect OPEC to change its strategy when it meets Dec. 4. "When you are the least expensive oil, you should be the base producer," he said.

At its meeting in November 2014, OPEC adopted Saudi Oil Minister Ali al-Naimi's strategy of keeping production at 30 million barrels a day, despite the fall in oil prices caused by a rapid increase in production by non-members, especially the United States, which had ramped up production of shale oil.

The goal was to wage a price war that would keep oil prices so low that such producers, who rely on relatively expensive hydraulic fracturing, or fracking, can't afford to drill for oil. The break-even point for fracking is around $60 per barrel, and oil now averages about $50 per barrel, leading to a noticeable drop in U.S. drilling.

In the meantime, OPEC nations are exceeding their production limit of 30 million barrels per day by more than 1.5 million barrels, so it's no wonder oil prices are so low.

Concerns about low oil prices were raised before last year's OPEC meeting, particularly by Venezuela.

Saudi Arabia had already said it opposed production cuts. Venezuela's president, Nicolas Maduro, said he was hoping to work out ways to bolster oil prices in meeting both with members of OPEC and producers who weren't part of the 12-member cartel.

That came to naught, however, and the Saudi plan became OPEC policy. Despite current dissatisfaction from some oil producers, there's no reason to expect the cartel to change course if it believes its strategy is working.

Selected Skeptical Comments

Hard Assets

I have posted this comment on 7 million forums and discussion boards and I have yet to get a reasonable answer.

If an oil producer, big or small, has X barrels of oil in the ground, a finite number, why would they (especially OPEC countries who can 'control' the price) overproduce to sell today at $43 instead of $110+ ??

How does driving down the price get one more 'market share' ? When oil was $100/bbl, all things being equal, it was $100 across the globe. At $43, its $43 across the globe. Again, all things being equal, how does that impact market share ?

Sure, at a point in the future, when competitors fold you gain market share. Does this fall into the "market can stay illogical longer than one can remain solvent" category ?

Completely short sighted vision in my book. WTF was the intention of OPEC in the first place?

Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering.

Back to the finite X reserves. No doubt Saudi and every oil producer will pump and drill and do everything they can to get down to the last drop. Then it's over, literally pack up your tent and call it a day.

So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price.

If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable.

So WTF is really going on here ?

Benjamin123

I sort of answered below.

They dont care. Those countries do not feel any pain. Countries are not even real, only people or animals feel pain and those oil ministers are rich either way.

Gregor Samsa

Easy answer: cashflow. These companies / countries need any revenue they can get. Turning off the lights and going home is simply not an answer.

A secondary answer is that many oil plays, such as tarsands and fracking literally cannot be shut down once started (at least not without incurring extra costs in the millions).

erk

US oil production is still up around 9 mill barrels according to EIA. Once their unsustainable shale oil output drops a million BBL or two, then OPEC are back to business as usual.

Youri Carma

It's not about OPEC anymore.

[Nov 11, 2015] 2 simple charts illustrate why low oil prices are so depressing

Nov 9, 2015 | Business Insider
The energy sector's capital expenditure, or capex, on spending for fixed infrastructure that secures future business activity, has slumped 8% this year according to Goldman Sachs.

Energy capex growth is set to fall another 20% next year, wrote the firm's strategists led by David Kostin to clients on Friday.

There's usually a lag between energy-sector capital spending and oil prices, with prices leading. That means even if oil prices defy most forecasts and rise sharply from current levels, capex will likely still fall.

[Nov 11, 2015] IEA World Energy Outlook New Hope For Civilization

Notable quotes:
"... In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go. ..."
"... The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance. ..."
"... A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?" ..."
Nov 11, 2015 | naked capitalism

Sandwichman, November 11, 2015 at 2:39 am

Green smoke. "These projected figures are a figment of our imagination. We hope you like them." (New Yorker cartoon from the 1980s

vteodorescu, November 11, 2015 at 5:31 am

The path to low carbon is nuclear. Anything else is a palliative. Technical fact: wind and solar have to be backed up with equal capacity of baseload generation, usually gas, to keep the grid balanced, to compensate the highly variable supply wind and solar produce. They are largely politically driven and a sop to the misinformed intelligentsia.

Energy scarcity is another tool to keep the huddled masses huddled.

Disclaimer: I am an organic farmer in the northeast of Brazil. I do not work for or have any financial interest in the nuclear industry.

TheCatSaid, November 11, 2015 at 6:54 am

These crystal-ball gazing exercises leave out the high likelihood like pandemics. Losing a significant % of population will impact demand but also supply (just imagine what losing key engineers and scientists could impact on development of better technologies, or on production facilities).

likbez -> TheCatSaid, November 11, 2015 at 9:34 pm

If I remember correctly in 1956 Hubbert correctly predicted the peak of the USA production in 1970. From Wikipedia
==== quote ===
Hubbert, in his 1956 paper,[3] presented two scenarios for US crude oil production:
most likely estimate: a logistic curve with a logistic growth rate equal to 6%, an ultimate resource equal to 150 Giga-barrels (Gb) and a peak in 1965. The size of the ultimate resource was taken from a synthesis of estimates by well-known oil geologists and the US Geological Survey, which Hubbert judged to be the most likely case.

upper-bound estimate: a logistic curve with a logistic growth rate equal to 6% and ultimate resource equal to 200 Giga-barrels and a peak in 1970.

Hubbert's upper-bound estimate, which he regarded as optimistic, accurately predicted that US oil production would peak in 1970, although the actual peak was 17% higher than Hubbert's curve.

Production declined, as Hubbert had predicted, and stayed within 10 percent of Hubbert's predicted value from 1974 through 1994; since then, actual production has been significantly greater than the Hubbert curve.

Nicholas Cole, November 11, 2015 at 8:51 am

Is the title of this article supposed to be funny?

To echo Paper Mac, I'd like to know more about their assumptions re: energy efficiency investments and improvements.

In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go.

DanB, November 11, 2015 at 9:35 am

The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance.

The counter explanation that the price of oil fell because people are going broke while the cost of extracting oil is climbing cannot be conceived, let alone entertained.

And the peak oil scenario is actually hidden in plain sight in classical economics: if a resource becomes scarce what happens? Price increases and then encourages more exploration and recovery of the resource. If that does not work then price incentivizes the introduction of substitutes. And if that doe not work you get demand destruction, because the market always clears -- even if people go hungry the market clears.

A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?"

IDG, November 11, 2015 at 9:50 am

Humans are awfully bad at predicting things, specially under radical uncertainty conditions (so basically this situation); yet we see this sort of rubbish published on daily basis. Call me back when we can predict what will happen in a year reliably, until then… 20y-30y projections are a joke, for all I know humanity could have self-exterminated itself in a nuclear war by then (one century with nuclear weapons around and no nuclear-conflict having happened yet looks like defying probability to me!).

But I guess economists need employment too after all, how would such useless profession be justified if wouldn't swallow rubbish like this.


[Nov 11, 2015] An Almost Perfect Storm of Incompetence and Felony

Notable quotes:
"... People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. ..."
"... The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy. ..."
jessescrossroadscafe.blogspot.com
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.

But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith, Age of Uncertainty

"Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are fearful in their complicity."

Tacitus, Annals

I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do. This is what I just wrote back in response to a question from Bill. I read his columns at LeMetropoleCafe.com every day. His is an amazing crossroads for discussion of things that are interesting about precious metals. I have been a subscriber since 2000. Dave has a new site at Investment Research Dynamics that is quite good and different since he has a very different background in the heart of darkness as a NYC bond trader from mine as a Bell Lab rat and Silicon Valley roustabout.
We just saw a very historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.

I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates. A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations. It is a portion of the credibility trap which inhibits any meaningful remedy and reform.

It is an almost perfect storm of incompetence and felony.

[Nov 09, 2015] Peak Oil Open Thread

Notable quotes:
"... Yergin predicts a 10 percent drop in US oil production, April 2015 to April 2016. That's a 960,000 bpd drop and will take us to 8,638,000 bpd in April 2016 if he is correct. ..."
"... U.S. crude output, which surged to the most in more than three decades this year and triggered a price collapse, will retreat by about 10 percent in the 12-months ending April, according to Yergin, vice chairman at IHS Inc. ..."
"... How big a drop do you expect? I think Yergin may be right in this case. The drop in output in the US, along with increased demand at low oil prices will eventually balance the oil market, prices will rise and output will level off and may increase slightly if oil prices get above $75/by the end of 2016. ..."
"... I have no idea when oil prices will get to $75/b, but my WAG is mid 2017 at the latest when World output will be struggling to increase. ..."
Peak Oil Barrel

Yergin predicts a 10 percent drop in US oil production, April 2015 to April 2016. That's a 960,000 bpd drop and will take us to 8,638,000 bpd in April 2016 if he is correct.

Yergin Sees Oil Price Near Bottom as U.S. Output Set to Fall

U.S. crude output, which surged to the most in more than three decades this year and triggered a price collapse, will retreat by about 10 percent in the 12-months ending April, according to Yergin, vice chairman at IHS Inc.


Guy Minton, 11/04/2015 at 8:59 pm

Actually, Yergin's estimate drop to 8,600,000 is in line with EIA's projection. Both are too conservative, my guess the drop will eventually surprise most.

Dennis Coyne, 11/05/2015 at 8:30 am

Hi Guy,

How about some numbers?

How big a drop do you expect? I think Yergin may be right in this case. The drop in output in the US, along with increased demand at low oil prices will eventually balance the oil market, prices will rise and output will level off and may increase slightly if oil prices get above $75/by the end of 2016.

I have no idea when oil prices will get to $75/b, but my WAG is mid 2017 at the latest when World output will be struggling to increase. That assumes no major World recessions (like 2008/9) between now and 2017, if the pessimists' forecast of an impending crash due to a stock market and debt bubble are correct, then output could fall much more than forecast by Yergin due to sustained low oil prices due to lack of demand for oil due to low income growth (or negative income growth).

[Nov 08, 2015] Why The Stock Buyback Spree Is Ending

Notable quotes:
"... Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back. ..."
Nov 08, 2015 | Zero Hedge
From Goldman:

Managements will remain committed to returning cash S&P 500 firms will return more than $1 trillion to shareholders in 2016 with buybacks and dividends each growing by 7%. We expect high cash return strategies to outperform given modest GDP growth, low rates, and slim equity returns. A similar macro environment in 2015 rewarded stocks with high cash returns to shareholders while firms investing in capex lagged.

So buy stocks the buy their own stock. Got it. Only.... any time Goldman tells its client to do something, the opposite usually happens. Could that be the case again?

Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back.

Give up. Reality is not scientific nor even mathematical

Yes, and from all the ugliness will come an even tighter grip on the New American Century.

Get ready for the rate hikes that will follow by understanding, the dollar, not gold and certainly not the yuan, is going to rule the world.

Opportunity abounds for those who aren't the typical alternative media America hater, and who also have sense enough to see the next logical step in this march toward the future. Given the alternative, the world will welcome what they will see as a new golden age of prosperity and progress.

It won't be that, but only the old will be in on the massive deceit. Civilization merely rides the mercilous bucking bronco of reality.

Yen Cross

He's joking right? CapEx has been in the shitter since 2008-09.

" Furthermore, according to the latest forecast by Goldman's David Kostin, this surge in buybacks will continue for the simple reason that with Capex spending set for its first decline since 2009."


[Nov 06, 2015] US production might be down by something from 1.5 up to 3 mill bbl/d by end of next year

Notable quotes:
"... monthly low is forecast for June 2016 at 8.77 mb/d. ..."
"... It is interesting that the time lag between capex and production response for conventional production stands around 18 months. Therefore production in the Golf of Mexico is still rising (up 200,000 bbl/d in the last two months alone). This mitigates somehow the decline of shale production. This explains e.g. also the resilience of Russian production, which will in my opinion still rise over the next half year. ..."
"... However, if the oil price stays below $50 per barrel, production will keep falling at roughly 1% per month, which is the average decline of the FED oil and gas production index since April 2015. ..."
"... This scenario implies an at least 1.5 mill bbl/d decline until the end of next year – provided the oil price stays at the current level. My personal view is that US production will be down by more than 3 mill bbl/d by end of next year as there are strong signs of depletion of sweet spots, which accelerate the underlying decline. ..."
"... The projected decline in U.S. production comes primarily from shale plays, and to a much less degree from Alaska and other conventional fields, while production in the GoM is expected to increase. ..."
"... If, as you say, U.S. production drops by 3 mb/d by year-end 2016, that would mean a decline in LTO production by almost 2/3. That is impossible even if shale operators completely stop drilling new wells. According to the estimates I've seen, with no new wells, LTO production in the Bakken and the Eagle Ford would decline by between 30 and 40% within a 12-months period. ..."
"... 3mill bbl/d is a lot and it is the top end of my estimate, yet also conventional production will decline by end of next year. It is just my gut feeling and I guess it has to do something with depletion of sweet spots. ..."
peakoilbarrel.com

AlexS, 11/05/2015 at 1:13 pm

article in Bloomberg:

Cheap Crude Hasn't Crippled the U.S. Shale Boom, Shale drillers defy OPEC and double down on drilling.

http://www.bloomberg.com/news/articles/2015-11-05/cheap-crude-hasn-t-crippled-the-u-s-shale-boom

shallow sand, 11/05/2015 at 9:16 pm
AlexS. The title of the article does not exactly match the content. Good, short read.

The article states US will average 9.2 million bopd this year, 8.8 next year. This ignores that US climbed to 9.6 and will end below 12/14. The 2016 number assumes a rebound in the second half of the year. I am not sure about that.

If OPEC can keep a lid on oil prices through the end of 2016, I wonder what US production will average in 2017?

AlexS, 11/06/2015 at 5:54 am
shallow sand,

The EIA estimates annual average U.S. C+C production at 9.25 mb/d this year (+540 kb/d y-o-y) and 8.86 mb/d in 2016 (-390 kb/d y-o-y).
Monthly peak of 9.60 mb/d was in April 2015, monthly low is forecast for June 2016 at 8.77 mb/d.
Thus, projected decline in monthly average between 4/15 and 6/16 is 830 kb/d.

Projected decline for Lower 48 onshore between 3/15 and 6/16 is 910 kb/d.

So they think that $55 is sufficient to trigger an increase in drilling/completion activity.

Heinrich Leopold, 11/06/2015 at 3:20 am

AlexS, Shallow Sand,

Again I think there is a time lag of six months between lower capex and and actual production response. As shale companies have kept capex until recently quite high at the price of huge losses (http://wolfstreet.com/2015/11/05/giant-sucking-sound-of-capital-destruction-in-us-oil-gas-impairments/), they have finally responded with much lower capex in 3q15. This implies that the production decline will start in earnest during the first quarter 2016.

It is interesting that the time lag between capex and production response for conventional production stands around 18 months. Therefore production in the Golf of Mexico is still rising (up 200,000 bbl/d in the last two months alone). This mitigates somehow the decline of shale production. This explains e.g. also the resilience of Russian production, which will in my opinion still rise over the next half year.

Future production of oil will strongly depend on the oil price. If the oil price rises to over $80 per barrel in December (through a possible OPEC cut), US production will still be down until mid next year and then rise again. This is the scenario the above forecast implies.

However, if the oil price stays below $50 per barrel, production will keep falling at roughly 1% per month, which is the average decline of the FED oil and gas production index since April 2015.

This scenario implies an at least 1.5 mill bbl/d decline until the end of next year – provided the oil price stays at the current level. My personal view is that US production will be down by more than 3 mill bbl/d by end of next year as there are strong signs of depletion of sweet spots, which accelerate the underlying decline.

AlexS, 11/06/2015 at 7:12 am
Heinrich,

According to the EIA, U.S. LTO production at the peak earlier this year was about 4.6 mb/d (it is now 200-300 kb/d lower). The projected decline in U.S. production comes primarily from shale plays, and to a much less degree from Alaska and other conventional fields, while production in the GoM is expected to increase.

If, as you say, U.S. production drops by 3 mb/d by year-end 2016, that would mean a decline in LTO production by almost 2/3. That is impossible even if shale operators completely stop drilling new wells. According to the estimates I've seen, with no new wells, LTO production in the Bakken and the Eagle Ford would decline by between 30 and 40% within a 12-months period.

Heinrich Leopold, 11/06/2015 at 7:28 am
AlexS,

3mill bbl/d is a lot and it is the top end of my estimate, yet also conventional production will decline by end of next year. It is just my gut feeling and I guess it has to do something with depletion of sweet spots.

[Nov 06, 2015] Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General

Notable quotes:
"... in another recent report , Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. "Meeting these needs will require all economic energy sources, especially oil and natural gas," it said. ..."
"... You legally aren't allowed to knowingly and purposely hide or distort data you are aware of which may materially affect your shareholders. ..."
"... The issue is based on oil companies selectively releasing data and research in exclusive support of their conclusions, while suppressing or distorting material that didnt fit the narrative. ..."
"... if I want to know about climate change, I dont seek reliable information from oil and gas companies, supermarket tabloids, or members of Congress. ..."
"... These are the United States of America, where corporations have (and use) the power to lie constantly to their detractors and their customers alike. For me to expect anything else would suggest a lack of basic skepticism on my part where the products and activities of the corporate world are concerned. ..."
www.nytimes.com

The New York Times

The people said the inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences - and uncertainties - to company executives.

... ... ...

"This could open up years of litigation and settlements in the same way that tobacco litigation did, also spearheaded by attorneys general," said Brandon L. Garrett, a professor at the University of Virginia School of Law. "In some ways, the theory is similar - that the public was misled about something dangerous to health. Whether the same smoking guns will emerge, we don't know yet."

In the 1950s and '60s, tobacco companies financed internal research showing tobacco to be harmful and addictive, but mounted a public campaign that said otherwise and helped fund scientific research later shown to be dubious. In 2006, the companies were found guilty of "a massive 50-year scheme to defraud the public."

... ... ...

in another recent report, Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. "Meeting these needs will require all economic energy sources, especially oil and natural gas," it said.

Jeff, Atlanta

This sounds like a fishing expedition on reports published 40 years ago that Exxon wasn't even obligated to do. On top of this, the allegations aren't even that Exxon lied or misled in the reports but financial impact of alleged lies (i.e. similar to misstating earnings). Also, aren't scientific climate reports the entire purpose of the IPCC, not private companies like Exxon? Sounds like a grandstanding opportunity for the NY AG.

Michael, is a trusted commenter North Carolina

I would like to think that Schneiderman has undertaken this investigation purely out of concern for our planet, and not primarily as a way to heighten his personal profile, and he may well have. That said, it is unrealistic to think that it will drive Exxon Mobil or any other major energy company out of business. But, given that the political climate in DC is such that there is zero chance for leadership on implementing a tax on carbon, which to me represents the single most powerful way to address climate change, this may be the next best thing. Hefty fines, if large enough, will inevitably find their way to the pump, and to the utility bill, and may finally alter our behavior, our collective behavior. Whether it might come in time to save the planet is the question.


Andy W, Chicago, Il

You legally aren't allowed to knowingly and purposely hide or distort data you are aware of which may materially affect your shareholders. The problem isn't that Exxon executives put forward biased opinions about the existence or extent of environmental impacts. The issue is based on oil companies selectively releasing data and research in exclusive support of their conclusions, while suppressing or distorting material that didn't fit the narrative.

Their legal and ethical obligation was to release all of the data and let the public and regulators judge if their conclusions were correct. In any sworn testimony provided through the years, executives were also obligated not to suppress or distort any requested information in their possession. That is the legal basis for any legal inquiry, your basic tobacco industry style cover-up.

David Nicholas, Centennial, Colorado

I am an Exxon Mobil shareholder. I am also a scientist who holds degrees from reputable universities, and if I want to know about climate change, I don't seek reliable information from oil and gas companies, supermarket tabloids, or members of Congress. These are often sources of misinformation where, as a moderately well educated and pragmatic adult, I expect to be provided with utter nonsense.

These are the United States of America, where corporations have (and use) the power to lie constantly to their detractors and their customers alike. For me to expect anything else would suggest a lack of basic skepticism on my part where the products and activities of the corporate world are concerned.

Companies like Exxon Mobil exist to make money in any way they can, for themselves and for stockholders like me. Do I condemn their unethical practices? Certainly, but I'm not foolish enough to think I can change them. I cash my dividend checks along with all the other stockholders -- and I vote for representation in Washington, D.C. that knows enough about the science of global climate change to do something meaningful about our role in it. So far, most of the elected officials in Washington, D.C. have been a dismal disappointment; they're the best politicians money can buy.

[Nov 06, 2015] At 45 dollaris a well that produces 300K barrels over lifetime of 20 years will earn 250,000 dollars for the producer each year on a six million dollar investment, or 4.2 percent.

Edited for clarity.
Notable quotes:
"... If an oil company spends six million dollars to complete an oil well that produces 300,000 barrels of oil over a twenty year period and the average price of oil is $45, an income of $13,500,000 is what you will have in twenty years. ..."
"... Net $7.5 million realized in twenty years, $375,000 average annual income for the life of the well. Subtract 18% for royalties, 10% to pay for extraction taxes, costs to operate, hauling it to market. All-in-all 1/3 needs to subtracted on average. In our case this is $125,000 ..."
"... That means a whopping annual profit of $250,000 for the producer each from a six million dollar investment , or a return on the original investment of 4.2%. Not to mention the taxes to be paid at filing time or an accident that can happen during the lifetime of the well. ..."
peakoilbarrel.com

R Walter, 11/05/2015 at 6:35 am

When you want to have some gross income from the production and sale of any commodity, it is desirable to earn more then two dollars for every dollar of expense. A general rule of thumb for the life of the well the total costs can't be more then 1/2 of total earnings. Otherwise you are losing money.

If an oil company spends six million dollars to complete an oil well that produces 300,000 barrels of oil over a twenty year period and the average price of oil is $45, an income of $13,500,000 is what you will have in twenty years.

Net $7.5 million realized in twenty years, $375,000 average annual income for the life of the well. Subtract 18% for royalties, 10% to pay for extraction taxes, costs to operate, hauling it to market. All-in-all 1/3 needs to subtracted on average. In our case this is $125,000

That means a whopping annual profit of $250,000 for the producer each from a six million dollar investment, or a return on the original investment of 4.2%. Not to mention the taxes to be paid at filing time or an accident that can happen during the lifetime of the well.

You might as well invest your six million in a CD, and earn 2% return, sit at home to watch TV and drink coffee. The oil in the ground is making money just sitting there like you are. If you are going to be a fool, might as well be one while watching TV, not drilling for oil all day long and be making pennies. You'll be doing the world a favor. You'll be dancing, not drinking booze all day long and crying over all of the losses.

I know the numbers are not in any way near what they really will be, but you have the idea.

... ... ...

[Nov 06, 2015] Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere is dying off at exponential rates that will kill us

Jef, 11/05/2015 at 10:24 am

Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere in general all of which humans rely 100% on to exist which is dying off at exponential rates that will kill us.
Doug Leighton, 11/05/2015 at 10:37 am
You've got it wrong. We HAVE to kill off flora and fauna to make room for more humans. Getting rid of buffalo was a master stroke but now there's the other stuff to exterminate. Think about how many people we can fit into Africa by getting rid of that useless wildlife. And, all the bio-fuel we can generate with land wasted by jungle in the Amazon. The key is HUMAN CARRYING CAPACITY. That's what really matters guy.
BC, 11/05/2015 at 12:59 pm

Who needs these large animals on our planet anyway? We are the dominant predator species, including prey on one another; these animals simply have failed to evolve and adapt with a neo-cortex, superior technology, will to power, and the imperative to grow numbers and resource consumption per capita perpetually.

Human apes are superior, and the 7 billion of us and counting is unambiguous proof of our superiority.

Doug Leighton, 11/05/2015 at 1:27 pm
Exactly, we're like rats: better at what we do than anyone else. And like rats we deserve to inherit the earth. But I do wonder what happens when all that's left is us and rats? Maybe they eat us.
MarbleZeppelin, 11/05/2015 at 6:48 pm
Or the rats will carry a new plague that eradicates the human population. Problem solved.

MarbleZeppelin, 11/05/2015 at 6:46 pm

Doesn't it seem very odd that we define progress as some new machine and superiority as the ability to kill off everything?

[Nov 06, 2015] Debt and energy

Notable quotes:
"... I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt. ..."
"... The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at. ..."
"... I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China. ..."
"... The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced. ..."
"... "Would an economy with 25% unemployment be good for them?" Dennis Coyne ..."
"... "There is nothing crappy or fake about the current economy," ~ ChiefEngineer ..."
"... "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com ..."
"... "Do you need a job Caelan ?" ~ ChiefEngineer ..."

Doug Leighton, 11/05/2015 at 11:41 am

"This is the same as borrowing even more from the future to maintain today's over consumptive life styles and leaving their children and grand children with the bill." And, that says it all, thanks Rune.
Dennis Coyne, 11/05/2015 at 12:14 pm
Hi Doug,

Imagine your children were just graduating from college. Would an economy with 25% unemployment be good for them? That's what we get when we are too concerned over high public debt as the Hoover administration clearly was. You should read Keynes (it is a short book),
The General Theory of Employment, Interest, and Money

https://en.wikipedia.org/wiki/The_General_Theory_of_Employment,_Interest_and_Money

Or read Krugman's End This Depression Now, for an alternative view on debt from Gail's.

Doug Leighton, 11/05/2015 at 12:36 pm
I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt.
Dennis Coyne, 11/05/2015 at 5:36 pm
Hi Doug,

My daughter just graduated from University. You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?

Low government debt and balanced budgets (Herbert Hoover thinking) gets you low employment. Keynesian policies done properly get you higher employment.

Debt is important, of that there is no doubt.
When the economy is doing poorly it is usually because of too little debt rather than too much debt.

Greece is a notable exception and there are other cases where countries have taken on too much debt, in Greece's case the lack of control over its own monetary policy is a big problem. If they had the ability to increase their money supply to get some moderate inflation (5% or so), they could have eased their debt burden and gradually got there spending and taxation to sustainable levels. The Euro was not a good idea for this reason, that is why the United Kingdom did not join in the monetary union, a smart economic and political move.

Ron Patterson, 11/05/2015 at 1:16 pm

Dennis, there are two types of debt, public and private. If you read Gail's article, you will see that it deals exclusively with private debt and not public debt. Keynes theories deals primarily with public debt, efforts by the government to prime the economy with public money.

I don't think Krugman would disagree that strongly with Gail. I read some of the reviews of his book, End This Depression Now! It appears to me that they are talking about two entirely different subjects.

But back to Keynes, do you really believe that the economic theories of John Maynard Keynes, written in 1936 have more than a remote connection to today's financing in the oil patch.

The US government public debt today is totally different from the public debt during the Hoover administration. It is more than just silly to compare the US economy today with that of the Hoover administration. But even doing so would would have only marginal connection to the oil patch.

Nick G, 11/05/2015 at 2:22 pm
Ron,

The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at.
-------–

I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China.

Rune Likvern, 11/05/2015 at 3:07 pm

BIS (Bank for International Settlements) apparently gives some attention to the oil and gas sector total debt.

"First, the oil–debt nexus illustrates the evolving risks in the financial system. Rapidly rising leverage creates risk exposures in the non-financial corporate sector that may be transferred across the global financial system. Similarly, rising leverage puts a greater premium on the liquidity of the markets for the assets that back debt. Both developments underscore the need to better understand the functioning, behaviour and interaction of markets and intermediaries.
Second, the build-up of debt in the oil sector provides an example of how high debt levels can induce new linkages between individual markets and the wider economy. Such interaction needs to be taken into account in assessments of the economic implications of falling oil prices."

https://www.bis.org/publ/qtrpdf/r_qt1503f.pdf

Dennis Coyne, 11/05/2015 at 5:44 pm

Hi Ron,

Doug was talking about public debt, I used to read Gail's stuff at the Oil Drum, on economics she is not very good in my opinion.

One thing she may be missing is that when oil companies go bankrupt, they may sell off their assets to bigger companies with deeper pockets. When oil prices recover, these financially stronger companies will be able to get financing to drill profitable wells.

I won't comment further, there will be much less of a lag in new drilling once oil prices get above $75/b than Gail believes.

Rune Likvern, 11/05/2015 at 3:32 pm

There is something called a balanced budget (I am aware that there are pockets on this planet that this principles do not apply).

To run a deficit means spending more than what is received as income. This may work temporarily if that puts the economy back on an organic growth trajectory.

According to data (Warning these are predatory data!) the Office of Management and Budget (OMB)
https://www.whitehouse.gov/omb/budget/Historicals

The US has since 1945 accumulated a total debt of around $12Trillion from (total) fiscal deficits (OMB) and has not run a surplus since 2001 and OMBs estimates now is for deficits through 2020.

So solving the debt problem created by one generation by arguing that youth unemployment needs to be kept in check by adding more debt for them to service later is [insert appropriate description here].

The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced.

"Overall, unemployment in Spain stands at 22.4 percent."
http://www.reuters.com/article/2015/10/04/us-spain-apprentices-idUSKCN0RY09N20151004

Watcher, 11/05/2015 at 4:11 pm

and it gets harder to run a deficit, which means austerity measures are introduced.

Not if you have a central bank that finances the deficit via purchase of gov't securities.

Rather a lot of that going on right now.

Everywhere with a CB.

ChiefEngineer, 11/05/2015 at 5:38 pm

Rune says:

"The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced."

If this is true, why do so many right wing conservatives have their panties in a wad about the United States ? The US is the strongest economy in the world and the dollar is at record strength. Why won't Republicans return to the tax policies of the year 2000 if debt is that important to them? The year of a record surplus.

History shows Conservatives only care about debt when a Progressive is in the White House. I never heard a word about debt from the Republicans during the Bushy and Raygun years. Remember, Dick Cheney said deficits don't matter.

http://www.ontheissues.org/Celeb/Dick_Cheney_Budget_+_Economy.htm

Dennis Coyne, 11/05/2015 at 5:58 pm

Hi Rune,

Yes when unemployment is low, a balanced budget makes perfect sense to me.

I am not in favor of unending deficits (though I probably don't sound like it). It would be better for the government to pay down debt when the economy is doing well (lets say 5.5% unemployment rate or lower).

When the unemployment rate is high (I was talking about unemployment in general rather than youth unemployment rates), government deficits make perfect sense, even if too much private debt initially caused the recession. Sometimes solving a problem caused by too much private debt, requires increasing public debt to get the economy growing. The economic growth should decrease the deficit as increased income will increase tax revenue and reduce government spending on unemployment benefits and government aid to low income citizens.

Caelan MacIntyre: On Dennis' Fake Stuff, 11/05/2015 at 6:25 pm

"Would an economy with 25% unemployment be good for them?" Dennis Coyne

Would it be a real economy or an uneconomy, helped run by an ungovernment?

If the latter, then I would answer, yes, if with 100% unemployment. (Because they would be employed in a real economy with a real government)

…Dennis, why is it that you seem to like crappy stuff like fake governments and fake economies?

ChiefEngineer, 11/05/2015 at 7:01 pm

There is nothing crappy or fake about the current economy, unless your on the outside looking in.

Do you need a job Caelan ?

Caelan MacIntyre, 11/05/2015 at 7:25 pm

"There is nothing crappy or fake about the current economy," ~ ChiefEngineer

The economy is uneconomical, so, yes, it's crappy.
…Well, ok, its much worse than crappy. Happy?

Economy:
"1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com

"Do you need a job Caelan ?" ~ ChiefEngineer

You mean like one that manufactures a need for a relatively useless, overpriced and/or otherwise crappy junk sweatshopped product that breaks more often and sooner than ever before and cannot be fixed or fixed easily or cheaply by the owner?

ChiefEngineer, 11/05/2015 at 8:28 pm

That crappy economy produced that crappy computer which keeps posting your crappy comments. All because of the crappy education you got from the fake school from a crappy fake government.

Caelan, I hope your having a real nice day

Caelan MacIntyre, 11/06/2015 at 7:56 am

Ya all this fake/virtual communication in place of the real, all the while those with an education (in what?) run around and help to perpetuate the above, the aforementioned and this kind of uneconomy that pushes the planet ever closer to the precipice.
Back to the ol' drawing board, ChiefEngineer.

Dennis Coyne, 11/06/2015 at 9:57 am

Hi Caelan,

I deal with what is rather than what might be, as far as governments. Your imaginary utopia is likely to remain just that.

I imagine everyone would vote for optional taxation, what could possibly go wrong? :)

Fred Magyar, 11/05/2015 at 7:28 pm

My daughter just graduated from University.
You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?

I think you are living far far in the past. I have a son who is still at a University, My brother's daughter also just graduated. so I think I can relate to your concerns. However I think what is happening now, is going to change how society views employment at a fundamental level. The idea of a career might not even apply at all anymore for the current crop of graduates.

https://goo.gl/EbR8lY

"We are in the middle of an economic transition, from the old industrial economy to the new collaborative economy" – Peers Inc.

New sharing practices, facilitated by information technology and pervasive networking, are disrupting the status quo in business, education and society. As co-founder of Zipcar, Robin Chase has been a pioneer and leading thinker in this movement since its emergence. Now, with Peers Inc, Robin aims to "combine the best of people power with the best of corporate power" to help realise the wider benefits when decentralisation, localisation and specialisation meet scale and resources.

On top of examples and success stories from this 'new collaborative economy', what could this mean for the economy as a whole? Are we in the midst of a transition from capitalism to something new and different? Are the rules of our current economic model being rewritten? If so, what are the new rules of the game and how do we play by them?

Dennis Coyne, 11/06/2015 at 10:06 am

Hi Fred,

The transition may be good for many, my point is that many University graduates are having a tough time finding work that utilizes what they have learned at University.

This is potentially much more of a problem for young people than excess government debt. In addition, the idle labor and capital is wasteful, there is work to be done to transition away from fossil fuel we should get to it. The ensuing economic growth will reduce government deficits so that the debt incurred to jump start the economy will be reduced if the government surplus that results is not given away in lower tax rates (as Republican presidents since 1980 have tended to do.)

BC, 11/05/2015 at 12:32 pm

Speaking of money velocity, it's acceleration is contracting at the fastest rate since 2008, 2001, and the early 1980s:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mPb

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n98

And a bear market for the broad equity market is underway (especially value and small-cap stocks, which typically is followed by the large-cap stocks "catching down" thereafter):

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n96

So-called "health" care spending has been growing at twice the rate of final sales, which is characteristic of recessionary conditions:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qs5

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qrZ

Subprime auto loans are driving (bad pun) auto sales to bubbly heights vs. real wages, but the rate of growth of auto sales is decelerating:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2oZu

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qsp

Without subprime auto loans, vehicle sales would be 13M vs. 17-18.

Subprime debt and ACA-induced spending (subsidies to insurers) for "health" care is what is preventing the US economy from decelerating from around stall speed to recession since late 2014. But "health" care spending has become a net drag on the rest of the economy.

The recession-like contraction in the acceleration of money velocity to private GDP implies that the market is tightening financial conditions (credit/debt-money acceleration) before the Fed can begin raising rates and tightening reserves.

Therefore, rather than raising rates, the Fed (and ECB, BOJ, BOE, and PBoC) is more likely to resume QEternity to fund increasing deficits/GDP to prevent nominal GDP from contracting from the post-2007 trend rate per capita of below 2% (slowest since the Great Depression, 1890s, and 1830s-40s).

Moreover, don't be surprised if the Fed is compelled to resort to negative interest rate policy (NIRP) because of debt and price deflation hereafter, including for the service sector ("health" care, "education", law, personal services, etc.).

Petro, 11/06/2015 at 12:08 am

Mr. Likvern,

Normally I would think twice before commenting/correcting you, but this time I noticed you used "Credit" and "Debt" as equivalent terms, therefore I will try:
although many economists and finance people erroneously use those terms as equivalent – they are NOT!
Simply/shortly said: credit is a "worthiness" notion -economically not useful in practical terms.
In order for it to be "useful" economically (i.e generate economic activity/GDP), it has to become debt.
Signatory parties with COLLATERAL who are pledging/willing to circulate it (i.e. spend it) are necessary for credit to become debt.
Although this " concept" is altered by Glass_Stegal repeal and interest paying central bank reserves (i.e. FED) which erased the line between commercial and investment banking (today they are one and the same), it still holds generally true throughout economy.
Be well,

Petro

P.S.: an essential mistake most economic/finance luminaries make is: "money is backed by debt".
Today money is debt – debt is money!
If one does not clear that concept up, one is certain to stay in the fog when it comes to money/debt/credit…

[Nov 06, 2015] Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget

Notable quotes:
"... Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget ..."
peakoilbarrel.com

Matt Mushalik, 11/04/2015 at 10:36 pm

After my article on Saudi fiscal breakeven oil prices I did a similar exercise for Iraq:

30/10/2015
Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget
http://crudeoilpeak.info/iraq-needs-1-3-mbd-additional-oil-exports-and-us-70-oil-to-balance-budget

[Nov 06, 2015] Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production

Notable quotes:
"... Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. ..."
"... Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. ..."
"... If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out. ..."
"... 63 Billion USD went poof in the Enron Collapse. ..."
"... Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive. ..."
"... Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization. ..."
peakoilbarrel.com

Heinrich Leopold, 11/06/2015 at 3:06 am

Shale Gas Economics,

Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. Total loss for the first nine months $16bn. See also http://wolfstreet.com/2015/11/05/giant-sucking-sound-of-capital-destruction-in-us-oil-gas-impairments/.

Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. As no economic system could carry on to produce at such losses, companies have already responded. Chesapeake has cut rig count to 18 from 69. Gross wells completed are down to 84 (from 309) and gross wells spud are down to 81 from 296. Activity is reduced threefold!!! As there is a time lag of six to nine months from lower capex to actual production, I expect a significant fall of natgas production for the first quarter 2016. As CHK is one of the leading producers in the US, this will also impact total US production.

MarbleZeppelin, 11/06/2015 at 6:56 am
Reminds me of some old cars I have had, keep pouring money into them and get poor performance all the way to the next time they suck your wallet dry. Answer, dump the old one, get a newer more efficient car.

So if oil is not working out for us, dump it. Get our energy elsewhere. Time to stop throwing money at it, it's in a death spiral.

AlexS, 11/06/2015 at 7:17 am

Heinrich,

Thanks for the link. The article has a link to the original research by Evaluate Energy on U.S. oil & gas companies' 3Q results. Recommended reading
http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments

Heinrich Leopold, 11/06/2015 at 7:37 am
AlexS,
Thank you for the link. As prices – especially natgas – are now even lower than in 3q15, this becomes even bigger this quarter. I get the feeling that this is very big and I am wondering what the consequences will be.
shallow sand, 11/06/2015 at 7:57 am
Wont their be even more impairments in Q4 as companies like CLR, who have held off, will be forced to write down assets?
Heinrich Leopold, 11/06/2015 at 8:26 am
shallow sand,

If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil&Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out.

Enno Peters, 11/06/2015 at 8:34 am
It doesn't matter if prices will take off now, the impairment still has to be made. Only December may make a very small difference:

"The United States Securities and Exchange Commission (SEC) calculates the economics of proved reserves using the unweighted, trailing 12-month average of the closing prices from the first day of each month. Year-end 2014 impairment tests were evaluated using a $94.99/barrel of oil prices and a $4.31 per MCF gas price, with 2014's low year-end prices buoyed by strong prices from the first 10 months of the year."

http://press.ihs.com/press-release/ep-impairments/gloomy-price-outlook-signals-continued-impairments-likely-throughout-20

HR, 11/06/2015 at 10:36 am
I saw wolf richters article this mornings as well. Those are some ugly numbers mainly because of the write downs. I think I already know the answer, but without the write downs are any of these guys even cash neutral much less making money?

Wasn't it Harold Hamm that said by spring production will fall off a cliff?

Heinrich Leopold, 11/06/2015 at 2:23 pm
HR,

It would be interesting to know if the write downs are just related to price or is there any write down on the quantity of reserves?

AlexS, 11/06/2015 at 11:44 am

Heinrich Leopold said:

"What strikes me is that OXY left the Bakken at a huge loss"

Occidental was planning to sell its Bakken assets long before the drop in oil prices. But the actual price was far from what they were initially expecting. Occidental Reportedly Sells Bakken Assets To Lime Rock

October 15, 2015
http://www.ugcenter.com/occidental-reportedly-sells-bakken-assets-lime-rock-823211

As recently as last fall, Wall Street had expected Oxy's Bakken assets to sell for more than $3 billion. The sharp drop in the deal's value represents the most-significant pullback in valuation yet in the second-largest U.S. oil producing state.
=================================

Occidental Petroleum cuts spending, scales back in the Bakken

By Patrick C. Miller | February 03, 2015
http://www.thebakken.com/articles/1005/occidental-petroleum-cuts-spending-scales-back-in-the-bakken

Occidental Petroleum Corp. will scale back operations in the Williston Basin and is reducing its 2015 capital cost budget by 33 percent in response to low oil prices.
"Our capital program will focus on our core assets in the Permian Basin and parts of the Middle East," said Stephen Chazen, president and CEO. "We have minimized our development activities in the Williston Basin, domestic gas properties, Bahrain, and the Joslyn oil sands project, as these have subpar returns in this current product price environment."
========================================
Oxy Says Permian Operations Still Solidly Profitable

FRI, JAN 30, 2015
http://www.energyintel.com/pages/eig_article.aspx?DocId=875317

… while Hess regards the Bakken as a crown jewel in its portfolio, it is far less important to Oxy, which lacks the core acreage positions and sheer scale that Hess enjoys there.
In fact, Oxy is cutting spending in the Bakken to "virtually nil" this year, matching similar cuts across its gas-weighted Midcontinent holdings, Chazen said.
===========================================
Oxy sale of Bakken assets would make strategic sense -analysts

Reuters, Oct 7, 2014
http://www.reuters.com/article/2014/10/07/occidentalpetroleum-bakken-idUSL2N0S22HI20141007

Any sale of Occidental Petroleum Corp's roughly 330,000 acres in North Dakota's oil-rich Bakken shale formation would make strategic sense for the company, which is likely eager to strike a deal, two analysts said on Tuesday.
Oxy is looking to sell its Bakken holdings, which are largely undeveloped, for as much as $3 billion, according to a report from Bloomberg News.
Even with the recent dip in crude oil prices, the divestment "makes sense to us, strategically," Raymond James analysts Pavel Molchanov and Kevin Smith said in a note to clients on Tuesday.
"This is substantially undeveloped acreage, and Occidental has long cited it as a likely monetization candidate, so it's been puzzling why the company kept it this long," the analysts said.
Oxy is spending about $510 million this year on its North Dakota holdings, and any buyer would have to invest significant capital to boost production. Currently, Oxy is the 18th-largest oil producer in North Dakota with about 17,000 barrels per day as of July, trailing peers of the same size and even much-smaller rivals.
Oxy said last October that it would pursue "strategic alternatives" for some of its North American assets, including those in North Dakota. In a statement to Reuters on Tuesday, the company reiterated that position.
===============================================

Occidental said to seek buyer for $3 billion Bakken oil business

10/07/2014
http://www.worldoil.com/Occidental-said-to-seek-buyer-for-3-billion-bakken-oil-business.html

HOUSTON (Bloomberg) - Occidental Petroleum is seeking to sell oil assets in North Dakota for as much as $3 billion, people with knowledge of the matter said.
Occidental is working with investment bank Tudor Pickering Holt & Co. to sell about 335,000 net drilling acres in the Williston Basin, said the people, who asked not to be identified because they were discussing private information. The holdings include a part of North Dakota's Bakken formation, an area that has been less successful for Occidental because of higher costs, though it's one of the fastest-growing oil-producing regions in the U.S.
Melissa Schoeb, an Occidental spokeswoman, said the Houston-based company reported plans last year to "pursue strategic alternatives" for some assets, including in the Williston Basin.
Occidental, CEO, Stephen I. Chazen has embraced a restructuring plan that includes selling part of Occidental's Middle East business and spinning off the company's California operations. Chazen told investors in July that he might accelerate plans to sell assets in what the company calls its "midcontinent" operations in the Piceance and Williston basins.
==============================================

Will Oxy's Divorce Spur The Break Up Of Big Oil?

2/19/2014
http://www.forbes.com/sites/christopherhelman/2014/02/19/will-oxys-divorce-encourage-the-break-up-of-big-oil/

… Occidental Petroleum has decided to slim down as well.
Oxy's plan, announced last Friday, will be dramatic. Its California assets will be rolled into a separate publicly traded company … . Analyst Tim Rezvan with Sterne Agee expects Oxy to sell down its Middle Eastern and Bakken assets as well as its oil trading division in order to focus on Texas.
=============================================
Occidental Petroleum starts breakup plan in Middle East, North Africa

Bloomberg, 10/18/2013

The company said today it will pursue "strategic alternatives" for Mid-continent assets, including some in the oil-bearing Bakken shale of North Dakota as well as in the Hugoton gas field in Kansas and the Piceance gas fields in the Rocky Mountains.

Longtimber, 11/06/2015 at 11:35 am

OMG – 33 Billion poof ball for Q3, Top 10 From link above. http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments
63 Billion USD went poof in the Enron Collapse.
http://usatoday30.usatoday.com/money/energy/2002-01-22-enron-numbers.htm..
Sportsfans- this is serious, and the train is still on the tracks.

Ron Patterson, 11/06/2015 at 11:50 am
I think this one was more impressive. These are "energy companies".

Evaluate Energy has analysed the preliminary Q3 earnings statements of 48 U.S. companies and compared it with their earnings in previous periods. The 48 companies had a combined total net loss of US$25.5 billion, which is a staggering 70% and 58% larger than these companies' significant combined net losses of US$14.9 billion and US$16.6 billion in Q1 and Q2 2015 respectively.

 photo Net Income_zpsoxne1mv2.gif

AlexS, 11/06/2015 at 12:23 pm

In fact, the sharp increase in combined net losses was largely due to the increase in asset impairments. "Impairments are clearly the main reason for this continued downward trend".

Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive.

However lower capex will likely results in lower 1h16 production volumes.

shallow sand, 11/06/2015 at 12:38 pm

AlexS. I agree with you.

Do you have any statistics on gas/ oil ratio trend? Seems to me oil production is declining faster than gas and NGLs production for the oil weighted companies.

I think Enno has posted that associated gas is not falling to the extent oil is, and this masks oil decline in the company headline reports. Have to look at each report/10Q.

An example of this is SD, who saw Mid-Continent BOE production fall 10%, but oil fell 18%.

Heinrich Leopold, 11/06/2015 at 2:05 pm

AlexS,

Asset impairments relate to revisions of reserves and resources. However, the main question is now did the revisions relate to oil and gas prices only or is there also a revision of the quantity of reserves due to faster than expected decline? Is there any way to find this out?

AlexS, 11/06/2015 at 2:50 pm
Heinrich,

I think impairments mainly reflect the reduction in the value of the reserves (due to lower prices), rather than volumes. There was no mention of faster decline rates

shallow sand, 11/06/2015 at 3:52 pm
I think it should be noted in the SEC reserve reports there are the following categories:

PDP – Proved Developed Producing
PDNP – Proved Developed Non-Producing
PUD- Proved Undeveloped

Although admittedly simplistic, and I stand to be corrected, PDP are active wells, PDNP are inactive wells and PUD are where there are no wells, but the locations have been "proved" by offsetting wells, and there are plans to drill and complete the location within 5 years.

All categories will be hit by WTI and Henry Hub prices being half of 2014, but also there should be a hit due to a number of PUD locations being no longer economically viable.

Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization.

Banks, on the other hand, use a price deck, which should closely mirror the WTI and Henry Hub strips, subject to maybe a little of the banks' own forecasts on future prices.

As I have noted many times, total debt levels for all US companies operating in the Bakken, except for XOM, EOG and Abraxas will be greater than 65% of SEC PDP PV10 at 2015 year end, if my calculations are close. Prior to the shale boom, would have meant no further monies advanced using reserves as collateral, assuming bank price decks are close to the current strips.

Yes, this will include, companywide, the likes of COP, MRO, HES, QEP, CLR and WLL.

Another exception would be Statoil (not US), I did not include them, as I could not get a handle on their debt/PDP PV10. I did also not analyze Canadian firms operating in the Bakken. However, most Canadian shale firms have large amounts of long term debt, similar to US shale firms.

Rune Likvern, 11/06/2015 at 6:17 pm

Just dropping by and remembered an article (Linn Energy) from yesterday;

"Non-cash impairment of long-lived assets of approximately $2.3 billion for the third quarter 2015, primarily driven by lower commodity prices and the Company's estimates of proved reserves; and"
http://www.bloomberg.com/research/markets/news/article.asp?docKey=600-201511050650PRIMZONEFULLFEED6022751-1

More later if time allows……….

[Nov 06, 2015] Giant Sucking Sound of Capital Destruction in US Oil Gas

Notable quotes:
"... Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3. ..."
"... In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive. ..."
"... he game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction. ..."
"... Banks, when reporting earnings, are saying a few choice things about their oil gas loans ..."
"... Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again. ..."
"... If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down. ..."
"... Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning. ..."
"... Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going? ..."
"... You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. ..."
"... Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster... ..."
www.zerohedge.com

Wolf Richter www.wolfstreet.com

Chesapeake Energy is a good example. The second largest natural gas producer in the US, after Exxon, reported its debacle yesterday.

Revenues plunged 49% from the quarter a year ago, when the oil bust had already set in. The company has been slashing costs and capital expenditures. In June, it eliminated its dividend. And yesterday, it recognized $5.4 billion in impairment charges, bringing impairments for the nine months to a staggering $15.4 billion.

Impairment charges are a sudden accounting recognition of accumulated capital destruction. These impairments pushed its losses from operations to $5.4 billion in Q3 and to $16 billion for the nine months.

Chesapeake currently gets 72% of its production from natural gas, 17% from oil, and 11% from natural gas liquids. The oil bust has been going on since the summer of 2014. The US natural gas bust has been going on since 2009! Two natural gas producers have already gone bankrupt this year: Quicksilver Resources and Samson Resources.

Its annual free cash flow has been negative since 1994, even during good times, with only two tiny exceptions (Bloomberg chart). After living off borrowed money, it's now trying to hang on by selling assets and lowering its mountain of debt. But it still owes $16 billion, much of which QE-besotted, ZIRP-blinded, yield-hungry investors had handed it over the years, based on hype and false hopes.

Its shares last traded at $7.50, down 75% from peak hype in June 2014. Its 4.875% notes due 2022 and its 5.75% notes due 2023, according to S&P Capital IQ LCD yesterday, traded for 66 cents on the dollar.

In terms of capital destruction, Chesapeake is in good company, and not even the leader. A new report by Evaluate Energy, which covers Oil & Gas companies around the globe, examined the financial statements of the 48 US oil & gas companies that have reported earnings for the third quarter so far. The amounts and the speed of deterioration are just stunning.

Turns out, what started in Q4 last year is getting worse relentlessly. And now it's getting serious: plunging revenues, squeezed operating margins, whopping impairment charges, and horrendous losses are combining into a very toxic mix.

Evaluate Energy determined that net income of those 48 companies was a gigantic loss for the three quarters combined of $57 billion.

On a quarterly basis, the losses in Q3 jumped 58% from Q2 and 70% from Q1 to $25.5 billion. This fiasco, which has been spiraling down at a breath-taking pace, looks like this:

US-oil-gas-earnings-quarterly-2014-Q3-2015

The biggest factor in these losses, as in Chesapeake's case, was the impairments. For this study, Evaluate Energy only counted impairments of property and equipment, not of financial assets such as "goodwill." Including charge-offs of goodwill, it would have been even worse (an example is Whiting Petroleum, which we'll get to in a moment).

Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3.

Devon Energy was king of the hill, with $5.9 billion in impairments in Q3, after having recognized impairments every quarter this year, for a total of about $15.5 billion.

Our natural-gas hero Chesapeake is in second place, if only barely, with $5.4 billion in impairments this quarter, and $15.5 billion for the nine months.

Of note, Occidental Petroleum, with impairments of $3.3 billion in Q3, Murphy Oil, Whiting Petroleum, and Carrizo Oil & Gas all recognized over 90% of their respective impairments this year in this misbegotten third quarter. They were in no hurry to grant their investors a peek at reality.

However, Whiting's impairments of $1.7 billion do not include an additional $870 million in write-offs of goodwill in connection with its once highly ballyhooed acquisition of Kodiak Oil & Gas, which closed in December last year.

In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive.

But now that oil in storage is practically coming out of our ears, globally, the meme has become "lower for longer," and the game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction.

Banks, when reporting earnings, are saying a few choice things about their oil & gas loans, which boil down to this: it's bloody out there, but we made our money and rolled off the risks to others in a trade that has become blood-soaked.

Read… Who on Wall Street is Now Eating the Oil & Gas Losses?

NotApplicable

Which plays right into the hands of those manipulating Brzezinski's "Grand Chessboard," as energy choke-points grow ever more valuable to those who ultimately control them.

Frumundacheeze

You were a complete inbecile if you ever believed the US fracking industry was anything more than a false pretense for pump and dump schemes. If you did, you didn't do your homework, or you bought into the hype.
Benjamin123

Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again.

The conventional oil industry was also in trouble in the early 90s when oil slipped under $7. Oh, that was also a pump and dump.

Casey Jones

I was in North Dakota recently and was shocked, appalled and utterly devastated by the environmental damage up there, not to mention all the cheap ass construction of lousy housing and fact food outlets. The place is wrecked. Fracking is a cruel joke.

divingengineer

I guess that makes me a complete imbecile. The industry seems a little complex to reduce to a pump and dump.

If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down.

Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning.

philipat

Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going?

NotApplicable

I still say that this narrative is more of an after the fact blame-game, as prices would've crashed regardless of what the Saud's are doing. You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. Mises laid all of this out nearly a century ago.

new game

thank the fed with zirp and qe stimulas. without it and market discipline none of this would be happening. fascism, what is the future now. the fed is the enemy from within that is destroying freedom...

KnuckleDragger-X

Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster...

[Nov 06, 2015] Who on Wall Street is Now Eating the Oil Gas Losses

Notable quotes:
"... Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves. ..."
"... fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead. ..."
"... Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil ..."
Nov 06, 2015 | Wolf Street

Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

... ... ...

Magnetar Capital, with $14 billion under management, sports an energy fund that is down 12% this year through September on "billions of dollars" it had invested in struggling oil-and-gas companies. But optimism reigns. It recovered a little in October and plans to plow more money into energy.

... ... ...

Brigade Capital Management, which sunk $16 billion into junk-rated energy companies, is "having its worst stretch since 2008." It fell over 7% this summer and is in the hole for the year. But it remained gung-ho about energy investments.

... ... ...

But fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead.

Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil

[Nov 05, 2015] Silly Robots! by William Davies

Important point is that the answer to virtually any economic policy question was "education" is the neoliberal ploy. This is simply not true in the current environment. It is important what specialty to choose at the university. And taking into account shifting job market it is difficult to choose right (decimation of IT is one great story in this respect). Stories of university graduates working as bartenders are abundant. Especially graduates from such fields as psychology, public relations, English literature, etc.
Notable quotes:
"... The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism. ..."
"... Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. ..."
"... This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth. ..."
"... Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. ..."
"... The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s knowledge economy, and the answer to virtually any economic policy question was education. This no longer feels adequate ..."
"... An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. ..."
"... Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them. ..."
"... Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. ..."
Nov 01, 2015 | The Chronicle of Higher Education

Since the Victorian era, the labor market has been the arena in which the virtues and injuries of capitalism can been seen. Classical economic liberals look at the labor market and see a platform for social mobility, one in which individual effort is matched by monetary reward. The neoliberals of the 20th century took this optimism further still, adding the notion of human capital - that people could augment themselves through education or self-branding so as to increase their own value in the market.

The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism.

Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. As the economist Joan Robinson has written, if there is one thing worse than being exploited by capital, it is not being exploited by capital. The vision that Kaplan and Ford put before us is of a world in which machines don't even bother to extract value from us any longer - they're too busy trading with one another. What might capitalism look like if labor markets lose their political centrality? Would this even be capitalism?

This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth.

Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. The vaudevillian horror show of machines broken free from human control is mirrored in the anxieties of contemporary political economy. The specter of autonomous machines is also the specter of autonomous capital, no longer anchored in society via the wage relation.

The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s "knowledge economy," and the answer to virtually any economic policy question was "education." This no longer feels adequate. As Kaplan and Ford point out, the market value of most qualifications is diminishing all the time. Given the possible scale of automation, Ford argues, the idea that education can achieve prosperity for all is like "believing that, in the wake of the mechanization of agriculture, the majority of displaced farmworkers would be able to find jobs driving tractors."

An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. As Ford points out, even where humans are cheaper than robots to employ, there are various reasons that automation may nevertheless be preferable. Robots bring less baggage than people. The prospects for inequality under these conditions are terrifying.

... ... ...

Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them.

The chance of such policy ideas being adopted is slim at best. As with Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. Hence the curiosity that as our national productive capacity swells from year to year, political discourse seems ever more fixated on constraints and cuts.

... ... ...

...there is an unavoidable sense in which the robots can't understand what they're doing. Their inability to complain, which is precisely what makes them attractive to the likes of Uber and Amazon, is also what renders them somewhat stupid after all. They are locked into what Max Weber termed instrumental rationality. Endlessly performing, relentlessly producing, they are incapable of ever saying "enough's enough."

In this they hold up a daunting mirror for us to look in. They represent an impossible benchmark of success and efficiency, one that recedes so far into the distance ahead that the only sane response is to abandon the idea of humans as capital altogether.

... ... ...

William Davies is a senior lecturer in politics at Goldsmiths, University of London. He is the author of The Happiness Industry (Verso, 2015).


[Nov 04, 2015] Americas labour market is not working

Notable quotes:
"... the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. Everything is awesome. Repeat till it becomes fact. ..."
"... To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists. ..."
"... That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of greater transparency for the private sector, and we are the worlds police in their foreign policy. ..."
"... That, of course, almost every US academic would question, and call you nuts if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families. ..."
"... The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine. ..."
"... American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party. ..."
"... Wolf has a point. Im in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. Im also very physically fit and energetic. But after more than a year of hearing that I was well-qualified but too senior, I stopped looking. ..."
"... ordinary people who rely on jobs to supply lifes necessities - food, clothing and shelter - get short shrift when economic priorities are being set. ..."
"... Maybe it has something to do with the breakdown of the lower middle class family in the US ..."
"... In light of studies showing that low quality jobs are worse for folks mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists. ..."
"... @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported low level jobs. ..."
"... The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. ..."
"... I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys. ..."
"... Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. ..."
"... The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. ..."
"... In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. ..."
"... The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). ..."
"... Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago. ..."
"... the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting. ..."
"... @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is off the books ) the results look better. You cannot make an apples to apples comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different. ..."
"... You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period). ..."
"... Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it. ..."
"... I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents. ..."
"... Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number. ..."
FT.com

Ex NHS Surgeon

The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact.

To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.

The discovery mechanisms in America's so called free markets are terminally broken.

The whole charade is necessary to keep the terrifying monster that circles the deep below the surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal hyperinflation seem tame by comparison.

There is only one way the monster of debt can be tamed: war.

E. Scrooge, 3 hours ago

The rise of the underground economy, pay cash and you can get sizable discounts on construction, repairs, all sorts of things. Many, but not all of those able, are providing products and mainly services as part of the underground economy. This was and I still believe is the fastest growing segment of the US economy. Mostly out of necessity, but will likely remain a very significant part of the overall economy for quite some time, as many of these workers are years away from Social Security eligible.

ceteris paribus

The irony of this title. The American labour force--the people who do real jobs in the real economy are working harder than ever, for less and less money to keep themselves afloat. So American labour does work while the American labour market is apparently on a permanent vacation.

Kevin Alexanderman

"America's labour market is not working"?

You mean "America's government is not working".

That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy.

They can't even competently establish metrics to adequately assess performance of their economy.

Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour? Are you still mocking Greenspan-speak?

So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10% to 6.25%.

That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families.

Astrophysicist111

Interesting that the author doesn't consider the possible role of the increased death rate among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in the low labor participation rate. As one economist who studied the data observed: "There are a half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993 the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span - but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine.

Legal Tender

For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability situation in the US. Note that an adult need not be disabled themselves to collect payments and leave the workforce. Children are eligible for disability payments in the US for learning disabilities (including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for that parent to enter the workforce).

From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were added to the disability system.

fmayer314

One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire clowns near the top of opinion polls? Go figure!

After the first course, one then moves on to the comments, littered with the aromatic excretions of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious, because respondents find it so hard to believe the amazing levels of stupidity on display.

American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party.

Thanks FT!

TJG

Thank you Mr. Wolf for pointing out that the declining employment participation rate portends significant community and social problems. I would like to suggest that two issues play a significant role in this decline. The low minimum wage combined with the high cost of competent child care make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially tinged mass incarceration has produced an ever growing number of unemployable people. The moment an applicant indicates he or she has been incarcerated it is pretty certain the application will be rejected. Until societal attitudes and public policies change the problems illuminated by Mr. Wolf's opinion piece will only continue to grow.

JMC22

The title of this piece -- that the US labour market is not working -- is way out of line with the content. A highly contentious issue regarding the fall in the measured participation rate is hardly an indication of a non-working labour market, especially given the huge increase in employment in recent years. One issue not discussed -- the fact of a very considerable increase in the employment in the grey markets. Self-employed persons, partly growing out of internet activities, are not properly measured. Nor are those who simply work outside the formal economy, including many illegal immigrants.

ciwp1

@JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers 'officially' self-employed who are not doing much; similar irregular work patterns afflict temps, part-time works, zero hours...

Mark Feldman

Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.

I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily available, then there will be more unemployment.

What I mean by "degreed but uneducated" should be obvious, but I do want to make one point with an example.

If you learn how to do calculus - just how to do it period - that will not make it easier to learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier to use a spreadsheet. That is because you will have trained your mind to think quantitatively. It's that simple.

In the 60's students who took calculus learned it. Now, they mainly just get certified in it. (If you doubt me, just compare today's AP Calculus with the one from 1970.)

This same phenomena is true across all disciplines. It is because the American higher educational system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting and analyzing the system. Thank you.)

But here is what is even worse.

The effect of this corruption has seeped down to America's K-12 system. To see how, just ask yourself where high school teachers go to learn, and within what system do "professors" at regional state schools get their "credentials", and why it might be in the interest of more "elite" schools to credential them.

For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples and documentation.

Veiled One

Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior," I stopped looking.

Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be happy to enjoy the guerdons of a career when very young.

Kevin Alexanderman

@Veiled One ,

Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is with the older people. Just as they slander the banks, (who have the money), and as the German national socialists slandered the Jews (who had the money), today's socialists slander older people.

The leftists are preparing some kind of way to swindle more experienced people out of their money, just haven't figured out how yet.

Gail Johnson

This is a political problem. Ordinary Americans are no longer represented by the national government. In other major industrialized democracies, the equivalent of US congressional districts include about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing about 64 million people. In a district with 100,000 people it is possible to contest an election without a $1 million war chest.

In the US congressional districts average over 700,000 people. There are 435 representatives for over 310 million people. Congress has an approval rating on the low teens, and yet in the last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the way big money tells them to in return for the funds needed to stay in office.

Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set.

http://www.twoyearstodemocracy.com/

LJH

The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all) has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading developed countries' of the world and is certainly vectored in the wrong direction.

Michael Moran

I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system provides every reason for a smart person to try and avoid formal employment through LLCs or other dodges. The LLC structure and their tax status is unique to the US, after all. It could be part of the explanation.

RDRAVID


@Michael Moran

If someone is self-employed they would be counted as actively participating in the Labour market. Rather than self-employment, I think the issue is a growth in informal activity in the US. Its becoming more common there for people to do undeclared work, whether of the handyman, domestic helper or running a mobile food shack.

The bottom 20% in the US are effectively living a third world style life.

Isaias

I always said that if US unemployment was measured by Spain unemployment standards ( the strictest in the EU ), it would probably be around 12 % if not more.

What free market?

While Martin Wolf explains a deeply worrying trend, particularly for those who have given up the struggle to find work, there is another bar to job creation.

Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion of form filling, record keeping, the tax authorities, local authorities etc, all of which have their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis - which the very young and old are happy to engage with the process.

The only common strategy for bureaucrats and tax men is job creation - theirs and those of the ilk - their role is job destructive in the real economy.

gkjames

@What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders can track the health of the enterprise? In most US states, by the way, it takes all of a single form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and tax men," you do realize, presumably, that it is elected legislatures who write the tax laws, laws that reflect extensive (and, not infrequently, exclusive) input from the business community.

What free market?

Yes, it is BIG business that controls the output of legislatures, small business does not get a look in - those running them are too busy running their businesses and coping with bureaucracy. It is often overlooked that rules and regulations that are imposed universally suit big business but place a disproportionate burden on small business who have to comply with the same dictats but without the administrative cohort and infrastructure that large firms can justify.

What free market?

Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between big business and legislators that allows big business to comply with onshore rules and forces competing small business to do the same.

Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have to be 100% complient and that suits big business as the administrative burden crushes incipient competition from small business.

Anon2

Maybe it has something to do with the breakdown of the lower middle class family in the US and the subsequent poor performance in school, crime, prison etc. I guarantee those not participating exhibit a higher percentage of having had no father in the home as a child.

LJH

@Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem is the ruling class of white rich men is morally and intellectually bankrupt.

Those that create the problems are usually not the first to suffer the consequences. That comes later as the empire crumbles.

M_T

@Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight American working age men are starving, my personal assumption would be that a large proportion of the remainder are working in the unregistered economy. That includes crime but would also include casual work where the employer doesn't pay proper taxes etc.

RiskAdjustedReturn

@M_T @Hell No --

"... casual work where the employer doesn't pay proper taxes etc."

In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their workers

Adam Bartlett

An issue that's only going to get more severe and widespread as technological unemployment continues its advance.

In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists.

The choice facing us is probably between the statist solution of a massive increase in public sector employment, or the relatively libertarian option of a generous universal basic income. Let's pray it won't be too many years before such options get to the table.

pangloss

Surely an American (or any other) worker is worth no more than say a Chinese worker + some translation factor. The translation factor includes the presence of infrastructure and human capital on both sides. The low skill worker suffers first because of an early and easy shift in the translation factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding nuclear war there is likely to be a flattening of wages across the developed world. This is especially bad news for those at the lower end of the ability scale, no credible amount of education or training will make enough difference. There are limits to human capital. Start thinking about redistribution and the niches that are immune from this effect.

nonuthin

The question that bothered me through this is what do they actually do if they're not "working". Clearly not all sustained by welfare, does this indicate a significant increase in either the black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically unachievable) to see the impact of a legally licenced drugs trade on the employment participation rates.

Adam Bartlett

@nonuthin Some in single earner households, having to accept a lower material quality of life than they would if both adults could earn. Others drawing down savings and living frugally. Many dependent on food banks and other forms of charity. Others subsisting in the informal economy, but activity one would call 'grey' at worst, not the black or criminal economy.

Big Dipper

There is more to life's responsibilities than your "men and women whose responsibilities should make earning a good income". Perhaps you could consider high-quality child raising, other care activity, community and education. The ratio is dangerous.

cg12348

Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can make stats sing if you know what you are doing........but the reality is easy to see. Americans have a work force that is seeing its jobs exported - notice he does not give the stats on companies moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they cant stop it that is true - but there is a way to stop it.

They would further tell you that the 11 million immigrant workers have little to no effect because they take jobs that we don't want - wrong again. As you age your are happy to be employed even if the job does not hold the allure of your previous job. What immigrant workers do is they take less money because they are willing to live at a lower standard. They will live many families to one home etc. In fact if they were not here to take the job the job would get done when the pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral of a work force.

There is nothing "decent" about our unemployment stats. We are not a nation of any one race we are a nation of opportunity with one of the most powerful economies and plenty of natural resources and demand and opportunity for innovation - so what sickness has befallen the US - large government - corporate taxation - political mediocrity - the same thing that has recently become apparent in Germany and France - idiots who give away what we worked hard for and expect us to pay more for those they choose to support.

Todays social programs breed a generation that no longer asks what they can do for their nation - but what their nation can do for them. Obama and his ilk have handed the world to those who were unwilling to fight to fix their own countries - instead they want to come here for opportunity that did not exist at home and then in a great act of irony turn our land into theirs - we do not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle east - instead what we want those who love our opportunity to come here and become American - but in numbers and within a legal process that does not exacerbate or marginalize those who were born here and should have the right to the first jobs here.

Profitsee

@cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat, I confess, you provide a lucid argument.

Tiger II

The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. Sclerotic labor laws and regulations make it impossible to create many jobs that can produce more than they cost, especially given the dumbing down of the work force by public monopoly schools. Regulated labor markets are one of the biggest drivers of unemployment on both sides of the Atlantic and should be abolished.

Brian Reading

While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail. Population estimates by age cohorts come from ten-yearly census data - the denominator for participation rates. These estimates are interpolated between censuses from births, deaths and migration data. The numerator, the number in each age cohort at work or seeking work, comes from regular household sample surveys. Using one source for denominator and another for numerator, which cannot be avoided, entails a margin of error. In looking into this, I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys.

DougInCalifornia

What I am seeing where I live is the emergence of a part-time, informal service economy. You might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal) living this way. And my guess is that most of it doesn't get picked up in official statistics. I think that "employment" will need to be measured differently in the post-internet era.

RiskAdjustedReturn

@cg12348 @Boston1

"Show me a middle class kid that expects to work his way up and willing to start at the bottom and I will show you..."


...a recent immigrant.

WL - Minneapolis

One clue into the declining labor force participation rate may have been discovered in a study reported in the NY Times today, that may account for a substantial portion. The death rate among middle-aged (45-54) whites with high school education or less has increased in recent years, reversing a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that result in death by drug/alcohol abuse and/or suicide.

Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But an increase in health problems of one sort or another may also be the cause of the lower participation rate as well.

http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html

Paul A. Myers

Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One problem is that children living in poverty in the US struggle to learn in the education system partially because overall public support for impoverished families is so poor in the US.

http://www.nytimes.com/2015/11/04/business/economy/school-vs-society-in-americas-failing-students.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region®ion=bottom-well&WT.nav=bottom-well&_r=0

KKB

If we think the current labor market is not working, wait till the Trans Pacific Partnership (TPP) trade deal passes the US Congress & signed into law .
Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled) Labor.

Paul A. Myers

A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure in the U.S. This is a prime age for construction employment and this industry provides a ladder of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction contractors in Southern California is that they are interested in individuals who can get to the job site and do the work and are often willing to overlook criminal records. A dollar of public spending on construction puts American workers to work, not someone in Korea. You can't import a highway or a building from the Far East.

The other major failure is the large urban school district. These "too big to succeed" institutions have a record for over a half a century of failure to turn out skilled young people. In the massive Los Angeles Unified School District, they shut down skill-based vocational education during the period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed educational establishment fostered by graduate schools of education and powerful job-protecting, mediocrity-fostering teachers unions have created the largest statist failure since the collapse of East Germany. (And you can remember how much Germany paid to clean up that mess!)

There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of skilled applicants.

A crummy labor market is almost always the creation of bad public policy. And today's America swims in bad public policies.

beforethecollapse.com

@Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?

beforethecollapse.com

Also, I must say that the family unit is far more influential and important to the youth than any teacher. The teacher can operate as a third parent, or second parent if the family breaks down, but a youth needs a stable environment for healthy emotional and instinctual development. Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents to blame teachers but I have noted that such complaints arise from personalities that resent strong authority figures and duty enforces. As such, they are incapable of disciplining their own child.

In China, society encourages the family to be unconditionally supportive to the child, this is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.

Philip Verleger

@Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. The employers cannot offer more because their customers - the large airlines and the big shippers will not pay more. The trained workers are there. They just will not accept the scarps.

The public policy mistake was allowing the creation of such large monopolies/monopsonies.

Look outside your silo!

Paul A. Myers

@Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. (I think I was seriously outside my silo and I think the FT editors were very receptive to this argument--then and now.)

Oligopolies (the only kind of major corporations and markets in the US today) produce lower volumes, at higher prices, and with fewer employees than a more competitive economic sector would employ, produce, price.

In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors; today is at most the Big Two.

The Progressives understood the economic concentration argument; the Democratic Leadership Council generation embraces concentration's contributory support.

Philip Verleger

@Paul A. Myers @Philip Verleger

Could not agree more. I am on the board of a family firm. We cannot find truck drivers although we pay well and train (to move gasoline - it takes an extra license). There is just little interest in joining the profession because the large companies keep wages down.

The FTC and Justice Department unfortunately failed to do their jobs.

BelCan

Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.

See http://blogs.ft.com/ftdata/2015/10/16/us-statisticians-are-in-the-dark-over-the-20-million-working-age-americans-who-dont-want-a-job/

nb

No cause for concern. The decline in the LFP rate is simply a social readjustment

https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate

The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s).

The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population.

Henry C

@nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:

"If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower than today's value of 63 percent. It is important to note that we normally consider the U.S. economy to have performed relatively well during this period, especially during the long expansion of the 1960s.

Evidently, low labor force participation does not equate with weak economic growth. Surely this is because the factors driving economic growth are different from the factors driving labor force participation."

https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf

beforethecollapse.com

Why are you surprised? You genuflected to my employer.. The People's Republic of China.

Where slavery is a tool for political control. Perhaps you should have thought harder and better when you and your friends were nattering on about The Great Moderation. What was your long game? Did you think there would be a revolution or revolt that you could manipulate? Or were you a true believer in The Circular Theory of Income?

Action? What action? How are you going to move production back to the West? How can you undo what you are responsible for?

Chinese Competition Exposes Americans to Cruelty

Henry C

I'm not sure I want to worry about the US LFPR, and whether it's it's indicative of Americans' feelings that they can't support a family.


The literature on US LFPR is pretty consensual on the main effect being demographic (ageing) and virtually nothing else. The St. Louis Fed's Bullard's recent talk is illustrative: see https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf .

As to family support, the other aspect one might look at is whether US household disposable income growth has been deficient relative to other G7 countries (which all have higher LFPR). But that's not the case: see

https://data.oecd.org/hha/household-disposable-income.htm

So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same approximate growth in US disposable income in the long run.

L'anziano

"What might explain the extent to which prime-aged men and women have been withdrawing from the labour market in the US over a long period?"

Heartless as this sounds (and I am sure I will not gain any friends for this on this page) the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive, middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has always been the case in every global firm in which I have worked. I am acutely aware of this as a middle aged man myself.

lennerd

Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.

This, of course, is the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting.

Olaf von Rein

@lennerd Those income statistics right? Frightening.

Legal Tender

@lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is "off the books") the results look better. You cannot make an "apples to apples" comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different.

If Europe admits millions of refugees over the next few years, I can assure you it will depress average male household earnings. But you always need to look at what has changed in the composition of the data before drawing conclusions about the data. The fact that there might be millions of Middle Eastern and African arrivals earning very little (officially) would impact the overall data for wages but may not accurately describe the experience of the pre-existing labour force.

You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period).

Cuibono

As somebody who has worked in both Europe and the US I would add to the list of underlying causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors for long periods of time and now declining benefits. The list goes on and on.

The employer gets everything and gives nothing more than an "at-will" commitment to continue employment.

It gets to a point where it's not profitable to bother.

Raver

@Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.

Banker

@Cuibono yea but salaries are 2-3x as much as in the UK.

Cuibono

@Banker @Cuibono Right, until you factor in the cost of health care and college tuition for your kids.

Banker

@Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of support. Health insurance also provided from employer covers everything. Have you even got any idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.

All public universities also charge minimum £9k/year fees here.

Learn your facts before you post.

Cuibono

Well I believe I know facts. I also have manners, and you apparently don't. So get off your high horse before you post!

Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it.

You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year for fees and board for a good university.

And if you are earning 60k per year how are you going to afford the basic second level education, complete with top SAT scores and cultural experiences that will get you selected to the mythical ivy.- especially if you are white and without legacy connections? You should take your own advice and read up on US colleges and their outrageous manipulation of statistics to hide the fact that they are little more than vehicles that allow the elite to transfer status across generations.

You are upset about an opinion I expressed based on my own experiences and you set yourself up as the comment police to challenge that opinion without.

Something to think about. . .

US corporations have the developed world's highest remuneration scale to executives and the lowest benefits to other employees. How else can these corporate executive maintain their life style without hiring from the two employee pools (young and old) that work for such low wages? Young are beginning and old augmenting income.

ForgottenHistory

I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France but haven't got a clue on the UK in this matter) policymakers and governments were very concerned for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and the government added some funds to that.

This way people retained and even improved their skills, in stead of losing skills and become unemployable and ultimately end up being a costly burden for society.

It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed to) but no proper sense of community in the sense of a government with a long term-planning; US has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor, or disadvantaged -that's equal opportunities in reality.

Smyrna Cracker

I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents.

Mr Passive

Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number.

Is it another function of very low bond yields & therefore pension rates, the side-effects of QE we may call it.

Time for the CBs to hold up their hands and admit they've done all they can and at the margin further extra-ordinary measures will be counter productive.

Massachusetts

@Mr Passive In the US the only age group that has seen incomes increase consistently is the 65-74 decile. I cannot speak to the UK.

http://www.nytimes.com/2014/09/13/business/economy/young-households-are-losing-ground-in-income-despite-education.html
http://www.nytimes.com/2015/06/15/business/economy/american-seniors-enjoy-the-middle-class-life.html

[Nov 04, 2015] Secular stagnation and Mutual Fund Marxism

Worthwhile Canadian Initiative

Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised a higher rate of return than any alternative asset. The government can do this, because it has the power to tax. Everybody prefers holding that government-issued financial asset to any other asset.

There would be an excess demand for that government-issued asset. The only way to eliminate that excess demand would be for the government to buy up all the other assets in exchange for that asset. The government would be operating one big closed-end mutual fund, that owned all the assets in the economy, with people owning shares in that mutual fund. And the rate of return on those mutual fund shares would be guaranteed by the government's power to tax.

Most people would be against that policy. Perhaps we could call the few people who supported it "Mutual Fund Marxists"?

Now let's suppose that particular government-issued financial asset is also used as the medium of exchange. An excess demand for the medium of exchange causes a recession. Each individual tries to ensure that the flow of money leaving his pocket is less than the flow of money entering his pocket, so the stock of money in his pocket increases over time. This is possible for each individual, but impossible in aggregate (unless the government increases the aggregate stock sufficiently quickly over time), but the attempt by each to do something they cannot all do causes a recession.

So we would have a permanent recession, unless the government implemented Mutual Fund Marxism, by buying up all the assets in the economy in exchange for government-issued money, to eliminate that excess demand for government-issued money.

The threat of permanent recession I have just described is usually called "secular stagnation". The proposed cures of ever-expanding central bank balance sheets and national debts are the first steps towards Mutual Fund Marxism.

Should we blame the economy for secular stagnation, or should we blame the government for issuing a financial asset that promises a more attractive rate of return than other assets, and that also is used as medium of exchange?

Would private financial institutions, that lack the power to tax, ever do the same thing?

Some might reasonably argue that the twin threats of permanent recession or Mutual Fund Marxism themselves lower the expected rate of return on other assets.

Just a slightly different way of looking at some old questions. Secular stagnation is the same question as the Optimum Quantity of Money.

Addendum: If we want to avoid having to choose between secular stagnation or Mutual Fund Marxism, we need to increase the yield spread between government-issued money and other assets. One way would be to target NGDP level path, with a suitably high growth rate for NGDP (presumably a rough proxy for the nominal rates of return on other assets). A second way would be to raise the inflation target. A third way would be a Gesellian tax (negative interest rate) on money.

Benoit Essiambre

Exactly!

I don't understand why there isn't a immense sense of urgency from central banks, governments and the economic profession to fix this.

People argue about details meanwhile central banks like the ECB are maintaining an asset that is directly subsidizing disinvestment and economic inactivity and leading to colossal amounts of needless suffering and a relative decline of the western world.

[Nov 02, 2015] Interesting to see the large publicly traded companies are selling legacy assets

Notable quotes:
"... Edit: I found the answer. Per a 2013 National Geographic article, all Bakken and TFS wells require water flushing such that when the field is fully developed with 40-45K wells, the field will require in excess of 10 billion barrels of fresh water annually. ..."
"... Throw on top that the companies have added to product gathering and salt water disposal costs by selling of this infrastructure to raise cash, I believe long term ND oil production will be among the hugest cost in the lower 48 on strictly an operating basis. ..."
"... shallow sand, For big oil companies, selling and buying assets is a constant process. They are "optimizing asset portfolio" ..."
"... Sunk-cost fallacy occurs when people make decisions about a current situation based on what they have previously invested in the situation. For example, spending $100 on a concert and on the day you find that it's cold and rainy. You feel that if you don't go you would've wasted the money and the time you spent in line to get that ticket and feel obligated to follow through even if you don't want to. It's is cold and rainy in the oil industry right now. ..."
"... Yes, but if the $30,000/acre price Aubrey McClendon paid is typical, it looks like oil gas asset prices in the Permian Basin are hotter than ever. And this despite the drop in oil prices. ..."
"... Just imagine, McClendon paid over $30,000 per net acre for leasehold working interest, with oil at $45. ..."
peakoilbarrel.com

shallow sand, 10/31/2015 at 9:56 am

Interesting to see the large publicly traded companies are selling legacy assets.

In particular, Chevron is selling its interest in the Seminole San Andreas Unit in Gaines Co., TX. The unit is generating them over $400K per month. It is a CO2 flood still producing over 20K BOE per day gross, and is operated by Hess.

Shell is selling a large block of lower 48 royalty interests located in 10 states, generating over $250K per month.

Chevron is also selling another legacy block of conventional wells operated by them in the Permian Basin, which currently generates over $300K per month.

What is also interesting is of all is these are all listed for sale on the Internet auction. IMO they are selling these assets at a really poor time. Are even the super majors in need of cash to the extent they would sell premium onshore lower 48 assets at the low end of the market? Maybe they do not see a rebound anytime soon? Yikes. However, the same things happened in 1998 and many buyers hit it big with prices from late 1999-2014.

Also looked at conventional wells for sale in Dunn Co. ND. They are under water with oil at the well around $30. I note that the wells produce super saturated salt water and require fresh water flushes to operate. Watcher has mentioned this before. These wells are in the Duperow formation. Do middle Bakken and TFS require large amounts of fresh water also?

Edit: I found the answer. Per a 2013 National Geographic article, all Bakken and TFS wells require water flushing such that when the field is fully developed with 40-45K wells, the field will require in excess of 10 billion barrels of fresh water annually.

Looking at the production and lease operating statements for the older conventional wells I examined, I estimate 10+ year old middle bakken and TFS wells will need over $50 WTI just to break even on an operating basis, not including any work over expense.

North Dakota wells are at a distinct disadvantage due to the salt issue.

Throw on top that the companies have added to product gathering and salt water disposal costs by selling of this infrastructure to raise cash, I believe long term ND oil production will be among the hugest cost in the lower 48 on strictly an operating basis.

Doug Leighton,10/31/2015 at 10:09 am
Perhaps selling off assets looks better than borrowing money from a bank to pay dividends to your shareholders? Watcher would probably know the answer to this.
AlexS,10/31/2015 at 10:34 am
shallow sand, For big oil companies, selling and buying assets is a constant process. They are "optimizing asset portfolio"
Glenn Stehle,10/31/2015 at 10:46 am
shallow sand said:

IMO they are selling these assets at a really poor time.

It's hard to tell, since everything hinges on what happens in the future. One thing is for sure, and that is that Permian Basin O&G assets are, despite the low oil and gas prices, still selling for several times what they sold for in the pre-shale days.

Take Concho Resources purchase of Marbob in 2010, for instance:

Based on the acquisition price, Concho's purchase is equivalent to $19.84 per BOE of proved reserves and $104,167 per flowing barrel.

http://www.b2i.us/profiles/investor/NewsPrint.asp?b=1977&ID=40931&m=rl

Concho picked up 150,000 net acres in the deal. That's a little bit north of $8,000 an acre. At the time of the sale, the old timers thought Marbob's founder and president, Johnny Gray, had cut a fat hog. But if you compare $8,000 an acre to the more than $30,000 per acre Aubrey McClendon just paid, it looks like Gray sold too soon. One could find other comps, but I think the price of Permian Basin O&G assets over the past 15 years has been consistently upwards.

Ves, 10/31/2015 at 12:26 pm
Shallow,

Analyzing why the companies are selling legacy properties that make some money at this moment can lead you to the trap called "sunk cost fallacy". "Sunk cost fallacy" is exactly the same for big oil companies as for individuals.

Sunk-cost fallacy occurs when people make decisions about a current situation based on what they have previously invested in the situation. For example, spending $100 on a concert and on the day you find that it's cold and rainy. You feel that if you don't go you would've wasted the money and the time you spent in line to get that ticket and feel obligated to follow through even if you don't want to. It's is cold and rainy in the oil industry right now.

shallow sand, 10/31/2015 at 2:45 pm

Glenn. I got an email from Raymond James which detailed Q3 sales. Permian basin were substantially higher per flowing barrel than the rest of the US lower 48.

AlexS. I do agree companies are always selling assets, but interesting to see larger higher quality assets on the public block. Either no solid offers privately, or maybe companies are finding online sales are the best way to go.

Glenn Stehle, 11/02/2015 at 10:32 am
Yes, but if the $30,000/acre price Aubrey McClendon paid is typical, it looks like oil & gas asset prices in the Permian Basin are hotter than ever. And this despite the drop in oil prices.

Diamondback Energy, for instance, in September 2013 paid $440 million for 12,500 acres of net mineral rights in the shale play in Midland County. That's $35,000/acre, but for mineral interest, and back when oil was selling for well over $100/barrel.

http://ir.diamondbackenergy.com/releasedetail.cfm?releaseid=788419

Just imagine, McClendon paid over $30,000 per net acre for leasehold working interest, with oil at $45.

[Nov 02, 2015] A lessening of interest in cars

Notable quotes:
"... North American car sales appear to be flat and Europe's sales look like they have declined. Only Asia seems to show significant increases. ..."
"... Here in the US there are at least twice as many registered cars as there are licensed drivers. So there is little necessity to buy new. ..."
peakoilbarrel.com

Glenn Stehle,11/01/2015 at 6:39 am

Fred Magyar said:

"Like we all need a car to be free!"

Well, a lot of young people are no longer buying into that world view.

Well somebody's still "buying into that world view."

http://www.statista.com/statistics/200002/international-car-sales-since-1990/

Boomer II,11/01/2015 at 12:27 pm

North American car sales appear to be flat and Europe's sales look like they have declined. Only Asia seems to show significant increases.

Considering that populations have grown in most places in the world, I would say this chart does indicate a lessening of interest in cars.

MarbleZeppelin,11/02/2015 at 8:30 am

Boomer said "Considering that populations have grown in most places in the world, I would say this chart does indicate a lessening of interest in cars."

Maybe it is not so much interest as need or economics. Much of the new population is in the cities where cars are not generally essential. Also many people are way too poor to afford a car even if they needed one, a bicycle or scooter is about their peak ability to afford.

Here in the US there are at least twice as many registered cars as there are licensed drivers. So there is little necessity to buy new.

[Nov 01, 2015] U.S. economy keeps growing

Low oil prices are approximately $180 billion stimulus for the USA. I wonder why results are not better for 2015.
Notable quotes:
"... Yes the rich and their little wanna-bee sock puppets come up with all kinds of elaborate contraptions to support their self-serving narrative of "serve the investor class and all shall be good". ..."
"... Who the heck would build a new production facility if they don't have or predict increased demand. ..."
"... I would agree that demographics will hurt long run growth, but over the short run we should be seeing some disinvestment as people retire and tap into savings, which should stimulate demand. And when private sector consumption and investment are weak, government spending does not weaken the economy, it lifts it up. ..."
"... Too many of today's millionaires and billionaires made their money the old fashioned ways…inheritance and rent-seeking. I would suggest that you read some of the current literature on economic growth (long run growth). It's not capitalists who drive that growth, but ordinary people who innovate at the ground level. Innovation is what drives growth, not some cult of leadership personality, which is what you seem to have bought into. ..."
"... CFOs anticipate a marked deceleration of revenues, earnings, and spending hereafter. The aggregate of payroll receipts and reported wages and salaries implies that US employment is significantly overstated, and civilian employment is decelerating to ~0% YoY. ..."
"... Once a time, James predicted the future : at least 100 USD for oil per barrel forever (was it during the late 2007 speculator spike ?). ..."
"... The year over year change in real GDP is just 2%. Moreover, the second quarter strength was largely a bounce back from the first quarter when weather related problems contributed to real GDP growth of under 1%. ..."
"... Final demand looks OK, as you observed. But there is still extremely limited information suggesting the economy if breaking out of the past several years poor performance of some 2% plus real growth. ..."
Oct 30, 2015 | Econbrowser

The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 1.5% annual rate in the third quarter. Although the headline number sounds disappointing, the underlying fundamentals look solid.

It was encouraging that housing, nonresidential investment, and the government sector all made positive contributions. The one negative was a drawdown in inventories (goods sold but not produced during the quarter). Leaving inventories out, real final sales grew at a healthy 3% annual rate.

Paul Mathis, October 30, 2015 at 1:18 pm

In The General Theory (p. 104) Keynes famously said: "Consumption - to repeat the obvious - is the sole end and object of all economic activity."

Without consumption, it is obvious from the graph that there would be no recovery at all and we would still be in a recession. Why do economist today completely ignore the essential role of consumption in our economy? Why is there no emphasis on spurring consumer demand especially when government fiscal policy is MIA. We need to follow Keynes' advice:

"I should support at the same time all sorts of policies for increasing the propensity to consume. For it is unlikely that full employment can be maintained, whatever we may do about investment, with the existing propensity to consume." The General Theory, p. 325.

DeDude, November 1, 2015 at 7:50 am

Yes the rich and their little wanna-bee sock puppets come up with all kinds of elaborate contraptions to support their self-serving narrative of "serve the investor class and all shall be good". Yet simple 5'th grade math tells us that the GDP is driven by consumption. Consumption in itself is about 70% and investments (20%) rarely occur unless consumption is increasing.

Who the heck would build a new production facility if they don't have or predict increased demand. Looking at the observable world even a 5'th grader should have the sense of logic to understand that economic activity is driven by consumption (private or government). It is a pathetic spectacle to watch those whose ideology and self-interest dictate that they must reach another conclusion.

2slugbaits, November 1, 2015 at 1:14 pm

Making consumers pay too much, because of government policies and/or lawyers, doesn't improve consumption, but depletes saving.

Huh? Those things might reduce welfare through deadweight loss, but as one wise man noted, it takes a lot of Harberger holes to fill a recession…or words to that effect. And some government policies and a legal system with property rights vigorously defended by lawyers do contribute to growth. If you want to point a finger at non-productive actors who engage in rent seeking, then point your finger at many in finance and asset trading.

We're still in a weak recovery after the severe recession. The anemic economic growth is driven by population growth, federal borrowing, and emergency monetary policy.

More nonsense. I would agree that demographics will hurt long run growth, but over the short run we should be seeing some disinvestment as people retire and tap into savings, which should stimulate demand. And when private sector consumption and investment are weak, government spending does not weaken the economy, it lifts it up. Have you not learned anything after all these years visiting this blog?

We need to unleash the entrepreneurs and eliminate crony-capitalism to expand the economy. The new millionaires and billionaires will create lots of good jobs and a great deal of value to consumers.

Too many of today's millionaires and billionaires made their money the old fashioned ways…inheritance and rent-seeking. I would suggest that you read some of the current literature on economic growth (long run growth). It's not capitalists who drive that growth, but ordinary people who innovate at the ground level. Innovation is what drives growth, not some cult of leadership personality, which is what you seem to have bought into.

BC

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP3

Non-residential "investment" per capita is turning negative for the first time since Q3 2008 and Q2 2001.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP8

The differential growth of health care "consumption" to final sales is at a rate that previously occurred in Q3 2008 and Q2 2001.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP9

Orders and wholesale sales and inventories are recessionary.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mPb

The acceleration of money velocity to private GDP is recessionary and deflationary.

http://www.cfosurvey.org/2015q3/Q3-2015-US-KeyNumbers.pdf

CFOs anticipate a marked deceleration of revenues, earnings, and spending hereafter. The aggregate of payroll receipts and reported wages and salaries implies that US employment is significantly overstated, and civilian employment is decelerating to ~0% YoY.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mA8

Texas (and the energy sector) is in recession.

Lookin' good.

Johnny, November 1, 2015 at 10:54 am

"The future is not ours to see."

Once a time, James predicted the future : at least 100 USD for oil per barrel forever (was it during the late 2007 speculator spike ?).

spencer, October 31, 2015 at 9:53 am

The year over year change in real GDP is just 2%. Moreover, the second quarter strength was largely a bounce back from the first quarter when weather related problems contributed to real GDP growth of under 1%.

Final demand looks OK, as you observed. But there is still extremely limited information suggesting the economy if breaking out of the past several years poor performance of some 2% plus real growth.

[Nov 01, 2015] A Market Worthy Of The Line Do You Feel Lucky

Notable quotes:
"... Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter. ..."
"... Gordon Gekko: The richest one percent of this country owns half our countrys wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. Its bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now youre not naive enough to think were living in a democracy, are you buddy? ..."
"... The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. ..."
"... I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but thats the gist of it. Anyway.... ..."
Nov 01, 2015 | Zero Hedge
The now immortal line spoken by Clint Eastwood as "Dirty Harry" (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you're investing as opposed to gambling? These markets are now poised to show everyone the difference.

From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn't it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn't. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the "inventory" figures as a good news catalyst. Only an economist can find "good news" in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets "its hard to argue with price" is the old saw. And that price is, as iterated earlier, extremely high.

That's just fantastic if you're an "investor" with the tendencies of a river boat gambler. However, if you're someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you're out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now "What Fed. official will say what today?" Heaven help you if it's the opposite of what they said the previous day. Like the title implied, "Do you feel lucky?" doesn't seem that out of line.

Boris Alatovkrap

Ignore "invisible hand", but eventually is b*tch-slap those that defy.

Escrava Isaura

Invisible Hand?

How about the rabbit hand.

Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?

antonina2

The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. So, you could say the market or price action has been more or less decoupled from the true state of its underlying. Supply and demand due to fundamentals was true before hft and multiple exchanges, but can now be skewed in any direction for any length of time due to all the new technology and types of order flow that have been introduced. As long as people are getting paid to provide liquidity and other people are there to pay for taking liquidity away you can have a market that reaches the moon and beyond while the world is in a deep recession. So, if you think about it, while the pundits will have you believe that the market is priced at true valuations, it's not your Grandpa's market anymore, that is why the market can go up on relatively small volume and shitty data. It is a whole new game and beside disastrous glitches, the only time positive movement is threatened is when the big fish start placing large sell order blocks.

I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but that's the gist of it. Anyway....

It is my belief that things have developed in this manner to keep big money in the markets. So, I guess the question isn't what is up with the markets, but rather why do large holders continue to hold, my guess would be that they don't have anything else they want/need to do with their money. They say, who cares if Bob, Jen, Greg, and half of America can't find a decent job, we are making more money investing in the market (greater shareholder returns) than by helping to improve the actual economy and investing in more tangible things like people. It's pretty shitty, but that is how I have come to make sense of the whole thing. I mean yeah, the market should be about half of what it is now if it followed fundamentals, but it's not and I think that's why.

Basically, in order for there to be the big market crash that everyone constantly talks about, some pretty big institutions are going to have to fuck up big time and receive no help in getting out of it. As long as there is enough money out there this fiasco can go on as long as people see fit. We all say, oh the FED is dumb and they are doing the wrong thing blah blah blah and while they are destroying the economy they are keeping the TBTF in the clear and being rewarded handsomely for it, completely aware of their actions. And to the public, they say fuck em and feed em cake, so just watch, a Republican with a great tax package will be elected in 2016 to satiate the people for the next four years while they continue to go about their business, increasingly bad data is reported and retail investors are like wtf is up with the markets?

IDK, that's just my humble opinion

[Nov 01, 2015] Employment growth is submerged in stagnation

Notable quotes:
"... Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3]. ..."
"... The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation). ..."
"... This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7]. ..."
www.voltairenet.org

The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who had maintained since last year that the United States' labour market was much more fragile than was presumed by the head of the Federal Reserve. If the situation of the North American economy continues to get worse it is probable that in coming weeks new measures will be taken to mitigate structural unemployment.

In her public discourses, the president of the Federal Reserve, Janet Yellen, has avoided the serious problems that the United States economy suffers. When in mid-September the Federal Open Market Committee (FOMC) took the decision to maintain the federal funds rate between zero and 0.25% the target of Yellen's worries was directed to China [1] and the debts of emerging economies [2].

In accord with the President of the Federal Reserve, the process of recovery of the North American economy has been strengthening for considerable time. And, because of this, if the FOMC has not raised the cost of credit is due, above all, to a high rate of "obligation" and "responsibility" with the rest of the world.

Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3].

On the other hand, during the month of September the non-agricultural employment reached 143,000, much less than the 200,000 hoped for [4]. The greatest reversals were in sectors tied to external trade and energy. The rise of the dollar, and the fall in prices of commodities and the extreme weakness of global demand with the rest of the world precipitated the structural deterioration of the US economy.

The bad news does not end here: the numbers of the jobs generated in July and August were also lower [5]. Now we know that in August only 136,000 jobs were created, rather than the 176,000 originally reported: while in the month of July there were created 21,000 fewer jobs than those counted in the previous revision.

Hence with the data actualized by the Department of Labor, in the United States there were registered an average of 167,000 new jobs between July and September, an amount that represents less than 65% of the 260,000 (average per month) that were created during the previous year.

The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation).

This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7].

Hence it is now clear that the fall of the unemployment rates in recent months depends more on the reduction of the rate of participation in the labour market - as a consequence of the despair of thousands of US citizens - and less on the creation of quality long range jobs: on Friday October 2 it was announced that in September 350,000 persons abandoned the search for work [8]. There is no turning around, in the United States job growth has been submerged in stagnation.

[Oct 23, 2015] Economic effects of shocks to oil supply and demand

Notable quotes:
"... Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016. ..."
"... Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues. ..."
"... If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex? ..."
"... Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. ..."
"... But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas. ..."
"... In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."
Oct 17, 2015 | Econbrowser
Jeffrey J. Brown October 17, 2015 at 5:15 am

Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016.

Louisiana is an interesting case history. As drilling activity declined in the Hayneville Shale Gas Play, gas production from the play production initially continued to increase (as operators worked through the backlog of drilling but uncompleted wells), but production from the play ultimately showed a sharp decline, with annual marketed natural gas production falling at a rate of 20%/year from 2012 to 2014. Measured from the monthly peak in December, 2011, it took about two and a half years for the exponential rate of decline in Louisiana's monthly marketed gas production (from both shale gas + conventional production) to fall below 20%/year. The three year 12/11 to 12/14 rate of decline was 18.5%/year.

Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues.

And the question that I have periodically posed, to-wit:

If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI & Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex?

Jeffrey J. Brown October 17, 2015 at 8:37 am

Re: US Crude and/or Condensate Exports

As noted above, it's more than a little ironic that there are so many claims that oil exports from a net oil importer, the US, will have a material impact on global oil markets, even as US Crude + Condensate (C+C) production is declining.

In any case, I just noticed something very interesting in the EIA Annual Energy Review data tables, which provide monthly and/or annual data back to 1950:

http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf

Note that US total liquids net imports were up year over year, from 4.9 million bpd in August, 2014 (2014 annual average of 5.1) to 5.6 million bpd in August, 2015, a 14% year over year increase in net total liquids imports.

Anonymous October 17, 2015 at 12:12 pm

Saw some analyst meeting (Genscape maybe) where the person projected rigs continuing to drop through 1Q16, ending up 200 more down (or about 400 remaining). This was based on prices staying in this ~$47-50 band, with commensurate strip. [A drop down to ~$40, with commensurate strip would lead to an additional 200 rigs going away.]

I think the Haynesville is a nice example to show the "lag" effect when rigs drop. And really, we can already use the US oil production as an example of this already. Another easy example is 2009 in the Bakken.

I would be leery of thinking too much that the Haynesville is some sort of example of Hubbert peak because a lot of the drop is price caused, not exhaustion. [In a classic Hubbert peak case for global oil or national gas, you would have the normal curve AND would have Hotelling price increase. In this case, it's not even constant price…it's reaction to a price crash.] Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. [This is Adelman's point of how you don't just eat away at lower cost oil and move to higher…yes, you may be doing that. But in addition, knowledge can grow the pool of available low cost oil or reduce the price of getting out what you already know about. Both effects can occur and they fight each other and you have to get into the specifics to see which is winning.]

In addition, concentrating on the Haynesville, when the Marcellus and Utica have occurred is missing the main story from an economic impact perspective. After all, volume is up and price is down for natural gas. So for all the H or the B dropped, the M and U more than made up for it. "The App" is the key place to look at in US natural gas.

In addition, FWIW, H did drop very beautifully in a Hubbert-like manner from the peak of 7, BUT for the last 18 months has been near flat at 4 BCF/day. Download the excel data (last figure at bottom of page) and graph it and you will see that. Peak oilers discussing the Haynesville as some sort of organic product life cycle analogy (born, grow, mature, die), never mention this key insight (how it has flattened out dramatically now). But it's in the data. Just graph to see it.

http://www.eia.gov/naturalgas/weekly/ (note this shows the shale only, not the conventional production. EIA DPR as a data source makes the fat tail look even more prominent, but includes conventional in the region.)

Jeffrey J. Brown October 18, 2015 at 12:01 pm

So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline?

In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil). Following is an essay, which I sent to some industry acquaintances a few weeks ago:

Regarding oil prices, I may be one of the worst prognosticators around, especially when it comes to demand side analysis. My primary contribution has been as an amateur supply side analyst, especially in regard to net exports.

In any case, earlier this year I thought that we had hit the monthly low in Brent prices for the current oil price decline ($48 monthly average in January, 2015), and I thought we were more or less following an upward price trajectory, from the 1/15 low, similar to the price recovery following the 12/08 monthly oil price low ($40 for Brent).

However, a key difference between the 2008/2009 price decline and subsequent recovery and the 2014/2015 decline is that Saudi Arabia cut production from 2008 to 2009 while they increased production from 2014 to 2015.

But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas.

The bottom line for me is that depletion marches on.

A few years ago, ExxonMobil put the decline from existing oil wells at about 4% to 6% per year. A recent WSJ article noted that analysts are currently putting the decline from existing oil wells at 5% to 8% per year (in my opinion, the 8% number is more realistic). At 8%/year, globally we need about 6.5 MMBPD of new Crude + Condensate (C+C) production every single year, just to offset declines from existing wells, or we need about 65 MMBPD of new C+C production over the next 10 years, just to offset declines from existing wells. This is equivalent to putting on line the productive equivalent of the peak production rate of about thirty-three (33) North Slopes of Alaska over the next 10 years.

It appears quite likely that global crude oil production (45 and lower API gravity crude oil) has been more or less flat to down since 2005, as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014)–while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

Following are links to charts showing normalized production values for OPEC 12 countries and global data. The gas, natural gas liquids (NGL) and crude + condensate (C+C) values are for 2002 to 2014 (except for gas, which is through 2013, EIA data in all cases). Both data charts show similar increases for gas, NGL and C+C from 2002 to 2005, with inflection points in both cases for C+C in 2005. My premise is that condensate production, in both cases, accounts for virtually all of the post-2005 increase in C+C production.

Global Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/Global%20Gas%20NGL%20C%20amp%20C_zpskb5bxu6d.jpg

OPEC 12 Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Gas%20NGL%20C%20amp%20C_zpsox3lqdkj.jpg

Currently, we only have crude oil only data for the OPEC 12 countries and for Texas (note that what the EIA calls "Crude oil" is actually C+C).

Also following is a link to OPEC 12 implied condensate (EIA C+C less OPEC crude) and OPEC crude only from 2005 to 2014 (OPEC data prior to 2005 was for a different set of exporters than post-2005). Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes fuzzy. In any case, we have to deal with the data that we have.

OPEC 12 Crude and Implied Condensate:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Crude%20and%20Condensate_zps12rfrqos.jpg

As of 2014, OPEC and the US accounted for 53% of global C+C production (41 MMBPD out of 78 MMBPD). Implied OPEC condensate production increased by 1.2 MMBPD from 2005 to 2014 (1.2 to 2.4). The EIA estimates that US condensate production increased by about 1.0 MMBPD from 2011 to 2014. I'm estimating that US condensate production may have increased by around 1.2 MMBPD or so from 2005 to 2014. Based on the foregoing, increased condensate production by OPEC and the US may have accounted for about 60% (about 2.4 MMBPD) of the 4 MMBPD increase in global C+C production from 2005 to 2014.

Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD.

In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

If it took trillions of dollars of upstream capex to keep us on an "Undulating Plateau" in actual global crude oil production, what happens to crude production given the large and ongoing cutbacks in global upstream capex?

And given the huge rate of decline in existing US gas production (probably on the order of about 24%/year from existing wells), it's possible that we might see substantially higher North American gas prices this winter, given the decline in US drilling.

Furthermore, through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014. GNE fell from 46 MMBPD in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

Here are the mathematical facts of life regarding net exports:

Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 MMBPD in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.

  • "So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline? "

    So again, the argument for imminent decline is some eventual limit to the amount of hydrocarbons on the entire planet? it is not cherrypicking to emphasize the Haynesville and Barnett as gas plays "peaking" when overall gas production in the US has grown 40%, even in the face of a huge price drop????

    "In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil)."

    Nope. Lease condensate (~55) is legally considered crude oil. EF 47 is a normal listed form of oil in Platts price lists. Light oil and condensate is used to make gasoline and other products and runs through a refinery. It is easily and routinely blended with heavy oil and is actually needed for that (not just as a diluent for transport but for optimizing the subunits of complex refinery (non complex refineres, e.g. those without cokers or visbreakers or with less cracking actually function better on just light blends to start…the extreme are teakettle refineries).

    Condensate and EF crude is withing a few dollars of WTI and correlates with price moves very closely. EF 47 is actually pricier than heavy sour crudes. Talk to any trader, refinery buyer, or even just a microeconomist familiar with looking at substitutes. It is crazy to say that growth of 45+ oil has not affected overall oil prices. Perhaps some small shrinking of spreads between qualities, but often not even a directionality change. The much larger impact though is on the overall supply demand balance for C&C. Does any economist think the goods are sufficiently different to justify a separate P-Q curve for 45- and 45+ oil? [Oh…and the extra funny thing is the peak oil meme of mid 2000s was that we wouldn't find more light sweet!]

    P.s. If you really think 45+ isn't oil, then why not agree to remove the export restriction on at least them?

    "Following is an essay, which I sent to some industry acquaintances a few weeks ago:"

    Your cut and pasting the things on the net (ELM stuff, net export arguments) is almost spammy. Total conversation killer and often ignored by even your compatriots.

    Erik Poole

    Nony: You make good arguments for lumping crude oil and condensates.

    The problem with a net export perspective is that it ignores the global nature of the market place and at some point, an indifference to whether heavy oil imported into the US refinery complex hails from western Canada, Venezuela, Mexico or Colombia. Or even Iran some day.

    If we could draw and compare distribution curves of oil grades over the last , I suspect we would see the distributions flattening out over time as extreme grades become more prominent. It may even be bi-modal at this point.

    Given the expense of retooling refineries and the robust growth in US condensate production, one can see the interest in securing more pipeline access to Canadian bitumen. And perhaps the interest in hoping/praying for growth in Colombian heavy oil production as Mexican production declines and the populist Neo-Marxist experiment in Venezuela violently implodes stagnating heavy oil production in that country.

    Jeffrey Brown: I don't want to suggest that the net export perspective is not useful. It clearly illustrates symptoms of the Resource Curse and the general difficulty experienced by citizens in weak societies to play and cooperate well together. It does not however say much about the US cheap energy entitlement and how that attitude has hurt US national security and economic performance over time. America's well earned reputation for killing grandchildren and grandparents in part stems from this ill-advized quest for cheap energy security (sic).

    Jeffrey J. Brown

    Erik,

    I'm not arguing the relative merits of crude oil versus condensate, although distillate yield begins to drop off precipitously over an API gravity of about 40 or so.

    I am arguing that the available data strongly suggest that global crude oil production probably peaked in 2005, while global natural gas production and associated liquids, condensate and natural gas liquids, have (so far) continued to increase.

    In regard to net oil exports, here's the problem: Given an ongoing, and inevitable, decline in production in a net oil exporting country, unless they cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the resulting rate of decline in net exports will exceed the rate of decline in production and that the net export decline rate will accelerate with time.

    Nony

    I don't think it makes economic sense to put lease condensate with NGLs and away from crude. NGLs are more gas like, so you can put them with gas if you want instead of oil or just make a third grouping. [But don't forget them! If you cut the total liquid products to being C&C, they still belong somewhere…have use!]

    NGLS are mostly (c2-c4) molecularly pure, separated, gaseous products. [minor amount of C5+ liquid ("plant condensate" obtained at the gas refrigeration separation plant].

    Lease condensate is just the associated entrained liquid oil from a primarily gas well. It is obtained at the atmospheric, three phase separator at the wellhead. Similarly, wet gas is separated from predominantly oil streams. Eagle Ford 47 isn't even coming out of "gas wells" (in terms of phase) but single phase liquid oil wells that are very light. Lease condensate and Eagle Ford 47 look like oil, smell like oil, mess up your Nomex coveralls in a similar manner to 30 API oil. They are each that glorious natural product that contains a soup of hundreds of different molecules, of different lengths, aromaticities, branching. Oh and less sulfur (which makes them BETTER oil) but still with some. Lease condensate also tends to be a bit lower API and more variable in composition versus plant condensate (although higher than oil), but still pretty similar.

    There is a reasonable argument to exclude NGLs entirely from crude time series or at least C3 and C2 from being lumped in with crude. Ethane in theory competes with naphtha and is an occasional substitute (and some crackers are convertible), but given the glut, prices have diverged and started to follow C1 a couple years ago. And like C1, it is quite difficult to transport across oceans. C3 is more exportable, but still has a pretty different market (mostly heating) than premium liquid petroleum products (mostly transport fuels: gasoline, diesel, jet). [In a sense, C1 is a substitute for oil, but it's a pretty weak substitute!]

    So yeah, sure, strip out the NGLs. And throw in the C4 and C5+ with being stripped out, since they are minor…even though ARE mostly used for transport. Either direct gasoline mixing for butane or for C5+ mixed into crude (at refineries or upstream at heavy oil sites) or used as naphtha in crackers (thus competing with a refined liquid stream. But fine keep them all apart.

    But keeping condensate (or Eagle Ford 47 oil) apart from other grades of crude makes no sense. That stuff goes through refineries and makes gasoline…a lot of gasoline, which is generally what the refinery is optimized for. (Other products have value and you go for a global optimum, not a local. Like you don't optimize production of RFO and make little gasoline! Diesel and jet have value of course and at times, pricing of diesel can beat out gasoline, but generally gasoline is top in both value. And certainly in volume (typical refinery cracks some product that could have been diesel to make more gasoline). Just look at Platts prices and the correlation of EF47 and DJ condensate versus WTI. It's the same stuff, but slightly different flavors, man. If you look at it on a world basis (where the explosion of light and super light is export-ban trapped on a continent that wants to refine 28 API), the correlations will be even stronger. But I bet even in the US, you find a very consistent correlation: maybe just look at annual average prices for 2008, 2009, 2014 and 2015 YTD. Condensate belongs with crude, from a supply-demand standpoint. Not with NGLs or with NG.

    Nony

    Here's a link showing Saudi 50 API crude selling in the same setting as other grades of crude (i.e. considered a similar good, not considered an NGL). AND at a premium to medium grade Gulf oil. AND even at a greater premium than other light, but less light oils.

    http://www.bloomberg.com/news/articles/2014-05-04/saudi-aramco-raises-all-june-crude-price-differentials-to-u-s- [scroll down to the header "Asia"]

    [Oct 23, 2015] Unemployed and Older, and Facing a Jobless Future

    Notable quotes:
    "... "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself." ..."
    "... More and more I have to accept this is the Third Act in Life and working for a traditional company in a traditional job is no longer a reality ..."
    "... Without real income, you eventually become another victim of our perverse, experience-averse corporate economy. ..."
    Jul 26, 2013 | The New York Times

    For those over 50 and unemployed, the statistics are grim. While unemployment rates for Americans nearing retirement are lower than for young people who are recently out of school, once out of a job, older workers have a much harder time finding work. Over the last year, according to the Labor Department, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers.

    There are numerous reasons - older workers have been hit both by the recession and globalization. They're more likely to have been laid off from industries that are downsizing, and since their salaries tend to be higher than those of younger workers, they're attractive targets if layoffs are needed.

    Even as they do all the things they're told to do - network, improve those computer skills, find a new passion and turn it into a job - many struggle with the question of whether their working life as they once knew it is essentially over.

    This is something professionals who work with and research the older unemployed say needs to be addressed better than it is now. Helping people figure out how to cope with a future that may not include work, while at the same time encouraging them in their job searches, is a difficult balance, said Nadya Fouad, a professor of educational psychology at the University of Wisconsin-Milwaukee.

    ... ... ...

    Sometimes simply changing the way you look at your situation can help. My friend Shelley's husband, Neal, who also asked that I use his middle name, said the best advice he received from a friend was "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself."

    He also has friends facing the same issues, who understand his situation. Such support groups, whether formal or informal, are very helpful, said Jane Goodman, past president of the American Counseling Association and professor emerita of counseling at Oakland University in Rochester, Mich.

    "Legitimizing the fact that this stinks also helps," she said. "I find that when I say this, clients are so relieved. They thought I was going to say, 'buck up.' "

    And even more, "they should know the problem is not with them but with a system that has treated them like a commodity that can be discarded," said David L. Blustein, a professor of counseling, developmental and educational psychology at the Lynch School of Education at Boston College, who works with the older unemployed in suburb of Boston. "I try to help clients get in touch with their anger about that. They shouldn't blame themselves."

    Which, of course, is easy to say and hard to do. "I know not to take it personally," Neal said, "but sure, I wonder at times, what's wrong with me? Is there something I should be doing differently?"

    It is too easy to sink into endless rumination, to wonder if he is somehow standing in his own way, like a cancer patient who is told that her attitude is her problem, he said.

    Susan Sipprelle, producer of the Web site overfiftyandoutofwork.com and the documentary "Set for Life" about the older jobless, said she stopped posting articles like "Five Easy Steps to get a New Job." "People are so frustrated," she said. "They don't want to hear, 'Get a new wardrobe, get on LinkedIn.' "

    As one commenter on the Facebook page for Over Fifty and Out of Work said, "I've been told to redo my résumé twice now. The first 'expert' tells me to do it one way, the next 'expert' tells me to put it back the way I had it."

    Some do land a coveted position in their old fields or turn a hobby into a business. Neal, although he believes he'll never make as much money as in the past, recently has reason to be optimistic about some consulting jobs.

    But the reality is that the problem of the older unemployed "was acute during the Great Recession, and is now chronic," Ms. Sipprelle said. "People's lives have been upended by the great forces of history in a way that's never happened before, and there's no other example for older workers to look at. Some can't recoup, though not through their own fault. They're the wrong age at the wrong time. It's cold comfort, but better than suggesting that if you just dye your hair, you'll get that job."


    Flatlander, August 5, 2013

    Age discrimination is a sad reality today and always has been. It is also very difficult to prove in a legal action. From what I have heard,...

    Jay, August 5, 2013

    Ok, I took some knocks on this, one that I deserve. I really do feel badly for the guys that didn't make it. I was wrong on that one. Yes,...

    Walter, August 5, 2013

    This is a great article. I'm in this situation but worse. Trying to entice myself to nowadays corporations I went and enrolled in a MBA program and got myself into a $40K student loan debt. I had already paid my previous loans long time ago so I figure, if I update myself educational-wise and prove these people that my mind is still fresh and sharp at a high level that I could raise my chances.

    Now, I am 56 and I still cant get a job. Taking a minimum wage position is out of the question for me since all my salary would actually go to pay my debt and I would not have money even for transportation back and forth to work.

    What I find amazing is that employer are failing to understand that old folks like us would really appreciate the opportunity and work harder to try to excel than probably any of nowadays young kids, that, like the article mentioned, are more prone to leave the company to get promotions. I keep telling my friends that I would even sign a contract guaranteeing that I would work for them until the day I die or retire.

    I like the idea presented by one of the readers here that the government should provide some kind of economic incentive in the way of lower taxation for businesses that hire people over 50. They do it for career criminals. Why not for qualified and educated/trained people.

    This is totally age discrimination and it is a federal offense. However, I try that channel also and I got no response from the Labor Dept. I thank the NYT for bringing this up.


    Jovality, Las Vegas, NV. August 5, 2013

    I'm 57 and have or had been employed in the high tech industry for over 25 years with never a period of more than two weeks unemployment until now. During that time I rose from a software developer to product manager, to VP of Sales and Marketing. I was laid off from that position at the end of 2012, but luckily I was able to reach out to an old colleague who was able to sneak me into a marketing position in his company at less than half my previous salary.

    I was surprised by the younger people's reaction to me. They said things to me I had to take as compliments such as, "You're really cool for an older guy." "I would never expect someone your age would know so much or be so talented".

    Unfortunately the company had a major layoff which I was caught in. Now I am like many of the others who have posted her, "A ghost with a resume". Since being laid off in June of 2013 I have sent out 100's of resumes with only a very limited response.

    More and more I have to accept this is the "Third Act in Life" and working for a traditional company in a traditional job is no longer a reality. It's time to take the vast experience and talents I've built up or an entire career and use them to open my own business. It's a frighten challenge to be sure.

    But as someone once told me there is only one real form of security in life, when life knocks you down you must have the drive and self-confidence to get up handle the situation and both survive and succeed.

    Jon K. Polis, East Greenwich, Rhode Island August 3, 2013

    Bohemienne: In answer to your question; look up the movie " Soylent Green " from 1973, that starred Charlton Heston and Edward G. Robinson....and see what fate be-fell Mr. Robinson's character....if our government today offered me the same options/opportunities to me that they offered to him; I would take advantage of them in a heartbeat...

    Glenn, Cary, NC July 31, 2013

    "People's lives have been upended by the great forces of history...."

    Nonsense. People's lives have been upended by soulless capitalists and their lackeys in Congress (read Republicans). There are no great forces of history at work here, just good, old-fashioned GREED.

    Rhea Goldman, Sylmar, CA July 31, 2013

    I find it strange, very strange indeed, that all of us have so easily accepted our plight of hardship. Have we been so cowed that collectively we take no action to put a stop to this harsh treatment from employers? Re-read Dickens' Christmas Carol.....we are allowing the economics of the United States to make Bob Cratchets of us all.

    J. Campbell, Chicago, IL July 31, 2013

    I'm amazed that an article from the NYT (to which I subscribe) actually suggests that people in their 50's who are unemployed can somehow just "accept that they may *never* work again". How could we live? What legal source of income could we obtain that would bridge us to Social Security (even for those of us eventually eligible for SS retirement)? What are the people responsible for this article (including the NYT editors who released it) thinking? What if someone suggested that *they* accept a future where they never worked again, and had no income?

    If there were several major American riots, that involved hundreds of thousands of unemployed people (a fraction of the millions of current long-term unemployed in the US), the NYT would be out front in demanding that order be restored *at any cost*. Where is the mainstream press demand that *economic stability for the working class* be restored at any cost?

    Or do you think, because of our current corporate/NSA state, such riots are impossible? If so, look at Europe--right now.

    Sam, Florida July 31, 2013

    My husband was just laid off due to company merger. His entire department was eliminated. The only good news, is that we've been expecting the lay off for about a year or so, as such we had time to prepare. We also, have worked very hard to get our finances in order since we got married. We killed all our unsecured debt in 2007, $55,000+, and we have saved a good chunk every year since then. I'm still working on our lay off budget, but I hope that we will be able to cover our regular monthly expenses on my salary.

    http://adventures-of-sam.blogspot.com/

    Glenn, Cary, NC August 3, 2013

    Been there. Done that. It didn't work. The money disappeared - slowly but surely. Without real income, you eventually become another victim of our perverse, experience-averse corporate economy.

    MJ, New York City August 5, 2013

    Actually, it is possible to live on one salary. Best way is to start early on in the marriage, keeping your first home rather than moving "up." Even if you have moved "up" it is possible and no shame at all to move "down." It is a brave journey and takes real guts, but in many cases it can be done.

    Sam, Florida July 31, 2013

    In addition to the costs to the individual and the families, their is a cost to society. Obviously there is a cost to support many of these people in their later years, but there is also an uncalculated cost to workers in their peak earning years, the height of their careers falling out of the job market.

    There is a cost to society to lose this knowledge, to losing their mentoring and training skills for the next generation, to losing their consumer spending power, etc.

    Melanie Dukas, Saugus, mass July 31, 2013

    I am 59 years old, and I lost my job during the high tech bust in 2002 as marketing communications manager at a fiber optic start-up. In Massachusetts, this was for many of us worse than the Great Recession. At the height of my career at 48 years old, I was determined to get a job and interviewed for 5 years. I drove a taxi and limo 6 days a week, but still couldn't make ends meet, so I moved in with my parents 5 years ago and started my own business developing websites and marketing. I just couldn't take interviewing anymore! It was like heartbreaking, kind of like dating - I would go on the interview and get so excited and they never called.

    It's been a long road, but at I am happy to be working in my field and making a living. Luckily, I had done this before and although I would have preferred to work at a company full time, at my age in marketing the jobs are few are far between and I need to work for the rest of my life because I have no retirement. Even if I get a job, it is unlikely to last and then I would be back in the same boat. Now I am in.

    Henry, New York July 31, 2013

    I think people must understand that the nature of WORK is changing. - In the past you worked from 9-5 for a Company and as long you performed adequately you continued on your Job...

    Well, welcome to the New Economy ...

    Companies can no longer afford to Hire all the people they need "full time" people. The cost is becoming prohibitive, especially if you add on the benefits costs ( avg. est. 30 % above salary).

    In the future, I believe most people will become Independent Contractors and/or work on a Part-time basis - to be utilized when needed and working Jobs or "Gigs" for many different employers- with periods of " downtime."

    This type of flexible Work will, soon become the mainstay. Therefore the "grayling" workforce must adapt and think and plan accordingly. - In fact, there are many Employment Firms or " Headhunters" who are already adapting this model. - and as the Baby Boomers retire en masse, they will be looking for people since, in my opinion, there will not be enough "younger" to fill all the jobs needed.

    Splenetix, Muskegon August 3, 2013

    The conversion of full-time workers into freelancers is an exploitation of capitalism, forcing you to waste your time self-marketing and administering. You won't have any of the scales of economy that larger businesses enjoy so you won't be competitive.You won't succeed, you won't be able to manage and get the work done. It's all about worker repression.

    [Oct 23, 2015] Workers over 50 are the new unemployables

    Notable quotes:
    "... Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year. ..."
    "... The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills. ..."
    Feb. 26, 2013 | money.cnn.com
    On one hand, they're too young to retire. They may also be too old to get re-hired.

    Call them the "new unemployables," say researchers at Boston College.

    Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year.

    "Once you leave the job market, trying to get back in it is a monster," said Mary Matthews, 57, who has teetered between bouts of unemployment and short temp jobs for the last five years. She applies for jobs every week, but most of the time, her applications hit a brick wall.

    Employers rarely get back to her, and when they do she's often told she is "overqualified" for the position. Sometimes she wonders: Is that just a euphemism for too old?

    Her resume shows she has more than 30 years of experience working as a teacher, librarian, academic administrator and fundraiser for non-profits.

    "I've thought about taking 10 years off my resume," she said. "It's not like we're senile. The average age of Congress is something like 57. Joe Biden is 70. Ronald Reagan was in his 70s when he was president. So what's the problem?"

    ... ... ...

    About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission in fiscal 2012, 20% more than in 2007.

    Proving discrimination is next to impossible, though, unless it's blatant.

    "It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at Boston University.

    Related: Am I too old to be hired?

    EconomistNC, May 5, 2015

    As a former public servant teaching University Level Econometrics for nearly 15 years and possessing numerous 'Excellence' awards, this development is nothing short of shameful. I have had dozens of recruiters and HR 'specialists' debase my public service as not being 'Real World' experience despite the fact that without my commitment to 'Real World Applications' education, many of those with whom I apply for employment would not hold a college degree. Indeed, I find many of the hiring managers with whom I speak regarding positions for which I have both technical and applications experience, there is impenetrable discrimination once they meet me in person.

    The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills.

    Indeed, to meet the criteria for many positions I find open requires that I be a 'recent college graduate.' When I point out that I have been continually retraining and taking online courses to keep my IT skills current, I am once again met with the lack of 'Real World' experience requirement. For a society that purports itself to value education and hard work, for those among us that have worked very hard for substandard pay and benefits to be so casually cast aside is absolutely inexcusable.

    Paul Stukin, Apr 24, 2015

    This is nothing new, especially if you are in IT. I was laid off from IBM in August 2001, then 9/11, and the bottom fell out of the jobs market. I have not worked in IT since. I truncated my resume to show the last 10 years of "relevant" experience and then got interviews, but never the job.

    DJM22, Apr 24, 2015

    @Richard Thwaites

    Where does this group turn; what is this demographic to do. For instance in my case based on the type of work I've done for a lifetime I've been laid off a total of 5 times. The monies you've had saved during these periods had to be used for survival and take care of family. No it wasn't wasted.

    But now boomers are going into that area where as they are tooyoung to retire in order to just obtain social security. And then this won't be a whole bunch.

    Are we suppose to give up everything we've worked for and live a less than mediocre livelihood? That's a good 10/15 years away. Then they will say next how the boomers are becoming more of a problem and mooching in order to survive. I'm not suggesting hand outs, but if ageism is going to be the problem for boomers then boomers need to press somewhere, someone, something so we don't end up with problems that will become even more major problems. What a way to end your career and what a legacy to leave your children.

    Look at all the characters in our government. None of them worked, simply kept chairs warmed and signed papers they were told to sign and as stated they're up in their 70's + and have enough money to aid their next 10 generations and the normal joe can't even complete his generation.

    [Oct 23, 2015] The unemployed and over-50 need help

    Notable quotes:
    "... The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times. ..."
    May 15, 2013 | MarketWatch.com

    When the most recent employment report was released, PBS NewsHour presented a segment on a group of people over 50 who had been out of work. The participants said that employers had little interest in even talking to them. Sometimes, when applying for jobs, these older applicants deleted up to 15 years of experience from their resumes to get through the door, but as soon as the interviewers saw how old the applicants were, their faces dropped and they cut the interview short.

    ... ... ...

    Add to this mix the results of a recent study that explored the relationship between the number of weeks of unemployment and the likelihood of receiving a callback after submitting an application. The researchers submitted fictitious resumes to real online job postings in each of the largest U.S. metropolitan areas. They sent roughly 12,000 resumes to roughly 3,000 job postings in sales, customer service, administrative support and clerical job categories. They tried to make their fictitious resumes look as close as possible to real resumes posted on job boards. In some cases, the resumes showed the applicant as currently employed, in other cases as unemployed for spells of between one and 36 months. They found that the callback rate sharply declined during the first eight months of unemployment – from 7% to 4% – and then stabilized. This 45% decline compares to the results of another study where black-sounding names received 33% fewer callbacks than white-sounding names.

    ... ... ...

    The problem is that when the stigma of being unemployed is added to the stigma of being old, the chance of getting a job becomes very, very small. This outcome is not only unfair, but also wasteful from a national perspective as a substantial amount of experience and talent goes unused. Extended periods of unemployment also destroy the lives of the individuals affected. They use up their savings, they tap their 401(k)s, they sell their homes, and then they are left with nothing. And the number of older unemployed workers is large. As of 2012, almost 2 million people over 50 had been unemployed for more than six months; 1.3 million for a year or more. We need a jobs corps for these individuals and we need it fast.

    Robert E. Pin, May 15, 2013

    I applied for one of the numerous jobs online and they asked point blank - what year did you graduate HS? OMG! It was a required field so it was either lie, or put 1979. I felt it was good Karma to say the truth.

    So hard to prove age discrimination in this case but boy would I love to give them a piece of my mind.

    Doc y, May 15, 2013

    @Brady White What would it do to your karma if you told them you were a child prodigy and graduated at six years old? Also, for the math challenged, I often give my age as 28 years old, when counting in base 20.

    Sort of like there are 10 types of people: Those who understand binary and those who don't.

    Wayne MacNeil, May 15, 2013

    Bravo Alicia. Finally someone who understands what is going on. Only the numbers are probably much higher. Age discrimination is supposed to be against the law. This needs to be enforced just as strongly as discrimination against women or religion. There is a crisis in unemployment for those over 50. Many of these people are the best educated and would be among the most capable workers in the country. Someone has to pave a path requiring companies to employ older capable workers. This is criminal and as mentioned by the author is destroying people, families, retirements. People who have been productive for 30 years are losing everything. And younger workers dont seem to get it. If they dont stand up to this - their time is coming too.

    People think they will need to work until they are 70 to pay their debts. The shock comes when the system wont let the majority work after they are about 50.

    Rainier Rollo, May 15, 2013

    Wayne -- I once asked a friend in her late 50s who was lamenting her long term unemployment how many people over the age of 40 she hired when she was in a position to hire --- the answer was ZERO. So don't just say that today's young people are afflicted with this way of looking at people. Most of those now unemployed 50+ in poisitons of hiring also passed over older candidates.

    Lois Land, May 15, 2013

    In that PBS segment, it was amazing to watch that university woman (clearly over 60) talk about how people become less productive after the age of 40.

    Then doesn't she owe it to the university to resign/retire? Or does she think she's special/different?

    I might be special/different too. I'm 64 and I've never been sharper or more productive.

    Doc y, May 15, 2013

    @Lois Land I hate to admit it, but something that has enhanced my productivity now that I am 50+ is I no longer have to leave work to attend kids' events, or take them to their appointments, etc. I miss my children very much, but they are grown and on their own. I loved doing stuff with them, and I made their activities my number one priority while they were growing up. Being laid off three years after the youngest left home was never in the financial plan, and like others on this site, employers have not been breaking my door down to come work for them.

    The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times.

    richard harris, May 15, 2013

    The root cause of massive unemployment in the over 50 crowd is legal immigration. The 2010 census reported 40 million legal immigrants were residing in the US. These 40 million immigrants translate to about 24 million potential workers. The real unemployment level is 23 million people. Thus the real unemployment level of 23 million people is approximately equal to the work force inflation caused by legal immigration.

    Thus the only hope for the over 50 chronically unemployed is to ban all further legal immigration.

    [Oct 22, 2015] Felix Zulauf Bear Market Is Coming Soon

    Zulauf this that this is bear market rally and the slide will resume the next year. His forcast is at the beginning of the video clip. He expects S&500 drops to 1600 the next year.
    Notable quotes:
    "... Zulauf says he expects a global stock swoon next year. ..."
    finance.yahoo.com

    Speaking at Barron's Art of Successful Investing conference, Zulauf says he expects a global stock swoon next year. He sees short-term gains for e-commerce beneficiaries Amazon, Facebook and Google; longer term, hold bonds.

    James 37 minutes ago

    "What the American people cant take is their government not being square with them"

    When the #$%$ have they EVER been square with us...the hypocrisy in this statement hurts my brain

    [Oct 21, 2015] How Much Longer Can The Oil Age Last

    Notable quotes:
    "... I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking). ..."
    "... One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future? ..."
    "... including all the costs currently externalized ..."
    "... With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list. ..."
    "... differently ..."
    "... responsible ..."
    "... responsible ..."
    "... Population will plateau at some point during this century. ..."
    "... The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now. ..."
    "... It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets ..."
    "... First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line. ..."
    "... Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade.. ..."
    "... Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while. ..."
    "... My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change. ..."
    "... Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more. ..."
    "... The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure. ..."
    "... The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives. ..."
    "... Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration. ..."
    "... Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use. ..."
    "... Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story. ..."
    "... Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade. ..."
    Oct 21, 2015 | naked capitalism
    Will

    I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking).

    One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future?

    optimader

    including all the costs currently externalized

    With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list.

    jgordon

    Rather than rehash things I've said before many times, I'll just provide a link to this classic post from Nicole Foss at the Automatic Earth website. I think it offers context and interpretation that's quite a contrast from the rosy and perhaps ill informed post above:

    http://www.theautomaticearth.com/2012/10/renewable-energy-the-vision-and-a-dose-of-reality/

    DanB

    I agree with you, but this is a hard sell at this site due to deeply entrenched mythological beliefs about 1. what money is and can do and 2. about infinite growth on a finite planet (collectively, we're at the bargaining stage on this latter one as the signs of the end of growth and ecological overshoot abound but are blocked from recognition by a paradigm that explains them as aberrations or human failures). I'd add to the Nichole Foss post the book "Green Illusions: The Dirty Secrets of Clean Energy and the Future of Environmentalism (Our Sustainable Future)," the webiste of Gail Tveberg, Our Finite World," and the site "Economic Undertow".

    jsn

    It's not such a hard sell, I read plenty of comments here that understand what is in your references. The issue is how you get where we need to go from where we are. Calling everyone who disagrees ignorant doesn't help much: we all know what we know and don't know exponentially more. But it is very hard to propose actionable ideas beyond "personal virtues" which on their own have no chance. This is possibly the ultimate coordination problem: agreement on goals is much further along than agreement on means.

    MikeNY

    +1

    very perceptive comment

    DanB

    Please note I use "collectively" to refer to our culture, not to NC readers. Perhaps that was not clear. And i've been reading and commenting here since 2009.

    washunate

    This is a great exchange. Perhaps what I might add is I'm not so sure we do have agreement on goals. I think that does a disservice to those voices that quite passionately advocate moar.

    They genuinely believe that more work, more output, more deficit spending, more higher education, more home equity, more development and infrastructure, more aggregate activity, will improve society. It is a moral calling they see, and it is quite distinct from the perspective that we should live differently. We can't paper over how deep that chasm is between those that want full employment and those that want a world where less is more. One irony of the post-Keynesian (and post-Bretton Woods) MMT world is that Keynes himself thought we'd only need to be working a few hours a week by now. Capital accumulation was the great liberator of our time, to allow us human beings to do more important and exciting (and less polluting) things than go to work. But the secularization of the puritan work ethic – the notion that human life is directionless without an authoritative (and fatherly) figure to give direction – dies hard.

    bdy

    And for whatever reason, the less-is-more crowd isn't so much in the habit of proposing actionable ideas. We might consider that dismissal and scorn are nothing more than rhetorical tools in a conversation about power. (See Ghandi or Nicholas Klein: "first they ignore you…")

    – We can tax excessive consumption at the rate of its externalities, even (and especially) for necessities like food, water and housing
    – We can publicly fund taking people and institutions off of the grid.
    – We can publicly fund light industry and massive agricultural infill in our cities.
    – We can lift property taxes and subsidize rents for anyone who walks or bicycles to work.
    – We can tax energy in direct proportion to the loss rate of whatever grid carries it.
    – We can enable the State to enter the Market wherever a discernible demand is not being met, as consumer or provider (see giving medicine to sick children or eating unadulterated food)
    – We can scrunch city streets to the size of cart paths, confiscate any vehicle that exceeds 25 mph, shade everyone's windows, turn off our a/c, criminalize the use of drinking water for anything but drinking, locally compost all our bio-waste, end the industry of converting sunlight to meat, criminalize bulk possession of any bio-toxin, enforce a 25 hr / 3 day work week with no overtime, revoke the commerce clause (or not), buy back guns at triple the sticker price and melt them into strollers and windmills…

    It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

    Naomi Klein reads like USA Today, but The Shock Doctrine is right. The inevitability of scarcity means that crises will escalate. And with each escalating crisis, the most unthinkable ideas will become potentially acceptable (including comic-book nastiness like a nuclear first strike; ethnic cleansing in Kansas; a 0% capital gains tax; or declaring global, never-ending war against non-christians terror).

    If enough of us agree that shit is really going South in a bucket, and that the Fiat dollar allows us to spend relatively freely on things like war in Iraq; QE; or mitigating the disruption of mass industrial shrinkage, then we should also agree that the "actionable" in actionable ideas is all encompassing. Because the next time someone flies a false flag or blows up a critical asset class, the table will be in dire need of transformative food for thought.

    washunate

    It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

    Yep. I think that's one of the characteristics that makes proposals to do less (for example, tax the rich or end the drug war or scale back IP law) the most realistic in a system as corrupt intellectually and financially as ours is today.

    It's the first rule of holes: stop digging. Almost all of the big ideas to do more require an infrastructure of good faith management that simply doesn't exist.

    Brooklin Bridge

    Thanks for the link. That is a very interesting and well written article, worth reading and re-reading since it gives a good perspective on many issues. But you should also take into account that it (and all the links inside it) was written in 2012 and the costs of producing renewable energy are dropping to such an extent (like compound interest) that they are changing the nature of the issue.

    Moreover, the argument the article makes doesn't negate the need to transition to renewables; rather it acknowledges that need but emphasizes the gains of doing so locally in support of (as alleviation to) the current centralized power model rather than immediately replacing it. My argument about corruption below, I think, is one of the reasons that this effort has not gone further. Example, Hawaii, where electric utilities have had considerable success in halting renewables at the local level by individuals due to fear of reduction in profits.

    Brooklin Bridge

    Note, the fear of reduction in profits isn't entirely without merit. But what is without merit is the capitalist system that makes it possible for the utilities to win a battle for profits in a war for existence.

    jgordon

    The article is even more relevant than it was in 2012; the issue is not the cost of a solar panel, which is perhaps the least important cost in the process. Rather, it's the way our infrastructure is set up. The centralized utility/grid model is still just as incompatible with renewable energy today as it was in 2012.

    It's possible that we could all have a solar panel array and a windmill directly adjacent to the demand–but we'll still have to cut our energy consumption by 95%. In that kind of a world, things like personal passenger vehicles and the internet will not exist. I'm looking forward to it.

    hidflect

    The primary issue is one polite society refuses to address: population.

    jsn

    That is the issue that makes it "possibly the ultimate coordination problem". The moral reality of billions of lives lie in the balance of the actions one takes or doesn't take. That weight may be among the biggest barriers to responsible action: those who aspire to be responsibleare the most unnerved by this issue.

    washunate

    I'm much more optimistic on that front. Population is not a large coordination problem because there is no scaling needed to have fewer kids later in life (at least until the authoritarians perfect their Huxley Bokanovsky groups, I guess). Those are individual choices that can be made at the ultimate local level.

    It's already happening all around the globe, and outside of China, it's mostly happening as a genuinely free choice made available by the intersection of reproductive healthcare and a basic standard of living. It's almost like our species subconsciously recognizes the value of reducing the total population. Even against the stern worrying of the Serious People that declining birth rates threaten The Economy(TM).

    Ignacio

    +1, an other perceptive comment.

    Also the 'population problem' is a relative problem to consumption, resources and distribution. Population will plateau at some point during this century.

    There is no such thing as 'population problem' with the appropriate policies if the population does not go beyond 10 bill. (and old people consumes much less, by then humanity will be aging, damn, it already is in developed nations).

    The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now.

    jsn

    Right now the real resources ratchet is producing civil wars and mass migrations, for instance, among other problems that are just beginning to blossom.

    It isn't population per se that is the coordination problem, it is equitable distribution of diminishing real resources in real time to support it without mass die offs that is.

    So far industrial overshoot is playing out with all the harbingers of collapse which will solve the distribution problem by natural selection. The coordination problem is to solve the distribution problem ethically to prevent nature taking its course.

    Nature bats last, so the trick is to keep the inning going.

    MikeNY

    I think this is true, and there are two big reasons for it:

    1. It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets
    2. If flies in the face of certain religious teachings on sexuality

    Both of these need to be rethought.

    Eric Patton

    The article does not mention the word "capitalism" even once.

    Private enterprise market economies - capitalism - are literally incompatible with reduced emissions. As long as we have a private enterprise economy with market-based allocation, we will simply continue to destroy the planet.

    Private enterprise centrally planned economies, public enterprise centrally planned economies, and public enterprise market economies have all existed in real life: Nazi Germany, the former Soviet Union, and the former Yugoslavia. None of these are viable alternatives to capitalism, if the goal is reduced carbon emissions.

    People are not yet ready to discuss the alternative though. This is not good.

    JTMcPhee

    …it's not "market based allocation," unless one does a little trick with definitions and categories– I'd call it "corruption based allocation," with a secondary diagnosis of terminal metastatic idiotic greed…

    Pwelder

    This post is OK as far as it goes, but it misses a couple of realities in the current situation that are relevant to finance and politics when viewed – as Yves does – from 50,000 feet.

    First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line.

    Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade..

    Why should progressives care? Many good reasons, but the big one I haven't seen mentioned is this: There's a good chance the spike lands smack in the middle of the 2016 election. That being the case, this is probably not a great time to be parading around bragging about successes in blocking pipelines and keeping the oil on trains.

    MrColdWaterOfRealityMan

    There are a number of issues not mentioned that factor into any prediction:

    1) Oil isn't electricity. It's not used the same way and currently can't be used the same way. There are no electric airplanes, freight trains or cargo ships. Despite innumerate claims to the contrary, no current battery technology is capable of replacing hydrocarbon fuels. The volumetric energy density is not there and won't be for the foreseeable future.

    2) Price is a proxy for energy return. Prior to the current overproduction glut (the equivalent of squeezing a sponge harder for a few seconds), oil became expensive because acquiring it from fracking or drilling in deep water is more expensive, both energetically and economically. Despite the current overproduction blip, the upward pricing trend will inevitably continue.

    3) Production breakdown will be nonlinear. The world's current interdependent, global, just-in-time supply chains depend on *cheap* oil to be economical. When oil prices jump again, as they inevitably will, these will start breaking down in unpredictable ways as production and transportation costs increase. This affects everything, including the price of oil

    4) Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while.

    Oildusk

    I was involved in a book entitled the Carbon Conundrum, by Bob Kelly. Bob has a PDH in economics from Harvard. He mapped out the anticipated volume of fossil fuels remaining and it's impact on the world climate. His take was that we'd run out of oil in the not too distant future and that it would take the world about 500 years to get back to pre-industrial carbon levels.

    My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change.

    While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range, I remember twelve years ago when I couldn't persuade the bank to provide me with a price deck above $30 a barrel so that I could make some energy investments. Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more.

    The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure.

    Energy transitions are difficult and the actual path will make a huge difference in where we are as a species in the next 100 years.

    Ignacio

    There are different ways of looking at the energy issue depending on where do you live and I appreciate very much the insigths from Mumbay, India. I live is Spain and I have a different view. India is growing briskly while spain is stagnated and will be so for years to come it seems. Instead of growing fossil fuel consumption we have seen a quite noticeably decline, particularly for petrol products. Since the beggining of the crisis, petrol products consumption has declined by 28% (From 75 million tons annually in 2015-2017 to 54 million tons in 2014). Domestic oil production covers less than 1% of total consumption. We depend almost totally on oil imports.

    The observed decline has been caused of course by the financial crisis and high oil prices. Nevertheless, I bet that in Spain we have already seen an all-time peak oil consumption. Of course, lower oil prices are now playing in reverse and 2015 will see a modest rise in petrol products consumption for the first time since 2007. Nevertheless the observed decline shows clearly that an economy can function with much lower oil energy input. And there is still a lot of room to reduce consumption.

    A country like Spain, totally dependent on oil imports and crushed by bad debt is very sensitive to oil price volatility and there are many economic incentives to reduce oil consumption and replacement with renewables. In a depressed economy like ours, every euro/dollar saved on imported petrol products has a multiplier effect on growth. Besides, pressure is mounting from the side of public health (toxic emissions from gasoil, fueloil and kerosene) and climate protection. Spain has not the size nor the population of India and its international impact is small. But it migth become an advanced laboratory trial to test the end of the Oil Age.

    DanB

    You write, "While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range…" Actually, the reason the price is low is due to the scarcity of cheap light sweet crude oil. We're seeing more and more people unable to afford more and more of life's necessities while simultaneously the cost of extracting oil is increasing (along with bankruptcies and mergers among energy companies to fend off the inevitable consequences of peak oil on debt, finance and the economy.) Low prices do not mean a glut of oil; they signal just the opposite. And then we have a neoliberal political/economy that worsens the matter.

    susan the other

    I agree and I'm convinced that every government on Earth agrees. What I see playing out between the Saudis-Qataris and the Russians is a struggle to control natural gas. The Gulf wants to pipe gas thru Syria and turkey to the EU. Russia wants to pipe gas from the Caspian to southern Europe. France wants to gain a share of the gas fields belonging to Egypt and get in on the action. It looks like Iran intends to supply China with natural gas via a pipeline thru Pakistan. What this looks like is a pact among the producers to leave oil in the ground after a certain window of time needed to switch to natural gas and then the reduction of the use of natural gas as it is replaced by renewables. The Saudis are using their natural advantage to sell as much of their oil as they can before the window closes. Maybe.

    john c. halasz

    The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives.

    Gaianne

    One hesitates to add to an overly long thread.

    Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration.

    Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use.

    Photovoltaic technology is a mid-term, niche, small-scale amelioration. It cannot power the grid, and it cannot replace the grid. Until panels can be made without rare-earth elements, the supply is seriously constrained by geology. Even if they are freed from rare-earths, the high technology and long suppy chains mean they will not go more than a few decades into the future.

    The grid itself will go down, region by region, never to return.

    Those of us who use photovoltaics know they are wonderful for the small-scale low-power applications to which we put them. And of no use for the high-energy large-scale schemes we keep hearing about.

    Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story.

    There is much to be done nonetheless. Learning to live will less, and on things which can obtained locally, is both possible and necessary. Managing local, available sunlight for heating and cooling was well researched (and ignored) back in the 1970s. Much can be done on a small, local scale.

    Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade.

    –Gaianne

    Steven

    Just about the best take I've found on this subject – and on money and economics – is Frederick Soddy's "Wealth, Virtual Wealth and Debt" (2nd edition). Here are some samples:

    The first bullet obviously goes far beyond mere oil wars. Ecology 101 says we can't turn the earth into one wriggling mass of humanity, that other forms of life are necessary to sustain our existence. You've heard variations of the second bullet before, e.g. Oscar Wilde describing the Anglo Saxon version of economics: "they know the price of everything and the value of nothing."

    If the third bullet doesn't ring a bell, you have been listening to too much Fox news. The military industrial complex gained its death grip on the American economy in the aftermath of a Great Depression that left America's financial and political leadership with a profound fear of the return of peace. At stake was not just unparalleled political and military hegemony but the power to create money ex nihilo and exchange it for the world's wealth.

    [Oct 21, 2015] If Caterpillars Data Is Right, This Is A Global Industrial Depression

    Zero Hedge
    Caterpillar has seen 34 consecutive months of declining global sales, and 11 consecutive months of double digit declines!

    Why is this important? Because a month ago we asked: "What On Earth Is Going On With Caterpillar Sales?"

    We have been covering the ongoing collapse in global manufacturing as tracked by Caterpillar retail sales for so long that there is nothing much to add.

    Below we show the latest monthly data from CAT which is once again in negative territory across the board, but more importantly, the global headline retail drop (down another 11% in August) has been contracting for 33 consecutive months! This is not a recession; in fact the nearly 3 year constant contraction - the longest negative stretch in company history - is beyond what most economists would deem a depression.

    We got the answer just three days later when the industrial bellwether confirmed the world is now in an industrial recession, when it not only slashed its earnings outlook, but announced it would fire a record 10,000.

    Moments ago, CAT reported its latest monthly retail sales and they were even worse than last month: in the month of September there was not a single region that posted either a increase of an unchanged print. This was the first month in all of 2015 in which every region posted a drop.

    Putting CAT's result in context, the Great Financial Crisis resulted in 19 consecutive months of sales declines. We are currently at 34 months and showing no signs of any pick up.

    As such, based on CAT's ongoing shockingly bad retail sales we wonder if it is no longer merely a global recession: perhaps that time has come to call it what it really is - a global industrial (at first) depression, which has so far been hidden from plain view thanks to $13 trillion in central bank liquidity, whose marginal impact is evaporating by the day and a Chinese credit machine which recently hit a brick wall.

    [Oct 21, 2015] Economic Impossibilities For Our Grandchildren Examining Secular Stagnation

    Video of the lecture by lecture! O'Rourke's: Economic impossibilities for our grandchildren? A lecture by Professor Kevin O'Rourke
    Notable quotes:
    "... I would suggest that right wing policy shoveling all the income and wealth gains into the pockets of a few rich plutocrats are incompatible with economic growth. ..."
    "... But why is inequality rising in nearly all societies worldwide (including the northern European societies)? Could it be that sovereign governments are trapped in a race for current-account surpluses and improve their current-account balances by transferring income from consumer households to saver/investor households (and in some cases, such as Saudi Arabia or China, governments)? See Michael Pettis, The Great Rebalancing ..."
    Oct 21, 2015 | Economist's View

    RC AKA Darryl, Ron said...

    I listened for quite a while hoping for something that sounded like an actual insight but never got past why Hansen became Keynesian. Capitalists do not need to be euthanized. Capitalists are suicidal. They would rather bet their money in a Wall Street casino than pay wages high enough for their customers to buy their goods because they keep forgetting that their workers ARE their customers. Trade deficits driven by offshoring are one of the most effective ways of making capital more efficient while simultaneously lowering wages and aggregate demand including even for those goods our corporations produce offshore.

    If per capita income/demand falls, prices are stable, and profit margins increase then volume is bound to fall.

    Jan said...

    Great lecture! O'Rourke's close attention to both the history of economic thought and economic history sets him apart (above) most of the debate on secular stagnation.

    According to Martin Wolf, world interest rates were unusually low from about 1895 until WWI and lower still during the 1920s. This suggests that secular stagnation might be a chronic problem. Perhaps Hansen is right that humans normally save too much. Or perhaps the interaction among sovereign states in a global economy causes a secular trend of rising world savings. Or perhaps something else. What do you think?

    DeDude said in reply to Jan...

    I would suggest that right wing policy shoveling all the income and wealth gains into the pockets of a few rich plutocrats are incompatible with economic growth. There is a reason that the Scandinavian countries are so wealthy (in spite of 5-6 week annual vacation etc.).

    DeDude said...

    The economy IS consumption. Even the 30% of GDP that is not direct consumption is not going to grow unless consumption is growing. So to grow the economy you either increase private sector consumption or you increase public sector consumption. The only way to obtain a sustainable increase in private sector consumption is to get a better income and wealth distribution away from investor class and into consumer class pockets. Alternatively, when the private sector resist increased consumption you have to increase public sector consumption (financed either by debt or by taxing the investor class). GDP is not rocket science, it is 5th grade math.

    Jan said...

    I totally agree (and so does Summers) that growing income inequality is a proximate cause of excess saving and, hence, secular stagnation.

    (By the way, although the USA is commonly perception as a profligate spender, the USA private sector's ratio of wealth (accumulated saving) to consumption has risen by about 5% since 1980. So contrary to the common perception, the USA's private sector has been contributing to the growth of the world saving glut.)

    But why is inequality rising in nearly all societies worldwide (including the northern European societies)? Could it be that sovereign governments are trapped in a race for current-account surpluses and improve their current-account balances by transferring income from consumer households to saver/investor households (and in some cases, such as Saudi Arabia or China, governments)? See Michael Pettis, The Great Rebalancing, on how sovereigns improve their current account balances. (Warning: you won't find Pettis's brilliant exposition in an International Economics textbook, which is stuck in the neoclassical obsession with allocative efficiency and, hence, "free trade.")


    [Oct 18, 2015] Oil Market Showdown Can Russia Outlast The Saudis

    The author is pretty naive assuming the KAS can decide to move oil prices without the USA blessing and the US controlled financial market support of such a move. In a sense it's no longer KAS that determine the oil price, it's Wall street as volume of "paper oil" exceeds "real oil" by several times now. Making oil more like a play in another currency. Also probably some tangible or intangible compensation was promized for KAS for putting pressure on Russia.
    Oct 18, 2015 | OilPrice.com

    The Saudi government is also scrambling. After an eight year hiatus from issuing sovereign debt, the Saudi government announced a plan during the summer to borrow $28 billion in 2015 and launched the borrowing with a $5 billion offering in August. The Ministry of Finance has banned contracts for new projects, hiring and promotions, and purchase of vehicles or furniture in the fourth quarter, while the newly created Council for Economic and Development Affairs must now approve all government projects worth more than $27 million. The Saudi government also is preparing to privatize airports and contemplating seeking private financing for infrastructure projects.

    Related: Airstrikes Have Yet To Stop ISIS Oil Industry

    The budget situation puts the Saudi government in a difficult situation. On the one hand, the size of the deficits requires drastic cuts in spending, but such drastic cuts would impact politically sensitive areas such as energy subsidies, government employment opportunities for Saudi citizens, education, and economic development projects. On the other hand, depleting Saudi government reserves to finance the deficits will put the Saudi sovereign credit rating at risk, which would raise the cost of borrowing as well as pressure the Saudi currency (the consequences of which are discussed below).

    [Oct 14, 2015] Strategist We've Hit 'Peak Negativity' in the Energy Sector

    "... a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther. ..."
    "... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

    "... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

    "... Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects ..."
    finance.yahoo.com

    Earlier this year, Bank of Montreal Chief Investment Strategist Brian Belski called energy stocks a value trap.

    He has become more constructive, upgrading the sector to market weight, from underweight.

    A confluence of factors influenced the strategist's decision to "neutralize" his portfolio position for both U.S. and Canadian energy stocks. The first is that the sector has reached what he called "peak negativity," underperforming the Standard & Poor's 500-stock index by the most since 1986, when the last supply side-driven crash in oil prices occurred.

    Second, a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther.

    "Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects," he wrote.

    "Energy sector growth expectations in Canada have come down significantly, but still remain too optimistic given the oil price outlook and especially when compared to estimates for the U.S.," he added.

    ... ... ...

    In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be."

    But the "pain trade," Belski now says, is for energy stocks to move higher.

    [Oct 10, 2015] The danger of the succession war in Saudi Arabia

    "... That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founders family could find themselves disenfranchised. ..."
    "... Todays Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko ..."
    "... In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdoms foreign policy for nearly four decades. ..."
    "... But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the kings third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabias newly assertive stance in the region, including its military intervention in Yemen. . . . ..."
    "... some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him rash and impulsive. And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . . ..."
    "... The prince, one of the grandsons of the states founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January. ..."
    Oct 10, 2015 | peakoilbarrel.com
    coffeeguyzz, 10/07/2015 at 6:12 am

    WTI just hit $49.50 this AM

    Reports are coming out of KSA that King Salman is in a hospital in critical condition.

    Jeffrey J. Brown, 10/07/2015 at 7:28 am

    In regard to Saudi Arabia, I usually reference "On Saudi Arabia," which was published in 2013. Following is a link to, and excerpt from, Chapter One:
    http://www.amazon.com/gp/product/0307473287?ie=UTF8&isInIframe=0&n=283155&ref_=dp_proddesc_0&s=books&showDetailProductDesc=1#product-description_feature_div

    What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder's family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder's two eldest sons after his death in 1953.

    Today's Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko-before Gorbachev took power with reform policies that proved too little too late. "They keep dying on me," Ronald Reagan famously said of the four Soviet leaders he dealt with in less than three years. The next U.S. president almost surely will have the same experience with ailing Saudi rulers.

    An article from April, 2015:

    King Salman of Saudi Arabia Changes Line of Succession
    http://www.nytimes.com/2015/04/29/world/middleeast/king-salman-of-saudi-arabia-changes-line-of-succession.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

    BEIRUT - King Salman of Saudi Arabia issued a series of surprise royal decrees early Wednesday, shaking up the line of princes slated to succeed him to the throne, replacing a number of ministers and further enhancing the power of his own line.

    In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdom's foreign policy for nearly four decades.

    The moves show Salman is shifting further away from the legacy of his predecessor, King Abdullah, who died in January.

    Saudi Arabia has joined a United States-led coalition that is bombing the militants of the Islamic State in Syria and Iraq. It is also leading a bombing campaign against Houthi rebels who have seized a large portion of territory in neighboring Yemen. The new appointments are unlikely to lead to big changes in these policies.

    Of all the changes, the reordering of the line to the throne is likely to draw the most scrutiny inside the kingdom because of competition between branches of the sprawling royal family for positions leading to the throne.

    An article from June, 2015:

    Surprising Saudi Rises as a Prince Among Princes
    http://www.nytimes.com/2015/06/07/world/middleeast/surprising-saudi-rises-as-a-prince-among-princes.html?_r=0

    RIYADH, Saudi Arabia - Until about four months ago, Prince Mohammed bin Salman, 29, was just another Saudi royal who dabbled in stocks and real estate. He grew up overshadowed by three older half brothers who were among the most accomplished princes in the kingdom - the first Arab astronaut; an Oxford-educated political scientist who was once a research fellow at Georgetown and also founded a major investment company; and a highly regarded deputy oil minister.

    But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the king's third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabia's newly assertive stance in the region, including its military intervention in Yemen. . . .

    The sweeping changes have thrust the young prince into power at a time when Saudi Arabia is locked in a series of escalating conflicts aimed at defending its vision of the regional order and holding back its chief rival, Iran. The kingdom is financially sustaining the rulers of Egypt and Jordan and propping up the Sunni monarchy in neighboring Bahrain against a revolt by its Shiite majority. It is also arming rebels in Syria against the Iranian-backed president, fighting in the United States-led air campaign over Iraq and leading its own air assault on an Iranian-backed faction in Yemen. And it is ramping up its military spending even as plunging oil prices and growing domestic expenditures have reduced its financial reserves by $50 billion over the last six months, to less than $700 billion.

    "The king has put his son on an incredibly steep learning curve, clearly," said Ford M. Fraker, the president of the Middle East Policy Council and a former United States ambassador to Saudi Arabia. "The king is obviously convinced he is up to the challenge." But some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him "rash" and "impulsive." And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . .

    Prince Mohammed's three older half brothers - sons of their father's first wife, Sultana Bint Turki Al Sudairi, who died in 2011 - all have distinguished résumés and were once considered contenders for top government roles. . . .

    Prince Mohammed, however, is the firstborn son of the King Salman's third and most recent wife, Fahda bint Falah bin Sultan, who worked hard to promote him as his father's successor, according to Western diplomats who know the family, several family members and associates who have worked for the family.

    "He is her eldest," said one longtime associate who works closely with the clan. "For her, he is her glory at the end of the day."

    Someone recently posted a story about a memo circulating among the Saudi Royal family that was highly critical of King Salman and his designated successors.

    Saudi royal calls for regime change in Riyadh (September 28, 2015)
    http://www.theguardian.com/world/2015/sep/28/saudi-royal-calls-regime-change-letters-leadership-king-salman

    A senior Saudi prince has launched an unprecedented call for change in the country's leadership, as it faces its biggest challenge in years in the form of war, plummeting oil prices and criticism of its management of Mecca, scene of last week's hajj tragedy.

    The prince, one of the grandsons of the state's founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January.

    The prince, who is not named for security reasons, wrote two letters earlier this month calling for the king to be removed.

    "The king is not in a stable condition and in reality the son of the king [Mohammed bin Salman] is ruling the kingdom," the prince said. "So four or possibly five of my uncles will meet soon to discuss the letters. They are making a plan with a lot of nephews and that will open the door. A lot of the second generation is very anxious."

    "The public are also pushing this very hard, all kinds of people, tribal leaders," the prince added. "They say you have to do this or the country will go to disaster."

    Saudi King Hospitalized for Dementia (October 6, 2015)

    http://en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

    Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.

    The sources also said that given the Saudi king's unstable and aggravating health conditions, officials have ceased plans to transfer him to US hospitals.

    Old Farmer Mac, 10/07/2015 at 2:29 pm

    http://www.cnbc.com/2015/10/07/russia-saudi-oil-cooperation-is-hogwash-kilduff.html

    I agree with this guy, the chances imo of the Russians and the Saudis getting together to cut back on oil production are exceedingly slim to approaching zero.

    My opinion is based not on their finances but on their rivalry. The Saudis have a LOT of reasons to fear and hate the Russians and to try to bankrupt them.

    [Oct 10, 2015] Oilfield cannibals: to save cash, US drillers strip idle rigs

    "... (Cannibalization) will slow the industrys ability to ramp the rig count back up so it will delay the production response from oil prices, ..."
    "... While there are no official statistics available, cannibalization has been so pervasive in this slump that industry experts say it is possible a majority of the 1,100 rigs that are not working have been scoured for parts. ..."
    "... Investors, still seeing an oversupply of rigs, and are encouraging companies to scrap more rigs to halt the slide in daily rental rates, now around $20,000, depending on the rigs speed and power. ..."
    "... However, the scrapping of more rigs would likely increase the number of those ripe for cannibalizing, analysts said. ..."
    "... Our U.S. domestic customers, the oil producers, are shutting off all capital spending on just about anything, said Hewell, whose Houston company is backed by Houston-based private equity firm Global Energy Capital LP. ..."
    "... The current US active rig count is 809. The 2014 peak level was 1931. In 2011 rig count exceeded 2000. Total number of oil and gas rigs, including rigs idled for long-term, was close to 3000. The common view among experts is that when drilling activity rebounds active rig count will is unlikely to exceed 1200-1400 units. ..."
    Oct 10, 2015 | peakoilbarrel.com

    AlexS, 10/07/2015 at 8:50 am

    Interesting trends in the US onshore drilling sector:

    Oilfield cannibals: to save cash, U.S. drillers strip idle rigs

    http://www.reuters.com/article/2015/10/07/us-oil-services-parts-idUSKCN0S109S20151007

    In a bid to save cash, rig owners are cannibalizing parts such as motors and drill pipe from idled rigs to fix 800 active ones in the U.S. when stuff breaks.

    In good times, they would buy new equipment … when parts fail. Now, they just pick over any of about 1,100 rigs idled by the price crash.

    Cannibalization is so widespread in this downturn that services companies and others say even after oil prices recover it will take six months or more to see a significant rebound in drilling and production – a timeframe that will allay fears of a quick uptick in drilling promptly sinking prices again.

    NOV [National Oilwell Varco] has said so many rigs are idled that firms could cannibalize drill pipe for up to a year before placing new orders.

    "(Cannibalization) will slow the industry's ability to ramp the rig count back up so it will delay the production response from oil prices," said James West, oilfield services analyst with Evercore ISI.

    While there are no official statistics available, cannibalization has been so pervasive in this slump that industry experts say it is possible a majority of the 1,100 rigs that are not working have been scoured for parts.

    Land rig utilization is hovering around 60 percent for larger U.S. drilling contractors, according to data from Tulsa, Oklahoma-based Helmerich & Payne Inc, which has a higher utilization rate because it has a fleet of newer rigs.

    There are lots of spares available because the U.S. rig fleet was near a 15-year high when prices started to tumble.

    Investors, still seeing an oversupply of rigs, and are encouraging companies to scrap more rigs to halt the slide in daily rental rates, now around $20,000, depending on the rig's speed and power.

    "Companies have to continue to scrap idle rigs and do all that they can to balance supply with demand," said Robert Thummel, a portfolio manager at Tortoise Capital Advisors.

    However, the scrapping of more rigs would likely increase the number of those ripe for cannibalizing, analysts said.

    To escape the downturn gripping the U.S. shale market, Premium Oilfield is expanding in the Middle East.

    "Our U.S. domestic customers, the oil producers, are shutting off all capital spending on just about anything," said Hewell, whose Houston company is backed by Houston-based private equity firm Global Energy Capital LP.

    AlexS, 10/07/2015 at 12:51 pm

    Ves,

    The current US active rig count is 809. The 2014 peak level was 1931. In 2011 rig count exceeded 2000. Total number of oil and gas rigs, including rigs idled for long-term, was close to 3000. The common view among experts is that when drilling activity rebounds active rig count will is unlikely to exceed 1200-1400 units.
    Furthermore, there is a constant shift towards newest and most efficient rigs.
    I am sure that most rigs that drilling companies are disassembling are relatively old and will never be needed.

    Ves, 10/07/2015 at 1:44 pm

    Alex,

    I am not sure that I would agree that explanation on justification for disassembling the rigs.

    1) "Experts" predict that rig count will not likely exceed 1200-1400 rigs.

    Well then why these experts did not foresee collapse in 2013-14 and advise drilling companies to rain spending on the new rigs? The simple truth is that their opinion is worth it as much yours or mine.

    2) Second justification that they are disassembling rigs are relatively old and will never be needed is also weak. They need them now because the parts that are taking from them are for the rigs that are drilling right now. So these are not obsolete rigs. They do serve the function.

    3) And the third about constant shift towards newest and most efficient rigs. Well my question is did the drillers retired the loans that they got for the current rigs? With huge decline in the rig rates the answer is clearly not. So the question is where they will find capital to buy newer and fancier rigs? They will not get it. So that is why this is delusion on their part.

    AlexS, 10/07/2015 at 2:39 pm

    Ves,

    U.S. oil & gas active rig count remained within a relatively narrow range between 1700 and 2000 for almost 4 years, while US C+C production increased from 5.5 mb/d to 9.5 mb/d, and natural gas and NGL production was also increasing.

    Drilling companies were actively modernizing their drilling fleet, so there were also about 1000 permanently idled old rigs.

    There is no doubt that all existing rigs will not be needed even if the drilling activity rebounds.

    (1) Shale production will increase at much slower rates, and the drilling frenzy of 2011-14 will not be repeated.

    (2) New rigs are more efficient and

    (3) The is a constant shift to pad drilling

    Thanks to (2) and (3) less rigs are needed to drill the same number of wells.

    (4) If the demand for rigs start ito rise, customers (the E&P companies) will require newer and more efficient rigs, so there is no need to store old rigs.
    Remember the 80's, when 3/4 of U.S. rigs were scrapped

    Old Farmer Mac, 10/07/2015 at 2:25 pm

    It has been common practice almost forever to strip parts off of idle equipment in slow times to keep equipment still on the job running.

    For example, a couple of EXPERIENCED guys with a boom truck can remove a twenty thousand dollar (used) diesel engine from a dozer in half a day – and put it in a dozer on the job in another day and a half.

    The bad engine that comes out can be put in the maintenance shop for a rebuild at leisure and installed in the donor dozer at leisure or kept on a pallet for a ready spare.

    This way the mechanics are kept busy, helping keep the crew together, the dozer on the job gets fixed pdq, and the twenty or thirty grand needed to purchase a rebuilt or used running engine in a hurry is conserved to help the company get thru bad times.

    Almost nothing is actually LOST except a day or two day of labor. The cost of that labor is apt to be less than the cost of a rental dozer for a couple of days.

    Now I have never been around an oil rig, but I bet a five hundred horsepower weather proof electric motor can be removed in a day and that a new one would cost at least fifteen or twenty thousand and probably more.

    Getting a bad one rewound would most likely take at least a week to a month because when times are slow for contractors, they are generally pedal to the metal for the specialists who fix stuff contractors cannot fix in their own maintenance shops.

    Any large company that uses a lot of big diesel engines most likely has in house diesel mechanics. But electric motors are so dependable hardly any company has enough to maintain their own electric motor shop – so they get sent out.

    Having said all this, older machines are indeed frequently robbed to the point they are never put back in service.

    Manufacturers expect to make more money on parts than they do on selling new equipment, over the years. If you go to a heavy truck dealer and ask for the prices of the fifteen or twenty most expensive parts of a given truck, the total will exceed the price of a complete truck by a wide margin.There would be a thousand parts still to be bought to assemble a truck.

    It doesn't cost THAT much to keep parts in a warehouse and ship them to a dealer. Parts are THE profit center- along with the service department of course.

    It is totally common place for a dealer to bill labor at five or more times what a mechanic makes.

    People who sell new parts like to make fun of used parts, but the fact of the matter is that as soon as you drive a car off the dealer lot, with ten miles or less on the odometer, EVERY single part of it is a USED part.

    [Oct 09, 2015] Bank Of England Tells British Banks To Reveal Their Full Exposure To Glencore And Other Commodity Traders

    See Glencore - Wikipedia: "According to an Australian Public Radio report, "Glencore's history reads like a spy novel".[14] The company was founded as Marc Rich & Co. AG in 1974 by billionaire commodity trader Marc Rich, who was charged with tax evasion and illegal business dealings with Iran in the US, but pardoned by President Bill Clinton in 2001.[15] He was never brought before US courts before his pardoning, therefore there was never a verdict on these charges."... "In 2005, proceeds from an oil sale to Glencore were seized as fraudulent, in an investigation into corruption in the Democratic Republic of Congo (Allen-Mills 17 June 2008)" ... "In May 2011 the company launched an IPO valuing the business at US$61 billion[26] and creating five new billionaires.[27] Trading was limited to institutional investors for the first week and private investors were only allowed to buy the shares from 24 May 2011." ... "A BBC investigation in 2012 uncovered sale documents showing the company had paid the associates of paramilitary killers in Colombia. In 2011, a Colombian court had been told by former paramilitaries that they had stolen the land so they could sell it on to Glencore subsidiary Prodeco, to start an open-cast coal mine; the court accepted their evidence and concluded that coal was the motive for the massacre. Glencore refuted the allegations" ... ""In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador" due to questions about transparency and follow-through, according to Fernando Villavicencio, a Quito-based oil sector analyst." ... A visual Relationship Map of Glencore executive board and stakeholders with their connections.
    Oct 09, 2015 | www.zerohedge.com

    Overnight we got confirmation that Glencore has indeed become a systemic risk from a regulatory standpoint after the FT reported that the Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump. Or, in other words, their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.

    Dr. Engali

    The BOE is trying to figure out who is going to need a bail out before shit hit the fan.

    Edit: Oh by the way, that 11% move to the upside is short covering not a sign that Glencore is okay you dumb fucks.

    "The shares jumped as much as 11 percent in London". "Analysts promptly cheered the move"...., Idiots.

    junction

    Why is the Bank of England protecting Stemcor, the mining giant owned by the Oppenheimer family? Former PM Tony Blair is probably the person responsible, protecting MP Margaret Hodge She should have been sent to prison in 1994 for her role in protecting the pedophile ring operating in the London Borough of Islington instead of going to Parliament. Hodge is an Oppenheimer family member who backed Blair.

    http://uk.reuters.com/article/2015/04/16/uk-stemcor-restructuring-steel-...

    Dubaibanker

    Glencore has closed Dubai office. https://www.difc.ae/glencore-investments-dubai-limited

    Glencore has closed Singapore http://www.theaustralian.com.au/business/news/glencore-to-close-down-sin...

    Glencore has sold Nickel project for pennies in Brazil http://www.reuters.com/article/2015/09/28/us-horizonte-glencore-idUSKCN0...

    Glencore has fired hundreds in Australia http://www.abc.net.au/news/2015-10-09/glencore-slashes-queensland-jobs-n...

    Glencore will fire thousands in Zambia and shut some operations http://www.reuters.com/article/2015/09/23/us-zambia-mining-glencore-idUS...

    Glencore has closed a mine in South Africa and laid off hundreds http://uk.reuters.com/article/2015/10/07/uk-glencore-safrica-idUKKCN0S11...

    I have heard they fired hundreds in Zug...does anyone have a link?

    Kayman

    "The BOE is trying to figure out who is going to need a bail out before shit hit the fan."

    More precisely, the BOE is trying to figure out how much money will be needed to stiff the taxpayers on behalf of their swill drinking friends.

    kliguy38

    Glencore was a massive Ponzi from the start and designed to fail. When it goes it will pull a 2 Trillion in derivatives down its rabbit hole. They know it and they're stalling for another bagman to take the derivatives. gl with that one.

    [Oct 09, 2015] Troubles with refinanciang in shale industry

    Oct 09, 2015 | peakoilbarrel.com
    AlexS, 10/06/2015 at 5:14 pm

    Willbros Group amends credit facilities

    October 5, 2015
    http://www.ogfj.com/articles/2015/10/willbros-group-amends-credit-facilities.html

    Willbros Group Inc. has completed amendments to its 2015 term-loan and ABL credit facilities. The amendments establish less-stringent term loan financial covenants beyond the end of the first quarter of 2016 that are designed to address the impact of current market conditions.
    Consistent with the company's expected revenue levels for 2016, the ABL commitment has been reduced from $150 million to $100 million, with an accordion feature to expand up to $175 million to accommodate future revenue growth.
    These amendments also enable Willbros to proceed with its asset sale initiatives, including the sale of its Professional Services segment, which will allow the company to strengthen its balance sheet through debt reduction.
    The amended financial covenants are more aligned with current market conditions and the company's performance objectives, and the amendments approve the sale of certain assets, including discrete assets that it may market in future periods. Net proceeds will be used primarily for debt reduction and secondarily for working capital.
    ====================================================
    PDC Energy extends maturity of revolving credit facility

    October 2, 2015
    http://www.ogfj.com/articles/2015/10/pdc-energy-extends-maturity-of-revolving-credit-facility.html

    PDC Energy Inc. has extended the maturity of its revolving credit facility by two years to May 2020. The borrowing base has been reaffirmed at $700 million of which the company has elected to keep its commitment level at $450 million.
    CFO Gysle Shellum stated, "We are very pleased with the support of our bank group and its agreement, given the current market conditions, to not only reaffirm our current borrowing base, but to also extend the maturity of the revolving credit facility by two years. This liquidity and flexibility provides us the ability to continue operating with a clear focus on maintaining favorable debt metrics and executing on our strategic vision of delivering shareholder value through continued production and cash flow growth, and strong returns."
    PDC Energy's operations are focused on the horizontal Niobrara and Codell plays in the Wattenberg field in Colorado and on the condensate and wet gas portion of the Utica shale play in southeastern Ohio.
    ===============================================

    Chesapeake amends revolving credit facility

    October 1, 2015
    http://www.ogfj.com/articles/2015/10/chesapeake-amends-revolving-credit-facility.html

    Chesapeake Energy Corp. has amended its five-year, $4 billion revolving credit facility agreement maturing in 2019 with its bank syndicate group.
    Key attributes include:
    • Facility moves to a $4 billion senior secured revolving credit facility from a senior unsecured revolving credit facility
    • The initial borrowing base is confirmed at $4 billion, consistent with current availability
    • Previous total leverage ratio financial covenant of 4.0x trailing 12-month earnings before interest, depreciation and amortization (EBITDA) is suspended
    • Two new financial covenants include a senior secured leverage ratio of 3.5x through 2017 and 3.0x thereafter, and an interest coverage ratio of 1.1x through the first quarter of 2017, increasing incrementally to 1.25x by the end of 2017.
    Chesapeake's credit facility may become unsecured when specific conditions set forth in the credit agreement are met. During an unsecured period, the total leverage ratio would be reinstated and the senior secured leverage ratio and interest coverage ratio would no longer apply. While Chesapeake's obligations under the facility are secured, the amendment gives Chesapeake the ability to incur up to $2 billion of junior lien indebtedness. As of Sept. 30, Chesapeake has $12 million in outstanding letters of credit under the facility with the remainder of the $4 billion available.

    AlexS, 10/06/2015 at 5:16 pm

    New Source Energy Partners updates on pending borrowing base deficiency

    September 29, 2015
    http://www.ogfj.com/articles/2015/09/new-source-energy-partners-updates-on-pending-borrowing-base-deficiency.html

    New Source Energy Partners LP, due to a pending borrowing base deficiency under its revolving credit facility, will be prevented from paying the quarterly cash distribution on its 11% Series A cumulative convertible preferred units.
    "While it was the Partnership's intention to pay this distribution, there are covenants in our credit agreement with our reserve based lending group that prevent our ability to make the payment while in a deficiency," said Kristian Kos, chairman and CEO. "We are not in a deficiency at this time. However, based on initial communication from our reserve based lending group, we expect to be in a borrowing base deficiency after our biannual redetermination takes place in early October, which will prevent us from making a distribution on Oct. 15. We will be working with our lenders to finalize the new borrowing base over the next several days, as well as exploring alternatives to remedy the deficiency to allow the Partnership to resume making distributions on the preferred units as soon as possible."
    New Source Energy Partners is an independent energy partnership engaged in the production of its onshore oil and natural gas properties that extends across conventional resource reservoirs in east-central Oklahoma and in oilfield services that specialize in increasing efficiencies and safety in drilling and completion processes.
    =====================================================

    Bill Barrett reaffirms borrowing base

    September 29, 2015
    http://www.ogfj.com/articles/2015/09/bill-barrett-reaffirms-borrowing-base-sells-certain-uinta-properties.html

    Bill Barrett Corp.'s (NYSE: BBG) semi-annual borrowing base review has been completed with the bank group reaffirming the $375 million borrowing base related to its revolving credit facility maturing in April 2020. The credit facility has $375 million of commitments and there are currently no borrowings under the credit facility.
    As part of the redetermination process, the company and its lender group agreed to amend the maintenance covenants in the revolving credit facility by replacing the leverage covenant limiting the maximum total debt to trailing 12-month EBITDAX ratio of 4.0x with a covenant limiting the maximum senior secured debt to trailing 12-month EBITDAX ratio of 2.5x through March 31, 2018, after which the leverage covenant reverts to a maximum total debt to trailing 12-month EBITDAX of 4.0x, as of June 30, 2018. In addition, an interest coverage ratio requirement was included, pursuant to which the ratio of EBITDAX to interest expense may not be less than 2.5 to 1.0 for each quarter through March 31, 2018.
    =======================================================

    Approach Resources confirms reaffirmation of lender commitments in credit facility at $450M

    September 28, 2015
    http://www.ogfj.com/articles/2015/09/approach-resources-confirms-reaffirmation-of-lender-commitments-in-credit-facility-at-450m.html

    Approach Resources Inc. has completed the scheduled semiannual borrowing base redetermination of its revolving credit facility, and as a result, the bank group has set the lender commitment amount and borrowing base at $450 million.
    Under the terms of the credit agreement, the bank group redetermines the borrowing base semiannually, using the banks' estimates of reserves and future oil and gas prices. The next borrowing base redetermination is scheduled to occur by April 1, 2016. As of Sept. 24, Approach had $276 million outstanding under its revolving credit facility, resulting in liquidity of $177 million.
    Approach Resources is an independent energy company focused on the exploration, development, production, and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas.

    AlexS, 10/06/2015 at 5:17 pm

    Enterprise increases capacity of bank credit facilities to $5.5B

    September 17, 2015
    http://www.ogfj.com/articles/2015/09/enterprise-increases-capacity-of-bank-credit-facilities-to-5-5b.html

    Enterprise Products Partners LP's operating subsidiary, Enterprise Products Operating LLC, has increased its bank credit facilities by $500 million to provide the company with up to $5.5 billion of aggregate borrowing capacity.
    The facilities consist of an amended $4 billion multi-year revolving credit agreement that matures in September 2020 and a new $1.5 billion 364-day revolving credit agreement, both of which are unconditionally guaranteed by Enterprise on an unsecured and unsubordinated basis. As of today, aggregate available borrowing capacity under the increased bank credit facilities is $4.7 billion.
    ==================================================

    Gastar borrowing base maintained at $200M

    September 1, 2015
    http://www.ogfj.com/articles/2015/09/gastar-borrowing-base-maintained-at-200m.html

    Gastar Exploration Inc. has completed its second scheduled borrowing base redetermination of its revolving credit facility for 2015 and, as a result, the borrowing base has been reaffirmed by the lending participants at $200 million.
    Currently, Gastar has drawn $65 million under its revolving credit facility, resulting in $135 million of unused borrowing capacity. The next scheduled borrowing base redetermination is to occur by May 1, 2016.
    Gastar's principal business activities include an emphasis on unconventional reserves, such as shale resource plays. In Oklahoma, Gastar is developing oil-bearing reservoirs of the Hunton Limestone horizontal play and expects to test other prospective formations on the same acreage, including the Meramec shale play (middle Mississippi Lime) and the Woodford shale play, which Gastar refers to as the STACK play. In West Virginia, Gastar is developing liquids-rich natural gas in the Marcellus shale play, and has drilled and completed two dry-gas Utica/Point Pleasant wells on its acreage.
    ========================================

    RSP Permian completes bolt-on Midland Basin acquisitions and increases borrowing base

    August 26, 2015
    http://www.ogfj.com/articles/2015/08/rsp-permian-completes-bolt-on-midland-basin-acquisitions-and-increases-borrowing-base.html

    RSP Permian Inc. closed an amendment with the lenders under its revolving credit facility that, among other things, increases the borrowing base 20% to $600 million. The company currently has no amounts drawn under its revolving credit facility and the next scheduled borrowing base redetermination is May 1, 2016.

    AlexS, 10/06/2015 at 5:21 pm

    Exterran Holdings secures financing to enable spin-off of businesses

    October 6, 2015
    http://www.ogfj.com/articles/2015/10/exterran-holdings-secures-financing-to-enable-spin-off-of-international-services-and-global-fabrication-businesses.html

    Exterran Holdings Inc. (NYSE: EXH) has provided an update to the planned financing in connection with its previously announced separation.
    In November 2014, Exterran Holdings said that it intends to separate its international contract operations, international aftermarket services, and global fabrication businesses into a stand-alone, publicly traded company named Exterran Corp. Upon completion of the spin-off, Exterran Holdings, which will continue to own and operate its contract operations and aftermarket services businesses in the US, will be renamed Archrock Inc.

    As previously announced, Exterran Corp. entered into a $750 million revolving credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Corp. amended and restated the credit agreement to provide for a new $925 million credit facility, consisting of a $680 million revolving credit facility and a $245 million term loan facility. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor.

    Availability under the new credit facility is conditioned upon the completion of the separation and the satisfaction of certain other customary conditions. The revolving credit facility will mature five years after the effective date of the separation transaction, and the term loan facility will mature two years after the effective date of the separation transaction.
    The new credit facility includes, among other covenants, financial covenants requiring Exterran Corp. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 3.75:1.00. Should Exterran Corp. refinance the term loan facility with the proceeds of certain qualified unsecured debt or equity issuances, the financial covenants in the revolving credit facility will be modified to require that Exterran Corp. maintain a total leverage ratio of not greater than 4.50:1.00 and a senior secured leverage ratio of not greater than 2.75:1.00, while the interest coverage ratio will not change. Such capitalized terms are defined in the amended and restated credit agreement.
    In connection with the spin-off, Exterran Holdings anticipates that Exterran Corp. initially will borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which, when taken together with the proceeds from borrowings under the Archrock credit facility as described below, will enable Exterran Holdings to repay all of its existing indebtedness.
    As of June 30, on a pro forma basis after giving effect to the spin-off, Exterran Corp. would have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June 30, and prior to the completion of the spin-off, Exterran Holdings expects to incur additional borrowings under its existing credit facility of between $40 million and $50 million to finance expenses related to the completion of the spin-off, which will increase the amount that Exterran Corp. borrows under its new credit facility and transfers to Exterran Holdings.
    Also, Exterran Holdings entered into a $300 million credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Holdings executed a first amendment to the credit agreement that, among other things, increases the aggregate commitments under the revolving credit facility from $300 million to $350 million. The revolving credit facility includes, among other covenants, financial covenants requiring Archrock Inc. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 4.25:1.00 (except that the maximum total leverage ratio during a specified acquisition period will be increased to 4.75:1.00), as those capitalized terms are defined in the credit agreement. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 1.75%.

    [Oct 09, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin

    "... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."
    "... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."
    "... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
    "... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
    Oct 09, 2015 | Zero Hedge
    According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).

    While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.

    As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.

    The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.

    Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.

    If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.

    In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.

    For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.

    Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.

    Latina Lover

    Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!

    [Oct 08, 2015] A Dell-EMC deal could choke the debt market

    Oct 08, 2015 | fortune.com
    The financial turmoil of the past month has brought the high yield debt market to a screeching halt. A number of deals have been called off or shifted to the loan market. Late last month, chemical company Altice had to cut back a bond offering and increase the interest rate to 11% on a portion of a multi-billion dollar deal.

    Just $12 billion in high yield bonds were issued last week, down from $34 billion during the same week a year ago, according to S&P Leverage Commentary and Data. Total issuance of leveraged loans and high yield bonds is down by nearly $140 billion this year compared to 2014, to about $575 billion.

    [Oct 08, 2015] IMF: Up to $3 trillion in over-borrowing in emerging markets

    Oct 08, 2015 | news.yahoo.com
    The biggest risks to the global economy are now in emerging markets, where private companies have racked up considerable debt amid a fifth straight year of slowing growth, the International Monetary Fund said Wednesday.

    [Oct 08, 2015] Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

    Oct 08, 2015 | www.eia.gov

    The current values of futures and options contracts for January 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to $67/b (at the 95% confidence interval) in January 2016.

    ... ... ...

    Projected U.S. crude oil production averages 9.2 million b/d in 2015 and 8.9 million b/d in 2016.

    [Oct 07, 2015] Summers Global Economy The Case for Expansion

    Oct 07, 2015 | economistsview.typepad.com
    Economist's View

    Larry Summers continues his call for fiscal expansion:

    Global economy: The case for expansion: ...The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...
    This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...
    Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...
    The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today's problems have to do with too little lending for productive investment.
    Inevitably, there will be discussion of the need for structural reform... - there always is. ...
    Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.

    [The full post is much, much longer.]

    bakho said in reply to pgl...

    If Bush would have done fiscal stimulus instead of tax cuts and low interest rates in 2001, we could have avoided the worst of the 2008 mess. When the wealthy hoard capital in an unproductive way and use their political power to increase their wealth, it leads to a stalled economy.

    Peter K. said...

    Everyone is for fiscal stimulus. Even Republicans like Ben Bernanke and Martin Feldstein.

    "The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China."

    Interest rates are low by historical standards but monetary policy isn't "loose."

    If it was loose we'd see inflation and tight labor markets.

    bakho said in reply to Peter K....

    Monetary stimulus at the ZLB is weak and carries more risk than fiscal stimulus. The problem for Yellen and the Fed: fiscal policy is dragging the economy down. Monetary policy would be adequate if fiscal policy were doing its part. It does not even come close. The Fed can create more money, but the wealthy are positioned to grab it so very little goes to where it is needed.

    Monetary policy, no matter how good cannot fully correct for bad or inadequate fiscal and regulatory policy.

    D said in reply to Peter K....

    "Even Republicans like Ben Bernanke..."

    Maybe that should be: former Republicans like Ben Bernanke.

    http://qz.com/518111/bernanke-im-not-really-a-republican-anymore/

    "I didn't leave the Republican Party. I felt that the party left me."

    -JJF

    Peter K. said...

    "It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward."

    Summers borrows/steals from Krugman.

    bakho said in reply to Peter K....

    The Fed lacked the authority for Cramdown and Geithner who had the power block most of the help that should have bailed out home owners. Obama's Harvard buddies were against Cramdown, the GOP is a wholly owned subsidiary of the banksters so a good policy was blocked.

    BigBozat said in reply to JaaaaayCeeeee...

    "But why is Larry Summers saying that the problem before 2008 was too much lending? Said so baldly, doesn't it just support austerians, like the Tory argument that Labor caused the recession by spending too much on entitlements?"

    Only if you conflate "lending" with "public debt" (and/or argue that spending on entitlements is a totally non-productive use of the public fisc). If the Tories are good at conflating (and/or believe entitlements are a complete waste of money), then yeah I guess they could make claims... 'tho they'd be either disingenuous or ignorant in doing so.

    FWIW, I tend to associate "lending" more with private sector activity. What Larry means by "too much lending" - in this case, anyway - was the cheap & poorly/fraudulently underwritten credit-fueled housing sector bubble.

    Dan Kervick said in reply to BigBozat...

    The problem was private debt. There was long secular run of private debt to gdp prior to the crash. Eventually private debt was at its highest level since 1929.

    http://www.ritholtz.com/blog/2012/09/private-debt-is-the-main-problem/


    [Oct 06, 2015] One True Measure Of Stagnation Not In The Labor Force

    "... Submitted by Charles Hugh Smith from Of Two Minds ..."
    "... This is a stark depiction of underlying stagnation: paid work is not being created as population expands. ..."
    "... jobless ..."
    "... Not in the Labor Force (NILF) ..."
    "... population 220 million ..."
    "... population 272 million ..."
    "... population 232 million ..."
    "... population 282 million ..."
    "... population 322 million ..."
    Oct 06, 2015 | Zero Hedge
    Submitted by Charles Hugh Smith from Of Two Minds

    One True Measure of Stagnation: Not in the Labor Force

    This is a stark depiction of underlying stagnation: paid work is not being created as population expands.

    Heroic efforts are being made to cloak the stagnation of the U.S. economy. One of these is to shift the unemployed work force from the negative-sounding jobless category to the benign-sounding Not in the Labor Force (NILF) category.

    But re-labeling stagnation does not magically transform a stagnant economy. To get a sense of long-term stagnation, let's look at the data going back 38 years, to 1977.

    NOT IN LABOR FORCE (NILF) 1976 to 2015

    I've selected data from three representative eras:

    In all cases, I list the Not in Labor Force (NILF) data and the population of the U.S.

    1977-01-01: 61.491 million NILF population 220 million

    1997-01-01 67.968 million NILF population 272 million

    Population rose 52 million 23.6%

    NILF rose 6.477 million 10.5%

    1982-07-01 59.838 million NILF (start of boom) population 232 million

    2000-07-01 68.880 million NILF (end of boom) population 282 million

    Population rose 50 million 22.4%

    NILF rose 9.042 million 15.1%

    2000-07-01 68.880 million NILF population 282 million

    2015-09-01 94.718 million NILF ("recovery") population 322 million

    Population rose 40 million 14.2%

    NILF rose 25.838 million 37.5%

    Notice how population growth was 23.6% 1977-1997 while growth of NILF was a mere 10.5% As the population grew, job growth kept NILF to a low rate of expansion. While the population soared by 52 million, only 6.5 million people were added to NILF.

    In the golden era of 1982 - 2000, population rose 22.4% while NILF expanded by 15%. Job growth was still strong enough to limit NILF expansion. The population grew by 50 million while NILF expanded by 9 million.

    But by the present era, Not in the Labor Force expanded by 37.5% while population grew by only 14.2%. This chart shows the difference between the two eras: those Not in the Labor Force soared by an unprecedented 26 million people--a staggering 15.6% of the nation's work force of 166 million. (Roughly 140 million people have some sort of employment or self-employment, though millions of these earn less than $10,000 a year, so classifying them as "employed" is a bit of a stretch).

    This is a stark depiction of underlying stagnation: paid work is not being created as population expands. Those lacking paid work are not just impoverished; they lose the skills and will to work, a loss to the nation in more than economic vitality.

    [Oct 06, 2015] Have We Reached A Peak Water Tipping Point In California

    Oct 06, 2015 | Zero Hedge

    The concept of "tipping point" - a change beyond which there's no turning back - comes up a lot in climate discussions. An obvious tipping point involves polar ice. If the earth keeps warming - both in the atmosphere and in the ocean - at some point a full and permanent melt of Arctic and Antarctic ice is inevitable. Permanent ice first started forming in the Antarctic about 35 million years ago, thanks to global cooling which crossed a tipping point for ice formation. That's not very long ago. During the 200 million years before that, the earth was too warm for permanent ice to form, at least as far as we know.

    We're now going the other direction, rewarming the earth, and permanent ice is increasingly disappearing, as you'd expect. At some point, permanent ice will be gone. At some point before that, its loss will be inevitable. Like the passengers in the car above, its end may not have come - yet - but there's no turning back....

    I think the American Southwest is beyond a tipping point for available fresh water. I've written several times - for example, here - that California and the Southwest have passed "peak water," that the most water available to the region is what's available now. We can mitigate the severity of decline in supply (i.e., arrest the decline at a less-bad place by arresting its cause), and we can adapt to whatever consequences can't be mitigated.

    But we can no longer go back to plentiful fresh water from the Colorado River watershed. That day is gone, and in fact, I suspect most in the region know it, even though it's not yet reflected in real estate prices.

    Two of the three takeaways from the above paragraphs are these: "California and the Southwest have passed 'peak water'" and "most in the region know it." (The third takeaway from the above is discussed at the end of this piece.)

    [Oct 06, 2015] Icahn Earnings numbers are a mirage

    Oct 06, 2015 | finance.yahoo.com

    I think it is very dangerous. and I am not taking about market next month here or the next quarter. Right now I can't understand why companies are sold at this multiple of earning, 22 for S&P500. A lot of those earnings are mirage. I remember times when 5 or 6 were good numbers. If you really dig in earning, that nobody wants to do. Earning are overstated in many cases.

    [Oct 06, 2015] Marc Faber We Have Colossal Asset Inflation

    Oct 06, 2015 | Bloomberg Business

    Gloom, Boom & Doom Report Editor Marc Faber discusses how low interest rates have helped to raise asset prices with Bloomberg's Scarlet Fu, Joe Weisenthal and Alix Steel on "What'd You Miss?" (Source: Bloomberg)

    [Oct 04, 2015] Worries about a Global Economic Slowdown

    Oct 04, 2015 | economistsview.typepad.com

    Jim Hamilton:

    ... What evidence is there that worries about a global economic slowdown are figuring prominently in recent oil prices? Exhibit one is the remarkable comovement between commodity and asset prices. Concerns about global economic weakness show up in commodity prices and asset markets across the board. ...

    Gavyn Davies:

    The turbulence in the global financial markets in the past few weeks has been widely attributed to a "China shock" that has increased the risks of a major downturn in global activity. Last month, this blog concluded that our regular "nowcasts" for global activity had not yet corroborated this narrative.
    This month, we have identified the first clear evidence that the global economy has slowed down since mid year, with emerging markets and advanced economies both now growing more slowly. ...

    Posted by Mark Thoma on Sunday, October 4, 2015 at 10:24 AM in Economics | Permalink Comments (33)

    Fred C. Dobbs said...

    The world economy remains adrift in
    choppy waters http://brook.gs/1NeDNZY
    Brookings - Oct 2

    The latest update of the Brookings-Financial Times TIGER (Tracking Indexes for the Global Economic Recovery) reveals sharp divergences in growth prospects between the advanced economies and emerging markets, and within these groups as well.

    Growth prospects for the advanced economies have improved, but this is largely on account of good growth in the U.S. and the U.K. The euro zone remains mired in low growth and Japan's economy appears to have stalled again. Commodity-exporting countries, both advanced and emerging, have been hit by sharp growth slowdowns.

    The U.S. economy continues to strengthen, with domestic demand picking up momentum, as reflected in rising retail sales and investment. Despite healthy employment growth and a falling unemployment rate, wage pressures remain muted. Inflation has stayed low, aided by a strong dollar and weak energy prices, and the CPI index has flirted on and off with deflation. Credit growth remains robust but U.S. equity markets, industrial production, and exports have all been held back by economic weakness in the rest of the world. The strong possibility that the Federal Reserve will commence its rate hike cycle in December points to how asynchronous the U.S. recovery is relative to business cycle conditions in most other advanced economies.

    The euro zone and Japan face a difficult combination of weak growth, near-deflationary price changes, and the absence of fundamental reforms needed to revive domestic demand. Any growth at all in the euro zone is considered a victory and the zone has certainly kept to those expectations, growing at less than half a percent in the second quarter. The Japanese economy contracted in the second quarter. Despite highly expansionary monetary policies, inflation in both economies is barely positive.

    Emerging market economies, which had become the main drivers of global growth in the aftermath of the financial crisis, are now leading the world economy into a slump. Growth has fallen, business and consumer confidence are eroding, and financial markets have taken a beating in these economies.

    Most economic indicators point to a loss of growth momentum in China, with high-frequency indicators such as electricity consumption and freight volumes pointing to an even sharper manufacturing slowdown. While policymakers still have some room to boost growth closer to the 7 percent target, the inability of monetary policy measures to gain traction in raising growth has elevated risks to the financial system and shaken confidence in the economic management skills of the leadership. These concerns have been exacerbated by recent missteps in managing stock market volatility and the shift to a more market-determined exchange rate, both of which have been marred by an unclear strategy and weak communication.

    Among the major emerging markets, India alone continues to maintain strong GDP growth, although industrial production and other indicators of economic activity suggest that the economy is in less robust shape. ...

    Fred C. Dobbs said in reply to pgl...

    Could be...

    China is dumping U.S. debt http://cnnmon.ie/1Q4ENx0
    via @CNNMoney - Sep 10

    ...to raise stimulus funds?

    [Oct 04, 2015] Carl Icahn Warning About the High Yield Bond Market Bubble

    Icahn predicts junk bind crash for almost a year now. that does not mean that he is wrong. But that does mean that he is a bad timer. Also he might be a buyer of CDS on junk bonds. Carl Icahn mentioned that although the short-term outlook for the energy sector is bad, the sector as a whole could make a comeback in a couple of years.
    "... In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field. ..."
    Oct 04, 2015 | marketrealist.com
    May 15, 2015 | Market Realist

    Oil price nosedive could trigger a crash in the junk bond markets

    According to Sean Hanlon's December 16, 2014, article Oil's Price Decline Weighs On High Yield Debt in Forbes, US energy companies borrowed heavily using the junk bond market to finance hydraulic fracking operations. However, this occurred when oil prices were above the $100 per barrel level, resulting in an economically viable business model.

    With the nosedive in oil prices in the latter half of 2014, the ability of these energy firms to retain their profitability was called into question-including their ability to service the payments on their high-yield debt.

    ... ... ...

    As seen in the above graph, the prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) declined with the fall in oil prices. With the looming uncertainty over oil prices, the times ahead are probably not bright for the high yield bond market.

    Credit default swaps and a correction in high yield bonds

    In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field.

    Credit default swaps (or CDS) are analogous to insurance contracts. The buyer of the CDS makes periodic fixed payments to the seller of the CDS, who receives these premiums and in exchange, compensates the buyer in the event of a default involving the underlying reference entity.

    ProShares launched the ProShares CDS North American HY Credit ETF (TYTE) and the ProShares CDS Short North American HY Credit ETF (WYDE) in August 2014. Although TYTE offers investors a long exposure to North American high yield bonds, WYDE offers a short exposure to the same. For instance, investment in WYDE could hedge a portfolio of high yield bonds against a drop in prices. The decreased prices typically result from increasing defaults by energy firms due to falling oil prices.

    In the final part of this series, we'll discuss Carl Icahn's view on the energy sector. The analysis specifically focuses on the outlook for oil companies such as EOG Resources (EOG), Exxon Mobil (XOM), Phillips 66 (PSX), and Valero Energy Corporation (VLO). Phillips 66 and Valero are oil refiners, EOG Resources is independent and lacks downstream operations, and Exxon Mobil is an integrated company.

    EOG Resources has an 8.2% weight in the iShares US Oil & Gas Exploration & Production ETF (IEO). Phillips 66 has a 7.2% weight in IEO, and Valero has a 4.9% weight in IEO. EOG is also part of the iShares US Energy ETF (IYE), with a 3.1% exposure.

    [Oct 03, 2015] They Just Dont Want A Job - The Feds Grotesque Explanation Why 94.6 Million Are Out Of The Labor Force

    Oct 03, 2015 | Zero Hedge

    In a note seeking to "explain" why the US labor participation rate just crashed to a nearly 40 year low earlier today as another half a million Americans decided to exit the labor force bringing the total to 94.6 million people...

    ... ... ...

    ... this is what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history: "Generally speaking, people in the 25–54 age group are the most likely to participate in the labor market. These so-called prime-age individuals are less likely to be making retirement decisions than older individuals and less likely to be enrolled in schooling or training than younger individuals."

    This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire taxpayer-funded "analysis."

    However, as the chart below shows, when it comes to participation rates within the age cohort, while the 25-54 group should be stable and/or rising to indicate economic strength while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners, we see precisely the opposite. The Fed, to its credit, admits this: "participation among the prime-age group declined considerably between 2008 and 2013."

    two hoots

    Just for reference see US, France, Germany, Japan labor participation rates: Seems we are joining global parity.

    http://www.multpl.com/france-labor-force-participation-rate

    http://www.tradingeconomics.com/united-states/labor-force-participation-rate

    http://www.multpl.com/germany-labor-force-participation-rate

    http://www.tradingeconomics.com/japan/labor-force-participation-rate

    Not that it helps anyone get a job.

    Bring the Gold

    Yeah see what happens! Great idea! Remove the only thing keeping this country in one piece! Let's not close corporate tax loopholes and handouts, egregious MIC spending or in any significant way stop financial crime. Before we address those trifling concerns which amount to many trillions, let's cut TANF and SNAP benefits to recipients who statistically are mostly CHILDREN. I for one hate having cities that aren't on fire and have been pining for LA Riots times one hundred thousand. Yes let's not address elites crimes first let's crack down on single moms and children. We wouldn't want to do anything to address Jamie Dimon, Lloyd Blankfein and Hank Paulson's crimes. Let's go after the real power brokers who got us here, children in poverty. And by doing so let's unleash days of rage and an American Spring. Absolute genius!!!!

    cynicalskeptic

    Sadly that is exactly what will happen when the merde hits the fan. The poor and starving WILL riot in the streets - as they have throughout history when they lose all hope. Clearly TPTB know this - and know time is running out. They are preparing - militarized police and an obsession with monitoring the population, repressing ANY discontent (like Occupy Wall Street).

    Things are as bad as they were in 1932 - government money is the only thing preventing 'Hoovervilles' and obvious signs of what has happened - minimal payments to keep people from taking to the streets. Yes, some people do abuse these programs and the abuse of things like disability is increasing as people run out of options, but the root cause of all this is the LACK OF JOBS. Our political leaders - following the wishes of corporate leaders - have embraced 'free trade' - sending American jobs overseas - and bringing in cheap labor (illegal at the low skill end and H1B's at the high skill end), all in a never ending effort to find the cheapest possible labor costs. Some goods may be cheaper but that means little if people are unemployed and cannot afford to buy anything. A toaster from China may cost less but who cares when you can't afford the bread to put in it?

    Perimetr

    Fed to the unemployed:

    "Let them eat cake"

    And remember what happened to the French aristocrats . . .

    ZerOhead

    DEA might be hiring... they are looking into possibly replacing their workers who are failing drug tests.

    http://www.huffingtonpost.com/entry/dea-drug-tests_560abff4e4b0af3706de0211


    [Oct 03, 2015] Huge Carl Icahn Energy Purchases Highlight Recent Insider Buying

    "... Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. ..."
    Oct 03, 2015 | 24-7 Wall St.

    We cover insider buying every week at 24/7 Wall St., and we like to remind our readers that while insider buying is usually a very positive sign, it is not in of itself a reason to run out and buy a stock. Sometimes insiders and 10% owners have stock purchase plans set up at intervals to add to their holdings. That aside, it still remains a positive indicator.

    Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. He purchased 2,042,928 shares at a price of $47.14 apiece. The total for the buy came to a massive $96.3 million. Not stopping there, Icahn purchased an additional 1,503,313 shares at $48.30. The total for second buy was a whopping $72.6 million.

    ALSO READ: September Worst Month in History for Energy MLPs: 3 Bargains Right Now

    Oddly enough, as Icahn was buying millions of shares of Cheniere Energy, the CEO of the company was selling. He parted with a total of 100,000 shares at between $46.25 and $50.42 per share. The total for the sale came to $4.8 million. It was also the only one major company that reported insider selling last week. Cheniere shares ended trading on Friday at $50.50, and it is pretty easy to assume that Icahn's high-profile purchase was viewed as very positive.

    [Oct 03, 2015] Icahn to Yahoo Finance Its going to be a real bloodbath

    "... Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users." ..."
    Oct 03, 2015 | finance.yahoo.com
    September 28, 2015

    Yahoo Finance has obtained a policy paper written by Carl Icahn on income inequality that the billionaire financier recently sent to Donald Trump and others on Wall Street and in Washington. In the paper, Icahn warns of "dangerous systemic problems that will affect each and every American in the coming years."

    The five and a half page paper has some similarities to the video that Icahn is releasing on www.carlicahn.com, but focuses more on imbalances in our society.

    The paper was sent to Trump before the GOP presidential candidate revealed his economic proposals. "I sent it to a number of people," Icahn said. "A few of the ideas in the paper are reflected in Donald Trump's plan. I think that shows what an open-minded guy he is, which is what we need in the White House."

    In the paper, Icahn takes a decidedly egalitarian tone, writing:

    "The average worker makes approximately $50,000 per year. The average annual compensation of the thirty highest paid CEOs is approximately $47 million per year. (I don't believe this disparity was ever this great even in most dictatorships!) You will hear many politicians argue that government should not interfere with the 'business judgment', of our companies and, therefore they cannot pass laws to encourage 'income equality.' This is completely untrue – the sad fact is that the government has actually passed many laws that have brought about 'income inequality.'"

    In a phone interview with Yahoo Finance Icahn says, "In this country, you talk about the wealth gap and politicians say, 'well, you can't legislate equality,' but we legislate inequality."

    Of all the corporate raiders and junk bond kings that came of age in the 1980s, Carl Icahn has become the richest and most powerful. He shows little sign of slowing down. Now 79, and with a net worth of some $21 billion according to Forbes, Icahn has moved beyond being a fixture of CNBC and the business pages to being something of a general news subject. With unusual tentativeness and nuance Icahn has linked himself to Donald Trump thereby guaranteeing him a place at the grown-ups' table this news cycle. In the recent phone interview with Yahoo Finance, Icahn says that while he admires Trump, (the two worked with each other in the maw of the Atlantic City casino business) the two don't see eye to eye on everything. Icahn wouldn't comment specifically on where they disagree. As for being Trump's Treasury Secretary, Icahn apparently said he would and then retracted that point. "He's his own man," Icahn says of Trump.

    In the policy paper, Icahn writes about the complicity of CEOs and Wall Street:

    "…the American worker is also getting 'screwed' …boards and CEOS have allowed property, plants and equipment of our companies to become the oldest on record and, as a result, the growth rate in productivity per hour of our workers has also become the worst on record and has actually decreased compared to last year. The average age of corporate property, plants and equipment is an astounding 22.3 years, the oldest it has reached since 1941. But I do not believe that most boards and CEOs really give a damn. With many exceptions, CEOs only care about short term results. Perhaps you can't really blame them because unfortunately, Wall Street judges them based on quarter to quarter results and CEOs receive their egregious compensation based on those short-term results."

    Icahn also writes about CEOs and how hard it is to remove them: "How would we feel if laws were passed that certain criteria had to be met to vote for President and there were no term limits on the President's ability to serve, thus making it almost impossible to remove Obama? Amazingly, there are many state laws in existence that protect the CEOs that are analogous to the example I just made."

    Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users."

    Icahn closes his piece by again coming back to the plight of the common man versus CEOs: "When it comes time to pay the Piper, CEOs will have taken their bonuses and again the workers will be left, holding the proverbially 'empty bag.'"

    [Oct 03, 2015] Icahn's bold warning about… Icahn

    Carl Icahn warn about junk bonks bubble. more then 2 trillion of junk bond spread in various ETF and mutual funds in case of crisis will be illiquid. Warning of many companies are fallacious. They are archived by tricks like mergers and acquisitions and stock back backs. It's all financing engineering. It's loading companies with bet.
    Oct 03, 2015 | www.cnbc.com
    Billionaire investor Carl Icahn reiterated his warnings about high-yield bond ETFs in a wide-ranging video released on his website overnight, complaining that these so-called junk bonds "are being sold en masse to the public" by companies such as BlackRock, whose high-yield bond ETF (HYG) holds about $13 billion worth of assets.

    "People are buying these not really understanding what they're buying," Icahn said in the video, referring specifically to BlackRock's "junk bond" ETFs.

    Ironically, nearly 1 percent of what those people are buying is debt issued by Icahn's company itself.

    The HYG ETF holds four separate bonds issued by the investor's company, Icahn Enterprises. These four bonds cumulatively make up 0.7 percent of the ETF - for a total notional value of $91 million, according to data available from BlackRock's ETF arm, iShares.

    It is worth noting that BlackRock does not have any say in the holdings of its ETF; the HYG simply tracks the Markit iBoxx USD Liquid High Yield Capped Index. Nor is the presence of Icahn Enterprises bonds in the ETF new; various Icahn Enterprises securities can be found in it going back to April 2012.

    Icahn's broader point about high-yield debt is that stimulative Federal Reserve policies have created a stock and bond bubble that will be resolved messily, due to a lack of willing buyers and hence loss of liquidity. BlackRock, for its part, contends that ETFs can provide liquidity and improve market stability

    Icahn's office did not immediately respond to a call for comment.

    Read More5 things that keep Carl Icahn up at night

    [Oct 03, 2015] U.S. manufacturing barely expands in September as global growth weakens, oil drillers cut back

    Oct 03, 2015 | finance.yahoo.com

    New orders and production both fell sharply and a measure of hiring also declined, according to the ISM, a trade group of purchasing managers. All three measures still barely remained in expansion territory.

    U.S. manufacturers are getting hit by slower growth in China, the world's second-largest economy, and a stronger dollar, which makes U.S. goods more expensive overseas. The 15 per cent rise in the dollar's value in the past year has also made imports cheaper compared with U.S.-made goods. Oil and gas drillers are also cutting back on their orders for steel pipe and other equipment in the wake of sharply lower oil prices.

    [Oct 02, 2015] This Week In Energy Don't Be Fooled By Latest U.S. Production Data

    "... Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era. ..."
    Oct 02, 2015 | OilPrice.com

    ... ISIS attacks in Libya could have a much more direct impact. On October 1, ISIS militants attacked one of Libya's main oil ports, Es Sider. The port is under the control of the recognized government and has been closed since December 2014, preventing Libya from reviving oil exports. One guard at Es Sider was reportedly killed but the attack was repelled. Still, Libya has been torn apart by conflict, and the two warring factions are at a stalemate, with a security vacuum across most of the country.

    Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era.

    [Oct 02, 2015] Job Growth Weakens in September

    Oct 02, 2015 | economistsview.typepad.com
    Economist's View

    Dean Baker:

    Job Growth Weakens in September:

    ... ... ...

    The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.

    ... ... ...

    On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.

    Mike Sparrow:

    This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the trouble with the birth/death model. It misses turning points and this mid-cycle correction started in January. Yet, they kept NFP elevated in many of the next 7 months outside March which was another mess(created by the weather that time). ADP was much more tamed and consistent.

    The good news is, it looks like the global economy may have bottomed in September and China's move to more consumption balance is panning out a bit, which will help growth there. Though the multi-national boom is over as investment driven growth necessarily reduces in these countries. Monthly wages also accelerated.

    anne said in reply to Mike Sparrow...

    I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and who knows which school will win. Anyway, Go ADPs! I was a midfielder.

    am said...

    Correct take off by DB that this weak report makes rate rises this year difficult to justify. Chair Yellen identified weakness in the labour market in her last report. This latest monthly labour report shows that that weakness continues.

    DB concentrates on the weak stats for the prime age groups of men and women and states that it is clearly not retirement related. If he has any analysis on older cohorts continuing in employment longer than normal and impacting on the 25-54 cohort employment rates then I would appreciate a link.


    anne said in reply to am...

    http://data.bls.gov/pdq/querytool.jsp?survey=ln

    January 4, 2015

    Employment-Population Ratio, 2000-2015

    2000 ( 81.5) *
    2001 ( 80.2) Bush
    2002 ( 78.8)
    2003 ( 77.9)
    2004 ( 78.1)

    2005 ( 78.5)
    2006 ( 79.2)
    2007 ( 79.5)
    2008 ( 78.5)
    2009 ( 74.5) Obama

    2010 ( 73.9)
    2011 ( 73.8)
    2012 ( 74.9)
    2013 ( 75.2)
    2014 ( 75.9)

    September

    2015 ( 76.5)

    * Employment age 25-34

    am said in reply to anne...

    Thanks again.

    It is clear that there is a structural change in employment. It may also be partly demographic but it is more than that hence I say structural.

    cm said in reply to JohnH...

    You can only offshore jobs that can actually be performed offshore. Not to deny offshoring which has been rampant in tech and various industries where services/labor can be delivered over the internet, but the probably more significant factors overall have probably been automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and phone support, or phone support (offshore or not) who basically read from the same documents/scripts you can search on the internet for yourself.

    cawley said in reply to JohnH...

    While I want to be cautious in thinking that I speak for anyone else, I would guess most of the QE supporters on this blog fully recognize that there are other factors besides interest rate/fed policy.

    In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger fiscal policy.

    Maybe I'm just projecting my own view which is that fiscal policy would have been preferable. Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as long as there was a non white muslim atheist socialist communist dictator from the other party in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either - altho some argue that didn't matter.

    That being the case, monetary policy was pretty much the only game in town. Is it a panacea? Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it possible there are/will be some pernicious unintended consequences? Maybe, but I would argue they are second order concerns compared to employment and probably manageable.

    But I've got no reason to think that withholding QE would have resulted in better fiscal policy - or any other change that would have improved employment. And I tend to think that the counterfactual consistent with no QE and the same fiscal policy would have been even worse employment.

    Peter K. said in reply to JohnH...

    "Strong dollar, weak dollar. It doesn't seem to matter. "

    You're just a nihilist. Facts and theory don't matter. Dean Baker:

    "In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011."

    New Deal democrat said in reply to pgl...

    This downshifting in the employment numbers was foreseeable, and foreseen:

    http://bonddad.blogspot.com/2015/10/told-you-so-weakening-job-growth-edition.html

    It is party strong US$, partly oil patch collapse, and part pass-through from last year's stall in housing starts.

    Fred C. Dobbs said...
    What the Terrible September Jobs Report Means for the
    Economy http://nyti.ms/1Vsx2rO via @UpshotNYT
    NYT - Neil Irwin - Oct 2

    The September jobs numbers are easily the worst of 2015 so far. They offer an unpleasant combination of a bad overall headline, bad details and bad timing, amid a volatile and unsettling time in global markets.

    The weak numbers offer some vindication for those Federal Reserve officials who preferred to hold off on interest rate increases last month to ensure the economy was on sound footing before tightening the money supply. They also give reason to worry that those wild market swings in August were less random fluctuations and more an indication that something deeper is wrong with the global economy - not so much that the stock market drop in August caused weak September jobs numbers, but that there is an underlying economic fragility causing both.

    The question now is whether it means anything - whether the United States economic expansion, which seemed set to roar into 2015, is slowing in some meaningful way. We don't know that yet, and it would be a mistake to leap to that conclusion. But that possibility became quite a bit more plausible after the September numbers popped onto economists' computer screens.

    As always, it is a useful exercise on jobs report Fridays to take a deep breath and remember that this is but one set of indicators, with a large margin of statistical error, that will be revised repeatedly. But the fact that the latest jobs numbers are consistent with another report, from the Institute of Supply Management, earlier this week that suggested United States manufacturing slowed to a standstill in September doesn't do anything to help an economy-watcher maintain that zen perspective.

    The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.

    This is usually the point in one of these stories where we would list the silver linings - the countervailing details that suggest it isn't as bad as all that. This report doesn't really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000.

    We don't even have a major snowstorm or other weird weather event to blame, nor a strike in a major industry, nor some outsize shift in the results from one category of employer that might suggest an aberration.

    The most positive angle I could come up with, with credit to the anonymous Twitter user @modestproposal1, is the possibility that with the unemployment rate scraping relatively low numbers, we should expect the rate of job creation to slow simply because the pool of potential workers is dwindling.

    That said, that theory doesn't match up with the stagnant hourly pay and data in the survey of households suggesting people may be leaving the work force. ...

    modest proposal @modestproposal1
    Remain cognizant that job growth may naturally slow as we approach full employment and will instead be interpreted as economy slowing

    Fred C. Dobbs said in reply to Fred C. Dobbs...
    The pool of skilled/trained
    workers dwindles; those who remain
    are simply not worth hiring?

    [Oct 02, 2015] Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline

    "... Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff. ..."
    Oct 02, 2015 | davidstockmanscontracorner.com

    Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline (Fed's Fischer See No Bubbles)

    The September jobs report was nothing short of disastrous. Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff.

    jobs by industry_sept15

    Even worse, higher paying manufacturing jobs declined.

    Any wonder why wage growth is so tepid?

    [Sep 30, 2015] Becoming China From Shale Malinvestment Boom To We Are Overbuilt Bust

    "... As Bloomberg reports ..."
    "... The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion ..."
    Sep 30, 2015 | Zero Hedge

    many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.

    ... ... ...

    Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. As Bloomberg reports, after struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion.

    Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.

    "We are overbuilt," said Dan Kalil, a commissioner in Williams County in the heart of the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm. "I am concerned about having hundreds of $200-a-month apartments in the future."

    The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. The process forces water, sand and chemicals down a well to crack rock and release the crude. Predictions were that fracking would sustain production and a robust tax base for decades.

    Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official.

    Everyone levered up on this "no-brainer"...

    The camps were supposed to be an interim solution until subdivision and apartment complexes could be built.

    Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.

    and many remain delusional...

    "We didn't build temporary housing on purpose because we viewed North Dakota as a long-term play," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments.

    "We think the local production of oil is here to stay. Yes, prices have dropped, but it's a commodity and commodities fluctuate. There is always a risk."

    Fracking's success has created another glut...

    As the migrant workers leave, their castoffs pile up in scrap yards such as TJ's Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400 discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting potatoes and a dead mouse in the sink.

    "I wake up and RVs are in my driveway," said owner Tom Novak. "It's insane; there are empty campers everywhere."

    HedgeAccordingly

    welp.. was only matter of time..
    IMF raises red flag about Canada's 'overheated' housing market

    bluskyes

    It's a golden age for the repo game

    bluskyes

    Oil has been boom/bust forever...

    Unfortunately most are no longer from agrarian roots, and have no concept of living within one's means, and storing away excess in times of feast - for the times of famine that inevitably follow.

    [Sep 27, 2015] Wall Street braces for grim third quarter earnings season

    Sep 27, 2015 | finance.yahoo.com
    Forecasts for third-quarter S&P 500 earnings now call for a 3.9% decline from a year ago, based on Thomson Reuters data...

    [Sep 27, 2015] Shiller Stocks and housing are overvalued-- here's what to do about it

    Sep 27, 2015 | finance.yahoo.com

    The correction in August brought the market down ten percent," Shiller says. "But it's halfway back up. It's still looking pretty frothy."

    Shiller adds that his valuation confidence index, known as the CAPE ratio, is far above the historical norm of 17. The ratio, which compares current stock prices to earnings over a ten-year period, currently measures 24.5, near the peak it reached before the financial crisis in 2007.

    "On top of that, I have survey data showing that [a high percentage of] people think the market is overpriced," he says. "This this creates a little bit of fear that there could be a correction. When we saw the correction in August of this year, there was some anxiety thrown into people's hearts."

    [Sep 27, 2015] Cash flows beat stocks for first time since 1990

    Sep 27, 2015 | finance.yahoo.com

    Investors piled into cash-equivalent, money-market funds over the last week, making the asset class more popular than bond and equity funds for the first time in 25 years, new data shows.

    Some $17 billion was pumped into cash funds in the week to Wednesday, while $3.3 billion where pulled out of stocks through ETFs and mutual funds, according to research from Bank of America Merrill Lynch and EPFR Global published Friday.

    Meanwhile bond funds saw just $400 million in inflows over the same period, meaning cash is outperforming both asset classes this year for the first time since 1990, the data reveals.

    Money market funds invest in very short-term, liquid debt such as U.S. Treasurys and offer investors low volatility, meaning they are often thought of as a cash-equivalent.

    Corporate bonds saw their twelfth straight week of outflows, with safe-haven Treasury bond funds picking up some of the slack.

    Global chief investment officer at UBS Wealth management, Mark Haefele has cut his U.S. high-yield corporate bond position this month, having been overweight the asset class since the end of 2011.

    ... ... ...

    As well as sticking to cash, investors pulled $7.4 billion from the State Street's SPDR S&P 500 ETF (NYSE Arca: SPY), the world's largest ETF.

    [Sep 27, 2015] Paul Craig Roberts Warns The Entire World May Go Down The Tubes Together

    The problem with Paul Craig Roberts thinking is that China and Russia are also neoliberal economies which exist within global financial system, controlled from Washington. But this not a typical ZeroHedge "dooms day porn". He manages to make some relevant observations about the current situation, without he definitely underestimates the resilience of the American financial empire.
    "... Submitted by Paul Craig Roberts, ..."
    "... China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats. ..."
    "... he Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population. ..."
    "... Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen. ..."
    "... neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West. ..."
    "... With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours. ..."
    Sep 27, 2015 | Zero Hedge
    Submitted by Paul Craig Roberts,

    Washington's IQ follows the Fed's interest rate - it is negative. Washington is a black hole into which all sanity is sucked out of government deliberations.

    Washington's failures are everywhere visible. We can see the failures in Washington's wars and in Washington's approach to China and Russia.

    The visit of Chinese President Xi Jinping, was scheduled for the week-end following the Pope's visit to Washington. Was this Washington's way of demoting China's status by having its president play second fiddle to the Pope? The President of China is here for week-end news coverage? Why didn't Obama just tell him to go to hell?

    Washington's cyber incompetence and inability to maintain cyber security is being blamed on China. The day before Xi Jinping's arrival in Washington, the White House press secretary warmed up President Jinping's visit by announcing that Obama might threaten China with financial sanctions.

    And not to miss an opportunity to threaten or insult the President of China, the US Secretary of Commerce fired off a warning that the Obama regime was too unhappy with China's business practices for the Chinese president to expect a smooth meeting in Washington.

    In contrast, when Obama visited China, the Chinese government treated him with politeness and respect.

    China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats.

    Like China, Russia, too, has a foreign policy independent of Washington's, and it is the independence of their foreign policies that puts China and Russia on the outs with Washington.

    Washington considers countries with independent foreign policies to be threats. Libya, Iraq, and Syria had independent foreign policies. Washington has destroyed two of the three and is working on the third. Iran, Russia, and China have independent foreign policies. Consequently, Washington sees these countries as threats and portrays them to the American people as such.

    Russia's President Vladimir Putin will meet with Obama next week at the UN meeting in New York. It is a meeting that seems destined to go nowhere. Putin wants to offer Obama Russian help in defeating ISIS, but Obama wants to use ISIS to overthrow Syrian President Assad, install a puppet government, and throw Russia out of its only Mediterranean seaport at Tartus, Syria. Obama wants to press Putin to hand over Russian Crimea and the break-away republics that refuse to submit to the Russophobic government that Washington has installed in Kiev.

    Despite Washington's hostility, Xi Jinping and Putin continue to try to work with Washington even at the risk of being humiliated in the eyes of their peoples. How many slights, accusations, and names (such as "the new Hitler") can Putin and Xi Jinping accept before losing face at home? How can they lead if their peoples feel the shame inflicted on their leaders by Washington?

    Xi Jinping and Putin are clearly men of peace. Are they deluded or are they making every effort to save the world from the final war?

    One has to assume that Putin and Xi Jinping are aware of the Wolfowitz Doctrine, the basis of US foreign and military policies, but perhaps they cannot believe that anything so audaciously absurd can be real. In brief, the Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population.

    "Democracy?" "Washington's hegemony don't need no stinkin' democracy," declares Washington's puppet ruler of Japan as he, as Washington's faithful servant, over-rides the vast majority of the Japanese population.

    Meanwhile, the real basis of US power-its economy-continues to crumble. Middle class jobs have disappeared by the millions. US infrastructure is crumbling. Young American women, overwhelmed with student debts, rent, and transportation costs, and nothing but lowly-paid part-time jobs, post on Internet sites their pleas to be made mistresses of men with sufficient means to help them with their bills. This is the image of a Third World country.

    In 2004 I predicted in a nationally televised conference in Washington, DC, that the US would be a Third World country in 20 years. Noam Chomsky says we are already there now in 2015. Here is a recent quote from Chomsky:

    "Look around the country. This country is falling apart. Even when you come back from Argentina to the United States it looks like a third world country, and when you come back from Europe even more so. The infrastructure is collapsing. Nothing works. The transportation system doesn't work. The health system is a total scandal–twice the per capita cost of other countries and not very good outcomes. Point by point. The schools are declining . . ."

    Another indication of a third world country is large inequality in the distribution of income and wealth. https://www.cia.gov/library/publications/the-world-factbook/fields/2172.... ">According to the CIA itself, the United States now has one of the worst distributions of income of all countries in the world. The distribution of income in the US is worse than in Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen.

    The concentration of US income and wealth in the hands of the very rich is a new development in my lifetime. I ascribe it to two things.

    One is the offshoring of American jobs. Offshoring moved high productivity, high-value-added American jobs to countries where the excess supply of labor results in wages well below labor's contribution to the value of output. The lower labor costs abroad transform what had been higher American wages and salaries and, thereby, US household incomes, into corporate profits, bonuses for corporate executives, and capital gains for shareholders, and in the dismantling of the ladders of upward mobility that had made the US an "opportunity society."

    The other cause of the extreme inequality that now prevails in the US is what Michael Hudson calls the financialization of the economy that permits banks to redirect income away from driving the economy to the payment of interest in service of debt issued by the banks.

    Both of these developments maximize income and wealth for the One Percent at the expense of the population and economy.

    As Michael Hudson and I have discovered, neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West.

    With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours.

    The entire world could go down the tubes together.

    Oh regional Indian

    PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...

    And while there will be a lot of going down together (seems un-avoidable at this point), questions is who will rise back up first?

    Hint: not nations considered "westerley". so to speak...

    UndroppedClanger

    'Leader' implies people at the front with some direction. Perhaps a different word would be more appropriate for this global circlejerk cadre!

    ToSoft4Truth

    The inverse of 'Leader' is 'follower'

    Anytime you hear a person say, "There's no leadership"…. They are telegraphing to you, "I need someone to follow."

    kaiserhoff

    So Chomsky would rather live in Argentina?

    Who's stopping him?

    ebear

    "I was once a DC insider"

    You don't understand. I coulda had class. I coulda been a contender.

    philipat

    "You don't understand. I coulda had class. I coulda been a contender."

    I do think that there is large dose of spite in PCR's writings, probably as a result of "The Establishment's" refusal to elect him to the CFR. However, better late than never? The one's that do get religion always do so after the event, which is, of course, part of the problem also....


    Bach's_bitch

    PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...

    "Kabuki story-lines"? Did you make that up yourself or something?

    questions is who will rise back up first?

    Whoever is least affected, meaning none of the big economies.

    Oh regional Indian

    I don't think you appreciate the subtle push of an old adage: The bigger they are, the harder they fall. You can keep nursing dreams of manifest destiny as they turn into mani-festering realities....

    Jeffersonian Liberal

    Any nations or ethnicities that have benefitted from parasiting on this failed, corrupt monetary system will also fall together.

    The BRICS are sinking like stones. They tried to parasite off what they saw was an unending Western economic boom, unrealizing, or perhaps turning a blind eye to the fact that it has all been a bubble since the central banks took control of the currency.

    TheEndIsNear

    I doubt that American Generals could be bribed as easily as our government politicians.

    Thick Willy

    Actually, they are probably much cheaper to bribe. Dimon had to give Eric Holder a $77,000,000 per year salary to keep bankers out of prison. The generals are easily bribed with a mid 6 figure salary at some defense contractor. Some for even less.

    algol_dog

    I Strongly encourage people to read Mish's short blog and then check out the accompanying video. It will enlighten much more about China than this guys rant.

    http://globaleconomicanalysis.blogspot.com/2015/09/how-us-corporations-c...


    [Sep 21, 2015] HUGE part of the problem is we have a energy illiterate general public

    "... markets are less and less supportive of deja vu innovation. ..."
    "... However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. ..."
    "... US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita. ..."
    "... It ..."
    "... would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems. ..."
    Sep 21, 2015 | ourfiniteworld.com
    September 15, 2015

    Thomas Simon, September 15, 2015 at 7:19 am

    @CalifornuiaLiving you are right about the California economy booming. Record tourism, agriculture, fossil fuels, high tech, etc. all have been strong. Problem is drought , wild fires, and climate change have significant impact on the future. Also wage stagnation in non-elite worker sector is a deepening problem. And high tech sector is starting to feel the pinch as markets are less and less supportive of deja vu innovation.

    The reality of ocean acidification, coastal marine life die off due to heat caused algae bloom and potential sea rise from Arctic ice melting are no longer deniable. This is is not doom and gloom – this is as you I am sure can recognize required input for planning how to adjust oir at the east manage the risk.

    What I appreciate from Gail is her careful analytical models that provide data points to monitor as part of the risk assessment and adjustments that any pragmatist must consider.

    kimgerly, September 14, 2015 at 5:28 pm

    @CaliforniaLiving. Here you go. RE's only at 20% in California. http://energyalmanac.ca.gov/electricity/total_system_power.html

    Massive EV rollout is only good in tandem with a MASSIVE increase in installed renewable energy systems technologies. It will take decades to do this based on today's generation mix. And based on the escalation of the 'undesirables' and 'indifference' of Mother Nature, I'm predicting there will be A LOT more pain in the near future.

    Better if the leadership trains and educates the populous to conserve, leave these bad habits of hyper-consumption in the past, and to PREPARE. to RESPOND. and ADAPT., because Mother Nature is not going to wait.

    BTW: I'm a renewable energy engineer.

    kimgerly, September 14, 2015 at 7:16 pm

    The way I see it is hyper-consumerism will be the bane of (wo)mans' and other species' existence.

    However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. And so, why would those of us in the scientific/engineering realm expect the lay person to get onboard when we, although I try my best not to, spew in language that goes over most peoples' heads. More storytelling is needed…

    On top of the fact that we have leaders who don't understand thermodynamics, so they make BAD policy. Right, I blame a great deal on leadership who is failing to plan and not the sheeple.

    But it's happened before and it is quite likely happening again. And so it goes…

    CL, September 15, 2015 at 1:14 pm

    @Kimgerly

    I agree with you that "illiterate general public" is a major problem in setting the world on a correct course and Gail with this blog is part of that problem. There is one simple proven way to get the public to learn what is needed to point them in the right direction. It is though the tax code. The government needs to taxes the public on the actions that are damaging our environment and give credits to behavior that improves our environment. The one thing the public understands is money. I'm sure the fools will come after me. When they read this post. Telling me I'm obstructing their freedom that is destroying mother earth.

    I also don't buy your statement that " leaders who don't understand". There is one party that gets it and another that refuses to at knowledge the situation protecting it's special interest ( oil companies for one ). This site lead by Gail is part of that special interest infrastructure. I have yet to see since she fell out of favor at TheOilDrum. A solution to anything. It's always Fear, Collapse, Fear and more Collapse.

    Obama gets it – https://www.youtube.com/watch?v=C23e_-5BdZM

    PleaseExplain, September 15, 2015 at 1:25 pm

    Please Gail, let us know the last time you offered a solution ? You've been calling for collapse for five years and it hasn't happened. When do you admit your wrong ?

    PleaseExplain, September 15, 2015 at 2:56 pm

    I'm sick of reading your negative doomsday scenario and disinformation that this site pushes on the public for special interest. That's who I am.

    BC, September 15, 2015 at 3:25 pm

    US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita.

    EV sales are plunging with the crash in the price of gasoline and coincident with a global recession that likely began in late 2014 to earlier this year.

    Growth of wind and solar energy production overall and as a share of total energy production has likely peaked for the cycle and will decelerate to 0% or negative in the years ahead, as occurred in the 1990s.

    Gail Tverberg, September 15, 2015 at 6:54 am

    Yes, we do have a population problem.

    Gail Tverberg, September 15, 2015 at 6:45 am

    It would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems.

    [Sep 18, 2015] The least Russia has held of American securities in the last two years was in April this year, when it held only $66.5 Billion

    Sep 17, 2015 | marknesop.wordpress.com

    Moscow Exile, September 17, 2015 at 2:00 am

    Russia has invested another $10 billion in the US national debt

    In July Russia increased its investment in US Treasury bonds by $9.7 billion of dollars, according to information given by the United States Treasury and Federal Reserve.

    Moscow Exile, September 17, 2015 at 2:03 am
    Source of the above: lenta.ru, Kommersant etc.
    et Al, September 17, 2015 at 5:54 am
    Curious. Just as China has been deleveraging itself from its US bonds/debt, Russia is taking some on. There must be something more to this.
    marknesop, September 17, 2015 at 10:40 am
    It's odd, but $10 Billion doesn't really represent much of an adventure. The least Russia has held of American securities in the last two years was in April this year, when it held only $66.5 Billion. The most during the period shown was in August last year, when Russia held nearly twice that, $118.1 Billion. And China, while media mythology has them shoveling dollars out the windows, held $1.24 Trillion at the end of July this year, up slightly from January. Nobody seemed to notice that Belgium sold of $20 Billion more than China did.

    https://smaulgld.com/foreign-holdings-u-s-treasuries/

    However, look at the vulnerability the USA itself has taken on through QE, and government buying of its own securities, just in 2014.

    [Sep 18, 2015] Age of the Unicorn How the Fed Tried to Fix the Recession, and Created the Tech Bubble By Doug Henwood

    Sep 03, 2015 | The Nation

    The number of "unicorn" tech companies is increasing dramatically-but the bubble will burst eventually.

    ... ... ...

    The last tech bubble, in the late '90s, came with more utopian ambitions than quick mattress delivery. The web and the New Economy it made possible would flatten hierarchies, make work more meaningful, make recessions a thing of the past, and promote peace, love, and understanding. The classic statement of techno-utopianism and its new era of decentralization and abundance was former Wired editor Kevin Kelly's "New Rules for the New Economy," which featured such assertions as "1) Embrace the Swarm. As power flows away from the center, the competitive advantage belongs to those who learn how to embrace decentralized points of control" and "3) Plentitude, Not Scarcity. As manufacturing techniques perfect the art of making copies plentiful, value is carried by abundance, rather than scarcity, inverting traditional business propositions." On a more wonky yet no less exuberant note, the noted economist Rudi Dornbusch wrote in 1998: "The U.S. economy likely will not see a recession for years to come. We don't want one, we don't need one, and, as we have the tools to keep the current expansion going, we won't have one. This expansion will run forever." And who can forget Thomas Friedman's nonsensical declaration, made in 1999 as the new economy bubble was reaching extreme proportions, that "no two countries that both had a McDonald's had fought a war against each other," so powerful were the charms of globalization, one of the cornerstones of New Era thinking?

    The last tech bubble, in the late nineties, came with more utopian ambitions than quick mattress delivery.

    Exuberant rhetoric is often the accompaniment to financial exuberance. At the turn of the 21st century, labor markets were tight-the unemployment rate briefly broke below 4 percent for the first time since 1969-and wages grew across the board. The stock market was booming, led by tech stocks, and the mania pervaded the culture; Joey Ramone even wrote a love song to CNBC's Maria Bartiromo, who became a celebrity known as the Money Honey. According to the Federal Reserve's Survey of Consumer Finances, the share of US households directly owning stock (as distinguished from indirect ownership through mutual funds) rose from 15.2 percent in 1995 to 21.3 percent in 2001. Since that peak, it's fallen steadily; as of 2013, the most recent survey, the share was down to 13.8 percent. This time around, the exuberance seems more muted. Like the left, capitalism seems to have lost its utopian capacities. Exuberance is now a luxury good, and only a minority is participating in the new boom.

    While bouts of irrational exuberance often end badly, it must be conceded that some degree of economic and technical progress can be their byproduct. The dot.com mania helped turn the internet from a niche product into one of life's essentials. This one is offering new ways to hail a cab and order takeout. But one shouldn't get carried away with that: most major technological advances of the last decades have been publicly financed. As Mariana Mazzucato shows in The Entrepreneurial State, all the major advances that made the iPhone possible were publicly funded, from the touch screen to GPS.

     This bubble has been publicly financed in a more subtle way. While American finance is often subject to major bouts of irrational exuberance, the latest round has almost certainly been fueled by the Federal Reserve's extraordinary efforts to reflate the economy after the financial crisis. Since Lehman Brothers collapsed in September 2008, the central bank has pumped $3.6 trillion into the economy by buying Treasury and mortgage bonds. (Point of comparison: GDP is $17.8 trillion, so even by the standards of the US economy, $3.6 trillion is a large number.)

    All the major advances that made the iPhone possible were publicly funded, from the touch screen to GPS.

    While all this pumping has probably had some good effect on the real economy (though opinions differ), even proponents concede that it was fairly modest. But it looks to have been immensely stimulative to the financial markets. Stocks are up about 175 percent from their post-Lehman low. (They've come a few percentage points off their highs, thanks to jitters about the Chinese economy, but the gains remain largely intact.) Long-term interest rates fell from 4.3 percent in June 2008 to a low of 1.4 percent in July 2012; they've since come up but not by much-to 2.2 percent. When interest rates fall like that, bondholders enjoy huge capital gains (older, higher-yielding bonds become more valuable as rates fall), which they need to redeploy. And as interest rates fell to minimal levels-that July 2012 interest rate on 10-year Treasury bonds was the lowest since the Federal Reserve's historical series began in 1953-it became cheaper to borrow funds to speculate with. Investors, bored with sub-2 percent rates, were happier to "reach for yield"-invest in risky ventures in hope of earning higher returns. All this together is an ideal formula for unicorn feed.

    The pump priming has, unfortunately, provided little fodder for working people. Though the labor market has recovered, it's hardly bubbly. In July 2000, 56 percent of respondents to the Conference Board's monthly consumer confidence survey described jobs as "plentiful"; in August 2015, just 22 percent did. And most of today's tech startups are tightly held, meaning financed by venture capitalists (who themselves work with money provided by institutional investors, like pension funds and your finer universities, and very rich people), and not by initial public offerings (IPOs) of stocks, which were widely held by affluent individuals, either directly or through mutual funds. And no CNBC personalities qualify as celebrities today, unless you count Rick Santelli, author of the 2008 rant that gave birth to the Tea Party.

    The tech bubble is a byproduct of the Federal Reserve's extraordinary efforts to reflate the economy post-crisis.

    Of course, when this bubble bursts-as it inevitably will, especially with the Fed having ended its massive money injections and now talking about raising interest rates in the fall-the narrow holding of tech investments means that fewer innocents will suffer collateral damage from the implosion. (So far, the market stumbles of late summer haven't dampened spirits among venture investors-yet. Should a more serious financial retrenchment ensue, that will change.) There aren't going to be as many busted 401(k) accounts as there were in 2000–01. But it means that the greatest benefits of the Fed's reinflation policy are tightly held, too.

    There's something sad about this echo-bubble, with its constricted ambitions and minimal use of utopian rhetoric. We're accustomed to hearing that there's just "no money available" for all manner of excellent pursuits-though clearly we have plenty of money available to fund serial bubbles and busts, and few unreconstructed social critics ever denounce that with a "Remember last time?" I'm only partly thinking of social benefits like childcare and libraries; those are day-to-day expenditures, not big-ticket items financed out of long-term money, like transit and green-energy research.

    GOP eagerness to slash Amtrak by $242 million got headlines while Uber has had no problem raising almost $7 billion.

    Congressional Republicans' eagerness to slash Amtrak funding by $242 million got some headlines, but the railroad's $1.3 billion current level of federal funding was none too generous to start with. But Uber has had no problem raising almost $7 billion so far, and rival Lyft another $1 billion. This is a staggering misallocation of capital. Nor do we have the imagination or funding to follow up on the suggestion by Mike Konczal and others to "socialize Uber," by turning the thing into a driver-owned cooperative. There really are some more urgent tasks than devising a better way to hail a cab-or buy a mattress-and it would be nice to steer some money towards them instead of towards capitalist phantasms.

    [Sep 18, 2015] China Is Hoarding the World's Oil by Grant Smith

    "...China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11."
    September 17, 2015 | Bloomberg Business

    Goldman Sachs says Chinese hoarding may avert $20 oil scenario

    ....In the first seven months of the year, China purchased about half a million barrels of crude in excess of its daily needs, the most for the period since 2012, according to data compiled by Bloomberg. As the country gathers bargain barrels for its strategic petroleum reserve, the demand is cushioning an oversupplied market from a further crash, according to Columbia University's Center on Global Energy Policy.

    "It throws a lifeline to the market" that safeguards against the risk of crude touching $20 a barrel, Jeff Currie, head of commodities research at Goldman Sachs Group Inc. in New York, said by phone. "That lifeline lasts through late 2016."

    Over the next 18 month, the EIA estamates that China will put 132 million barrel of crude into storage. Another 149 million barrels of capacity is planned by 2020. 218.9 are filled.

    ...the U.S. Strategic Petroleum Reserve has been stable at about 700 million barrels for years

    ... ... ...

    China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11.

    ... ... ...

    When amassing inventories, China's import demand can swing by as much as 1 million barrels a day

    ... ... ...

    "The surplus in the market at the moment is close to 2 million barrels a day," said Miswin Mahesh, an analyst at Barclays in London. "China's support for the SPR would only be able to take a fraction out of that.

    ... ... ...

    By mopping up some of the surplus, China encourages a gentler scenario in which the "financial stress" of $40 oil gradually causes highly indebted shale producers to curb production, Currie said. "You reduce the likelihood of a scenario where the market only balances when prices collapse below production costs, at about $20 a barrel," he said.

    [Sep 18, 2015] Big oil's broken model By Michael T Klare

    If we assume that at each price point only a finite amount of oil can be profitably extracted from Earth (which is a small planet, that is now well researched for oil) , the current slump in oil prices looks extremely suspicious. It means robbing of future generations, as conservation efforts are now derailed.
    The problem with the view expressed is that cost of production can't be changed dramatically. That should slow the rate of increase of consumption but such dramatic drop in prices requires special engendering and some backstage agreement between the USA and Saudi Arabia.
    "...Demand will continue to rise -- that's undeniable, given expected growth in world income and population -- but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it's lowered that figure for this year to only 93.1 million barrels. Those 10 million "lost" barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil's multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse."

    "...the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. "

    Sep 18, 2015 | atimes.com/atimes

    Many reasons have been provided for the dramatic plunge in the price of oil to about US$60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the US and elsewhere); and the increased value of
    Big oil's broken model
    By Michael T Klare

    Many reasons have been provided for the dramatic plunge in the price of oil to about US$60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the US and elsewhere); and the increased value of the dollar relative to other currencies.

    There is, however, one reason that's not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil's production-maximizing business model.

    Until last fall, when the price decline gathered momentum, the oil giants were operating at full throttle, pumping out more petroleum every day. They did so, of course, in part to profit from the high prices. For most of the previous six years, Brent crude, the international benchmark for crude oil, had been selling at $100 or higher. But Big Oil was also operating according to a business model that assumed an ever-increasing demand for its products, however costly they might be to produce and refine.

    This meant that no fossil fuel reserves, no potential source of supply - no matter how remote or hard to reach, how far offshore or deeply buried, how encased in rock - was deemed untouchable in the mad scramble to increase output and profits.

    In recent years, this output-maximizing strategy had, in turn, generated historic wealth for the giant oil companies. Exxon, the largest US-based oil firm, earned an eye-popping $32.6 billion in 2013 alone, more than any other American company except for Apple. Chevron, the second biggest oil firm, posted earnings of $21.4 billion that same year. State-owned companies like Saudi Aramco and Russia's Rosneft also reaped mammoth profits.

    How things have changed in a matter of mere months.

    ... ... ...

    According to the Energy Information Administration (EIA) of the U.S. Department of Energy, world oil production rose from 85.1 million barrels per day in 2005 to 92.9 million in 2014, despite the continuing decline of many legacy fields in North America and the Middle East. Claiming that industry investments in new drilling technologies had vanquished the specter of oil scarcity, BP's latest CEO, Bob Dudley, assured the world only a year ago that Big Oil was going places and the only thing that had "peaked" was "the theory of peak oil."

    That, of course, was just before oil prices took their leap off the cliff, bringing instantly into question the wisdom of continuing to pump out record levels of petroleum. The production-maximizing strategy crafted by O'Reilly and his fellow CEOs rested on three fundamental assumptions:

    1. that, year after year, demand would keep climbing;
    2. that such rising demand would ensure prices high enough to justify costly investments in unconventional oil;
    3. and that concern over climate change would in no significant way alter the equation.

    Today, none of these assumptions holds true.

    Demand will continue to rise -- that's undeniable, given expected growth in world income and population -- but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it's lowered that figure for this year to only 93.1 million barrels. Those 10 million "lost" barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil's multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse.

    Current indications suggest that consumption will continue to fall short of expectations in the years to come. In an assessment of future trends released last month, the EIA reported that, thanks to deteriorating global economic conditions, many countries will experience either a slower rate of growth or an actual reduction in consumption. While still inching up, Chinese consumption, for instance, is expected to grow by only 0.3 million barrels per day this year and next -- a far cry from the 0.5 million barrel increase it posted in 2011 and 2012 and its one million barrel increase in 2010. In Europe and Japan, meanwhile, consumption is actually expected to fall over the next two years.

    And this slowdown in demand is likely to persist well beyond 2016, suggests the International Energy Agency (IEA), an arm of the Organization for Economic Cooperation and Development (the club of rich industrialized nations). While lower gasoline prices may spur increased consumption in the United States and a few other nations, it predicted, most countries will experience no such lift and so "the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade."

    This being the case, the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. Such figures fall far below what would be needed to justify continued investment in and exploitation of tough-oil options like Canadian tar sands, Arctic oil, and many shale projects. Indeed, the financial press is now full of reports on stalled or cancelled mega-energy projects. Shell, for example, announced in January that it had abandoned plans for a $6.5 billion petrochemical plant in Qatar, citing "the current economic climate prevailing in the energy industry." At the same time, Chevron shelved its plan to drill in the Arctic waters of the Beaufort Sea, while Norway's Statoil turned its back on drilling in Greenland.

    There is, as well, another factor that threatens the wellbeing of Big Oil: climate change can no longer be discounted in any future energy business model. The pressures to deal with a phenomenon that could quite literally destroy human civilization are growing. Although Big Oil has spent massive amounts of money over the years in a campaign to raise doubts about the science of climate change, more and more people globally are starting to worry about its effects -- extreme weather patterns, extreme storms, extreme drought, rising sea levels, and the like -- and demanding that governments take action to reduce the magnitude of the threat.

    Europe has already adopted plans to lower carbon emissions by 20% from 1990 levels by 2020 and to achieve even greater reductions in the following decades. China, while still increasing its reliance on fossil fuels, has at least finally pledged to cap the growth of its carbon emissions by 2030 and to increase renewable energy sources to 20% of total energy use by then. In the United States, increasingly stringent automobile fuel-efficiency standards will require that cars sold in 2025 achieve an average of 54.5 miles per gallon, reducing U.S. oil demand by 2.2 million barrels per day. (Of course, the Republican-controlled Congress -- heavily subsidized by Big Oil -- will do everything it can to eradicate curbs on fossil fuel consumption.)

    Still, however inadequate the response to the dangers of climate change thus far, the issue is on the energy map and its influence on policy globally can only increase. Whether Big Oil is ready to admit it or not, alternative energy is now on the planetary agenda and there's no turning back from that. "It is a different world than it was the last time we saw an oil-price plunge," said IEA executive director Maria van der Hoeven in February, referring to the 2008 economic meltdown. "Emerging economies, notably China, have entered less oil-intensive stages of development… On top of this, concerns about climate change are influencing energy policies [and so] renewables are increasingly pervasive."

    The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of "normality" are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways, in the process obliterating the very foundations on which Big Oil's production-maximizing strategy rested. The oil giants will either have to adapt to new circumstances, while scaling back their operations, or face takeover challenges from more nimble and aggressive firms.

    Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What's Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

    Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

    Copyright 2015 Michael T. Klare


    Michael T Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What's Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

    Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

    (Copyright 2015 Michael T Klare)

    [Sep 16, 2015] Oil, Iraq War, & Neoliberalism

    "... Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, "[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales." Of course, Bush not only wants to keep oil out of his enemies' hands, he also wants to put it into the hands of his friends. "
    "...Guaranteeing access to Iraq's oil, however isn't the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war-and the most ignored. Just two months after declaring "mission accomplished" in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it."
    "...In 2004, Michael Scheuer-the CIA's senior expert on al-Qaeda until he quit in disgust with the Bush administration-wrote, "The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages." How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq's economic infrastructure.
    "...Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity."
    "...Put simply, U.S. oil companies want access to as much of Iraq's oil as they can get and on the best possible terms. The fact that Iraq is a war-ravaged and occupied nation works to the companies' benefit. As a result, the companies and the Bush administration are holding U.S. troops hostage in Iraq until they get what they want. Once the companies get their lucrative contracts, they will still need protection to get to work. What better security force is there than 144,000 American troops? {Following this pattern, we can know understand why the U.S. has not completed medical clinics, re-establish electric service, etc. They are holding the country hostage, with a promise of approve the sale of the oil fields and then these projects will be completed--jk.}"
    January 15, 2007 | skeptically.org

    Both parties support neoliberalism, and this is sufficient to explain the course of events leading up to and following the invasion of Iraq. Biparticism and media support of neoliberalism has left a gap in debate and reporting. The article below fills that gap-jk.

    From In These Times @ www.inthesetimes.com

    Features > January 15, 2007

    Spoils of War: Oil, the U.S.-Middle East Free Trade Area and the Bush Agenda

    By Antonia Juhasz, Antonia Juhasz, a visiting scholar at the Institute for Policy Studies, is the author of The Bush Agenda: Invading the World, One Economy at a Time, on which part of this article is based. She is working on a new book that will make the case for the break-up of the largest American oil companies. Learn more at www.TheBushAgenda.net.

    Remember oil? That thing we didn't go to war in Iraq for? Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, "[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales." Of course, Bush not only wants to keep oil out of his enemies' hands, he also wants to put it into the hands of his friends.

    The President's concern over Iraq's oil is shared by the Iraq Study Group, which on December 6 released its much-anticipated report. While the mainstream press focused on the report's criticism of Bush's handling of the war and the report's call for (potential) removal of (most) U.S. troops (maybe) by 2008, ignored was the report's focus on Iraq's oil. Page 1, chapter 1 laid out in no uncertain terms Iraq's importance to the Middle East, the United States and the world with this reminder: "It has the world's second-largest known oil reserves." The group then proceeds to give very specific and radical recommendations as to what should be done to secure those reserves.

    Guaranteeing access to Iraq's oil, however isn't the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war-and the most ignored. Just two months after declaring "mission accomplished" in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it.

    The Bush Agenda

    Within days of the 9/11 terrorist attacks, then-U.S. Trade Representative Robert Zoellick announced that the Bush administration would be "countering terror with trade." Bush reiterated that pledge four years later when he told the United Nations, "By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world." In the case of the March 2003 invasion and ongoing occupation of Iraq, these "free trade"-or corporate globalization-policies have been applied in tandem with America's military forces.

    The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic and political laws, and write a new constitution. The new economic laws have transformed Iraq's economy, applying some of the most radical-and sought-after-corporate globalization policies in the world and locking in sweeping advantages to U.S. corporations. Through the ongoing occupation, the Bush administration seeks to ensure that both Iraq's new government and this new economic structure stay firmly in place. The ultimate goal-opening Iraq to U.S. oil companies-is reaching fruition.

    In 2004, Michael Scheuer-the CIA's senior expert on al-Qaeda until he quit in disgust with the Bush administration-wrote, "The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages." How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq's economic infrastructure.

    L. Paul Bremer III-the head of the U.S. occupation government of Iraq, the Coalition Provisional Authority (CPA)-followed Bearing Point's plan to the letter. From May 6, 2003 until June 28, 2004, Bremer implemented his "100 Orders" with the force of law, all but a handful of which remain in place today. As the preamble to many of the orders state, they are intended to "transition [Iraq] from a … centrally planned economy to a market economy" virtually overnight and by U.S. fiat. Bremer's orders included firing the entire Iraqi military-some half a million men-in the first weeks of the occupation. Suddenly jobless, many of these men took their guns with them and joined the violent insurgency. Bremer also fired 120,000 of Iraq's senior bureaucrats from every government ministry, hospital and school. {By removing the Sumi bureaucracy, they removed opposition to globalization. The U.S. could now shop for support from what would soon be a newly elected factionalized parliament-jk.} His laws allowed for the privatization of Iraq's state-owned enterprises (excluding oil) and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. The laws reduced taxes on all corporations by 25 percent and opened every sector of the Iraqi economy to private foreign investment. The laws allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms) and to send their profits home without having to invest a cent in the struggling Iraqi economy. Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, agriculture and trade were all changed to conform to U.S. goals.

    After the U.S. corporate invasion of Iraq

    More than 150 U.S. companies were awarded contracts for post-war work totaling more than $50 billion. The American companies were hired, even though Iraqi companies had successfully rebuilt the country after the previous U.S. invasion. And, because the American companies did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were, of course, well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result: increasing hostility, acts of sabotage targeted directly at foreign contractors and their work, and a rising insurgency.

    Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity.

    U.S. Air Force Colonel Sam Gardiner, author of a 2002 U.S. government study on the likely effect that U.S. bombardment would have on Iraq's power system, said, "frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we've let big U.S. companies go in with plans for major overhauls."

    Many companies had their sights set on years-long privatization in Iraq, which helps explain their interest in "major overhauls" rather than getting the systems up and running. Cliff Mumm, head of Bechtel's Iraq operation, put it this way: "[Iraq] has two rivers, it's fertile, it's sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term."

    And, since many U.S. contracts guaranteed that all of the companies' costs would be covered, plus a set rate of profit (known as cost-plus contracts), they took their time, building expensive new facilities that showcased their skills and would serve their own needs should they be runing the systems one day.

    Mismanagement, waste, abuse and criminality have also characterized U.S. corporations in Iraq-leading to a series of U.S. contract cancellations. For example, a $243 million contract held by the Parsons Corporation for the construction of 150 health care centers was cancelled after more than two years of work and $186 million yielded just six centers, only two of which are serving patients. Parsons was also dropped from two different contracts to build prisons, one in Mosul and the other in Nasiriyah. The Bechtel Corporation was dropped from a $50 million contract for the construction of a children's hospital in Basra after it went $90 million over budget and a year-and-a-half behind schedule. These contracts have since been turned over to Iraqi companies.

    Halliburton's subsidiary KBR is currently being investigated by government agencies and facing dozens of charges for waste, fraud and abuse. Most significantly, in 2006, the U.S. Army cancelled Halliburton's largest government contract, the Logistics Civil Augmentation Program (LOGCAP), which was for worldwide logistical support to U.S. troops. Halliburton will continue its current Iraq contract, but this year the LOGCAP will be broken into smaller parts and competitively bid out to other companies.

    The Special Inspector General for Iraq Reconstruction (SIGIR), a congressionally-mandated independent auditing and oversight body, has opened 256 investigations into criminal fraud, four of which have resulted in convictions. SIGIR has provided critical oversight of the U.S. reconstruction, but this fall it nearly fell prey to a GOP attempt to shut down its activities well ahead of schedule. Fortunately, it survived.

    SIGIR's October 2006 report to Congress reveals the failure of U.S. corporations in Iraq. In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. Even the term "complete" can be misleading as, for example, SIGIR has found that contractors have failed to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have on average just 11 hours of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day. Before the war, Baghdad averaged 24 hours per day of electricity.

    While there has been greater success in finishing water and sewage projects, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses. Meanwhile, the health care sector is truly a tragedy. Just 36 percent of planned projects are reported as complete. Of 20 planned hospitals, 12 are finished and only six of 150 planned public health centers are serving patients today.

    Overall, the economy is languishing, with high inflation, low growth, and unemployment rates estimated at 30 to 50 percent {being part of a militia is providing employment} for the nation and as high as 70 percent in some areas. The International Monetary Fund has enforced a structural adjustment program on Iraq that mirrors much of Bush's corporate globalization agenda, and the administration continues to push for Iraq's admission into the World Trade Organization.

    Iraq has not, therefore, emerged as the wealthy free market haven that Bush & Co. had hoped for. Several U.S. companies are now preparing to pack up, head home and take their billions of dollars with them, their work in Iraq left undone. The Bush administration is likely to follow a dual strategy: continuing to pursue a corporate free-trade haven in Iraq, while helping U.S. corporations extricate themselves without consequence. The administration will also focus on the big prize: Iraq's oil.

    Winning Iraq's oil prize:

    The Bush Agenda does have supporters, especially those corporate allies that have both shaped and benefited from the administration's economic and military policies. In the 2000 election cycle, the oil and gas industry donated 13 times more money to Bush's campaign than to Al Gore's. The Bush administration is the first in history in which the president, vice president and secretary of state are all former energy company officials. In fact, the only other U.S. president to come from the oil and gas industry was Bush's father. Moreover, both George W. Bush and Condoleezza Rice have more experience running oil companies than they do working for the government.

    Planning to secure Iraq's oil for U.S. companies began on the tenth day of the Bush presidency, when Vice President Dick Cheney established the National Energy Policy Development Group-widely referred to as "Cheney's Energy Task Force." It produced two lists, titled "Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001," which named more than 60 companies from some 30 countries with contracts for oil and gas projects across Iraq-none of which were with American firms. However, because sanctions were imposed on Iraq at this time, none of the contracts could come into force. If the sanctions were removed-which was becoming increasingly likely as public opinion turned against the sanctions and Hussein remained in power-the contracts would go to all of those foreign oil companies and the U.S. oil industry would be shut out.

    As the Bush administration stepped up its war planning, the State Department began preparations for post-invasion Iraq. Meeting four times between December 2002 and April 2003, members of the State Department's Oil and Energy Working Group mapped out Iraq's oil future. They agreed that Iraq "should be opened to international oil companies as quickly as possible after the war" and that the best method for doing so was through Production Sharing Agreements (PSAs).

    PSAs are considered "privatization lite" in the oil business and, as such, are the favorite of international oil companies and the worst-case scenario for oil-rich states. With PSAs, oil ownership ultimately rests with the government, but the most profitable aspects of the industry-exploration and production-are contracted to the private companies under highly favorable terms. None of the top oil producers in the Middle East use PSAs, because they favor private companies at the expense of the exporting governments. In fact, PSAs are only used in respect to about 12 percent of world oil reserves {such as Nigeria}.

    After the invasion

    Two months after the invasion of Iraq, in May 2003, the U.S.-appointed senior adviser to the Iraqi Oil Ministry, Thamer al-Ghadban, announced that the new Iraqi government would honor few, if any, of the dozens of contracts signed with foreign oil companies under the Hussein regime.

    At the same time, Bremer was laying the economic groundwork for a "U.S. corporate friendly" Iraq. When Bremer left Iraq in June 2004, he bequeathed the Bush economic agenda to two men, Ayad Allawi and Adel Abdul Mahdi, who Bremer appointed interim Prime Minister and Finance Minister, respectively {viz., two sell the oil lackeys to head the Iraq government}. Two months later, Allawi (a former CIA asset) submitted guidelines for a new petroleum law to Iraq's Supreme Council for Oil Policy. The guidelines declared "an end to the centrally planned and state dominated Iraqi economy" and advised the "Iraqi government to disengage from running the oil sector, including management of the planned Iraq National Oil Company (INOC), and that the INOC be partly privatized in the future."

    Allawi's guidelines also turned all undeveloped oil and gas fields over to private international oil companies. Because only 17 of Iraq's 80 known oil fields have been developed, Allawi's proposal would put 64 percent of Iraq's oil into the hands of foreign firms. However, if a further 100 billion barrels are discovered, as is widely predicted, foreign companies could control 81 percent of Iraq's oil-or 87 percent if, as the Oil Ministry predicts, 200 billion barrels are found.

    On December 21, 2004, Mahdi joined U.S. Undersecretary of State Alan Larson at the National Press Club and announced Iraq's plans for a new petroleum law that would open the oil sector to private foreign investment. "I think this is very promising to the American investors and to American enterprise, certainly to oil companies," said Mahdi. He described how, under the proposed law, foreign companies would gain access both to "downstream" and "maybe even upstream" oil investment in Iraq. ("Downstream" refers to refining, distribution, and marketing of oil. "Upstream" refers to exploration and production.)

    The draft petroleum law adopted Allawi's recommendation that currently producing oil fields are to be developed by Iraq's National Oil Company, while all new fields are opened to private companies using PSAs.

    The Bush administration and U.S. oil companies have maintained constant pressure on Iraq to pass the petroleum law. The administration appointed an advisor to the Iraqi government from Bearing Point to support completion of the law. And in July 2006, U.S. Energy Secretary Samuel Bodman announced in Baghdad that oil executives told him that their companies would not enter Iraq without passage of the new oil law. Petroleum Economist magazine later reported that U.S. oil companies considered passage of the new oil law more important than increased security when deciding whether to go into business in Iraq.

    The Iraq Study Group, recognizing as it did the primacy of oil in its Iraq calculations, recommended that the U.S. "assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise" and "encourage investment in Iraq's oil sector by the international community and by international energy companies."

    Put simply, U.S. oil companies want access to as much of Iraq's oil as they can get and on the best possible terms. The fact that Iraq is a war-ravaged and occupied nation works to the companies' benefit. As a result, the companies and the Bush administration are holding U.S. troops hostage in Iraq until they get what they want. Once the companies get their lucrative contracts, they will still need protection to get to work. What better security force is there than 144,000 American troops? {Following this pattern, we can know understand why the U.S. has not completed medical clinics, re-establish electric service, etc. They are holding the country hostage, with a promise of approve the sale of the oil fields and then these projects will be completed--jk.}

    Three days after the release of the Iraq Study Group Report, the al-Maliki government announced that Iraq's oil law was near completion. The law adopts PSAs and not only opens Iraq to private foreign companies, but permits "for the first time-local and international companies to carry out oil exploration in Iraq."

    To ensure that this model prevails, the Iraq Study Group recommends that Iraq's constitution be rewritten to give the central government of Iraq-as opposed to individual regions-the ultimate decision-making authority over all of Iraq's developed and undeveloped oil fields.

    Standard Oil Company's John D. Rockefeller famously said, "Own nothing, control everything." He would be proud of the U.S. oil companies and the Bush administration, as they seem poised to get exactly the control they want over Iraq's oil.

    Beyond Iraq: the U.S.-Middle East Free Trade Area

    But the Bush agenda has never been limited to Iraq. As the Wall Street Journal reported in May 2003, "For many conservatives, Iraq is now the test case for whether the U.S. can engender American-style free-market capitalism {neoliberalism} within the Arab world." To this end, the administration has used the "stick" of the Iraq war to convince nations across the Middle East to adopt its free trade agenda. The mechanism for doing so is the president's U.S.-Middle East Free Trade Area (MEFTA).

    The corporate lobbying group behind the MEFTA, the aptly named U.S.-Middle East Free Trade Coalition, includes among its 120 members Chevron, ExxonMobil, Bechtel and Halliburton-companies intimately connected to the Bush administration that have already been big winners in Iraq.

    Insulated by oil revenue, the Middle East has largely avoided succumbing to the sacrifices required under free trade agreements. But since the war began, negotiations for the MEFTA have progressed rapidly.

    The Bush administration devised a unique negotiating strategy for the MEFTA. Rather than negotiate with all of the nations as a bloc, the United States negotiates one-on-one with each country. This means that every nation-some half the size of one state in the United States-must try to make a deal that serves its own interests with the most economically and militarily dominant nation in the world. The reality is that there can be no "negotiation" between such thoroughly unequal pairings.

    These individual free trade agreements are then united under the MEFTA. If successful, the MEFTA would be concluded by 2013 and include 20 countries: Algeria, Bahrain, Cyprus, Egypt, Palestine, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates, Tunisia and Yemen.

    To date, the Bush administration has signed 13 Trade and Investment Framework Agreements (TIFAs), which demonstrate a country's commitment to the MEFTA, and are considered the key step towards passage of a full Free Trade Agreement (FTA). Things have moved briskly since the invasion of Iraq. Algeria and Bahrain signed before the war, while agreements with Lebanon (the most recent, signed in December), Tunisia, Saudi Arabia, Kuwait, Yemen, the United Arab Emirates, Qatar, Egypt, Morocco, Oman and Iraq all followed the war. The United States has signed FTAs with five Middle Eastern countries: Israel, Jordan, Morocco, Bahrain, and Oman. The last three were signed after the 2003 invasion of Iraq. Negotiations with the United Arab Emirates are underway and near completion.

    The winners, of course, are U.S. corporations. On January 19, 2006, for example, then-U.S. Trade Representative Robert Portman sent a letter to Oman's minister of commerce and industry affirming that, when it signs contracts, the Omani government may not give preference to the government's state-controlled oil companies. As for Oman's apparel industry, the U.S. International Trade Commission estimates that the U.S.-Oman agreement will lead to a 66 percent increase in U.S. imports of apparel manufactured in Oman. What are the likely effects? In May, a report by the National Labor Committee detailed the cost of the first Middle East trade agreement signed by Bush in December 2001-the U.S.-Jordan FTA. After that agreement was implemented, new factories arrived in Jordan to service American companies, primarily apparel firms such as Wal-Mart, JC Penney, Target and Jones New York. These factories have engaged in the worst kinds of rights violations, including 48-hour shifts without sleep, physical and psychological abuse, and, in the case of imported foreign workers, employers who hold passports and refuse to pay. (Wal-Mart also is a member of the U.S.-Middle East Free Trade Coalition. The Bush administration will spend the next two years aggressively pushing the MEFTA as it seeks to expand the economic invasion of Iraq to the entire region.

    What's next?

    Throughout his presidency, George W. Bush has claimed that we will live in a safer, more prosperous, and more peaceful world if the United States remains at war and if countries throughout the world change their laws and adopt economic policies that benefit America's largest multinational corporations. The Bush Agenda has proven to have the opposite effect: increasing deadly acts of terrorism and economic insecurity, reducing freedom, and engendering more war. To replace the Bush Agenda, we must address each of its key pillars individually-war, imperialism and corporate globalization.

    The most urgent first step is ending the war in Iraq by ending both the military and corporate occupations. We in the peace movement have already made tremendous progress in reaching these ends. Most Americans now oppose the war. The peace movement has welcomed with open arms U.S. soldiers and their families who share this opposition and unity has made us all stronger. Counter-recruitment efforts are blossoming across the country. The U.S. labor movement has joined forces with its counterpart in Iraq. Protests at corporate headquarters and shareholder meetings have led to U.S. war profiteers being called to account for their abuses in Iraq. Our success was made concrete with the dismissal of the president's party from power in both the House and the Senate.

    According to "Election 2006: No to Staying the course on Trade," by Public Citizen, 18 House races saw "fair traders" replace "free traders" in the midterm election, and not a single "free trader" beat a fair trade candidate. {Staying the course translates into holding the Iraq nation hostage until they pass PSA-jk.} In every Senate seat that changed hands, a fair trader beat a free trader. One of their most important tasks this year will be to deny Bush the renewal of Fast Track negotiating authority when it expires in July. Fast Track allows the president to move trade bills through Congress quickly by overriding core aspects of the democratic process, such as committee deliberations, full congressional debate and the ability to offer amendments. In addition to the newcomers, several existing allies have been elevated to new positions of power. Rep. Ike Skelton (D-Mo.) is now chairman of the House Armed Services Committee. He has pledged to resurrect the subcommittee on oversight and investigations. Rep. David Obey (D-Wisc.) will use his chairmanship of the House Appropriations Committee to exercise greater oversight of Bush's war spending. The most important ally, however, will likely be Rep. Henry Waxman (D-Calif.), the new chairman of the House Government Reform Committee. Waxman has been one of the most effective and aggressive critics of Halliburton's work in Iraq, greatly contributing to Halliburton's loss of its LOGCAP contract.

    Our allies in the new Congress should put forward two key demands:

    First, all remaining and future U.S. reconstruction funds must be turned over to Iraqi companies and Iraqi workers. SIGIR found that when Iraqi companies receive contracts (rather than subcontracts from U.S. companies), their work is faster, less expensive and less prone to insurgent attack. There are literally hundreds of both private and public Iraqi companies-and millions of Iraqi workers-ready, able and willing to do this work. U.S. military commanders and soldiers in Iraq have repeatedly made this demand as they have learned firsthand that a person with a clipboard or a shovel in his or her hands is far less likely to carry a gun.

    Second, U.S. corporations must not be allowed to "cut and run." Every U.S. corporation with reconstruction contracts in Iraq must be individually audited and each project investigated by SIGIR. Misspent funds must be returned and made available to Iraqis for reconstruction. SIGIR has begun this process with plans for a full audit of Bechtel's work due out early this year. SIGIR needs more staff, greater oversight authority and more money to complete this work in a timely manner.

    The Democrats must abandon the Bush administration's plan to remake Iraq into an economic wonderland for U.S. corporations. Iraq must belong to the Iraqis to remake as they see fit. Nowhere is this demand more critical than in the case of Iraq's oil. It is clear that Iraq needs to develop its oil sector to survive and that it needs to retain as much of the proceeds from its oil as possible. It is also clear that it should be the Iraqi public-freed of the external pressure of a foreign occupation, the Bush administration and U.S. corporations-that decides how its oil is developed. U.S. oil corporations cannot be permitted to "win" the war in Iraq while we-Iraqis and Americans-pay the price for their victory.

    IMF policy is to sell of the assets of each nation-which was consistent with the Whitehouse plan. From the point of view of Muslim zealots, this Americanization of the Arab world is the greatest immediate threat to their faith. Our presence on their turf and our plans for free trade turns these zealots into freedom fighters--jk.

    Read about how neoliberalism brought about the war in Iraq, and the plans to sell off the oil field through our puppet government there.

    What we all thought about the cause of the war, oil. However this article ties in international corporations and their wanting to upon up markets with the war. The politicians are not about informing through debate what is going on, but rather about selling their product and making their opponents look bad.

    [Sep 16, 2015] Axel Merk Warns Investors Are In For A Rude Awakening

    Sep 16, 2015 | Zero Hedge
    Why should investors care?
    Investors need to care because the above is just a proxy for all risky assets, including what is sometimes referred to the ultimate risk asset, the stock market.

    All else equal, economic theory suggests that when volatility (risk premia) is lower, asset prices are higher. Investors are more willing to pay for an asset when the future appears less uncertain. As volatility increases, for whatever reason, asset prices should tend adjust lower to provide the higher expected future return needed to compensate the investor for the increased risk level.

    Stock prices were rising on the backdrop of low volatility. Such an environment, in our assessment, fosters complacency: investors have been lured, courtesy of the Fed, to buy the stock market.

    The trouble is that risky assets are, well, still risky. So while central bankers can mask risk, they cannot eliminate it.

    As a result, our analysis suggests many investors may be holding assets that are riskier than they think.

    Where we are
    The Fed's hope was that the economy would be on sound enough footing by now, so that the 'extraordinary accommodation' can be removed. Alas, hope is not a plan.

    In our assessment, the Fed has tried to boost economic growth through asset price inflation. While we don't think printing money creates jobs in the long-run, it does impact various sectors of the economy and, well, asset prices. Housing, for example, is affected by monetary policy: as home prices rise, fewer home-owners are "under water" in their mortgage (there are more implications, such as rather hot housing markets in places such as San Francisco).

    Relevant to this discussion, though, is that if asset prices were to deflate, there might be higher headwinds to economic growth than had asset prices not previously been artificially boosted. And that's exactly where we are: in our analysis, the reason the markets are so nervous about a rate hike is because it signals a shift towards rising risk premia. As the Fed is trying to engineer an exit, risky assets, from junk bonds to stocks, warrant a higher risk premium. In our analysis, all else equal, we don't even need a Fed "exit:" even a perceived Fed exit warrants higher volatility and, with it, lower asset prices.

    Where we may be heading
    Think about it: we have investors that have enjoyed years of bull market; investors that have been told to "buy the dip;" investors that have invested in the markets under the faulty assumption that the markets are a low risk endeavor. Now let volatility spike for any reason - blame the Chinese if you wish - and our assessment is that an increasing number will say: "I didn't sign up for this. I didn't know investing in the market is risky."

    Differently said, rather then the glass being half full, it may be half empty. Rather than buy the dips, investors may now sell the rallies. Investors may scramble to preserve their paper profits. It will take a while for most investors to embrace this new regime, but we believe the tide may well have shifted.

    So will we get a rate hike?

    It doesn't matter. What matters is what the Federal Reserve Open Market Committee (FOMC) has been arguing since the spring of 2014 in their Minutes:

      The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

    To us, this is a promise to be "behind the curve," i.e. to be late in raising rates. The Fed will try to keep rates lower than the Fed itself 'views as normal.' Presumably, it will try to avoid risk premia to blow out too much too quickly. Maybe they'll succeed, but I would not want to bet my house on it.

    What should investors do?

    Just as with every bubble that has been built, investors have been most reluctant to take chips off the table when times were good. We urge all investors to have a close look at whether they are comfortable with the risk profile of their portfolio. Based on our discussions with both retail and professional investors we believe many are over-exposed to risky assets. We don't expect everyone to do what I did in early August, which is to actually go short the market (please read: Coming Out - As a Bear!), but we urge everyone to do some serious stress testing on his or her portfolio.

    Which asset classes do we think will outperform?

    In August, any trade that appeared to have worked, went into reverse. In fact, one could argue there is no such thing as a risk free asset anymore, and given that risky assets were in decline, most investors lost money. It's one reason why looking at alternative strategies, such long/short strategies (in currencies, equities or otherwise) might be worth considering.

    The so-called "flight to safety" did not benefit the greenback; instead, the euro surged on days when U.S. equities plunged. While the media was highlighting how some emerging market currencies plunged, the greenback was down versus all major currencies on numerous days when the S&P was down sharply. We are not suggesting that the euro, or any one currency, will necessarily, be the bastion of strength. Instead, what's been happening is that investors had been piling in to the same trades, such as "the dollar must rally because the U.S. has the cleaner shirt, will raise rates, because ..." well, a good trade works even better with leverage; except that when "risk is off," i.e. when the pessimists take over, de-leveraging is the mode du jour. As such, all those out of favor investors are suddenly outperforming.

    In our assessment, different asset classes adjust at different speeds. The currency markets, when it comes to free-floating currencies at least, adjust faster than equity markets. In the equity market, we expect downward pressure to persist for an extended period until public sentiment is firmly in bearish territory (this may take months, more likely years).

    ... ... ...

    [Sep 15, 2015] Common factors in commodity and asset markets

    "...OECD oil demand is up 800 kbpd over last year, and I am still trying to find another 300-400 kbpd of refined products in the OECD which have disappeared, statistically speaking. So OECD demand growth could be up as much as 1.1-1.2 mbpd, depending on where those missing barrels end up. No visible weakness in the demand in the OECD. "
    Sep 15, 2015 | Econbrowser
    Ricardo September 14, 2015 at 5:08 am

    Menzie wrote:

    "Increases in oil production in the United States and the Middle East were certainly key factors in the huge drop in oil prices over the last year."

    Don't you have this backward? Actually, huge drops in oil prices have reduced production. Reductions in production would tend to lower supply and tend to creare higher prices than if the supply did not change.

    Understanding this gives us the answer to your second sentence.

    "Nevertheless, one can't help but be struck by the fact that the weekly changes in oil prices correlate with dramatic moves in other commodity and financial markets."

    We would expect overall commodity prices to drop – especially oil – with an appreciating currency.

    Steven Kopits September 14, 2015 at 9:36 am

    Scott Sumner might point out that we are reasoning from price changes.

    As I recall, shale oil production has moved the trade deficit by 2% of GDP since 2012. I believe this is not a small adjustment.

    The OECD seems to be doing fine. OECD oil demand is up 800 kbpd over last year, and I am still trying to find another 300-400 kbpd of refined products in the OECD which have disappeared, statistically speaking. So OECD demand growth could be up as much as 1.1-1.2 mbpd, depending on where those missing barrels end up. No visible weakness in the demand in the OECD.

    The global economy, ex-China and China-derived demand (eg, Brazil, Australia, Indonesia, Canada, Norway, and some other commodity exporters) is doing fine. So if we're talking weakness in the global economy, we're talking about weakness in China. And if we're talking weakness in China, we're talking first and foremost an over-valued yuan. See the second graph ("Rush to Exit") in the article below, and tell me the yuan doesn't need a write-down. And note flight of capital from China corresponds to the collapse of the oil price, the devaluation of other currencies against the dollar (excluding China), and that in turn corresponds to the acceleration of shale oil production in Q3 2014.

    One could argue that China collapsed just as shale oil production was accelerating, but that seems a bit too coincidental.

    http://www.bloomberg.com/news/articles/2015-09-11/these-four-charts-show-how-obama-s-leverage-over-xi-is-increasing

    Steven Kopits, September 15, 2015 at 8:51 am

    I have written an analysis of the impact of shale oil production on the US trade deficit, and by implication, the dollar exchange rate.

    Find it here: http://www.prienga.com/blog/2015/9/15/impact-of-shales-on-the-us-trade-deficit

    [Sep 14, 2015] Conceptual pitfalls and monetary policy errors VOX, CEPR's Policy Portal by Andrew Levin

    September 11, 2015 | voxeu.org

    The conventional unemployment rate (U3) is now close to assessments of its longer-run normal level, but other dimensions of labour market slack remain elevated:

    • U3 does not reflect the incidence of hidden unemployment, namely, about 2½ million Americans who are not actively searching for work but are likely to rejoin the labour force as the economy strengthens; and
    • U3 does not incorporate the extent of underemployment (individuals working part-time who are unable to find a full-time job), which remains significantly higher than its pre-recession level.

    Thus, the 'true' unemployment rate – including hidden unemployment and underemployment –currently stands at around 7¼%, and the total magnitude of the US employment gap is equivalent to around 3½ million full-time jobs.

    • Non-farm payrolls have been expanding at a solid pace, but that pace will need to be maintained for about two more years in order to close the employment gap.

    In particular, recent analysis indicates that the potential labour force is expanding by about 50,000 individuals per month due to demographic factors. Thus, if non-farm payrolls continue rising steadily by about 200,000 jobs per month (the average pace over the past six months), then the employment gap will diminish next year and be eliminated in mid-2017. By contrast, a tightening of monetary conditions would cause the economic recovery to decelerate and the pace of payroll growth might well drop below 100,000 jobs per month, in which case the employment gap would barely shrink at all.

    The contours of the inflation outlook

    The FOMC has established an inflation goal of 2%, as measured by the personal consumption expenditures (PCE) price index. Its recent communications have stated that the tightening process will commence once the FOMC is "reasonably confident" that inflation will move back to the 2% objective over the medium term.

    • It seems unwise for such a crucial policy decision to place so much weight on the FOMC's inflation outlook and little or no weight on the observed path of wages and prices.
    • FOMC participants' inflation forecasts over the past few years have proven to be persistently overoptimistic (see Figure 1).

    Figure 1. The recent evolution of core PCE inflation

    Note: In this figure, the core PCE inflation rate is given by the four-quarter average change in the PCE price index excluding food and energy, and the FOMC's outlook is given by the midpoint of the central tendency of core PCE inflation projections, as published in the FOMC Summary of Economic Projections (SEP) at each specified date.

    For example, in early 2013, when core PCE inflation was running at about 1½%, FOMC participants generally anticipated that it would rise to nearly 2% over the course of 2014 and 2015, whereas in fact it has declined to around 1.2%. Indeed, its underlying trend has been drifting steadily downward since the onset of the last recession.

    • Despite some recent suggestions to the contrary, there is a strong empirical linkage between the growth of nominal wages and the level of the employment gap.

    Moreover, as shown in my recent joint work with Danny Blanchflower, the wage curve exhibits some flattening at high levels of labour market slack, which explains why nominal wage growth has remained subdued over the past few years even as the employment gap has declined from its post-recession peak (see Figure 2). This empirical pattern also implies that the pace of nominal wage growth is likely to pick up somewhat over coming quarters as the employment gap declines further.

    Figure 2. The wage curve

    Note: In this figure, each dot denotes the pace of nominal wage growth (as measured by the 12-month change in the average hourly earnings of production and non-supervisory workers) and the average level of the employment gap (including hidden unemployment and underemployment) for each calendar year from 1985 to 2014 and for August 2015 (the latest BLS employment report).

    Gauging the stance of monetary policy

    Fed officials have recently characterised the current stance of monetary policy as "extremely accommodative." Such characterisations may be helpful in motivating the onset of "policy normalisation" but seem inconsistent with professional forecasters' assessments of the equilibrium real interest rate and with the implications of simple benchmark rules.

    The distance between the current federal funds rate and its longer-run normal level depends crucially on the magnitude of the equilibrium real interest rate.

    • Most FOMC participants have projected the longer-run normal rate to be about 3¾%, consistent with an equilibrium real rate only slightly lower than its historical average of about 2%.

    Over the past few years professional forecasters have made substantial downward revisions to their assessments of the 'new normal' level of interest rates.

    • Surveys conducted by the Philadelphia Fed indicate that professional forecasters expect short-term nominal interest rates to be around 2¾% in 2018 and to remain at that level on average over the next ten years, corresponding to an equilibrium real interest rate of only ¾%.

    Such revisions presumably reflect the downgrading of the outlook for potential output growth as well as prospects for headwinds to aggregate demand persisting well into the future.

    • If professional forecasters' assessments are roughly correct, then the current funds rate is by no means extremely accommodative.

    In June 2012, then-Vice Chair Yellen noted that "simple rules provide a useful starting point for determining appropriate policy" while emphasising that such rules cannot be followed mechanically. That speech considered the Taylor (1993) rule along with an alternative rule analysed by Taylor (1999) that Yellen described as "more consistent with the FOMC's commitment to follow a balanced approach." Thus, it is instructive to evaluate each of these simple rules using the current core PCE inflation rate (which is 1.2%), the CBO's current assessment of the output gap (3.1%), and professional forecasters' consensus estimate of the equilibrium real interest rate (r* = 0.75).

    • Using these values, the Taylor rule prescribes a funds rate of 0.1%, exactly in line with the FOMC's current target range of 0 to 0.25%; and
    • The Taylor (1999) rule prescribes a funds rate well below zero (-1.4%).

    Neither of these two benchmarks calls for a tighter stance of policy. Indeed, the 'balanced approach' rule preferred by Yellen (2012) indicates that macroeconomic conditions will not warrant the initiation of monetary policy tightening until sometime next year.

    Assessing the balance of risks

    Over the past 18 months, FOMC statements have regularly characterised the balance of risks to the economic outlook as "nearly balanced." Of course, that assessment has recently come into question due to a bout of financial market volatility in conjunction with shifting prospects for major foreign economies (most notably China).

    Regardless of how financial markets may evolve in the near term, however, it seems clear that the balance of risks remains far from symmetric. If the US economy were to encounter a severe adverse shock within the next few years (whether economic, financial, or geopolitical in nature), would the FOMC have sufficient capacity to mitigate the negative consequences for economic activity and stem a downward drift of inflation?

    For example, if safe-haven flows caused a steep drop in Treasury yields along with a sharp widening of risk spreads, would a new round of QE still be feasible or effective? Alternatively, would the Federal Reserve implement measures to push short-term nominal rates below zero, as some other central banks have done recently?

    In the absence of satisfactory answers to such questions, it is essential for the FOMC to maintain a highly accommodative stance of monetary policy as long as needed to ensure that labour market slack is fully eliminated and that inflation moves back upward to its 2% goal. Such a strategy will help strengthen the resilience of the US economy in facing any adverse shocks that may lie ahead.

    Concluding remarks

    The FOMC's near-term strategy has become so opaque that even the most seasoned analysts can only guess what policy decisions may be forthcoming at its upcoming meetings. Moreover, the FOMC has provided no information at all (apart from the phrase "likely to be gradual") about how its policy stance will be adjusted over time in response to evolving macroeconomic conditions.

    Unfortunately, such opacity is likely to exacerbate economic and financial uncertainty and hinder the effectiveness of monetary policy in fostering the goals of maximum employment and price stability. Therefore, it is imperative for the FOMC to formulate a systematic monetary policy strategy and to explain that strategy clearly in its public communications.

    References

    • Blanchflower, D G and A T Levin (2015), "Labor Market Slack and Monetary Policy," NBER Working Paper No. 21094.
    • Federal Reserve (2015), "Minutes of the Federal Open Market Committee", 28-29 July 28-29.
    • Taylor, J B (1993), "Discretion Versus Policy Rules in Practice", Carnegie-Rochester Series on Public Policy 39, pp. 195-214 (also released as SIEPR Publication No. 327, November 1992).
    • Taylor, J B (1999), "An Historical Analysis of Monetary Policy Rules", in J. B. Taylor (ed.), Monetary Policy Rules, Chicago, IL: University of Chicago Press
    • Yellen, J L (2012), "Perspectives on Monetary Policy", speech at the Boston Economic Club Dinner, Boston, MA, 6 June.

    [Sep 14, 2015] A Flock Of Black Swans

    Sep 14, 2015 | Zero Hedge
    Submitted by Jeff Thomas via InternationalMan.com,

    "What Will the Fatal Trigger Be?"

    Here's a brief list of possible triggers:

    • Creditors dump US debt back into the US market
    • Commodity prices spike
    • A crash occurs in the stock or bond market
    • A backlash occurs from countries sanctioned by the US
    • European countries default on their debt
    • The US dollar ends as the petrocurrency (causing a sale in US treasuries)
    • The US or EU introduce significant tariffs, diminishing world trade
    • Interest rates rise, as they did in 1929
    • The paper gold market crashes, when the shortage of physical gold is revealed
    • Banks freeze or confiscate deposits
    • FATCA accelerates the demise of the US dollar as the default currency
    • A credit collapse occurs (followed by dramatic inflation or hyperinflation)

    Any of the above is capable of triggering a collapse (and, as stated, this is not by any means an exhaustive list). Therefore, it would be wise to keep an eye out for indicators that one of them may occur. Any one of them that appears to be nearing the point of becoming a reality would suggest that the tipping point may occur soon.

    "How Will I Know in Advance?"

    Whatever advance warning you may have will be based on how closely you're following the indicators that any of the possible triggers may be nearing fruition. Some, like the overbought stock market or the rise in commodity prices could kick in at any time.

    Others, such as a bank freeze on deposits, or the collapse of the ETF market in gold, could happen quite suddenly and without any warning at all.

    In discussing the above condition with investors, they often say, "Well, if it's inevitable and I can't time the event, there's no use thinking about it. We're all going to go down with the ship, so why bother?"

    Quite frankly, I'm astonished that so many investors are so complacent that they're prepared to shrug their shoulders and accept their own economic demise, yet this assumption is very common.

    The enemy is not the coming events; the enemy is complacency toward those events.

    The investor therefore has two viable choices: to either get blindsided by events and become an economic casualty, or be prepared (as much as possible) for the crashes, regardless of what the trigger might turn out to be.

    [Sep 13, 2015] A Major Bank Just Made Global Financial Meltdown Its Base Case The Worst The World Has Ever Seen

    "...China is building islands in the SCS as a shot at Japan; Japanese brokerage takes a shot at China's economy. Shots fired. But, not saying they're wrong."
    "...Yet another instance of a person or entity that is fucking causing this meltdown with their fraud and theft suddenly warning about it. Just like that brit douche bag, just like greenspan, and now this. Just trying to protect themselves when the disaster they have wrought comes unglued, so they can say something along the lines of "it wasn't me, I was trying to warn you this would happen, remember?""
    "...This is very obviously preemptive damage control. This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart."
    "...The meltdown is coming and well known to the elites ... thus we have more war intensity in the MENA areas. The West classically uses war as a tool to fight depressions. Now is no exception.
    Of course the politicans and business leaders want not only war but massive flooding of refugees so they can justify stealing taxpayer money to build houses for them [and line their pockets at the same time] ... using "humantitarian" purposes as the ruse."
    "...The Western Oligarchs want to keep China, Russia and other emerging economies in their place. They control capital flows AT ALL COSTS "
    Sep 13, 2015 | Zero Hedge

    One bank that is now less than optimistic that China can escape a total economic meltdown is the Daiwa Institute of Research, a think tank owned by Daiwa Securities Group, the second largest brokerage in Japan after Nomura.

    Actually, scratch that: Daiwa is downright apocalyptic.

    In a report released on Friday titled "What Will Happen if China's Economic Bubble Bursts", Daiwa - among other things - looks at this pernicious relationship between debt (and thus "growth") and China's capital stock. This is what it says:

    The sense of surplus in China's supply capacity has been indicated previously. This produces the risk of a large-scale capital stock adjustment occurring in the future.

    Chart 6 shows long-term change in China's capital coefficient (= real capital stock / real GDP). This chart indicates that China's policies for handling the aftermath of the financial crisis of 2008 led to the carrying out of large-scale capital investment, and we see that in recent years, the capital coefficient has been on the rise. Recently, the coefficient has moved further upwards on the chart, diverging markedly from the trend of the past twenty years. It appears that the sense of overcapacity is increasing.

    Using the rate of divergence from past trends in the capital coefficient, we can calculate the amount of surplus in real capital stock. This shows us that as of the year 2013, China held a surplus of 19.4 trillion yuan in capital stock (about 12% of real capital stock).

    Since China is a socialist market economy, they could delay having to deal directly with the problem of capital stock surplus for 1-2 years through fiscal and financial policy. However, there is serious risk of a large-scale capital stock adjustment occurring in the mid to long-term (around 3-5 years).

    Daiwa then attempts to calculate what the magnitude of the collapse of China's economic bubble would be. Its conclusions:

    Even in an optimum scenario China's economic growth rate would fall to around zero

    We take a quantitative look at the potential magnitude of the collapse of China's economic bubble to ensure that we can get a good grasp of the future risk scenario. If a surplus capital stock adjustment were to actually occur, what is the risk for China and how far would its economy fall?

    Chart 7 shows a factor analysis of China's potential growth rate. The data here suggests that (1) China's economy has gradually matured in recent years, and this has slowed progress in technological advancement, (2) Despite this fact, it has continued to depend on the accumulation of capital mainly from public spending to maintain a high economic growth rate, and (3) As a result, this has done more harm than good to technological advancement. Between the years 2012-15 China's economy declined, yet still was able to maintain a high growth rate of over 7%.

    However, 5%pt of the growth rate was due to the increase in capital stock. Labor input and total factor productivity contributed only 2%pt.

    The major decline in the rate of contribution from total factor productivity is especially noteworthy, as it had maintained an annualized rate of 5% for thirty years straight since the introduction of the reform and opening-up policy and on through the era of rapid globalization.

    According to a DIR simulation, if a capital stock adjustment were to occur under such circumstances, China's potential growth rate would fall to around 4% at best. This adjustment process is shown in the bottom left Chart 7. As far as can be determined from the capital stock circulation diagram, capital spending at the level seen in 2014 should not have been allowable without an expected growth rate of over 10%. Hence if adjustment progresses to the point where the potential growth rate is only 4%, the situation for capital spending will continue to be harsh.

    If the adjustment process lasts from the year 2016 to 2020, capital spending will likely continue in negative numbers on a y/y basis. If this scenario becomes a reality, the real economic growth rate will hover at around zero as is shown in the lower right portion of Chart 7.

    ... ... ....

    The stunning punchline:

    "Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario. The point at which the capital stock adjustment is expected to hit bottom is at a much lower point than in the previously discussed capital stock adjustment scenario (see Chart 8). As shown in the bottom right portion of this chart, the actual economic growth rate will continue to register considerably negative performance. If China's economy, the second largest in the world, twice the size of Japan's, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."

    greenskeeper -> carl

    Yet another instance of a person or entity that is fucking causing this meltdown with their fraud and theft suddenly warning about it. Just like that brit douche bag, just like greenspan, and now this. Just trying to protect themselves when the disaster they have wrought comes unglued, so they can say something along the lines of "it wasn't me, I was trying to warn you this would happen, remember?"

    FinalEvent

    Not only warn, but blame it on china as well.

    chunga

    I'm curious how the squid will profit by making it all worse.

    A Lunatic

    I guess the same way they have always profited from death and hell and misery...

    THX 1178

    This is very obviously preemptive damage control. This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart.

    CheapBastard

    The meltdown is coming and well known to the elites ... thus we have more war intensity in the MENA areas. The West classically uses war as a tool to fight depressions. Now is no exception.

    Of course the politicans and business leaders want not only war but massive flooding of refugees so they can justify stealing taxpayer money to build houses for them [and line their pockets at the same time] ... using "humantitarian" purposes as the ruse.

    jeff montanye

    the report cited early above, by mckinsey, is quite interesting; it can in its entirety here http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_dele...

    to me, there are some internal inconsistencies: e.g. sometimes financial debt is included in the ratios, sometimes not. in any case there are many more-leveraged countries than china, the u.s, and south korea: japan and much of europe for instance.

    CheapBastard

    Good read. Lax lending standards are rampant again and I am not sure they ever tightened much, esp in places like the usa where lenders know they will get bailed out. it also sounds as if we are going to have brutal deflation before any serious inflation due to austerity, defaults, etc.

    Arnold

    Lax lendig is social policy in the US.

    ThroxxOfVron

    "This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart. "

    China's fault, huh? All by themselves?

    Somehow I think that the globalists and banksters that made billions if not trillions on this misadventure might be as much to blame as the Party Poobahs that welcomed the chance to farm the peasants out and pave the whole country over in 30 short years...

    I say we drag them ALL, Party/Politcal hacks, Globalist Feudalist, Banksters, THE LOT: out into the street anyway.

    As the Cultural Revolution proved all too well: 'cleaning the slate' is 'morally acceptable' to 'civilization' in both the East and the West.


    Groundhog Day

    the only solution for the banksters (and elites) is to cause a major economic meltdown, where rich (small business owners, doctors, lawyers) and poor people are starving to death for a long time. This way they won't really care about the trillions lost but will only be concerned about thier next meal. same as it ever was throughout history. Then the elite can come in and start the game all over again with new rules and clean hands

    yogibear

    Being on the right side of the trade. Since Goldman knows first hand which way the Fed is blowing it knows how to set itself up.

    William Dudley is a former Goldman boy. Goldman will be the first to know.

    TeethVillage88s

    A Goldman Boy!! How can the EU, Russia, China, and vassal states like the PIIGS not fight back?

    - Well there were a few and still are a few rebels, but you have to search your soul about supporting their ideas:

    1) PIIGS
    2) Venezuela
    3) Argentina
    4) Brazil
    5) Russia
    6) China
    7) India
    8) South Africa
    9) Indonesia
    10) Cuba
    (BRIICS)

    Who gets a pass on Global Principals and their participation in Global Events:

    1) Belgium
    2) Luxembourg
    3) Nederland
    4) United Kingdom (and Vassal States)
    5) France
    6) Germany
    7) Switzerland

    8) Asian Tigers (Singapore, Hong Kong, Indonesia, Malaysia, Thailand, Vietnam, Burma)

    9) Australia, New Zealand, Canada

    Are there other Alternative Societies or Constructs?

    A) Off Shore Structures in the Sea
    B) Vessels that declare sovereignty
    C) Regions or Places declared communes or under the command of a Captain of the Sea
    D) Islands or Arctic Areas with no permanent settlements

    **If the USA reclaims it's US Constitution and forces the 3 Branches of Federal Government to comply then the USA could be born again

    ZippyDooDah

    China is building islands in the SCS as a shot at Japan; Japanese brokerage takes a shot at China's economy. Shots fired. But, not saying they're wrong.

    JRobby

    Chicken Little? No, I think not. The people that have profited most by creating the scenario for collapse now calling for it is what is to be expected.

    The Western Oligarchs want to keep China, Russia and other emerging economies in their place. They control capital flows AT ALL COSTS

    Radical Marijuana

    Superficially correct, Supernova Born, but actually WAY WORSE, because all of that "money" made out of nothing was being used to strip-mine the natural resources of the planet.


    Visualizing China's Mind-Boggling Consumption Of The World's Raw Materials

    China jumped in the deep end with both feet, when it decided to imitate and out-do the Western systems based on fundamentally fraudulent financial accounting, and therefore, created something about three times more "money" out of nothing as debts. The Chinese economy deliberately adopted those systems, and therefore, what we thought of as their economic systems was more like ENFORCED FRAUDS ON STEROIDS.

    The ways that most people think about "economics" are as absurdly backwards as possible, because those ways of thinking tend to take completely for granted that the public "money" supplies are being made out of nothing, as debts, while then that "money" does NOT actually "pay" for anything, but rather, is the expression of ENFORCED FRAUDS, where having been able to ENFORCE FRAUDS never stopped those FRAUDS BEING FALSE.

    Sure, it appears that "Nobody but the house wins in a rigged casino." However, that casino is way more profoundly rigged, to the degree to which nobody wins. The world's political economy is based upon governments ENFORCING FRAUDS by privately controlled banks. Since China could not beat them, China decided to join them, and indeed, create flabbergastingly more "money" out of nothing than the previous "leaders" in those areas had ever done!

    As the saying goes:

    "I do not know who discovered water, but is was not fish."

    For generation after generation, almost everyone has been used to living inside of a political economy based upon ENFORCING FRAUDS. That drove almost everyone to develop attitudes which deliberately ignored the principle of the conservation of energy as much as possible, while also deliberately misunderstanding the concept of entropy in the most absurdly backward ways possible. The ways that people think about economic activities could not be more absurdly backwards, because they could not be more based on ENFORCING FRAUDS than they already are, which is pretty well more than 99%, which is matched by the ratios between physical realities versus financial frauds, being about 1 to 100, while automatically still getting worse, since the political economy is still based upon governments ENFORCING FRAUDS by privately controlled banks.

    While it may well appear that those privately controlled banks are "winning" fantastically, inside of the casinos that they have rigged, that perception is relatively superficial, because their fundamentally fraudulent financial accounting systems were simultaneously based upon deliberately ignoring the laws of nature as much as possible, both by building everything on the basis of strip-mining, as well as discounting the consequences of doing that as much as possible.

    The appearance of those who rigged the casinos "winning" ONLY exists within the fundamentally fraudulent accounting systems that operated through those rigged casinos, which became based on governments ENFORCING FRAUDS by privately controlled banks. The intense paradoxes of social systems based on ENFORCING FRAUDS is that the more successful they become, the more they get locked into vicious spirals of psychosis. Those who appear to be "winning" inside of their rigged casinos are actually playing while they are burning that casino down.

    By and large, it is practically impossible for most people to go through the cognitive dissonance it would take for them to come to terms with the degree to which everything "economic" was built on the basis of being able to ENFORCE FRAUDS. While it is theoretically possible to do that, by developing the intellectual scientific revolutions necessary to approach understanding human being and civilization as entropic pumps of environmental energy flows, it is politically impossible to do that, since one has to go through profound paradigm shifts, in order to comprehend how and why everything became based upon ENFORCING FRAUDS, and that China decides to embrace that kind of political economy, and do it more than anyone else had previously done.

    There are intense paradoxes, in the form of consistent contradictions, which arise from better understanding how and why civilization actually operates according to the principles and methods of organized crime. On a superficial level, it may well appear that those who rigged their casinos were the only ones "winning." However, on deeper levels, they were also lying to themselves, because those systems which privatized the profits, while socializing the losses, were based upon being able to deliberately ignore that those socialized losses were accumulating to become greater than the privatized profits.

    As stated in the recent article, A Major Bank Just Made Global Financial "Meltdown" Its Base Case: "The Worst The World Has Ever Seen"

    "Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario. If China's economy, the second largest in the world, twice the size of Japan's, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."

    Since everything the globalized political economy has been doing was based upon ENFORCING FRAUDS, and China enthusiastically jumped on that bandwagon, the basic problems regarding having done that were almost totally globalized. Since the world is run by people who degree of social successfulness was based upon their abilities to be the best available professional liars and immaculate hypocrites, in order to be socially successful within the established systems ENFORCING FRAUDS, it continues to be politically impossible for most of those people to admit the magnitudes to which they were lying to themselves, and to everyone else, regarding how the political economy was really doing, due to how it really worked.

    Collectively, the globalized political economy was based upon runaway triumphant organized crime, whose excessive successfulness became runaway criminal insanities. While it appeared to those who had rigged their casinos were "winning" that was their own delusional sense of what was actually going on, due to the degree that short to medium term social successes could be based on continuing to ENFORCE FRAUDS.

    However, at the same time, the deeper underlying realities were actually developing, because the fundamentally fraudulent financial accounting systems were able to trick human beings, but that did not change the underlying laws of nature. Despite human beings dominated by social systems based upon ENFORCING FRAUDS feeling like they were "winning" inside of the casinos that they had rigged, what was actually really happening was that they were behaving in ways where the only connections between human laws and natural laws were the abilities to back up lies with violence. Hence, those runaway systems of ENFORCED FRAUDS were actually directing civilization to behave in ways that deliberately ignored the basic laws of nature as much as possible.

    The interesting questions that arise are what could the possible "corrections" to that become, after the development of systems of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic bombs. Of course, the laws of nature are still there, and human beings never actually violated any of those laws of nature when human societies became based on more and more be able to back up lies with violence, while most people adapted to that by adopting those systems, such as the Chinese did, when they decides to make vastly more "money" out of nothing as debts than ever before done by anybody else.

    I am NOT asserting that human beings' ERRORS will never be corrected. Rather, I am am attempting to point out the magnitude of those ERRORS. While the global political economy more and more became a rigged casino, based upon governments ENFORCING FRAUDS by privately controlled banks, in my view it was a dangerous delusion for those who appears to be "winning" to believe that they actually were "winning."

    Those who appeared to thereby be able to privatize the profits from controlling the political economy through ENFORCING FRAUDS were actually always also accumulating their own shares of the collective losses. Those collective losses tended to be deliberately discounted and disregarded as much as possible. However, those were always actually accumulating in the real world. Hence, those who appears to be privately winning inside of their rigged casinos were NOT actually winning, but rather, driving the human species as a whole towards committing collective suicide, due to the degree to which civilization thus became psychotic and manifested runaway criminal insanities.

    tumblemore
    Yeah it's like when China adopted Communism and then took it to even worse extremes. This time they adopted the western banking system and took that to even worse extremes. The lesson for them should be don't copy ****** inventions because (reasons).
    durablefaith

    corrections are illegal...

    Self reliance = isolationism. Grouping up with like-minded people is racism. Promoting an ideology that reveals the morally bankrupt current state = hate speech. Anarchy = extremism. Protests = terrorism.

    The countermeasures being employed against us are asymetrical in nature due to legality and technology.

    The collective herd, ridden hard by their psychopath overlords, are approaching the Cliff.

    Those of us who are awake and mindful swim upstream, because of duty, regardless of outcome


    sun tzu

    Lions don't attack the entire buffalo or wildebeest herd. They pick the weakest ones.

    yogibear

    Only when the riggers dump all their holdings on the sheeple will they take this baby down.

    Much faster making money on the way down. Usually those not well connected never see it coming.

    Oldballplayer

    How much money flows into 401k accounts each week.

    Those are the ultimate rip off. Get two entire generations pumping 4% of their gross in every payday. And when they think they are all set--pull the rug from under them.

    At this point, take the penalty, pay the taxes and but as many 2017 dec puts as you can get. You will make it all back. And more.

    Chuck Knoblauch

    US doom a certainty. Yuan devaluation exposing USD$ weakness.

    Global dumping of US Treasuries.

    Stop the bullshit. It's really obvious, captain.

    TeethVillage88s

    Daiwa Securities Group Inc.,Daiwa Securities Group Inc.*,,,,
    Ticker,8601 JP Equity,,,,
    Includes Loans to:,Daiwa Securities Group Inc. and Daiwa Securities Group Inc.,,,,
    Identified in Fed Documents as:,Daiwa Securities America Inc. and Daiwa Securities America Inc.,,,,
    Capital Raised From Home Governments,,,,,
    Programs,"PDCF, ST OMO",,,,
    Country,Japan,,,,
    Industry,Diversified Financial Services,,,,
    "Average Daily Balance
    From 8/1/2007 to 4/30/2010",$76.32 ,,,,
    Peak Amount of Debt,"$1,000.00 ",,,,
    Peak Date,12/24/2008,,,,
    Number of Days In Debt to the Fed,99,Market Cap,Percent of Market Cap,ST OMO,PDCF

    So looks like the FED loaned them peak amount of $1 Billion.

    - No such thing as conservative Banking at the FED or Wall Street.

    - We are still seeing the fall out from US Created problems

    1) Bubbling Housing, Derivatives, Stock Market Prices

    2) Poor Stewardship of the US Petro Dollar/World Reserve Currency

    3) Out of Control US Federal Budget Spending and resulting mal-investing in MIC & Police State

    4) US Control over Global Politics and Press/Media

    5) US & EU Sponsored Globalization and Trade resulting in Mal-investment and greater wealth Gaps and concentration of Capital into Financial Schemes

    6) US Globalization & War has thrown Europe into chaos with mass immigration and Cultural Destruction

    but maybe it is just me.

    SHADEWELL

    Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.

    falak pema

    A socialist market economy; aka a CP classical totalitarian model under the surface of market manipulation drowning in debt and malinvestment; as opposed to the west's version of the same beast :

    A capitalistic oligarchical economy; now more and more CP'd under CB print and debt accumulation just like China; inverted totalitarianism.

    When Charybdis MOCKS Scylla, the Gods of Capitalism and Statism have gone as mad as their mortal look alikes running around the financialized world like headless chickens.

    Diogenes can truly mock Alexander's expedition on its march to his fool's paradise in Persepolis.

    When Syrac dreams burn like Babylon.

    ndree

    I personally am not concerned with the prophecies of doom and gloom about China. Of course, they could not maintain a 7-10% growth forever. The economy is pivoting, not just to another level, but also to a different nature. Once the projects of the New Silk Road are ramped up (and I am certain they would accelerate this), all talk of slow growth, doom and gloom would be moot. Why should the Chinese be responsible for overall world growth, or providing Wall Strret gamblers and junkies with more ill gotten gains, and additional cocaine for their pipes?

    withglee

    a vast debt build up (by now everybody should be familiar with McKinsey's chart showing China's consolidated debt buildup) leading to a just as vast build up of excess capacity, also known as capital stock accumulation. And/or vice versa.

    Has the writer looked at his own linked chart? It shows in 2000 a ratio of non-financial corporate debt to total debt to be 69%. In 2Q14 it shows it to be 44%.

    Isn't it non-financial corporate activity that leads to "excess capacity"?

    It's becoming more and more difficult to make sense of these articles.

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015...

    [Sep 12, 2015] The 20-Year Stock Bubble - Its Origin In Wholesale Money Zero Hedge

    Sep 12, 2015 | Zerohedge

    Faith in the QE world is waning everywhere and with very good reason. If the "wholesale money" eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that starting point rather than the irrelevant and overstated federal funds monkeying.

    In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it.

    ... ... ...

    ...the former Fed chair wrote on June 1:

    Stock prices have risen rapidly over the past six years or so, but they were also severely depressed during and just after the financial crisis. Arguably, the Fed's actions have not led to permanent increases in stock prices, but instead have returned them to trend. To illustrate: From the end of the 2001 recession (2001:q4) through the pre-crisis business cycle peak (2007:q4), the S&P500 stock price index grew by about 1.2 percent a quarter. If the index had grown at that same rate from the fourth quarter of 2007 on, it would have averaged about 2123 in the first quarter of this year; its actual value was 2063, a little below that. There are of course many ways to calculate the "normal" level of stock prices, but most would lead to a similar conclusion.

    From this view, the Fed acted quite appropriately with regard to stock prices in order to get them back to their own established trend; therefore no bubble. It isn't surprising that his math works out, as you can plot his figures on a chart of the S&P 500 and see his reasoning painted forth.

    ABOOK Sept 2015 Bernankes Trend

    Starting at the end of the dot-com recession sometime in the last quarter of 2001, a 1.2% per quarter trend nicks the top of the market in 2007. Ignoring the implications of panic and crash through March 2009, as he does, filling out the rest of the chart puts the current (before August 24) stock index directly within the path of his trend.

    ABOOK Sept 2015 Bernankes Trend2

    It is a ridiculously weak argument for obvious reasons, not at all unlike his defense of QE in the real economy via the unemployment rate without mentioning the denominator. It isn't clarified in his post, but it seems equally evident that he picked the end of the dot-com recession as a start date because that is when Greenspan's Fed brought forth "ultra-low" interest rates (see below). So if you believe that "ultra-low" interest rates are responsible for the current stock bubble, there you go.

    ... ... ...

    If the eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that point rather than the irrelevant and overstated federal funds monkeying. So where Bernanke's stock trend aligns the peaks as if that were "fair" and of the real market, the troughs instead just as easily conform traced back to the plainly obvious eurodollar deviation.

    ABOOK Sept 2015 Bernankes Trend Dollar Trend

    In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it. The failure of the eurodollar standard to heal or rebuild to its prior upswing (ended on August 9, 2007) was seen more so in the real economy (the 2012 slowdown) but also in the stock market in 2010 and again in 2011; both those outbreaks appeared to revert back to that "dollar baseline."

    The fact that asset inflation can continue on its own apart from any financial contribution of the wholesale "dollar" is due to partially separate liquidity and funding sources. Liquidity isn't everything always, but when it is failing it takes over for the dominant marginal direction. In other words, corporate repurchases and retail flows might be sufficient for stock prices to rise and rise rapidly where the "dollar" isn't as supportive, but those are easily overwhelmed where the "dollar" is acutely retreating (as August 24).

    When we plot Bernanke's 1.2% per quarter benchmark at a start date of January 1995, that compounding growth works out to a "target" S&P 500 level of 1236.09 for Q3 2015.

    ABOOK Sept 2015 Bernankes Trend Dollar Trend Compounded

    Where his 1.2% per quarter within the bubble mechanics calculates to 2123 (as of June) for the S&P 500, applying the same idea to starting outside the serial bubbles is vastly different (-42%).

    I'm not making any claims about whether 1236.09 is "fair value" for the S&P 500, only realizing the true nature of the stock bubble makes a huge difference. He isn't quite taking the full weight of the Yellen Doctrine here (I define that as her notion that a bubble isn't really a bubble unless it doesn't "work" in the real economy) but you can see how he is, by the construction of his trend narrative, thinking in at least that direction. Both are attempts to justify asset inflation by moving the perspective to within the bubble period so as not to have to explain how it all arrived in the first place (inferring from Bernanke's intent: since the dot-com bubble predates "ultra-low" interest rates it can't possibly be the Fed's fault, and therefore the Fed has been successful in simply re-establishing what the "market" did on its own beforehand).

    I think that is true but only in the narrow view that interest rate targeting didn't actually do much of anything – which was and remains the whole problem. If interest rate targeting didn't directly cause the asset bubbles, it didn't restrain them either. This is not a small or trivial reflection, as the whole point of controlling the liquidity rate was to not just "stimulate" but also to restrict where "necessary." To say that there was no limitation upon the eurodollar advance is an understatement since banks simply wrote their own, to the point that they even manufactured their own currency (collateral) far outside of what these economists considered to be well-aligned financial behavior.

    ABOOK June 2015 Bubble Risk Eurodollar Standard2

    The relevant point to consider for stocks is which trend is closer to the "truth" of asset inflation. That is, of course, amplified in 2015 by the revisiting of eurodollar decay in much more strained and openly chaotic fashion. If the "dollar" is again to fail, what might that do to stocks? While that isn't knowable we do have some methods of gaining insight, for which only certain central bankers will provide useful perspective.

    ABOOK July 2015 Eurodollars Swiss plus OCC

    Secret Treaties

    Retail Sweep Programs and Bank Reserves, 1994-1999

    Richard G. Anderson and Robert H. Rasche

    "In January 1994, the Federal Reserve Board permitted a commercial bank to begin using a new type of computer software that dynamically reclassifies balances in its customer accounts from transaction deposits to a type of personal-saving deposit, the money market deposit account (MMDA).1 This reclassification reduces the bank's statutory required reserves while leaving unchanged its customers' perceived holdings of transaction deposits.

    The use of deposit-sweeping software spread slowly between January 1994 and April 1995, but rapidly thereafter. Estimates of the amounts of transaction deposits reclassified as MMDAs at all U.S. depository institutions, prepared by the Board of Governors' staff, are shown in Figure 1.2 By late 1999, the amount was approximately $372 billion. In contrast, the aggregate amount of transaction deposits (demand plus other checkable deposits) in the published M1 monetary aggregate, as of December 1999, was $599.2 billion."

    So . . .

    "Our analysis suggests that the willingness of bank regulators to permit use of deposit-sweeping software has made statutory reserve requirements a "voluntary constraint" for most banks. That is, with adequately intelligent software, many banks seem easily to be able to reduce their transaction deposits by a large enough amount that the level of their required reserves is less than the amount of reserves that they require for day-to-day operation of the bank. For these banks at least, the economic burden of statutory reserve requirements is zero."

    https://research.stlouisfed.org/publications/review/01/0101ra.pdf

    DontWorry

    Don't worry. Many things changed in 1995, some permanently, and this article takes a rather myopic view. Remember the Netscape browser that hailed the beginning of the commercial Internet? That was released in December of 1994. This article doesn't even mention the Internet! That changed the world economy as much or more than the invention of the railroad! Preposterous!

    The world is awash in central bank money for the forseeable future, and as things get worse in the rest of the world, that money will come to the US stock market. Invest with confidence, and always with a qualified investment professional who can design a diversified portfolio based on your risk tolerance.

    daveO

    Why the Japanese, who import over 90% of their oil, put up with this guy is a testament to their gullibility. It really should be more apparent to them what a fool he is.

    "I'm still really, really worried," Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

    Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target, hampered by falling oil prices.

    Clowns on Acid

    What happened in 1995? That's easy .. the repeal of Glass Steagal. Baks, brokers, and Insurance companies no longer competing for funds ...at a market price . cost.

    Once the Banks, brokers and insurance get "centralized" they use one balance sheet to lever all risk ... chasing the same asset groups. With a ZIRP policy the respective demand of funds does not cause an increase in interest rates.

    Thus they all bid up all asset groups usig the same risk metrics ... until 2007/08 when it all crashes ... until the Fed shows how printing money is the answer.... to lack of liquidity and falling asset prices.

    [Sep 12, 2015] David Stockman Sums It All Up In 3 Minutes

    Sep 09, 2015 | Zero Hedge

    Stockman unleashes truthiness hell on Bloomberg TV: "Federal Reserve [actions] will have disastrous long-term consequences... when you deny price-discovery in the market for so long, it is a massive subsidy to speculation... In an era of peak debt, the only thing zero interest rates achieve is create an enormous incentive for Wall Street to gamble more and more recklessly..."

    195 seconds... watch, listen, and think...

    Spitzer

    Stockman is the best writer out there. His book is 32 hours of epic Stockman ranting. Worth every penny

    khakuda

    His analysis and the points he makes are spot on, yet he really needed an editor. He has brilliant and important things to say, but the general public will never read the 700 pages of it. He needs a cliffs notes edition or a 40 page kids version with some pictures, pop-ups and maybe some soft porn.

    Tinky

    Fair criticism, though it is more damning of the general quality of the readers than the author.

    franzpick

    Brief, concise, pointed summaries of the numerous ongoing bubbles, misallocations and dysfunctional markets are available daily at Stockman's website, giving new meaning to 'cliff notes':

    http://davidstockmanscontracorner.com/

    Keyser

    And of course the shill from Bloomberg attempted to bait Stockman into saying he was against the Fed... For no other reason to brand him a whack-job... It's time for all the pundits be forced to pledge transparency and stick to it, or they get to walk the plank...

    cheeseheader

    Yes, that shill would be one Tom Keane, a permabull, and whose picture adorns the word 'idiot' in any dictionary.

    Next time you feel like upchucking, turn him on Bloomberg radio for 4 seconds.

    Bloppy

    Most people don't want to hear his truth though. They won't want the cliff notes version either. They've been conditioned to believe markets are a one-way ride up up up. His work requires thinking.

    Sex Pistol John Lydon wonders if Hillary 'really is that clumsy'

    http://tinyurl.com/ovgut87

    Winston Smith 2009

    "Most people don't want to hear his truth though."

    True, but even worse, the vast majority are economically illiterate and wouldn't have a clue about what he was talking about. Besides, his book is #31,738 in books on Amazon and that's among the minority of people who read more than the tweet from a fellow twit about what they had for lunch.

    Don't judge the majority by yourself or those you associate with. To quote Carlin, "Just think of how stupid the average person is, and then realize half of them are even stupider!" We didn't get to this point via an intelligent voting public.

    Jack Burton

    Excellent points Winston. Too many people assume others have built up the same background of knowledge and are critical thinkers looking for truth. Ha! They are anything But! Have you ever had a deep discussion withsome you repsected for their high level career in business, science, education or technology? I have many times. I leave bewildered at how such people advance to high levels of performance. They are narrow minded, stick to their one field of expertise, and prosper in it, as for knowing anything else, they are like 3 year old toddlers.

    new game

    i've met a few too many and yea, box of rocks looked smart, ha...

    unfortunately, future schoolers are not gonna be anymoar economically smarter.

    an app for it. ha...

    doesn't matter; dear honorable david, understand we are past the point where this can be straightened out. 18.x trillion, and sir, you know math. right? so . you must throw in the towel, spike the bowl and party on like its 1999, ha again.

    RaceToTheBottom

    His rant here was short, concise, and on target, with focus and prioritization. So he can do it when he wants to.

    ebworthen

    The dopes in D.C. could read all 700 pages and not get it, or understand it perfectly and not give a shit.

    Twice as true for the Criminals of Wall Street and the banking/corporate/insurance cartel because they are getting rich off of it at the expense of the future itself.

    Hang 'em high!

    ebworthen

    Five word version: "Hey People, you're getting raped!"

    DanDaley

    Download it from Audible...put it on an ipod and listen to it in the car, doing the lawn, walking. Who has time to actually read much now days?

    Meat Hammer

    I haven't read him but plan to. I'm disturbed, however, that he isn't bothered by the existence of the Fed, just by its practice of going far beyond its original intent.

    Mr Poopra

    I don't trust anyone that wants to "reform" the Fed. If you cannot admit that it was a treasonous conspiracy from its inception, it makes me question your allegience or at the very least your judgment.

    Yohimbo

    simple, just end the abomination and be done with it. let the markets with myriads of participants make the policies on the fly; through market forces.

    InsanityIsWinning

    He makes perfect sense to me . . . that scares me, maybe he's wrong. I remember him ranting about Reaganomics back in the 80's, if he's correct, there's an unwind coming of biblical proportions.

    Vlad the Inhaler

    Since he served as Reagan's budget director for the first term, I'd think he would be well qualified to rant about Reaganomics.

    chinoslims

    The rich, the banks, hedge funds, etc get all the low interest financing to buy all the assets esp equities. Sell their positions at the top and watch the whole thing crumble while most suffer. This is the greatest transfer of wealth to the rich ever. How is any of this legal? (Because the idiots trust the govetnment.)

    [Sep 11, 2015] End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought By Kurt Cobb

    "...The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels."
    "...Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates."
    Sept 02, 2015 | OilPrice.com

    The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.

    Here is the crux of the matter as expressed in a piece which I wrote last year:

    The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out....

    Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.

    Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.

    ... ... ...

    But hidden from the view of most is the role that increasingly expensive energy has played since the beginning of this century in slowing economic growth. The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels. Now we are going after the hard-to-get remainder which are costly to extract. That takes resources away from the energy-consuming part of the economy and creates a drag on economic growth. Hence, a dramatically slower economy in 2015 after four years of record or near record average daily prices for the most critical fossil fuel, oil. (The recent drop in oil prices is primarily a reflection of slowing demand that comes from a slowing economy.)

    The financial industry through the media has intervened forcefully during the recent stock market sell-off to tell us all not to panic. These corrections are normal, they say, and long-term investors--that is, virtually everyone except Wall Street--should ignore them. What the industry and the media do not tell us is that these are not normal times.

    Circumstances have changed dramatically. The evidence is there if only we have eyes to see it. Interest rates in much of the world are still stuck at or near zero seven years after the last worldwide downturn. How will the world's central banks stimulate the economy after the next inevitable recession? By lowering interests that are already at zero? In the post-World War II paradigm, rates would be at much higher levels today, say four or five percent, and economic growth would be much faster.

    Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates.

    ... ... ...

    ...Franklin Roosevelt is famous for saying: "The only thing we have to fear is fear itself." But fear is a protective mechanism. We are right to fear things that can hurt us and to act accordingly. We cannot solve our problems if we refuse to accept that we have them.

    ... ... ...

    [Sep 11, 2015] Deflationary Collapse Ahead?

    "..."Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C [crude + condensate] ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD." "
    Aug 26, 2015 | Our Finite World
    Overview of What is Going Wrong

    1. The big thing that is happening is that the world financial system is likely to collapse. Back in 2008, the world financial system almost collapsed. This time, our chances of avoiding collapse are very slim.
    2. Without the financial system, pretty much nothing else works: the oil extraction system, the electricity delivery system, the pension system, the ability of the stock market to hold its value. The change we are encountering is similar to losing the operating system on a computer, or unplugging a refrigerator from the wall.
    3. We don't know how fast things will unravel, but things are likely to be quite different in as short a time as a year. World financial leaders are likely to "pull out the stops," trying to keep things together. A big part of our problem is too much debt. This is hard to fix, because reducing debt reduces demand and makes commodity prices fall further. With low prices, production of commodities is likely to fall. For example, food production using fossil fuel inputs is likely to greatly decline over time, as is oil, gas, and coal production.
    4. The electricity system, as delivered by the grid, is likely to fail in approximately the same timeframe as our oil-based system. Nothing will fail overnight, but it seems highly unlikely that electricity will outlast oil by more than a year or two. All systems are dependent on the financial system. If the oil system cannot pay its workers and get replacement parts because of a collapse in the financial system, the same is likely to be true of the electrical grid system.
    5. Our economy is a self-organized networked system that continuously dissipates energy, known in physics as a dissipative structure. Other examples of dissipative structures include all plants and animals (including humans) and hurricanes. All of these grow from small beginnings, gradually plateau in size, and eventually collapse and die. We know of a huge number of prior civilizations that have collapsed. This appears to have happened when the return on human labor has fallen too low. This is much like the after-tax wages of non-elite workers falling too low. Wages reflect not only the workers' own energy (gained from eating food), but any supplemental energy used, such as from draft animals, wind-powered boats, or electricity. Falling median wages, especially of young people, are one of the indications that our economy is headed toward collapse, just like the other economies.
    6. The reason that collapse happens quickly has to do with debt and derivatives. Our networked economy requires debt in order to extract fossil fuels from the ground and to create renewable energy sources, for several reasons: (a) Producers don't have to save up as much money in advance, (b) Middle-men making products that use energy products (such cars and refrigerators) can "finance" their factories, so they don't have to save up as much, (c) Consumers can afford to buy "big-ticket" items like homes and cars, with the use of plans that allow monthly payments, so they don't have to save up as much, and (d) Most importantly, debt helps raise the price of commodities of all sorts (including oil and electricity), because it allows more customers to afford products that use them. The problem as the economy slows, and as we add more and more debt, is that eventually debt collapses. This happens because the economy fails to grow enough to allow the economy to generate sufficient goods and services to keep the system going–that is, pay adequate wages, even to non-elite workers; pay growing government and corporate overhead; and repay debt with interest, all at the same time. Figure 2 is an illustration of the problem with the debt component.

    philsharris, August 26, 2015 at 8:08 am

    Gail,

    Modern industrial expansion has clearly been driven by the key enabling fuel, petroleum. Not all petroleum, however, has the same potential value as the original stuff of the 1950s to 2005. Nevertheless 'condensate' (gas condensate derived from expanding NG fields) is included in world 'total oil' as if it was.

    US geologist Jeffrey Brown, who has specialised in studying the quantities of oil available to economies round the world – particularly amounts available to the larger economies who are net importers, – that includes US, EU, Japan & China, – has a long comment just now on peakoilbarrel (Ron Patterson blog). He includes an interesting apparent statistic concerning condensate. We should note that the amount of 'real stuff' to go round the industrial world is probably stalled since 2005. The world generally appears to have a lower-value resource to enable any future expansion. The exlixir of youth is going to be in short supply, it seems.

    Jeffrey: "Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C [crude + condensate] ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD."

    Gail Tverberg, August 26, 2015 at 8:55 am

    Yes, the high quality crude has been flattening in supply. I am not sure how important this is in the whole scheme of things, however.

    When we look at energy consumption vs GDP on a world basis, the correlation is best with total energy, rather than with just oil. Also, our oil production has been growing at both the long carbon chain end of the spectrum (oil sands, etc.), and the short carbon chain end (Bakken, etc). In some sense, the mix changes tend to offset.

    I think it is probably more important that world coal consumption grew at an unusually slow rate in 2014, and perhaps is even shrinking in 2015. China's consumption is down, and its electricity use seems to be something like flat in 2015. Natural gas consumption worldwide also grew at an unusually low rate in 2015. These are indications of a world-wide slowdown.

    Harry Gibbs, August 26, 2015 at 10:02 am
    We've also seen global trade contract by over 2% in the first half of 2015:

    http://www.gtreview.com/news/global/global-trade-slumps-in-first-half-of-2015/

    And global capex is likewise shrinking:

    http://www.smh.com.au/business/markets/global-capex-set-to-shrink-as-commodities-crunch-bites-20150803-giqv80.html

    It does seem very much like global growth is peaking, just as your look at global energy demand suggested:

    http://ourfiniteworld.com/2015/06/23/bp-data-suggests-we-are-reaching-peak-energy-demand/

    Reverse Engineer, August 26, 2015 at 7:38 pm
    There is a lot in Part 3 of the Collapse Cafe TSHTF Vidcast with Gail's view on Renewables, as well as Nicole Foss's views and my own

    You can find all 3 Parts we got recorded last Sunday on the Collapse Cafe You Tube Channel,

    RE

    John Doyle , August 26, 2015 at 8:17 am

    We certainly need an economic model which accommodates a downturn in our civilization. I don't think it is impossible but the longer we remain inactive the less likely we will be to avoid chaos no matter what we do. Governments need to survive but the way they behave these days is not conducive to trust, being so partisan and polarised one one side and head in the sand ignorant on the other. It all looks just so unlikely that we will pull any rabbit out of the hat, even temporarily.
    Michael , August 26, 2015 at 8:02 pm
    Mr. Doyle, I agree with your statement on a need for an economic which accommodates a downturn. Have you found any proposals yet? I've done some jury rigging of models for such but have not found any good alternatives.
    Gail Tverberg , August 28, 2015 at 4:08 pm
    The continuing debt part is the hard part. Very short term works, but longer term doesn't.

    [Sep 11, 2015] Iranian Oil Minister Output to Return After Sanctions Lift, $80 Crude Would Be 'Fair'

    Contradictory statements. On one hand Iran wants $80per barrel prices, on the other is ready to serve as a Trojan horce to keep oil prices low. That's probaly the ffect of Bloomberg reporting ;-).

    Bloomberg Business

    Oil at $70 to $80 a barrel would be "fair," he said. Brent crude, the global benchmark, fell as much as 2.3 percent to $48.40 a barrel on the London-based ICE Futures Europe exchange and traded at $49.12 at 3:36 p.m. local time. Brent sold for as much as $102.86 a barrel a year ago.

    ... ... ...

    OPEC said in a bulletin from its Vienna-based secretariat on Monday that the group won't shoulder the burden of propping up prices by cutting supply on its own, and non-member producers would have to contribute. OPEC will protect its interests and there is "no quick fix" for market instability, it said.

    ... ... ...

    Iran plans to produce 3.8 million to 3.9 million barrels of oil a day by March, with output rising by 500,000 barrels a day soon after sanctions are lifted and by 1 million barrels within the following five months, Zanganeh said. Iran is producing 2.8 million barrels a day, its highest level in three years, and is exporting more than 1 million barrels a day, he said.

    Iran has about 60 million barrels of condensate in floating storage and has no crude stored offshore, Zanganeh said.

    "Immediately after lifting sanctions, it's our right to return to the level of production we historically had," Zanganeh said. "We have no other choice," he said. A slump in oil prices won't slow Iran's return to the market, he said.

    [Sep 08, 2015] Weak economic outlook and oversupply weigh on oil markets

    U.S. crude (CLc1) was at $44.31 per barrel at 0425 GMT, down $1.74 since Friday's close, weighed down by the closure of the largest crude distillation unit at Exxon Mobil Corp's (XOM.N) 502,500 barrel-per-day (bpd) Baton Rouge, Louisiana, refinery.

    ... ... ...

    "Brent will likely be range-bound and volatile over the next 12 months as the supply overhang is worked off," Morgan Stanley said, adding that it expected the glut to be worked off and result in higher prices by the fourth quarter of next year.

    "In the interim, non-fundamental factors (FX, macro themes, fund flows, etc.) and headlines will likely remain key price drivers," the bank said.

    Oil prices have fallen almost 60 percent since June 2014 ...

    On the supply side, recent speculation that Russia might be willing to cooperate with the Organization of the Petroleum Exporting Countries (OPEC) to curb output in support of prices was given a blow on Monday after the chief executive of Russian oil major Rosneft ruled out a Russian cut.

    ... ... ...

    [Sep 05, 2015] Deflation and Money

    "...Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones."
    .
    "...I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity."
    .
    "...But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag "
    .
    "..."if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"..."
    Sep 05, 2015 | Economist's View
    The summary "Deflation and money" by Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, and Hiroshi Iyetomiof says:
    Deflation and money, Vox EU: Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.

    The conclusion:

    ...all in all, the results we obtained have confirmed that aggregate prices significantly change, either upward or downward, as the level of real output changes. The correlation between aggregate prices and money, on the other hand, is not significant. The major factors affecting aggregate prices other than the level of real economic activity are the exchange rate and the prices of raw materials represented by the price of oil. Japan suffered from deflation for more than a decade beginning at the end of the last century. More recently, Europe faces a threat of deflation. Our analysis suggests that it is difficult to combat deflation only by expanding the money supply

    bakho said in reply to pgl...

    Monetary policy weak is at the ZLB. Fiscal and regulatory can have much stronger effects and complete swamp monetary like a tidal wave to a ripple.
    Exchange rates and other economic shocks have more effect than monetary policy at the ZLB.

    Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones.

    bakho said in reply to pgl...

    Efficiency standards backed by a carbon tax would be much more effective that a carbon tax alone.
    Efficiency standards work for electric appliances and prevent a races to the bottom.

    pgl said in reply to bakho...

    True. It seems Carly and Jeb! do not want to regulate but rather to encourage innovation by giving subsidies to rich people. Not only is this Republican reverse Robin Hoodism on steroids - it will not has as much effect as a tax combined with regulations.

    Simply put - conservatives should not be listened to as their agenda is not economic efficiency but rather making the Koch Brothers ever richer.

    Peter K. said...

    As a thought experiment I would wonder what bakho's re-education course would look like.

    There is this paper, but could it be it says the same thing as those graphs which show the large increases in the monetary base would just sit there with at the Zero Lower Bound because of the liquidity trap?

    The inflationistas were wrong that all of that monetary policy would cause runaway inflation.

    But considering what needed to be done to move long-term interest rates, was it really large enough?

    David Beckworth's blogpost in today's links suggests the Fed did what they wanted to do.

    http://macromarketmusings.blogspot.com/2015/09/revealed-preferences-fed-inflation.html

    And maybe part of that was to offset the unprecedented fiscal austerity we say after Obama's stimulus ran out. (And that stimulus was pretty much canceled out by 50 little Hoovers.)

    If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe.

    Maybe fiscal policy works better and more directly but if it is blocked or even reversed with austerity, monetary policy shouldn't be ruled because it is supposedly ineffective.

    Maybe Friedman and Schwartz's maximalist claims aren't true, but that doesn't mean one should flip to the opposite extreme.

    Bernanke says in a speech that Tobin suggested that the Fed could have mitigated the Great Depression by lowering long-term rates.

    Peter K. said in reply to Peter K....

    "What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?"

    http://www.themoneyillusion.com/?p=30495

    https://twitter.com/ObsoleteDogma/status/639877889979228160

    Peter K. said in reply to Peter K....

    "The inflationistas were wrong that all of that monetary policy would cause runaway inflation."

    When confronted they always say that once the economy normalized, all of those reserves will go rushing out into the economy causing inflation.

    But the Fed says it will use Interest on Excess Reserves to manage that outflow.

    Peter K. said in reply to Peter K....

    "If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe."

    I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity.

    Paine said in reply to Peter K....

    Very agreeably presented

    But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag

    Egmont Kakarot-Handtke said...

    Deflation? Uupps, price theory, too, is wrong
    Comment on 'Deflation and Money'

    The current economic situation is a clear refutation of both commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.

    The correct formula for the market clearing price in the simplified consumption good industry is given here
    https://commons.wikimedia.org/wiki/File:AXEC41.png

    Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).

    The more differentiated and therefore better testable formula is given here
    https://commons.wikimedia.org/wiki/File:AXEC39.png

    The crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.

    The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases deflation occurs (the rest of the formula kept constant).

    For the rectification of the naive quantity theory see (2011) (I)/(II).

    Egmont Kakarot-Handtke

    References
    Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL http://ssrn.com/abstract=1895268.
    Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.

    Patrick said in reply to Egmont Kakarot-Handtke...

    "if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"

    That certainly has the ring of truth to it.

    The paradox of productivity?

    Jason Smith said...

    The relationship between money and prices is more complicated than a simple linear relationship can capture:

    http://informationtransfereconomics.blogspot.com/2015/03/japan-inflation-update.html

    spencer said...

    Despite deflation in Japan, over the last five years real per capita GDP growth has been greater than in the US.

    Of course you have to be careful of these types of comparisons when the Japanese population is actually falling.

    anne said in reply to spencer...

    https://research.stlouisfed.org/fred2/graph/?g=1LK4

    August 4, 2014

    Real per capita Gross Domestic Product for United States and Japan, 2010-2014

    (Indexed to 2010)

    [ These last 5 years real per capita GDP has increased by 5.6% in the United States and 3.6% in Japan. ]

    Peter K. said in reply to spencer...

    Good point. This is why I am skeptical when I read people claim that Japan's extraordinary monetary policy has had no effect.

    And even if Japan has done more than before courtesy of Abe and Yoda Kuroda, they also mitigate it with contractionary policy like by raising consumption taxes.

    [Sep 05, 2015] WORLD TRADE IS FALLING

    "...so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future…at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit…but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December…so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader…they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts… "
    Angry Bear

    rjs August 23, 2015 2:39 pm

    dan, when you brought up oil imports and exports in your comment here Friday, i almost responded, because i already knew our imports the prior week were the highest since April 3, since i watch the reports and write about that stuff every weekend…maybe since i didn't, i continued to think about that and took a closer look at it yesterday than i normally do, which i have just posted online…turns out our net imports of oil and oil products, ie imports minus exports, were the highest they've ever been this year in the week ending August 12th…here's the relevant excerpt, without the links to the data sets i cited:

    US crude oil output fell this week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil…US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day last week to 9,348,000 barrels per day in this week's report…while that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year…our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report…while that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year…

    however, even with the increased oil supply brought about by that large increase in imports, that oil was not being put to use to the same degree as last week…due in large part to the unexpected August 8 outage at the BP refinery in Whiting, Indiana, the largest BP refinery and the largest in the US Midwest, U.S. crude oil refinery inputs dropped to 16,775,000 barrels per day, from the 17,029,000 barrel per day level of the week ending August 7th…so with greater supply and less refinery throughput, our crude oil inventories in storage rose by 2,620,000 barrels to 456,213,000 barrels in week ended August 14th, 24.3% more oil than the 367,019 ,000 barrels we had stored at the end of the 2nd week of August last year…that was, of course, more than was ever stored anytime in August in the 80 years that the EIA has records for, which had never seen the 400 million barrel inventory level breached before this year…that news of even higher inventories during the summer driving season when inventories usually fall sent oil prices down by 4.8% to a six and a half year low at $40.57 a barrel on Wednesday, and although the expiring September contract price inched up on Thursday on news of the first hurricane of the Atlantic season, oil prices for October delivery crashed again on Friday in the midst of a global market panic, briefly slipping below $40 a barrel, before closing the week at $40.45, capping the longest weekly losing streak for oil prices in 29 years…

    so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future…at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit…but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December…so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader…they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts…

    another reason for continued high imports of oil is that we're exporting more refined products than ever before…in the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year…but that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004…we're also exporting more crude oil too, mostly mostly to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline…on a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier…

    but the week just ended was somewhat an anomaly, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago …that was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year…subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year…

    despite that, the industry is pushing to have the 40 year old crude oil export ban repealed; it's already passed the House. why? simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices. dont have to tell you what will happen to US prices if that happens…

    run75441 , August 23, 2015 3:19 pm

    RJS:

    Like oil production, refining is a cartel in itself and matching refining to demand is profitable.

    Anyhoo here is a chart to help you along. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MOPUEUS2&f=M

    rjs , August 23, 2015 3:52 pm

    yeah, bill, i mine the EIA datasets every week, and the weekly EIA reports are where all the numbers above came from…not surprisingly, the refiners are not passing through all of their lower costs to the consumers…

    the difference between crude oil and gasoline prices has increased by more than 50% from a year ago, so the pure refiners are making a bundle…the oil majors are using refinery profits to offset exploration and exploitation losses, and they all saw big downturns in 2nd quarter earnings anyway…

    and probably half the independent drillers i looked at in the first two weeks of August saw losses in the 2nd quarter, and that was when oil prices were 50% higher than they are now…

    Spencer England , August 24, 2015 10:37 am

    I monitor the Census real trade data and it shows that POL ( petroleum, oils & lubricants) is now equal to almost 50% of exports. that is partly a function of weaker imports, bottleneck but real exports have been growing at double digit rates for several years.

    West Texas Intermediate is selling at a discount to Brent, partially because of transportation bottlenecks. The Gulf Coast refiners are taking advantage of this discount to refine WTI and sell it in Europe where the refiners use Brent oil.

    The Keystone pipeline could eliminate this unusual spread and the US refiners would lose their price advantage - oil companies should be careful of what you wish for. Of course at today's prices the Keystone pipeline is not profitable.

    rjs , August 24, 2015 10:55 am

    the BP refinery in Whiting i mentioned above was one of the main processors of heavy crude such as dilbit from Canada, which is coming in to the US through the Enbridge pipeline system (Steve Horn at Desmogblog has had a series on how the "Keystone clone" , from Alberta to Lake Superior to the Fleming pipeline in Illinois, was quietly approved under the radar)

    at any rate, with Whiting down, maybe for a month, there's no one around to process West Canada Select…i saw it quoted with an $18 handle last week, when WTI was in the 40s…WTI has been trading with a $38 handle all morning, so they're probably having trouble giving that tar sands output away by now…

    [Sep 05, 2015] Global Economic Fears Cast Long Dark Shadow On Oil Price Rebound by Evan Kelly

    Sep 05, 2015 | Zero Hedge via OilPrice.com,

    After bouncing around, oil prices finished off the week with just a bit less volatility than when it started the week. WTI stayed at around $46 per barrel as of midday on September 4, with Brent holding at $50 per barrel.

    Aside from supply and demand fundamentals in the oil markets, central bank policymaking is another major factor determining the trajectory of oil prices. The European Central Bank hinted that it might consider more monetary stimulus to help the stagnant European economy. Oil prices rose on the news. The markets, however, are waiting on a much more significant announcement from the Federal Reserve this month on whether or not the central bank will raise interest rates. This summer's market turmoil – the Greek debt crisis and the meltdown in the Chinese stock markets – has dimmed the prospect of a rate increase.

    Moreover, the global economic unease may begin to reach American shores. On September 4, the U.S. government released data for the month of August, revealing that the U.S. economy added only 173,000 jobs, a mediocre performance that missed expectations. Although an economic slowdown is no doubt a negative for oil prices, the news could provide enough justification for the Fed to hold off on raising interest rates. A delay in a rate hike could push up WTI and Brent.

    Although a slew of Canadian oil sands projects have been cancelled due to incredibly low oil prices, several large projects were already underway before the downturn. With the costs of cancellation too high, these projects continue to move forward. When they come online – several of which are expected by 2017 – they could add another 500,000 barrels per day in production, potentially exacerbating the glut of supplies not just in terms of global supply, but more specifically in terms of the flow of oil from Canada. Canadian oil already trades at a discount to WTI, now at around $15 per barrel.

    That means that when WTI dropped below $40 per barrel last week, Western Canada Select was nearing $20 per barrel. With the latest rebound to the mid-$40s, WCS is only around $30 per barrel. But with breakeven prices for many Canadian oil sands projects at $80 per barrel for WTI, oil operators in Alberta are no doubt losing sleep over their current situation. One important caveat to remember is that unlike shale projects, Canada's oil sands [mines] operate for decades, so the immediate downturn does not necessarily ruin project economics. However, with a strong rebound in prices no longer expected in the near-term, high-cost oil sands projects are probably not where an investor wants to be.

    Low oil prices continue to take their toll. Bank of America downgraded BP to "underperform" and warned that its dividend policy faces risks.

    ... ... ...

    Saudi Arabia's King Salman arrived in Washington on September 4 to meet with U.S. President Barack Obama. The two leaders will discuss the Iran nuclear deal, a deal that the Saudi King had strongly opposed from the start, but has since begrudgingly warmed up to following security promises from the United States. If they can manage to stay on the same page with the Iran deal, the two leaders will then discuss the ongoing conflicts in Syria and Yemen. There is obviously little to no prospect that such intensely complicated conflicts will get sorted out in the near future, so more modest goals for the trip include simply building trust between the two countries. Although long-term allies, Saudi Arabia has become more mistrustful of the U.S. President following the thaw in relations between the U.S. and Iran. The trip follows what the media has called a "snub" when King Salman declined to come to Washington this past spring for a summit of other Gulf state leaders.

    ... ... ...

    Russian President Vladimir Putin met Venezuelan President Nicolas Maduro in China this week, and the two sides apparently discussed ways to stabilize oil prices. Maduro says that they agreed on "initiatives" to address low oil prices, but did not elaborate with details. In all likelihood, Maduro is engaging in a degree of bluster and wishful thinking. Neither side has the capacity to cut oil production as both are facing varying degrees of economic and financial crisis. However, earlier this week oil prices briefly spiked on news that Russia might be willing to negotiate coordinated action. Prices subsequently retreated once expectations subsided.

    ... ... ...

    [Sep 05, 2015] Is Effective Demand showing the limit of the Business Cycle… again

    "...To me the US economy means much more than the current short sighted-term artificially inflated stock price buy back capital gains game that is being played out again on Wall St. for the benefit of the 1% "
    Angry Bear

    William Ryan, September 4, 2015 8:54 am

    Yes the FRED chart does not lie. It has been almost 8 years since the last bubble burst. Soon will be the China bubble or maybe another financial engineering bubble from Wall St. The graph is trying to tell us that the time is near the 8 year mark. My only problem is that there is nothing we, any of us can do about it when 95% of all corp. earnings go to stock buy backs, dividends and acquisitions. Nothing is going to capital or people long term investment… Even Trump will get trumpted on this one.

    JimH, September 4, 2015 9:50 am

    Inventories are going up.

    Consumers can not spend what they do not have and producers will not produce what they can not sell.

    Or stated another way, unless labor share is increased, consumer spending on discretionary goods must decrease. (As the prices on non discretionary goods increase.)

    William Ryan, September 4, 2015 11:15 am

    JimH you are so right but this is what happens when we fully participate in the greed that perpetuates the race to the bottom in supporting other countries economies rather than our own. We must create new domestic demand and raise the tide of our own economy for a change.. Not China's, Mexico's, South Korea's or Vietnams.

    Artificially inflating stock prices on Wall St. does not constitute a growing economy or economic recovery.

    We need to actually make things here again to create new wealth of which our economy will grow again and not to be gamed by the greedy few at the top. Then real wages will rise along with greater domestic consumer demand.

    To me the US economy means much more than the current short sighted-term artificially inflated stock price buy back capital gains game that is being played out again on Wall St. for the benefit of the 1% . Please go read today's PCR.com if you cannot see what is really happening to our country.

    [Sep 05, 2015] RE: Inflation, the Fed, and the Big Picture (Links for 09-04-15)

    "...Much of Macro is still operating under the Friedman myth of Monetary policy domination. Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
    .
    A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination "
    .
    "...1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
    2) Nominal and Real GDP are on the way up.
    3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
    4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
    The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth."
    September 04, 2015 | Economist's View

    RC AKA Darryl, Ron said...

    RE: Inflation, the Fed, and the Big Picture

    [Actually Carmen Reinhart deserves a better pitchman here than the little comment pgl posted above. Carmen presents a expressly well written and concise picture. Since it is international then the same focus on core CPI that we get for domestic inflation is not referenced nor implied. She includes commodities in the inflation. The full text following the short excerpt given by pgl is below:]


    https://www.project-syndicate.org/commentary/jackson-hole-banking-conference-inflation-by-carmen-reinhart-2015-09

    ...
    Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are "only" 14 cases of high inflation (the red line in the figure). Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

    The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

    Indeed, the risk for the world economy is actually tilted toward deflation for the 23 advanced economies in the sample, even eight years after the onset of the global financial crisis. For this group, the median inflation rate is 0.2% – the lowest since 1933. The only advanced economy with an inflation rate above 2% is Iceland (where the latest 12-month reading is 2.2%).

    While we do not know what might have happened were policies different, one can easily imagine that, absent quantitative easing in the United States, Europe, and Japan, those economies would have been mired in a deflationary post-crisis landscape akin to that of the 1930s. Early in that terrible decade, deflation became a reality for nearly all countries and for all of the advanced economies. In the last two years, at least six of the advanced economies – and as many as eight – have been coping with deflation.

    Falling prices mean a rise in the real value of existing debts and an increase in the debt-service burden, owing to higher real interest rates. As a result, defaults, bankruptcies, and economic decline become more likely, putting further downward pressures on prices.

    Irving Fisher's prescient warning in 1933 about such a debt-deflation spiral resonates strongly today, given that public and private debt levels are at or near historic highs in many countries. Especially instructive is the 2.2% price decline in Greece for the 12 months ending in July – the most severe example of ongoing deflation in the advanced countries and counterproductive to an orderly solution to the country's problems.

    Median inflation rates for emerging-market and developing economies, which were in double digits through the mid-1990s, are now around 2.5% and falling. The sharp declines in oil and commodity prices during the latest supercycle have helped mitigate inflationary pressures, while the generalized slowdown in economic activity in the emerging world may have contributed as well.

    But it is too early to conclude that inflation is a problem of the past, because other external factors are working in the opposite direction. As Rodrigo Vergara, Governor of the Central Bank of Chile, observed in his prepared remarks at Jackson Hole, large currency depreciations in many emerging markets (most notably some oil and commodity producers) since the spring of 2013 have been associated with a rise in inflationary pressures in the face of wider output gaps.

    The analysis presented by Gita Gopinath, which establishes a connection between the price pass-through to prices from exchange-rate changes and the currency in which trade is invoiced, speaks plainly to this issue. Given that most emerging-market countries' trade is conducted in dollars, currency depreciation should push up import prices almost one for one.

    At the end of the day, the US Federal Reserve will base its interest-rate decisions primarily on domestic considerations. While there is more than the usual degree of uncertainty regarding the magnitude of America's output gap since the financial crisis, there is comparatively less ambiguity now that domestic inflation is subdued. The rest of the world shares that benign inflation environment.

    As the Fed prepares for its September meeting, its policymakers would do well not to ignore what was overlooked in Jackson Hole: the need to place domestic trends in global and historical context. For now, such a perspective favors policy gradualism.
    Friday, September 04, 2015 at 02:44 AM

    bakho said in reply to RC AKA Darryl, Ron...
    Here conclusion was weak with a vague take home message.

    Much of Macro is still operating under the Friedman myth of Monetary policy domination.

    Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
    A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination

    pgl said in reply to bakho...
    My take was that she was advocating more aggressive aggregate demand stimulus in general. And you are right - we need the fiscal side to step up to the plate.

    Story in NYC as how bad just the subway stops are. The rails suck as well and we need to expand the system. But at the rate this is going this decaying stops which are very dangerous will not be fixed until 2065. Why? Lack of funding is the stated reason. No one in this stupid nation can say - well provide more funding? We are ruled by idiots.

    RC AKA Darryl, Ron said in reply to bakho...
    [Well, yeah but that would have diverged a long way from her topic:]

    "Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year's international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers' desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective..."

    [She stuck with just inflation and monetary policy because that is what she chose to write about at this time. However, Carmen is the other intellectual half of Rogoff of the debt limit for economic growth flameout. So, we should not depend upon her for fiscal policy recommendations. That even someone this popular with the establishment Republican elite can understand monetary policy is notable in contrast to the inflationistas.

    Peter K. said in reply to RC AKA Darryl, Ron...
    Yes she did the 90 percent government debt cutoff with Rogoff that Krugman attacked.

    Also the vaguely righwing blogger from the St. Louis Fed, Andolfatto or something, recently had link where they said inflation wasn't a problem and the Fed shouldn't raise rates until inflation is apparent.

    Peter K. said in reply to bakho...
    "In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. "

    I thought Clinton cut the deficit and the tech stock bubble helped balance the budget so they had surpluses. Some people say those surpluses were a problem because of a lack of safe assets. That drove money to seek safe returns in mortgage backed securities for instance.

    Peter K. said in reply to Peter K....
    Maybe he didn't cut the deficit - I think Dean Baker argues that - but at the beginning of his Presidency, Clinton dropped his middle class spending bill in a deal with Greenspan who said he'd keep interest rates low in return.
    Peter K. said in reply to bakho...
    "This Congress is the anti-Fed and operates on a playbook from the gamma quadrant."

    haha yes. The Fed regularly complained about fiscal "headwinds."

    Anonymous said in reply to RC AKA Darryl, Ron...
    http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb110301.pdf

    Chart 1 is key to understanding the rough timing. In the US and UK, we are a little past the dashed vertical line (impact phase). UK has had a little more success importing inflation.

    1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
    2) Nominal and Real GDP are on the way up.
    3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
    4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
    The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth.

    [Sep 05, 2015] Fed Watch: If You Ever Wondered Whose Side The Federal Reserve Is On...

    "...Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners."
    .
    ".When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers."
    .
    "...Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%."
    Sep 05, 2015 | Economist's View
    Sep 05, 2015 | economistsview.typepad.com
    Tim Duy:
    If You Ever Wondered Whose Side The Federal Reserve Is On..., by Tim Duy: Catching up with Richmond Federal Reserve Jeffrey Lacker's speech. His dismissal of low wage growth numbers:
    Some argue there must be excessive slack in labor markets if wage rates are not accelerating. But real wages are tied to productivity growth, and productivity growth has been slow for several years now. Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated.

    Real wage growth is consistent with productivity, thus there is no excess slack in the labor market. If you think this is some crazy hawk-talk, think again. Fed Chair Janet Yellen in July:

    The growth rate of output per hour worked in the business sector has averaged about 1‑1/4 percent per year since the recession began in late 2007 and has been essentially flat over the past year. In contrast, annual productivity gains averaged 2-3/4 percent over the decade preceding the Great Recession. I mentioned earlier the sluggish pace of wage gains in recent years, and while I do think that this is evidence of some persisting labor market slack, it also may reflect, at least in part, fairly weak productivity growth.

    For more than three decades, the pace of productivity growth has exceed that of real compensation:

    Another view from real median weekly earnings:

    Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners.

    Posted by Mark Thoma on Saturday, September 5, 2015 at 09:48 AM in Economics, Fed Watch, Monetary Policy | Permalink Comments (52)

    pgl :

    Let's unpack this spin:

    "But real wages are tied to productivity growth, and productivity growth has been slow for several years now."

    Productivity by definition is output per worker. So when a recession lowers output, it lowers measured productivity. So much for this garbage circular "reasoning".

    Oh and the canard that JohnH does a lot - look at only what has happened of late:

    "Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated."

    Tim Duy has already exposed this fallacy by looking at this over a longer period of time.

    pgl -> Paine ...

    Dude - this is a whole literature on this. Recessions do lower output by more than it lowers employment but this is not exactly because firms are nice. Recessions are bad news for everyone. Wages do not keep up with what is even limited inflation - again firms are not exactly nice. So recessions sort of screw firms but unbelievably screw workers. Eventually the economy gets back to full employment but workers never fully recovery.

    This is why recessions are bad for everyone in the short fun but especially bad for workers short-run and long-run.

    Which brings me to why I did not go after Yellen. It seems she and hubbie Akerlof have written some of the best papers on this topic.

    Paine - stop being an arrogant lazy ass and actually check up on this literature.

    Now if your point is that the FED borg (I coined this term) is about to take over Yellen's mind, I fear this too. It seems to have taken over Stan Fischer's mind and he used to be brilliant.

    ilsm -> Paine ...

    The fed hawks are like pentagon version hawks since 1946.....

    we cannot have any more pearl harbors

    or inflation......

    DrDick :

    DrDick :

    When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers.

    mrrunangun :

    Domestic US wage rates have been flat. In the graph, the lines cross between 1975 and 1985. During those years, international competition increased in the tradable goods sector, IMO due to the recovery of Japanese and European industrial economies from the destruction suffered in WWII. The divergence between the curves expands more rapidly as more free trade agreements come on line in the 90s (e.g. NAFTA in 1992 and PNTR for China in 1999).

    It may be that intensifying competition in the tradable goods sector has slowed wage gains in the US by a supply and demand imbalance for labor. The increasing wage premium to education over the past 40 years and the capture of the domestic political system, and thus capture of the government, by the very rich, has made it impossible for the political system to make adjustments to the change in international competition that would benefit the unskilled or semiskilled worker.

    Mike Sparrow -> mrrunangun...

    The trade agreements are vastly overrated in terms of competition and instead, they are what help surge productivity. The US began to have offshoring in the 1950's, especially after the Korean war era boom. Companies began to bail as the US had developed a consumer base. This is very typical of capitalism. It happened in Europe in the 19th century because of the same reason.

    Keeping a strong consumer base and industrial base would liquidate capitalist positions and turn the economy into laborism.

    Mike Sparrow :

    I would argue productivity is too high, still. Real productivity really zoomed from the mid-90's and really never came back down. The late 00's recession made it worse.

    Persistently high productivity causes real wages to struggle to keep up. I think many hobbyists have it backwards with wages including myself. Yes, real wages rose rapidly between 1997-2000, but that was only because productivity surged. The long run problem of that was wage stagnation due to the previous high productivity, which has been there since the 80's. Real wage acceleration coupled with correcting productivity is a good sign and the Fed doesn't like it because they want high productivity all the time.

    The Rage -> Peter K....

    I think what he is trying to say, reading through his posts: technology is driving down the need for labor investment and the information/computer/plastic/whatever you want to call it revolution really drove that point home to the end.

    So productivity is high, creating profits from reduced pace of hiring and keeping pipelines of credit open for future output. However, productivity is slowing lately and real wages have accelerated implicating that near term output will be higher than while future output will be lower. Yeah, that part is a bit confusing, but the drift is that productivity/real wages need to track together closer or you get problems. When they come unglued, the offender, this case productivity, needs to come down for wages to catch up. Real wages were to high before 1980 and productivity should run a bit higher than wages. So by 1995, the problems that helped spur the great inflation had ebbed, but a new problem started: rapid productivity growth.

    I read this in 2009 believe it or not in a article. Their belief was if productivity stayed high and growing, the economy would be in permanent recession. They believed to maintain stability, productivity had to decline for the next decade. Mercy, I wish I could remember where I read that from. 6+ years leaves a large gap. I do think the chart shows the "panic" over slowed productivity is pure noise. Between 95-00 it when "boom boom". Notice the pre-95 trend and the post-95 trend. To the productivity must decline squad, a decline in productivity will help real wages rise boosting real incomes and reducing nominal debt, creating a more stable economy.

    Dickeylee :

    We are still in a slave labor economy. The whole world is looking for the next labor market to enslave. Nike in Vietnam, Apple in China, and China looks poised to take over Africa.

    If you can't get your slaves shipped to you, go to your slaves!

    pgl -> Dickeylee...

    China looks poised to take over Africa? I guess the Chinese capitalists hate paying $3 an hour and so will pay Africans less. If you check - multinationals are in Africa and they are mainly US and European based companies. It seems we beat the Chinese to this.

    ilsm -> pgl...

    Pentagon deploying to keep the peace in Africa for the job creators........

    Lafayette -> pgl...

    PITY AFRICA

    The plight of Africa is that it has been plundered by both Europe and America over the past two centuries. By America principally for cheap labor brought over on slave-ships.

    Do not overlook the fact that damn few African countries can seem to develop a leadership that does not plunder its country's assets for their own personal profit.

    This plague of profiteering has existed since time immemorial and China is just the newest entrant to the game ...

    DrDick -> pgl...

    China has been making significant inroads there for over a decade and are currently the largest single player there.

    http://www.businessinsider.com/why-china-has-become-so-big-in-africa-2015-1

    pgl -> Dickeylee...

    Your comment actually has some merit in two senses. China has recognized that its habit of investing in government bonds of other nations (e.g. US) is giving them a lower return than what foreign direct investment offers. And Africa is attracting a lot of foreign direct investment. I went searching for who the big players are and this gave an interesting list:

    http://theafricachannel.com/5-multinational-corporations-making-significant-investments-in-africa/

    But it shows the BRIC nations (C for China) has been doing FDI in Africa for a while.

    If multinationals are going global, maybe the labor movement should do the same. Workers of the world unite!

    Julio :

    Rasputin explained why the Fed must raise rates before the next recession, so it can lower them later:

    "Certainly our Savior and Holy Fathers have denounced sin, since it is the work of the Evil One.
    But how can you drive out evil except by sincere repentance?
    And how can you sincerely repent if you have not sinned?"

    anne :

    https://research.stlouisfed.org/fred2/graph/?g=1Jpv

    January 30, 2015

    Labor Share of Nonfarm Business Income and Real After-Tax Corporate
    Profits Per Employee, 2000-2015

    (Respectively indexed to 2000 and 2014)


    Decline in labor share index:

    100 - 89.4 = 10.6%


    Increase in real dollar profits per employee:

    15,139 - 6,218 = 8,921

    8,921 / 6,218 = 143.5%

    anne -> anne...

    Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%.

    [Sep 04, 2015] The political reasons for the opposition to the policy of creating employment

    We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

    RGC said...

    Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian:
    Krugman:

    So, am I a Keynesian because I want bigger government? If I were, shouldn't I be advocating permanent expansion rather than temporary measures? Shouldn't I be for stimulus all the time, not only when we're at the zero lower bound? When I do call for bigger government - universal health care, higher Social Security benefits - shouldn't I be pushing these things as job-creation measures? (I don't think I ever have). I think if you look at the record, I've always argued for temporary fiscal expansion, and only when monetary policy is constrained. Meanwhile, my advocacy of an expanded welfare state has always been made on its own grounds, not in terms of alleged business cycle benefits.
    In other words, I've been making policy arguments the way one would if one sincerely believed that fiscal policy helps fight unemployment under certain conditions, and not at all in the way one would if trying to use the slump as an excuse for permanently bigger government.

    http://krugman.blogs.nytimes.com/2015/06/06/why-am-i-a-keynesian?

    Keynes:

    In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.

    Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

    https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

    Kalecki:

    We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

    http://mrzine.monthlyreview.org/2010/kalecki220510.html

    Friday, September 04, 2015 at 06:59 AM

    anne said in reply to RGC... Friday, September 04, 2015 at 08:08 AM

    Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian....

    [ Interesting argument. ]

    Peter K. said in reply to RGC...

    "We have considered the political reasons for the opposition to the policy of creating employment by government spending.

    ...

    Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure."

    There's no reason full employment can't be done via monetary policy which is government intervention.

    Business leaders just want monetary policy that rations credit so that labor markets hit the goldilocks spot, not too tight.

    [Sep 03, 2015] The Dangerous Separation of the American Upper Middle Class

    Sep 03, 2015 | Economist's View

    Richard Reeves at Brookings:

    The dangerous separation of the American upper middle class: The American upper middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income-where the top fifth have been prospering while the majority lags behind. But the separation is not just economic. Gaps are growing on a whole range of dimensions, including family structure, education, lifestyle, and geography. Indeed, these dimensions of advantage appear to be clustering more tightly together, each thereby amplifying the effect of the other.

    In a new series of Social Mobility Memos, we will examine the state of the American upper middle class: its composition, degree of separation from the majority, and perpetuation over time and across generations. Some may wonder about the moral purpose of such an exercise. After all, what does it matter if those at the top are flourishing? To be sure, there is a danger here of indulging in the economics of envy. Whether the separation is a problem is a question on which sensible people can disagree. The first task, however, is to get a sense of what's going on.

    Skipping the extensive analysis covering:

    "We are the 80 percent!" Not quite the same ring as "We are the 99 percent!" ...

    Defining the upper middle class...

    Upper middle class incomes: on the up...

    "Where did you get your second degree?" The upper middle class and education...

    Families, marriage and social class...

    Voting and Attitudes...

    The conclusion is:

    Conclusion The writer and scholar Reihan Salam has developed some downbeat views about the upper middle class. Writing in Slate, he despairs that "though many of the upper-middle-class individuals I've come to know are good, decent people, I've come to the conclusion that upper-middle-class Americans threaten to destroy everything that is best in our country."

    Hyperbole, of course. But there is certainly cause for concern. Salam points to the successful rebellion against President Obama's plans to curb 529 college savings plans, which essentially amount to a tax giveaway to the upper middle class. While the politics of the reform were badly bungled, it was indeed a reminder that the American upper middle class knows how to take care of itself. Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

    In the long run, an even bigger threat might be posed by the perpetuation of upper middle class status over the generations. There is intergenerational 'stickiness' at the bottom of the income distribution; but there is at least as much at the other end, and some evidence that the U.S. shows particularly low rates of downward mobility from the top. When status becomes more strongly inherited, inequality hardens into stratification, open societies start to close up, and class distinctions sharpen.

    Mike Sparrow
    The upper middle class will also be the ones who will be thrown to the wolves if everything falls apart. Hubris is a bitch.
    Sandwichman said in reply to Mike Sparrow
    Lucky them if they're thrown to the wolves.

    DrDick said in reply to Mike Sparrow
    There is also this possibility (given the large number in the tech industry):

    "I really don't know what you do about the "taxes are theft" crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people's fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch. That'll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools." (John Scalzi, http://whatever.scalzi.com/2010/09/26/tax-frenzies-and-how-to-hose-them-down/)

    Sandwichman
    Factitious values and cost-shifting. It's all that's left, really. Everything else is just resource depletion and overpopulation. Malthus was wrong! Then.

    Sandwichman said in reply to Sandwichman
    But not to worry. Nothing a little QE can't fix. Every time I get a bump or scrape I just rub some QE on it and... all better!

    Larry
    My litmus test about the liberalness of (homeowning) liberals is whether they favor replacing the mortgage interest deduction with a tax credit of fixed size. Those deductions are a huge UMC subsidy.

    Then you could talk about the massive federal aid to universities, again helping the 30% who go but not the 70% who don't.

    Sandwichman said in reply to Larry
    Yep. The "Upper Middle Class" is nothing but cost-shifting and factitious values. Smoke and mirrors. Punch one some time. It's like they are made out of twinkies.

    anne said in reply to Sandwichman
    Rubbish, not even sarcasm.

    Dan Kervick
    Maybe this is why economics has gotten so boring lately. For the upper 20%, which includes most academic economists, there is a 100% recovery. So they have stopped talking about what is wrong with American society, and gone back to talking about methodological issues, and about that time someone called them a mean name in graduate school.

    JF
    President Obama might direct that all economic data become reported first on the data associated with population who fit within the 90% strata and announce that this is being done to remind people every day that the public's govt is supposed to govern with the bulk of society in mind.

    The President's budget submission to Congress will discuss matters in this way too; that is, how are the 90% affected. And as you know, I'd prefer that this grouping is done mostly on a Net Worth basis, not income, so we have a constant reminder to consider economics looking at both wealth and income - not just income for the coming year.

    Of course the data that includes the 1% and the other 9% will be available too.

    JF said in reply to JF
    And I'd like academia to mirror this too. All studies will focus on the 90% and discuss from this perspective.

    Let the Koch-backed researchers do the other studies.

    It really would be interesting to have all professors tell their students to only use data for the 90% in their discussion papers.

    [Sep 03, 2015] Mapping The Crisis Contagion Process The Flowchart

    Sep 03, 2015 | Zero Hedge
    In the paraphrased words of JPMorgan's head quant, "We're halfway there" for the selling... and yes it appears "we are living on a [Fed/PBOC/ECB/BOJ] prayer"

    JustObserving

    US leads the world in too much debt - $1,720,000 per taxpayer compared to $65,000 per taxpayer for bankrupt Greece. We may be getting dumber but at least we lead the world by a long shot in that category

    Forward

    Economist Tells Congress: U.S. May Be in 'Worse Fiscal Shape' Than Greece

    "The first point I want to get across is that our nation is broke," Kotlikoff testified. "Our nation's broke, and it's not broke in 75 years or 50 years or 25 years or 10 years. It's broke today.

    http://cnsnews.com/news/article/barbara-hollingsworth/economist-tells-co...

    KnuckleDragger-X

    Yep, but its magic debt and subject to even more magic money. The problem with the above chart is that it makes no accounting for chaotic events since they can't be predicted, but they will likely be the driver of the collapse.....

    junction

    So, instead of saying the truth, that looters have taken over the world economy, someone calls the situation "crisis contagion." Who are the disease vectors that are the carriers of this pathogen causing the crisis? Mostly Goldman Sachs banksters like Mario Draghi and Henry Paulson. Banksters and their cohorts like Obama and Eric Holder and David Cameron who have poisoned the world economy. What we need are fewer weasel words like crisis contagion and more words like "You are under arrest, Eric Holder, for criminal conspiracy."

    Groundhog Day

    if only it were that easy... a friend of mine stopped reading financial blogs like ZH, all news outlets including the web (funny considering he's a programmer and on the web all day) and he is much happier. he knows the inevitable will come but doesn't care. He figures he is single, has no debt and a house paid off and is relativiely intelligent working for a 100k give or take a few thousand....so his way of beating the system is not to particate in a 401k, ira, brokerage at all and spend his money on vacations in different parts of the world spending all his money so he loses no purchasing power in a savings account and spending on small mom and pop business owners as to not feed the corporate beast..

    saints51

    I agree with him too. I think we all need a break from this website time to time. This place is addictive, but it is not the articles I'd miss, it is the members. I enjoy everyone's company even the trolls.

    RaceToTheBottom

    I don't believe the music on the Titanic ever stopped. They just kept playing until they were underwater. Expect more of the same.

    Also expect the same actions of the few .01% as they do the present day equivalent of dressing up like ladies to get onto the lifeboats. At least those not already on safe land.

    Implied Violins

    ...he says to Schopenhauer, who authored:

    "...all human action (is) the product of a blind, insatiable, and malignant metaphysical will."

    I think he had something there...

    [Sep 03, 2015] Risk of big stock drops grows Robert Shiller

    According to Shiller S&P 500 can go as low as 1300 based on "return to normal" of his, currently elevated, CAPE index. " I think this is dangerous time" he said.
    "... The historic average is around 17, a level that would correspond with about 11,000 on the Dow and 1,300 on S&P 500. A retracement to those levels would represent more than 30 percent declines. "
    finance.yahoo.com

    Based on his research of historical stock market valuations, Nobel Prize-winning economist Robert Shiller said Thursday he sees the "risk of substantial declines" ahead.

    Even with the recent turmoil, which pushed the Dow industrials, S&P 500, and Nasdaq into correction last week and again this week, "the market is high now," the Yale University professor told CNBC's " Squawk Box ."

    As of Wednesday's close, the Dow remained in a correction, despite strong gains. But the rally in the S&P and Nasdaq composite pulled those measures out of correction territory.

    Shiller measures valuation with his cyclically adjusted price-to-earnings (CAPE) ratio, which looks at price divided by 10-year average earnings.

    "The CAPE ratio right now is around 25. It's high," he said. The historic average is around 17, a level that would correspond with about 11,000 on the Dow and 1,300 on S&P 500. A retracement to those levels would represent more than 30 percent declines.

    Shiller said he's not saying that will happen, just the CAPE ratio serves as a "warning signal."

    In fact, based on history, the stock market could more higher because the CAPE has been much higher in the past before the air came out of the market, he said.

    "The monthly CAPE ratio reached a peak of 44 in the year 2000 and that was followed by an important [market] drop. It went down to 13 and came back up to 27 in 2007 and it was followed by another drop," he said.

    "Nobody can really forecast the market accurately. But I think this is a risky time," Shiller concluded-adding he personally has been reducing his portfolio's exposure to U.S. stocks. "[But] everyone's different. People need to look at their own risk situation."

    [Sep 02, 2015] The Mirage Of An Iranian Oil Bonanza By Dalan McEndree

    Total world production is around 86 mmbl (millions barrels a day). Iran probably can contribute additional one million barrels a day). Drop of the US shale production and Canadian sands production might be higher then that. Also Iranian internal consumption (currently 2 million barrels a day) also will rise substantially after lifting of the sanctions.
    "...Projecting from International Energy Agency (IEA) data, Iran is on track to produce an average ~2.85 mmbl/day of crude in 2015. The IEA puts Iran's current sustainable capacity at 3.6 mmbl/day (defined as a level achievable in 90 days and sustainable for an extended period). "
    "... it is possible that Iran will lack the domestic and foreign resources necessary to increase crude output to and over 4 mmbls/day by 2020."
    Sep 02, 2015 | OilPrice.com

    The P5+1 agreement with Iran on Iran's nuclear program has generated (sometimes fevered) anticipation of an Iranian oil bonanza at the end of the nuclear agreement rainbow, both in terms of the increase in Iranian crude output and the business opportunities for foreign firms in driving the increase.

    The anticipation comes from several sources. Iran's crude potential is one. According to the U.S. Energy Information Administration (EIA), Iran's proven crude reserves, 158 billion barrels, are the world's fourth largest (and among the cheapest to produce at $8-to-$17/barrel, depending on the source).

    Iranian public statements expressing determination to increase crude output significantly are another (to 5.7 mmbl/day, according to Mehdi Hosseini, chairman of Iran's oil contracts restructuring committee). The third is the value of potential contracts for foreign suppliers. Hossein Zamaninia, Iran's deputy oil minister for commerce and international affairs, indicated the government hoped to conclude nearly 50 oil and gas projects worth $185 billion by 2020.

    Projected Output and Exports to 2020

    Projecting from International Energy Agency (IEA) data, Iran is on track to produce an average ~2.85 mmbl/day of crude in 2015. The IEA puts Iran's current sustainable capacity at 3.6 mmbl/day (defined as a level achievable in 90 days and sustainable for an extended period). This is roughly comparable to Iranian Oil Minister Bijan Namdar Zanganeh's assertion Iran could increase output 500,000 barrels per day within a few months after international sanctions on Iran's economy are lifted and another 500,000 barrels per day in the following months .

    ... ... ...

    Iran won't be able to finance this on its own. It has three "internal" sources of investment-frozen Iranian funds in foreign accounts, government budget resources (oil revenues flow to the Iranian government, a portion of which the government returns to the industry), and oil in storage. (Iranian banks evidently can't provide meaningful funding). Rough conjectures of the investment Iran could generate from these three sources in current low price environment are as follows:

    • Perhaps $2-$4 billion annually through 2020 from frozen Iranian funds in foreign accounts. Some estimates put the total at $100 billion (or $20 billion annually). U.S. Treasury Secretary Lew, in testimony before Congress, put the available funds at $50 billion ($10 billion annually). Since Iran's oil industry is only one of many claimants on the frozen funds, including the natural gas industry, the Iranian military, Iran's proxy clients in Lebanon, the Gaza Strip, Syria, Iraq, and Yemen, the commercial aviation industry (replacing the passenger jet fleet), other industries, and the Iranian people, maybe it will receive 20 percent of the frozen funds, or between $2 and $4 billion annually.
    • For the sake of argument, $10 billion annually through 2020 from government budget resources, which is very generous given the share of crude export revenues this level of support would consume (see last row of above table), the demands from other Iranian claimants, and Zanganeh's data (investment fell from an average $20 annually in 2011 and 2012, when the OPEC basket crude averaged $107.46 and $109.45 per barrel respectively, to $6 billion in 2014, when it averaged $96.29, and virtually nothing this year, when it averaged $53.97 through August).
    • Perhaps $1-$1.5 billion as a one-time contribution from oil currently in storage.

    ... ... ...

    The possibility of direct military conflict between Iran on the one hand and Saudi Arabia and its Gulf Arab allies on the other is another factor. The two sides are already essentially at war indirectly in Yemen, Iraq, Lebanon, and Syria. Moreover, just the threat of direct military conflict or an increase in regional tensions is enough to cause foreigners anxiety.

    The deal structure the Iranians will offer foreign companies-Hosseini described it as a "risk service contract"-will increase rather than mitigate risk. Given their lack of capital, the Iranians will be asking foreigners to bear the upfront investment burden in return for payment (cash and/or crude) in the (perhaps distant) future. Foreigners must take into account the possibility that negative changes in the internal and/or external environment will damage the value of their investment.

    Foreign investors cannot be confident Iran's internal political dynamics will be conducive to foreign investment. Not all influential Iranians or Iranian interest groups (for example, the powerful Revolutionary Guards) welcome the nuclear agreement and détente with the United States and Europe. Should the balance of power tip in their favor-or further in their favor-foreign investments could face anything from unpleasant pressure to expropriation.

    Moreover, absent a binding agreement within OPEC and between OPEC and Russia on production levels, Saudi and Gulf Arab production policies will threaten the value of foreign investment in the Iranian crude industry. Saudi Arabia's sustainable capacity is 2.5 mmbl/day more than its average 10.01 mmbl daily output in 1H 2015, while the UAE has announced plans to increase output 600,000 barrels per day in the next few years, and Kuwait by 1.4 mmbl/day by 2020.

    ... ... ...

    In Sum

    While it is likely Iran will increase crude output once sanctions are lifted, it is possible that Iran will lack the domestic and foreign resources necessary to increase crude output to and over 4 mmbls/day by 2020. Absent a thaw in its relations with Saudi Arabia, the Gulf Arab states, and the West, higher and more stable crude prices, and initial positive experience for foreign companies in negotiating and implementing projects, it is more likely foreign investment will trickle into the Iranian energy industry than gush into it.

    [Sep 02, 2015] Financial Sector To Cut Credit Supply Lines For Oil And Gas Industry By Nick Cunningham

    Sep 02, 2015 | OilPrice.com

    As time passes, more and more hedges are expiring, leaving oil companies fully exposed to the painfully low oil price environment. "A lot of these smaller guys who had bad balance sheets have pretty good hedge books through full-year 2015," Andrew Byrne, an analyst with IHS, told the Houston Chronicle. "You can't say that about 2016."

    In fact, about one-fifth of North American production is hedged at a median price of $87.51 per barrel. Smaller companies rely much more heavily upon hedging as they are more vulnerable to price swings and are not diversified with downstream assets. Across the industry, IHS estimates that smaller companies had about half of their production hedged at a median oil price of $89.86 per barrel in 2015.

    ... ... ...

    More worrying for the oil and gas companies that are struggling to keep their lights on is the forthcoming credit redeterminations, which typically take place in April and September. Banks recalculate credit lines for drillers, using oil prices as a key determinant of an individual company's viability. With oil prices bouncing around near six-year lows, more companies will find themselves on the wrong side of that equation.

    Banks were more lenient in April when oil prices were a bit higher and many analysts expected prices to rise. This time around the pain is mounting and there will be a lot less leeway. Somewhere around 10 to 15 percent credit offered to drillers could be cut back on average, a move that could slash $15 billion in credit capacity, according to CreditSights Inc.

    ... ... ...

    According to the FT, banking regulators are pushing banks to take a more conservative approach to their energy loans.

    [Sep 02, 2015] ConocoPhillips Fires 10% Of Global Workforce, Warns Of Dramatic Downturn To Oil Industry

    "...Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs "the dark side of the golden age of shale". In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011. "
    Zero Hedge

    ...Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices.

    As the Houston Chroncile's FuelFix blog writes, "Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month."

    But don't worry: the great(ly fabricated) US jobs recovery myth will not be impaired: all these formerly highly-paid engineers, technicians, drillers and chemists will find minimum wage jobs flipping burgers at their local recently IPOed Shake Shack.


    Publicus

    Zerohedge logic: oil going up is bad for the economy, oil going down is bad for the economy.

    While gold going up means you should buy more, and gold going down means you should buy more.

    LOL

    El Vaquero

    That's because both are true. If oil is too expensive, people cannot afford to buy as much random crap in this "consumer economy," and if oil is too cheap, well, there's always the $550 billion in energy sector junk bonds floating around that aren't going to get repaid. This is the result of years upon years of economic manipulation.


    Berspankme

    El Vaq- that requires critical thinking

    Winston Smith 2009

    "that requires critical thinking"

    Always, unfortunately, a very rare commodity... which explains why we're where we're at.

    "Five percent of the people think, ten percent of the people think they think, and the other eighty-five percent would rather die than think." - Thomas A. Edison

    Magooo

    HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf

    HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil production has quadrupled, and that shift will permanently shackle the growth potential of the world's economies. http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

    THE END OF CHEAP OIL Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years

    Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://www.scientificamerican.com/article/the-end-of-cheap-oil/

    BUT WE NEED HIGH OIL PRICES: Marginal oil production costs are heading towards $100/barrel http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

    The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

    Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. "The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120," he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

    Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs "the dark side of the golden age of shale". In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011. http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5

    JustObserving

    Obama's war on oil to hurt Russia and Iran having unintended consequences. Maybe he can drone short-sellers of US stocks

    lehmen_sisters

    Good paying oil workers going to get jobs at Chili's and Flingers....talk about a recovery! Drinks on me!

    Magooo

    THE PERFECT STORM (see p. 59 onwards)

    The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.

    But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.

    http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

    crazybob369

    ConocoPhillips Fires 10% Of Global Workforce, Warns Of "Dramatic Downturn" To Oil Industry

    "Dramatic Downturn", really? These morons are in the energy business and they just figured this out now? Or, are they simply justifying the layoffs?

    Jack Burton

    the massive upcoming reserve liquidation (read Treasury selling) that is about to be unleashed as a result of the soaring dollar

    Don't discount Russia in this treasury sell off. No they are not a player like China, but they have a roll to play, they were sitting on 350 billion dollars in FX if you believe some, of 450 billion to believe others. They have been bullsih gold for ages. But if China sells treasuries, Russia will continue to sell theirs also. The economic war on Russia is already worthy of WWIII, thus Russia should have only one goal, "To kick T-Bills in the balls when they get the most kick for their efforts."

    America lives by the Dollar, prints it and buys a consumer bonanza, energy and the greatest military on earth. I suggest to you that fully 1/2 of that spending is deficit, money printing or T-Bill selling. China, Russia and Iran should likely do what they can to hurt the dollar, as the dollar is America's primary support, 1/2 our federal spending is borrowed.

    johmack2

    From magooo post, http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf is highly recommend everyone read that report or have one of the tylers post it, very comprehensive report


    [Sep 02, 2015] Bill Gross Fed tightening now could create self-inflicted instability

    "...He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply. "
    "...He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply. "
    "...Overall, Gross said "super-size" August movements in global stocks are but one sign that something may be amiss in the global economy itself, China notwithstanding."
    "..."Cash or better yet 'near cash' such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments," Gross said. "The reward is not much, but as Will Rogers once said during the Great Depression – "I'm not so much concerned about the return on my money as the return of my money.""

    NEW YORK (Reuters) - Bond guru Bill Gross, who has long called for the Federal Reserve to raise interest rates, said on Wednesday that U.S. central bankers may have missed their window of opportunity to hike rates earlier this year and doing so now could create "self-inflicted" instability.

    He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply.

    The neutral rate is the point at which the rate is neither stimulative nor contractionary.

    The Fed seems intent on raising the federal funds rate at its policy meeting this month if only to prove that it can begin the journey to normalization, said Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund (JUCAX.O).

    "They should, but their September meeting language must be so careful," that "one and done" is an increasing possibility, Gross said. The "one and done" approach represents the Fed raising rates once and not again, at least for the next six months, Gross said.

    "The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself."

    A decline in saving would lead to other problems like decreases in investment and long-term productivity, he added.

    Gross said: "The global economy's finance-based spine is so out of whack that it is in need of a major readjustment. In this case, even the best of chiropractors could not even attempt it. Nor would a one-off fed fund increase straighten it out."

    He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply.

    "It is demand that must be increased – yes, China must move more quickly to a consumer-based economy but the developed world must play its part by abandoning its destructive emphasis on fiscal austerity, and begin to replace its rapidly decaying infrastructure that has been delayed for decades," Gross said.

    Overall, Gross said "super-size" August movements in global stocks are but one sign that something may be amiss in the global economy itself, China notwithstanding.

    Fiscal and monetary policies around the world now are not constructive or growth enhancing, nor are they likely to be, Gross said. "If that be the case, then equity market capital gains and future returns are likely to be limited if not downward sloping."

    Gross said cash is king in this environment.

    "Cash or better yet 'near cash' such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments," Gross said. "The reward is not much, but as Will Rogers once said during the Great Depression – "I'm not so much concerned about the return on my money as the return of my money."

    High-quality global bond markets offer little reward relative to durational risk, he added. Private equity and hedge related returns cannot long prosper if global growth remains anemic, Gross said.

    (Reporting By Jennifer Ablan; Editing by Chizu Nomiyama)

    [Sep 01, 2015] No fundamental reason for oil's 'meltdown' energy analyst

    China oil demand is growing modestly 3% a year, which is actually extremely fast for such a large economy. Moderation in China demands started long ago so this is no news. so what we are seeing is sentiment. Sentiment on all commodities is negative right now Capital investment in new oil development this year at least 25% globally and 50% in the USA. The next year it can be worse. Oil supply will eventually reflect this.

    Worries about China and near-record production from OPEC and the U.S. have knocked oil prices below $40 a barrel. But the markets may have beaten up crude a little too much, according to one energy analyst.

    [Sep 01, 2015] Marc Faber We Have Reached Some Kind of Tipping Point

    Sep 01, 2015 | Fox Business
    "The markets have moved sideward for essentially the last 12 months and this year, when the crash really happened, we were 2% lower on the S&P year-to-date…we were down 13% for the transportation index, so the internal of the market has been weak," Faber said during an interview on FOX Business Network's Cavuto: Coast to Coast.

    He added that global markets have realized deceleration in China's economy is worse than "optimistic" fund managers and strategists predicted.

    Faber said it would not be easy for China to get its economy growing the way it once was. It it decellerating more then most expect.

    "An economy like China is not like a car where you just drive around the corner," he said. "The Chinese economy cannot be stimulated meaningfully for the time being-it will take time."

    Recently, China's stock market troubles hit U.S. markets. Faber explained why Wall Street is impacted by negative news out of China.

    "You look at announcements of Hewlett-Packard, United Technologies, car manufacturers… they have a large exposure to China, and when the Chinese economy slows down, what really drove the growth, namely capital spending in China, and consumption in China slows down, so in July, car sales in China were down 7% year-over-year," he said.

    [Sep 01, 2015] Some Day, We'll Look Back at This, and Laugh

    Exemplary of The Guardian's forecasting where Russia is concerned – and The Guardian never met a Russian it didn't hate, unless they were an oligarch expat, a political dissident or a member of Pussy Riot – is this gem by The Guardian's "Economics Editor", Larry Elliott;"Russia Has Just Lost the Economic War With the West".

    For those who don't remember when the west's economic war against Russia started, it actually kicked off with a skirmish, in which the USA stopped service in Russia to holders of Visa and Mastercard at certain sanctioned banks in Russia, back in the spring of 2014. Customers found that their cards did not work and their accounts were frozen. Russian media promptly pointed out that American credit-card companies "had a record of bowing to political decisions from Washington"; the government imposed a security deposit fee equal to two days worth of transactions in Russia, which would cost the companies $1.9 Billion (Visa) and $1 Billion (Mastercard), and Morgan-Stanley issued a report which suggested the two credit-card giants would be better off terminating their operations in Russia, where they together had 90% of market share. For his part, the Russian president announced that Russia would develop its own national payment system and greatly reduce its dependence on western credit-card companies.

    It's hard for me to see that as a western victory. Visa and Mastercard squealed like pigs, Russia introduced a prototype domestic card (Mir) which Mastercard signed on to co-brand, and Mastercard and Visa both humbly signed on to Russia's national payment system, which moves processing to Russia. This results in a huge loss of financial control for the western-based cards, and a bigger one is coming when Russia introduces its national replacement for SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Western regulatory authorities have long been accustomed to using SWIFT to read other countries' financial mail, and a few years back, the USA pressured the supposedly non-partisan system to shut out Iran. It's unlikely America would have tried that with Russia – especially since European courts ruled that it was illegal – but a couple of big-mouthed American senators started hollering for it to be done, and that was enough.

    You would think Larry Elliott would have learned something from that, but it is apparent that he did not. He had all summer and autumn to form an assessment of how things were lining up, and he guessed wrong.

    "The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."

    Is that so? Well, at least one insight in that passage was accurate – the damage caused to the U.S. shale industry was considerable. Have a look at this comical piece in The Economist, which is almost as big a failure at presenting the world as it actually is as The Guardian; the anonymous author hedges his analysis so hard that his regular reversals make the reader dizzy. Goodrich Petroleum's debts are six times the size of its market-value equity – but it says it has ample liquidity and may sell some stuff. At the start of 2015, it looked like the slaughter among the frackers would be horrific – but only 5 companies actually went bankrupt. The Saudis (treacherous dogs all) have failed to put Houston out of business – but big services companies such as Halliburton have fallen into losses and small ones are on life support.

    Here's another, in which The Economist does not make the link: the United States has increased its oil production to 13% of global output – but it supplies only about half its own consumption. It puts a happy face on this by describing its increase in production as far larger than its increase in consumption. That is indeed a bit of good news, but the USA still consumes more daily oil output than something like the next four nations combined (figures are from 2011), and about 20% of the world's output.

    The global economy is faltering as the World Bank lowers its projections for growth. Saudi Arabia, originally a partner in the effort to crush Russia's economy, has continued to flood a glutted oil market that is now oversupplied by 800,000 barrels per day, and shows no sign of letting up. Meanwhile, Saudi Arabia and Russia inked 6 new trade agreements in June, one of which will see Rosatom operate up to 16 nuclear reactors in Saudi Arabia.

    The USA put its head together with its Saudi partners, and worked out a scheme whereby OPEC would administer a short, sharp shock to the energy markets which would tip Putin out of bed – colour revolution successful at last, America gets to pick a new government, we've got momentum, baby! But that's not the way it worked out at all. Who benefits from a weaker ruble? The resource exporters who are a main source of revenue for the Russian government. Putin remains as popular with Russians as he has been since his introduction to upper-echelon politics.

    Meanwhile, in Europe, Russian sanctions coincided with perfect growing conditions and consequent overproduction to kick the British dairy industry in the slats. The Russian dairy market, by contrast, is surging, with some varieties of artisan goat cheese selling for $14.00 a pound at the supplier level. German cars and car parts exports to Russia fell more than 27% between January and August 2014. The Russian food ban is "a nightmare" for French farmers. Even mighty Apple saw its smartphone sales cut in half in 2014 – although, despite the crisis, Russian smartphone sales overall were up 39%. American car brands joined the plunge as car sales in Russia tanked; however, the ruble began to regain strength in the first quarter and was the best-performing of more than 170 currencies tracked by Bloomberg – bear in mind that this is in the face of deliberate efforts to force it down. The tumble in car sales slowed in July as government incentives began to have an effect – but the gains were all felt by Lada and Asian brands, and the only American car to even get on their scoreboard was the Chevrolet Cruze. Expect western brands across the board to continue to suffer, as market replacement continues apace.

    Let us not gild the lily: the economic war against Russia hurt, and for a day or two there was reason for western optimism that their attempt to backstab Putin out of office would bear fruit. But it didn't, and Elliott's brainless rah-rah cheerleading for Washington was torpedoed by Russian resolve and resilience. The west now has the global opponent it thought it wanted, but market replacement and a rejection of western institutions within Russia signifies a decisive turning away from the west that will not easily be reversed, if ever. Vladimir Putin could run over a pensioner with his car on election day and still cruise to victory without breaking a sweat. None of the west's goals of economic warfare against Russia have been realized. Not one.

    It's still too soon to say whether Russia will weather the storm Washington deliberately set in motion. But there is every reason to be optimistic if you are Russian, and no reason at all to be optimistic if you are one of Barack Obama's foreign-policy drones. And John Kerry might as well just run off a cliff, because he has been an even worse Secretary of State than Hillary Clinton was – a benchmark I did not ever think to see surpassed, never mind so quickly.

    As a recent Russia Insider article warned, there's no surer way to lose the next war than to live in delusion about your own strength.

    Oddlots, August 26, 2015 at 8:31 pm

    Hard to pick a favourite line but I think mine is this: "Of course America makes mistakes – grievous ones, which are scrutinised sharply in its political system and media."

    Comical. Errr… Haven't seen much evidence of that for quite awhile friend.

    This guy barely has the intellectual ability to run a golf club though his prejudices would make him welcome in any of them.

    Warren, August 27, 2015 at 3:55 am

    Lucas is an odious sanctimonious hypocrite. He merely preaches to people who share his prejudices.

    ucgsblog, August 24, 2015 at 6:48 pm

    Just reread this:

    "The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."

    Dang. Oh, oh. Where do I even start? First, I know a few US oil traders; they're in it for long term profit. They didn't want the risks and don't give two shits about Ukraine. It's why you don't see them lining up to donate to Ukraine. Second, in order to kill US shale, the Saudis drove down the price, after informing Russia of their actions. Third, it's not US shale that's currently driving up the prices, it's Saudi Arabia, and, yep, Russia. US shale is crying "uncle, uncle!" On top of this, the oil price effectively busted Obama's green energy legacy, or as a commentator said: "da, ne vezet cheburashke, ne vezet!" Student loans also busted his education legacy, he's going to be an all around failure. Ouch!

    But none of what I said makes that comment stupid. Not a thing. What makes said comment absolutely asinine, is that by claiming that the Oil Wars were started by US and Saudi Arabia to hurt Russia, and by additionally claiming that said Oil Wars are continued to be ran by US and Saudi Arabia to hurt Russia, those idiots effectively gave Russia a powerful weapon to hurt the US financially, and because Obama got pwnd on the Iranian Deal, (Bob Gates' words, not mine,) the Saudis want to answer to Russia, which is why they're signing energy deals with Russia like there's no tomorrow.

    To be absolutely blunt: the US media gave Putin a proverbial gun to shoot themselves with, while claiming that they're actually holding said gun to Putin's head. When the proverbial shot goes off, hilarity will ensue.

    As if this wasn't enough, in order to keep US shale somehow functioning, low cost loans are being made, and the current demand is a must. Low cost loans will only work by keeping the interest rate at 0.1%. What does that mean? It means that the "poorly performing" Russo-Chinese currencies have done something that I thought would be impossible a few months ago: they checked the dollar's aggressive stance. Yes, the dollar is still a power to be reckoned with, but the US can no longer lead with the dollar; rather, the US must wait until Russia and China attack the dollar, which they won't do.

    Furthermore, demand is dropping. Supply is increasing. US shale is slowly but surely going bankrupt. In order to prevent that, US must keep interest rates low, meaning that the dollar's effectiveness is checked, which, according to Elliot, is Obama holding a proverbial gun to Russia's head. As if this wasn't enough, there's still the potential Greek Switch, which could lead to the collapse of the Euro. Add the rise of Nationalist Parties in Europe, and you'll see the shift towards Russia, thus giving Putin the Lisbon to Vladivostok trade route. Combine that with the Silk Route, as well as India and Pakistan's dispute being solved peacefully by the SCO… do I really need to keep going here? And remember, according to Elliot, the US has the proverbial gun, so Putin better give Crimea back, pronto!


    marknesop, August 24, 2015 at 9:17 pm

    Certainly a much more optimistic forecast, what?? I wonder if Russia actually does know this, and it is calculated, or is it just a series of big dominoes falling over one by one? It's certainly true that Saudi Arabia and Russia are a lot chummier than you would expect, given that the former is supposed to be part of a deal to screw the latter. And you are correct that the further out on the limb U.S. shale goes to prove to the world that it's still unhurt, the further the drop will be when the fiction can't be maintained any longer.

    I don't really wish the USA any harm – although I despise its government and more or less its entire political class – and I hope there's no collapse like that because it would hurt a lot of decent people who didn't do anything worse than believe in The American Dream. Not to mention our economic fate is inexorably tied to yours. But the global economy does appear to be unraveling – for the second time in our lives – right before our eyes. Whose economy is hurting, Mr. President?

    That's a hell of an analysis. And it's always easier to spot a trend if you're looking for it. So let's see if you're right – if you are, you're a visionary, because nobody who feels they're authorized to talk about it sees a picture like that. I don't dispute that some in the back room see things starting to come apart, but of course they won't say that. Running panics the troops.

    ucgsblog, August 25, 2015 at 6:31 pm

    Thank you! Russia doesn't know this, but simply reacts in the best possible way possible. It's like racing a track for the first time, you don't know where it turns, but when it does, you do the best you can, and eventually, someone is going to have the record time, and someone else will ask: "did they know?" Nope, they simply adapted, and when it comes to resurging and adapting, Russia's numero uno.

    In terms of US shale, it's not so much that it's going to collapse, but rather, that the capitalization of US shale will hold back the dollar. The problem with the US political class is rooted in the two party system, which reduces political debates to "my side yay, your side boo" type of arguments. These in turn rely more on messaging power, i.e. dollars, which enables those with the money to work the electoral college to play a hefty role in elections. If we simply abolished the electoral college… that'd be an improvement, but Republicans and Democrats jointly oppose that.

    I'm coming from the trend that was first displayed when Russo-Chinese leaders called the SCO a "success beyond our wildest dreams". That's my perspective. It's hilarious to see others suggest that Russia and China will break apart, and even paid analysts are getting pissed off at the bullshit they have to write, which is why you get articles with "Russia is China's junior partner… Russia and China treat each other as equals…" where any analyst reading that knows that the writer was very pissed off at the editor.

    As far as panicking the troops, the truth's that there's massive divestment from internationalism and more and more people are pushing for the Moneyball Model. By the time the rout hits, poor saps like Julia Ioffe will look around and go "waaa!" but no one will be there to defend them. And then those whom they fucked in the 1990s will have their vengeance in a trollish way. As for me, I'll be deciding which brand of popcorn to buy. We have more varieties in California than almost anywhere else, it's a tough, tough choice. BTW, I'm open to suggestions.

    Guy, August 24, 2015 at 10:37 pm

    Something i would like to add. There's one more point that i think everyone has overlooked. Fact that the US dollar is backed by other peoples traded oil means that the US is effectively relying on that traded oil to support it's currency. International trade, commodities and the shuffling of paper are what keeps the dollar afloat. If the price of oil drops by let's say $10, the demand for dollars to buy that oil also falls by $10 across the entire spectrum of the oil market. This amounts to a direct attack on the dollar price as if a country had dumped that many dollars. Now we're seeing Chinese trade slow down, also a reduction in demand for dollars, and the're going out of their way to defend their markets which also involves dumping of dollars.


    ucgsblog, August 25, 2015 at 6:33 pm

    Thank you! And you're right that both of those processes hurt the dollar; where we might disagree is a matter of scale. I think that it hurts the dollar slightly, akin to an artillery barrage to prevent a charge, but leaves the unit in cohesion. I'm unsure if you share that view, or if you think that it does extensive damage to the dollar/unit.

    Guy, August 25, 2015 at 9:40 pm

    Well if it really did do extensive damage on it's own would think that it would be more visible by now. I think the damage i not visible due to the fact that people won't necessarily dump their dollars just because they don't immediately need them to buy oil. But your analogy is absolutely correct. I think in the long term this will prevent the fed from printing too much more and facilitate de-dollarisation by freeing that capital up to be invested in other assets, perhaps not dollar denominated. It all depends on where the extra capital goes. If it goes back into more trade or assets that require dollars then there would be no effect. However on it's own the quantity that we're talking about is rather immense. This effect will become more pronounced when China opens up it's own gold and commodities exchange because this allows the freed up capital to be funneled elsewhere.

    Regarding your views on the oil market i think you would be interested to read my analysis below. Ehhh.. it's somewhere down there, not sure how i can link to it. My views are that US shale will be allowed to die so that the companies can be bought up for penny's on the dollar by predatory hedge funds and restarted once the price rises again and the crash in oil prices is solely orchestrated by US banks which have the capital and leverage to short it on the paper market.

    karl1haushofer, August 25, 2015 at 12:14 am

    But generally low oil benefits the West (because they are net importers) and hurts Russia (because they are a major exporter). The losses in US shale industry is not a doomsday scenario for the US economy. The cheap imported oil more than compensates for that. The shale industry can always be restarted once the oil price goes up again (whether it happens in a year or after ten years).

    Russian economy has always been dependent on oil prices though. The fall of Soviet economy started after the oil price collapsed in the 1980's. The two biggest GDP drops of Russian economy happened when the oil price bottomed in 2008-2009 and in 2015.

    So the writer is right that low oil price hurts Russia while the West mainly benefits from it.

    karl1haushofer, August 25, 2015 at 12:27 am

    The biggest question for Russia is that if the period of low oil price lasts for a decade how can Russia cope with it. Easy oil money is not flowing to the economy anymore. Russia needs to find new (and harder, more difficult) ways to earn money and generate wealth. They have no other choice if they want to keep the country intact (since economically weak Russia would become an easier target for disintegration by the West).

    Guy, August 25, 2015 at 12:45 am

    It won't be priced low for decades. The cure for low oil prices is low oil prices. Eventually high cost suppliers will go bankrupt, keep in mind that countries such as Venezuela and even Saudi are struggling. The US most likely won't save it's shale producers. It will use this opportunity to cannibalism them and then yes restart production when oil prices have gone up, however this doesn't impact the fact that they will stop production in the short term, which is already putting hundreds and thousands of people out of jobs.

    The recent hiccup by China saw $250billion wiped off the EU markets. Even if they go into a death spiral Russia is far less affected by this than the EU, US, Japan Etc… due to it's limited exposure to the global financial system. From what i can see THEY DEFINITELY WILL FOLD FIRST. IMO this also strengthens Russia's position vis a vis China.

    Lastly no ones going to be sitting still and twiddling their thumbs for decades. While i do feel that more could be done in some sectors, the initiative is there to reorient the economy.

    ucgsblog, August 25, 2015 at 6:41 pm

    No one is saying that it's a doomsday scenario for either economy, but one has to look at the greater picture. If Putin was truly worried about the price of oil, he would've screwed over the Iranian Deal, which would've increased oil price. He didn't. It's more complex than a-good and b-bad.

    Russia needs to divest from oil. Badly. The fall of the oil price is forcing the Russian economy to do that, when the Russian economy can take the damage. Think of it as having a great workout – yes, it'll hurt, but you need to go through the pain to make the gain. Russia needs the low price oil pain to divest. And Russia can take said pain.

    Similarly, the US also needs more green energy development, but the low prices of oil is hurting said development. The US economy isn't recovering as fast as it should. So while Russia's hitting the gym, US is slouching around, if we are to use my comparison. Which one is going to be better off in the long term?

    The Soviet Economy was stagnating, not falling. The USSR fell due to propaganda damage from within, not economic damage, i.e. the combination of Perestroika and Glasnost. The EU is repeating said mistake with Open Borders and Austerity.

    As thus, the writer's right in the short term. But most analysts don't care about the short term. If we did, we'd be working in shorting stocks. We care about the long term, where the effect is the exact opposite.

    That said, thank you for your responses Karl!

    Warren, August 25, 2015 at 2:52 am

    So How's That Economic War on Russia Faring? #Russia pic.twitter.com/KQVeVAwBHy

    - Russia Insider (@RussiaInsider) August 24, 2015

    Warren, August 25, 2015 at 2:55 am

    Londongrad: TV comedy shows London through eyes of its Russian inhabitants

    Russian comedy detective series centres around a 'fixing' agency set up to troubleshoot problems for rich Russians in London

    http://www.theguardian.com/world/2015/aug/21/londongrad-portrait-of-london-russian-inhabitants

    [Aug 31, 2015] Price of Oil Jumps Above $48 Per Barrel for WTI by Doug Madson

    Daily violatility was over 13%.
    August 31, 2015 | dakotafinancialnews.com

    Share on StockTwits

    Oil traders recently scared off due to an apparent glut of oil in the U.S. received good news on Monday.

    The price of the dominant blend of North American oil jumped by close to 6% in a bit less than two hours on Monday. It was trading at $48 per barrel for the first time in nearly one month.

    By midmorning on Monday, West Texas Intermediate's price was down slightly from its close on Friday or changing hands at approximately $43.75 a barrel. However, at that time the Energy Information Administration lowered forecasts for oil output in the U.S. The U.S. pumped over 9.3 million barrels daily of oil during June, about 100,000 less than what had been initially reported.

    It was less than was churned out by the country in May, which was good news to the oil traders who were scared off due to the oil glut that has been seeing the world pump up to as much as 2 million more barrels per day that the overall world economy needs during this period of the year. All the excess oil that sits in storage tankers is what drove the price of oil per barrel down to $38 recently.

    The new numbers by the EIA were sufficient to send WTI soaring in price to as much as $48 per barrel only two hours after the report had been released. Crude prices also were buoyed by an OPEC statement that suggested the oil cartel might be willing to reduce production until prices were to come back to levels that were higher.

    Some traders had interpreted the statement as new evidence that the group, which is led by Saudi Arabia could be willing to turn the taps off in what is considered a meaningful way. Monday also is the last day of August, and the oil future contract often times has a volatile day during its last day of a particular month as the traders rush to settle positions prior to the activity of the previous month starting.

    [Aug 31, 2015] Is China's Devaluation a Game Changer

    "...I don't believe the Western financial system is axiomatically all bad. It's under contest. Dodd-Frank. Who knows, maybe it is. Look at Greece.

    What they need are capital controls and financial transaction taxes to slow down the hot money. All economies need that. "

    Aug 31, 2015 | Economist's View

    rayward

    Too complicated. China's politicians are no different from our politicians (well, a little different - ours may be sent into exile but theirs, well), they respond to their constituency: the investor class. Until they don't.

    Ridiculing China's government for not understanding markets is a little rich given the recent history in the U.S. What I find interesting is the similarity between China and the U.S.: both share a high level of inequality and a bubble in financial assets.

    What they don't share is fiscal stimulus: China with a fiscal stimulus on steroids, the U.S. fiscal stimulus non-existent. If China's economy ascends and the U.S. economy doesn't, how ironic that China understands capitalism better than us. How else does one explain all the China bashing in the U.S.: it's the insecurity, stupid.

    JF said in reply to rayward...

    Rayward, very nice.

    I am hopeful that chinese officialdom is not measuring themselves or their society on the basis of whether they obtain hegemon status within the financial system.

    I am hopeful that they want stability, rising living standards, and other elements within their society that fulfill the promises of the US Constitution's Preamble and the 'life, liberty and pursuit of happiness' phrase from the Declaration.

    They believe in money, they believe in markets (not idolatry though), they understand systems and freedoms-of-order, and they have the US to emulate for their 1.3+ Billion people. Financial hegemon??

    anne said in reply to anne...

    The Chinese economy needs to resist global integration of both
    The RMB
    And
    The domestic credit system

    The only cost to credit systems are opportunity costs

    China has more directions of opportunity than any economy on earth

    Throw a dart at a board and grant credit

    What is necessary
    A viciously punitive system for fraudsters and looters

    [ I think the Chinese leadership agrees, but Western analysts seldom understand. No matter, the passage is interesting, clever and important. ]

    Peter K. said in reply to Paine ...

    "The Chinese economy needs to resist global integration"

    Some random thoughts and brainstorming:

    The Chinese economy is delivering rising living standards and wages. Full integration into the global (Western) system will halt that, you suggest.

    However partnership with Western corporations has allowed them access to Western markets and know-how (tech, etc.)

    Their living standards are going up at the expense of the Western job class and to the benefit of Western corporations and finance.

    Is this the "Chinese economy" or their partnership with Western corporations?

    What they need to do is sell to their own workers rather than the Western consumer market.

    I don't believe the Western financial system is axiomatically all bad. It's under contest. Dodd-Frank. Who knows, maybe it is. Look at Greece.

    What they need are capital controls and financial transaction taxes to slow down the hot money. All economies need that.

    The neoliberals will argue it will slow growth and probably it will but growth will be more sustainable. Growth needs to be driven by the job class and income gains, not finance and debt.

    Peter K. said...

    Barkley Rosser has asked how China is different and how to define it. This appears to go some of the way. I don't know how much of it is true.

    "Last August, we posted our most popular blog piece to date: China's Capital Controls and the Exchange Rate Regime.

    In it, we explained how capital controls make it possible for China to maintain a fixed exchange rate while policymakers could adjust interest rates to stabilize their domestic economy.

    We also highlighted how these same capital controls are incompatible with the objectives of making Shanghai a global financial center and the renminbi (RMB) a leading international currency.

    Given the risks inherent in freeing cross-border capital flows, we concluded that the process of financial liberalization (both domestically and externally) would remain gradual. Yet, having seen China develop in unprecedented ways in the past, we have been watching to see if China could also alter conventional paradigms of finance and monetary policy. Could China do what no one else has done?"

    anne said...

    Well, it turns out that the "impossible trinity" or "trilemma" – which compels policymakers to choose only two of three from among free capital flows, discretionary monetary policy, and a fixed exchange rate – may be more like a physical law than nearly any economic principle we know....

    -- Cecchetti and Schoenholtz

    Using a technique Brad DeLong employs:

    a) free capital flows and discretionary monetary policy but not fixed exchange rate

    b) free capital flows and fixed exchange rate but not discretionary monetary policy

    c) discretionary monetary policy and fixed exchange rate but not free capital flows


    d) free capital flows, discretionary monetary policy and fixed exchange rate

    a, b and c are possible, but d is impossible

    Which then should China choose a, b or c?

    anne said in reply to anne...

    A problem is that I find no reason to believe Chinese leaders want free capital flows, which would mean that c) discretionary monetary policy and fixed exchange rate would be possible. China should be able to have a discretionary monetary policy and a fixed exchange rate as long as capital flows are controlled.

    The question then is why would China need free capital flows? Should the Chinese leadership control capital flows, monetary policy would be effective in limiting or quickening growth at a given exchange rate or over a narrow currency value range as Chinese leadership are evidently choosing.

    JF said in reply to anne...

    My answer to your question about why they might want free capital flow is not telling for those who invest in China - my view is that they want the flow of commodities and some currencies to come into China. Flowing out, not freely. They can create credit and money all they want for flow within their jurisdiction, they don't need outsider's 'capital' - but really like other currencies of value and other things of value to come in.

    I think only a few should be putting their hard-money into China. It is their risk, and I wish them well.

    If this population attains an economic system and society like we had in 1965 (not counting the warfighting stuff at all here) - all the more power to them, and it will be a great place to invest then - just like the US was in 1965.


    [Aug 30, 2015] China Sneezes, Europe Catches a Cold

    Aug 30, 2015 | naked capitalism


    … the concerns of German firms,"

    Stock market declines around the world would in this view only represent some short-term financial contagion without a connection to real economic activity.

    The second hypothesis is that the collapsing stock prices are linked to a slowdown in economic activity in China. Such a slowdown will then be passed on through trade linkages to China's trading partners.

    We want to investigate whether the stock market falls in Europe are primarily a financial contagion problem or whether they are linked to trade exposure to China. We look at the decline since the start of August until now, compared to the extent to which the respective OECD economy is linked to China, measured in gross exports to China as a share of GDP.

    Contrary to the first hypothesis that this episode is just a matter of turbulence in financial markets, we can see that in Europe those countries with stronger trade connections to China have generally suffered bigger losses in their stock markets. We take this as an indication that there is a disruption in the real economy in China, leading to less demand for European exports to China that is passed on to European stock markets through trade channels.

    For example, if we look at Germany, we can see that the DAX has fallen by around 12% (second highest in the sample), and also has the highest exports to China as a share of GDP at 2.66%.

    Overall, we would warn European policy makers not to take the Chinese crisis lightly. The health of the Chinese economy is of essence to the global economy and there are reasons to believe that this could turn out to be a more fundamental cooling of China than previously thought.

    Paul Krugman A Moveable Glut

    "...No, that's a very bad place to start. Keynes refuted that kind of thinking almost 80 years ago. There is no magic full employment interest rate."
    Aug 29, 2015 | Economist's View
    The Rage -> Second Best...

    I will choose to disagree. I think China going "down" will be a good thing for the US economy in the short run and it depends on if China can build a consumer base in the long run.

    Wall Street literally knows now they will have to completely overhaul their investment portfolio. You could tell they hoped in the spring, everything was going back to "normal". Now they know it cannot happen. They must change as well and we are getting a hissy fit.

    Too many econ-bears want China to cause a credit contraction, but they don't seem to understand, the US IS the credit market. The 2008 financial crisis was totally a US generated event. Even Europe would have trouble matching it, though a eurozone collapse would try. Most of the credit risks are born in the US. Outside 98-00, the stock market provides very little consumer spending.

    I was out Saturday to some festivals and people were very optimistic in the future because of gas prices. The mental damage from the 04-14 spike is starting to recede and people are hopeful for prices even lower this winter than last. This also helps creditors because debtors have more spare capacity to take on debt with less risk. Whatever happened to Don? He basically has been screaming for this day for years. Much like him, I agreed China could not keep the "old" model going on forever and it was not helping the US economy like people thought. It stole investment from the US and basically hurt consumers through its manipulation of commodity markets with oil being the most important.

    ThomasH said...

    I think bubbles would cause limited damage if monetary authorities took seriously their responsibilities to keep price level trends on target and their actions were such as to persuade markets that they were serious. (NGDP would probably be a better target, but for these bubble popping issues it would amount much to the same thing.)

    sanjait -> ThomasH...
    Yes, yes, yes.

    I'm sick of central bankers who allow sagging inflation in a weak demand world, and then make up every excuse imaginable.

    Just hit your target. And if you miss, make it up next year. They talk about inflation like it's some barely comprehensive force of black magic, but it's just the markets price level response to a combo of current demand and forward expectations. The targets can be hit if central banks just commit to hitting them. But instead we get fearful genuflection about how risky are ZIRP and QE, while a generation of workers goes into year 7 of widespread underemployment.

    sanjait -> sanjait...

    I should have said: widespread CYCLICAL underemployment.

    Paine -> sanjait...

    Amen

    Dan Kervick -> Peter K....

    But Krugman's piece isn't about short term solutions. He says we have to take seriously the possibility that excess savings and persistent global weakness are the new normal. He's suggesting we are dealing with a long-term disease, not a short-term

    So then the question is, "Why?" Just saying that it's because demand is too low isn't an answer. Low demand is one of the phenomena to be explained. You can't treat a disease without an explanation of the cause.

    Paine -> Dan Kervick...

    Exactly. But it's up to a class based political economy to mobilize the forces behind a true global maxizer

    sanjait -> Dan Kervick...
    A few things:

    1) You just restated Say's Law as if it were a fact, when it is a known fallacy. No, output and demand aren't the same thing.

    The main thing to notice is that in the short and medium term we can get substantial deviations from a full employment equilibrium. That's what "weak demand" means. Again I think you were asking a question to which you actually know the answer, feigning ignorance as a rhetorical strategy.

    2) Yes, the world has many problems.

    3) No, you don't always have to have an explanation for the cause of a disease to treat it. From having an intermediate level of biomedical and bioscientific knowledge, I can tell you it is quite common for diseases to be treated with mysterious etiologies.

    In this case, the relevant thing to notice is that higher inflation addresses the problem of disequilibrium regardless of the cause. It doesn't solve every problem on earth, but it does solve the problem of a negative Hicksian natural rate of interest, and in doing so, it bolsters the ability of the economy to bounce back from both shocks and secular stagnation-like forces.

    So that's why we need more of it. At the VERY LEAST central banks should be more aggressive about hitting their stated targets, and IMO they should have higher targets.

    Sanjait -> sanjait...
    I meant Wickseian natural rate.

    Dan Kervick -> sanjait...

    "1) You just restated Say's Law as if it were a fact, when it is a known fallacy. No, output and demand aren't the same thing."

    No, you just committed the anti-Say's Law fallacy fallacy :)

    If all of the firms in the US committed tomorrow to expanding their annual output by 3%, would that guarantee that demand would grow by the 3% needed to buy up the additional output? No, of course not.

    But would demand increase by an amount approaching the ballpark of 3%. Yes. Because it is impossible for firms to increase their output by a given amount without increasing their own demand for their factor inputs by some amount at least close to that. They can't just squeeze it out of the same inputs and same quantity of labor.

    Dan Kervick -> sanjait...

    "So that's why we need more of it. At the VERY LEAST central banks should be more aggressive about hitting their stated targets, and IMO they should have higher targets."

    OK, why? We talk about this month after month here, and elsewhere, and everybody seems totally convinced that it is really really really important whet the rate of inflation if 2.5% instead of 1.5%. But nobody every explains why in cogent terms.

    How many people do you know in the business world who ever talk about the inflation target? ... ever? What reason do people have for thinking the Fed's "target" for inflation amounts to a hill of macroeconomic beans?

    And what specifically do people want the Fed to do to hit that target?

    sanjait -> Dan Kervick...

    "If all of the firms in the US committed tomorrow to expanding their annual output by 3%, would that guarantee that demand would grow by the 3% needed to buy up the additional output? No, of course not.

    But would demand increase by an amount approaching the ballpark of 3%. Yes."

    No. This is again just wrong. You ignored the role of capital stock entirely, which is a major error.

    "OK, why? We talk about this month after month here, and elsewhere, and everybody seems totally convinced that it is really really really important whet the rate of inflation if 2.5% instead of 1.5%. But nobody every explains why in cogent terms."

    As I already stated ... the concept of Wicksellian natural rate of interest is a good place to start.

    Both your comments show you aren't familiar with the concept, because it answers both.

    My quick summary would be this: raising the inflation rate pulls the real Wicksellian natural rate above zero, breaking the liquidity trap.

    Because, you see, what makes Say's Law actually work in practice in the medium term is if and only interest rates are set at the natural rate, but when the natural rate falls below zero (due to shocks, secular stagnation, whatever), then we end up with prolonged demand slumps.

    Google search for Wicksell and liquidity trap before you go telling me about the supposed Say's Law fallacy fallacy.

    The very simplified version of the story is this: inflation boosts demand by making it more expensive to sit on idle money.

    It also has the added benefits of whittling away nominal debts and overcoming sticky price problems that allow markets to clear, which are also significant.

    sanjait -> sanjait...
    Here's an even simpler version:

    a) Business investment, housing construction, auto purchases and other components of demand of various types based on credit will, all else equal, be higher if real interest rates are lower.

    b) At or near the zero bound, raising the rate of inflation results in lower real interest rates on short to medium term debt instruments.

    But still, before you go quibbling with that in some small way or claiming "nobody ever explains" why higher inflation would be useful, do go read about the Wicksell natural rate of interest.

    Amileoj -> sanjait...

    I get the Wicksellian story, but there are at least three largish problems with it:

    a) Following a collapse in aggregate demand, the effect of lower real interest rates might well be swamped by the effects of lower expected returns and less robust job prospects. Let money be as cheap as you will. If I think I'm not going to be able to sell any new output, or make any new payments, I'm still unlikely to borrow more. The idea that there simply must be price of credit (a 'natural' rate), at which all of these bench sitters will get in the game, and clear the glut, seems to me a lot more like a postulate than a conclusion warranted by logic & evidence.

    b) While it's true that a lower real rate will help debtors make existing payments, it also diminishes the income of creditors. The net effect would seem to depend entirely on the relative propensities to consume, but either way there's likely to be a fair amount of cancelling-out.

    c) Finally, since the CB cannot directly increase spending (not at least without the cooperation of the fiscal authority), the whole argument turns on the premise that the central bank can engineer higher inflation by getting investors/consumers to think higher inflation is coming. In other words, investors/consumers must be convinced that the central bank will bring something about, that it has no direct means to bring about, and this expectation, will substitute for the lack of such means. The evident circularity here doesn't exactly inspire confidence in the CB's ability, never mind its willingness, to 'credibly promise to be irresponsible.'

    Dan Kervick -> sanjait...
    "As I already stated ... the concept of Wicksellian natural rate of interest is a good place to start."

    No, that's a very bad place to start. Keynes refuted that kind of thinking almost 80 years ago. There is no magic full employment interest rate.

    "My quick summary would be this: raising the inflation rate pulls the real Wicksellian natural rate above zero, breaking the liquidity trap."

    No, even among the defenders of that line of thinking, that's not how it works. The Wicksellian real rate does not change as a result of a change in the price level. The idea that Krugman and others defend is that, given the fact that there is a nominal zero bound, by having higher inflation the real interest rate can fall into negative territory. (3% inflation with a 1% nominal rate, for example, equals a negative 2% real rate). So if the Wicksellian natural rate is negative, the inflation allows the real rate to fall to the natural rate.)

    The problem is that there is no reason to believe that such a thing as the Wicksellian natural rate exists.

    Amileoj -> ThomasH...

    I agree with one stipulation: monetary authorities who took such responsibilities seriously would need to promptly & publicly place their monetary tools at the disposal of the fiscal authorities.

    The most useful thing a central bank could do in such a circumstance would be to announce that interest rates on government debt will stay at the lower bound, no matter how large a deficit the government decides to run, until income output and employment are restored to at least their pre-crisis levels.

    This would be QE with a purpose--namely, to enable a real upside transmission mechanism that monetary policy alone invariably lacks.

    Paul Mathis said...

    "[G]overnment spending and debt aren't problems in the current environment."

    When have government spending and debt ever been a problem since FDR took us off the gold standard in 1933? Our national debt is more than 800 times greater since then and we have become the largest economy on the planet with the strongest military. We also overcame the Great Depression and won WWII because of the debt.

    The debt fear mongers -- Ron Paul, Tom Coburn, Alan Simpson -- have been dead wrong for years about the debt and yet everyone in D C worships at the altar of the balanced budget. Even Krugman won't give up his fears about the debt. Obama's 75% deficit reduction during the worst recession in 75 years is the main reason for our slow economic and wage growth. Enough of this nonsense!

    Paine -> Paul Mathis...
    One the one side
    Vicious no holds barred brutes
    On the other side
    debt hamlets
    pgl -> Paul Mathis...
    "Our national debt is more than 800 times greater" You love BIG numbers. What has happened to the price-level? To population? To real per capita income? Multiply these three and you get another really BIG number!

    "Even Krugman won't give up his fears about the debt."

    WTF? Was Casper the friendly ghost lurking behind him when he wrote his latest?

    Paul Mathis -> pgl...

    Do the debt fear mongers ever talk about the price level? Do they talk about per capita debt? Do they talk about per capita income?

    No of course not. They only talk about the total sum of the debt and "your share." They don't even relate it to GDP! But go ahead and explain why we should be worried about the debt. I'd love to hear it especially since we can print money to pay it at any time.

    Krugman has never completely backed away from his own fear mongering about the debt:

    "But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

    "And as that temptation becomes obvious, interest rates will soar. . . But unless we slide into Japanese-style deflation, there are much higher interest rates in our future."
    http://www.nytimes.com/2003/03/11/opinion/11KRUG.html

    Paine -> Paul Mathis...

    PK joined the highly partisan attack on little bush and his wealth building top down tax cut

    I recall the absurd dembots hysterics about run away deficits etc. Yes PK needs to fully confess self criticize and beg us to forgive him

    But he really has fear of the open budget school of Fay wray etc. He has an inner VSP he hasn't shot in the head .....yet

    Paul Mathis -> Paine ...

    Dubya's deficits never exceeded 3.5% of GDP, yet Krugman described them as a "trainwreck" and "a fiscal crisis that will drive interest rates sky-high."

    His explanation for inexplicably low interest rates:

    "I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared - the ultra-establishment Committee for Economic Development now warns that "a fiscal crisis threatens our future standard of living" - investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic."

    The U.S. as a "banana republic?" Really?

    pgl -> Paul Mathis...

    "Dubya's deficits never exceeded 3.5% of GDP". But debt/GDP started another upward path even during a period of prosperity. Oh yea - they would have solved that by Social Security cuts. You and Paine are not worried about this but you don't get their agenda.

    Paul Mathis -> pgl...

    Wrong pgl

    "But debt/GDP started another upward path even during a period of prosperity."

    Dubya's debt/GDP peaked at 3.4% in 2004 as did his real GDP. Both then declined for the next 3 years.

    I'm not worried about the debt at all and I am still waiting for your explanation of why I should be. Perhaps you can also explain why the surpluses during the entire decade of the 1920s were good in light of what happened immediately thereafter.

    pgl -> Paul Mathis...

    "Dubya's debt/GDP peaked at 3.4% in 2004 as did his real GDP."

    You are clueless. Debt and deficits are not the same thing. Learn basic definitions.

    pgl -> pgl...

    Federal debt/GDP. It was not a mere 3.4% in 2004 and it did continue to rise:

    https://research.stlouisfed.org/fred2/series/GFDEGDQ188S

    I think Paul Mathis needs to get his definitions right before he says anyone else is wrong.

    Paul Mathis -> pgl...
    You might want to check our OMB's historical table 1.2 before you lecture me.
    https://www.whitehouse.gov/omb/budget/historicals
    Paine -> pgl...
    Pedantic loop holing again eh pgl. You know what he's saying you have no answer beyond bluster

    Mr bluster !

    Paul Mathis -> pgl...

    "Debt and deficits are not the same thing." Well duh! I never said they were. Learn to read.

    half-mast tailgate streamlining -> pgl...

    "Debt and deficits are not the same thing. Learn"
    ~~pgl~

    Not identical but vitally intertwined. Deficits can lead to debt, but debt service can lead to deficits. Do you see the recursion? The retroflexive self-reinforcement that can spiral upward?

    No the spiral really doesn't matter because we owe it all to ourselves, to our own wealthy folks. Hell! They actually enjoy the debt servitude that we shoulder. No! Owning it to ourselves is not the problem. The spiral upward is not a problem, unless . . .

    Unless we are also the jokers who print up the GTF, global Triffin fiat. No! We don't make big bucks from the print jobby that foreigners buy from us with their goods and services, but

    But the amount per capita is better than a kick in the butt. We don't want to lose that concession until we are independently wealthy, wealthy enough to stop burning up the resources that will morph into the kind of CO2 that will destroy the human species. Then again we definitely deserve to be trashed.

    pgl -> Paine ...

    Partisan attacks? The entire purpose of those tax cuts was to give to the rich as they tried to take for the poor. Sorry but that is CLASS WARFARE.

    Paine -> pgl...

    The class war is won with solid attacks not shoddy opportunism that appears to certify the deficit fetish

    pgl -> Paul Mathis...

    "Do the debt fear mongers ever talk about the price level? Do they talk about per capita debt? Do they talk about per capita income?"

    Not the fear mongers and I don't take their rants seriously. But those who want to do real analysis do.

    Paul Mathis -> pgl...

    Fear mongering about the debt is political and those who do it should be refuted with all available facts. Serious economic analysis has NOTHING to do with our debt discussions over the past 6 years. People who know facts should use them to stop the debt fear mongers who have no interest in serious analysis. That should be obvious by now.

    pgl -> Paul Mathis...

    Listen - I am not Chris Christie or Jeb Bush. And I have called for fiscal stimulus. So enough with this straw man nonsense.

    Paine -> pgl...

    Chris C is your bench mark ?

    Talk about a low bar

    Peter K. -> Paul Mathis...

    "Obama's 75% deficit reduction during the worst recession in 75 years is the main reason for our slow economic and wage growth. Enough of this nonsense!"

    Exactly. But the Republicans in the House helped push it.

    Paul Mathis -> Peter K....

    Obama wanted MORE cuts than Repubs had done: In his 2013 State of the Union speech, Pres. Obama noted that the deficit had decreased "more than $2.5 trillion" under his administration and the vast majority was spending cuts. Also, he wanted another $1.5 trillion of deficit reduction.

    Obama negotiated at length with Repubs to get a "Grand Bargain" only to fail because Cantor stabbed Boehner in the back at the last moment. Obama is definitely responsible for the 75% deficit reduction and he is very proud of it.

    pgl -> Paul Mathis...
    I never supported the Grand Bargain. I have consistently based this GOP austerity nonsense. So has PeterK. You are preaching to the choir.
    Paul Mathis -> pgl...
    I'm not letting Obama off the hook for our economic debacle and I am calling out Krugman too. Enough with the nonsense!

    EMichael -> Paul Mathis...

    BS

    Nothing quite like sound bytes in a political speech to "prove" a point.

    Yeah, Obama should have said I got my ass kicked by these nut jobs running our country.

    The Rage -> Paul Mathis...
    Debt is irrelevant in some respects. QE failed because it was being absorbed into a global financial system that was geared toward Asian,Commodity and domestic financial bank accounts. The real problem since 2003 triggered by the end of the cold war was the disinvestment nationally in favor of Asian development and Oil producing countries ate it up. If you really want to "improve" growth in the US, this system had to go. Don has been talking about this for years on this blog.

    Just surging public debt to keep a domestically bad system in place, is bad policy. Time for capital to diversify and bring some of that money back home. China will have to change. If they want to really challenge the US, they will need a consumer base strong enough to do so.

    Paul Mathis -> The Rage...
    "Just surging public debt to keep a domestically bad system in place, is bad policy."

    How about cutting the deficit 75% during the worst recession in 75 years? Is that good policy?

    The Rage -> Paul Mathis...
    Cutting the deficit after it surged 75% is ad hoc
    Paine -> The Rage...
    Dollar Finance is unlimited
    Forget the flight
    The fed in he peoples hands can fund everything

    We need to forget these artificial hedge rows created by and for
    Private profit driven finance capital


    We can build a giant fully automated green social production system
    All with uncles funds

    RGC said...

    The counterpart to the global savings glut is the global private debt glut.

    The giant vampire squid has sucked so much blood of the common citizenry that demand is anemic.

    The solution is to redistribute the blood from the squid to the citizenry and all will be well.

    EMichael -> RGC...

    No, that is not true.

    The squid has sucked all the income into the way upper class.

    Paine -> EMichael...

    We need a wage boom

    And we've known how to trigger one since 1940

    Paine -> Paine ...

    And I don't mean build a huge new war machine

    pgl -> Paine ...

    But 1940 was a huge new war machine. No - we need to build school buildings, infrastructure, and green technology. In contrast to Carly - let's regulate so the private sector has to innovate.

    Paine -> Paine ...

    http://www-personal.umich.edu/~shapiro/papers/labor-29jun2010-for-www.pdf


    This is worthy of Mankiw

    john c. halasz -> pgl...

    Umm... not that I would trust anything from Mankiw,(and the MA proposal that he supports from what I've read of it is crap), but an carbon tax-and-rebate scheme is an essential, though not sufficient measure, and rebating it through the FICA tax, with a progressive tilt, and building it out from there would be the most logical way to do it on the national scale.

    john c. halasz -> Paine ...

    Public investment and indicative planning are also essential, to transform infrastructure and capitals stocks are also essential. I object to the idea that any tax should be used to funding that rather than rebated. But my intuition is that the tax-and-rebate is the more readily attainable, given the current politics, and has the additional benefit of bringing in virtually the entire population into the issue, rather than being an "elite' concern, once the effects of rebates are felt, enabling further required programs and projects. (Of course, stripping away the $500 bn in annual fossil fuel subsidies would also surely help.)

    Ellis -> EMichael...

    You're right.

    Where did the supposed "savings glut" (they're just saving too much money! Ha! Ha! Ha!) come from.

    "Corporate profitability is not translating into widespread economic prosperity.

    The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings-a total of $2.4 trillion-to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees."

    "Profits Without Prosperity" HBR
    William Lazonick

    https://hbr.org/2014/09/profits-without-prosperity/ar/1

    Ellis -> Ellis...

    So rather than invest profits, companies distribute their profits right back to their shareholders in the form of dividends and stock buybacks, trillions of dollars worth. Those investors place their holdings with financial companies.

    So, the glut in savings is really a glut in uninvested capital.

    What's so disgusting is that the money could be put to work by producing the things that we need and in the process create jobs. Instead, it is simply used to blow up financial bubbles... and crises and depressions.

    And no one holds them accountable. No one even dares mention their name... capitalists.

    Dan Kervick said...

    "a huge excess of savings over investment in China and other developing nations... He worried a bit about the fact that the inflow of capital was being channeled, not into business investment, but into housing; obviously he should have worried much more. ..."

    Yes, good.

    "What's ... important now is that policy makers take seriously the possibility, I'd say probability, that excess savings and persistent global weakness is the new normal."

    But *why* is it the new normal? What is going on now? What would explain this phenomenon?

    A problem perhaps is that the people with wealth to invest, and the people who manage that wealth for them, to are dedicated to the proposition that all investors are entitled to a safe, risk-free, easy money return on their investments at a level that exceeds the growth rate.

    So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just

    What is to be done about it? Well one thing that must be done is more assertive action to pull more of that accumulated wealth out of the safety-and-rent-farming sector and push it into real productive activity - at the firm level, the state level, the national level and the global level.

    Use more supply side sticks instead of supply side carrots. Instead of giving concentrated wealth another tax break and begging them to, pretty-please, invest their wealth in economic expansion instead of retaining earnings and paying dividends, threaten them with an additional punitive tax if they *don't* invest a greater proportion of profits in expansion.

    Also, the public has the option of simply *taxing wealth away* from the rent-farmers and using it for smarter, more coordinated, and more strategically ambitious purposes.

    Jeff Bezos has one thing right: Amazon plows most of its profits back into growing Amazon instead of rewarding stock-holders in the short-term. (Of course he pays himself a buttload of money, which is recorded as a "labor cost" instead of profit, and stiffs his own workers, so it's not a perfect object lesson.)

    Another problem is the graying of the developed world. This is giving us a world in which a dwindling proportion of workers have to produce more and more output to provide for the consumption needs of an expanding proportion of non-producing population. The greater abundance of retirees and near-retirees has given us a greater volume of funds in desperate search of real returns from a productive sector that is struggling to supply them, and has blown up the financial sector to supply dubious nominal returns through semi-Ponzi bubblicious asset price inflations as a substitute.

    Anyway, if the market system by itself is not-generating the right balance of consumption to investment, and is not succeeding in channeling savings into productive investment and out of rent-farming and ponzi-economy fluff, then it is the job of government to do this job for us.

    Dan Kervick -> Dan Kervick...

    The paragraph that reads,

    "So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just"

    was supposed to be completed this way:

    "So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just the sector that channels savings into productive investment; it also contains the sub-sector that manufactures new ways of collecting rents."

    JF -> Dan Kervick...

    Let's see, the NY FED just released a study reporting that around 2007 the trading units of the banks were operating with leverage at 48-1.

    We need to stop using the loanable funds theory when discussing policy and the facts - yes the banks used lots of "schemes involved in squeezing, wringing, twisting and scamming" but they did not need to concern themselves about returns from the economic flows generated by the people who are actually producing the value - they created the lending accounts, out of whole cloth. That is where the new "wealth" came from, it came from account-entries used to fuel financial asset positions, huge amount 2000-2007, conspicuous years. A glut of these positions were created, divorced from those who produce real value in terms of goods and services that can profit from the test of good markets.

    We have a new generation of "investors" who have learned that financial asset trading, using leverage, is how wealth is produced - sure these financial positions are owned and traded as financial positions - but is that the production function economics of Smith, Wicksell, Bagehot, Marshal, Keynes, etc.?

    What should the FED do instead of what it is doing now (or contemplating as some are apparently, with regard to raising payments being made to banks for donig nothing with the intention of causing credit prices to rise affecting all aspects of the economy)?

    Paine -> Dan Kervick...

    The Chinese elite resists the obvious solution: Helicopter money on a grandiose scale

    Send the peasants a 30 year social dividend. In a series of pay outs and through a payment system
    that becomes the infrastructure of a vast state of the art transfer system
    Based on plastic cards with chips

    Paine -> Paine ...

    State of the art railroads are hardly as valuable as state of the art payment and depository systems

    Do it comrades DOIT Nooooooow

    pgl -> Paine ...

    The Chinese are putting us to shame on investment in infrastructure. But they save so much that they could be financing our infrastructure investment.

    Paine -> pgl...

    They need to sell more household durables

    To their vast lower middle income households
    Thru a subsidy sell off of great leap proportions

    [Aug 29, 2015] Shiller: Rising Anxiety That Stocks Are Overpriced

    "...You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake."
    Robert Shiller (a reason to agree with Tim Duy):
    Rising Anxiety That Stocks Are Overpriced: Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent - the official definition of a "correction," with similar or greater drops in other countries. ...

    But there are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment. ...

    It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S. & P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.

    Or maybe this could be another 1998. We have no statistical proof. We are in a rare and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

    Mark Thoma on Thursday, August 27, 2015 at 10:08 AM in Economics, Financial System | Permalink Comments (65)

    Dan Kervick -> Peter K....

    The post-2008 recovery has been the worst on record in terms of the recovery of both growth rates and jobs. As has been well-discussed and well-recognized by almost everyone here, the employment-to-population rate was dramatically lowered as a result of the recession, and has grown at a snails pace since then, and come nowhere near to recovering its previous level. There is no clear evidence that extraordinary monetary policy measures have had any significant impact on recovery whatsoever relative to the baseline recovery trend that could be expected anyway in the absence of such policies.

    I admit it is an extremely hard question to answer, since the economy has had to deal with an MIA federal government this time.

    anon said...

    The Fed wants to raise interest rates:

    - in the hope of preserving there institutional economic significance,

    - out of a sense of loyalty to the Fed's history of financial influence using interest rates,

    - because using rates to influence economic events increases their professional comfort,

    - and because their economic grad school training was to fear wage push inflation above all else (they seem to believe that if inflation exceeds 2% it is a harbinger of hyper inflation).

    Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect.

    Dan Kervick -> pgl...

    This is an area in which you seem to be persistently incapable of avoiding lies. You know very well that are a large number of ambitious long-term projects the US could do that are non-military, have nothing to do with immigration and could boost output tremendously.

    You're becoming part of the LPTS crew: "liberal pundits terrified of socialism."

    That's why Brad DeLong has an embargo on any talk about Bernie Sanders and his ideas.

    That's why Paul Krugman is also avoiding Sanders like the plague and using daily red meet partisan servings to keep Democrats' attention riveted on the foibles of the Republicans.

    That's why Brendan Nyhan has yet another column warning us all about the dangers of "Green Lanternism".

    You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake.

    40% of this country has household income of under $40,000 per year. If we remove the plutocratic capitalist stranglehold on this economy, use government to more efficiently distribute and invest our national wealth, and demote private enterprise to its proper subordinate place, we could double that rapidly and drive a wave of high-growth social transformation with all of the liberated economic energy.

    This is going to happen. Take your pick: we're either going to get the somewhat fascistic and racist Trump version on strong government or democratic socialist version. The Ivy League twits hanging on for dear life to their established networks, revolving doors, tit-for-tatting, sinecures and don't-rock-the-boat regime of stagnant managerialism are going to butts handed to them by history.

    pgl -> Dan Kervick...

    Blah, blah, blah. I guess we could employ more economists at the BEA to do what they are already doing at Census.

    Dan Kervick -> pgl...

    The Census doesn't and can't combine income distribution numbers with growth numbers on a monthly and quarterly basis. The BEA could collect this data, but doesn't, because it is part of their mission to pretend class conflict doesn't exist.

    The top quintile in the US pulls down about 50% percent of the income. That means we could get 3.7% annualized growth if their income grew by 6% while everybody else's income grew by less than 1/2 a percent.

    Is that what's happening? Inquiring minds want to know. It seems like a natural mission for the BEA to track this. But they don't.

    [Aug 29, 2015] U.S. Inflation Developments

    This establishment stooge can't care less about employment. All he cares is 0.1%.
    .
    "..."and the labor market is approaching our maximum employment objective..." I stopped reading there."
    .
    "...The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike."
    .
    "..."The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus." We are ruled by idiots. "
    .
    "...Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class. A skirmish in the class wars, maybe Bernie would comment."
    .
    "...Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.

    The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess. "
    .
    "...What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to."

    [A speech by Stanley Fischer at Jackson Hole turned into a pretend interview]

    Hello, and thank you for talking with us.

    Let me start by asking if you feel like it gives the Fed a bad image to have a conference in an elite place like Jackson Hole. Why not have the conference in, say, a disadvantaged area to send the signal that you care about these problems, to provide some stimulus to the area, etc.?

    I am delighted to be here in Jackson Hole in the company of such distinguished panelists and such a distinguished group of participants.

    Okay then. Let me start be asking about your view of the economy. How close are we to a full recovery?:

    Although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent. That has been especially true recently, as the drop in oil prices over the past year, on the order of about 60 percent, has led directly to lower inflation as it feeds through to lower prices of gasoline and other energy items. As a result, 12-month changes in the overall personal consumption expenditure (PCE) price index have recently been only a little above zero (chart 1).

    Why are you telling us about headline inflation? What about core inflation? Isn't that what the Fed watches?

    ...measures of core inflation, which are intended to help us look through such transitory price movements, have also been relatively low (return to chart 1). The PCE index excluding food and energy is up 1.2 percent over the past year. The Dallas Fed's trimmed mean measure of the PCE price index is higher, at 1.6 percent, but still somewhat below our 2 percent objective. Moreover, these measures of core inflation have been persistently below 2 percent throughout the economic recovery. That said, as with total inflation, core inflation can be somewhat variable, especially at frequencies higher than 12-month changes. Moreover, note that core inflation does not entirely "exclude" food and energy, because changes in energy prices affect firms' costs and so can pass into prices of non-energy items.

    So are you saying you don't believe the numbers? Why bring up that core inflation is highly variable unless you are trying to de-emphasize this evidence? In any case, isn't there reason to believe these numbers are true, i.e. doesn't the slack in the labor market imply low inflation?

    Of course, ongoing economic slack is one reason core inflation has been low. Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment. Even so, with inflation expectations apparently stable, we would have expected the gradual reduction of slack to be associated with less downward price pressure. All else equal, we might therefore have expected both headline and core inflation to be moving up more noticeably toward our 2 percent objective. Yet, we have seen no clear evidence of core inflation moving higher over the past few years. This fact helps drive home an important point: While much evidence points to at least some ongoing role for slack in helping to explain movements in inflation, this influence is typically estimated to be modest in magnitude, and can easily be masked by other factors.

    If that's true, if the decline in the slack in the labor market does not translate into a notable change in inflation, why is the Fed so anxious to raise rates based upon the notion that the labor market has almost normalized? Is there more to it than just the labor market?

    ...core inflation can to some extent be influenced by oil prices. However, a larger effect comes from changes in the exchange value of the dollar, and the rise in the dollar over the past year is an important reason inflation has remained low (chart 4). A higher value of the dollar passes through to lower import prices, which hold down U.S. inflation both because imports make up part of final consumption, and because lower prices for imported components hold down business costs more generally. In addition, a rise in the dollar restrains the growth of aggregate demand and overall economic activity, and so has some effect on inflation through that more indirect channel.

    That argues against a rate increase, not for it. Anyway, I interrupted, please continue.

    Commodity prices other than oil are also of relevance for inflation in the United States. Prices of metals and other industrial commodities, and agricultural products, are affected to a considerable extent by developments outside the United States, and the softness we've seen in these commodity prices, has in part reflected a slowing of demand from China and elsewhere. These prices likely have also been a factor in holding down inflation in the United States.

    So you must believe that all of these forces holding down inflation (many of which are stripped out by core inflation measures, which are also low) that these factors are easing, and hence a spike in inflation is ahead?

    The dynamics with which all these factors affect inflation depend crucially on the behavior of inflation expectations. One striking feature of the economic environment is that longer-term inflation expectations in the United States appear to have remained generally stable since the late 1990s (chart 6). ... Expectations that are not stable, but instead follow actual inflation up or down, would allow inflation to drift persistently. In the recent period, movements in inflation have tended to be transitory.

    Let's see, lots of factors holding down inflation, longer-term inflation expectations have been stable throughout the recession and recovery, remarkably so, yet the Fed still thinks a rate raise ought to come fairly soon?

    We should however be cautious in our assessment that inflation expectations are remaining stable. One reason is that measures of inflation compensation in the market for Treasury securities have moved down somewhat since last summer (chart 7). But these movements can be hard to interpret, as at times they may reflect factors other than inflation expectations, such as changes in demand for the unparalleled liquidity of nominal Treasury securities.

    I have to be honest. That sounds like the Fed is really reaching to find a reason to justify worries about inflation and a rate increase. Let me ask this a different way. In the Press Release for the July meeting of the FOMC, the committee said it can be " reasonably confident that inflation will move back to its 2 percent objective over the medium term." Can you explain this please? Why are you "reasonably confident" in light of recent history?

    Can the Committee be "reasonably confident that inflation will move back to its 2 percent objective over the medium term"? As I have discussed, given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further. While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade. The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level. And slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well.

    Yet when these forces were absent -- they weren't there throughout the crisis -- inflation was still stable. But this time will be different? I guess falling slack in the labor market will make all the difference? More on labor markets in a moment, but let me ask if you have more to say about inflation expectations first.

    ...with regard to expectations of inflation, it is possible to consult the results of the SEP, the Survey of Economic Projections, which FOMC participants complete shortly before the March, June, September, and December meetings. In the June SEP, the central tendency of FOMC participants' projections for core PCE inflation was 1.3 percent to 1.4 percent this year, 1.6 percent to 1.9 percent next year, and 1.9 percent to 2.0 percent in 2017. There will be a new SEP for the forthcoming September meeting of the FOMC.
    Reflecting all these factors, the Committee has indicated in its post-meeting statements that it expects inflation to return to 2 percent. With regard to our degree of confidence in this expectation, we will need to consider all the available information and assess its implications for the economic outlook before coming to a judgment.

    You will need to consider all the available information, I agree wholeheartedly with that. I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations.

    What might deter the Fed from it's intention to raise rates sooner rather than later?

    Of course, the FOMC's monetary policy decision is not a mechanical one, based purely on the set of numbers reported in the payroll survey and in our judgment on the degree of confidence members of the committee have about future inflation. We are interested also in aspects of the labor market beyond the simple U-3 measure of unemployment, including for example the rates of unemployment of older workers and of those working part-time for economic reasons; we are interested also in the participation rate. And in the case of the inflation rate we look beyond the rate of increase of PCE prices and define the concept of the core rate of inflation.

    I find these kinds of statement difficult to square with the statement that labor markets are almost back to normal. Anyway, what, in particular, will you look at?

    While thinking of different aspects of unemployment, we are concerned mainly with trying to find the right measure of the difficulties caused to current and potential participants in the labor force by their unemployment. In the case of the core rate of inflation, we are mainly looking for a good indicator of future inflation, and for better indicators than we have at present.

    How do recent events in China change the outlook for policy?

    In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come. That is why we need to consider the overall state of the U.S. economy as well as the influence of foreign economies on the U.S. economy as we reach our judgment on whether and how to change monetary policy. That is why we follow economic developments in the rest of the world as well as the United States in reaching our interest rate decisions. At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.

    I know you won't answer this directly, but let me try anyway. When will rates go up?

    The Fed has, appropriately, responded to the weak economy and low inflation in recent years by taking a highly accommodative policy stance. By committing to foster the movement of inflation toward our 2 percent objective, we are enhancing the credibility of monetary policy and supporting the continued stability of inflation expectations. To do what monetary policy can do towards meeting our goals of maximum employment and price stability, and to ensure that these goals will continue to be met as we move ahead, we will most likely need to proceed cautiously in normalizing the stance of monetary policy. For the purpose of meeting our goals, the entire path of interest rates matters more than the particular timing of the first increase.

    As expected, that was pretty boilerplate. When rates do go up, how fast will they rise?

    With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening. Should we judge at some point in time that the economy is threatening to overheat, we will have to move appropriately rapidly to deal with that threat. The same is true should the economy unexpectedly weaken.

    The Fed has said again and again that it's 2 percent inflation target is symmetric with respect to errors, i.e. it will get no more worried or upset about, say, a .5 percent overshoot of the target than it will an undershoot of the same magnitude (2.5 percent versus 1.5 percent). However, many of us suspect that the 2 percent target is actually a ceiling, not a central tendency, or that at the very least the errors are not treated symmetrically, and statements such as this do nothing to change that view.

    I have quite a few more questions, and I wish we had time to hear your response to the charge that the 2 percent target is functionally a ceiling, but I know you are out of time and need to go, so let me just thank you for talking with us today. Thank you.

    bakho said...

    The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike.

    The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus. Wealthy special interests would like the economy to be less good by this time next year to tilt the presidential election their way.

    ilsm -> pgl...

    The fed (Cossacks) works for the .1% (Tsar).

    Sandwichman

    "and the labor market is approaching our maximum employment objective..."

    I stopped reading there.

    Peter K. -> Sandwichman...

    Yeah. Nice appointment, thanks Obama....

    ilsm -> Sandwichman...

    Mc Donald's may have to start paying $7.75!!

    pgl -> ilsm...

    Actually some are paying $9. Oh my - a Big Mac might actually cost something.

    ilsm -> pgl...

    The big mac is helping out your embalmer.

    Joke is most of us cannot afford anything more than a cremator.

    Cardiologists follow Mickey D sales!

    anne -> Sandwichman...

    "and the labor market is approaching our maximum employment objective..." I stopped reading there.

    [ Really, really awful comment but limiting employment is what Stanley Fischer is all about so the only surprise is in the saying so. ]

    pgl -> Sandwichman...

    But later he admitted there was ongoing economic slack. He sounded very confused.

    Peter K. -> pgl...

    On the one hand he's trying to inspire confidence in the economy, cheerlead, and clap his hands to conjure the confidence fairy.

    On the other he's being more realistic which hopefully is their frame of mind when making interest rate decisions.

    One is public relations, one is where the rubber hits the road.

    RC AKA Darryl, Ron -> Peter K....

    A rubber chicken in every pot :<0

    Peter K. said...

    "Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment."

    It didn't guarantee it. An insufficient monetary-fiscal mix guaranteed a lengthy period of high unemployment, wage stagnation and increasing inequality.

    But at least inflation remained low and the deficit came down!

    ilsm -> Peter K....

    If UE rate counted people out longer than 26 weeks......

    anne said...

    http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R

    January 4, 2015

    Employment-Population Ratios, 2014

    United States ( 76.7) *

    Australia ( 78.8)
    Austria ( 83.4)
    Belgium ( 79.1)
    Canada ( 81.2)

    Denmark ( 82.0)
    Finland ( 80.4)
    France ( 80.5)
    Germany ( 83.5)

    Greece ( 62.4)
    Iceland ( 85.7)
    Ireland ( 72.3)
    Israel ( 78.2)

    Italy ( 67.9)
    Japan ( 82.1)
    Korea ( 75.7)
    Luxembourg ( 83.7)

    Netherlands ( 81.7)
    New Zealand ( 81.8)
    Norway ( 83.9)
    Portugal ( 77.4)

    Spain ( 67.4)
    Sweden ( 85.4)
    Switzerland ( 86.9)
    United Kingdom ( 82.0)

    * Employment age 25-54

    anne said...

    http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R

    January 4, 2015

    Employment-Population Ratios for Women, 2014

    United States ( 70.0) *

    Australia ( 72.0)
    Austria ( 80.3)
    Belgium ( 74.9)
    Canada ( 77.4)

    Denmark ( 78.4)
    Finland ( 78.0)
    France ( 76.2)
    Germany ( 78.8)

    Greece ( 53.1)
    Iceland ( 82.1)
    Ireland ( 66.6)
    Israel ( 74.3)

    Italy ( 57.6)
    Japan ( 71.8)
    Korea ( 62.7)
    Luxembourg ( 76.8)

    Netherlands ( 76.5)
    New Zealand ( 74.9)
    Norway ( 81.4)
    Portugal ( 74.3)

    Spain ( 62.3)
    Sweden ( 82.8)
    Switzerland ( 81.8)
    United Kingdom ( 76.1)

    * Employment age 25-54

    anne -> anne...

    As in the child's game, one of these things is not like the other, the United States employment-population ratio for men and women, and for women, from 25 to 54 was remarkably lower than 19 of 24 developed countries in 2014. The exceptions were the austerity beset countries Ireland, Spain, Italy and Greece as well as Korea in which women are just entering the workforce in significant numbers.


    pgl -> bakho...

    "The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus."

    We are ruled by idiots.

    ilsm -> pgl...

    Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class.

    A skirmish in the class wars, maybe Bernie would comment.

    Mike Sparrow said...

    Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.

    The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess.

    Peter K. said...

    Scroll, scroll, scroll:

    Thoma:

    "I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations."

    Well put. This is probably why markets don't fear an uptick in inflation anytime soon. Quite the contrary. It's probably partly why longterm inflation expectations are "stable."

    anne said...

    http://www.project-syndicate.org/commentary/fed-monetary-policy-tightening-risks-by-j--bradford-delong-2015-08

    August 28, 2015

    A Cautionary History of US Monetary Tightening
    By J. Bradford DeLong

    BERKELEY – The US Federal Reserve has embarked on an effort to tighten monetary policy four times in the past four decades. On every one of these occasions, the effort triggered processes that reduced employment and output far more than the Fed's staff had anticipated. As the Fed prepares to tighten monetary policy once again, an examination of this history – and of the current state of the economy – suggests that the United States is about to enter dangerous territory.

    Between 1979 and 1982, then-Fed Chair Paul Volcker changed the authorities' approach to monetary policy. His expectation was that by controlling the amount of money in circulation, the Fed could bring about larger reductions in inflation with smaller increases in idle capacity and unemployment than what traditional Keynesian models predicted.

    Unfortunately for the Fed – and for the American economy – the Keynesian models turned out to be accurate; their forecasts of the costs of disinflation were dead on. Furthermore, this period of monetary tightening had unexpected consequences; financial institutions like Citicorp found that only regulatory forbearance saved them from having to declare bankruptcy, and much of Latin America was plunged into a depression that lasted more than five years.

    Then, between 1988 and 1990, another round of monetary tightening under Alan Greenspan ravaged the balance sheets of the country's savings and loan associations, which were overleveraged, undercapitalized, and already struggling to survive. To prevent the subsequent recession from worsening, the federal government was forced to bail out insolvent institutions. State governments were on the hook, too: Texas spent the equivalent of three months of total state income to rescue its S&Ls and their depositors.

    Between 1993 and 1994, Greenspan once again reined in monetary policy, only to be surprised by the impact that small amounts of tightening could have on the prices of long-term assets and companies' borrowing costs. Fortunately, he was willing to reverse his decision and cut the tightening cycle short (over the protests of many on the policy-setting Federal Open Markets Committee) – a move that prevented the US economy from slipping back into recession.

    The most recent episode – between 2004 and 2007 – was the most devastating of the four. Neither Greenspan nor his successor, Ben Bernanke, understood how fragile the housing market and the financial system had become after a long period of under-regulation. These twin mistakes – deregulation, followed by misguided monetary-policy tightening – continue to gnaw at the US economy today.

    The tightening cycle upon which the Fed now seems set to embark comes at a delicate time for the economy. The US unemployment rate may seem to hint at the risk of rising inflation, but the employment-to-population ratio continues to signal an economy in deep distress. Indeed, wage patterns suggest that this ratio, not the unemployment rate, is the better indicator of slack in the economy – and nobody ten years ago would have interpreted today's employment-to-population ratio as a justification for monetary tightening.

    Indeed, not even the Fed seems convinced that the economy faces imminent danger of overheating. Inflation in the US is not just lower than the Fed's long-term target; it is expected to stay that way for at least the next three years. And the Fed's change in policy comes at a time when its own economists believe that US fiscal policy is inappropriately restrictive.

    Meanwhile, given the fragility – and interconnectedness – of the global economy, tightening monetary policy in the US could have negative impacts abroad (with consequent blowback at home), especially given the instability in China and economic malaise in Europe....

    Dan Kervick said...

    "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual."

    I think this is probably the most important sentence in the entire speech.

    What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to.

    Richard H. Serlin said...

    But what about asymmetric loss Dr. Fischer?!

    You have to know what that is.

    Why don't you think the loss and overall risk is much bigger from pulling the trigger too early than from pulling the trigger too late?

    How is inflation that gets up to 3%, 4%, even higher single digits more of a danger than a lost decade, severe unemployment (low labor force participation) and underemployment? Especially when overly high inflation is far easier to remedy?

    I really really wonder what you're really thinking.

    Richard H. Serlin -> Richard H. Serlin...

    And I also seriously wonder how much of it has to do with the fact that no one ever making these decisions ever has any risk of ever being unemployed without means and with a family to support.

    Oil Prices Driven Lower By Everything Except Fundamentals

    By Leonard Brecken

    "...According to Reuters, 50 to 60 hedge funds have taken short positions that account for around 160 million barrels of oil in near term contracts. In fact, the amount of short positions in oil options and futures now exceeds levels in the great financial meltdown of 2008, believe it or not, despite talk of a good economy and the Fed needing to raise interest rates. Madness, right?"
    "...All these things still don't explain the panic in oil markets other than financially driven events that aren't directly tied to the supply and demand of oil which, as I stated, has improved vs. the start of 2015. "
    Aug 24, 2015 | OilPrice.com

    It is clear that it is no longer supply and demand for oil that is dictating the price but is instead the financial markets and more importantly money flows tied to central bank policy.

    Bearish sentiment in the oil markets is taking over as net short positions near record highs. According to Reuters, 50 to 60 hedge funds have taken short positions that account for around 160 million barrels of oil in near term contracts. In fact, the amount of short positions in oil options and futures now exceeds levels in the great financial meltdown of 2008, believe it or not, despite talk of a good economy and the Fed needing to raise interest rates. Madness, right?

    ... ... ...

    Fundamentally, almost every bear case presented by the media in 2015 has been proven false. Doomsday events such as rig count (vertical rigs being dropped vs. horizontal), Cushing overflowing, China demand slowing, to Iran floating storage of 50 million barrels being unleashed, U.S. production rising, have all been dispelled.

    In fact, as I said, the fundamentals have even improved as U.S. production has entered into decline, crude stocks have been drawing down since the spring, and demand for gasoline is at record highs (much higher vs. expectations going into 2015). Furthermore, the worries on Iran are completely overblown given that the hype on floating storage – the millions of barrels of crude oil sitting in tankers turned out to be low quality condensate that is hard to process. Also, the 500,000 to 1 million barrels per day (mb/d) increase tied to the nuclear deal will be absorbed by higher demand, which has averaged 1 million barrels or more each year (in 2015, it has been even higher than that; closer to 1.4 mb/d or higher).

    Furthermore, China alone will add 600,000 barrels per day in refinery capacity, as it allows independent refineries to process oil. What has been incrementally negative has been additional capacity added by Iraq and Saudi Arabia since the start 2015. However, aside from Iran, OPEC doesn't have any spare capacity left and, Saudi Arabia has already announced intentions of reducing output by 200,000-300,000 barrels per day post their seasonally strong domestic period.

    Yet even though the dollar has weakened recently, oil has still collapsed some 35 percent. The E&P equities have fallen even further as in addition to shorts, there are also pressing bets on the upcoming fall credit redetermination and hedge funds taking positions in E&P bonds while shorting equities.

    All these things still don't explain the panic in oil markets other than financially driven events that aren't directly tied to the supply and demand of oil which, as I stated, has improved vs. the start of 2015. In fact, demand is soaring while days of supply are improving dramatically as evidenced by the charts the charts below:

    ... ... ...

    Leonard Brecken, Brecken Capital LLC. Leonard is a portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities

    [Aug 27, 2015] Oil Prices Must Rebound. Here's Why

    OilPrice.com

    You can see two things on this chart, the first is that when capacity exceeds demand, prices are low (and vice versa); the second is that, since about 2005, despite the oil price being rather high, outside North America the world has struggled to add any oil production capacity at all. In fact, since 2010 oil production capacity outside North America has been in decline. If it weren't for the USA & Canada, where production growth has been driven by LTO & SAGD, we would have been in a right pickle.

    ... ... ...

    In the short term, the oil market is in the doldrums and projects are being delayed or cancelled, left right and center. That will mean that, outside North America, oil production capacity will decline even faster and with the growth knocked out of the shale producers and SAGD projects being put on the back burner, it is only a matter of months before demand starts to exceed world oil production capacity again.

    A nasty recession might put a dent in demand growth and turn those months into quarters, but eventually capacity will wane, demand will wax, and the oil price will climb once again.

    In fact if traders looked hard at these charts they might wonder if the continued weakness in the 2022 Brent Oil future was a tad overdone. For this time, I think the price response might be even stronger and more sustained than before.

    [Aug 27, 2015]Where Is Neo When We Need Him

    Aug 27, 2015 | zerohedge.com

    In The Matrix in which Americans live, nothing is ever their fault. Nowhere in the Western media other than a few alternative media websites is there an ounce of integrity. The Western media is a Ministry of Truth that operates full-time in support of the artificial existence that Westerners live inside The Matrix where Westerners exist without thought. Considering their inaptitude and inaction, Western peoples might as well not exist. More is going to collapse on the brainwashed Western fools than mere stock values.

    In The Matrix in which Americans live, nothing is ever their fault. For example, the current decline in the US stock market is not because years of excessive liquidity supplied by the Federal Reserve have created a bubble so overblown that a mere six stocks, some of which have no earnings commiserate with their price, accounted for more than all of the gain in market capitalization in the S&P 500 prior to the current disruption.

    In our Matrix existence, the stock market decline is not due to corporations using their profits, and even taking out loans, to repurchase their shares, thus creating an artificial demand for their equity shares.

    The decline is not due to the latest monthly reporting of durable goods orders falling on a year-to-year basis for the sixth consecutive month.

    The stock market decline is not due to a weak economy in which after a decade of alleged economic recovery, new and existing home sales are still down by 63% and 23% from the peak in July 2005.

    The stock market decline is not due to the collapse in real median family income and, thereby, consumer demand, resulting from two decades of offshoring middle class jobs and partially replacing them with minimum wage part-time Walmart jobs without benefits that do not provide sufficient income to form a household.

    No, none of these facts can be blamed. The decline in the US stock market is the fault of China.

    What did China do? China is accused of devaluing by a small amount its currency.

    Why would a slight adjustment in the yuan's exchange value to the dollar cause the US and European stock markets to decline?

    It wouldn't. But facts don't matter to the presstitute media. They lie for a living.

    Moreover, it was not a devaluation.

    When China began the transition from communism to capitalism, China pegged its currency to the US dollar in order to demonstrate that its currency was as good as the world's reserve currency. Over time China has allowed its currency to appreciate relative to the dollar. For example, in 2006 one US dollar was worth 8.1 Chinese yuan. Recently, prior to the alleged "devaluation" one US dollar was worth 6.1 or 6.2 yuan. After China's adjustment to its floating peg, one US dollar is worth 6.4 yuan. Clearly, a change in the value of the yuan from 6.1 or 6.2 to the dollar to 6.4 to the dollar did not collapse the US and European stock markets.

    Furthermore, the change in the range of the floating peg to the US dollar did not devalue China's currency with regard to its non-US trading partners. What had happened, and what China corrected, is that as a result of the QE money printing policies currently underway by the Japanese and European central banks, the dollar appreciated against other currencies. As China's yuan is pegged to the dollar, China's currency appreciated with regard to its Asian and European trading partners. The appreciation of China's currency (due to its peg to the US dollar) is not a good thing for Chinese exports during a time of struggling economies. China merely altered its peg to the dollar in order to eliminate the appreciation of its currency against its other trading partners.

    Why did not the financial press tell us this? Is the Western financial press so incompetent that they do not know this? Yes.

    Or is it simply that America itself cannot possibly be responsible for anything that goes wrong. That's it. Who, us?! We are innocent! It was those damn Chinese!

    Look, for example, at the hordes of refugees from America's invasions and bombings of seven countries who are currently overrunning Europe. The huge inflows of peoples from America's massive slaughter of populations in seven countries, enabled by the Europeans themselves, is causing political consternation in Europe and the revival of far-right political parties. Today, for example, neo-nazis shouted down German Chancellor Merkel, who tried to make a speech asking for compassion for refugees.

    But, of course, Merkel herself is responsible for the refugee problem that is destabilizing Europe. Without Germany as Washington's two-bit punk puppet state, a non-entity devoid of sovereignty, a non-country, a mere vassal, an outpost of the Empire, ruled from Washington, America could not be conducting the illegal wars that are producing the hordes of refugees that are over-taxing Europe's ability to accept refugees and encouraging neo-nazi parties.

    The corrupt European and American press present the refugee problem as if it has nothing whatsoever to do with America's war crimes against seven countries. I mean, really, why should peoples flee countries when America is bringing them "freedom and democracy?"

    Nowhere in the Western media other than a few alternative media websites is there an ounce of integrity. The Western media is a Ministry of Truth that operates full-time in support of the artificial existence that Westerners live inside The Matrix where Westerners exist without thought. Considering their inaptitude and inaction, Western peoples might as well not exist.

    More is going to collapse on the brainwashed Western fools than mere stock values.

    Barnaby Barnaby's picture

    One of the youngest states in the world is hardly a threat. Client status means they're held by the balls. Any other understanding is simple paranoia.

    What you should be worried about is that your UN sponsor allows ethnic cleansing on such a scale in Palestine. That makes you culpable.

    DontWorry
    Don't worry, the USA is recognized as a beacon of freedom and democracy throughout the world. There are always multiple viewpoints, but the US media represents a fair, unbiased and mainstream view. Our press is the freest in the world, and supported by our Constitution. The US will be the center of western democracy, culture and commerce for the forseeable future.

    lasvegaspersona

    Many of the problems of modern life, including the actions of the US government, are founded in the very currency that enables it to act seemingly without effort.The ability to create the medium of exchange for the entire world has given this same government the appearance of invulnerability. It has allowed the federal government to make demands upon the states that comprise it. It can control citizens whose consent used to be required for it to act. It seems to have the ability to control the entire world.

    This is an illusion. It has been granted these abilities, it has not earned them nor won them. The world needed a monetary system post WW2 and even post 1971. The final stages of this whole episode was seen by Rueff and triffin quite clearly considering they spoke 40 plus years ago.

    Now the world has changed. It is withdrawing the permission it granted every time it bought treasuries or did other things that kept all those excess dollars from coming back to their country of birth to cause rising prices. The chinese are selling, the Arabs are selling and the ECB stopped buying long ago. They are not going to kill the dollar (and cause a war). They are going to let it fail through inaction. The actions of our nation do not make much sense to most folks who viewed thenUS as a good country. It seems to have been taken over by evil people.

    I think these are the actions of spoiled children who don't have to pay for what they get.

    Now the trust fund has run out. Daddy took the T-Bird away. Soon we will have to get a real job.

    About 50% of American exceptionalism is due to the exorbitant privilege. The other part is actually real...if we can salvage those things that once made us truly great. Most Americans, who pay attention, are shocked and angry by what they see their government doing.

    Both the government and the American people are not worse than any other country would have been if it was granted the same power over money itself. I just hope the ending of this chapter comes smoothly before we wreck the car and kill a lot more people.

    It is time to grow up and get a real job.

    Renfield

    <<Many of the problems of modern life, including the actions of the US government, are founded in the very currency that enables it to act seemingly without effort.The ability to create the medium of exchange for the entire world has given this same government the appearance of invulnerability. It has allowed the federal government to make demands upon the states that comprise it. It can control citizens whose consent used to be required for it to act. It seems to have the ability to control the entire world... Now the world has changed. It is withdrawing the permission it granted every time it bought treasuries or did other things that kept all those excess dollars from coming back to their country of birth to cause rising prices. The chinese are selling, the Arabs are selling and the ECB stopped buying long ago. They are not going to kill the dollar (and cause a war). They are going to let it fail through inaction. The actions of our nation do not make much sense to most folks who viewed thenUS as a good country. It seems to have been talen over by evil people. I think these are the actions of spoiled choildren who don't have to pay for what they get. Now the trust fund has run out. Daddy took the T-Bird away. Soon we will have to get a real job.>>

    Bravo. THIS is why the idea of any fiat "world reserve currency" needs to die for the good of the planet.

    On a national scale, I don't mind a fiat currency as long as it is not 1) issued by the government, 2) fraudulently claimed to be anything but fiat, or 3) mandated as the sole currency allowed for a nation. (Or city, or town, or any group.) That way people are free to ignore it in favor of real money.

    "Counterfeiting" laws should be scrapped in favor of good old-fashioned anti-fraud enforcement. But no government should ever be allowed by its people to traffic in a fraudulent, fiat currency, let alone to mandate it as the only currency legal to use. This puts criminals at the top of the system and riddles your financial system with fraud, and with such a foundation, of course bad money drives out good and eventually 'malinvestment' in unproductive or evil commerce becomes its entire result.

    buzzsaw99

    Without Germany as Washington's two-bit punk puppet state, a non-entity devoid of sovereignty, a non-country, a mere vassal, an outpost of the Empire, ruled from Washington, America could not be...

    AWESOME!

    MalteseFalcon

    The USA still has bases, army and air force in Germany. So the Germans are not completely feckless punks.

    What about France?

    [Aug 27, 2015] Shiller: Rising Anxiety That Stocks Are Overpriced

    "...So people sold what may have been just under $2 T in positions. "
    "...But if E were unsustainably high due to an output gap leaving businesses to operate under-capacity for their capital stock while simultaneously cutting wage expenses via layoffs and increased use of part time workers to boost E (earnings) then what would that say about P (share price)? Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that."
    "...[ Interesting, when wealth is significantly invested in nonproductive assets, what then? ] Nonproductive, like corporate stock buybacks. When buybacks exceed investment in R&D, plant & equipment, systems, etc. for a decade or more, then growth in the subsequent decade is likely to be merde, n'est-ce pas? Uncreative destruction. Schumpeter *rolls over in grave*"
    Robert Shiller (a reason to agree with Tim Duy):
    Rising Anxiety That Stocks Are Overpriced: Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent - the official definition of a "correction," with similar or greater drops in other countries. ...
    But there are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment. ...
    It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S. & P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.
    Or maybe this could be another 1998. We have no statistical proof. We are in a rare and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

    JF said...

    So people sold what may have been just under $2 T in positions.

    Well, we do hope they invest in a real business with some of this, and maybe people will just enjoy themselves a bit and spend where there are lots of multiples that follow.

    But otherwise, where do they put their money to get a return? The basic "psychology" is that worldwide it is still better to put your money into an equity compared to a bond, and into the US for safety and for returns, compared to most other choices.

    More might go directly into real-economy businesses if we can get the economy moving and less into the stock market, but then again if the economy moves out smartly then the stock market will also benefit from improvements in the fundamentals and profits of real businesses too.

    sanjait said in reply to JF...

    What you describe is the main story.'

    Stocks are highly valued, relative to historic P/Es, because the opportunity cost of capital is low. Earnings yields on stocks have gone down, driving up their prices, because the alternatives aren't great either.

    This is what Shiller's CAPE ratio misses. It's designed to capture cyclical changes in earnings to make P/E a more reliable metric, but it leaves out cost of capital. So when we have this unusual situation with massive decline in interest rates, that projects to persist for a number of years, of course multiples expand...

    Anonymous said in reply to sanjait...

    What you are describing is true. Low interest rates means higher multiples can persist. However, we saw that scenario in Japan in the 90s for years. The low interest rates made Japanese stocks look like good value (even though PE was high). That did not prevent big big 30% drawdowns multiple times. I am not sure that low interest rates are a guarantee that high PEs are ok. Just putting in an observation to add to the discussion.

    mulp said in reply to JF...

    Investors sold shares of private companies and bought Federal government debt signalling the market wants more government spending.

    Yet the claimed free market loving Republicans keep bucking the free market that is begging for much more government spending.

    And there is so much needed capital assets to be built by government because We the People will not build the capital assets we want to see as individuals, nor do We the People want private corporations to build the capital assets We the People call for. The free market clear is calling for the Republican controlled legislatures to borrow and invest in big government capital asset building:

    • Big investments in transportation infrastructure
    • Big investments in water management infrastructure
    • Big investments in power and communications infrastructure

    Corporations are demanding lots of investment in human capital because they claim they can't find qualified machinists, welders, engineers, technicians, plumbers, carpenters, architects, and on and on, to hire, saying that without Americans being invested in, they need to import skilled workers or move the jobs out of the US

    Every bit of the above we know how to do at twice or three times the rates currently being done based on the rate of investment from about 1920 to 1970. The number of miles of paved highway in the 20s was massive. The electric grid built was massive. Post WWII the investment in human capital accelerated from the rate in the 30s and 40s when the minimum standard education for every citizen shifted from grade 8 to grade 12.

    Dan Kervick said...

    FWIW, anybody who has iTunes U can listen to a whole semester-long Shiller Yale class on financial markets. Highly recommended.

    pgl said...

    I can't seem to post the WSJ to the 8/26/2015 P/E ratios but they are near 17. Not that high in light of current interest rates.

    RC AKA Darryl, Ron said in reply to pgl...

    But if E were unsustainably high due to an output gap leaving businesses to operate under-capacity for their capital stock while simultaneously cutting wage expenses via layoffs and increased use of part time workers to boost E (earnings) then what would that say about P (share price)? Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that.

    pgl said in reply to RC AKA Darryl, Ron...

    Granted we should address cyclical issues as the issue is not historical earnings but rather expected future earnings. But here's the puzzle. Let's assume we get a quick return to full employment. Would earnings rise or fall? A lot of folks might argue that they would rise as we returned to full capacity. But you are right - a lot of the extra production would finally go to higher real wages.

    Ray Fair - we need your 93 equation CC model!

    mulp said in reply to pgl...

    Extra production requires higher wages first.

    No business is idiot enough to produce stuff without knowing that buyers already have the cash or credit to buy it.

    On the other hand, government can offer to buy increased production knowing it will be able to charge the people who benefit by its power to tax. For example, the US has built tens of thousands miles of highways to nowhere, train rail lines to nowhere, knowing it would pay for it all by levying taxes. Water and sewer to nowhere.

    I'm old enough to remember Interstate highways off to the side of the crowded two lane highway my family drove year after year on vacation or church business. It was easy to buy right of way across farm fields and easy to lay down high quality payment, but building overpasses on existing heavily used roads too what seemed like forever. In Indiana, bulldozing subsoil into hills took a year or more. It is the weight of the soil that compresses the soil to the required compaction, but that requires time. And then building interchanges in or near cities requires even more planning.

    While those Interstates built in my youth require constant rebuilding because entropy obeys no economist, the bill for building them is long paid while the utility value of the Interstates increases constantly. And the highest utility value is seen when a bridge goes out and the cost of rerouting traffic hits the users. Bundles of cash get showered on replacing the bridge because government, We the People, can shower cash if We the People demand it.

    sanjait said in reply to RC AKA Darryl, Ron...

    "Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that."

    Yeah, he invented it.

    It's a nice way of smoothing PE data to account for some cyclical factors, but it doesn't account for everything.

    JF said in reply to RC AKA Darryl, Ron...

    Ratio of workforce hours to the Investment Base and value of Intangibles. This is different from how the stock market "prices" a share (it can't know, I'd expect very few people know these ratios for a company and few understand them by sector and over time - while accounting for intangibles was a very late development too).

    Shiller recognizes the psychology of these financial asset markets. We know the participants in these markets; i.e., buyers, seller, market-makers, demonstrate herd behaviors. Shiller does want to teach about more rational methods for the pricing of stocks. But markets price as they do - not always "rational" expectations here.

    Stocks are good - participants are sharing in risks, unlike debt instruments. Stocks are, fundamentally, better economics for society, imho.

    JF said in reply to JF...

    So put your money directly into a business or buy ownership shares in some market (different forms of taking risk in the making of business). US is still the best place to do that.

    mulp said in reply to JF...

    Investment must result in wages and benefits paid, or else its just asset trading or pump and dump asset churn.

    sanjait said in reply to pgl...

    That's what I'm saying.

    What everyone needs to realize is that low interest rates change the *fundamentals* of stock valuation.

    Sure, we could be experiencing some degree of pop in corporate earnings due to weak labor demand, competitive washout during the crash and the unusual way that low investment can in the short term lead to higher profitability. All of that is worth examining.

    But none of that changes the other side of the coin, which is that ... cost of capital matters.

    pgl said in reply to sanjait...

    Check out James Glassman's What We Got Wrong (re DOW 36000). He never admits either one of his two bizarre errors. It is more the world changed after 9/11. Really? What changed? The cost of capital fell which should have meant higher valuations. OK - maybe steady state growth is no longer 3% as some say it is 2%. But wait? Glassman tells Jeb! steady state growth should be 4%. So what changed should have had him change his book to DOW 72000!

    RC AKA Darryl, Ron said...

    The stock market is almost always experiencing a speculative bubble except for a few blue chips that are less volatile.

    Justin Cidertrades said in reply to RC AKA Darryl, Ron...

    "almost always experiencing a speculative bubble except for a few blue chips"
    ~~AKA~

    buy low, but sell high, Hawaii!
    Go through your portfolio! Mark up the price on everything you have! Put it up for sell on limit order! Then commit all your cash to limit orders to buy but at very low bid. Buy things that are a cinch to grow with the underlying business but only after researching the business for debt levels etc. Whoops! You can't use that rent money for stock bid. Remember! All stocks are equally worthless until proved otherwise.

    Ben Groves said...

    A speculative commodity bubble. Not sure that has every happened before by itself. Don't know what that really means. Stocks may have been overinflated or its damage to the real economy may mean stocks are underinflated.

    sanjait said...

    I don't think we're seeing a Minsky Moment in stock valuations.

    What instead I think we're seeing is a Minsky Moment in China. Or, at least, people openly wondering how far off their previous assumptions were about growth and demand in China, and whether there is risk of contagious defaults somewhere there.

    In other words, they aren't worried about multiples, they are worried about fundamentals.

    rayward said...

    What's the alternative to speculative financial assets? It's been conventional wisdom that the rate of return on productive capital (r) has been falling for 30 plus years. Larry Summers has repeated this often.

    But now along comes Paul Gomme, B. Ravikumar, and Paul Rupert (https://research.stlouisfed.org/publications/es/article/10406) who conclude that the rate of return on productive capital is actually high not low as Summers and others claim. Both can't be right.

    It depends on the meaning of "is", or "productive capital". My take is that Gomme et al. (in their 2011 paper cited in the August paper referenced and on which the August paper is based) are not altogether clear on what they mean by "productive capital" (which they refer to as "business capital"). In a footnote to the 2011 paper, they indicate that it "includes" such things as plant and equipment, but "includes" is not the same as "is". If Summers et al. are correct (and this view goes back to research conducted by James Tobin), then unless and until r is improved, we are stuck with speculation in financial assets and the financial instability that goes with it. Why haven't economists devoted more research to r?

    anne said in reply to rayward...

    It's been conventional wisdom that the rate of return on productive capital (r) has been falling for 30 plus years. Larry Summers has repeated this often....

    [ Where would a specific reference be where this argument has been made by Summers? The argument makes no sense to me and I wonder what I have missed or possibly I do not understand the passage. ]

    pgl said in reply to anne...

    Summers calls this Secular Stagnation. Of course some people think this Summers thesis is not quite right.

    ilsm said in reply to anne...

    Conventional wisdom is a signal that the rest of the sentence is epistemic closure........

    pgl said in reply to anne...

    That's the paper that takes Summers on. But check out my post on this issue as well as Noah Smith's doubts.

    Sandwichman said...

    What? People are afraid the imaginary money doesn't really exist?

    anne said...

    http://www.multpl.com/shiller-pe/

    Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015

    (Standard and Poors Composite Stock Index)

    August 27, 2015 PE Ratio ( 25.12)

    Annual Mean ( 16.62)
    Annual Median ( 16.01)

    -- Robert Shiller

    pgl said in reply to anne...

    OK - his ratio is near 25. Sanjait is right - this is not that high given the low real interest rates.

    anne said...

    http://www.multpl.com/s-p-500-dividend-yield/

    Dividend Yield, 1881-2015

    (Standard and Poors Composite Stock Index)

    August 27, 2015 Div Yield ( 2.11)

    Annual Mean ( 4.40)
    Annual Median ( 4.34)

    -- Robert Shiller

    anne said...

    http://www.econ.yale.edu/~shiller/data.htm

    January 15, 2015

    Ten Year Mean Price Earnings Ratio, 1960-2015

    (Standard and Poors Composite Stock Index)

    1960 ( 18.3)
    1961 ( 18.5) Kennedy
    1962 ( 21.0)
    1963 ( 19.0) Johnson
    1964 ( 21.3)

    1965 ( 22.9)
    1966 ( 23.8)
    1967 ( 20.1)
    1968 ( 21.2)
    1969 ( 20.8) Nixon

    1970 ( 16.9)
    1971 ( 16.4)
    1972 ( 17.1)
    1973 ( 18.6)
    1974 ( 13.4) Ford

    1975 ( 8.9)
    1976 ( 11.3)
    1977 ( 11.5) Carter
    1978 ( 9.2)
    1979 ( 9.2)

    1980 ( 8.8)
    1981 ( 8.5) Reagan
    1982 ( 7.4)
    1983 ( 9.6)
    1984 ( 9.4)

    1985 ( 10.7)
    1986 ( 13.4)
    1987 ( 16.0)
    1988 ( 14.4)
    1989 ( 16.6) Bush

    1990 ( 16.5)
    1991 ( 17.9)
    1992 ( 19.5)
    1993 ( 20.8) Clinton
    1994 ( 20.5)

    1995 ( 22.7)
    1996 ( 25.9)
    1997 ( 31.0)
    1998 ( 36.0)
    1999 ( 42.1)

    2000 ( 41.7)
    2001 ( 32.1) Bush
    2002 ( 25.9)
    2003 ( 24.1)
    2004 ( 26.4)

    2005 ( 26.0)
    2006 ( 26.0)
    2007 ( 26.8)
    2008 ( 20.8)
    2009 ( 16.9) Obama

    2010 ( 20.7)
    2011 ( 21.8)
    2012 ( 21.4)
    2013 ( 23.2)
    2014 ( 25.5)

    July

    2015 ( 26.5)

    -- Robert Shiller

    anne said in reply to anne...

    The price earnings ratio for stocks in July 2015 was 26.5 as compared to 26.7 in 1929. Such a price earnings ratio would have seemed especially high, however rationalized, before 1996 but since then no matter the bear markets that have occurred such a ratio has come to be taken as reasonable by a range of economists.

    The ratio may well be reasonable, I would however like an understanding as to why.

    pgl said in reply to anne...

    1929? 1929's financial markets were a lot like those in 2007. About to see a huge increase in interest rates on corporate bonds rated BBB even as government bond rates fell. Krugman noted a small increase in credit spreads but no where near 2009 or 1930.

    You can't just compare P/E ratios without thinking through the fundamentals. Interests are low and credit spreads are modest.

    anne said in reply to anne...


    Robert Shiller found indexing stock prices from 1881 through 2015 important. I would agree.

    Possibly 1996 when the stock market price earnings ratio was 25.9 and Shiller suggested stock investors might be too optimistic and Alan Greenspan wondered about what made for irrational exuberance, possibly a 25.9 p/e ratio for 1996 should never have been compared with any ratio in the past but I think otherwise.

    Sandwichman said in reply to anne...

    That settles that!

    Numbers go way up then they go down a bit then back up a bit. Clearly the numbers will either go up or down in the future.

    and the wheels on the bus go 'round and 'round...

    anne said in reply to Sandwichman...

    I have no idea how the prices of investment assets will change from here, what I do know however is what the price patterns have been for better than a century and that rationales that have been used to justify prices for investment assets in the past do not make sense presently.

    Sandwichman said in reply to Sandwichman...

    To be clear, these numbers are index numbers. That means they are constructed by assembling together various bits of data that are ASSUMED to indicate this or that, so the resulting index is then ASSUMED to indicate some other thing. This is fine in an analytical context but becomes mystification when the indexes take on a life of their own. People forget about the analytical context. They forget the qualifications and the artificial nature of the indexes. They think they are talking about something analogous to a measurement taken with a standardized yardstick.

    Same yardstick fallacy.

    If my height is the yardstick by which I measure my height, then I am always exactly one my height high.

    All of economics seems now to revolve around a glaring silence about the composition of the yardstick.

    What is a "Real Home" anyway? Is it anything like a Fun Home?

    https://youtu.be/PK-FJRtB7SY

    anne said in reply to Sandwichman...

    Investing for long periods of time in the stock market index and a range long-term investment grade bonds, which is essentially an index, has been remarkably successful. Stock and bond indexes or near indexes then strike me as quite real, quite tangible:

    https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

    Vanguard 500 Stock Index Fund

    Average annual returns as of 7/31/2015

    7/31/2014 ( 11.05%)
    7/31/2012 ( 17.40)
    7/30/2010 ( 16.07)
    7/29/2005 ( 7.60)

    08/31/1976 ( 11.02)


    https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

    Vanguard Long-Term Investment-Grade Bond Fund

    Average annual returns as of 7/31/2015

    7/31/2014 ( 3.45%)
    7/31/2012 ( 2.83)
    7/30/2010 ( 7.27)
    7/29/2005 ( 6.46)

    07/09/1973 ( 8.50)

    anne said in reply to Sandwichman...

    What the real home price index was remarkably good for was for showing analysts that homes generally and home especially in relatively high priced markets were becoming increasingly risky to buy from about 2002 on if a buyer was counting on price appreciation, especially counting on price appreciation to pay a mortgage.

    The work of Robert Shiller has been remarkably helpful for analysts trying to understand market movements.

    anne said in reply to anne...

    Looking to real home prices, Shiller found that over time prices generally tracked inflation so that where the real home price index was 100 in 1890 the index was at 113 in 1996. Between 1996 and 2006 the real home price index increased from 113 to 194.7 which was an altogether unprecedented level.

    In June 2015, however, after the supposed deflating of the housing bubble the real home price index was 155.9 which is a level never even approached before 2003 when the housing bubble should have been obvious.

    What does this mean?

    Sandwichman said in reply to anne...

    "What does this mean?"

    A decade and a half of Potemkin Village Economy.

    http://www.counterpunch.org/2010/02/26/the-potemkin-village-economy/

    anne said in reply to Sandwichman...

    http://www.counterpunch.org/2010/02/26/the-potemkin-village-economy/

    February 26, 2010

    The Potemkin Village Economy
    By ALAN FARAGO

    US politics are in gridlock because elected officials, Democrats and Republicans alike, are fighting to revive an economic model based on construction, development and housing. Instead of breaking with the past– and confessing that trillions of taxpayer handouts have been given to banks to shore up a failed economic model– elected officials in the US are maintaining a steadfast silence to paper over their ruined circular logic.

    In the New York Times yesterday, "New-Home Sales Plunged To Record Low in January", the chief economist of Metrostudy described that logic with crystalline clarity, "You're not going to have a robust housing market until you have more jobs, and you're not going to add jobs fast enough to bring down the unemployment rate until you have robust housing market."

    In "Florida struggles to carve out new jobs: spurred by state unemployment soon expected to top 12 percent," (St. Pete Times) Mark Wilson, head of the Florida Chamber of Commerce, says, "There is no silver bullet." The Chamber, this year, will be using all its bullets to shoot down the citizens' petition to amend the Florida constitution, Florida Hometown Democracy, providing for local elections on changes to growth plans. The measure was born from the public revulsion with rampant overdevelopment that created temporary jobs in construction but permanently scarred the Florida landscape, wrecking Floridians' quality of life, the environment, and undermined the potential for "jobs" that legislators are desperate to create.

    The core of the problem is not just Florida's. An economy so dependent on housing is, by definition, a Potemkin Village. Potemkin Villages in 18th century Russia were "fake settlements" built to impress the political upper class. Imperial Russia's delusions of grandeur have much in common with the ours....

    JF said in reply to anne...

    "savings glut" comes to mind - too much wealth and some of it chases homes- then and still.

    But also, the "wealth" was created in the period you mention by leveraging positions, and we know many of these new lending-account-deposits bought positions (e.g. MBS) that lacked any reality. So it isn't just too much wealth but also the fact that many gained it, not from running a business and earning it, but via endogenous leverage, and this made home prices even more disconnected from real economics.

    A tax-cut-and-borrow scheme of public finance, in concert with the already wealthy also transferred huge sums, unearned.

    Rent-seeking led to imprudent leveraging and the investors all gained new wealth positions (but homeowners picked up the pieces and the rest of society too). So too much unearned wealth chases all kinds of assets (homes, stocks, luxury items and collectibles).

    Only public policy can remedy once the financial positions become lawfully established (again, even though these were obtained by rent-seeking and distortion of markets).

    anne said in reply to JF...

    "Savings glut" comes to mind - too much wealth and some of it chases homes - then and still....

    [ Interesting, when wealth is significantly invested in nonproductive assets, what then? ]

    JF said in reply to anne...

    We need economic policy to intervene. Can the FED change its regulations to encourage investments in non-financial matters within the core of society's needs (housing, durables, education come to mind)?

    Right now the FED is paying banks .25% IOER to hold their "reserves" - accounting matters is what Keynes would call this type of action - we need them to sponsor rules that get reserves into the real economy (certainly not leveraging other debts, even margin buying support for stocks, imo). Seems to me this is in their current authority. The FED can redeem the public debt on their books and take the current fiscal position of the govt to primary surplus (via remittance/offset) and this will cause public debt markets to change, and hopefully push investors to put their money elsewhere (public debt markets will not see interest rates rise where they are). Perhaps they should consider altering the margin rules too, again forcing owners of this excess wealth to invest outside these financial-asset trading marketplaces. Or spend - which would at least be taxed by capital gains provisions and by sales taxes.

    Oh well. What are they going to talk about in Wyoming??

    anne said in reply to JF...

    BigBozat said in reply to anne...

    [ Interesting, when wealth is significantly invested in nonproductive assets, what then? ]

    Nonproductive, like corporate stock buybacks. When buybacks exceed investment in R&D, plant & equipment, systems, etc. for a decade or more, then growth in the subsequent decade is likely to be merde, n'est-ce pas? Uncreative destruction. Schumpeter *rolls over in grave*

    anne said in reply to anne...

    Looking to real home prices, Shiller found that over time prices generally tracked inflation so that where the real home price index was 100 in 1890 the index was at 113 in 1996. Between 1996 and 2006 the real home price index increased from 113 to 194.7 which was an altogether unprecedented level.

    In June 2015, however, after the supposed deflating of the housing bubble the real home price index was 155.9 which is a level never even approached before 2003 when the housing bubble should have been obvious.

    What does this mean? Possibly homes should be considered remarkably inexpensive, remarkably fine investment currently, but a real home price index of 155.9 which had never been approached between 1890 and 2003 suggests that I, at least, need to understand why home are really so inexpensive currently.

    ThomasH said... \

    Yes, we are in one of these rare, anxious "just don't know situations" in which stock prices could go up or down, particularly if you ask about the future.

    pgl said in reply to ThomasH...

    That was Shiller's final thought. He does not if the market is overvalued or not - so the rest of us clearly do not know. Oh wait - James Glassman and Kevin Hassert are writing their DOW 72000! You say Glassman is an idiot? Yea but he is one of Jeb!'s economic advisers.

    [Aug 27, 2015] Lies You Will Hear As The Economic Collapse Progresses

    Aug 27, 2015 | Zero Hedge
    Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the "new normal"; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.

    That's right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a "good thing". They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.

    A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don't seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.

    A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the "great economic reset" that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their 'Dow 20,000' hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah...clearly that was a pipe dream.

    ZIRP has run it's course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.

    The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to "predict" terrible market events they helped to create while at the same time misrepresenting the reasons behind them.

    The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.

    Get Ready For QE4

    Again, don't count on it. Or at the very least, don't expect renewed QE to have any lasting effect on the market if it is initiated.

    There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE's were an utter failure, and while their job is to dismantle the U.S. economy, I don't think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB's last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I'll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.

    I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar's world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won't even have to print Weimar Germany-style in order to kill it.

    It's Not As Bad As It Seems

    Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a "hiccup". This is not a correction which has already hit bottom. This is only the beginning of the end.

    Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We're going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.

    [Aug 26, 2015]Peter Schiff The market's 'pipe dream' is ending

    "For awhile, people thought that the stock market can handle higher interest rates. That was just a pipe dream. They can't," Schiff said Tuesday on CNBC's " Futures Now ." "That's the only thing propping up the market."

    [Aug 25, 2015] Bulls back in charge; Intervention the 'new normal'; Hollywood's China love story

    Braden

    A bounce back to pre-correction levels will prove once and for all that the 1% are completely manipulating the Casino through the use of the media for their gain. It would mean that the news about China and the world markets was somehow false. Why would the market correct and then go back up within a week unless it were pure manipulation? We shall see. This is a real test as to how rigged the game really is. We have not had a correction like this in about 4 years and I don't see how the market continues to march upward based on the reasons it just corrected unless they are false.

    [Aug 22, 2015] Paul Krugman Debt Is Good

    But debt slavery is not...
    August 21, 2015 | Economist's View

    JF said in reply to reason...

    Good. I made a similar point last night on another thread when talking about a 1996 Vickery paper surfaced by Paine. There is a myopia in economics, in my opinion, focused only on annual flows (GDP) and completely disregarding the importance of wealth and as you call it, "economic resilience."

    If Piketty has any influence, I am hoping that economic discourse and public finance no longer just focuses on annual flows and that it always also discusses Net Worth (as economic capacity of the individual and in the aggregate is also constituted by using wealth and any new income you get too).

    anne said in reply to JF...
    I made a similar point last night on another thread when talking about a 1996 William Vickrey paper surfaced by Paine....

    [ Would there be a reference to the paper? ]

    JF said in reply to anne...
    Actually, it was Dan Kervick who added the link, in response to a recommendation from Paine (who apparently also went to Columbia, so can spell Vickrey's name):

    http://www.columbia.edu/dlc/wp/econ/vickrey.html

    For what it is worth, last night late, I then said this, and had to chuckle to my wife when I say Krugman's blog article this am:

    JF - "Paine and Dan Kervick - I would prefer that this paper be re-written in light of the Piketty remonstrance that you need to look at economics and society not just in terms of income and flow but also in Net Worth terms. Plainly, a very wealthy society can raise taxes with little harm to aggregate demand if the new taxes fall on those with a lower/lowering propensity to spend, at least to some degree (see Saez and others who comment on the taxation of income tax bases).

    I am one who will always make note that the public should not cut taxes on the already wealthy so that the subsequent borrowing of the cash comes from the same class of people. Clearly, we need to think in more balanced ways here. Borrow for long term assets to spread the costs to those who benefit over time, especially when interest rates are low. Borrow from foreign sources as this brings money into the US economy for the trade of a piece of paper and cash management dollops of principal and interest. But otherwise a wealthy society should tax, otherwise it is transferring wealth upward by foregoing taxation in trade for giving the wealthy class a tradeable asset.

    Ouch, I'd prefer we just helicopter the money over to Treasury than the tax-cut and borrow scheme of the republican party.

    Oh wait, as we redeem the public debt purchased by the FED and they offset the principal with the Treasury, we will be doing helicoptering, just had to wait six years or so.

    Anyway, rambling point: public debt is not always better than taxation, and for the most part in a wealthy society like the US where we have a deep financial system with all kinds of instruments of trading efficiency, including trillions of debt products, I suspect it seldom is right to borrow anew when you can tax and target the taxation so it does not harm aggregate demand.

    I think in 1996 when this was written almost everyone was myopically focused solely on flows (GDP/income)."

    JF said in reply to JF...
    When a new Congress comes in 2017, perhaps we can change the finance law of the US to permit the FED and Treasury to sell US public debt direct to foreigners without having to go into the open market and dealer-community.

    Alas, if we can only get through this next national election with heads screwed on straight! Good to hear that Mrs. Clinton at least is saying that economic policy is the centerpiece of her campaign. We will see our well she does from a strategic communications perspective.

    Perhaps some economists can help here too.

    reason said...
    P.S. One thing that PK doesn't say, that I think needs to mentioned is that for countries with their own currencies, they can print money rather than issuing bonds. The distributional implications are important. Even at low interest rates, government bonds are a promise of a stream of income to the already rich (and taking money out of circulation, which selling bonds does is a deflationary thing to do - increasing the real value of financial wealth). Printing money, and spending it or giving it to the poor, on the other hand does not make the government the supporter of existing wealth. This should not be forgotten.
    Paine said in reply to JF...
    Beware the false value the scheinvert the bubble value

    The better notion is the inter temporal payments grid

    We need a way other then inflation deflation to adjust this grid to on going production value and wage value. Stiglitz is very keen on wealth v productive capital

    And he's on to something deep that seems to be in large part invisible to most model builders

    [Aug 16, 2015] And Quiet Flows the Con

    "As flies to wanton boys are we to the gods.
    They kill us for their sport."

    William Shakespeare, King Lear

    That disruption was caused by the China currency devaluations which reminded those who have not been paying attention that

    a) there is a currency war underway,

    b) there is no sustainable economic recovery despite rosy reassurances and the facade of statistical growth, and

    c) there are a number of bubbles in financial assets that have been functioning primarily as wealth transfer mechanisms, and are wobbling in a manner that could bring the economy back to the brink once again.

    [Aug 09, 2015] Stephen Schork: The Commodity Crash Is A Canary In The Coal Mine For The Global Economy

    "..."this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all.""
    .
    "...On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year. "
    .
    "...That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices."
    .
    "...So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.
    .
    So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all. "
    Aug 09, 2015 | zerohedge.com

    The best thing about the commodity crash relapse taking place so quickly after the last swoon - recall tha we have had two oil bear markets within 8 months - is that all those hollow chatterboxes and econo-tourists who swore that tumbling oil is "unambiguously good" and "great for the economy" (first and foremost Larry Kudlow and then proceeding with every single sellside strategist and economissed), have been laughed out of even CNBC's studio, and are nowhere to be found this time around because not only did all those promises of a surge in consumer spending never materialize (for reasons, or rather one reason which we explained extensively before), but the observent public still remembers all too well how countless 'experts' confusing cause (a gobal slowdown in the economy) with effect (crashing commodities).

    Therefore, we were delighted when someone who actually understands the energy market for a change, The Schork Report's Stephen Schork, appeared on BBG's Pimm Fox yesterday to explain not only what the immediate future holds for both oil and gasoline prices, but why, when one actually gets cause and effect right, "this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all."

    The full interview is below, here are the key spot-on highlights, first about the futures of commodity prices :

    ... from a demand perspective on the seasonal front, it's August 7. We only have four more weeks left of summer driving, then the peak gasoline season is over. Then we head into the fall where the fall turnaround; that is the refinery maintenance season begins. So refineries will scale back in their crude oil purchases. So right now we are at the peak of the demand season. Demand is only going to fall between now and the end of the year.

    On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year.

    Then a repeat of what we first explained in "It's Official: Americans Spent All Their "Gas Savings" On Obamacare"

    FOX: All right. So, Stephen, let's say that gasoline ends up being around $2.00, $2.10 a gallon by the end of the year, that extra money that people are not spending on gasoline, going to go somewhere else?

    SCHORK: Yes. It's going to go to a big government health care. Look, I spend $100 -- and I'm saving $100 a week at the pump, excuse me, $25 a week, $100 a month, but my health care premium went up $160 a month for my family. So I'm still diggings $60 in.

    And so that's the big misnomer here, Pimm. People tend to think that this pullback at the pump is somehow good. No. It's a zero sum game because, yes, those dollars are being spent elsewhere, but those are not additional dollars being spent elsewhere. We're just moving the pieces around on the chessboard. We're not creating economic growth.

    Putting it all together:

    And this is the big concern because we keep on thinking that lower energy prices are somehow good for the economy. That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices.

    So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.

    So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all.

    Full interview with Stephen Schork after the jump:

    [Aug 08, 2015] The "petrodollar" is a pillar of American power

    "...I would completely agree that the "petrodollar" is a pillar of American power but am frankly confused by what the essential mechanism of this is. To my mind to institute the petrodollar it is not sufficient to say that oil will be denominated in dollars or even sold only in dollars. The key is that the proceeds need to STAY in dollar assets. This was only achieved once Kissinger brokered Petro-dollar recycling, meaning that the dollars earned in this way would be recycled into treasury securities or used to purchase American weaponry or the engineering skills of the American firms that basically built the Kingdom as it now exists. This is what I was hinting at when I was talking about the circular nature of trade between currency blocs. No non-circular trade patterns can persist for long.
    .
    We emphasize different things. I suspect that the simple scale of the dollar value of trading of financial claims on things – trading in which London and New York are dominant – contributes more to the maintenance of the dollar reserve system than you are proposing. The upshot being that America's "debt" problem is actually a demonstration of its financial power. "

    .
    "..."The result was a depreciation of the dollar and other industrialized nations' currencies. Because oil was priced in dollars, oil producers' real income decreased. In September 1971, OPEC issued a joint communiqué stating that, from then on, they would price oil in terms of a fixed amount of gold."
    .
    So it seems that the oil sellers, seeing that their "real" income from selling oil was decreasing (they were selling oil at the same price in terms of dollars, but at a lower price in terms of gold), were determined not to let the depreciating dollar erase a big chunk of their earnings. I think this goes to show how deep is entrenched in the collective psyche the idea that gold is THE medium for storing wealth. Barbarous relic? I think not…
    .
    After all, value is a social construct and economic relations are social relations mediated through these things we call "commodities". Gold has proven itself to be a very good mediator of these social relations, not because some magical qualities, but because of obvious practical advantages. So, although its role is significantly smaller these days, I think it still retains the roles of "medium of last resort" and "measuring stick of wealth"."

    james@wpc, August 4, 2015 at 11:35 pm

    I had to start a new thread, Mark. Your first question – "does the fact that the USA's debt is more than 100% of its GDP not make it insolvent?"
    I take it you are using the definition of insolvency being when an organizations liabilities exceed it's assets. The nation's GDP does not belong to the government and so cannot be seen as an asset of the govt. So the question, as framed, is not 'well English', speaking economically :) Perhaps you could rephrase it?

    Insolvency can also be defined as an inability to meet current liabilities as they fall due which is a cash flow problem rather than an asset problem. A government that owns and controls its central bank cannot ever have a cash flow problem; that would be Iran, for instance, or Libya before Terror Inc was unleashed on it.

    A govt that does not own and control its central bank cannot have a cash flow problem so long as its debt is denominated in its own national currency and the privately owned central bank continues to monetize the government's newly issued bond/treasury certificates; that is countries like the US and the UK.

    A government that has its debt nominated in a foreign or external currency, such as Greece and other Euro zone countries, is in the position of any other business and can be declared insolvent and its assets sold up for the creditors. This situation with Greece was always going to come right from the beginning.

    I don't follow what you are asking with your second question – "Would it, if there were a deliberate run on the dollar to drive it down and reduce its circulation, by refusing to use it as a medium of exchange?" Could you rephrase it also?

    astabada, August 4, 2015 at 11:51 pm

    @james, TimOwen

    A government that has its debt nominated in a foreign or external currency, such as Greece and other Eurozone countries, is in the position of any other business and can be declared insolvent and its assets sold up for the creditors. This situation with Greece was always going to come right from the beginning.

    Bang! I do not follow all of your points, but on this one I totally agree. To reconnect with what Tim was writing about Italy, the problem with Italy (and Greece) is that they both have:

    • – a currency which is grossly overvalued with respect to their economies (this makes import artificially easier than it should be, and export artificially harder)
    • – no control on what the value of that currency is (e.g. by devaluing its currency Italy could keep its products competitive in the past)

    When did the Italian crisis start? Answer: when Italy pegged its currency to the future Euro, with the Maastrich Treaty.

    marknesop, August 5, 2015 at 7:34 am

    In the second question, I meant ""Would it (be insolvent), if there were a deliberate run on the dollar to drive it down and reduce its circulation, by refusing to use it as a medium of exchange?" That is, would a deliberate turning-away from the dollar put the USA in a position where it had to pay its debts and live within its means? And the answer is, not likely, because the government does not control the bank or own the money, although there is most definitely a very close relationship between the governors and the bankers. Still, there must be a relationship between the whole world using the dollar and U.S. power, because if there were not the U.S. would not attack a country on some made-up excuse as soon as it made noises about dropping the dollar. Unless that's just a crackpot conspiracy theory.

    james@wpc, August 5, 2015 at 8:28 am

    Thanks for the clarification, Mark. The US could well find itself in trouble and that is my expectation but "insolvent" is the wrong word to use.

    First, the basics of the relationship between the Fed and the US Treasury dept. I think someone here (Tim?), about a year ago, spelt out the actual mechanics of it all but a rough Idea will suffice for our purposes. When the US govt wants to get more money, they have the Treasury Dept draw up treasury certificates which are essentially IOU's and hand them to the Fed. The Fed creates the credit to the value of the IOU's and places it in the US govt's a/c (at interest). The govt can then meet all future expenses including maturing loans with this money because all of the US's trade and loan contracts are written in US$.

    There is no limit to the debt that the US can run up in this manner so there will always be money to meet commitments. So the US govt cannot become technically insolvent.

    Crystal ball stuff now – the problem for the US govt (and the Fed) is that it is committed to printing ever more money at a time when the demand for it internationally is shrinking because the BRICS countries and others are avoiding using the US dollar when possible. This will lead to inflation for the dollar. In other words, it will lose value and make it less and less attractive for people, companies and govts to hold it and thus further decreasing demand. We now have a self fuelling downward spiral for the dollar.

    The inflation happens because the US dollar is backed not only by the domestic GDP of the US but also by all the international trade that is conducted using the dollar. As the total amount of dollars in circulation increases and the demand decreases (because people are avoiding using it) we have more dollars to buy less goods (because sellers do not want US dollars for their goods) so the prices on the goods that are still available for US dollars will be bid upwards by the excess money over goods available causing the inflation. I have been very impressed how the FED/govt and Wall st generally have been able to stave off this inevitable inflation so far.

    As for the US ever 'living within its means' that will only come when other trading partners en masse refuse to accept US dollars for their goods (incl military materiel). The US will then have to sell something tangible to raise the foreign currency (as most other countries now have to do) to buy Chinese clothing and uniforms and ammunition etc. They may not be able to pay for the military occupation in foreign countries using US dollars and so the Empire will start visibly shrinking.

    If this happens, countries like israel and Saudi Arabia will be left high and dry and have to fend for themselves – and good luck with that! But psychopaths never say die so they just might pull something out of the hat other than a rabbit. We'll see soon enough, I think. You can see, though, that time is not on the side of the usual suspects.

    I hope that answers your question adequately, Mark. If not, come on back to me!

    Jen, August 5, 2015 at 3:52 pm

    " … Still, there must be a relationship between the whole world using the dollar and U.S. power, because if there were not the U.S. would not attack a country on some made-up excuse as soon as it made noises about dropping the dollar. Unless that's just a crackpot conspiracy theory."

    I mentioned earlier in this thread that in 2000, Iraqi President Saddam Hussein switched to trading oil for euros and then Iraq began conducting all its trade in euros. Not long afterwards, the euro appreciated in value, perhaps in part as a result of its use as a trading currency, and the value of Iraq's gold reserves also shot up as a result.
    http://www.theguardian.com/business/2003/feb/16/iraq.theeuro

    Iran and North Korea then switched to trading in euros. Next thing you know, all three countries became the New Axis of Evil.

    If the world has to use the US dollar for trade, this means there will always be a demand from exporters and importers for US dollars and this keeps the value of the US dollar high relative to other currencies. To an extent this means that in a situation where all currencies are free-floating (that is, not subjected to any controls on their value or supply by governments in the countries where they are legal tender) and are completely subject to market supply and demand, the US dollar will not experience high and low extremes when its value against other currencies fluctuates. This keeps the US dollar's value high and steady.

    The use of the US dollar as a world currency for trade was adopted during the Bretton Woods conference in the late 1940s just after the Second World War. At the time, the US was the pre-eminent manufacturing economy in the world and could dictate its terms to a ruined Europe. If the rest of the world were to catch up with the US in manufacturing and trading capability, then everyone needed to use US dollars to buy US goods, services and intellectual know-how in the form of patents, advice and training. Few people at the time foresaw what would happen to the US economy if the US dollar became the world's trading currency: the US economy would start to suffer persistent trade and balance of payment deficits and the US government would be unable to control the supply of US dollars. This is known as the Triffin Dilemma.

    https://en.wikipedia.org/wiki/Triffin_dilemma

    The British economist John Maynard Keynes who attended Bretton Woods was one of the few who knew – that was partly why he advocated for adopting an international trade currency (bancor) and an international clearing house for balance-of-payments surpluses and deficits – but as he was the representative of an exhausted and defeated empire, his ideas were given short shrift by the US attendees.

    Tim Owen, August 5, 2015 at 8:22 pm

    Posted this on earlier thread one page back before I saw this:

    Here's where I think you, James and I agree: the reserve status of the dollar allows the U.S. to fund it's deficit at the expense of other countries.

    Here's' where I think (?) we disagree:

    • my point is that the reserve status makes it possible for the U.S. to run persistent trade deficits but the ability to run a deficit is a virtue of all fiat systems. The fact that the reserve status of the dollar means those deficits can be much higher doesn't change the fact. Nor should it discredit deficit-spending by association.
    • I would completely agree that the "petrodollar" is a pillar of American power but am frankly confused by what the essential mechanism of this is. To my mind to institute the petrodollar it is not sufficient to say that oil will be denominated in dollars or even sold only in dollars. The key is that the proceeds need to STAY in dollar assets. This was only achieved once Kissinger brokered Petro-dollar recycling, meaning that the dollars earned in this way would be recycled into treasury securities or used to purchase American weaponry or the engineering skills of the American firms that basically built the Kingdom as it now exists. This is what I was hinting at when I was talking about the circular nature of trade between currency blocs. No non-circular trade patterns can persist for long.
    • We emphasize different things. I suspect that the simple scale of the dollar value of trading of financial claims on things – trading in which London and New York are dominant – contributes more to the maintenance of the dollar reserve system than you are proposing. The upshot being that America's "debt" problem is actually a demonstration of its financial power. *

    Could it become it's greatest weakness? It's possible I suppose but I don't see this happening when western finance dwarfs the trading clout of its rivals. The system develops over time and, with time it gains scale and so momentum. In other words I'm suggesting that a dollar collapse is less likely than one might suppose.

    *This was the point I was trying to make with the dollar as "safe haven" comments above. If the dollar zigs (strengthens) when your mental model of the world says it should zag (weaken) then this should really suggest that your model is missing some important part of the complex mechanism it is trying to simulate.

    james@wpc, August 6, 2015 at 12:05 am

    Tim, I'll quote your words back to you and insert some clarifying (for me) words to demonstrate my understanding and to see if it is the same as yours-

    – my point is that the reserve status makes it possible for the U.S. to run persistent (international) trade deficits but the ability to run a (domestic budgetary) deficit is a virtue of all fiat systems. The fact that the reserve status of the dollar means those (international trade and domestic budgetary) deficits can be much higher doesn't change the fact. Nor should it discredit (domestic budgetary) deficit-spending by association."

    The Bretton Woods agreement specified that the US would make gold available for purchase at an agreed fixed price. This condition was thought to inhibit the US from printing money to excess. But the Vietnam War came along and the US was printing money to pay for it. This extra money was not financing extra productive capacity or creating wealth. Quite the opposite, in fact. So we had an increasing supply of US dollars around the world but no commensurate extra production to absorb the extra dollars.

    This is exactly what the French thought would happen and they started demanding gold for their US dollars. Eventually, the US had to stop selling gold now that it was greatly undervalued because the dollar was overvalued. So Nixon took the US dollar off the gold standard. Inflation ensued.

    Something was needed to soak up the extra purchasing power of the extra US dollars sloshing around the world. This money was called "EuroDollars" at the time. Oil was the answer. The Saudis (at the behest of Wall St) and OPEC jacked up the price of oil by a factor of four (IIRC) and rapidly increased the demand for dollars and reversed the inflationary trend and the subsequent loss of value.

    As Tim points out, the Saudis had to not only sell oil exclusively for US dollars but they had to deposit their surplus with New York banks. This way the banks won in three different ways. 1. they had overnight increased the international demand for US dollars and boosting its strength and prestige (perceptions are everything)
    2. They had handed a fortune to the Saudis but by keeping the money in the NY banks, the bankers still controlled the Saudis
    3. This surplus money was also kept out of other international banks and so could not be used by them to effectively compete with the NY banks and so kept those other banks under control as well and Wall St dominant.

    Point 1 was the most important for the bankers, in my view. This created the petrodollar – a dollar that used to be covered by gold as well as international trade and the US domestic GDP. Then gold dropped out of the equation and was replaced with oil at a hugely inflated price.

    At a bankers symposium during the eighties (I think from memory), the head of Citibank at the time, Walter Wriston, answered a question concerning what his bank would do if the Saudis wanted their money back. He replied blithely, "No problem. We'll write them a cheque!" His reply was met with dumbfounded silence which told me told me that most of the audience of bankers did not understand banking at that level. There should have been laughter because the money cannot escape the system. It can only get transferred from one bank to another and each bank is dependent on remaining in the system to keep operating.

    It's just a matter of borrowing from each other. If Citibank has the Saudi's money to cover their other loans, then this will be more profitable for them than having to borrow it from other banks. But it is not a system breaker if they do have to borrow it from other banks. That's what the system is for.

    Jen, August 6, 2015 at 12:33 am

    It would be interesting to know when the Saudis also started buying up weapons and military hardware from the US and the UK. If they began some time in the early / mid 1970s to buy such equipment, and it were possible to find out where the money was coming from, that would be another piece in a big puzzle that links the collapse of the Bretton Woods agreement, the Vietnam War, the 1973 oil crisis and subsequent decline in the US car manufacturing industry, the Yom Kippur War and maybe more besides.
    https://en.wikipedia.org/wiki/1973_oil_crisis#End_of_the_Bretton_Woods_accord

    James, thanks for the extra detail.

    spartacus, August 6, 2015 at 1:45 am

    Hello Jen! From the Wiki article you linked, I found this paragraph to be very interesting:

    "The result was a depreciation of the dollar and other industrialized nations' currencies. Because oil was priced in dollars, oil producers' real income decreased. In September 1971, OPEC issued a joint communiqué stating that, from then on, they would price oil in terms of a fixed amount of gold."

    So it seems that the oil sellers, seeing that their "real" income from selling oil was decreasing (they were selling oil at the same price in terms of dollars, but at a lower price in terms of gold), were determined not to let the depreciating dollar erase a big chunk of their earnings. I think this goes to show how deep is entrenched in the collective psyche the idea that gold is THE medium for storing wealth. Barbarous relic? I think not…

    After all, value is a social construct and economic relations are social relations mediated through these things we call "commodities". Gold has proven itself to be a very good mediator of these social relations, not because some magical qualities, but because of obvious practical advantages. So, although its role is significantly smaller these days, I think it still retains the roles of "medium of last resort" and "measuring stick of wealth".

    marknesop, August 6, 2015 at 9:42 am

    The currency Gaddafi had moved to introduce was the gold dinar, an actual negotiable gold coin, and he proposed all African and Muslim nations accept only the dinar for oil. The sources speculating on this look a little tabloid-ey, but as with many such subjects, the mainstream press just never mentions it, as if deciding not to talk about it removes it from consideration as an issue.

    Similarly, the disappearance of Libya's gold is easily explained – unscrupulous people, including Gaddafi himself, stole it. The guy who was planning to introduce a gold currency to Africa actually stole all the gold for himself, the tricky devil.

    james@wpc , August 6, 2015 at 1:48 am

    Jen, my recollection is that the Saudi's started buying armaments big-time during the seventies because I remember asking myself, "what's wrong with this picture?" Here is a supposed enemy of Israel buying huge amounts of military equipment, particularly fighter jets, from the country it has just imposed sanctions on, the US. Added to that, the US is THE big supporter of Israel and indeed, saved its bacon during the Yom Kippur war!

    The money for the military hardware could only have come from the increased price of oil and looking back it is increasingly obvious that these sales were part of the original deal to increase the price of oil. It is part of the circular trading that Tim was talking about.

    The petrol rationing exercises in the US and elsewhere are looking more and more like theatre to condition the punters that we have to pay more. The whole crisis was stage managed and nothing has changed in forty years!

    marknesop, August 6, 2015 at 9:14 am

    The USA has a similar arrangement with Israel, in which it transfers billions in foreign aid to this prosperous country and Israel then uses it to buy U.S. weapons and military equipment. It would be simpler to just gift them the military equipment, but that would look as if the USA was building a military ally to extend its own power – which it is – and the former way helps create the need for more dollars.

    [Aug 08, 2015]The US Economy: Explaining Stagnation and Why It Will Persist

    Aug 07, 2015 | thomaspalley.com

    This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model. That failure explains the emergence of stagnation, which is likely to endure. Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis. [READ MORE]

    The elites not stupid: they need a crash to justify their draconian repressive and warmaking moves

    bolasete, August 5, 2015 at 4:18 pm
    daily i review articles on zerohedge, full of doom and gloom. unfortunately they are written by ron paul types, not even socialists, let alone communists. the way i see it a crash really is coming but the ones calling the shots are not stupid: they want a crash that will demand/justify their draconian repressive and warmaking moves.

    (what i find amazing – given my slant – is the large number of smart, knowledgeable people who must understand yet go along with it, like your immortal cyborg comment: why aren't these people moving to tropical isles?) my point being that analysis of armageddon and calling to account the enemy is for the future.

    ignore the provocateurs! he's not worth the increased bp

    [Aug 08, 2015]Top 6 Myths Driving Oil Prices Down

    "...The Saudis, as OPEC's largest producer and largest contributor to growth in 2015, have already stated that they will reduce output by 200,000-300,000 by summers end. "
    OilPrice.com
    "Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech."

    Benjamin Franklin, Silence Dogood, The Busy-Body, and Early Writings

    I start with that quote because once the media, as well as politicians for that matter, have no accountability for actions or words then liberty will dissolve. Over the last few weeks I have witnessed another litany of lies that the media insists on putting forth. They come in the form of statements presented as facts to sway opinion while others are opinions quoted by others. Either way, the bias in talking down oil prices, reinforcing the "glut" that is fueled in part by misleading EIA and IEA data, is readily apparent.

    Earlier in the year I documented half a dozen media reports which turned out to be 100 percent false. Now I expose another half dozen in just the past few weeks. Prices remain unchanged as a result of the largest drop in production in a year, as well as a large inventory draw this week via the EIA. The very fact that prices haven't responded demonstrates my points. This comes despite the dollar index (UUP) over the last month remaining essentially flat while USO has fallen over 15 percent (so much for that relationship, except when the dollar rises right?)…

    Related: A Reality Check For U.S. Natural Gas Ambitions

    Even at the time of this article the dollar index is down 1 percent yet oil is down as well.

    Here is a list of the latest lies:

    1. Iran Agreement to flood market. FALSE. OPEC has even stated that the natural 1.0 to 1.5 million barrels per day (MB/D) rise in demand in 2016 will more than offset any production rises in Iran which, contrary to earlier reports, won't come on line until early 2016. In addition, China will open up refining to third party, non-state-owned refineries which will reportedly add another 600,000 B/D in demand in 2016.
    2. Iran floating storage will flood market. FALSE. As initially reported in the media, it was Iranian oil floating in storage but it now turns out to be low grade condensate as stated by PIRA on Bloomberg a few weeks back and then supported by tankers attempting to move inventory to Asia. Later media reports corrected earlier ones that the storage is in fact condensate while failing to report on its grade.
    3. U.S. production resilient. FALSE. The latest EIA data refutes this as does data via EPS calls at Whiting Petroleum (WLL) & Hess Corporation (HES). Yes, some are increasing production such as Concho resources (CXO), but in the Bakken both companies confirm that 2H15 production will decline due to lower rigs and depletion. HES raised production for the year as a result of 1H15 production being higher than expected by some 5 percent. All in all, next week should see further production drops.
    4. U.S. Inventory resilient. FALSE. EIA data would have fallen last week by some 4MB as it did this week ex import surges and continues to be overstated by "adjustments" made to production that amount to millions of barrels in daily production.
    5. Cushing inventory fears revived. FALSE…see above.
    6. OPEC supply will continue. The Saudis, as OPEC's largest producer and largest contributor to growth in 2015, have already stated that they will reduce output by 200,000-300,000 by summers end. Yes true, OPEC as an entity won't formally announce a cut but isn't it misleading to report this?

    ... ... ...

    I should note that WLL also refuted Goldman Sachs' call that, at $60, U.S. production and rig count increases would resume. Before the most recent fall in oil, that call admittedly looked true as rigs did rise and Pioneer Natural Resources (PXD) was reportedly going to add 2 rigs a month until early 2016.

    WLL, however, finally drew a line in the sand as they stated on their EPS call that they would not add a rig until 4-6 months after oil remained at $60 or better. PXD, if they are smart, will follow suit and, I suspect, the oil industry has finally come to realize that the "Trillion Dollar Swindle" in oil is very real and normal supply and demand dynamics no longer apply. The law of diminishing returns in more supply is real thanks to media hype.

    Lastly, I wish to emphasize that freedom of speech not only comes as the freedom to express yourself, as I am doing here now, as others have done freely in the media, presenting both bullish and bearish cases. However, the number of statements that have been proven false and not retracted, as well as the obvious bias should raise serious questions about the role of media in the current oil bust. Which industry will be under attack next?

    Meanwhile, an industry which by simple math cannot generate free cash flow (FCF) on $100 oil is disintegrating before our eyes, with millions affected by the fallout. Targeting individuals has become a regular theme in the media but now it appears to have moved to certain industries.

    Below demonstrates that even on $100 oil shale isn't self-sustainable on a FCF basis, never mind $50 oil.

    Below is the estimated CF deficits for 2016 according to Jefferies with hedges:


    (Click to enlarge)

    How one on the sell side or media can argue for even lower oil to balance the market demonstrates the lack of detailed research and understanding of shale economics.

    By Leonard Brecken of Oilprice.com

    steve from virginia on July 31 2015 said:

    - Oil prices are declining because oil product end users around the world are broke and cannot borrow. They cannot borrow b/c they are insolvent, they are insolvent b/c they cannot borrow.

    - Oil prices are declining as a direct result of worldwide QE and other forms of easing. Easing shifts purchasing power proportionately to banks and large firms away from product end users. Without funds the end users cannot retire the drillers' expanding debts => drillers fall bankrupt.

    - Oil prices are declining because using fuel does not offer any real returns, only vaporous 'utility' which is really pleasure. Oil is an indispensable form of capital, it has been squandered for 'thrills', we are now facing the consequences: end users who lack the means to support extraction efforts.

    Keep in mind, ongoing fuel supply constraints (!) adversely affect end users faster than declining prices can subsidize them; this is a self-amplifying process. When it takes hold there is no escape from it; oil prices will decline to near-zero and the price will still be too high.

    Joseph Castillo on August 01 2015 said:
    Thank you for your insights, Leonard. No one seems to be noticing the production rollover here in Texas, nor the growing disparity between the Texas numbers and the EIA numbers and forecasts. Yesterday the market punished oil because of a very small increase in the rig count. Amazingly, the market completely missed that the EIA finally reported a significant drop (on the order of 150,000 bbls/day) for both their monthly volumes as well as their July 31st weekly numbers. At some point these facts will have to be recognized.

    I am at a loss for how this goes unnoticed by the media and why "reputable" researchers at groups like Goldman-Sachs continue trumpeting the oil glut horn in direct conflict with the facts. Anyway, thanks for your work. It gives little guys like Bold Energy hope that we can survive.

    Mike on August 02 2015 said:
    Timothy. Your statement about demand growth is wrong. There has been significant demand growth and if you look at actual statistics you will see that.

    I would not believe the fairy stories in Media news about demand though, because like most media stories at present, they seem to perpetuate a desired view rather than any effort to represent and true and honest account. .

    Shakespit on August 03 2015 said:
    Tone of article seems angry and strident, maybe desperate. How dare the media print anything that negatively affects oil pricing. The news stories are "myths," read "lies." Well surely if the stories are myths, reality will soon correct the price.

    I am no expert but have read energy news with interest since the first oil shock in 1973, I know that the statement that "...$100 oil shale isn't self-sustainable ..." is a joke. Shale oil certainly is very sustainable at $100 per barrel; a lot of shale is sustainable at $50, as are Canadian tar sands.

    The cost floor for unconventional oil to be sustainable has been wildly exaggerated for several years. Not four months ago Shell's head of tar sands production in an NPR interview corrected a young-sounding reporterette, who was stating the tar sands production needed $70 a barrel to break even, to say that the actual break even point was $36 a barrel. A $36 a barrel price for most unconventional oil is about the break even point cited for decades in the literature -- I think I'll stick with that figure as my understanding as the sustainable floor for most unconventional oil. Cheer up, myths can only hurt for so long, then the market will catch up and make it all better! So don't you worry about a thing! Thank you!!


    Andrew on August 03 2015 said:

    Agree with Steve from Virginia. QE was the most blatant and convoluted blow at the laws of economics, supply and demand. By seeking to undermine the cyclical nature of the economy and save those who would have been justly taken down the Fed and the politicians have created huge distortions which will echo through the economy for years to come. They stopped the market from adjusting itself, rebalancing wealth distribution and asset values, removing inefficiencies and restoring consumers purchasing power.

    How this tinkering (this word is obviously inadequate to describe the meddling, a wrench in the gears is more appropriate) will propagate through the system is anybody's guess. I suppose the stats perversion in the oil industry and its subsequent degradation so aptly described by the author is one of them. .

    zorro6204 on August 03 2015 said:

    Myths don't drive the oil markets, supply and demand does. And the facts are that in spite of the price drop, production is not falling. I'm hard pressed to find any companies guiding to lower production, and neither could these guys:

    "Barclays said a group of 101 oil companies that it tracks, which cover around 40% of global oil production, show no slowdown in the pace of production growth in 2015. After growing by one million barrels a day in 2014, the companies plan to accelerate output growth to 1.4 million barrels a day this year and maintain that level into 2016." - WSJ .

    Matt on August 03 2015 said:

    What the large independents should've done (the majors never would. Heck, they may be behind this driving down of the price of oil so they can snatch up a CLR or someone cheap) is stack every rig. Not drill a darn well at all in 2015, pay all of their hands from cash flow,and reevaluate at year end. Most of us little guys have already done that.

    Shakespit is correct. If production is truly declining, the market will correct itself even if it is being manipulated psychologically or otherwise. When a buyer needs physical oil and it's not so easy to come by, the price offered will go up.

    [Aug 08, 2015] Peter Schiff What Kind Of Improvement Does The Fed Want

    Aug 08, 2015 |
    Zero Hedge
    ... ... ...

    So barring any further revisions to First Half 2015 GDP, (which are much more likely to be revised down not up), our economy is running at an annualized pace of just 1.45%. To even get to the 2.3% annual growth rate, which represents the extreme low end of the Fed's "central tendency" for 2015, the economy would have to grow at 3.15% annualized in the Second Half. That is looking extremely unlikely. If we fail to hit those numbers, 2015 will be the ninth consecutive year in which the economy failed to reach or exceed the low end of its forecasts.

    The weak labor market and the weakening economy may explain a couple of trends that should not be occurring in a strengthening economy: Americans' growing love for old cars, and the high rate in which young people of working age remain living with their parents.

    Recent statistics show that the average age of America's fleet of 257.9 million working light vehicles had an average age of 11.5 years, the oldest on record. The IHS Automotive survey (7/29/15) also showed that new car buyers were holding on to their vehicles for an average of 6.5 years, up from 4.5 years in 2006. When workers are doing well they tend to buy new cars more often. When things are lean they hold onto their rides longer. Interestingly, this trend has occurred while Americans are taking on more leverage in car loans.

    Similarly a recent study by Goldman Sachs, from Dept. of Commerce data, shows that the percentage of 18-34 year olds who live at home, which had shot up during the recession of 2008, finally began to decline slightly in 2014, but that declinestopped at the beginning of 2015. USA Today (8/5/15) noted that the number of Millennials living at home increased from 24% in 2010 to 26% in the first third of 2015, according to a Pew Research Center report, based on Census Data. Why would this be happening if the economy was really growing?

    Since the unemployment rate seems unlikely to drop and both wage growth and increased labor participation show no signs of life, and the percentage of those who want to work full time, but can't, is still highly elevated, should we conclude that the Fed will move forward with its rate hike plans this year? If Janet Yellen is being honest that the Fed will not raise rates until we have further improvements in the labor market and those improvements seem to be nowhere in sight, then why doesn't she just admit that the Fed will not be raising rates any time soon?

    If GDP growth only averages 2.0% in the Second Half (which I think is likely), then 2015 growth will only be about 1.7% annually. Given that the Fed didn't raise rates in 2012, 2013, and 2014, when growth was well north of 2%, why would they do so now? Yet Wall Street and the media stubbornly cling to the notion that 3% growth and rate hikes are just around the corner. Old notions die hard, and this one has taken on a life of its own.

    junction

    Forget the economy for now and just realize we are already in World War III. The proxy wars in the Middle East engineered by our Manchurian Candidate president are flames to the powder keg of World War.

    Bokkenrijder

    This article should HAVE BEEN TYPED IN CAPITAL LETTERS, as Peter Schiff always likes to shout your ears off. Lemme guess, he has many gold and silver coins to sell and YOU need to be the buyer?

    p.s. how is Jim-"my daughter is learning Mandarin"-Rogers doing these days? Still bullish on all those bubbles in China, agriculture ("farmers driving Maseratis") and commodities (oil $45) in general?

    techpreist

    Here come the downvote wars... but anyway I'll bite. Schiff's basic message for the last decade has been:

    "Economic data, read correctly, points to the US economy becoming weaker, less sound, and more and more based on ever-increasing debt load. Headline indexes that sort-of look good do not mean much once you dig deeper. Therefore, at some point in the future the bottom is going to fall out, and if you're positioned correctly you can still thrive."

    For this article, ultimately it's the same message, with a few new data points, and usually he offers products in line with what he thinks will happen next. If you agree with his assessment, buy them. If not, don't.

    baldski

    Bokken: you have that right! Peter Schiff has been absolutely wrong on all his predictions for the last 10 years. He is a fear seller. Why is he allowed to push his bullshit on this site? Tyler is he kicking back to you?

    thunderchief

    The fed will keep jawboning because it buys them time while the rest of the world goes to zero or negative.

    They may eventually raise rates to as much as 1% or so, but this is just keep the dollar strong and wait out the world's drop to zero or below, the new world order norm.

    What Peter does not address, is that the fed is not going to fight WW1 (QE) when we are now in WWII. The French tried this with the maginot line and the rest is history.

    Strong dollar policy is everything now, and destroying everything with it to be the last man standing is the new game. If the dollar fails now, we all know everything dollar based goes with it, and the Fed knows this more than anyone.

    Stocks, Bonds, Realestate, the military industrial complex and USA hegemony all go if the dollar tanks this time.

    So no overt QE, and until the world goes negative, the Fed will only then go to where it wants to be...

    Arnold

    I believe the fed is waiting for the same thing we are: the unknown unknown.

    Shemittah? Known unknown.

    Unrepayable derivative debt? Known known

    Asteroid? Unknown Known

    Psychopathic weapon wielders? Unknown Known

    Divine Intervention? Yes an Unknown Unknown , but not what they are waiting for.

    Alien Invasion? Known known

    Yellowstone Eruption? Known unknown.

    Hell, I don't know.

    Meanwhile financial products keep things churning....


    [Aug 05, 2015] Everyday stagnation

    investorschronicle.co.uk

    One of the few drawbacks of working from home is that one is bombarded with annoying phone calls from time-wasters. Not from my editor, but from cold-callers: do I want to install solar panels? Have a new conservatory? Change energy supplier? Claim compensation for PPI mis-selling? Been in a car accident? The answer to all of these is along the lines that Prince Philip might give. Such irritations, however, tell savers a lot.

    The question is: why do so many people take such thankless jobs? It's for the same reason that hundreds of thousands of others have become self-employed handymen and freelancers who spend their hours waiting for work - because they can't find anything better.

    All those cold callers give us a daily - well, hourly - reminder that the economy isn't dynamic enough to create sufficient productive and rewarding jobs. In other words, we are in an era of secular stagnation. This phrase has many meanings; it refers to the combination of slow productivity growth, weak investment and low innovation that have given us negative real interest rates. Even those who don't expect such negative rates to persist believe they will stay low. Bank of England governor Mark Carney said last week that the "equilibrium" real interest rate - the rate consistent with the economy operating at potential and inflation on target - "will continue to be lower than on average in the past".

    Stagnation, though, hasn't only given us poor returns on cash. It has also depressed equity returns. One reason why the All-Share index has fallen in real terms since the start of the century is that the fear of stagnation has depressed profit expectations.

    'Secular stagnation' might sound like high-falutin' pointy-headed economic jargon. But it is, in fact, the thing that gives us the twin irritations of cold-callers and miserable returns on our savings.

    Which poses the question: why are we in it, and could we get out of it?

    A recent paper by Gianluca Benigno at the LSE and Luca Fornaro at Barcelona's University of Pompeu Fabra points out that economies can fall in a stagnation trap. If people expect low growth they won't invest or innovate and this will cause low profits for other companies, thus exacerbating disincentives to invest. In this way, pessimism can be self-fulfilling.

    The problem is that such pessimism might be justified.

    One reason for this is that profit rates have fallen. The economics blogger Michael Roberts estimates that returns on capital in G20 countries have steadily fallen since the early 1970s. This has reduced incentives to invest or innovate.

    If stagnation takes greater hold, we could face decades of negative returns of the sort Japan has suffered"

    In this sense, secular stagnation might be the rediscovery of one of the oldest ideas in economics - that of the stationary state. All the classical economists such as Adam Smith, David Ricardo and John Stuart Mill thought that increases in the capital stock would lead to diminishing returns and thus to lower investment and eventually an end to growth.

    Why hasn't this happened earlier? It's because technical progress has offset diminishing returns. Some economists believe it will continue to do so. "There are a number of emerging technologies that provide tremendous scope for improvements in productivity," say Saara Tuuli and Sandra Batten, two Bank of England economists.

    However, it's a long way from the laboratory to the marketplace. Companies will only invest in these new technologies if they expect to make a profit. And history suggests this might not be the case. Yale University's William Nordhaus has shown that only a "minuscule fraction" of the returns to innovative activity flow to companies: it is mostly consumers that benefit. And Charles Lee and Salman Arif, two US economists, have shown that rises in capital spending lead on average to lower profits.

    It could be that investment and innovation are weak precisely because the tech crash and Great Recession have alerted companies to the facts that these often don't pay.

    Indeed, optimism about potential technical progress might itself be a reason not to invest. If you equip a factory with robots costing £10m you'll be unable to compete in a few years with the next, better generation of robots that cost only £5m. In this sense, techno-optimism and secular stagnation, far from being opposing arguments, are in fact compatible.

    So, what could change to lift us out of stagnation? Many believers in the idea - from Maynard Keynes to Paul Krugman - want governments to intervene in the economy more. This is unlikely to happen.

    Another possibility is that any short-term increase in investment caused by increased animal spirits might - as in Benigno and Fornaro's theory - shift us from a low- to a high-investment equilibrium.

    A longer-term hope is that there will eventually emerge a generation of entrepreneurs and business leaders who haven't been scarred by the tech crash and recession, and their greater (over-?) optimism could raise growth.

    For equity investors, the stakes here are massive. If stagnation takes greater hold, we could face decades of negative returns of the sort Japan has suffered. If it doesn't, relief at the fading away of such a horrible risk could cause a big revaluation. In this sense, equities are more uncertain than the historic distribution of returns would suggest.

    MORE FROM CHRIS DILLOW...

    Read more of Chris's comment pieces.

    Chris blogs at http://stumblingandmumbling.typepad.com

    View Chris Dillow's benchmark portfolio

    [Jul 31, 2015] Say A Little Prayer Bill Gross Warns, Zombie Corporations Now Roam The Real Economy

    "...The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries." "
    "...There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history"
    "...In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon."
    Jul 30, 2015 | Zero Hedge

    Corporate investment has been anemic. Structural reasons abound and I have tried to convey that ever since my well-advertised New Normal, in 2009, which introduced the probability of a future generation of low real growth due to aging demographics, tighter regulations, and advancing technology permanently displacing workers. But there are other negatives which seem to be directly the result of zero bound interest rates.

    3 month Libor rates have rested near 30 basis points for 6 years now and high yield spreads have narrowed and narrowed again in the quest for higher investment returns. Because BB, B, and in some cases CCC rated companies have been able to borrow at less than 5%, a host of zombie and future zombie corporations now roam the real economy. Schumpeter's "creative destruction" – the supposed heart of capitalistic progress – has been neutered.

    The old remains in place, and new investment is stifled. And too, because of low interest rates, high quality investment grade corporations have borrowed hundreds of billions of dollars, but instead of deploying the funds into the real economy, they have used the proceeds for stock buybacks. Corporate authorizations to buy back their own stock are running at an annual rate of $1.02 trillion so far in 2015, 18% above 2007's record total of $863 billion.

    But perhaps the recent annual report from the BIS – the Bureau for International Settlements – says it best. The BIS is after all the central banks' central banker, and if there be a shift in the "feed a fever" zero interest rate policy of the Fed and other central banks, perhaps it would be logically introduced here first. The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries."

    Greece is not specifically mentioned, nor the roller coaster ride of Chinese equity markets, nor the rising illiquidity of global high yield bond markets, nor the…well a reader should get the point. Low interest rates may not cure a fever – they may in fact raise a patient's temperature to life threatening status. Yellen, Fisher, Dudley and company may not be in total agreement, but they assuredly are listening as this week's Fed meeting will likely attest.

    There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history. Low interest rates are not the cure – they are part of the problem. Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change

    nobodysfool

    "... a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change."

    Rick Santelli Gets it....it's the other MSM sled dogs on Obama's leash that are too stupid too think for themselves or too realize there is no improving economy....guess it'll have to hit them in the face when they're fired for bad ratings.

    RMolineaux

    Two slips: BIS stands for Bank for International Settlements, and if Gross is refering to the Vice Chairman of the Fed, it is Stanley Fischer (with a "c"), former Chairman of the Central Bank of Israel. Otherwise an excellent piece of work, IMHO.

    In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon. In more serious times, the use of treasury stock by corporations to influence the market price was frowned upon, and attempts were made to make it illegal. Corporations over a certain size need to be required to have Federal charters (under the interstate commerce clause of the Constitution), and this kind of behavior prohibited.


    [Jul 31, 2015] Greed Is King - What We Learned Talking To Chinese Stock Investors

    "...Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?"
    "...Same for the short selling: peasant rice farmers or JPMorgan? Inquiring minds want to know."
    Jul 31, 2015 | Zero Hedge
    Early birds get the worms

    This goes completely against most prudent and established norms. While the standard advice is to avoid "hot" bubbly assets, in China the experience has actually been to jump in early and fully instead. Many of the bubbles or "hot" investments mentioned earlier have in truth made many of the people I've talked to a lot of money. China real estate today is a poor investment but those who got in early doubled or tripled their investments. Similarly with wealth-management products, more people have benefited from their high-interest-rate payouts than have suffered. While the Shanghai market has dropped 20%-30% from its peak a few weeks ago, it still represents a 100% gain from a year ago and a 30% gain over the last 6 months. Those participants who jumped in early are still more than happy.

    Greed is king

    Despite recognizing it's a bubble, almost everyone was still all-in on stocks. Why? Quite simply - greed with a dash of jealously. Seeing constant market gains in the news along with daily sharing and boasting from friends and family getting rich is simply too tempting and thus caution was thrown to the winds. Subsequently, this fueled a massive amount of equity exposure followed by leveraging and margin borrowing to go even more all-in.

    But fear is the emperor

    The only emotion more powerful than greed is fear. Almost everyone I talked to was still all-in on stocks but everyone had a foot halfway out the door, ready to bolt at the first sign of trouble. While not uniquely a China problem - market drops are almost always more violent than the initial rise - in China, it's several times more volatile. Look no further than solar-panel firm Hanergy's Hong Kong listed stock, which lost 47% in one hour, or the numerous days the Shanghai market rose or dropped by 5% or more.

    bid the soldier...

    Confucius say "With Chinese greed you get greedy one hour later. With American greed you greedy your whole life."

    Greed and fear - two intrinsic emotional states relating to the topic of unpredictability of stock market. Vulnerability to those two emotional states might be a result of investors' low comfort level due to the market instability.

    Greed and fear relate to an old Wall Street saying: " financial markets are driven by two powerful emotions – greed and fear".

    While sticking to this statement would be an oversimplification, it can also prove to be very truthful. Resisting these emotions can have an utter and deleterious effect on investors portfolios and stock market.

    This old Wall Street saying predates Kublai Kahn's duplex pleasure dome at the Xanau at 66th and Fifth.

    bid the soldier...

    The author hangs his hat on this stat:

    Chinese retail investors make up 85% of the market, a far cry from the U.S. where retail investors own less than 30% of equities and make up less than 2% of NYSE trading volume for listed firms in 2009.

    Of the 85% of the small retail investor, how many of them were in the market before China allowed foreign investors to trade their market in March 2014? How many rice farmers doubled down and margined further stock purchases when the foreign investors tried to take Shanghai to the moon? Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?

    Were stocks whose trading was halted, halted to prevent further selling or halted to prevent the "malicious sellers" from covering at lower prices as the authorities slowly forced the stock prices higher?

    Of the huge spike in margin loans, how much of it was caused by the rice farmers in the provinces and how much was taken on by the giant investment houses in New York and London?

    Same for the short selling: peasant rice farmers or JPMorgan?

    Inquiring minds want to know.

    Just as we snicker when we see statistics from the Bureau of Economic Analysis (BEA) and National Bureau of Economic Research (NBER) shoundn't we all have a giggle at the numbers from The Peoples Statistics of China?

    ******************************************************

    Their government told them it was the right thing to do. "Trust us," their government said.

    Do you really think the Chinese Authorities were completely unaware of what happened in the Tokyo Stock Exchange in 1989, 3 years after the Nikkei allowed Wall Street in?

    Either the Chinese are the major dumfuks on the planet or Goldman, Morgan Stanley will soon be singing the Song of Roland to deaf ears.

    GRDguy

    70 trips for Goldman-Sach's Hank "The Hammer" Paulson to teach certain Chinese leaders (sociopaths) on how to take candy from a baby. Big payoffs for some of them.

    Crush the Infame

    Stock markets need to change from being stock price based to dividend based. Investing should be about putting cash up today with the hope of getting more back tomorrow, not about making a quick casino win on market timing.

    Imagine if Vegas changed the odds on all the slots so that people starting winning a lot more than they were losing. The mania would be surreal, but then they pulled back and all of these people who now depend on that money begin to panic. Of course let's add in that a large chunk of the nation's pension funds and insurance companies were sending people to Vegas to play these rigged slots as an "investment."

    So what's next? Now the government steps in and tells the Vegas casinos that they will provide the cash to keep the party going. If this happened with slot machines people would be up in arms, but swap out slots for stocks and it's about keeping the "system" going.

    Capitalism doesn't require a stock market. Corporate bonds and private equity could replace the selling of stock in a rigged market. There would less boom but also less bust and no need for governments to intervene when the whole thing teetered on the verge of collapse.

    Moonrajah

    "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A." (c) Gordon Gekko

    Uhh... about that...

    Batman11

    Did you find any shoe shine boys giving stock tips?

    [Jul 31, 2015] Paul Krugman China's Naked Emperors

    Jul 31, 2015 | Economist's View

    What can we learn from the response of the Chinese government to the problems in China's stock market?:

    China's Naked Emperors, by Paul Krugman, Commentary, NY Times: ... We've seen ... strange goings-on in China's stock market. In and of itself, the price of Chinese equities shouldn't matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market - and are in the process of demonstrating that, China's remarkable success over the past 25 years notwithstanding, the nation's rulers have no idea what they're doing. ...

    China is at the end of an era - the era of superfast growth... Meanwhile, China's leaders appear to be terrified - probably for political reasons - by the prospect of even a brief recession. ... China's response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. ...

    What do Chinese authorities think they're doing?

    In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market's plunge could lead to defaults. This is especially troubling because China has a huge "shadow banking" sector that is essentially unregulated and could easily experience a wave of bank runs.

    But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it's ending up doing, of course, is shredding that reputation at record speed.

    Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it's hard to sell off assets you were never allowed to own in the first place.

    So what have we just learned? China's incredible growth wasn't a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we've known that for a while. The big news here isn't about the Chinese economy; it's about China's leaders. Forget everything you've heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they're doing.

    [Jul 29, 2015] Fed staff error reveals "potential" output is mostly nonsense by Matthew C Klein

    Jul 27. 2015 | ftalphaville.ft.com | 12 comments

    On June 29, someone at the Fed inadvertently included the staff's June economic projections, which are supposed to be secret, into publicly available computer files. On July 24, the Fed decided to let the world know that it goofed, while also letting you download the charts and tables for yourself. Then it turns out that some of the information released was incorrect and had to be updated yet again.

    For convenience, here's a link to the table, which is somewhat useful to compare to the published projections of FOMC members. You'll notice that the staff is much more pessimistic about real growth for 2015 than the entire range policymakers, and more pessimistic for 2016 growth than most policymakers polled for their projections. Otherwise there isn't much new there.

    Read

    [Jul 27, 2015]The Nuclear Deal is Mostly about Oil by John Browne

    Jul 27, 2015 | Safehaven.com

    The recent nuclear non-proliferation agreement between Iran and the U.S. has created a firestorm debate in the Middle East and both sides of the Atlantic. While the deal is supposedly all about nuclear power and nuclear bombs, its practical implications are all about oil. But the conclusions we should make about its impact on the energy sector are far from clear. A ratification of the deal would allow Iran to make lucrative long term production and distribution contracts with foreign energy firms. However, freely flowing oil from Iran would add significant new oil supply into the world markets, disrupt U.S. plans to become an energy exporter, and could potentially put further downward pressure on prices.

    The U.S. Energy Information Administration (EIA) reports Iran's proven oil reserves as the fourth largest in the world, at 158 billion barrels, or about 10% of the world's crude oil reserves. It also has the world's second largest reserves of natural gas (Oil & Gas Journal, January 2015). But as a result of the series of sanctions laid on Iran by the United States and the United Nations for Iran's failure to abide by nuclear inspections, which have essentially blockaded the nation, these reserves have done little good for the Iranian economy or the theocratic Muslim government that holds the country in its tight grip.

    The IMF estimates that Iran's oil and natural gas export revenue had been $118 billion as recently as 2011/12. But by 2012/2013 revenues fell by 47 percent to $63 billion. Revenues declined another 10 percent in 2013/14 to $56 billion (Islamic Republic of Iran, Country Report, April 14, 2014). By May 2015, Iran's daily oil production had fallen from 4 million barrels in 2008 to just over 2.8 million barrels.

    It goes without saying that the removal of the sanctions regime will allow Iran to resume exports at levels seen in the past. And if Iran is true to its word, and that its nuclear program is indeed focused on the development of nuclear power plants, then it is likely that its domestic demand for fossil fuels will fall, thereby allowing for even greater exports.

    The first issue regarding Iran's new oil flow is how easily will it be able to reestablish its former customer links and sell its oil, regardless of increased production. Having destabilized the Middle East by killing Saddam Hussein, the U.S. may wish now to leave the areas' nations alone to sort out the resulting mess. Into this void we can be sure that the Chinese and Russians will stride forcefully and deliberately.

    Even if Iran is successful in regaining former customers, and selling down its inventory, how quickly can its production be increased? The Iranian oil infrastructure has been neglected for years and Iran needs to rebuild it desperately. Fortunately, Western expertise in energy development is by far the most advanced, which will give Western interests a leg up on Chinese and Russian rivals. But Chinese cash and strategic support may prove decisive.

    Reuters reports that, in the opinion of 25 economists and oil analysts, Iran could be able to increase its oil production by up to 500,000 barrels a day this year and reach 750,000 a day by mid-2016. This will add to a current global oversupply of some 2.6 million barrels a day.

    Meanwhile, as the price of oil remains relatively depressed, production wells in the U.S. and other producing nations, planned and established when oil prices were much higher, are drifting off stream. Finally, there is increasing evidence that recession may be felt internationally, reducing at least the rate of growth of oil demand if not the absolute level of demand in some countries.

    Today's oil market faces a global supply overhang and price weakness. Iran's new oil production and exportation is not likely to come on line for at least a year or two, provided the treaty is ratified. But when that oil does start to flow, the new supply could add to downward price pressures. However, the amounts are unlikely to greatly affect the totality of the global marketplace and by that time whatever inflationary effects there may be of continued monetary expansion in America and Europe should act as a stronger force pulling prices upward.

    In total then, the return of Iran to the global energy market should have a beneficial effect on the global economy, both in pushing down prices and providing lucrative development work for oil companies around the world. However, the economic aspects of the deal are largely insignificant in comparison to the geopolitical ramifications.

    President Obama's nuclear arms deal leaves open to debate whether Iran will become a nuclear power within the next decade, if not earlier. Unleashing a nuclear arms race in a highly unstable area of the world would render oil supplies sourced from there considerably less secure and unattractive, possibly even at lower prices, to consumer nations, including the 500 million strong EU.

    The deal will also threaten the longstanding alliance between the United States and Saudi Arabia. The implicit arrangement between the two countries has always been that the Saudis would direct the lion's share of its oil exports to the United States in exchange for American support of regional Saudi security interests. Shiite dominated Iran has always been one of Sunni-led Saudi Arabia's top concerns. If the U.S. and Iran drift closer together, Saudi Arabia will surely seek other partners who are more supportive of its interests.

    No one knows what such a Middle East will look like. But given the volatility of the region, change is unlikely to be pretty

    John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

    [Jul 27, 2015] Can You Hear the Fat Lady Singing - Part III

    "...I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?"
    Jul 27, 2015 | Zero Hedge
    Renfield

    Loved your description of the irrelevant cocktail party! Reminded me of Tom Wolfe's description: social x-rays and lemon tarts. I've been to way too many of those, and now avoid them like the plague. Even if it means pretending I've caught the plague. They're boring and irrelevant except for those who really can win by networking, fewer and fewer these days.

    I've been fascinated by the currency markets this year. The US satellite currencies are also falling, along with EM. This is sending the USD up, but that just means it's dying last. Like when a body freezes, the limbs freeze first and all the blood moves in to protect the heart, so the heart dies last -- but you can't call it a healthy body, or a healthy heart, just because the blood is there rather than at the limbs.

    I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?

    Anyway, thanks for the focus on the currency wars waging out there. It isn't just emerging markets that are suffering; USD satellite economies are suffering too. It will take a real miracle to turn this around. Bond markets have been most volatile over the last few months, and second-most volatile have been currencies. Last May Wolf Richter posted this article with an Otterwood Capital Management chart, showing how "capital markets are completely backwards":

    http://wolfstreet.com/2015/05/18/buyers-beware-capital-markets-completel...

    with a chart showing the most volatility in bonds, second in currencies, third commodities, and last, equities. Christine Hughes wrote that "The important thing to take from this chart is that bonds and currencies (blue and red lines) are becoming more volatile than equities (black line).This is completely backwards to how capital markets typically behave. It is stock market volatility that is well known and feared, but we are seeing the reverse unfold". When equities get the memo, as they appear to be getting it now, then the central banks' pretence of control is over. As equities are now the last to get the memo, this 'contained, everything under control' leg of the Depression is about up as the facade starts to crack wide open.

    [Jul 27, 2015] 185 Billion Reasons Why The US Agreed To Nuclear Deal With Iran

    "...Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin."
    .
    "...There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy."
    .
    "...It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margins of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a desperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present."
    Jul 27, 2015 | Zero Hedge
    Many have questioned just why President Obama was so keen to get the Iran nuclear deal done - apparently with almost no real concessions - in the face of allies home and abroad deriding the agreement. Well, if one were so inclined, OilPrice.com explains that Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...

    Submitted by Dave Forest via OilPrice.com,

    Important news last week -- from a place that's quickly becoming the world's focus for high-impact oil and gas projects.

    That's Iran. Where government officials said they are on the verge of revolutionizing the country's petroleum sector. Which could provide big profit opportunities for foreign investors.

    Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids. With the government pegging the value of these properties at $185 billion.

    And officials are hoping to get these fields licensed out soon. With Zamaninia saying that the government plans to offer all of the blocks over the next five years.

    Perhaps most importantly, Iranian officials say they have designed a new petroleum contract structure for international investors. Which they are calling the "integrated petroleum contract" or IPC.

    Officials said that the IPCs will last for a term of 20 to 25 years. A substantial improvement over the older, shorter-term contracts -- which have been a major stumbling point for the world's oil and gas companies.

    Few other details on the IPC structure have yet been provided. But the government noted that the new contracts will address "some of the deficiencies of the old buyback contract".

    Deputy Minister Zamaninia said that full details on the new contracts will be announced within the next two to three months. Along with specifics on the fields being offered by the government for bids.

    Of course, all of this is predicated on the lifting of Western sanctions against Iran -- which is still not a certainty. But if and when the country does open for investment, it appears there will be substantial prizes to won. Watch for further announcements on projects and fiscal terms over the next few months.

    * * *

    Billions of dollars for the firms that lobbyists represent can be one hell of a motivation to do a deal with the devil it seems...

    JustObserving

    Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin.

    JustObserving

    Lot more energy becomes available as sanctions against Iran are lifted. So energy prices fall and it hurts Russia.
    Russia and its oil are likely to be losers in Iran deal
    http://www.cnbc.com/2015/07/16/russian-and-its-oil-are-likely-to-be-lose...


    Billy the Poet

    "Peace, commerce, and honest friendship with all nations-entangling alliances with none." -- Jefferson

    Fahque Imuhnutjahb

    There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy.

    http://static.tvtropes.org/pmwiki/pub/images/backwardgImage1.jpg

    Billy the Poet

    we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks.

    That's called American history, 1945-2015.

    Fahque Imuhnutjahb

    Agreed, but it seems we used to at least make the pretense of choosing sides, hell now it's a damn free for all, literally free arms for all. It's no damn wonder 2.3 trillion of tax dollars fell down the rabbit hole, and we,

    the damn taxpayers didn't even get offered any rabbit stew.

    insanelysane

    It's easier to go to war with someone that you have a treaty with because breaking the treaty is a slam dunk justification. No one cared what was really in the treaty as long as Iran agreed to the treaty because they know Iran will break it.

    roadhazard

    uh, Russia was in on the deal. You mean they fucked themselves.

    CrazyCooter

    Or maybe in three to five years when that huge frack ramp has run its couse and the US mean reverts to its production trend line the additional global supply coming online around that time will be sorely needed.

    Don't forget one of the largest oil fields in the world is in Iran ... and it was discovered in the 80s. Saudis big field was discovered in the 40s.

    If the game is going to continue, it has to have oil - and they can't print that.

    Regards,

    Cooter

    Winston Churchill

    Iran could'nt become a full SCO member with sanctions on.

    None of that money,which is theirs anyway, will be going to US companies.

    You can bet the farm on that.


    Colonel Klink

    Just goes to further prove how our politican's sell out to corporations. That's called Fascism!

    Billy the Poet

    Isn't it better to trade for energy than to bomb for freedom? Each scenario can be seen as supporting corporations but assuming that the corporatist paradigm is presently inescapable which corporations would you rather see prevail?

    greenskeeper carl

    Say what you will about the deal, but aside from all the noise, anything that avoids another war that kills a few thousand more Americans, a few hundred thousands innocent civilians, and racks up another 2-4 trillion in debt is a good thing.

    Who knows, maybe those lobbyists not wanting to get their investments nationalized by the Iranian govt(which would happen in the event of a conflict) will exert more influence on whatever stooge occupies the White House than the regular neocon cheerleaders constantly looking for a new war.

    Probably not , but one can hope.

    roadhazard

    But it's an OBAMA deal so fuck all that saving lives crap. BushCo would have hung another banner and the repubicans would cheer.

    FreeMoney

    There was no need for deal to made at all. Iran's oil can sit in the ground un used and unsold, while the West continued to block trade with the Mullahs. I think the Mullahs were loosing power over the prople slowly drip by drip.

    No we have eliminated barriers to Iran going NUC, are dropping import and export sanctions against a regeme that calls for our destruction daily, and next we are going to give them billions of dollars for their oil so they can buy or develope weapons to use against us.

    Without question, this is the stupidest course of action we could take for America.

    Billy the Poet -> FreeMoney

    No we have eliminated barriers to Iran going NUC

    Cite the specifics or shut the fuck up. Iran was already a signatory to the NNPT which barred them from developing nuclear weapons and this treaty sets the bar even higher.

    DutchBoy2015 -> FreeMoney

    Stop with your stupid goddam LIES.

    Iran never threatened the USA , you fucking MORON. You believe bullshit.

    A group of 30 paid agents screaming ''Death to America'' does NOT a revolution make.

    I bet you have never been to Tehran. You just parrot the bullshit your lying ZioNazis feed you.

    Pathetic.

    DutchBoy2015 -> FreeMoney

    Morons like you don't have a fucking clue about the real world. YOu support despotic regimes like Saudi where women can't drive, and they behead people daily , and have actually asked Pakistan for nukes.

    monoloco

    So many logical fallacies there I don't know where to start. For one, what would be the motive to "buy or develop weapons to use against us" ? If the sanctions are lifted and they are participating in the world's economy by selling oil on the open market, it would be completely counter-productive to attack a country that could totally destroy the economy that lifting the sanctions enabled. But don't let logic or facts get in the way of pushing the Zionist/corporate agenda.

    Babaloo

    There is so much wrong with this post it almost defies belief. Let's start with this quote: "...in the face of allies home and abroad deriding the agreement." How can the writer seriously expect sentient humans to believe this? Our "allies" England, France, Germany, as well as non-allies, China and Russia were signatories to the deal! If by "allies" we're saying Israel, well, that's a whole different set of "allies" isn't it?

    ajkreider

    This is brilliant stuff. Obama is such a darling of the oil services industry. Is Cheney still VP?

    $185 billion is chump change, and the U.S. isn't getting that anyway.

    Do the people who write this garbage have paying jobs?

    DutchBoy2015

    German and French company CEOs are already in Tehran making deals. Not oil companies but companies like Bosch,AEG, Stihl, Miele etc.

    Iranians use washing machines, power tools etc etc also.

    Everything in my home is German or Korean. NOT one USA product because they don't make anything but weapons and burgers anymore.

    assistedliving

    185 Billion Reasons
    You got a problem with that?

    I lived in Iran awhile back. Imo, best place in entire Near East except maybe Lebanon. Only Iran far richer, culturally and every other way except maybe cuisine.

    Jack Burton

    How do you say "American frackers are dead, and several hundred thousand jobs will die." already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...

    It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margines of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a deperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present.

    smacker

    OK. Obola bends over for Big Oil and gets his kicks by stuffing the US workforce that will go to Iran full of CIA spies.

    [Jul 26, 2015] What Is Wrong with the West's Economies?

    "...The jarring market forces? It was a political project with the desired results."
    .
    "..."We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.""
    .
    "...AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting."
    .
    "...Our financial leaders don't want a thriving economy. The want to crush the opposition and keep people under their thumb"
    .
    "...Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html"

    This is from Edmund Phelps. It was kind of hard to highlight the main points in brief extracts, so you may want to take a look at the full article:

    What Is Wrong with the West's Economies?: What is wrong with the economies of the West-and with economics? ...

    Many of us in Western Europe and America feel that our economies are far from just...

    With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end. The setback has cost the less advantaged not only a loss of income but also a loss of what economists call inclusion-access to jobs offering work and pay that provide self-respect. And inclusion was already lacking to begin with. ...

    How might Western nations gain-or regain-widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing-it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new-economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

    Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. ... The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

    It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

    We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

    I'm skeptical that this is the answer to our inequality/job satisfaction problems.

    Posted by Mark Thoma on Friday, July 24, 2015 at 10:38 AM in Economics, Income Distribution, Productivity | Permalink Comments (14)

    Peter K. said...

    "With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end."

    The jarring market forces? It was a political project with the desired results.

    JohnH said in reply to Peter K....

    Indeed! And there is currently no meaningful effort to fix the problem, only to worsen it through TPP and TAFTA.

    Rune Lagman said...

    "We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life."

    Well, ain't gonna happen by "reforming" the education system.

    Everybody (more or less) knows what it takes to "fix" the western economies; lots of infrastructure investment (preferable green) and higher wages. I'm getting fed up with all these "economists" that keep justifying the status quo (probably because their paycheck depends on it).

    dan berg said...

    Could it possibly be that your skepticism arises from the fact that -precisely because you are an academic economist - you haven't got an imaginative or creative bone in your body?

    RC AKA Darryl, Ron said in reply to dan berg...

    Dear AH,

    Doc Thoma wrote "I'm skeptical that this is the answer to our inequality/job satisfaction problems."

    Everybody has imagination and creative potential. Most people just lack the mean to express it in a way that will enter the economy. Even Edmund realized that people got to eat. The obstacles run from there. It was Edmund's answer that Doc Thoma was skeptical of. This was Phelps answer to the question:

    "... Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects-science, technology, engineering, and mathematics-but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

    It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education..."

    If you agree with Edmund Phelps on his answer then at least we must all admit that you have an astronomical imagination.

    djb said...

    Our financial leaders don't want a thriving economy

    The want to crush the opposition and keep people under their thumb

    Give people real hope and the economy will thrive

    anne said...

    By way of Branko Milanovic, referring to randomized trials in economics:

    http://www.sccs.swarthmore.edu/users/08/bblonder/phys120/docs/borges.pdf

    1658

    On Exactitude in Science
    Suarez Miranda

    …In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast Map was Useless, and not without some Pitilessness was it, that they delivered it up to the Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there is no other Relic of the Disciplines of Geography.

    (1946

    Viajes de varones prudentes
    Jorge Luis Borges)

    cm said...

    "The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy."

    He left out the part who will pay for all these new things. Aggregate demand. I don't know where this idea comes from that young people don't imagine creating new things. They do it all the time, until the rubber hits the road and they have to get a corporate job because there is just not enough interest and funding for what they are interested in offering. No amount of education will help there.

    Not to put words in his mouth, but its sounds like an impersonalized form victim blaming - schools suck and young people have no imagination.

    RC AKA Darryl, Ron said in reply to cm...

    Schools suck and young people have too much imagination. But Edmund Phelps has more imagination that anyone that I have ever known :<)

    cm said in reply to RC AKA Darryl, Ron...

    Not sure how this relates to my point. How will "better education" fix the fact that when you have a good idea, more likely than not there is no market for it? A lot of tech innovation "rests" in actual or metaphorical drawers because of no ROI or no concrete customer/market to sell it. And this is not a recent phenomenon.

    RC AKA Darryl, Ron said...

    AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting.

    Lafayette said...

    {... which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end.}

    Yes, unopposed. Just what should any nation do about it? Forbid it?

    That's not the way economies work.

    The Industrial Revolution took a lot of people off the farms, brought them into large cities, where accommodations were created for their families, and gave them jobs in factories with which to pay the rent.

    Many then moved on to purchase those properties an become homeowners, which was a typical example of "economic progression".

    Of course, the Industrial Revolution, which started in western developed nations, aided by a couple of wars, inevitably progressed from more developed to lesser developed societies.

    We in the industrially developed West should not have permitted the Chinese, Vietnamese or Filipinos from bettering their lot by making exactly the same societal progression?

    Where is the Social Justice in that, pray tell?

    If there has been any failure in Social Justice, it is in the US. Piketty was very clear about that in this info-graphic: https://www.flickr.com/photos/68758107@N00/14266316974/

    The income unfairness that has occurred since the US ratcheted down drastically upper-income taxation was not replicated in the EU. Is a third of all income going to only 10% of the population in Europe unfair? Perhaps.

    But not quite as unfair as the nearly 50% in the United States. And as regards Wealth, the societal impact is even worse. As Domhoff's work shows, 80% of the American population obtain only 11% of America's wealth historically. See that tragic bit of unfairness here: http://www2.ucsc.edu/whorulesamerica/power/images/wealth/Net_worth_and_financial_wealth.gif

    Lafayette said in reply to Lafayette...

    Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html

    Excerpt: {The argument over the structure and distribution of power in the United States has been going on within academia since the 1950s. It has generated a large number of empirical studies, many of which have been drawn upon here.

    In the final analysis, however, scholars' conclusions about the American power structure depend upon their beliefs concerning power indicators, which are a product of their "philosophy of science". That sounds strange, I realize, but if "who benefits?" and "who sits?" are seen as valid power indicators, on the assumption that "power" is an underlying social trait that can be indexed by a variety of imperfect indicators, then the kind of evidence briefly outlined here will be seen as a very strong case for the dominant role of the power elite in the federal government.}

    Thanks to RR in the 1980s.

    No wonder "they" make statues of Reckless Ronnie. Can't believe that? See this from WikiPedia: "List of things named after Ronald Reagan", here: https://en.wikipedia.org/wiki/List_of_things_named_after_Ronald_Reagan

    [Jul 23, 2015] US Recession Imminent - World Trade Slumps By Most Since Financial Crisis

    Remember this is ZeroHedge... It "predicts" that the US recession is coming for the last five years. But, please note, one day it will be right. Still I would subscribe under the following:
    "...We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population."
    Jul 23, 2015 | Zero Hedge
    nope-1004

    Everything from Wall Street is "since the financial crisis".

    Wish some truth would be told at some point, that the "recovery" since 2008 has been a smoke & mirrors recovery with cooked books, fake employment stats, FASB accounting changes marking asset values to fantasy, and back door bailouts of the financial institutions because they are 100% insolvent.

    We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population. The FED is sucking the life out of anyone not chasing bubbles, unicorns, and rain bows.

    The financial system is a crooked lie and WE ARE IN A PROLONGED DEPRESSION.

    Let's call a spade a spade.

    [Jul 23, 2015] Big Trouble In Not So Little China...

    Looks like china decided to repeat the US dot com bubble "with chineses characteristics"....
    Jul 23, 2015 | Zero Hedge

    Why hasn't the panic of the recent decline followed by the government induced rally spilt over into other markets? While there was obvious concern that answer is simple enough… The Shanghai Stock Exchange Composite index rose 150% for the 12 months through June 12th. The rally, however, wasn't based on any material upswing in economic fundamentals. Instead, over much of this period, the economy slowed with both exports and domestic demand weakening as did corporate profits. Capital outflows increased and even with high trade surpluses, the balance of payments turned negative for two quarters. Importantly, the authorities continued to guide public expectations towards lower medium-term growth as they had done over the past two years.

    But after a very lackluster performance at best for the preceding four and half years, sometime at the start of 2H14, market sentiments changed. It is likely that talks of market liberalization, including an opening of the capital account, and in particular the authorities' presumed intention to "rebalance" the economy's portfolio from the excessive and worrisome dependence on bank credit to more equity and bond financing is likely to have been the catalyst.

    Starting last November, the PBOC also began cutting lending rates and bank reserve requirements. While the easing was intended to support growth and liquidity, which had dried up because of increased capital outflows, market participants took this as corroboration of the government's intended "support" for equity market expansion.

    Talks of A-share's inclusion in the MSCI index that could potentially bring in significant foreign inflows added to the froth and the rally accelerated. China's onshore stock market has historically been thin on institutional participation with previous rallies largely driven by retail investors. Between 80% to 90% of the China's market is dominated by retail investors, many of which subscribe to domestic investor newsletters that have been bullish on China's push towards new tech IPOs. The all led to speculative excess in the ChiNext and Shenzhen exchanges primarily. Hundreds of new brokerage accounts were opened and amateur investors bought on margin. An estimated 4,000 new hedge funds were opened in China in one month, and China had over 200 companies list their shares for the first time, the most of any other country. Studies have shown that most of China's day traders are working class investors that do not have a college education. They tend to treat stock investing like a day at the horse track.

    This time it wasn't different. For instance, during the past twelve months, the number of individual investor accounts rose from 93 million to 115 million in the Shanghai stock exchange, and rose from 113 million to 142 million in the Shenzhen stock exchange.

    Initially this correction was driven by high valuations, accelerated pace of IPOs, market fears that the monetary easing would slow down, and a tightening of rules on margin financing. Subsequently, the correction intensified as policy measures were seen as inadequate or ill-targeted.

    However this latest correction is not remarkable in the history of China's stock market. There have been at least two previous cycles since 2000 where the price volatility has been much larger. The previous stock market volatility during 2006-08 was much more dramatic (up 450% between June 2005 and October 2007, and down 70% between October 2007 and October 2008). The impact on the real economy in these cycles was limited, including through wealth effects and contagion to other financial assets.

    The development of new market instruments (futures & options), in particular the extensive use of margin financing, hints at potentially more extensive wealth destruction among household and corporate retail investors. For example, margin financing provided by brokerage firms rose from 0.4 trillion yuan in June 2014 to 2.3 trillion yuan at the recent peak level on June 18th (coming back down to about 1.4 trillion yuan by July 9). Compared to previous episodes of stock market correction, this time round there is greater concern over the potential spillover to the real economy, especially as the economy doesn't have the buffer from strong export growth. China's export growth has fallen to 0.6%oya during the first five months of this year, after continuously slowing in the past five years from the heady days of high double-digit growth before 2008. In the absence of the buffer from export growth, the burden of keeping up the pace of activity and income has fallen squarely on domestic drivers that could be adversely affected.

    The government's attempt to stem the free fall has involved a number of intrusive interventions in market operations .

    • June 27th 2015: Interest rate and RRR cut (China Financials: Reinforcing the Policy Put vs Deleveraging)

    • June 29th 2015: pathways for national pension funds to invest in the equities market;

    • July 1st 2015: a) reduce transaction costs; b) CSRC abolished mandatory requirement on margin calls and liquidation for margin loans; c) broaden financing channels for brokers (China Securities: Policy makers roll out further "market-saving" measures)

    • July 4th 2015: a) 21 brokers pledged to buy blue chips stocks; b) suspending 28 IPOs; (China Securities: A pledge to "national service")

    • July 5th 2015: PBOC to provide liquidity support to CSFC to stabilize the market (More measures to support the A-share market: PBOC to provide liquidity support to CSFC)

    These interventions, along with the voluntary suspension of trading by 43% of the listed companies, do not help promote the orderly development of the equity and corporate bond markets. While these measures are likely to be short-lived and one expects them to be removed once the market stabilizes, the interventions could discourage foreign institutional participation. While the government has recently changed investment norms to encourage local pension and other long-term funds to invest in the stock market, an orderly growth of the equity market typically also requires foreign institutional participation to add depth and maturity as evidenced in other emerging market economies. In the absence of the equity market providing a reliable source of funding, the burden of financing China's growth would again fall back on bank credit. The experience could also make the authorities more cautious in liberalizing the corporate bond market and outward capital account transactions.

    The mainland Chinese stock market only recently opened to investors this year. A handful of qualified institutional investors have had access to that market for less than two years. It's never been opened to the world.

    The market is still immature and although the Chinese have an interventionist mind set, over here we have hardly set the greatest example..we stopped the shorting of stocks during the financial crisis; we bailed out AIG and engaged in massive quantitative easing which at best has altered the price discovery process and put the stock market at major risk on the longer term and although on the face of it they are doing similar actions there are stories of people being arrested or disappearing for minor infractions, brokerage houses that can do nothing but recommend buys….this is not the type of thing to encourage institutional investment. The whole idea of socialism with Chinese characteristics, which is the government mantra, is paradoxical. Chinese communism in charge of a very capitalistic economy has always been a bit mysterious, and something that those from capitalist countries have been puzzled by.

    At first glance, it might appear strange to argue that even after a roughly $3.5 trillion loss of market capitalization, the wealth effect on consumption will be limited, but this is likely to be the case While retail participation had increased substantially in the rally, this had not translated into a consumption boom. In fact, retail sales growth slowed when the stock market was rallying. While increases in wealth may not have been immediately translated into higher consumption, the slide could sour consumer sentiment. Moreover, there could be threshold effects if the stock prices continue to downward trend.

    The effect on commodity markets, cart or horse?

    Much of the global commodity markets have for sometime now been weighed down by the slowdown in China's growth. With commodities being used as collateral for borrowing, it is worth noting that the The risk comes when prices fall by a large magnitude within a short time, driving down the value of the collateral.

    With Hong Kong and Singapore's ratio of bank credit to GDP close to multi-year highs, the risk is that a worsening of credit quality could further tighten credit conditions and dampen domestic demand. In the coming weeks While the Chinese stock market appears to have calmed down, this may not be the true reflection of market sentiments.

    People have been drawing similarities between US 1929-1935 and the Japanese lost decades, but there are two things tip a country from recession into depression: too much debt, and the way dealing with that debt pushes down prices (i.e. deflation). In 1929 the US messed up by failing to counteract falling prices by freeing up money-in fact, it catastrophically raised interest rates in the immediate wake of the 1929 crash.

    When deflation sets in, falling prices cause the relative cost of debt to rise. That sinks debtors in even deeper, and makes would-be borrowers unwilling to take out loans to build their businesses. As people desperately sell off assets to pay back what they owe, they drive prices down even further-exactly what happened in the Great Depression. Unemployment surged to a quarter. More than 5,000 banks failed, taking with them untold sums of household wealth. It wasn't until 1939 that the US truly emerged from the Great Depression. Although Bureaucrats and bankers believed that with enough time and loose money, they could grow out from under the debt burden.

    ... ... ...

    gregga777

    There are three kinds of people:

    Type I: people who learn from the mistakes made by other people;
    Type II: people who learn from their own mistakes;
    Type III: people who learn nothing.

    Collectively, Japan and China are Type III. The USA is tending overwhelmingly towards Type III.

    Fahque Imuhnutjahb

    One man's mistake is another man's windfall, ain't that right Lloyd ?

    KnuckleDragger-X

    You can either learn form past disasters or from your own disasters. China's problem is they tend to be inward facing and live in an ego-centric universe. Too bad reality is a bitch and really enjoys inflicting its lessons on the foolish and unprepared.....

    [Jul 22, 2015] The current "gangbusters" wealth effect on consumption

    "...Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation ata level never seen before in history."
    .
    "...In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect."
    July 20, 2015 | angrybearblog.com

    Pulled back from comments. (bolding mine)

    Marko, July 20, 2015 7:01 am
    These days , more people may own stocks , but the vast majority own trivial amounts. Look up Edward Wolffs stuff on wealth distribution and try to estimate how much stocks would have to go up to tease out any meaningful consumption out of the bottom 90% of the wealth distribution.

    The dotcom bubble was unusual in that from the mid-90s to just after the crash decent income gains were achieved across the distribution , something that hadn't been seen for a couple of decades. That may have contributed to any apparent consumption anomaly , as more-than-usual income flowed to high MPC households.

    You can find people who can econometrically manufacture stock market wealth effects of 5-10 cents on the dollar , but they're almost always those of a certain "persuasion" , politically speaking , i.e. mouthpieces for the 1%. Greenspan was a famous example.

    Other asset prices certainly respond to a stock market bubble , like art and other collectibles , but that doesn't do much for the economy either.

    Shiller has never believed much in the stock market wealth effect , and I tend to think he's on the right track. A couple pennies on the dollar in the US , maybe :

    http://www.pragcap.com/robert-shiller-debunks-stock-market-wealth-effect

    Housing wealth is more potent , I'm sure , but when you back out the collateral-enhanced borrowing increase , I doubt that it amounts to more than a penny or two attributable to wealth "animal spirits".

    Finally , 'splain this :

    https://research.stlouisfed.org/fred2/graph/?g=dGy

    If there's any kind of generalized wealth effect , it should be going gangbusters right now , bigger even than the dotcom or subprime booms. That's hard to square with this economy's performance , which has limped along right through the wealth boom. Maybe some would argue that without the wealth boom we'd be entirely dead , but my feeling is we've designed the economy to generate wealth instead of gdp. In that sense , we're doing great !

    My reply

    Indeed the ratio of personal consumption expenditures to personal disposable income is the highest its been since 1950 except for 2005 2006 and 2007 (the height of the housing bubble).

    Note in the discussion that Brad DeLong, Dean Baker and I all agree that housing wealth has more effect on aggregate demand than stock market wealth. I argued as you do that the wealth of the rich has little effect on their consumption (which is I think limited by 24 hours in a day not a budget).

    I have no idea why it is that people who assert there is a stock price effect on consumption tend to be right wing. They often argue that promoting saving is very important (hence capital income shouldn't be taxed). In general they argue that consumption is too high not too low (and that it crowds out investment). Thus they should argue that causing low consumption is a good thing about low stock prices.

    In fact, I think that usually (when the economy is not in a liquidity trap) lower consumption would be better. This is one of many reasons why I would like to effectively confiscate part of the value of stock by taxing dividends. It is exactly the wealth effect that makes the optimal tax on capital income (as correctly calculated using the standard model used by critics of capital income taxation) very high.

    In any case, I don't think one should decide what is true by group affinity for people who say one thing or another. Rather I think it is better to look at data (as I did following your absolutely correct albeit rhetorical gangbusters prediction).

    GDP is way below trend because of low residential investment and low government consumption and investment. Consumption is high - much higher than one would guess with the most empirically successful model with no wealth effect (which is the paleo Keynesian consumption function).

    Warren, July 20, 2015 11:12 am

    I agree 100% with your assessment of the (lack of) "wealth effect" of a stock market bubble.

    You get a stock market bubble by having more people wanting to buy than to sell, so the prices get bid up. "Investment" in stock (except for IPO's), does nothing for the economy - except to raise stock prices. In general, it is still a good idea for people themselves to invest in the stock market, but a stock market bubble does not help the economy at all, because to get money out to buy something else (which would help the economy), someone else has to take their money, which he might have used to buy something else, to pay you for that stock.

    Stock market purchases (again excepting IPO's), are a wash - whatever price is paid by the purchaser just goes to the seller and the broker. There is no net gain anywhere.

    Indeed, the wealth of the rich does not affect their consumption, not because there are only twenty-four hours in a day, but because their goal is the accumulation not consumption. That's how they got wealthy in the first place.

    Housing prices, however, are a different matter, because some people will take out equity loans on their houses and spend it on something - usually consumption, not accumulation. This takes money that people want to save (the lenders), and puts it back into the economy to buy goods and services. It is the flow of money that is important in an economy, not the amount of money. (Yes, one can take loans against stock holdings, but it is riskier, and most people just do that so they can buy more stock - again doing nothing for the economy.)

    Now, I do believe that promoting saving is very important, not for the economy, but for the individuals themselves. I agree with the idea that "consumption crowds out investment," but only at the individual level, not economy-wide. For one person to consume, someone else must produce. To produce, he must invest in the means of production. The only way for consumption to be higher is for production to also be higher.

    While it seems we agree on all that, I don't understand where you are going with the dividend tax. Dividends are already taxed. A company earns some income, that income is taxed, and from the remainder dividends are paid. Then the recipients of those dividends are taxed on them. Dividend payments are not tax deductible, so they are taxed at both the corporate and individual levels. (True, those in the 10% and 15% brackets pay no dividend tax, but they hold a negligible amount of the dividend-paying stocks.)

    Assuming a marginal corporate tax rate of 35%, and a dividend tax of 15% (for most people - some will be taxed at 20%), that's already a 50% tax on that income. How much do you think the government should take?

    Lastly, I can understand how low residential investment reduces GDP - it is less production. But I do not see how lack of government consumption reduced GDP. The government, generally, produces little of value. (Yes, the F35 is very expensive, but I think you will agree that its value is much lower.) Government consumption must be paid for by taxes, which means that those paying the taxes will not be spending that money on something else (like residential improvements). Or it can be paid for by borrowing money, in which case the people lending the money to the government won't be spending it on something else or lending it to someone else.

    The primary way for federal government spending (investment) to really increase GDP is in infrastructure. Roads, bridges, trains, and public transportation in general have a beneficial effect on the economy in general ("the General Welfare… of the United States").

    Now, to contradict myself, maybe I need to go back to the FLOW issue. If those paying the taxes or buying the bonds would otherwise just sit on that money, then perhaps it is better to take or borrow it, even to seemingly waste it on those who don't (won't) work, the government contractors who charge $800 for a MILSPEC hammer, failed health insurance exchanges, etc. Generally, the people who "earn" that money are going to go out and spend it. So perhaps keeping the FLOW moving, even if the reason for the flow is itself worthless, is itself a net positive.

    Even so, our debt levels scare the $H!T out of me.

    Sorry I've gone on so long. It's a fascinating topic. Thanks for letting me ramble.

    bkrasting, July 20, 2015 12:17 pm

    Marko dismisses the consequences of the wealth effect with this:

    but they're almost always those of a certain "persuasion" ,
    politically speaking , i.e. mouthpieces for the 1%.
    Greenspan was a famous example.

    Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation at a level never seen before in history.

    Both Ben an Janet have repeated the mantra that aggressive policy and strong Dow Jones are good for the economy. They have pushed this policy to a much greater extent that Greenspan ever did.

    Yellen and Ben do not fit Marko's mold.

    In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect.

    In the past month China's market fell a jaw dropping 30%! The government stepped in to prop up the market. Hundreds of billions of printed money was needed to avoid an even deeper sell off. There was concern of social pressures if the sell off got out of control. The Chinese clearly believe in (and fear) the wealth effect.

    Again, It's a mistake to paint stripes on those who gear economic policy around equity markets. It's also a mistake to underestimate the consequences of the markets on overall economic performance. After all, we have 1929 and 2009 to point to.

      Daniel Becker, July 20, 2015 1:29 pm

      In the end, the vast majority of citizens of a given economy still need to be able to make the payments. Wealth means nothing to them if they don't have the income to cover the monthly bill.

      The liquidity trap was the results of banks having nothing but air under their loan portfolios because the people who were making the payments could not.

      That "could not" make the payments part as I've noted and then Kreger noted in is Gatsby Effect that $1.1 trillion in income had shifted to the 1% from the 99% and in his calculations represented $450 billion in consumption.

      How stupid was this economic design? Build a money machine that depends on people being able to make payments while the machine works also reduces the money used to make payments by those who need to make payments.

      The money boys and girls played both ends against the middle and the ends smacked into each other causing the big crash.

      Bruce Webb, July 20, 2015 2:54 pm

      Warren let me disagree on a few points. In two comments.

      One it is too reductionist to say that the rich are motivated by accumulation rather than consumption, in part because there are only 24 hours in the day. First of all people like Larry Ellison have proven there ARE ways to consume conspicuously no matter how much money you have. For example you can essentially buy the America Cup competition AND buy 99% of one of the major Hawaiian Islands. But more generally you have omitted the third possibility: which is display. As a medievalist by training I have seen abundant evidence that what motivated chieftains and then kings and emperors was not personal consumption as much as the chance to display wealth and hospitality. Meaning that you could become famed by being KNOWN to be so rich that you could spend without care, and not just on yourself but on your supporters or simply via charity. In this way display has a function in between accumulation and consumption and where a thousand years ago that might manifest itself in palaces and cathedrals today it can happen with the pages of the Forbes 400 issue.

      coberly, July 20, 2015 3:24 pm

      Well, I agree about the Big LIe, or the Big Befuddlement. You have to reember that these people have been lying to themselves since they were freshmen at Harvard and were let in on the Big Secrets by Famous Men.

      On the other hand, you could just as well, or better, tax ONLY corporations. Since the corps would adjust the wages they pay and the prices they charge, the effect on "the economy" would be zero. and since the people would not be paying any tax, they would vote for larger taxes and we could get some work done.

      Or, as long as you are not running a system where the rich pay no taxes and the poor pay what the traffic will bear, you could leave things as they are and let the market sort them out.

      I don't know anyone who is paying the "double tax" who is going without supper.

      [Jul 21, 2015] Fat Tails & The Invisible Vulnerability Of Markets

      Jul 21, 2015 | Zero Hedge
      Authored by Michael Mauboussin, via ValueWalk.com

      Fat Tails & Nonlinearity, Dec 2007

      Diversity Breakdowns and Invisible Vulnerability

      For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more accurately to describe her paths.

      Francis Bacon
      Novum Organum 1

      The Memo Went Out

      If you are involved in financial markets, you have gotten the memo about fat tails by now.

      But awareness of extreme events is not enough. Thoughtful investors must understand two interrelated aspects of the market. The first is the statistical properties of price movements, including important deviations from the bell-shaped distribution. Academics, risk managers, and quantitative investors have explored this aspect extensively. Researchers recognized decades ago that the distribution of price changes includes fat tails.

      The second aspect, and one often overlooked or misunderstood, is the mechanism that leads to the statistical imprint. Much of the work on the market's statistical properties is divorced from the propagating mechanism, while traditional theories of market efficiency assume the mechanisms. Crucially, understanding the mechanism provides insight into how and why markets fail.

      Our focus here is on nonlinearity. Many complex systems, including markets, have critical points where small incremental condition changes lead to large-scale effects. Researchers in both the physical and social sciences have known about these critical points for a long time; so much so that terms like phase transition and tipping point have slipped into our day-to-day language. Still, critical points throw a monkey wrench into our mostly linear cause-and-effect thinking.

      Critical points help explain our perpetual surprise at fat-tail events: We don't see them coming because the state change is much greater than the perturbation suggests. Water does not undergo a dramatic change as it drops from 35 to 33 degrees Fahrenheit, but two degrees of additional cooling changes its state from liquid to solid. Likewise, large changes can occur in markets without visible manifestation in asset price change, while small additional changes can flip the price switch.

      Critical points are also important for proper counterfactual thinking. For every critical point we do see, how many were lurking but never triggered? Like water temperature dropping to 33 degrees and again rising, there are likely many nearmisses in the markets that elude our detection.

      We survey three ideas: black swans and why patterns set us up for surprise; the conditions for crowds to be wise and the role of nonlinearity; and, finally, three examples of nonlinearity, including a physical system, an agent-based model, and a recent market dislocation.

      Michael Mauboussin - Fat Tails And Nonlinearity

      Don't Feed the Turkey

      Nassim Taleb uses the black swan metaphor to help popularize the fat-tail idea. He defines a black swan as an outlier event that has an extreme impact and that humans seek to explain after the fact. Recent market turmoil fits the definition well.

      The black swan reference reflects Karl Popper's criticism of induction. Popper's point is that to understand a phenomenon, we're better off focusing on falsification than on verification. Seeing lots of white swans doesn't prove the theory that all swans are white, but seeing one black swan does disprove it.

      Taleb relates the story of a turkey that is fed 1,000 days in a row. The feedings reinforce the turkey's sense of security and well-being, until one day before Thanksgiving an unexpected and uninvited bad event occurs. All of the turkey's experience and feedback is positive until fortune takes a turn for the worse. Recent comments by a senior executive at one of the world's largest banks evoke the turkey story: "Our losses [from instruments based on U.S. subprime mortgages] greatly exceeded the profits we made in this field over several years."

      Michael Mauboussin - Fat Tails And Nonlinearity

      Here's the point: rising asset prices provide investors confirming evidence that their strategy is good and everything is fine. This induction problem lulls investors into a sense of confidence, and sets the stage for the shock when events turn down. That nonlinearity causes sudden change only adds to the confusion.

      Michael Mauboussin - Fat Tails And Nonlinearity

      See full PDF here

      [Jul 19, 2015] How The Fed And Wall Street Are Eating Their Seed Corn

      Jul 19, 2015 | Zero Hedge
      Submitted by Mark St.Cyr,

      When it comes to the stock market these days the overriding theme you hear from the financial media is "You've got to get in." Another is, "Buy on the dips and average in." Or, "You can't profit if you aren't in it" and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one's wealth is far more factual than any will let on. Let alone reveal.

      I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can't wrap their heads around is: "If the markets are a reflection of the economy. Then how in the world did we get up here?" That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it's off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.

      At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one's years. Today, not only in much of that expertise gone – so too is the safety.

      There's probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of "a soft opening" to ask…"So, do you have a 401K account elsewhere?" Then the sales pitch is on by some seemingly just out of grad school quota seeking "financial adviser" with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. "Index this… diversify that…dividend paying yields " and on and on. Along with whatever might be the latest tagline from the financial shows.

      This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren't even staying, let alone "getting in."

      Let's use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I'll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it's not all that great. However, for many entrepreneurs it's an amount easily understood as well as feasible. I also use if because it's a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today's financial morass.

      (The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)

      The "buy and hold" strategy. Sounds great, makes perfect sense – unless you can't hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn't sell (e.g., their stocks) – there's no money to eat. Better to "stay and hold" in one's business and take their chances rather than try to "cash out" and place their livelihoods (i.e., money) in someone else's hands. Especially what constitutes as today's "investment adviser."

      "Buy stocks that pay out dividends!" Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what's the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren't the ones you were sold. Or, you're now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that's what you'll need to remember when there's no food on the table because – there's no "dividend" in the mailbox. I'll also add: it's probably safe to assume in another financial rout, the "financial adviser" that sold you those "dividend" plays is no longer employed themselves. So calling them for further "advice" might be more challenging than it is frustrating.

      "Buy the dips!" Sure, there's only one problem. If there is a "dip" doesn't that mean the markets lost value? So if one didn't sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now "buy the f'n dip!"

      "A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!" No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of $1,000,000.00 of ones net worth. More than likely a "net worth" that was to be "worth" food to eat, and pay living expenses.

      "If you're nervous about the markets just be diversified." This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of '08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I'd love to sell you. Cheap!

      Don't like the "markets?" Don't worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it's gonna cost you a plenty if that sooner is at the wrong time. But don't worry. It's not like you need to eat or pay bills anytime sooner or later, right?

      Want to keep your money as safe as possible? "Keep it in liquid instruments such as C.D.'s or savings accounts here at our bank." Unless of course it's over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your "cash" is now a hindrance that needs to be protected as well as accounted for. And that's not what a "bank" is in business for any longer. Silly you for thinking "bank" today means anything what "bank" meant in the past.

      "Don't like banks? Put you're money in a money market!" Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it's now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your "cash" value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I'll bet you didn't even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it's no longer even clear when you may gain or regain access to it (if there's anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it's written right there in black and white. (Just have your 10X magnifying glass at the ready is all I'll say.)

      I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a "Wall St. maven" today and I'll bet dollars to doughnuts you'll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.

      What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic "money on the sidelines" has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants "in" to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.

      "Buying the right index, diversification, and thinking like a billionaire" is not only nonsensical in today's marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay. All one needs to do is look east to see just how well that type of thinking is doing in China today. For "bubbles" no matter the culture when it comes to one's money "pop" the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!

      [Jul 02, 2015]Current Oil Price Slump Far From Over

      I think the author is wrong. Neither production nor demand drastically changed to justify 50% oil price drop. Cost of production is the most interesting question here; my hypothesis is that it is close to $90 for large part of shale wells as most shale companies issued junk bonds and are heavily in debt even while prices were around $100. In any case it is clearly above $60 for most. So the current prices in three-five years will drastically diminish the role of shale in the USA oil production, if (big if) they can be sustained. They also alreasy started the wave of to bankruptcies and acquisition on minor players by major oil players (aka consolidation of industry). In other word this is destruction of shale industry as a sacrificial pawn in a larger geopolitical game. Destruction, in which, paradoxically, Saudi Arabia is the major player, but not for the reasons published in MSM as it is essentially the kingdom is a Washington vassal on Middle East.
      .
      The key factor in increasing shale oil production in the USA was the ability of producers to sell junk bonds. This channel is destroyed and might not recover in a decade. Junk bonds from those guys now have a distinct smell of subprime mortgages. That means that as soon as existing and under construction wells production decline (in three years or so let's talk about 2018) many of those companies will be acquired by stronger competitors and losses will be written off.
      .
      "...$90 per barrel appears to be the empirical threshold price above which demand destruction begins."
      Jun 29, 2015 | OilPrice.com
      The availability of capital to fund unconventional production is the key to how long low oil prices will last going forward. If the flow of capital continues, then the production surplus and lower oil prices will also continue, assuming that OPEC is able to maintain higher production levels and that demand growth remains relatively low.

      Eventually, price will win and unconventional production will fall. The market will rebalance and prices will rise. If oil prices stay low for long enough, demand will increase to support a return to higher prices. I doubt that prices will increase to levels before mid-2014 barring politically driven shock events. $90 per barrel appears to be the empirical threshold price above which demand destruction begins.

      It is more difficult to predict how the second- and third-order effects of economic uncertainty and geopolitical risk may affect supply and demand fundamentals and, therefore, price. These are the wild cards that could change the outcome that I describe.

      The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

      We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.
      We have crossed a boundary and things are different now.

      *I am indebted to James K. Galbraith for introducing me to the idea of boundaries and phase changes as they may apply to economics and oil prices in The End of Normal: The Great Crisis and The Future of Growth (2014).

      Rick on June 30 2015 said:

      Art,

      You completely ignore data from the states. You appear to have a blind faith in the infallibility of the EIA and IEA. For a guy with the background you claim to possess to believe the Saudis and OPEC can increase maxed out production, or that a decimated economy with badly neglected facilities and fields can so dramatically increase production, is simply astounding. Are you serious?

      Jim on June 30 2015 said:

      "Low" is a relative term. WTI averaged about $30 in current dollars between 1985-2005. If we see a new normal around $50 over the next decade or two, then it has become much more expensive in real terms. It is important to remind readers that cheap natural gas has allowed US industry to remain competitive and to keep consumers warm in the winter and cool in the summer. Internet technologies and computer-aided logistics also are helping the US economy control demand for driving. Since the 1970's though, oil has become an increasingly expensive building block in our civilization.

      [Jul 01, 2015] Massive downward revisions to oil output in Brazil and Iraq

      Prediction three years too early...
      Massive downward revisions to oil output in Brazil and Iraq have increased the risks for oil markets of going from the current feast to famine within just a few years, leading to a price spike that would give a new boost to the U.S. shale industry…

      …"All these project cancellations and deferral and cut backs are setting the world up for tighter oil markets in the medium term (2017-19) unless the record Middle East oil rig count successfully translates into significantly higher production," said Seth Kleinman from Citi.

      "Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today," Deutsche Bank said in a note on Tuesday….

      …Several oil industry heavyweights, including former BP (BP.L) boss Tony Hayward, have predicted a new bull market could arrive sooner than expected given the scale of capital and workforce withdrawal from the U.S. oil industry.

      U.S. oil output growth has indeed stalled in recent months as companies drastically cut the number of drilling rigs following a steep fall in oil prices after OPEC decided against cutting output last November….

      [Jun 28, 2015] Keynes, The Great Depression And The Coming Great Default

      Jun 28, 2015 | Zero Hedge
      falak pema

      you guys have it ALL wrong.

      Keynes was there to check OLIGARCHY neo-feudalism. This crisis is about Oligarchy neofeudalism.

      We need a balance between state and private enterprise. Right now we have "inverted totalitarianism" :an alliance between state and private Oligarchs where, unlike Mussolini model; its private enterprise that RUNS THE WORLD; the 1%.

      The state is their slave; even FED belongs to its paymasters : the TBTF aka JP Morgan and now GS. Since Glass Steagall revoke; engineered by the GS squid cabal allowing Investment banks to rule the roost to MAXIMISE shareholder returns, the whole shooting match of supply side deregulated Reaganomics; all based on asset hiking based on short term quarterly reports; has morphed capitalism beyond recognition.

      The world of capital changed in 1981...the day all that mattered was shareholder value based on short term steroid pumping that the 1971 "our money your problem" had initiated based on petrodollar hegemony fueled on perpetual DEBT.

      The cumulative effect of 1971/1981/1991 outsourcing NWO mantra post Iraq 1 and SU default was what we have spawned today: a three step process where petrodollar debt + FIRE economy oligarchy enrichment+ NWO outsourcing based on cheap oil and cheap labour have built this casino capitalism model now compounded by derivative financialisation toxic shenanigans.

      Now tell me WHAT has KEYNES got to do with this monetarist construct based on Friedman's 1971 mantra?

      You guys deny the time line of facts and its irrefutable logic all based on petrodollar hegemony, and arms bazar supremacy.

      [Jun 27, 2015] Breaking Greece

      Paul Krugman:

      Breaking Greece: I've been staying fairly quiet on Greece... But given reports from the negotiations in Brussels, something must be said...
      This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren't so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we're still in the business of dictating domestic policy.
      The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do - see the chart, which compares the projections in the 2010 standby agreement with reality - are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity. ...
      At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.
      Sandwichman said...

      The class nature of the IMF position is evident to anyone who chooses to see. Olivier Blanchard is the IMF's chief economist. Professor Krugman politely omits mentioning that salient fact. Professional courtesy, I presume.

      anne said in reply to Sandwichman...

      Olivier Blanchard is the IMF's chief economist.

      [ Meaning what exactly? ]

      Sandwichman said in reply to anne...

      Meaning if "unserious" Olivier (see below) was serious about his unseriousness maybe he would publicly repudiate the economics of the policy of the organization that he is presumably chief economist for.

      Sandwichman said in reply to anne...

      "The IMF's 'Tough Choices' on Greece," Jamie Galbraith

      http://www.project-syndicate.org/commentary/imf-greece-debt-restructuring-by-james-k-galbraith-2015-06#I3bKPImqEIzi2QYu.99

      "Blanchard should know better than to persist with this fiasco. Once the link between "reform" and growth is broken – as it has been in Greece – his argument collapses. With no path to growth, the creditors' demand for an eventual 3.5%-of-GDP primary surplus is actually a call for more contraction, beginning with another deep slump this year.

      "But, rather than recognizing this reality and adjusting accordingly, Blanchard doubles down on pensions. He writes:

      "'Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.'

      "Note first the damning admission: apart from pensions and wages, spending has already been "cut to the bone." And remember: the effect of this approach on growth was negative. So, in defiance of overwhelming evidence, the IMF now wants to target the remaining sector, pensions, where massive cuts – more than 40% in many cases – have already been made. The new cuts being demanded would hit the poor very hard."

      anne said in reply to Sandwichman...

      Understood completely, darn.

      Sandwichman said in reply to Sandwichman...

      So Galbraith and Krugman basically agree on the stupidity of the policy. Galbraith names the name. Krugman hesitates. Basic social psychology.

      Sandwichman said in reply to Sandwichman...

      Final paragraph of the Jamie Galbraith piece:

      "Blanchard insists that now is the time for "tough choices, and tough commitments to be made on both sides." Indeed it is. But the Greeks have already made tough choices. Now it is the IMF's turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all."

      Final two paragraphs of Krugman's:

      "Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we're not in high school here. And right now it's the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

      "At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen."

      Do those "IMF people" have names? I guess not.

      anne said in reply to Sandwichman...

      Perfectly contrasted and argued, and important.

      pgl said in reply to Sandwichman...

      This is sounding a lot like our Federal government. Nondefense purchasing is not that high even though we need a lot more infrastructure. Republicans have bitched about Social Security retirement benefits for decades. Cut taxes to hell and then demand a balanced budget even during weak aggregate demand. OK, Greece's problems are enormous but listen to Paul Ryan enough and we will become a banana republic.

      [Jun 27, 2015] Tsipras Bailout Referendum Sham naked capitalism

      "...not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states."
      .
      "...He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S. "
      .
      "...Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies. "
      .
      "...The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece."
      June 27, 2015 | economistsview.typepad.com

      Chris Herbert said...

      Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes: "The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

      National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

      anne said in reply to Chris Herbert...

      http://www.polyarchy.org/enough/texts/keynes.1933.html

      1933

      National self-sufficiency
      By John Maynard Keynes

      RC AKA Darryl, Ron said in reply to Chris Herbert...
      Terrific!
      Swedish Lex June 27, 2015 at 7:27 am

      Thanks for long analysis.

      Not sure I agree with all.

      While Tsipras, Syriza & Co. certainly are not the team that would win the Super bowl, far from it, they are nevertheless not worse than the Troika in terms of incompetence, internal inconsistencies, having made populistic and crazy promises to voters on false pretenses, etc. Greece is the unruly teenager and the Troika are supposed to be the enlightened and responsible parents, even if it means being harsh. What we have instead is one entirely dysfunctional family.

      My point is that even a 24 karat Greek Government would have an impossible task in negociating with the Ayatollahs of the Troika.

      This game is therefore (unfortunately) not about acting rationally. Doing the right and responsible thing will not make you win or at least lose less.

      Therefore I think that Tsipras move to launch a referendum is not bad. If the ECB shuts off the ELA – a couple of days before the citizens of Greece get to vote on the situation – then the ECB will (again) be confirmed at the Institution that kills democracy.

      The Greek referendum has in my view been an option for the Greeks all the time. By doing it now "Ach mein Gott, way too late", the Greeks show that the creditors, and their parliaments, do not own the agenda (and hence cannot use it as pressure point).

      What we are witnessing is clearly not a negotiation. It is political warfare with one pygmy state against a totally overwhelming force. I do not expect Greece to win this, in the end, but I hope that they will lose with dignity while the creditors win in infamy. This is not irrelevant since the next generation of Greeks will need to know that their parents refused to surrender to the, objectively, suicidal demands of the creditors....

      Swedish Lex, June 27, 2015 at 7:33 am

      I also believe that a Greek default would blow a big hole in the ECB's balance sheet, meaning that the euro states would have to inject tens of billions of new equity. Real money. TBC.

      Freddo, June 27, 2015 at 7:52 am

      I wonder how Merkel is feeling right now. I would interpret telling Tspiras to "shut up" as a sign she sees her legacy disappearing down a drain. Powerful leaders holding all the cards don't talk like that. Maybe she has suddenly realized she doesn't hold all the cards.
      ennui, June 27, 2015 at 10:06 am

      not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states. the fact that the ECB has conducted a slow bank run in Greece destroys any trust national political leaders might have in a European banking system. you can't have a central bank which is willing to destroy the banking system of a member state to advance the political aims of other member states….

      steviefinn, June 27, 2015 at 7:56 am

      Swedish Lex

      Agreed – & what is the difference in the end result between bowing & scraping & at least putting up some sort of fight ? Strikes me that it would eventually end up in much the same place anyway. Maybe morals don't count in this counting house world anymore, but however it ends, I personally am grateful to Syriza for allowing us more insight into the dealings of the EU Junta – which hopefully others will learn from, leading to a way of destoying this hydra.

      Lambert Strether, June 27, 2015 at 1:23 pm
      Not sure what mechanism you have in mind. From the post:

      [Syriza's] assumption appears to have been that the national governments would find it too politically toxic to recognize losses on the debt they had extended to Greece through the EFSF and the Greek Bailout Fund. But maturities on these facilities have been extended and payments deferred. And the national governments do not have to mark to market. They will recognize losses only if and when Greece fails to make payments, which is years down the road. And even then, the pain is spread out over decades. That means Greece's supposed nuclear weapon turns out to be a pop gun.

      Granted, these are country losses (after they were left holding the bag for German banks) but you do't explain how the ECB would lose. Would you, please?

      Cugel, June 27, 2015 at 7:42 pm

      Varoufakis last year explained everything before Syriza even took power. He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S.

      The difference of course is that the U.S. had a sovereign currency and could run deficits and FDR didn't have to answer to the Troika. So, Syriza tried to get the creditors to see reason and see that it was in their long-term best interests to grant debt-relief. They failed because of EU arrogance, blind adherence to dogma, and short-term thinking. But, they certainly didn't have any other choice.

      Yves has criticized them severely for not negotiating better. It is impossible to prove she's wrong that Syriza missed opportunities for finding a workable compromise, but I've never seen it as remotely plausible that the creditors would agree to anything Greece could accept.

      The attempt at a referendum is obvious political theater and will be rejected by the Troika. It wouldn't work anyway. It is just another political ploy by Tsipras to cast the blame on the Troika by making them look bad, but they are long past the point of caring and just want Greece out of the EU.

      Ben Johannson, June 27, 2015 at 3:35 pm

      I can see no evidence that eurozone CB's must be in positive territory regarding its balance sheet or that member states must make any "hole" whole. They may demand it anyway given the leaders of the eurogang are likely as stupid as they look but it isn't an inevitability given the ECB does not require balance sheet solvency to conduct its operations.

      ennui, June 27, 2015 at 1:15 pm

      As Varoufakis notes in his recent statement, an agreement now would leave Syriza with a Greek economy in a deep depression, a banking system that has been strangled by the ECB with no commitment to confidence building, a requirement to create a fiscal surplus and monthly reviews by the IMF culminating in a repeat performance of this whole charade in November.

      Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies.

      Whether it was intentional or not, Syriza's dogged commitment to this "negotiation" has illustrated just the degree to which the Troika are acting in bad faith. There were just two outcomes that were possible from this process: Syriza signing a deal which would be politically suicidal or Greek exit, and this was by design by the powers of Europe.

      The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece.

      [Jun 25, 2015]We Are Reaching Peak Energy Demand, BP Data Suggests

      Submitted by Gail Tverberg via Our Finite World blog,

      Some people talk about peak energy (or oil) supply. They expect high prices and more demand than supply. Other people talk about energy demand hitting a peak many years from now, perhaps when most of us have electric cars.

      Neither of these views is correct. The real situation is that we right now seem to be reaching peak energy demand through low commodity prices. I see evidence of this in the historical energy data recently updated by BP (BP Statistical Review of World Energy 2015).

      Growth in world energy consumption is clearly slowing. In fact, growth in energy consumption was only 0.9% in 2014. This is far below the 2.3% growth we would expect, based on recent past patterns. In fact, energy consumption in 2012 and 2013 also grew at lower than the expected 2.3% growth rate (2012 – 1.4%; 2013 – 1.8%).

      Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. Based on BP Statistical Review of World Energy 2015 data.

      Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

      Recently, I wrote that economic growth eventually runs into limits. The symptoms we should expect are similar to the patterns we have been seeing recently (Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)). It seems to me that the patterns in BP's new data are also of the kind that we would expect to be seeing, if we are hitting limits that are causing low commodity prices.

      One of our underlying problems is that energy costs that have risen faster than most workers' wages since 2000. Another underlying problem has to do with globalization. Globalization provides a temporary benefit. In the last 20 years, we greatly ramped up globalization, but we are now losing the temporary benefit globalization brings. We find we again need to deal with the limits of a finite world and the constraints such a world places on growth.

      Energy Consumption is Slowing in Many Parts of the World

      Many parts of the world are seeing slowing growth in energy consumption. One major example is China.

      Figure 2. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

      Figure 2. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

      Based on recent patterns in China, we would expect fuel consumption to be increasing by about 7.5% per year. Instead, energy consumption has slowed, with growth amounting to 4.3% in 2012; 3.7% in 2013; and 2.6% in 2014. If China was recently the growth engine of the world, it is now sputtering.

      Part of China's problem is that some of the would-be buyers of its products are not growing. Europe is a well-known example of an area with economic problems. Its consumption of energy products has been slumping since 2006.

      Figure 3. European Union Energy Consumption based on BP Statistical Review of World Energy 2015 Data.

      Figure 3. European Union Energy Consumption based on BP Statistical Review of World Energy 2015 Data.

      I have used the same scale (maximum = 3.5 billion metric tons of oil equivalent) on Figure 3 as I used on Figure 2 so that readers can easily compare the European's Union's energy consumption to that of China. When China was added to the World Trade Organization in December 2001, it used only about 60% as much energy as the European Union. In 2014, it used close to twice as much energy (1.85 times as much) as the European Union.

      Another area with slumping energy demand is Japan. It consumption has been slumping since 2005. It was already well into a slump before its nuclear problems added to its other problems.

      Figure 4. Japan energy consumption by fuel, based on BP Statistical Review of World Energy 2015.

      Figure 4. Japan energy consumption by fuel, based on BP Statistical Review of World Energy 2015.

      A third area with slumping demand is the Former Soviet Union (FSU). The two major countries within tithe FSU with slumping demand are Russia and Ukraine.

      Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

      Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

      Of course, some of the recent slumping demand of Ukraine and Russia are intended–this is what US sanctions are about. Also, low oil prices hurt the buying power of Russia. This also contributes to its declining demand, and thus its consumption.

      The United States is often portrayed as the bright ray of sunshine in a world with problems. Its energy consumption is not growing very briskly either.

      Figure 6. United States energy consumption by fuel, based on BP Statistical Review of World Energy 2014.

      Figure 6. United States energy consumption by fuel, based on BP Statistical Review of World Energy 2014.

      To a significant extent, the US's slowing energy consumption is intended–more fuel-efficient cars, more fuel efficient lighting, and better insulation. But part of this reduction in the growth in energy consumption comes from outsourcing a portion of manufacturing to countries around the world, including China. Regardless of cause, and whether the result was intentional or not, the United States' consumption is not growing very briskly. Figure 6 shows a small uptick in the US's energy consumption since 2012. This doesn't do much to offset slowing growth or outright declines in many other countries around the world.

      Slowing Growth in Demand for Almost All Fuels

      We can also look at world energy consumption by type of energy product. Here we find that growth in consumption slowed in 2014 for nearly all types of energy.

      Figure 7. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      Figure 7. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      Looking at oil separately (Figure 8), the data indicates that for the world in total, oil consumption grew by 0.8% in 2014. This is lower than in the previous three years (1.1%, 1.2%, and 1.1% growth rates).

      Figure 8. Oil consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      Figure 8. Oil consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      If oil producers had planned for 2014 oil consumption based on the recent past growth in oil consumption growth, they would have overshot by about 1,484 million tons of oil equivalent (MTOE), or about 324,000 barrels per day. If this entire drop in oil consumption came in the second half of 2014, the overshoot would have been about 648,000 barrels per day during that period. Thus, the mismatch we are have recently been seeing between oil consumption and supply appears to be partly related to falling demand, based on BP's data.

      (Note: The "oil" being discussed is inclusive of biofuels and natural gas liquids. I am using MTOE because MTOE puts all fuels on an energy equivalent basis. A barrel is a volume measure. Growth in barrels will be slightly different from that in MTOE because of the changing mix of liquid fuels.)

      We can also look at oil consumption for the US, EU, and Japan, compared to all of the rest of the world.

      Figure 9. Oil consumption divided between the (a) US, EU, and Japan, and (b) Rest of the World.

      Figure 9. Oil consumption divided between the (a) US, EU, and Japan, and (b) Rest of the World.

      While the rest of the world is still increasing its growth in oil consumption, its rate of increase is falling–from 2.3% in 2012, to 1.6% in 2013, to 1.3% in 2014.

      Figure 10 showing world coal consumption is truly amazing. Huge growth in coal use took place as globalization spread. Carbon taxes in some countries (but not others) further tended to push manufacturing to coal-intensive manufacturing locations, such as China and India.

      Figure 10. World coal consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      Figure 10. World coal consumption by part of the world, based on BP Statistical Review of World Energy 2015.

      Looking at the two parts of the world separately (Figure 11), we see that in the last three years, growth in coal consumption outside of US, EU, and Japan, has tapered down. This is similar to the result for world consumption of coal in total (Figure 10).

      Figure 10. Coal consumption for the US, EU, and Japan separately from the Rest of the World, based on BP Statistical Review of World Energy data.

      Figure 11. Coal consumption for the US, EU, and Japan separately from the Rest of the World, based on BP Statistical Review of World Energy data.

      Another way of looking at fuels is in a chart that compares consumption of the various fuels side by side (Figure 12).

      Figure 8. World energy consumption by fuel, showing each fuel separately, based on BP Statistical Review of World Energy 2015.

      Figure 12. World energy consumption by fuel, showing each fuel separately, based on BP Statistical Review of World Energy 2015.

      Consumption of oil, coal and natural gas are all moving on tracks that are in some sense parallel. In fact, coal and natural gas consumption have recently tapered more than oil consumption. World oil consumption grew by 0.8% in 2014; coal and natural gas consumption each grew by 0.4% in 2014.

      The other three fuels are smaller. Hydroelectric had relatively slow growth in 2014. Its growth was only 2.0%, compared to a recent average of as much as 3.5%. Even with this slow growth, it raised hydroelectric energy consumption to 6.8% of world energy supply.

      Nuclear electricity grew by 1.8%. This is actually a fairly large percentage gain compared to the recent shrinkage that has been taking place.

      Other renewables continued to grow, but not as rapidly as in the past. The growth rate of this grouping was 12.0%, (compared to 22.4% in 2011, 18.1% in 2012, 16.5% in 2013). With the falling percentage growth rate, growth is more or less "linear"–similar amounts were added each year, rather than similar percentages. With recent growth, other renewables amounted to 2.5% of total world energy consumption in 2014.

      Falling Consumption Is What We Would Expect with Lower Inflation-Adjusted Prices

      People buy goods that they want or need, with one caveat: they don't buy what they cannot afford. To a significant extent affordability is based on wages (or income levels for governments or businesses). It can also reflect the availability of credit.

      We know that commodity prices of many kinds (energy, food, metals of many kinds) have been have generally been falling, on an inflation adjusted basis, for the past four years. Figure 13 shows a graph prepared by the International Monetary Fund of trends in commodity prices.

      Figure 9. Charts prepared by the IMF showing trends in indices of primary commodity prices.

      Figure 13. Charts prepared by the IMF showing trends in indices of primary commodity prices.

      It stands to reason that if prices of commodities are low, while the general trend in the cost of producing these commodities is upward, there will be erosion in the amount of these products that can be purchased. (This occurs because prices are falling relative to the cost of producing the goods.) If, prior to the drop in prices, consumption of the commodity had been growing rapidly, lower prices are likely to lead to a slower rate of consumption growth. If prices drop further or stay depressed, an absolute drop in consumption may occur.

      It seems to me that the lower commodity prices we have been seeing over the past four years (with a recent sharper drop for oil), likely reflect an affordability problem. This affordability problem arises because for most people, wages did not rise when energy prices rose, and the prices of commodities in general rose in the early 2000s.

      For a while, the lack of affordability could be masked with a variety of programs: economic stimulus, increasing debt and Quantitative Easing. Eventually these programs reach their limits, and prices begin falling in inflation-adjusted terms. Now we are at a point where prices of oil, coal, natural gas, and uranium are all low in inflation-adjusted terms, discouraging further investment.

      Commodity Exporters–Will They Be Next to Be Hit with Lower Consumption?

      If the price of a commodity, say oil, is low, this is a problem for a country that exports the commodity. The big issue is likely to be tax revenue. Governments very often get a major share of their tax revenue from taxing the profits of the companies that sell the commodities, such as oil. If the price of oil, or other commodity that is exported drops, then it will be difficult for the government to collect enough tax revenue. There may be other effects as well. The company producing the commodity may cut back its production. If this happens, the exporting country is faced with another problem–laid-off workers without jobs. This adds a second need for revenue: to pay benefits to laid-off workers.

      Many oil exporters currently subsidize energy and food products for their citizens. If tax revenue is low, the amount of these subsidies is likely to be reduced. With lower subsidies, citizens will buy less, reducing world demand. This reduction in demand will tend to reduce world oil (or other commodity) prices.

      Even if subsidies are not involved, lower tax revenue will very often affect the projects an oil exporter can undertake. These projects might include building roads, schools, or hospitals. With fewer projects, world demand for oil and other commodities tends to drop.

      The concern I have now is that with low oil prices, and low prices of other commodities, a number of countries will have to cut back their programs, in order to balance government budgets. If this happens, the effect on the world economy could be quite large. To get an idea how large it might be, let's look again at Figure 1, recopied below.

      Notice that the three "layers" in the middle are all countries whose economies are fairly closely tied to commodity exports. Arguably I could have included more countries in this category–for example, other OPEC countries could be included in this grouping. These countries are now in the "Rest of the World" category. Adding more countries to this category would make the portion of world consumption tied to countries depending on commodity exports even greater.

      Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. Based on BP Statistical Review of World Energy 2015 data.

      Figure 1- Resource consumption by part of the world. Canada etc. groupng also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

      My concern is that low commodity prices will prove to be self-perpetuating, because low commodity prices will adversely affect commodity exporters. As these countries try to fix their own problems, their own demand for commodities will drop, and this will affect world commodity prices. The total amount of commodities used by exporters is quite large. It is even larger when oil is considered by itself (see Figure 8 above).

      In my view, the collapse of the Soviet Union in 1991 occurred indirectly as a result of low oil prices in the late 1980s. A person can see from Figure 1 how much the energy consumption of the Former Soviet Union fell after 1991. Of course, in such a situation exports may fall more than consumption, leading to a rise in oil prices. Ultimately, the issue becomes whether a world economy can adapt to falling oil supply, caused by the collapse of some oil exporters.

      Our Economy Has No Reverse Gear

      None of the issues I raise would be a problem, if our economy had a reverse gear–in other words, if it could shrink as well as grow. There are a number of things that go wrong if an economy tries to shrink:

      • Businesses find themselves with more factories than they need. They need to lay off workers and sell buildings. Profits are likely to fall. Loan covenants may be breached. There is little incentive to invest in new factories or stores.
      • There are fewer jobs available, in comparison to the number of available workers. Many drop out of the labor force or become unemployed. Wages of non-elite workers tend to stagnate, reflecting the oversupply situation.
      • The government finds it necessary to pay more benefits to the unemployed. At the same time, the government's ability to collect taxes falls, because of the poor condition of businesses and workers.
      • Businesses in poor financial condition and workers who have been laid off tend to default on loans. This tends to put banks into poor financial condition.
      • The number of elderly and disabled tends to grow, even as the working population stagnates or falls, making the funding of pensions increasingly difficult.
      • Resale prices of homes tend to drop because there are not enough buyers.

      Many have focused on a single problem area–for example, the requirement that interest be paid on debt–as being the problem preventing the economy from shrinking. It seems to me that this is not the only issue. The problem is much more fundamental. We live in a networked economy; a networked economy has only two directions available to it: (1) growth and (2) recession, which can lead to collapse.

      * * *

      Conclusion

      What we seem to be seeing is an end to the boost that globalization gave to the world economy. Thus, world economic growth is slowing, and because of this slowed economic growth, demand for energy products is slowing. This globalization was encouraged by the Kyoto Protocol (1997). The protocol aimed to reduce carbon emissions, but because it inadvertently encouraged globalization, it tended to have the opposite effect. Adding China to the World Trade Organization in 2001 further encouraged globalization. CO2 emissions tended to grow more rapidly after those dates.

      Figure 14. World CO2 emissions from fossil fuels, based on data from BP Statistical Review of World Energy 2015.

      Figure 14. World CO2 emissions from fossil fuels, based on data from BP Statistical Review of World Energy 2015.

      Now growth in fuel use is slowing around the world. Virtually all types of fuel are affected, as are many parts of the world. The slowing growth is associated with low fuel prices, and thus slowing demand for fuel. This is what we would expect, if the world is running into affordability problems, ultimately related to fuel prices rising faster than wages.

      Globalization brings huge advantages, in the form of access to cheap energy products still in the ground. From the point of view of businesses, there is also the possibility of access to cheap labor and access to new markets for selling their goods. For long-industrialized countries, globalization also represents a workaround to inadequate local energy supplies.

      The one problem with globalization is that it is not a permanent solution. This happens for several reasons:

      • A great deal of debt is needed for the new operations. At some point, this debt starts reaching limits.
      • Diminishing returns leads to higher cost of energy products. For example, later coal may need to come from more distant locations, adding to costs.
      • Wages in the newly globalized area tend to rise, negating some of the initial benefit of low wages.
      • Wages of workers in the area developed prior to globalization tend to fall because of competition with workers from parts of the world getting lower pay.
      • Pollution becomes an increasing problem in the newly globalized part of the world. China is especially concerned about this problem.
      • Eventually, more than enough factory space is built, and more than enough housing is built.
      • Demand for energy products (in terms of what workers around the world can afford) cannot keep up with production, in part because wages of many workers lag thanks to competition with low-paid workers in less-advanced countries.

      It seems to me that we are reaching the limits of globalization now. This is why prices of commodities have fallen. With falling prices comes lower total consumption. Many economies are gradually moving into recession–this is what the low prices and falling rates of energy growth really mean.

      It is quite possible that at some point in the not too distant future, demand (and prices) will fall further. We then will be dealing with severe worldwide recession.

      In my view, low prices and low demand for commodities are what we should expect, as we reach limits of a finite world. There is widespread belief that as we reach limits, prices will rise, and energy products will become scarce. I don't think that this combination can happen for very long in a networked economy. High energy prices tend to lead to recession, bringing down prices. Low wages and slow growth in debt also tend to bring down prices. A networked economy can work in ways that does not match our intuition; this is why many researchers fail to see understand the nature of the problem we are facing.

      Financial_skeptic/ /energy. Stagnation/

      [Jun 24, 2015] US productivity – the dog that isn't barking at the Fed by Gavyn Davies

      "...The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. "
      "...Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?"
      Jun 21, 2015 | blogs.ft.com | 15 comments | Share

      Before last week's FOMC meeting, there was much debate about whether the Fed would officially draw attention to the awful US productivity data that have been published lately. Both William Dudley and Janet Yellen have highlighted the problem in recent speeches, and there was speculation that some members of the FOMC might revise down their estimates for potential GDP growth at the June meeting.

      In fact, however, they did not do so, preferring to sweep the problem under the carpet for at least another meeting. Instead, they focused attention on the "gradual" nature of the likely upward path for interest rates after lift-off, which now seems marginally more likely to start in December than in September 2015.

      The FOMC's range for long run GDP growth fell sharply from 2011 to 2013, but has not been changed now for about a year. Potential GDP growth depends on underlying productivity growth, and on the projected growth in the labour force, which is about 0.4 per cent per annum at present. So the Fed's central projection of 2.15 per cent for potential GDP growth implies a productivity projection of about 1.75 per cent.

      The problem, however, is that this range is not consistent with the actual productivity numbers that have been published at any stage during the present economic recovery. Since 2009, productivity has risen at an average of 1.5 per cent per annum while over the past two years it has risen at only 0.5 per cent. Normally, as a recovery matures, productivity growth should be speeding up, but that is not happening this time. At some point soon, the FOMC will need to acknowledge this.

      Why does this matter for policy and markets? After all, in the period since 2009, the slowdown in productivity growth has occurred without this having any effect on Fed decisions, and without doing any damage to equity or bond prices. But that was in an environment of excess capacity in the economy, even with a very low estimate for potential GDP growth. Now that excess capacity has been nearly eliminated on many estimates, the growth rate in potential GDP could suddenly become a binding constraint on the economy.

      A major downgrade to the FOMC's productivity projections would have very adverse implications for markets. Short term interest rates would need to rise more rapidly, for any given rate of growth in real GDP. Long term rates may rise by less, because the Fed's estimate of real long term interest rate – the eventual destination for rates during the tightening cycle – would probably decline with the underlying GDP growth rate.

      That means the yield curve would probably invert, which is normally not a good signal for equities. Furthermore, a rise in unit labour costs, following lower productivity growth, could result in a decline in the profits share in GDP, which has been one of the key fundamental underpinnings for the equity bull market.

      But before leaping into action, members of the FOMC will have to ask themselves at least three difficult questions about the productivity challenge. These are:

      1. Is the slowdown being exaggerated by mismeasurement in the official economic data, because the impact of IT on productivity is being under-stated? This issue is now being widely debated, as it was in the late 1990s, when Fed Chairman Greenspan used the same argument to justify running the economy "hotter" than otherwise would have been justified. As far as we can tell, the current Fed is not as persuaded by the IT argument as Greenspan was. In her recent speech, Ms Yellen was agnostic on this debate: "I do not know who is right". Furthermore, there is no sign that the official statisticians are planning to reconsider the inflation and productivity statistics, as they did with the Boskin Commission report in the 1990s. Therefore, the current Fed will have no "cover" from an impending change in the official data to make a controversial judgment on productivity growth. They are unlikely to use this escape route.
      2. Will productivity growth rebound automatically if the recovery in GDP accelerates? Ms Yellen has often suggested that this might be the case and she remarked in last week's press conference that this assumption has been built into the Fed's latest economic projections. But there is very little evidence that it is actually happening as the recovery matures. If that remains the case, there is scope for disappointment here, rather than the reverse.
      3. How should monetary policy respond to an acceleration in unit labour costs driven by rising wage inflation at a time of slow productivity growth? The FOMC is aware that wage inflation is now starting to rise slightly on some measures, but it has shown no signs of alarm over this trend so far. Recent Fed research has suggested that the link between labour costs and price inflation is much less robust than it was in earlier decades, but it is questionable whether the FOMC will feel they can rely on this if the rate of increase in unit labour costs rises above 3 per cent. That may happen in the not too distant future.

      What is the bottom line? The median of the FOMC's "dot plot" for the future path for short rates remains substantially above the path that is priced into the bond markets, though the gap has narrowed with the slight downward revisions to the dots that emerged after last week's policy meeting. Furthermore, there have been suggestions, after forensic analysis of the "dots", that the key members of the FOMC might be bunched around the dovish end of the range, so the difference between them and the market may no longer be very significant.

      This means that, in the immediate future, the danger that a really hawkish Fed might shock the markets is still fairly slight:

      The risk, however, is that neither the Fed dots, nor the markets, are making sufficient allowance for the looming threat to the path for short rates stemming from low productivity growth. The markets are increasingly aware that this threat exists. For example, Bruce Kasman of J.P. Morgan has been warning about "demand side optimism and supply side pessimism", a combination that sounds bad for US bonds and equities.

      It will be hard for the FOMC to skirt round this issue for much longer.

      MarkGB, 3 days ago

      "Is the slowdown being exaggerated by mis-measurement in the official economic data, because the impact of IT on productivity is being under-stated? "

      No - the whole picture of what is happening in the real US economy is being distorted by mis-measurement in the official economic data, through:

      1. GDP figures that are being inflated by politically motivated 'seasonal adjustments', which conveniently support the Fed's jawboning of the stock market

      2. Inflation figures that bear very little resemblance to rises in the cost of living, particularly for poor people, but which do very conveniently hold down annual rises in benefits and social security

      3. Unemployment figures that:

      a) Count 1+ hours a week as a job

      b) When three of these jobs are being carried out by the same person that's counted as three 'jobs'

      c) The jobs being lost are 50k+ jobs whilst the 'jobs' being gained are part-time low wage jobs

      d) The majority of these jobs are being taken by the 50 plus age group, not young people

      In short, the official presentation of what is happening in the US economy is as bent as a nine dollar note...garbage in, garbage out.

      You are right Mr Davies, productivity is being eroded - the life is being sucked out of the US economy by the distortions and mal-investments generated by Federal Reserve monetary policies, coupled with governmental taxation, regulatory and fiscal policies that urgently need reform, which, amongst other things make it increasingly difficult for small businesses to create new jobs.

      Politicians and government academics typically don't 'get' productivity. Most of them have never produced anything. They are like kids who want a McDonald's but have never even seen a cow, let alone worked on a farm.

      /B
      3 days ago

      @MarkGB plus GDP itself is nuts. Most credit creation is through lending against land. We have the inversion of demographics now the boomers are retiring and have (thank god) started to end borrowing against land. Therefore GDP will fall, even as we see fantastic increases in wealth creation due to an IT revolution.

      GDP is just not useful. For the life of me I can't understand why when most newly created money is via housing that we are not spending more time discussing land.

      Imputed rent alone accounts for 10% of GDP. Yet the FT just never ever talks about any of this in detail.

      Paul A. Myers, 4 days ago

      The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. This contrasts sharply with Jeb Bush's assertion that he can achieve 4 percent GDP growth (which an FT editorial characterizes as absurd). But the key point is that the US political establishment in Congress is at best very confused about the drivers of current GDP growth.

      My surmise is that to increase US GDP potential would require a significant increase in public spending on infrastructure and research -- that there is private capital sitting on the sidelines due to a lack of public investment. If so, then further tax cuts and less government spending -- the bromides the Republican party are bringing to the 2016 election -- are the wrong medicine.

      So better private sector growth will require more public spending. Obviously this is a counterintuitive argument to most voters. It will be interesting to see where the US government goes in 2017 and beyond with regard to public investment. And will this even be an issue in the 2016 campaign.

      Michael McPhillips, 3 days ago

      @Paul A. Myers

      As public spending is already included in GDP from those who pay the taxes and deficit spending still the only way government can increase growth (IT figures for it) are you saying that only with infrastructure spending can private capital also invest and not from tax cuts and lower public spending, which would increase demand and slow the rate of future tax increases, which would encourage investment.

      Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?

      cg12348, 3 days ago

      Reality is starting to set in - the US is in decline - due to demographics and global competitive forces. Now as with all liberal governments - social programs try to compensate for those things productivity is expected to make ore available - far less efficient coming from social programs than private markets - the spiral continues.

      joshuak2077, 3 days ago

      To consider expanding Inflationary forces because of trailing productivity does not take in considerations the exogenous forces coming from abroad that suppress Inflation. The ways economists evaluate and predict at the moment is profoundly endogenous and therefor shortminded.

      FRUSTRATED SAVER
      3 days ago

      If the us is now running near full capacity surely we should expect domestic investment to

      accelerate isnt that the indicator the fed should be watching alternatively there is excess capacity in other parts of the world(china for instance) and in a world of competetive devaluations

      this is going to worsen the trade deficit as it has in the past. and may not be inflationary

      making the conundrum worse

      [Jun 24, 2015] Is the Global Trade Slowdown a New Normal?

      http://econbrowser.com/archives/2015/06/the-global-trade-slowdown-a-new-normal#comments

      This is the title of a newly released VoxEU ebook, edited by Bernard Hoekman.

      The post-Crisis decline in the growth rate of the ratio of global trade to GDP has been cause for some concern that global trade has peaked, and that we are now reaching a new normal in which trade levels will be weak in comparison to about a decade ago. Whether such a peak in trade was a defining moment in global trade or whether it is a cyclical phenomenon is one of the questions this eBook addresses.

      hoekman_pix

      Figure 1 from Hoekman (2015).

      Here's the Table of Contents.


      Part One: Introduction

      Trade and growth – end of an era?
      Bernard Hoekman

      1 World trade and production: A long-run view
      Douglas A Irwin

      Part Two: Determinants of the slowdown

      2 The global trade slowdown
      Cristina Constantinescu, Aaditya Mattoo and Michele Ruta

      3 Recent slowdown in global trade: Cyclical or structural?
      Emine Boz, Matthieu Bussière and Clément Marsilli

      4 Does the post-Crisis weakness of global trade solely reflect weak demand?
      Patrice Ollivaud and Cyrille Schwellnus

      5 The power of the few in determining trade accelerations and slowdowns
      Guillaume Gaulier, Gianluca Santoni, Daria Taglioni and Soledad Zignago

      Part Three: GVCs, gravity and peak trade

      6 Global value chains and the trade-income relationship: Implications for the recent trade slowdown
      Byron Gangnes, Alyson C Ma and Ari Van Assche

      7 World trade and income remain exposed to gravity
      Hubert Escaith and Sébastien Miroudot

      8 A value-added trade perspective on recent patterns in world trade
      Paul Veenendaal, Hugo Rojas-Romagosa, Arjan Lejour and Henk Kox

      9 On the gravity of world trade's slowdown
      Matthieu Crozet, Charlotte Emlinger, Sébastien Jean

      Part Four: East Asian perspectives and the China factor

      10 The relationship between trade and economic growth and a slowdown of exports in Korea
      Taeho Bark

      11 Growth and structural change in trade: Evidence from Japan
      Koji Ito and Ryuhei Wakasugi

      12 The global trade slowdown: Lessons from the East Asian electronics industry
      Willem Thorbecke

      13 China's trade flows: Some conjectures
      Menzie D Chinn

      14 Trade impact of China's transition to the 'new normal'
      Jiansuo Pei, Cuihong Yang and Shunli Yao

      Part Five: Policy perspectives

      15 Crisis-era trade distortions cut LDC export growth by 5.5% per annum
      Simon J. Evenett and Johannes Fritz

      16 Trade growth prospects: An African perspective
      Ottavia Pesce, Stephen Karingi and Isabelle Gebretensaye

      17 'Peak trade' in the steel sector
      Simon J. Evenett and Johannes Fritz

      18 Supporting the micro-multinationals to help achieve peak trade
      Usman Ahmed, Brian Bieron and Hanne Melin

      19 Bold political leadership and vision can unlock global trade growth
      Amgad Shehata

      The entire ebook can be downloaded here.

      [Jun 19, 2015]BLS Twenty-Five States had Unemployment Rate Increases in May

      sum luk wrote on Fri, 6/19/2015 - 8:15 am (in reply to...)

      josap wrote:

      First-Quarter Growth Disappoints, but Outlook Robust

      … yes, but now, cpi / pce have been saved by rising gasoline prices: http://floatingpath.wpengine.netdna-cdn.com/wp-content/uploads/2015/06/CPI-Table-820x567.png

      arthur_dent wrote on Fri, 6/19/2015 - 8:29 am

      we all know by now, but it does not hurt to be reminded,

      The Fed Sucks At Economic Forecasting

      (second topic down)

      KarmaPolice wrote on Fri, 6/19/2015 - 8:42 am

      Why U.S. is producing but not using more oil and gas - MarketWatch

      "One offshoot: the number of busses on the road has surged."

      All going to Colorado.

      yuan, wrote on Fri, 6/19/2015 - 8:58 am
      Let Greece Go - Bloomberg View

      Regardless, it is now in Greece's own best interests to show itself the door. There should be no doubt, as Martin Wolf points out in the Financial Times, that like most divorces, this one will be acrimonious. But the sooner it starts, the sooner Greece can begin the process of starting an economic recovery.

      Here are a few that might persuade Greece to pack its bags and leave the abusive relationship it's in with the EU:...

      Default!
      Default!
      Default!

      yuan wrote on Fri, 6/19/2015 - 9:02 am
      The Track Record for Austerity in the Euro Crisis Countries | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research

      This table compares the I.M.F.'s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries.

      Reality has a Keynsian bias...

      Citizen AllenM wrote on Fri, 6/19/2015 - 9:31 am

      A fine birthday present for me on Monday- A Grexit!

      I am so excited to finally see what happens when the pseudo gold standard collapses again, bit by bit.

      Someday this war's gonna end...

      Comrade Janošik wrote on Fri, 6/19/2015 - 9:31 am

      i too sense the Dooooooooooooooom!!!

      Citizen AllenM wrote on Fri, 6/19/2015 - 9:39 am (in reply to...)

      Bank runs starting, so out they go!

      Using the Argentine model, they are toast monday.

      Or one more episode of can kicking could occur, but the writing is now on the wall.

      Someday this war's gonna end...

      Sebastian wrote on Fri, 6/19/2015 - 9:44 am

      Timetable of potential Greece default.

      Greek debt crisis: Key dates on the road to a possible Grexit - FT.com

      If no agreement can be reached, worst-case scenarios begin to kick in, including capital controls to limit withdrawals from Greek banks and prevent a complete financial meltdown.

      If a Greek bank run were to begin, the European Central Bank - which is keeping Greek banks on life support by approving emergency central bank loans to local financial institutions - could be forced to declare them insolvent and withdraw all assistance.

      Without the emergency loans, Greece's banks would collapse and the only way to restart them would be creating a new central bank with a new currency.

      Sebastian

      josap wrote on Fri, 6/19/2015 - 9:53 am

      Today.
      ECB approves rise in emergency loans to Greek banks - FT.com

      Greece and Europe look into the abyss, with one last chance looming - The Washington Post
      Fears that Greece's cash-strapped banks might imminently close their doors eased Friday afternoon as the European Central Bank agreed to pump even more emergency loans into the Greek banking system. It was the second time this week that the ECB had come to the rescue, following an infusion Wednesday. But the new loan was only expected to cover the country's lenders through Monday, and ECB officials made clear it was just a temporary patch for a much bigger problem.

      Fair Economist wrote on Fri, 6/19/2015 - 10:01 am

      I don't understand the ECB's game. They made a statement yesterday that the Greek banks were going to be in trouble soon, setting off a run - and then loan more money to these insolvent institutions. This makes no sense whether they're trying to be tough or gentle. Unless, I suppose, they're trying to assume all the bad debt by letting the banks run off entirely, and I can't believe they're trying to do that.

      bearly wrote on Fri, 6/19/2015 - 10:02 am (in reply to...)

      Fair Economist wrote:

      I don't understand the ECB's game.

      They're trying to reel in the IMF to spread the losses outside of the eurozone.

      Fair Economist wrote on Fri, 6/19/2015 - 10:10 am (in reply to...)

      They're trying to reel in the IMF to spread the losses outside of the eurozone.

      Well, right now the IMF is as exposed as it's ever going to be. Right now a big chunk of the loans are already from the IMF. The next tranche, if it ever comes, will be a loan from the EC and will be used to pay off the IMF. If the EC wants to minimize their losses and dump as much as possible on the IMF, ending it now is in their interest - but then why would they assume even larger amounts of bad bank debt?

      There have been, according to one site, 3.4 billion in euro withdrawals already this week - that's almost half the size of the tranche currently under negotiation (7.2 billion IIRC).

      Private debt, as usual, dwarfs public debt.

      [Jun 07, 2015] ECONOMIC LAWS, STRUCTURAL TENDENCIES, SECULAR STAGNATION THEORY, AND THE FATE OF NEOLIBERALISM by Alan Nasser

      This article was published long before Summers started to understand the problem and even befor the economic crash of 2008 ;-)
      September 22, 2005 | alannasser.org

      Alan Nasser Invited presentation, University of Lille,

      "We have now grown used to the idea that most ordinary or natural growth processes (the growth of organisms, or popu- lations of organisms or, for example, of cities) is not merely limited, but self-limited, i.e. is slowed down or eventually brought to a standstill as a consequence of the act of growth itself. For one reason or another, but always for some reason, organisms cannot grow indefinitely, just as beyond a certain level of size or density a population defeats its own capacity for further growth."

      Sir Peter Medawar, The Revolution of Hope

      "A business firm grows and attains great strength, and afterwards perhaps stagnates and decays; and at the turning point there is a balancing or equilibrium of the forces of life and decay. And as we reach to the higher stages of our work, we shall need ever more and more to think of economic forces as those which make a young man grow in strength until he reaches his prime; after which he gradually becomes stiff and inactive, till at last he sinks to make room for other and more vigorous life."

      Alfred Marshall, Principals of Economics (1890)

      "Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it."

      Joseph Schumpeter, Ten Great Economists

      In this paper I shall address two major issues. Firstly, I shall discuss the implications for economic theory of a conception of economic laws widely at variance with the empiricist and/or positivist account of what laws are, how they are discovered, and how they are related to theory. At the same time, I will reject one cornerstone of anti-positivist thought, namely the idea that one cannot provide an account of laws that is fundamentally the same for the natural and the social sciences. Thus, I shall argue that an anti-positivist account of laws is entirely compatible with a conception of scientific laws that applies to both the "hard" (natural) and the "soft" (social) sciences. I shall defend this position by showing its application to economics and economic laws. In doing so, I will compare and contrast both natural-scientific (primarily physical) laws and social-scientific (primarily economic) laws. Secondly, I will argue that perhaps the most significant economic law descriptive of mature capitalism is the law of secular stagnation. The latter states that it is the natural tendency of a developed, industrialized capitalist economy to default to a state of chronic excess capacity and underconsumption. And this is itself a result of the tendency in advanced capitalism for the economic surplus (roughly, the difference between the Gross Domectic Product and the cost of producing the GDP) to grow at a rate more rapid than the growth of profitable industrial investment opportunities. In the course of my discussion I will use the United States as a paradigm case, Much as Marx attempted to identify the underlying features of the accumulation process by reference to England during the Industrial Revulution.

      This has in fact been the state of global capital since the end of the "Golden Age" and the commencement of the age of globalized Reaganism/Thatcherism, i.e. the Age of Neoliberalism. I date the transition as commencing in 1973, the last year of post-War Keynesian growth rates in the USA. In fact, I will argue, neoliberal economic policy exacerbates capitalism'a tendency to stagnation. Let me begin with an account of economic laws.

      LAWS, GENERATIVE MECHANISMS AND TENDENCIES

      On the Humean or radical empiricist (positivist) account of laws, the latter are descriptions of observed regularities. Presumably, the scientist observes a "constant conjunction" of different kinds of happening, and infers from the regularity of the conjunction that the latter could not be merely accidental, and so concludes that the observed pattern of regularities must be nomological or law-like. 'Sodium chloride dissolves in water' and 'Metal expands when heated' would be simple examples of the results of this account of how laws of nature are discovered.

      That this empiricist account is flawed becomes evident when we consider full-fledged laws of a genuine natural science, e.g. physics. I emphasize that laws are components of theories, which themselves are constitutive of established scientific disciplines, such as physics, chemistry, and biology. In fact, the two "laws" mentioned at the end of the preceding paragraph are not laws of physics at all. Among the genuine laws of physics is, e.g., 'Falling bodies near the surface of the earth accelerate at a constant rate.' This law is certainly not established by the observation of repeated conjunctions of events. On the contrary, actually observed falling bodies in "open systems", that is, in the circumstances of everyday life, conspicuously fail to conform to this law. Yet this is not taken to refute the law. For the law describes the behavior of bodies in a vacuum, that is to say, in a "closed system", one created by the scientist, typically in a laboratory situation. Philosophers of science have tended to ignore the distinction between regularities observed only in closed systems, and conjunctions observed in everyday life, which, as such, have no value as contributions to scientific knowledge. These philosophers have, accordingly, written as if the regularities in question were features of open systems, of nature. This confusion impedes our understanding of all types of laws, from physical to economic.

      This failure –until relatively recently- of philosophers of science to properly attend to the importance of laboratory work in the acquisition of scientific knowledge is due to the fact that these philosophers have focused almost exclusively on science as established theory, i.e. as a way of representing the world. They had ignored how these theories were actually established. That is, they paid little attention to experiment, which is a way of intervening in the world. This inattention to what happens in closed systems created in the laboratory led thinkers to miss the importance of the concept of tendencies or dispositions in grasping the concept of a law of science. Let us dwell on this point and its relation to economic laws.

      It is not that our knowledge of natural laws is not based on observed regularities. The point, rather, is that these regularities are not found in nature. They are found in closed systems, elaborately designed experimental circumstances found in laboratories. Yet, we correctly believe that what we learn in experimental situations gives us knowledge that is not confined to these situations. We believe that what we learn from observations of repeated patterns in experiments gives us not only knowledge of the behavior of objects in laboratory circumstances, but also knowledge of these same (kinds of) objects as they behave in nature, in the open systems of everyday life. But scientifically significant repeated patterns are not found in the world of daily life. This raises profound epistemological and ontological questions.

      The most significant epistemological question arises from the following consideration: Were it not for the intervention of the experimenter, closed-system regularities would not obtain. Hence, the experimenter is a causal agent of the pattern of regularities observed in the laboratory. It is these contrived conjunctions which we invoke to justify our belief in (usually causal) laws. And while these regularities are the (partial) result of the intervention of the experimenter, we do not believe that the experimenter in any way originates the laws whose existence is attested to by the contrived regularities. The question therefore arises: What justifies our (correct) belief that knowledge obtained in closed laboratory systems designed by an agent applies also in open systems, i.e. in nature, which of course is not designed by scientists and does not evidence the regularities found under designed experimental circumstances?

      I want to suggest that this question comes to the same as the following question: What must nature be like, and what must experiment reveal, in order for experimental knowledge to be able to be legitimately extended to the world outside of the laboratory, i.e. to nature? Note that this is a Realist question: it asks what we must presuppose about the constitution of the world in order that our experimentally-based scientific beliefs be justified. This is the precise Realist counterpart to Kant's Idealist question: What must we presoppose our minds –as opposed to nature or the world- to be like in order for scientific knowledge to be possible? I will argue that the answer to our Realist question provides the conceptual resources to elucidate the general nature of economic laws and economic theory, and the nature of the subject matter investigated by economists.

      I will argue that since we believe that what we learn by experimental observation justifies our claim to knowledge of the experimental objects as they behave in nature, we must assume that these objects possess natural structures, similar to what Aristotle and the scholastics called "natures" or "essences." A natural structure must be conceived as what Critical Realists call a generative mechanism (hereafter, GM). The latter is a specific mode of material organization. What GMs generate are tendencies or dispositions to behave in characteristic ways. The statement that a physical thing or a social institution or structure tends to generate characteristic regularities is a statement of a law. The natural structure of salt, expressed in chemistry as HCl, is such that when it is mixed with water, whose natural structure or organization is expressed as H2O, it tends to dissolve. Gases tend to expand when heated and falling bodies near the surface of the earth tend to accelerate at a constant rate. These are statements of chemical and physical laws. We shall see that precisely the same kind of analysis can be made of laws in economics.

      Tendencies are not the same as trends. The latter are merely observed regularities; there need be no implication that an underlying structural feature of the thing in question generates the regularity. This feature of laws is reflected in ordinary language in non-scientific contexts: we might say "He has a tendency to exaggerate." We mean that a disposition to exaggerate is a natural expression of his underlying character. We do not usually mean that he exaggerates whenever it is possible for him to exaggerate. This is part of the meaning of 'tendency.' Thus, tendencies can exist without being exercised. This happens when, e.g. salt is not mixed with water. Salt's nomological tendency to dissolve in water remains its categorical property even in the absence of circumstances in which its tendency to dissolve can be exercised. In addition, tendencies can be exercised without being realized. This is the case in the natural sciences when we observe, in non-laboratory situations, falling bodies accelerating at different rates. Indeed, no falling body in open systems is observed to accelerate at a constant or the same rate. But of course this is not taken to falsify the law of falling bodies. In nature, GMs continue to act in their characteristic ways without producing the patterned outcomes observable in closed experimental systems. This is so because in nature a multiplicity of GMs combine, interact and collide such as to result in the (scientifically irrelevant) flux of phenomena of the everyday world. The realization of a natural tendency can, in other words, be offset by counteracting forces. Thus, empiricism's mistake is to fail to recognize that GMs operate independent of the effects they generate. That is, GMs endure and go on acting (in the way that experimental closure enables us to identify) in nature, i.e. in open systems, where patterned regularities do not prevail. Statements about tendencies are not equivalent, salva veritate, to statements about their effects. Laws may exist and exercise their tendencies or powers even though no Humean "constant conjunctions" are observed. (This would be the case if it happened that the practice of creating closed experimental conditions had never been engaged in, i.e. in a world without science.)

      LAWS, GENERATIVE MECHANISMS AND TENDENCIES IN ECONOMICS

      GMs are not confined to the natural world. Natural structures are not the only structures there are. Plainly, there are humanely constructed structures. Capitalism is one such structure. Structures of this kind, GMs, that are dynamic by nature, i.e. which are characteristically diachronic, be they natural or socially constituted, share the same ontology. This should not be confused with the radical empiricist (positivist) claim that the natural and the social sciences share the same method. Clearly they do not: closed experimental situations exist but are not typical in the social sciences. It is tempting to think that because of the absence of closed systems in social science, there can be no talk of laws there. This temptation should be resisted. Consider: tendencies produce their characteristic outcomes ceteris paribus, ie. other things being equal, i.e. ceteris absentibus, other things being absent. When we identify the tendency of a thing, we specify what will happen, as a matter of course, if interfering conditions are absent. That is the point of vacuums in the closed systems created in laboratory experiments: they permit exercised tendencies, i.e. tendencies in operation, to be realized. If we want to know what gases tend to do when acted upon by heat, we eliminate all potential counteracting forces by creating a vacuum in the chamber, so that both gas and heat can express their natures unimpeded.

      Thus, implicit in both physical- and social-scientific practice is the crucial distinction between the exercise and the realization (or manifestation) of a tendency. This distinction is essential to structural analysis in economics because of the impossibility of creating the social equivalent of a vacuum in the social sciences, which deal with the open systems of everyday life, where a great many forces and tendencies collide. Accordingly, just as the law of the tendency of falling bodies to accelerate at a constant rate is not falsified by the failure of falling bodies to behave accordingly in open systems, so too, e.g., the law of the tendency of the growth of productive capacity to outpace the growth of profitable investment opportunities -the thesis of secular stagnation theory- is not undermined by the remarkable growth rates of the Golden Age. In both cases, the presence of offsetting factors prevents the structurally generated tendency from being realized or manifested. I argue that the same can be said for any putative economic law.

      In social science –and this is most conspicuous in economics, the most theoretically developed of the human sciences- we compensate for the absence of experimentally closed systems by constructing their functional equivalent, which we might call, in terms redolent of Weber, an ideal-typical theoretical model. It is an unfortunate habit (perhaps a tendency in the above-elaborated sense…) of mainstream economists to employ these models as if they described the open-system observable facts of economic life. This is, I suspect, a consequence of the economic empiricist's mistake referred to above, namely to think that GMs, if they must be spoken of at all, are to be conceived as reducible to their effects. (Recall Hume's claim, inspired by his reading of Newton, to expunge all notions of "power", "generation" and "production" from his analyses.) But, as noted above, GMs in both the social and the natural sciences employ unrealistic models, i.e. models which do not pretend to offer the equivalent of a photographic representation of the world. In both natural-scientific experiments and social-scientific ideal-type models, an attempt is made to abstract from the nonessential. We seek to place the spotlight of theory on what is necessary to the situation, system or institution under investigation, and to prescind from the arbitrary and accidental. In economics we seek to identify those features of capitalism that make it what it is. This enables us to identify capitalism's distinct and characteristic tendencies, and to describe what will happen as a result of the exercise of these tendencies, ceteris absentibus.

      That there are such tendencies seems to me to be uncontroversial. We all know, for example, that cyclical downturns are not mere empirical contingencies of capitalist development, but structurally generated tendencies which follow inexorably from the specific mode of organization (structure) of capitalism. And like all tendencies, their realization can be offset, as we have seen above, by counteracting factors, such as fiscal and monetary policy. Other examples would be what Marx called the tendencies of capital to concentrate and centralize. The tendency, and corresponding law, with which I will be primarily concerned in this paper is constitutive of the theory of secular stagnation, and is far more likely than the immediately foregoing examples to generate controversy. I refer to the tendency of mature capitalism to suffer from a chronic paucity of profitable industrial investment opportunities, relative to the great magnitude of its investable surplus. Let us look more closely at this tendency.

      THE THEORY OF SECULAR STAGNATION

      It is worth mentioning that the view that the continuous accumulation of capital is both essential to the normal development of capitalist societies and essentially self-limiting was held by virtually all of the major modern political economists, in the form of one version or another of the doctrine of the falling rate of profit. Adam Smith explained the secular decline of the profit rate by the increasing abundance of capital in a developing capitalist society. Ricardo and Mill believed that the rate of profit would be depressed by the diminishing productivity of the land which would drive up the price of wage goods and therefore of the wages of labor, and so drive down the profits of capital. Marx pointed to the increasing capital-intensity of industry and the paucity of working-class purchasing power relative to the productive capacity of the economy, as the principal threat to the profit rate. And Keynes held that in mature capitalist economies the "marginal efficiency of capital", i.e. the expected rate of return (over cost) on an additional unit of a given capital asset, would tend to decline. All these thinkers had an at least intuitive appreciation of the fact that the growth of capital tends to be terminally self-limiting. (It is worth citing a remark of Joseph Shumpeter at this point:

      "Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it.")

      In my estimation, no one understood the underlying dynamics of the tendency to stagnation better than the Polish economist Michal Kalecki, who is known to have developed the essentials of Keynes's General Theory before Keynes himself (and to have produced far more elegant mathematical formulations thereof). Perhaps the best way to understand Kalecki's thought is to see him as having argued that certain features of a not-yet-mature industrializing economy persist after the process of industrialization has been accomplished, with the effect that the developed capitalist economy is saddled with a problem of chronic excess capacity. Let me sketch this train of thought.

      In the course of their natural growth capitalist economies reach a level of industrial development characterizable as maturity, a point beyond which growth must either cease, or be sustained by exogenous (in a sense to be elucidated below) means. Straight away we are confronted with a rejection of an assumption that is implicit in mainstream neoclassical theory, viz. that both the supply and the demand curves shift, virtually automatically, to the right. On the stagnationist conceptualization of growth or development, the process of development is not everlasting, but rather is at some point accomplished. There is the period, industrialization, during which the economy is developing, and which culminates in a (finally) industrialized or developed infrastructure. At this stage there will have been built up, or "accumulated", a complement of plant and equipment in steel production, machine tools, power stations, transport systems, etc., that is capable of satisfying a level of consumption demand consistent with the moral limits of a reasonably civilized style of life, the constraints imposed by a finite fund of natural resources, and, most importantly for stagnation theory, the limited possibilities of what Marx called "expanded reproduction" imposed by the accumulation process itself.

      This account point can be expanded as follows. During any period of industrialization, the growth of the capital goods industry (hereafter, following Marx, Department I, or DI) must outpace the growth of the consumption goods industries (hereafter, again following Marx, Department II, or DII). Indeed, it belongs to the nature of the process of industrialization that the demand for the output of DI cannot be a function of the behavior of consumption demand; during industrialization, investment demand is both rapid and relatively autonomous. For if the principal project is to develop the means of production, then a disproportionate share of national wealth must be devoted to investment/accumulation at the expense of consumption. Strategic capital goods such as transport and communications networks and steel mills cannot be built bit by bit. This is clear with respect to railroads (Recall Keynes's remark that "Two pyramids are better than one, and two masses for the dead better than one; but two railroads from London to York are not necessarily better than one."), but perhaps not as clear with respect to steel facilities.

      Suppose 1) that the efficient production of steel requires equipment with the capacity to produce 200,000 tons of steel, and 2) that demand turns out to be for 300,000 tons. The investor has two alternatives, either to forgo an extra market or to take a chance and add another 200.000 tons. On the second alternative, the one virtually assured in a period of (rapid) industrialization, the manufacturer is left with a surplus capacity of 100,000 tons. Here we see, writ small, a crucial source of two basic tendencies of capitalist development, the unrelenting pressure to expand markets, and the tendency to overproduction of a specific kind, namely the overproduction of capital goods, the tendency to overaccumulation. Each of these tendencies is the basis of a corresponding law of economics: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency to expand markets, and: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency for the growth of productive capacity to outpace the growth of effective demand.

      As we have seen, all the major classical political economists anticipated the stationary state; they all assumed that the period of development or industrialization would come to an end. Basic industries would be in place, and DI would be capable of meeting all the replacement and expansion demands of DII. Prescinding for the moment from the emergence of new industries, DI would no longer be a source of substantial expansion demand for its own output; most of DI's internal expansion demand would be extinct.

      But this is not the end of the classical story. For an important strand in the thread of classical (and perhaps neoclassical) theory contains the assurance that the capitalist economy provides a mechanism that in the long run counteracts the tendency of the demand for the products of DI to peter out. As one might expect, this is the price mechanism, which brings about, in the circumstances described above, a falling rate of profit (or interest) and thereby a simultaneous check on accumulation and spur to consumption. The causal chain is simple: the fall of the profit rate would lower capital's share of national income, i.e. it would transfer income from capital to labor. Thus, the demand gap created by the sharp waning of DI's expansion demand would be made up by the increase in consumption demand, which would of course mean an expansion in the demand for the output of DII. Moreover, an immediate expansion of DII at the expense of DI in order to assure a rapid transition out of the stationary state would be entirely feasible given the adaptability of certain key industries in DI to new market conditions resulting from the newly-expanded purchasing power of the working class. The construction of new factories could, for example, yield to the construction of new homes.

      The theoretical elegance of this scenario is impressive -almost inspirational- but, alas for illusions, the price mechanism does not work this way. For the above-mentioned transfer in national income from capital to labor is supposed to happen when industrialization comes to an end by virtue of its having been accomplished. But from the capitalists' perspective, it is as if nothing counts as industrialization coming to an end. New industries, for example, can create a situation functionally equivalent to industrialization. "Accumulate, accumulate, that is Moses and the prophets."

      We have at this point arrived at a picture of a developed capitalist economy which is in a state of permanent industrialization. Excess capacity prevails and working-class income is stagnant or declining. Interestingly, this has in fact been the state of both the U.S. and the global economy since 1973. According to the foregoing analysis, this reflects the fact that the U.S. and global economies are now instances not merely of the exercise of the law of the tendency of mature capitalism to stagnate, but of its realization. To put it differently: these economies are now in their natural state.

      But important questions immediately arise. Why are these economies in their natural state now? And if there is a structurally generated tendency for capitalist economies to stagnate, how shall we account for the historically unprecedented growth rates of the Golden Age? I have barely sketched an outline of a response to these challenges above: if there is indeed a tendency for capitalism to stagnate, then there must have been in operation during the Golden Age what I called "counteracting forces and tendencies" which had spent themselves by the mid-1970s. In the absence of new offsetting forces, the tendency to stagnate has, as we should expect, re-asserted itself. These claims require further elaboration, and it is to this task that I now turn.

      SECULAR STAGNATION AND TRANSFORMATIONAL GROWTH

      In order to account for the actual pattern of capitalist growth in the context of stagnation theory, we must reflect on the kind of growth required by capitalist economic arrangements. Mainstream theory does not distinguish between kinds of growth if and when it addresses the specific requirements of capitalist growth at all. This is, I believe, a serious error. I will begin by introducing the notion of transformational growth, which transforms the entire way of life of society and absorbs exceptionally large amounts of the investible surplus. My point shall be that a capitalist economy cannot sustain growth merely by producing more and more different types of widgets, in the absence of pervasive structural change. Growth sustained in the latter manner is transformational growth.

      We are forced to introduce the concept of transformational growth for reasons related to my earlier discussion of the structural features of mature capitalism which generates a chronic tendency to stagnation. I will now embellish this analysis. It should be clear that capitalism cannot grow in the way in which a balloon grows: its growth cannot leave its proportions intact, i.e. such that there are no new products and no new processes of production. This is to say that a capitalist economy either undergoes transformational growth or it stagnates. The argument is as follows.

      Investment expands productive capacity, which in turn requires that demand increase at the same rate as potential production. Without the required rate of demand growth, underutilization/excess capacity will discourage further investment or capital accumulation and the result will of course be stagnation. Let us not address this issue in the manner of the neoclassical economist, who seems to assume that both supply and demand curves can be counted on to perennially shift to the right (absent, of course, undue government interference). But this quaint assumption is belied by the enormous literature on the development and indispensability to capitalism of the marketing and advertising industries, which we might view as massive efforts to counteract Keynes's declining marginal propensity to consume by deliberately creating among the consuming masses a full panoply of "manufactured" consumption desires. These considerations point to the need constantly to exogenously stimulate consumption demand in order to narrow the demand gap generated by the tendency to overaccumulation. But they do not yet establish the need to generate a broad, nation-wide pattern of demand required by structural change and transformational growth.

      What is needed at this point are concrete examples of the generators of transformational growth, and of exactly how these generators accomplish one of the fundamental features of transformational growth, the mobilization and coordination of the economic resources of the entire country into a grand national project which stimulates demand not merely for this and that consumption good, but for crucial commodities and institutions such as oil, steel rubber, and other primary products, and communication and transportation facilities. What this requires are what Paul Baran and Paul Sweezy termed, in their influential Monopoly Capital (Monthly Review Press, 1966), "epoch-making innovations". Edward Nell and Robert Heilbroner have characterized these same innovations as "transformative innovations". Let me approach transformative innovations by looking at the tendency to stagnation from yet another perspective, one which focuses on the role of competition as a major force behind the growth of both investment and consumption.

      Competition reduces the need for investment by tending to increase both productivity and savings. Let us see how this happens. As a result of competition business is under continuous pressure to cut costs and produce more efficiently. To the extent that business succeeds in these respects, productive potential is increased. At the same time, competition also requires business to hold down wages and salaries and to pay out dividend and profit income relatively sparingly. Together, these pressures hold back both worker and capitalist consumption. The result is a tendency for productive capacity to expand faster than consumption. This means that there is no reason for investment to grow, for capital to achieve the required rate of accumulation, unless there are major pressures transforming the way people live. In the absence of such pressures, we may expect stagnation.

      There are two dimensions of transformative innovations which are in fact two aspects of the same phenomenon. One dimension is solely technological, and the other points to changes in a population's entire way of life. Neither of these is part of a process of steady, balloon-like growth, nor is either automatically, or normally, generated by the fundamental capitalist dynamics identified by the mainstream textbooks. For this reason I have called the stimulus imparted by these innovations 'exogenous'. Let us look first at the technological dimension of transformative innovation.

      This can be identified, after the owl of Minerva has spread its wings, by reflecting on some of the requirements of ideal-typical capitalism. Neoliberals correctly remind us that the bottom line is of course "freedom", primarily the freedom of capital to roam the world seeking markets, sources of cheap labor and investment opportunities. Microecenomic textbooks in fact tend to assume the perfect mobility of both capital and labor.

      Let us focus on sources of power, which became especially important after the industrial revolution. Technological development resulted in the virtually total replacement of human and animal muscle power by inanimate sources of power, mainly water and steam. But reliance on water as a source of power places extreme limits on the mobility of capital, and hence on the possibilities of capitalist growth. Water power is site-specific, and the number of rivers and streams is limited. Moreover, the water had to be fast-running and productive facilities had to be located as far downstream as possible. And of course water power is only seasonally available. These restraints alone place an intolerable obstacle to the free and ongoing accumulation of capital. Here we find an overwhelming incentive to switch from water to steam power. This constitutes a huge stimulus to the accumulation of capital on a national scale.

      Capitalism requires sources of power that are independent of nature and can be applied constantly wherever they are needed. And these are precisely what steam power made possible. It was now possible to set up productive facilities virtually anywhere; a major fetter to the accumulation of capital was removed. The universal mobility required by capital was now much more fully realized. At this point I want to emphasize that this technological /economic transformation was necessarily accompanied by profound social and cultural changes. For the steam engine's reduction of the seasonality of water power made possible a feature of work that is increasingly common on a global scale: the emergence of modern year-round work habits. With this change comes a dramatic transformation of our notions (and practices) of work and leisure, with all the consequences these have for the felt experience of everyday life. That is an instance of the second dimension of transformative innovation, i.e. its introduction of dramatic cultural changes, changes in the way populations live.

      Much the same can be said for the subsequent shift to electrical power, which makes possible trolley cars, refrigerators (as opposed to what used to be called, in the U.S., "ice boxes"), ranges, toasters, radios, washing machines, fans, et al.

      The railroad too is a transformative innovation par excellence. Consider the spectacular effects of railroad expansion: internal transport costs are sharply reduced; both new products and new geographical areas are brought into commercial markets; it is now possible to deliver exports to port with unprecedented efficiency, thereby encouraging the extensive development of the export sector; and impetus is provided to the development of the coal, iron and engineering industries. As with the steam engine, these technological and economic benefits wee necessarily accompanied by profound social and cultural changes. The railroads changed the way of life of the people by binding them as never before. The possibility now existed for mass production, mass consumption and indeed mass culture.

      And of course the establishment of a national rail network absorbed massive amounts of investible capital, thereby spurring sustainable growth and offsetting the realization of the economic law that capitalist economies tend to stagnate. Apropos: in the latter third of the nineteenth century, railroad investment in the U.S. amounted to more than all investment in manufacturing industries.

      And who can doubt that the transformative effects of the introduction of the automobile were epoch-making? The expansion of the automobile industry was the single most important force in the economic expansion of the 1920s. Car production increased threefold during this decade. (The automobile industry produced 12.7% of all manufactured output, employed 7.1% of all manufacturing workers, and paid 8.7% of all industrial wages.) Immediately after World War II the auto industry continued what was to be its breakneck expansion, and the possibilities created thereby constituted what was perhaps the most extensive transformation of the country's way of life in its history.

      Consider the stimulus to capital accumulation and employment constituted by the following, each and all a consequence of the increasing automobilization of American society and culture: the migration of the population from the central city to the suburbs and exurbs (first made possible by the streetcar, before the major streetcar operations were bough and then quickly dismantled by the auto companies); the need for surfaced roads, road construction and maintenance, highway construction and maintenance (which had already accounted for 2% of GDP in 1929); the suburbanization of America, with the attendant construction of housing, schools, hospitals, workplaces, and more; the growth of shopping malls; the expansion of the credit industry; the spread of hotels and motels; and of course the growth of the tourism/travel industry. Never before had any population's way of living been transformed so profoundly in so short a period of time. And of course no one has failed to recognize that Americans' main symbol of their most precious possession, their personal freedom/liberty, is their ability to drive, solo, cars that have increasingly come to resemble tanks. Americans' liberty, embodied in the automobile, has become, literally, a commodity.

      The long-term growth of the U.S. economy cannot be adequately explained or described without reference to these transformative innovations. None of these are required by the models of capital accumulation found in neoclassical, Keynesian or Marxian growth theory. After the civil war, growth in the last third of the nineteenth century was spurred primarily by the railroads. This stimulus fizzled, as railroad expansion began to slow down, around 1907, when, in spite of extensive electrification of urban (and even some rural) areas, the U.S. economy began a stretch of slow growth, which lasted until the outbreak of World War I. After the end of the War, the economy experienced a brief slump, which was followed by a period of fairly sustained expansion in the 1920s. The latter, as we have seen, was spurred mainly by the growth of the automobile industry. But the rate of growth of the automobile industry slowed down after 1926, and with it the rate of growth of almost all other manufacturing industries. And wages and employment had not risen as rapidly as production, productivity or profits.

      In fact, the economic situation in the U.S. at the end of the 1920s bore a remarkable resemblance to the current economic situation in America. After 1926 overcapacity emerged in many key industries, the most significant of these being automobiles, textiles, and residential construction. Contractionary forces are cumulative: excess capacity caused business confidence to decline, with resulting cutbacks in spending on productive capacity in the consumer durables and capital goods industries. The economy was intensely unsound at the end of the 1920s, and the indications at the time were clear. Consumer demand was held down by a steadily growing inequality of income. Thus, an increasing percentage of total purchases were financed by credit in order to foster purchases of consumer durables. About seventy-five percent of all cars were sold on credit. Accordingly, both home mortgages and installment debt grew rapidly. This was the extension of a trend that had begun as early as 1922, when total personal debt began rising faster than disposable income. Thus, underconsumption and traces of excess capacity, key indicators of stagnationist forces, were in effect from the very beginning of the "roaring '20s". These tendencies became increasingly foregrounded over the course of the decade.

      Excess capacity in key manufacturing industries was displacing workers from capital-intensive, technologically advanced sectors to industries relatively devoid of technological advance, i.e. service industries such as trade, finance and government. With capital unable to find sufficiently profitable investment opportunities in high-productivity industries, rampant speculative activity ensued, fostered by the growing concentration of income and therefore savings during the decade. More than two thirds of all personal savings was held by slightly over two percent of all families. The wanton optimism of the 1920s led those with substantial savings to want to get richer quickly, and with little effort. The stock market bubble that materialized at the end of the decade seemed to justify the expectations that fortunes could be made overnight in real estate and the stock market. When investors acted on these expectations, the existing bubble became bigger and hence more fragile. To those familiar with the current state of the U.S. economy, the present situation presents itself as history repeating itself -contra Marx- yet again as farce.

      FROM GREAT DEPRESSION TO GOLDEN AGE TO NEOLIBERALISM

      The mounting instabilities of the economy of the 1920s led to a Depression that was unresponsive to the Roosevelt administration's elevenfold increase in government spending. When U.S. entry into World War II finally brought about a resumption of growth, there was nonetheless an abiding fear among economists that once War spending ceased, the forces and tendencies that had generated the Depression might reassert themselves and exceptionally slow growth could resume. Instead, much to the surprise of many economists, American capitalism began the most sustained period of expansion in its entire history. The period from 1947 to 1973 has come to be called "The Golden Age", and appears, on the face of it, to be a fatal anomaly with respect to secular stagnation theory. After all, if the causes of the Great Depression were structural, and the exogenous stimulus provided by the War was what produced a resumption of growth, how was it possible that the economy, in the absence of powerful exogenous stimulus, exhibited an historically unprecedented period of long-term growth?

      I have suggested that sustained national (as opposed to intra-national regional) growth has been engendered by the emergence of transformative innovations, and it is this kind of consideration that I believe offers the most plausible explanation both of Golden-Age expansion and of the petering out of this growth period and the resumption of (global) stagnation. Five stimuli to long-term growth were set in motion after the War, and these were for the most part exogenous in the sense indicated, and essentially limited. I will construe these stimuli as forces counteracting the tendency to stagnation. Once most of these stimuli had spent their potential, stagnationist tendencies re-asserted themselves, and overinvestment became evident once again. With profitable industrial investment opportunities in short supply, the economic surplus was invested instead in what became a vast proliferation of financial instruments. When the bubble created by this process finally burst, it was replaced with a housing bubble. Indeed a variety of bubbles, in financial assets, in housing, in credit, and a substantially overvalued dollar now threaten an historically unparalleled reassertion of the tendency to stagnation. But let us look first at the counteracting forces.

      After the War, and as a result of wartime rationing, Americans had accumulated a very large fund of savings, and the time had come when these could finally be spent. This accounted for an immediate surge of consumption spending which temporarily averted the onset of recession. But the effectiveness of this source of spending was soon spent. What truly impelled the sustained growth of the Golden Age was 1) the resumption of a vast expansion of the automobile industry, and with it the stimulation of the broad range of investment and employment opportunities discussed above in connection with automobilization; 2) large-scale economic aid to Europe, which stimulated export demand; 3) a nationwide process of suburbanization, which, in tandem with the expansion of auto production, expanded significantly the demand for the output of every other major industry; 4) the emergence of what president Eisenhower christened the "military-industrial" complex, which provided additional stimulus to the industries most vulnerable to economic instability, the industries of DI, the capital goods sector; and finally 5) the steady and growing expansion of business and especially consumer credit, which in recent years has assumed elephantine proportions.

      Three of these factors bear the two most important features of epoch-making innovations. The expansion of the auto industry, suburbanization, and the ever-increasing expansion and extension of credit all absorb massive amounts of investible surplus, and transform the mode of life of the entire population. In so doing they impart a massive push to the macro-growth process. The first two of these have their initial direct effect on investment. The third factor, the growing importance of credit, affects both investment and consumption, but the long-term trend of the credit industry in the U.S., evident now in hindsight, is much more significant in relation to consumption. There is now in the States a credit bubble of menacing proportions, with consumers now in debt to the tune of about107% of disposable income. The Marshall Plan (number 2 above) affected mainly and directly investment and employment, with boosts to consumption following thereupon. By the mid- to late-1970s, the employment-generating capacity of the military had declined. Washington determined, in the light of the defeat in Vietnam, that hi-tech warfare, which is of course technology- rather than labor-intensive, must replace traditional forms of subversion and aggression, in order to render less likely a repeat of the "Vietnam Syndrome."

      It is worth mentioning that the military-industrial complex and the vast extension of consumer credit were what constituted what Joan Robinson called "bastard Keynesianism" in the United States. Recall that Keynes had insisted that fiscal and monetary policy were necessary but not sufficient conditions for avoiding stagnation. The tendency to stagnation could be offset for the long run only if some key industries were nationalized, and income redistributed. Nationalization would allow the State to offset lagging demand by providing cheap inputs to the private sector, thereby enabling lower prices. And redistributing income would transfer liquidity from those who had more than they could either consume or invest to those whose consumption demand was severely constrained.

      American policymakers saw it as their challenge to reap the effects of nationalization and redistribution without actually nationalizing industries or redistributing income. The solution was ingenious: the military-industrial complex would be the functional equivalent of state-owned industries, and would, as noted above, stimulate the demand for the output of those very firms that produced capital goods. And the extension of consumer credit would allow working people to mortgage future years' incomes and spend more without a corresponding increase in either their private or their social wage.

      As mentioned earlier, these forces counteracting the tendency to stagnation were all inherently limited and temporary. By the late 1960s, the automobile industry had achieved maturity, suburbanization had been accomplished, and aid to Europe had not only long ended, but had apparently created for America the economic equivalent of Frankenstein's monster. Europe and Japan were now formidable threats to U.S. economic hegemony. (Germany, for example, has overtaken the U.S. as an exporter of capital goods.) These three colossal absorbers of surplus were now no longer in operation. In the mid-1960s social spending had overtaken military spending as the larger share of government spending. And credit had begun to function as a supplement to declining real income, rather than a further addition to growing income.

      These combined developments rendered the post-War counters to the realization of the tendency to stagnation obsolete. The result was the onset of stagnation not only in the U.S. but also worldwide. In America there has been overcapacity in autos, steel, shipbuilding and petrochemicals since the mid- to late-1970s.

      This general picture is widely reflected in the business press. Business Week noted that "..supply outpaces demand everywhere, sending prices lower, eroding corporate profits and increasing layoffs" (Jan. 25, 1999, p. 118). The former chairman of General Electric claimed that "..there is excess capacity in almost every industry" (The New York Times, Nov. 16, 1997, p. 3). The Wall Street Journal noted that "..from cashmere to blue jeans, silver jewelry to aluminum cans, the world is in oversupply" (Nov. 30, 1998, p. A17). And The Economist fretted that " the gap between sales and capacity is "at its widest since the 1930s" (Feb. 20, 1999, p. 15). At this time excess capacity in steel is exceeding twenty percent, in autos it has fluctuated around 30%. And these figures look good in comparison to unused capacity numbers in the "industries of the future" of the "New Economy", semiconductors and telecommunications. Not long ago, ninety-seven percent of fibre optic capacity was idle.

      MAINSTREAM ECONOMICS AND STAGNATION THEORY

      Let us begin with the indisputable fact that the regime of neoliberalism has brought with it a substantial decline in economic growth. The most widely cited study on this issue, produced for the IECD by Angus Maddison, shows that the annual rate of growth of real global GDP fell from 4.9% in 1950-1973 to 3 % in 1973-1998, a drop of 39 %. Theoretical commitments can guide perception: neoliberal economists either denied or ignored the decline in global growth because of their reliance on Say's Law, that it is not possible for total demand to fall below full-capacity supply over the long run. In my earlier remarks I offered an explanation of sluggish growth rates since 1973. Many orthodox economics have done something similar: they have offered explanations of the initial rise in excess capacity. But what has not been explained is why global supply did not eventually adjust itself to the slower rate of demand growth, with the result that in the mid-1970s the global economy would enter a period of sluggish expansion. And it is worth mentioning that even Keynesian macro-theory is inadequate in this regard. It assumes that slow growth in aggregate demand will result in a proportionate decline in the growth of aggregate supply through its effect upon investment and therefore productivity.

      An adequate explanation of the sustained character of excess capacity can be constructed from insights from Schumpeter, Marx and the contemporary economist James Crotty. The analysis that follows should be understood within the framework of the version of secular stagnation theory sketched above.

      Before the shift to neoliberal policies by Jimmy Carter, Reagan and Thatcher, the global economy was already subject to downward pressures on demand growth resulting from two oil price shocks and the restrictive macro policy imposed in response to oil-price induced inflation. These impediments to demand growth were exacerbated by neoliberal policies. In combination, these forces led to a sharp rise in excess capacity in globally competing industries. At the same time competitive pressures were further intensified by the reduction of the market power of national oligopolies caused by the removal of protectionist barriers to the free movement of goods and money across national boundaries. Accordingly, competitive pressures between nations rose dramatically. In this context, normal stagnationist tendencies operated to further constrain global demand growth and further reproduce industrial capacity faster than either neoclassical or Keynesian theory could comprehend.

      The Achilles Heel of neoclassical theory with respect to its inability to account for the persistence of overcapacity during the neoliberal period is its account of competition. So-called "perfect competition" is alleged to lead to maximum efficiency and the elimination of excess capacity. This claim appears inconsistent with the history of real-world, pre- and post-oligopolistic competition. Textbook-like competition has led to periodic market gluts or overproduction crises, price wars, plummeting profits, unbearable debt burdens and violent labor relations. Neoclassical theory banishes these demons with the aid of two assumptions which appear designed explicitly to make them impossible. The first assumption claims that production cost per unit rises rapidly as output increases, and the second that exit from low-profit industries is free or costless. If these assumptions were indeed true, then pure competition could not be shown to have stagnation- or depression-inducing effects. But these assumptions are, I shall suggest, false.

      I will begin with the least plausible of these two assumptions. It states that there is free or costless exit from low-profit industries. But productive assets are typically immobile or irreversible, i.e., they are not liquid, and this forces a sizeable loss in the value of a firm's capital should it choose to leave an unprofitable industry. Whether they are sold on a second-hand market or reallocated to a different industry, productive assets will lose substantial value. Capital flowing out of the aerospace industry has been found to sell for one third of its replacement cost. Insolvent telecom firms in the U.S. have sold their assets for 20 cents on the dollar. And isn't this what one would expect? For it is usually poor profit prospects and/or great excess capacity that heighten a firm's incentive to leave an industry. But it is precisely those circumstances which deeply depress the price of industry-specific assets on the second-hand market, since the supply of these assets grows even as the demand for them has collapsed.

      Before I turn to the slightly more plausible (yet still false) assumption -that unit production cost rises dramatically as output increases- I will outline the corollary of neoclassical theory itself which neoclassical economists seek to evade by introducing this assumption. The theory tells us that pure competition will force price down until it covers marginal cost. Now if unit production cost remained constant irrespective of the output level, then marginal production cost and average production cost per unit would be equal. When perfect competition forces price to equal marginal cost, total revenue will be equal to total production cost. But in this case there will be no revenue left over either to pay the "fixed" cost of maintaining capital stock in the face of depreciation or obsolescence, or to pay interest and/or dividends to investors. Thus, perfect competition is seen to cause the representative firm to suffer, in each production period, a loss that is equal to fixed costs. Keeping in mind that most important global industries have huge fixed costs, no industry could long survive the consequences of intense competition.

      We seem to have found a tendency to stagnation or complete system breakdown where we would least expect to find it - in neoclassical theory itself. But the theory claims to have a response to this embarrassment. It simply denies the claim that appears to entail the undesired consequence, namely the claim that unit production cost remains constant no matter what the output level. Armed now with the (false) assumption that unit production cost rises rapidly as production increases, the conclusion is drawn that marginal cost and price are greater than average unit production cost. Thus, in equilibrium, the gap between price and average production cost is sufficiently large to cover all fixed costs. Let competition be as fierce as you wish, the typical firm will not lose money. Voila!

      I have claimed that each of the rescuing assumptions discussed above is false. What would realistic assumptions about marginal cost and the reversibility of invested capital look like? To answer this question we must recognize the distinctive character of the dominant industries of global trade and investment. These industries include steel, autos, aircraft, shipbuilding, petrochemicals, consumer durables, electronics, semiconductors and banking. Studies of this type of industry suggest that marginal cost does not typically rise with output, with the rare exception of cases when the industry is producing near full capacity output. Marginal cost behaves as we would expect in cases of economies of scale: it remains constant or declines as capacity utilization rises. It follows that if free competition forces price to equal marginal cost in these industries, we should count on an ensuing wave of bankruptcies. Here again we see that neoclassical theory, corrected for unrealistic assumptions, seems to commit us to conceptualize mature capitalism as subject to the law of an inherent tendency to stagnation or worse.

      The issue I am focusing on here turns on the dynamics of unrestricted competition among oligopolies in the context of economies of scale. The importance of economies of scale underscores the crucial similarity of all the dominant industries, including the new information-technology and telecommunications (ITC) industries. I stress this point because influential neoclassical economists have wanted to claim a significant difference, with respect to overcapacity problems, between the ITC industries and the other dominant industries. For purposes of explaining the persistence of excess capacity under neoliberalism, we want to remember that as scale economies grow, marginal costs fall as fixed costs per unit rise. Thus, the greater the economies of scale, the more destructive becomes the marginal cost pricing required by intense competition. With this in mind, we can more easily see that 1) these dynamics in especially conspicuous operation in the ITC industries, and 2) that such differences as there are between ITC and the other dominant oligopolies are insignificant for the analysis of secular stagnation theory, and of capitalist growth in general.

      The key issue right now, recall, is the highly destructive consequences of the tendency of free competition among dominant industries to force price to equal marginal cost. That this is the case is easier to see in the ITC sector than in the other dominant industries. This is because in ITC marginal cost is often close to zero. Producing another copy of software or adding another customer to eBay is virtually costless. This has led many mainstream economists to argue that ITC industries are exempt from the laws of the neoclassical theory of perfect competition. Since ITC firms have marginal costs much lower than their large fixed costs, the argument goes, the possession of at least temporary monopoly power is the only guarantee of an incentive to produce anything at all. Without monopoly pricing power prices will be competed down to marginal cost and fixed costs will be unable to be covered. Thus, the motor of the "new economy" is said to be the constant pursuit of monopoly power. But, contrary to the neoclassical claim, none of this distinguishes significantly between ITC and other key industries. The drive to monopoly power is characteristic of all large corporations in the present age.

      As Paul Sweezy argued in his Marshall Lectures, the typical firm in an oligopolized industry strives to be a monopolist. Each firm does this individually, and they all do it collectively. Individual firms seek monopoly status through the sales effort, where the firm's product is put forth as the best in the industry and as different from all the others. Firms within the same industry seek to approach monopoly status by collusion with respect to pricing policy, especially by agreeing to refrain from cutthroat price competition. For reasons developed at length above, therefore, all dominant firms, whether old- or new-economy operations, will tend to achieve monopoly status and to be chronically saddled with excess capacity.

      A SCANDALOUSLY BRIEF LOOK AT SLOW-GROWTH CAPITALISM

      We are in the midst of another unparalleled period of historical capitalism. Since the onset of stagnation, the median wage in the States has not changed at all for the vast majority of wage workers. Over the past six quarters the gowth of wage income has been negative. A brief sketch of the state of the U.S. economy toward the end of last year highlights features whose most plausible explanation may lie in the fact of secular stagnation. If stagnation theory is accurate, what follows is precisely what we would expect to find. The current state of the U.S. and the global economy is best understood, I believe, against the background too briefly elaborated above. Here is a picture of the U.S. economy today. The key to a healthy economy is job- and income-creating investment in capital goods, which in turn generates a virtuous cycle of further growth in investment, jobs and income. Ominously, the investment, growth, employment and income pictures are unprecedentedly dismal.

      Compared to cyclical recoveries between 1949 and 1973, recoveries during the neoliberal period have been weak. Indeed, one or two of the post-1973 upturns has been weaker than some downturns during the Golden Age. Since the stock market collapse of four years ago, the situation has worsened. Growth rates since 2000 have been half their previous average. Even this weak performance required historically unprecedented fiscal and monetary stimulus: 13 rate cuts, three tax cuts, massive government deficits and record growth in money and credit.

      Official figures mask the economy's most serious problems. Growth figures are annualized by U.S. statisticians. Thus, the much-touted 7.1% growth rate in the third quarter of 2003 was the one that would emerge after twelve months if the current trend were to continue. The same growth rate would have been reported in the eurozone as 1.8%. This is an uncommonly weak performance.

      Investment data are equally misleading. Since the mid-1990s the Bureau of Economic Analysis (BEA) has adjusted upward actual business dollar outlays on computers and related equipment to take into account quality improvements (faster processors, bigger hard drives, more memory). BEA calls this "hedonic adjustment." Accordingly, the BEA estimates that business high-tech investment quadrupled between 1996 and 2002, from $70.9 to $283.7. But in actual dollars spent, the increase was only from $70.9 billion to $74.2 billion, very low by historic standards. The high-tech boom was both greatly exaggerated and misleading. After all, neither profits nor wages are taken in "hedonically adjusted" dollars.

      The difference between real and hedonic outlays explains what would otherwise be a paradoxical feature of the years 2000-2003: government was reporting big increases in high-tech investment, while manufacturers were bemoaning declining sales.

      Hedonic pricing has accounted for a steadily rising percentage of all reported capital investment. But if we look at actual dollars spent, we find that since 1998 the growth rate of business fixed investment has actually been declining. Real capital investment has in fact not been this weak since the Great Depression.

      The fudging of investment figures also obscures the sorry state of the jobs market. The Commerce Department's figures on nonresidential investment for the third and fourth quarters of 2003 reported increases of, respectively, 12.8 and 9.6%. A closer look reveals that the "adjusted" hi-tech sector is the only bright spot, with production and capacity rising, respectively, 24.6% and 11.1% over the past year. But hi-tech is not where significant jobs increases are found. Employment in hi-tech has declined steadily through the so-called "recovery" since its 2001 peak.

      In non-hi-tech manufacturing, where investment figures are not adjusted, production from January 2003 to January 2004 rose only 0.9%, while capacity actually declined -0.2%. This represents a record nineteen-straight-month decline in mainline manufacturing capacity. Since it is mainline manufacturing which employs almost 95% of all manufacturing workers, it comes as no surprise that for the first time since the Great Depression the economy has gone more than three years without creating any jobs.

      The jobs crisis is even worse than it appears. Here again statistical sleight-of-hand, this time by the Bureau of Labor Statistics (BLS), obscures economic reality. Based on data gathered employing the "net birth/death adjustment," BLS announced in April, 2004, that the long-awaited jobs recovery had finally arrived. Nonfarm payrolls had allegedly surged by a whopping 308,000 in March, 2004. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. This improbable statistical artefact accounts for about half of the reported 308,000 March, 2004 payroll increase.

      The birth/death model is based on statistics covering 1998-2002. This was a period of explosive telecom and dot.com startups, quite unlike today's flat economic landscape. Thus, two thirds of the 947,000 new jobs BLS "imputed" for March-May, 2004, were never actually counted by BLS and never reported by any firm.

      BlS's household and establishment surveys tell a more sobering story. March employment by private industry actually fell by 175,000, and the number of self-employed workers declined by 288,000. Without the simultaneous increase of 439,000 government jobs, the March job announcement would have been a calamity. And both average weekly hours and total hours worked declined markedly, even as (according to the dubious birth/death findings) the work force increased. This is the first time in U.S. history that net job growth has been negative 26 months into a recovery.

      The wage and salary picture has also set grim records. During the current recovery, wage and salary growth has actually been negative, at -0.6%, in contrast to the average increase of 7.2% characteristic of this point into each of the other eight post-War recoveries. In fact, median family income in the post-War period exhibits an ominous trend. From 1947 to 1967, real median family income rose by 75%. But since 1967, it has grown by only 30%.

      Labor's losses have been capital's gain: since the peak of the last recovery, in the first quarter of 2001, corporate profits have risen 62.2%, compared to the average of 13.9% at the same point in the last eight recoveries. Never in American history has any recorded recovery had such a lopsided balance in the distribution of income gains between labor and capital.

      Given the dismal investment, wage/salary and employment pictures, how has it been possible for consumption to have risen to 71% of GDP in the early nineties, from its prior post-War average of 66%? The answer is a growth rate of consumer debt never seen before in America. For the first time ever, in March 2001, overall debt levels (mortgage debt plus consumer debt, mainly credit card debt and car loans) rose above annual disposable income. And from 2001 to 2004 consumer debt rose from 101% to 116% of disposable income. In the first half of 2004, consumer borrowing has been at its highest ever. It has declined slightly in the meantime. So has consumer spending. Should Americans decide to significantly increase their saving and service debts, while lowering correspondingly their consumption expenditures, the global economy could experience a major disruption.

      Up until very recently, consumers had stepped up their borrowing to compensate for slowing income growth. Thus, such growth as the U.S. has experienced in recent years has been almost entirely consumption- and debt-driven. More fundamentally, it has been bubble-driven, fueled principally by bubbles in home values and credit.

      Since the collapse of stock market/hi-tech bubbles in 2001, the illusory "wealth effect" has been sustained, and consumer spending thereby encouraged, by another bubble, the enormous inflation of house prices. The biggest increase in household debt came from home mortgage debt, especially home mortgage refinancing. With mortgage rates low and home prices rising, households' home equity ballooned. Bloated home equity then provided rising collateral to underwrite still more borrowing.

      What makes this especially problematic is that over the last ten years, the average family has suffered under large increases in health premiums, housing costs, tuition fees and child care costs. As a result, households' and individuals' margin of protection against insolvency has dramatically declined. Filings for personal bankruptcy are approaching a record high.

      There are indications that these weaknesses and imbalances in the economy are reaching a critical mass. The mortgage refi boom has fizzled, and consumer spending is beginning to decline. Two years ago the Fed's quarterly Beige Book reported a disturbing shift in the composition of credit spending: more and more families are using their credit cards to finance spending on essentials, such as food and energy.

      It is no exaggeration to say that both the U.S. economy and the global economy are hugely dependent on the American consumer's increasing willingness to spend more than (s)he makes. (Imported goods have been a rising proportion of all goods purchased here.) Thus, a decline in U.S. consumer spending portends further declines in investment, jobs and income. From January to July of 2004, consumer spending rose at an annual rate of 2.8%, down from 3.3% in 2003 and 3.1 % in 2002. For perspective, during the boom years 1999-2000, growth rates were 5.1% and 4.7%.

      Spending on consumer durables is the most significant indicator of healthy growth, and the drastically lower spending in this area is cause for alarm: spending for consumer durables was down to $23.5 billion in the first seven months of this year, in contrast to $71 billion on 2003 and $58 billion in 2002.

      Should consumer spending continue to decline, the economy faces the genuine likelihood of a severe recession. Of course not a single American politician addresses this issue.

      What is required is a shift from bubble-, debt-, and consumption-driven growth to investment- and income-driven growth. This in turn necessitates a decline in Americas principal export, jobs. Domestic job growth, a higher minimum wage, tax cuts aimed predominantly at low- and middle-income families, a sharp reduction in defense spending and a redirection of these funds to long-neglected and pressing social needs such as health care reform, the provision of universal pre-school, and across-the-board repair and upgrading of America's deteriorated infrastructure of roads, highways,tunnels and bridges, all these should be at the forefront of a Democratic administration's agenda. The restoration of infrastructure is especially labor intensive, and would generate an enormous number of productive jobs. And as a national project spearheaded by government initiative, government would emerge as a major employer.

      All this si entirely incompatible with the overwhelming neoliberal bent of even the most "liberal" political leaders. It was after all Bill Clinton who urinated on the grave of Franklin Roosevelt when he proclaimed "the end of welfare as we know it".

      As unfashionable as it is to suggest such a thing at a conference of economists, the only hope for the world's majority seems to be the revival of the kinds of mass movements witnessed here in May of 1968, and throughout the world during the 1960s. And time may be short.

      ------------------------------

      Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. His book, The "New Normal": Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to [email protected]

      [Jun 05, 2015]May Employment Report 280,000 Jobs, 5.5% Unemployment Rate

      This 280 figure is birth-death adjusted, so it might well be lower. Still it is better then 150K.

      Rajesh wrote on Fri, 6/5/2015 - 5:49 am

      U-3
      Feb: 5.5%
      Mar: 5.5%
      Apr: 5.4%
      May: 5.5%

      Has the unemployment rate flat-lined?

      Sebastian wrote on Fri, 6/5/2015 - 5:52 am

      CR said: "This was above expectations of 220,000 jobs, and combined revisions were up ... a strong report."

      And Belmont said: "And a tick up in rate = more people coming back into the fold."

      Both right.

      One of the methods of data-torture that I use to support my unfounded Pollyanna point of view is to measure the growth of the total labor force available and compare it to the growth of the labor force that's actually employed.

      As long as the growth in "employed" is greater than the growth of "available", no worries.

      No worries.

      Bureau of Labor Statistics

      Rajesh wrote on Fri, 6/5/2015 - 5:53 am (in reply to...)

      Belmont wrote:

      Are you really trying to find something negative?

      A flat unemployment rate is good news. It indicates that we are finally pulling people into the labor force. So far, we are not doing it in the numbers that would move labor force participation. We can't really talk about a tight labor market when we have millions of people who was unemployed for more than 26 weeks.

      dilbert dogbert wrote on Fri, 6/5/2015 - 5:55 am

      I Blame obummmers and Killery for forcing people to work!!!!! Impeach Now!!!!
      More cooked books numbers!!! Dooooooooooooooom!!! Dooooooooooooooom!!! Dooooooooooooooom!!!

      KarmaPolice wrote on Fri, 6/5/2015 - 5:57 am (in reply to...)

      Sebastian wrote:

      Bureau of Labor Statistics

      This gummint agency cannot be trusted. I know this, I read the HCN, Breitbart, and Zombie nation.

      Rob Dawg wrote on Fri, 6/5/2015 - 6:01 am (in reply to...)

      Belmont wrote on Fri, 6/5/2015 - 5:54 am

      Fuck you Rob! How bout that. People read just fine here.

      What they read is you incessantly setting up straw men. You've set in your mind a static view of these HCN doomerati because they were so eloquent and accurate about how bad things really were a long time ago. You should have taken away that they are eloquent and accurate instead you fixated on the negative message and merely assume that message never changed.

      sum luk wrote on Fri, 6/5/2015 - 6:11 am

      Lets take a coffee break

      US May Average Hourly Earnings +0.32%, or +$0.08 to $24.96; Over Year +2.3%

      Unit labour cost in sel EZ countries : https://twitter.com/cigolo/status/606794251297558528

      homedad43 wrote on Fri, 6/5/2015 - 6:16 am

      Slightly different tack from unemployment...the "older" commenters might recall that almost five years ago, I began tracking a marketbasket of 47 grocery store items at three separate local grocers. I was curious about what was really happening with inflation/deflation and all of that. Of these 47 common items, 37 are foodstuffs (pound of ground beef, etc...); I've kept a baseline of 100 as of November 2010 for both the Total Index of the 47 items as well as the Food-Only Subindex of 37 foodstuffs. Pricing has been done on or about the 1st of each month since November 2010 (I'm a dog with a friggin' bone).

      The Food-Only Subindex has always been higher than the larger Total Index and when the Total Index was at 111.18 in December 2014 (November 2010 = 100), the Food-Only Subindex maxed at a peak of 115.33 (November 2010 = 100). Since that high in December, both have dropped but the Food-Only Subindex has crashed to 106.46...more than four years of pricing activity for a marketbasket of commonly purchased items has been wiped out in six months.

      When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining. In the past six months, each of the unrelated grocers has instituted new pricing policies and the effect is rather stunning.

      Practical Dad

      ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:24 am (in reply to...)

      homedad43 wrote:

      When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining.

      But not inconsistent. Did you see this index recently? US Daily Index " The Billion Prices Project @ MIT

      ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:30 am (in reply to...)

      Mook wrote:

      But can we at least all agree that (un)employment is at best a coincident (if not a lagging) indicator?

      I think that's still the case. Popular wisdom held that housing was a lagging indicator but that was back in the dark days when houses were primarily a place to live and only secondarily an inflation-protected savings account and only tertiarily a hedge fund for the common man that doubled as shelter.

      ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:35 am (in reply to...)

      KarmaPolice wrote:

      40 percent of all home purchases are cash.

      And we know the average (median) joe has that much cash just laying around in savings accounts. It's easy to save when median rent is only $4500/mo in San Francisco, which also represents accurately average (median) joe and average (median) joe's income.

      Bruce in Tennessee wrote on Fri, 6/5/2015 - 6:50 am

      ...18 trillion in taxpayer debt nationally, wonderful reverse mortgage commercials for the elderly who've been gutted, student loan burdens for the young, 7 year car loans for the subprime, huge stock buybacks rather than capital investment, and yada yada...

      Mook wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

      lawyerliz wrote:

      This behavior may reassert itself with new borrowers only.

      Key phrase, that one.

      The marginal new borrower may scramble to lock in a 4.5% rate before it moves to 4.75%. All well and good, if you believe that the population of marginal new borrowers (generally millennials with uncertain job prospects, little liquidity, and a Steinway worth of student loan debts strapped to their backs) is sufficient to maintain existing sales volumes and rising prices.

      Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

      Blackhalo wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

      Rajesh wrote:

      Has the unemployment rate flat-lined?

      Probably reached equilibrium, at the point where folks who had given up, can find work, and any increase in demand, is off-set by added supply.

      KarmaPolice wrote on Fri, 6/5/2015 - 6:51 am (in reply to...)

      ResistanceIsFeudal wrote:

      Of course there is. The Tale of Two Economies continues unabated.

      It's nothing new. And pretty much on-pace since the seventies for the US.

      Although I did see an interesting statistic that the majority of people moving into Houston are renters even though their salaries are more than acceptable for purchasing a home. Perhaps they are getting smarter about boom/bust cycles.

      sum luk wrote on Fri, 6/5/2015 - 6:51 am

      DeutscheBank: wage growth acceleration: https://twitter.com/fxmacro/status/606810704813916161

      ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:52 am (in reply to...)

      Mook wrote:

      Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

      Except the voting booth.

      KarmaPolice wrote on Fri, 6/5/2015 - 6:54 am (in reply to...)

      ResistanceIsFeudal wrote:

      Except the voting booth.

      Good luck with that as well.

      burnside wrote on Fri, 6/5/2015 - 6:55 am (in reply to...)

      Rates will have to rise quite a bit, I should think. That became very common in the late seventies. Very.

      sum luk wrote on Fri, 6/5/2015 - 6:55 am

      Average hourly earnings have increased 2.04% (nominally) from a year ago

      chart: https://twitter.com/NickatFP/status/606814645551251456

      umop apisdn wrote on Fri, 6/5/2015 - 6:56 am (in reply to...)

      18 trillion in taxpayer debt nationally

      The Treasury is not the taxpayer.

      sum luk wrote on Fri, 6/5/2015 - 6:57 am

      U.S. Economy Adds 280k New Jobs In May - Floating Path

      Blackhalo wrote on Fri, 6/5/2015 - 6:57 am (in reply to...)

      lawyerliz wrote:

      it will be really hard for a borrower with a 3.5% to 4.25% rate to decide to move up to 5.5---7% rate.

      It would seem that you'd get a lot less house, moving from 3.5% to 7%, for the same monthly nut.

      Let's see: a 250K home at 3.5% vs 170K house at 7%... $1150/mo...

      KarmaPolice wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

      homedad43 wrote:

      The decreases are happening but in the things that are more common...bananas, potatoes, canned veggies. Hell, even cooked deli ham and deli cheese went down in the past two months.

      Oil prices.....

      homedad43 wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

      Average hourly earnings have increased 2.04% (nominally) from a year ago

      Yep...but if you're paying more for health insurance and doing without other benefits that you now have to cover, then that situation is still a net loss.

      Belmont wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

      I was told that this would never happen. That we would all be searching the forests for edible mushrooms till the end of time.

      sum luk wrote on Fri, 6/5/2015 - 6:59 am (in reply to...)

      18 trillion in taxpayer debt nationally

      umop apisdn wrote:

      The Treasury is not the taxpayer.

      … that's ok, 18 trillion is just the headline ~ not the actual number

      homedad43 wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

      One of the items that I price is a 48 oz container of canola oil for cooking. When oil prices spiked, the canola oil went up across all three stores since canola seeds are also used in bio-fuels...since then the price for that size container has dropped but not as much...elastic upwards and inelastic downwards. Somebody's making money.

      Rob Dawg wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

      Bruce in Tennessee wrote:

      18 trillion in taxpayer debt nationally,...

      Debt Maturity Chart

      We either pay off $3 trillion in the next year or cough up an extra $35 billion for every increase of 1% when rolling over.

      KarmaPolice wrote on Fri, 6/5/2015 - 7:02 am (in reply to...)

      homedad43 wrote:

      Somebody's making money.

      That's called capitalism.

      Mike_PNW wrote on Fri, 6/5/2015 - 7:03 am

      Pending layoffs at Intel...

      Intel plans job cuts across the company, internal memo says | OregonLive.com

      [Jun 02, 2015]The Current Overproduction Crisis And War

      Ian Welsh makes Fourteen Points on the World Economy as the US GDP Drops .7 Percent. He believes that the economy is again turning towards a global recession. This recession comes even as there has not been a real recovery from the last global economic crisis:

      Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

      The business cycle is again turning down and is doing so sharply. Not only in the U.S. but also in Europe and Asia.

      Every central bank has been throwing money at the local economies but that money finds no productive use. Why would a company invest even at 0% interests when nobody will buy the additional products for a profitable price? How could consumers buy more when wages are stagnant and they are already overburdened with debt taken up in the last expansion cycle? The central banks are pushing on a string while distorting normal market relations. This intensifies the original crisis.

      My believe is that the global crisis we see is one of overproduction, an excess or glut of supplies and on the other side a lack of consumption. The exceptional cheap money created by the central banks makes investment in machines preferable over employment of a human workforce. The result: Manufacturing hub starts work on first zero-labor factory

      Chen predicted that instead of 2,000 workers, the current strength of the workforce, the company will require only 200 to operate software system and backstage management.

      The (Central) bank gave Mr. Chen cheap money and at an interest rate of 0% a complete automation of his company may indeed be profitable. It is unlikely though that he would make the same move at an interest rate of 10%. But on the larger macro economic scale Mr Chen needs to ask this question: "How will the 1,800 laid off workers be able to buy the products my company makes?" Some of the laid off people may find marginal "service" job but the money they will make from those will likely be just enough to keep them alive. And over time flipping burgers will also be automated. And then?

      Karl Marx described such overproduction crises. Their cause is a rising share of an economy's profits going to an ever smaller class of "owners" while the growing class of marginal "workers" gets less and less of the total pie. In the last decades this phenomenon can be observed all over the developed world. The other side of the overproduction crisis is an underconsumption crisis. People can no longer buy for lack of income.

      While a realignment of central bank interest rates to historical averages, say some 6%, would help to slow the negative process it would not solve the current problem. Income inequality and overproduction would still increase though at a lesser pace. The historic imperialist remedy for local overproduction, capturing new markets, is no longer available. Global trade is already high. There is little land left to colonize and to widen the markets for ones products.

      There are then two solutions to such an crisis.

      One is to tackle the underconsumption side and to change the distribution of an economy's profits with a much larger share going to "workers" and a smaller share going to "owners". This could be achieved through higher taxes on "owners" and redistribution by the state but also through empowerment of labor unions and like means. But with governments all over the world more and more captured by the "owners" the chance that this solution will be chosen seem low.

      The other solution for a capitalist society to a crisis of overproduction is the forced destruction of (global) production capabilities through a big war. War also helps to increase control over the people and to get rid of "surplus workers".

      The U.S. was the big economic winner of World War I and II. Production capacities elsewhere got destroyed through the wars and a huge number of global "surplus workers" were killed. For the U.S. the wars were, overall, very profitable. Other countries have distinct different experiences with wars. In likely no other country than the U.S. would one find a major newspaper that arguing that wars make us safer and richer.

      I am therefore concerned that the intensifying crisis of overproduction and its seemingly casual preference for war will, in years to come, push the U.S. into starting a new global cataclysmic conflict.

      Neoconservatives like Victoria Nuland tried to goad Russia and the EU into a big war over Ukraine. The top lobbyist of the military industrial complex, U.S. Secretary of Defense Ash Carter is trying to instigate a war between China and its neighbors over some atolls in the South China Sea. The U.S. is at least complicit in the rise of the Islamic State which will leave the Middle East at war for the foreseeable future.

      Are these already, conscious or by chance, attempts by the U.S. to solve the problem of global overproduction in its favor?

      Posted by: [email protected] | Jun 1, 2015 2:05:50 PM | 2

      Marx's early writings, including the Communist Manifesto, did indeed focus on crises of overproduction. But, in Capital, he explained that falling rates of profit are the key dynamic. For a popular blog on these issues, see Michael Roberts:

      https://thenextrecession.wordpress.com/

      Of course, there is plenty of debate on these matters within Marxian political economy. The best academic source is the journal, Historical Materialism:

      http://booksandjournals.brillonline.com/content/journals/1569206x

      Posted by: Mike Maloney | Jun 1, 2015 2:38:15 PM | 5

      I think you're right, b. The U.S. will not allow regional hegemons who are not clients let alone a global one to challenge its unipolar world. That's why we're seeing all these wars in various stages -- hot in the Middle East; hot and cold in Ukraine; cold in Southeast Asia. The U.S. prefers smashed failed states to anything remotely challenging its full-spectrum dominance.

      The neoliberal prescription for low growth/no growth is the complete cannibalization of the state. Privatized health care is being exported to Europe, while in the U.S. public education is being devoured by corporations.

      Posted by: VietnamVet | Jun 1, 2015 3:01:36 PM | 7

      Since the subject is blacked out by corporate media, we have to decipher the news to try to figure what is actually happening. The only stimulus acceptable to the elite and their politicians is war. 2,300 Humvees seized by Islamic State. Instead of containment, ship thousands of anti-tank missiles to Baghdad; more money in the pocket of the Military Complex.

      The problem is that it is psychotic. The Islamic State's end game is Mecca. The shutoff of 11% of the world's oil supply will collapse the world economy. Yet, this is not an aberration.

      A civil war was started in Ukraine right on Russia's border; a nuclear power who has said they will use them if there is a shooting war with NATO.

      The Greeks are being pillaged to pay debts that cannot ever be paid back. Unless the debt is written off, the Eurozone will splinter asunder.

      The only description for this is greed. Get rich today; the hell with tomorrow and the rest of mankind.

      Posted by: Mike Maloney | Jun 1, 2015 3:57:03 PM | 9

      The good news is that this U.S.-led neoliberal hegemony (what Tariq Ali calls the "Radical Center") is rapidly losing any popular legitimacy. Syriza in Greece, Podemos in Spain, Sinn Fein in Ireland, SNP in the UK, even Bernie Sanders in the U.S. His first day of campaigning last week in Iowa 700 hundred people showed up to hear him speak, compared to 50 for Martin O'Malley, another corporate shill.

      Sanders is no antiwar crusader, but his basic ideas -- cutting military spending, breaking up the big banks, raising marginal tax rates on the wealthy, creating jobs by investing in infrastructure -- have proven the most popular, at least based on turnout, in Iowa of any candidate, Republican or Democrat, so far.

      Posted by: tom | Jun 1, 2015 4:17:23 PM | 10

      We have to look at the perspective of the class war too, where the corporate and elite class have growing contempt for the lower/middle classes more than they already do. So, how can one grow the economy, when the elite and corporate class are exploiting, growing inequality, and hate for us even more ?

      Posted by: Bill | Jun 1, 2015 5:15:09 PM | 12

      The prime vote holder of the IMF himself states the IMF has "served US National and economic interests" since it's inception, across Latin America, Europe and the world, and that "US Leadership" in the IMF is "critical".

      http://www.foreign.senate.gov/imo/media/doc/Sobel_Testimony.pdf

      The ideas behind the institutions that came out of Bretton Woods were already in the mind of FDR and Keynes long before the conference. One of FDR's key advisors was James Warburg whose father had funded Hitler as well as the USSR, and founded the Federal Reserve Bank.

      https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_Hitler.pdf
      https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_the_bolshevik_revolution-5.pdf

      US financiers funded Russian manufactured trucks which went to the North Vietnamese forces, and today BP hold stakes in Russian energy firms while Hilary Clinton sells Russia the US Uranium supply.

      As Major General Smedley Butler said in 1935 "War is a Racket". All that has changed is the quality of the supporting propaganda.

      Posted by: Piotr Berman | Jun 1, 2015 5:50:10 PM | 16

      I think that it is not "overproduction", but the result of improved transportation, communication and more free trade. What is the advantage of paying wages in USA or Western Europe if you can put all labor consuming operations in China, where there is good infrastructure, or in countries where infrastructure is not as good but the labor much cheaper, like Bangladesh? The answer is that while some advantages do exists, there are less and less frequent. Even automation can be performed elsewhere.

      Historically, in 16-th century The Netherlands were the chief European center of non-agricultural production, international trade and banking, and afterwards there was less and less production, but the country retained for a while its position in trade and banking. That cycle affected northern Italy earlier, and England, later. I think that one part of the solution would be a moderate, and yet effective, policy supportive of domestic production and domestic employment.

      But there is also a bit of overproduction. Average American could perfectly well live in a smaller home, drive a smaller vehicle, buy fewer gadgets etc. with hardly decreasing the quality of life. Those below the average income can be out of luck, but they do not consume much anyway. Additionally, there is an excessive gap between "micro-economic" and "macro-economic" optimum behavior.

      Most American household has so little savings that the suffer a crisis very easily, so it would be better for them to spend less, e.g. by cooking more and eating out less, cutting down impulse buying etc. However, the cut in demand is recessionary on a macro-scale. It would be sensible to have policies that would concentrate not on "growth" but on satisfaction of needs.

      Posted by: PokeTheTruth | Jun 1, 2015 6:11:12 PM | 18

      America is drowning in the sewer of the national political system. There is no candidate or incumbent in Washington, DC who serves the country. These elitists rape our liberties, steal our wealth, entice our grandchildren into killing people in foreign lands and subject the future of the nation to be slaves to the debt masters.

      The American people must exercise the only peaceful option left to restore the federal republic which is rapidly being transformed into a unitary style government like much of Europe. On November 8, 2016, the nation must stay home and not give its consent to continue being abused by the plutocracy of puppets bribed by the global bankers, multinational corporations and foreign state lobbyists.

      Abstinence is not benign as some would believe, it is a very powerful check on government when it becomes so infested with opportunists who pursue their own self-serving aggrandizement through the passage of law and regulation to benefit themselves and their criminal syndicate. Without a democratic mandate the cabal cannot hold power and therefore the legislative function of law making is extinguished. The bureaucracy remains in place until the fiscal budget ends in October of the following year which means social security payments will still be made, Medicare claims will still be processed and other central government functions will continue. During those 10 months, the people must demand from the governors of each of their respective States new elections with candidates who are independent of the two-party dogma that has corrupted Washington, DC.

      An implied vote of 'No Confidence" or "None of the Above" is the only sensible way to end this long running nightmare of tyrannical fascism and nationalism that is destroying the country.

      The motto of new liberty must be, "Dissolve it, start over!"

      Posted by: chuckvw | Jun 1, 2015 7:26:53 PM | 19

      So much for the surplus value of labor... All surplus and no labor... The global capitalist system has become bulimic.

      Posted by: Tom Murphy | Jun 1, 2015 8:59:08 PM | 20

      I remember in school in the early 1980's a teacher said something really disgusting to the class: "want to boost an economy, have a war" (clearly the powers that be have made sure that there propaganda gets fed to the public) another ugly thing a teacher tried to push was the notion that WWII's economic effect was some sort of special boost yet at the same time trying to obscure the basic fact that it was government spending that took us out of the depression so war was not needed at all. A lot of work has gone into pushing the manipulative propaganda which is meant to manipulate and sell the agenda of the powerful.

      How it was presented was "FDR tried the New Deal but it took WWII to get us out of the Great Depression." The framing of it that way is intentionally manipulative in order to obscure the role government spending had in getting us out of the depression and it is phrased that way to sell war.

      Posted by: rufus magister | Jun 1, 2015 9:08:58 PM | 21

      in re 14 --

      Nor did they suffer from overproduction of T-34's,, even though they cut cost and production time in half. But they still had sufficient to defeat Hitler, thank Ford! The Space Station is in trouble if there are shortages of Proton rockets. And the Federation is still enjoying some Union leftovers in education and healthcare, see Lisa Marie White's accounting of why American liberals are wrong about Russia.

      For an artistic take on overproduction in capitalism, see Brave New World. Ending is better than mending!

      Whatever happened to waste not, want not? Just a throwaway line....

      Posted by: Copeland | Jun 1, 2015 9:12:41 PM | 22

      Piotyr Berman @ 16

      I think you're on the right track. Before capitalism ran amok and metastasized into a global zombie, there were guilds. I believe the Netherlands had a rich history of those organizations. These were created to protect the rights and privileges of members (to be sure); but they also preserved and improved the skills, and passed these on through apprenticeship. The obsession in consumerism is about having something brand new, and also relies on planned obsolescence, which needs to produce shoddy goods such as plastic footwear, that will be discarded as junk in a few months. Having things made which are durable enough to go through several cycles of repair, would moderate the overheated production.

      If labor is expunged by automation-crazed corporations; then war or revolution, or even both at once, is possible. The cataclysmic outcome that b sketched out is then possible. Of course it's all very short-sighted; but I once read somewhere that at the onset of the 1930s Great Depression, the capitalists examined the option of reducing working hours for everyone so that workers might still muddle through.

      On closer examination, capitalists calculated that dumping workers into the trash heap would add a few dollars more to the corporate bottom line, and be more agreeable to shareholders.

      Posted by: Lone Wolf | Jun 1, 2015 9:46:47 PM | 23

      @b

      Since you mentioned Karl Marx, the exclusion of a very valid third option, revolutionary war/class struggle, makes itself evident. From the trend we witnessed after WWII, we cannot expect as you correctly noted, a redistribution of wealth out of the greedy and gluttonous transatlantic empire and its minions, since concentration, centralization and consolidation of capital has been the order of the day ever since. The other major trend after WWII has been imperial wars, either by proxy or direct intervention, fought against countries that followed the path to independence from colonial powers by means of revolutionary wars, in Asia, Africa and Latin America. The potential for another period of revolutionary war is real, given the abject misery of the wretched of the earth, which have been left with nothing to lose but their chains. The main obstacle they face is the lack of a scientific tool to interpret their current predicament, and at the same time provide them with a vision of the social paradigm they aspire at, out of the ruins left of their societies. With its inherent limitations given by dogma, Marxism was that tool for Mao, Lumumba, Ben-Bella, Ho Chi Minh, Castro, and many other African, Asian and Latin American leaders who took upon their shoulders to shake their peripheral dependency. Many of them were successful in their revolutionary endeavors, and were able to trace an independent path for their societies, even if burdened with all the problems typical of the "third world." Nevertheless, even before the fall of the Soviet Union, Marx and Marxism were thrown under a pile of dead dogs, even more after the fall, which was attributed to the utter failure of Marxism as a social science.

      Marx and Marxism were part of the "end of history," a thing of the past, a post-Hegelian utopian philosophy whose ultimate results were the creation of dystopian societies…until the crisis of 2007, when suddenly everybody wanted to understand WTF is a cyclical crisis, and why do they happen. Das Kapital became a best seller in Germany and beyond; becoming a model for new works tailored after Marx's statistically saturated magnus opus, e.g. Thomas Piketty's "Capital in the Twenty-First Century, " and others. Despite all the intellectually gifted resisters to the empire, and the vast expansion of knowledge of the digital age, no new revolutionary theory has appeared, able to inspire the masses of dispossessed as Marxism did at the turn of the XIX c., one that changed the course of history forever during the XX c.

      It is in this vacuum, a modern epistemological crisis, that the neocons, bastard children of Trotskyism, took ownership of Trotsky's "Theory of Permanent Revolution," and turned it into a counterrevolutionary instrument for their nefarious global domination purposes. Hence revolutions became bastardized, categorized by "colors" or "seasons" according to the whims of the vulgar ruling elites, and lost their power to change societies from the bottom up. This crisis of knowledge of their own socio-economic/political conditions are having a profound effect on the masses worldwide, who in many instances rise up against their oppressors, e.g. Egypt/Arab "Spring," without a leadership, without a clear vision of their goals, without a social agenda that guides their movements, and they end up getting crushed or coopted by the new rulers, toys for the empire games of regime change. These are the "Twitter" and "Facebook" so-called "revolutions," mass movements with no direction, no aim, and no strategy for social change. What kind of society did the Egyptians, Tunisians, et al want? Did they have a program for the society they wanted to build? Was there a clear strategy and tactics to achieve their goals? "Crisis," say Gramsci, that giant of Italian Marxism, "is when the old has not died and the new has not been born." Humanity is now facing an epistemological crisis of galactic proportions, in serious need of a new revolutionary theory that, like Marxism in the XIX/XX c., gives the masses a vision of a future to build with their own hands, and hope there is a better world other than sweat-shops, slavery, toiling without rewards, exploitation, misery, crime, and an ever-growing gap between the ruling elites and the working masses.

      Posted by: Nana2007 | Jun 1, 2015 10:11:44 PM | 24

      There could be a helicopter drop ala Ben Bernanke.

      I like Gail Tverberg on diminishing returns/oversupply.

      I like Andrew Kliman on the declining rate of profit.

      Thanks for connecting the dots on this B.

      Posted by: ruralito | Jun 1, 2015 10:11:54 PM | 25

      @12, Sutton is an ass. He pushes the theory that Communism and Fascism are equally bad and what is needed is some mystical third way: Libertarians with their squirrel rifles hunkerin down behind cotton bales. So Wall St. offered Lenin free cash, and he took it! Well, duh!

      Posted by: Nana2007 | Jun 1, 2015 10:19:49 PM | 26

      The motto of new liberty must be, "Dissolve it, start over!"

      PokeTheTruth@18- I tend to agree, with the caveat that plenty people need to be held accountable.

      Texas might be getting that idea.

      Posted by: rufus magister | Jun 1, 2015 10:44:18 PM | 27

      PB @ 16, Copeland at 22

      Historians of the United Provinces point out that Holland and her allied provinces lacked a sufficient population base to administer and defend the holdings she gained in her revolt against Spain ("The Eighty Years War"). With the loss of revenue, croqetten and circuses became less affordable. The House of Orange were elevated from elected Statholders to Kings, the thinking being a monarchy would better keep the lower classes down than a republic. This environment proved conducive to the spread of revolutionary ideas in the Low Countries after 1789.

      Historian of the later Renaissance attribute the decline of the urban republics to several factors. The prevailing aristocratic values induced merchant families to move their capital from commercial and industrial operations to urban and rural real estate -- especially country tracts that came with patents of nobility. Failing that, you could, like the Medici, subvert the Republic with wealth and buy a title from the Papacy or Holy Roman Emperor. And a more mundane factor -- they ran out of good shipbuilding timber.

      England for her part had a large population. It had plenty of timber -- North America was a shipwright's wet dream, and before this, measures prioritized available timber for maritime uses.

      When elites think protecting domestic markets and workers will add to their bottom line, they will. But if the see money to be made in "outsourcing" and "off-shoring", well, away the factories, jobs, salaries, and purchases from suppliers go.

      England began to lose her superiority in textiles and iron and steel to cheaper American and German production. And these two rivals took advantage of what Gershenkron has called "the advantage of the latecomer." The major industrial expansions of both took place in the Second Industrial Revolution, where steel, chemicals, and electrics were the new driving technologies, and both were leaders in these fields. After a rearguard action up to World War II, they accepted de-industrialization whole-hearted under Thatcher.

      PTT at 18 -- The elite will be totally fine with abstention. Less voters to bribe. Not only will things continue as they were, we'll have to endure fools like David Brooks lecturing us on our lack of civic engagement.

      Go to the polls. If you can't bring yourself to vote for the left(over) parties down the ballot, write in you favorite choice -- "none of the above" will do. And not just for President, do it for all the races. The rightists will bring more of the same, only with more Pharisee-style false piety or boring Ayn Rand novels. Friends don't let friends vote Tea Party.

      Lone Wolf at 23 -- Time permits me only to say -- Gramsci Rules!

      Posted by: meofios | Jun 1, 2015 10:55:26 PM | 28

      I think the over-production we see is caused by zombie companies all around the world, that don't generate any profit, sustained by zero interest rate loans, over produce goods, causing a glut of products, and cause price deflation.

      Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

      RM@27

      The 'elites' spend billions of dollars every election cycle to encourage or frighten people into the voting booth. Without that 'consent of the people' their minions have no mandate or legal right to rule over us. Throwing your vote away by voting for or against someone or even writing FU on the ballot is still supporting the corrupt system that they will continue to use to rule and if voting could change anything, it would be illegal.

      This doesn't mean that elections and voting may not someday be useful again but there is no possibility they can now be used to change our corrupt system.

      Posted by: Hoarsewhisperer | Jun 2, 2015 1:32:21 AM | 30


      Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

      I agree with that.
      Lone Wolf @ #23's Gramisci perspective is on the money.

      Russell Brand, my favourite non-revolutionary revolutionary, makes the (laboured) point that a govt elected by less than 50% of eligible voters cannot claim legitimacy.

      But Gramisci was righter than everyone else in pointing out that "Crisis is when the old has not died and the new has not been born."

      It should be obvious to everyone, by now, that Twitter and Facebook "revolutions" aren't revolutions, or journeys, and have no useful or coherent destination.

      Posted by: Chipnik | Jun 2, 2015 7:25:37 AM | 31

      b

      This is the 'atto-fox problem' in biology, addressed by the Lotka-Volterra equation in Brauer, F. and Castillo-Chavez, C., Mathematical Models in Population Biology and Epidemiology, Springer-Verlag, (2000), and many others, the bifurcation relationship allowing two mutually independent steady-state solutions, one with higher predation and lower prey population used to justify higher resource extraction rates, ...but it remains just a theory and requires a rigorous definition of who is the 'prey'.

      Is the prey the poor and downtrodden? No, those are the losers.

      We can all agree the 'prey' is ultimately the energy needed to continue surviving for another day, not the staid pedantic 19thC Marxist 'Das Kapital', but just the 'real' value of evolutionary currency and trade. We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them. They'really part of a non-viable fractional-reserve usury-based ecosystem that's running out of balance, Koyaanisqatsi.

      The rich prey on the energy developed by the poor through usury and credit, but also, the socialist state preys upon the destitute as a source of $Bs public program, using public tax extraction to generate private wealth in much the same way as usury and credit. More rice tents!!

      If we de-anthropomorphize the Marxist class-struggle dialectic, and the rabbinical Maker-Taker meme, the answer pops right out like a jujube: not overproduction, not QEn, not oligarchs and monopolies, but usury and taxes.

      Wah-lah. Usury. Taxes. Same as it ever was. Que sera, sera.

      Posted by: rufus magister | Jun 2, 2015 8:16:58 AM | 32

      Wayout at 29 --

      The standard line of us reds is that participation in elections is a useful tool for educating the masses and marshaling and mobilizing progressive forces. And that mass action, e.g., the general strike, is the real means of social change.

      Bhagavan Chippy at 31 --

      I'd stick to physics and Eastern mysticism.

      Predation occurs between, not within species. Socialism is about the workers controlling the means of production that they service. Social welfare capitalism bought their birthright for "a mess of pottage" (Gen. 25: 29-34). But austerity is taking that off the table.

      I find the overtones of the "rabbinical meme" and the emphasis on usury and taxes disturbing. See this handy comparative chart; fascism is "Strongly against international financial markets and usury." The Abolition of Income Tax and Usury Party is recent spawn of that brood.

      Our own home-grown TeaBaggers don't feel too good about it either.

      You might consider a clarification or restatement of your position.

      Posted by: paulmeli | Jun 2, 2015 8:28:43 AM | 33

      "We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them"

      Well, there's too much savings (accumulated financial wealth) but not enough spending. We know this because we have too much unemployment. Properly targeted spending cures unemployment.

      Spending is a function mainly of money printing, existing money (previously created) mostly just earns interest and so is parasitic to the system in the net (economic rent), which leads to a paradox.

      In the old days in the U.S. between 1933 and the mid-1960's the top marginal tax rate remained around 90% and then around 70% until Reagan was elected.

      This maintained some sort of balance between money printing and saving. Now, money creation just piles up at the top which creates huge inequalities of power.

      Posted by: geoff29 | Jun 2, 2015 9:24:35 AM | 34

      It's simple to conclude that the "ruling class" and their spokes-people are if not absolutely greedy and mendacious, then at least criminally stupid.

      But I think that's short-sighted. The financial crisis could be resolved in a moment's notice, since money is more or less an "imaginary" construct, especially now that it's just 1s and 0s, as was mentioned. The population is clamoring for "higher wages," but if we here were the small ruling class, we must know that "higher wages" means more mouths to feed from a growing population. Or, it means more disgruntled minions crying for "revolution" carrying pitch forks to the very gates of the gated communities and wilderness tracts where the very wealthy keep themselves concealed, when calamity strikes and food is scarce.

      And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc. What wars are being threatened between great powers, are are not about the resolution of world wide perils in terms of repairing the global over indulgence in carbon based technologies, in fact they seem to be based on increasing their use and further extracting scarce resources and more rapidly burning down the house.

      Intelligent discussions are conducted here at MOA, it would be foolish to conclude that some semblance of intelligent discussions are not also held in the upper rooms and chambers of power, stripped of pretense and falsehood. If so, if one of us were sitting with those chosen few, I'm sure we would come to the conclusion that we were in a serious fix. And our backs are up against the wall. "Austerity" would be pushed to its extremities to decrease productivity and reduce the population through Urie's principle of immiseration.

      Put yourself in the shoes of this ruling class, our primary MO would no doubt be self-preservation from the encroaching revolutions and chaos, and destruction, and a preservation of some kind of status quo. Otherwise, all that we had, were we sitting on the porch overlooking our estate, would be gone.

      If nothing else works like the current financial immiseration to reduce the current state of affairs to a simpler and more manageable system where our ruling class rank and stature in society remained permanent and secure (because really our whole being has been reduced to measuring ourselves by our imagined sense of self-worth determined by our wealth, etc.) but the elimination of so many annoying minions through some kind of controlled burn, like a war, then certainly we would go about that?

      I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

      ===

      Posted by: ralphieboy | Jun 2, 2015 10:25:43 AM | 36

      There is a famous anecdote about a General Motors executive showing off their newest automated assembly line to a United Auto Workers Union boss and remarking "Not one of them is a union member!"

      To which the UAW boss replied, "And not one of them is a GM customer, either."

      Posted by: Willy2 | Jun 2, 2015 11:15:49 AM | 40

      There's a lack of demand worldwide because since say 1981 workers/employees have received wage increases below inflation. In that regard workers have seen their purchasing power being reduced for over 30 years. No wonder, households/workers aren't able or willing spend lots of money.

      From 1981 up to 2008 households/workers were willing to increase their debtload. By going deeper into debt those households were able to keep their spending at a reasonable level.

      But since 2008 households are reluctant to go deeper into debt and that has weakened the worldwide economy.

      As long as workers don't get wage increases at or above inflation (levels) or are willing increase their debtloads (again) there's no chance for a economic recovery.

      Posted by: HnH | Jun 2, 2015 11:23:22 AM | 41

      b,

      you normally publish highly insightful analyses and information nuggets that I have trouble finding elsewhere. On this topic, however, you jumped short.

      Yes, we are struggling with overproduction and lack of consumption, but it is important to know where this development comes from. If you look at historical data, then you might realize that the purchasing power of people in the Western World started decreasing at the start of the 80s last century. The *growth* in purchasing power decreased since the 1960s. And debt is a significant, but small, part of it. The average growth in GDP has been consistently shrinking since the 1960s. Can you even remember a time, when the economy in one of the Western countries has been growing by more than 4% YoY? I don't. For Germany you have to go back to before the 70s oil crisis to find two years with a consecutive growth of 4% for more than one year. I wasn't even born then.

      The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food. And there are more and more people living right now.

      This main problem, the diminishing returns, makes it that people have to spend more and more to afford the basic necessities. Corporations and enterprises react to their diminishing sales by cutting their costs to pay their loans. The easiest way to cutting costs is letting go of workers.

      Since 2008, the crash happened after the crash of the oil price, Western Central Banks needed to keep their interest rates a 0%, because there was no growth. If they are ever crazy enough to raise interest rates, they will be blamed for the worst market crash in human history.

      The reason is that we have reached the limits to growth. There is no more growth to be had for the industrialized civilization. That is over. For good. Unless we find an unlimited energy source that is very, very cheap. None is on the horizon so far.

      Currently, a country can only produce growth, for a very short time, at the expense of others. That too will stop. Then, in a few years at the latest, global GDP will start to shrink. That is when the wars will start in earnest. That is when the killing and dying will start in earnest.

      That killing and dying will not stop, until the world will have found a means to reduce its energy consumption to the physical and geological realities out there. That will take a while, and I have no clue how the world will look like.


      Best wishes,
      HnH

      Posted by: ǝn⇂ɔ | Jun 2, 2015 11:38:36 AM | 43

      Sorry, but I again disagree.

      First of all, the robots in the example are there because there the Chinese labor pool has been growing slower than the economy for years now.

      Secondly, robots need to be made by somebody. They cost lots of money. They have to be maintained and often upgraded. The physical operation of the plant might take 90% less workers, but the remaining workers are paid as much or more as the previous entire work force.

      Thirdly, the production noted in the article isn't for China - at least, not yet. It is for the 1st world. Thus the "replacement" of the worker is a dynamic of cheaper labor elsewhere rather than actual replacement with mechanization.

      As for economics: an entire series of fallacies.

      a) Overproduction. While I will certainly agree that the 1st world can do with less, this is irrelevant. Every labor saving device ever created has ultimately had the labor savings spent on higher standards of living. There is nothing to indicate any change in this dynamic. Thus while we no longer have tens and hundreds of thousands of workers making automobiles, we now have tens and hundreds of thousands of workers doing other things like fracking oil and natural gas, servicing the cars via a nationwide array of repair, refueling, and upkeep (car washes, etc). Equally, we don't drive Model T's anymore. Ford used to be nearly entirely self sufficient outside of the metals - this is no longer true. Ford doesn't make computer chips or any of hundreds of parts in present day Fords.

      b) Labor isn't the problem - consumption is. In terms of overall productivity, Americans as a whole are producing more than ever before. Hours worked has been inching down, but hours of work isn't what dictates the actual output - it is a function of productivity times hours worked, and that product continues to increase overall.

      The primary difference between today and post World War II is that of the economic rewards. Americans who aren't in the managerial class get paid a smaller percentage of the overall production created than ever before. This also has been decreasing for decades.

      Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money.

      Posted by: Lone Wolf | Jun 2, 2015 12:08:31 PM | 44

      Right on cue...

      Why America's color revolution strategy of global domination is doomed to fail: the case of Egypt

      Posted by: paulmeli | Jun 2, 2015 12:16:13 PM | 45

      "The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food."

      This may well be true, but if one looks at the history of spending growth (or more accurately public investment) by the U.S. federal government one will see that spending growth suddenly dropped by 1/3rd in the early 1980's (around the beginning of Ronald Reagan's presidency). This can be observed visually very easily by looking at the FRED series FGEXPND on a log scale…the breakpoint is obvious and so is the one at around 2010.

      U.S. federal spending has averaged 7% since WWII overall…about 9% through 1985 dropping to about 5% thereafter. Since 2010 growth has been an anemic 1.6%.

      It's no wonder GDP growth has been on decline since the 80's, and it's no wonder we are experiencing a slowdown now.

      Posted by: james | Jun 2, 2015 12:34:50 PM | 46

      @43 ǝn⇂ɔ quote.. "Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money."

      who is buying the produce ǝn⇂ɔ ?

      Posted by: dh | Jun 2, 2015 12:38:22 PM | 47

      @46 A lot of money goes into remodelling. Look at the proliferation of home improvement stores.

      Posted by: james | Jun 2, 2015 1:22:48 PM | 48

      @47 dh.. the big money is in the mic/fic complex... chump change in most other areas relatively speaking.. i think the big money is coming from gov't spending.. it is a self sustaining vicious circle for everyone.. that's my simplistic rendition of it! who pays for those orange jump suits anyway?

      Posted by: dh | Jun 2, 2015 1:33:19 PM | 49

      @48 Not everybody in the US is in jail or on food stamps. There is a lot of disposable income in the US. People buy new vehicles, improve their homes, upgrade their entertainment systems, send kids to college, go on trips. The trick is to keep interest rates low and keep printing money. So far it seems to be working.

      Posted by: Lone Wolf | Jun 2, 2015 3:09:14 PM | 52

      @geoff29 @34

      And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc.

      I am sure they discuss those and many other subjects under heaven, problem starts with their conclusions. Ever heard of the "smart idiot effect"?

      (...)Buried in the Pew report was a little chart showing the relationship between one's political party affiliation, one's acceptance that humans are causing global warming, and one's level of education. And here's the mind-blowing surprise: For Republicans, having a college degree didn't appear to make one any more open to what scientists have to say. On the contrary, better-educated Republicans were more skeptical of modern climate science than their less educated brethren. Only 19 percent of college-educated Republicans agreed that the planet is warming due to human actions, versus 31 percent of non-college-educated Republicans.

      For Democrats and Independents, the opposite was the case. More education correlated with being more accepting of climate science-among Democrats, dramatically so. The difference in acceptance between more and less educated Democrats was 23 percentage points.

      This was my first encounter with what I now like to call the "smart idiots" effect: The fact that politically sophisticated or knowledgeable people are often more biased, and less persuadable, than the ignorant. It's a reality that generates endless frustration for many scientists-and indeed, for many well-educated, reasonable people.(...)

      I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

      Well, their lack of awareness is legendary, and their indifference to their damage on the planet and the suffering of others is their trademark. They might laugh all the way to the bank, in total ignorance of the legacy their greed and possessiveness are leaving in their wake.

      Posted by: Lone Wolf | Jun 2, 2015 3:52:00 PM | 53

      From Cooperation to Competition -
      The Future of U.S.-Russian Relations


      May 2015

      A Report on an Interdisciplinary Wargame conducted by the
      U.S. Army War College

      Carlisle, Pennsylvania

      Posted by: james | Jun 2, 2015 4:04:04 PM | 54


      @49 dh.. i know that but thanks for the reminder..almost zero interest rates is the name of the game and has been for some time.. if people had a different interest rate on their line of credit - the jig would be up.. for now it is 'free money' with anyone silly enough to not 'invest' in the wall st casino, or is in any way pragmatic financially - will watch what money they have devalue quicker then you can say 'quicksand'..and, i am always reminded of the racial divide when i think of the states - food stamps verses big brand new automobiles.. what a weird culture.. canada isn't a lot different in some regards.. it is and it isn't..

      Posted by: okie farmer | Jun 2, 2015 4:13:02 PM | 55

      http://www.truthdig.com/report/item/karl_marx_was_right_20150531
      by Chris Hedges

      Karl Marx exposed the peculiar dynamics of capitalism, or what he called "the bourgeois mode of production." He foresaw that capitalism had built within it the seeds of its own destruction. He knew that reigning ideologies-think neoliberalism-were created to serve the interests of the elites and in particular the economic elites, since "the class which has the means of material production at its disposal, has control at the same time over the means of mental production" and "the ruling ideas are nothing more than the ideal expression of the dominant material relationships … the relationships which make one class the ruling one." He saw that there would come a day when capitalism would exhaust its potential and collapse.
      ~~~
      The final stages of capitalism, Marx wrote, would be marked by developments that are intimately familiar to most of us. Unable to expand and generate profits at past levels, the capitalist system would begin to consume the structures that sustained it. It would prey upon, in the name of austerity, the working class and the poor, driving them ever deeper into debt and poverty and diminishing the capacity of the state to serve the needs of ordinary citizens.
      ~~~
      The corporations that own the media have worked overtime to sell to a bewildered public the fiction that we are enjoying a recovery. Employment figures, through a variety of gimmicks, including erasing those who are unemployed for over a year from unemployment rolls, are a lie, as is nearly every other financial indicator pumped out for public consumption. We live, rather, in the twilight stages of global capitalism, which may be surprisingly more resilient than we expect, but which is ultimately terminal. Marx knew that once the market mechanism became the sole determining factor for the fate of the nation-state, as well as the natural world, both would be demolished. No one knows when this will happen. But that it will happen, perhaps within our lifetime, seems certain.

      "The old is dying, the new struggles to be born, and in the interregnum there are many morbid symptoms," Antonio Gramsci wrote.

      What comes next is up to us.

      Posted by: ToivoS | Jun 2, 2015 8:18:47 PM | 57

      lonewolf #52

      Your comment reminds me of something once said by a retired law professor. "We spend considerable effort looking for bright young students for admittance into law school. Then we spend the next three years beating out their common sense".

      Having been involved in graduate school education during my career that statement also applies to grad student education in English and Social Science departments.

      [May 24, 2015] Restoring the Public's Trust in Economists

      May 19, 2015 | economistsview.typepad.com

      I have a new column:

      Restoring the Public's Trust in Economists: The belief that economics has become politicized is a big reason the general public has lost faith in the ability of economists to give advice on important policy questions. For most issues, like raising the minimum wage, the effects of government spending, international trade, whether CEOs deserve their high compensation, etc., etc., it seems as though economists who also happen to be Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other. Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration or follow the side that agrees with their preconceived notions and ideological beliefs.
      But why is it so hard to sort out? Why can't the press do a better job of avoiding "he said – she said" reporting and give the public direct and specific answers to these important policy questions? One reason is the "mathiness" that has infected our economic models, something economist Paul Romer recently identified as a big problem with economic theory. :

      Posted by Mark Thoma on Tuesday, May 19, 2015 at 08:10 AM in Economics, Fiscal Times, Politics, Press | Permalink Comments (55)

      ken melvin:

      Was this twisting, manipulation of data and results ever so endemic politics as today?

      Sandwichman -> ken melvin:

      Frederic Harrison called political economy "this magazine of untruth" in 1872.

      "The complaint one makes against that anti-social jargon, which so easily passes for economic science, is that it is in ludicrous opposition to the common observation of facts. Political economy professes to be a science based on observation. But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital.

      The employing class is virtually in possession of the whole machinery of information; and all judgments are tinged with the tone current among them. Thus we see the very newspapers which celebrate the amusements of the rich in a hundred different forms, scandalized at the coal miners objecting to grub in the pits every day in the week. Laziness, ingratitude, and extortion, seem the proper terms for sportsmen and fine ladies to apply to the men and children who swelter half their lives underground. The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed:."

      mrrunangun

      The public is correct to be skeptical of the value of economics as a prescriptive science at its current stage of development. Bill Black's critique of the econ profession as being unwilling to take account the effects of fraud or corruption in its models renders the models useless as a basis for prescriptions for public policy.

      Medicine in the late 18th century was inaccurate even as a descriptive science. john Hunter in Britain and Claude Bernard in France began to report organized observations in surgery and medicine. Many medical men subscribed to the theory of the four humors and its prescriptive capacity was limited to bleeding or purging and debates as to which was appropriate for which condition were taken seriously. Much as debates as to whether financially insupportable debt loads or socially insupportable austerity and inequality are seen among contemporary economists.

      Economics is stil not accurate as a descriptive science, as its practitioners are unwilling to make unwelcome observations. The problems of Chicago and Illinois are largely related to the longstanding custom of using public office for private gain among the political leaders here and the willingness of the local press and public to tolerate it. Economics provided no diagnosis for this problem before it became a crisis. Economics has no prescription for this, though its baneful effects are clearly economic in nature.


      Darryl FKA Ron -> mrrunangun:

      Yes sir!

      JohnH -> mrrunangun:

      I would only add that economists, macro-economists in particular, have become advocates rather than dispassionate analysts and educators. In this role they tend to tout the benefits of their position without discussing the costs or downsides.

      For example, Stiglitz notes that while the Fed and economists touted the advantages of low interest rates, they omitted the costs:

      "There was a cost, however: all those retired individuals who had invested prudently in government bonds suddenly saw their incomes disappear. In this way, there was a large transfer of wealth from the elderly to the government, and from the government to the bankers. But little mention of the harm to the elderly was made, and little was done to offset it.

      The lower interest rates might have dampened spending in other ways. Persons nearing retirement, seeing that they would have to put away that much more in safe government bonds to get the retirement income they desired, would have to save more. As would parents saving to put their kids through school. Even cursory attention to the distributional consequences of such policies would have raised doubt about the effectiveness of the low interest rate policy." (The Price of Inequality)

      Economists, by championing certain policies which are ostensibly "good for the economy," are too often oblivious to the harmful effects on significant portions of the population. Rather than acknowledge the negative effects, economists seem to say, "just suck it up!" Well, that's fine for a short time. But for a decade?

      How can the public retain trust in economists when they advocate positions that directly harm their pocketbooks for a long period of time?

      JF:

      Economists position themselves as being against self government when they misuse the "distortion" conceptualization.

      Academic institutions should teach business, finance and economic students that govt rules are part of markets, like other parts, and take care in casting the impression that govt rules are per se, distortionary when they explain modeling, models and in their theoretical discussions.

      I'd like to see more blog articles and papers on the notion of distortion, and when markets are distorted by actors involved in the markets.

      Of course, I would also like to see all economists when imparting advice to govt policy discussions to upfront say something about how govts are not distortionary, per se. Ideally they'd say that self-govt institutions are most likely to produce uniform and fair marketplaces, but I suppose that is asking for too much.

      There is an academic and research agenda here too. Find all basic equations containing a G in them, and figure out ways to separate out govt as just another purchaser versus govt as a rule maker. Rewrite all the equations, teach them as re-written, and we may avoid the quite-silly notion that markets make themselves and self-adjust availing themselves of unlimited freedoms of order bound only by immutable governance rules that have come from somewhere other than from human institutions.

      How can economists be trusted if they are undermining confidence and trust in self-government?

      Conelrad -> JF:

      Thank you for this reply.

      As you suggest, "the economy" is not independent of the society in which it's embedded--contrary to the dominant teaching of economists. The reality is that every "economy" is a set of relationships established via societal rules and regulations, many if not most emanating from government.

      Among the sins of the prevailing economics is the fallacy of misplaced concreteness, i.e., "mistak[ing] an abstract belief, opinion, or concept [such as "the economy"] about the way things are for a physical or 'concrete' reality" (Wikipedia).

      The pervasive notion of "the economy" shared by liberals and conservatives forms a set of blinders. With such tunnel vision, economists generally end up, intentionally and not, creating a smokescreen. This smog helps obscure rule-making that, e.g., redistributes wealth and income upward and risk downward.

      Despite economists' failure to anticipate the Great Recession, economics has not undergone a needed paradigm shift. Until that happens, pronouncements from the discipline must be taken with a very large grain of salt.

      pgl:

      Simon Wren Lewis in a recent post linked to something he wrote in August 2012. It was an excellent discussion of how Greg Mankiw and John Taylor was lying on behalf of Mitt Romney. SWL found this repugnant. I agree.

      Syaloch:

      Perhaps economics can learn something from studying the dynamics of the global climate change "debate"?

      As in economics, climate science deals with a complex, dynamic global system where you have to rely more on data gleaned from the historical record than running controlled experiments. In both cases you have strong ideological agendas to have the research point to a predetermined conclusion. And even more so than in econ, in climate science you have ideologues trying to blatantly interfere with, pollute, deny, and suppress results they do not wish to hear. And yet climate science seems to have weathered these attacks quite well, with the scientists generally maintaining their integrity and continuing to speak with one voice, whereas economics is a mess. Why the difference?

      Peter K.:

      "In many other cases, the data do point in a particular direction but this is ignored or denied because it gives results that disagree with someone's previous work, goes against their political leanings, or contradicts their preconceived conclusions. The tactic in this case is to just cite the few papers that support your position while ignoring, dismissing, or clouding the considerable amount of evidence that points in the other direction. This cherry picking and obfuscation of the evidence leaves the impression that there is uncertainty over issues that are largely settled. To me, this is one of the more frustrating aspects of communicating economic policy to the general public."

      This is tactic used by JohnH, Don Kevack, Jeffrey Sachs, and Niall Ferguson among others.

      I can't imagine what they believe they're accomplishing other than annoying people who know better. Perhaps that's all they want to do.

      Tom aka Rusty:

      Sorry to bust your bubble, but those who comment here will probably read more economics this week than most people will read this decade, or this lifetime.

      Most people are too busy working and getting on with their lives to study economics. They depend on whatever "business news" they have time to pick up during a busy day, if at all.

      And since both sides of most debates claim to have the gospel truth, who can sort it out? Both sides are tainted with politics, both sides claim to have data on their side, blah, blah.

      Back to the real world:.and real work.

      Roger Gathmann:

      Nice article!
      However, it is premised on an idea that I am extremely skeptical about: that there exists a value free, neutral economics that we can point to when discussing policy. That economists line up with different parties or ideologies is, I think, a good thing, not a bad thing. That doesn't mean they should blur the results of their work - it does mean that they approach the work from a certain angle. There is a reason for this. One of the great premises of economics is that people work in their own self interest. However, I think that premise relies too much on a hard notion of self that doesn't exist in real life - most people I know have a distant notion that what they are doing every day will somehow benefit them, but their direct actions are more likely to be linked to the benefit of others, whether its a company, a family, a lover, a friend, the country, the community, etc. But the one place where self interest is magnified n the classic economic sense is in economics itself. This is the conclusion of a number of surveys, which are referenced here: https://bcps.org/offices/lis/researchcourse/images/econ-selfish.pdf

      This paragraph sums up the state of research:

      "Inquiry into the question of whether economists are less apt to engage in what Frey and Meyer (2004) refer to as pro-social behavior begins with Marwell and Ames (1981), who find that economics graduate students are more likely than other groups to free ride in a public-goods experiment. Additional experiments produced similar results: economics students offer less in ultimatum games (Carter and Irons 1991), they are more likely to defect in prisoners' dilemma games (Frank, Gilovich and Regan 1993), they are more likely to defect in a solidarity game (Selten and Ockenfels 1998), and they are more likely to accept bribes (Frank and Schulze 2000).

      Other research relies on survey data. Rubenstein (2009) describes various business scenarios and asks students, as hypothetical employers, to make a series of decisions with respect to their employees; he finds that economics students are more likely to place profit maximization ahead of the welfare of the workers. Economists among Frey and Pommerehne's (1993) and Haucap and Just's (2003) survey respondents are more apt to view allocation based on prices as a fair mechanism for allocation."

      What Mark is pointing to is what I'd call ideology maximization. It is what I'd expect to arise from a group that begins by viewing human action as governed by self interest, and that self interest as being more socially beneficial in the long run than altruism.

      Frankly, I think that this will always be the case in economics. It is one of the many reasons that economics is not social physics. Culture counts.

      pgl -> Roger Gathmann:

      "ideology maximization" strikes me as an excuse for deceiving people. Sorry but I find this incredibly insulting. There are economists who want an honest exchange of ideas. Our host is one of those people.

      So way to go - telling Mark Thoma that he cannot exist. Duh!

      Roger Gathmann -> pgl:

      No, I was telling Mark that if he thinks he is doing value neutral economics, I don't believe it. It doesn't have to do with his existence.

      So, to upgrade this comment to something that has some intellectual respectability - you don't believe the surveys that repeatedly show economics classes make people act in more selfish ways? Do you have any countering evidence whatsoever? And if you don't, and you think that the surveys are correct, what would you predict for the discipline as a whole?

      Myself, this is where ideological maximization starts - to maintain, on the one hand, that models which are explicitly premised on narrowly selfish behaviors describe social action, and then to maintain, on the other hand, that economists never act on their ideological interests. Either loosen up the first premise - in which case economics needs a much more extensive overhaul than is proposed by Mark - or get used to the consequence, which is a selfish culture that leads to, at least, unconscious ideological bias.

      That doesn't, by the way, mean that the work is bad. It is bad from the standpoint of value neutrality, but if you reject that Weberian standard, it becomes part of a dialogue. In the second case, conflict is not a sign of untrustworthiness, but of vigor.

      pgl:

      In Krugman's mis-selling of TPP, he references what he considered the best blog post ever - "Good ideas do not need lots of lies told about them in order to gain public acceptance". It was about the lies told to get us to invade Iraq but it had this gem over whether to include the true cost of stock options on the income statement:

      "Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.

      Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic."

      Awesome!

      pgl -> pgl:


      Warren Buffet's term blag was new to me so I went to Urban Dictionary:

      "To gain, usually entrance to a restricted area or club, or some material good, through confidence trickery or cheekiness. Lying is also acceptable."

      Perfect! Tech companies lying to their shareholders. And when FAS 123 ended that - they still lie to the IRS.

      Denis Drew:

      " Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration "

      Maybe if the Democrats would beat to death just a couple of issues (I have two really big issues in mind) where the eighth-grade math is indubitably in progressive favor, then, folks might tend to take progressive economists word for it on everything else (or at least lean our way) -- and forever see the Republicans as dolts.

      I can envision some Democrat campaign organization working up a couple of commercials that can be used by any Democrat (or anybody else) in the country for free.

      The most indefensible Republican nonsense is states refusing to expand Medicaid for 90% payback from the federal government. Half (okay a guess) the patients who would have been covered by expansion will show up somewhere for treatment anyway -- and the (unpaid) expenditure is going to be packed into the price of private premiums or paid through other government channels. Often these folks wont show up until their illness is much further advanced and extremely more expensive to treat and for the public or inflated premium channel to cover.

      The same makes it foolish to minimize on even the 65% payback for current Medicaid.

      The states send the fed the money; don't they want it back? The same states will give away billions in tax abatements to attract jobs. How does that song go: Money for nothin; jobs for free? Don't have to mention any bleeding heart, liberal stuff about needy patients; it's all bottom line.

      * * * * *

      Another damn the damn fool-Republicans commercial could be the win/win math of the minimum wage. Republicans forget that the price of labor is a price within a price -- sometimes allowing large wage hikes at minimal product price hike (if the price of labor has been underpaid for a long time). I call this the magnifier effect (cab driver econ). Card and Kruger showed that fast food (highest labor costs, lowest wage starting point) sale grew after minimum wage raises.

      What could these raises have been: a dollar or two? 20% X 33% fast food labor costs? Adding 5-6% to fast food prices? But the same wage hike hit businesses with only 10-15% wage costs -- adding negligible to their prices -- but a lot to the wages of fast food customers: the magnifier effect.

      The eighth-grade math: 50% of the workforce averaging $8,000 raise ($15 being the 45 percentile wage + 5 percent getting full $16,000)= 75 million employees X $8,000 = $600 billion = about 4% shift of GDP to raise almost half the country to $30,000 a year. What were they doing below that anyway?! 4% is how much we grow every couple of years -- save more than that on jails, etc. -- half the country better educated, more productive economy in the long run.

      Just run these two commercials until they sink in (what Obama gets paid to do for free) -- the Republicans will never be the same. Go on saying nothing beyond hanging on to the Democrats paltry past :

      : Obamacare that leaves tens of millions out -- too expensive for many;
      General support for some kind of minimum wage hike (min now several dollars below 1968 -- double per capita income later!)
      Hang on to SS, Medicare, Medicaid;
      Hang on to Dodd-Frank;
      Nothing to say about the defining economic -- and political -- pathology of our time: de-unionization. Nothing to wake voters out of their deep sleep and rouse them to the polls and nothing will ever change.

      Sandwichman:

      "Restoring the Public's Trust in Economists"?

      Why would you want to do a silly thing like that? Sort of like restoring People's Temple members' appetite for kool-aide.

      Why not restore members of the public's capacity to THINK FOR THEMSELVES, instead?

      Syaloch -> Sandwichman:

      Having individuals think for themselves is well and good, but in most cases it's simply not possible or practical for the general public to be as well informed about a subject as scientists with graduate-level training who study it every day. That's why trustable experts are needed.

      Sandwichman -> Syaloch:

      There is such a thing as learned incapacity, too. There are quite a few bits of cult belief that circulate amongst those so-called "scientists" with graduate level training that wouldn't occur to the general public. I mean weird stuff that hearkens back to late 18th century polemics against mercantalism and fascination with mechanical analogies.

      "There is an INFINITE amount of work to be done!"

      No, there isn't, there is only as much work to be done as can be PAID FOR.

      "There is a BUILT-IN MECHANISM that ensures we will never exhaust natural resources."

      Nope. There is more than one "built-in mechanism" and they produce contradictory outcomes. Exchange is reversible in principle, at least. but PRODUCTION is not.

      "A change is a potential Pareto improvement if the winners could compensate the losers."

      No, no, no, no. The claim is based on a same yardstick fallacy.

      "Economic Growth is at the heart of Keynesian economics."

      Uh-uh. Keynes was dead two years when Leon Keyserling launched the growth-pimp swindle.

      Sandwichman -> Sandwichman:

      Kenneth Galbraith:

      "The Council of Economic Advisers became in turn, a platform for expounding the Keynesian view of the economy and it was brought promptly Into use. Leon Keyserling, as an original member and later chairman, was a tireless exponent of the ideas. And he saw at an early stage the importance of enlarging them to embrace not only the prevention of depression but the maintenance of an adequate rate of economic expansion. Thus in a decade had the revolut1on spread."

      Leon Keyserling:

      "Coming over to economic growth in particular, everybody talks about the influence of Keynesian economics. The Keynesian economics is really a static economics. It doesn't deal with economic growth at all. Furthermore, it was developed at a time of worldwide depression. Even Ken Galbraith, in an article in the New York Times a couple of years ago, when he was talking about the influence of Keynesian economics, mentioned me specifically as the one who had introduced the fundamental new factor of the dynamics of economic growth."

      pgl:

      Google Master JohnH pulls another one out of his ass. A cherry picked quote from Stiglitz that JohnH abuses to suggest that the FED never considers income inequality. Janet Yellen - current head of the FED - begs to differ:

      http://blogs.wsj.com/economics/2015/04/02/yellen-economic-inequality-long-an-interest-of-the-fed/

      And of course Stiglitz would strongly blast the gold bug nonsense from JohnH as well as the Cameron fiscal austerity that JohnH hearts. Who to believe - the very smart Janet Yellen or the serial piss ant known as JohnH?

      JohnH -> pgl:

      Wow two speeches (now three) in eight years about inequality!!! That's what I call lip service.

      "'Economic inequality has long been of interest within the Federal Reserve System,' [Yellen] said, citing a 2007 speech by then-Chairman Ben Bernanke on the matter. Her own speech last October was in that same tradition, she said."

      I'll believe Stiglitz on this one: "standard macroeconomic models don't even recognize that the distribution of income matters, and so it's not surprising that the Fed in its policies has often seemed oblivious to the distributional implications of its decisions." (The Price of Inequality)

      pgl -> JohnH:

      You have not read what Yellen has written. If you did - you might know something besides how to attack people. Have Cameron give his pitbull cheerleader a new bone.

      pgl:

      Rather than wasting one's time listening to JohnH's blovating about how we need to screw the overall economy with tight money if we care about income inequality, here's something from a couple of folks who actually understand economics. James Kwak goes back and reads Lawrence Summers:

      http://baselinescenario.com/2015/05/19/over-at-medium-the-importance-of-taxing-capital/

      Part of what Summers noted was:

      http://larrysummers.com/2015/05/04/okuns-equality-and-efficiency

      "At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation."

      This is an insight you'd never get from Greg Mankiw's blog!

      pgl:

      A nice review of Stiglitz's Price of Inequality. Check it out as JohhH is incredibly misrepresenting Stiglitz's book to claim that Stiglitz agrees with JohnH's gold bug insanity:

      http://www.nytimes.com/2012/08/05/books/review/the-price-of-inequality-by-joseph-e-stiglitz.html?_r=0

      Quite the contrary - Stiglitz wants us to get back to full employment. He prefers using fiscal stimulus. JohnH hearts Cameron's fiscal austerity. Stiglitz in the past has been critical for pulling the plug on monetary stimulus but this is exactly what gold bug JohnH advocates.

      JohnH once again cherry picks a quote out of context to misrepresent what someone had said. But that is all JohnH is good for.

      JohnH -> pgl:

      Maybe you should read the book. Quotes are from Stiglitz's criticism of macroeconomics and the Fed.

      pgl -> JohnH:

      PeterK got this right. Another out of context cherry picked quote. FYI - Krugman just called you a right winger. Check it out!

      Matt Young:

      "Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other."
      ------------

      Here is a clue, hard to get, but let me help. Two groups, Dem and Repub. Having that distinction, thinking it matters and making it part of the theory then, right away, we have bad economics.

      pgl -> Matt Young:

      Bad economics? Boy Bot has bad programming. Babble on!

      Matt Young:

      Is the economy stationary? - Jérémie Cohen-Setton
      ------
      Take this post for example. This is about one thing, economists are acknowledging that the economy cycles at eight year presidential elections with an 85% probability. If you just say presidential elections, then it is a 90% probability. We are now undergoing a slow down right on schedule.


      Now, I wath who sees the pattern. A lot of economists see it, but of public intellectuals, I count actually two who can say the words out loud, Jerry Brown mentions it and Roger Farmer brings it up.

      That is the problem right there, cyclic behavior in aggregate statistics are topic number three, I think, in most probability classes. But, just now, after looking and staring at the obvious evidence for six years, economists can see the grey bar pattern? This is not theory, this is something very fundamentally wrong with economics, a very deep fraud.

      Matt Young:

      Let me go on.
      In the Southwest we have two economies, Texas and California in the top 20 largest economies in the world. There major foreign policy concern is trade with Mexico. Probably 4% of the ballot isses on the voting booth out here are federal votes, and about 65% of the issues are non-partison local measures. Yet one of the two behemoths is solidly Republican, the other solidly Democrat; and neither has any real voice in the Senate.

      Yet, this amazing and obvious condition is not even up for study at UC Berkeley, which is supposed to be one of the top political economic schools. Nor will you see this studied at Harvard, which should know better. And now we discover that DC cycles, an obvious connection needing to be studied. We have conscious fraud in the economic sciences. It pervades almost every large economic school, except UCLA and UCSD, from my limited look. (There are many economic schools not so fraudulent, I cannot count them all.)

      [May 02, 2015] California Diaspora by globalintelhub

      Apr 21, 2015 | Zero Hedge
      California is an interesting place. Probably something like California never existed before. A barren state with no substantial natural resources, with cities constructed mostly directly over major fault lines, no water, the highest per capita immigrant population of any US state, and of course, also the state with the highest population per capita of lawyers. "Land of fruits and nuts." or "La La Land" according to the LA Times:

      The Oxford English Dictionary made some stellar updates on March 24, which are now online. For instance, "e-mail" is now "email." You can now, with reference to the OED, eat a banh mi sandwich or a taquito. And FYI (newly added), OMG is there too -- and it dates back to 1917. (OMG!).

      But then there's this: La-La Land is in the newest edition of the Oxford English Dictionary, and it defines our fair city. Here's the definition:

      la-la land n. can refer either to Los Angeles (in which case its etymology is influenced by the common initialism for that city), or to a state of being out of touch with reality-and sometimes to both simultaneously.

      What is it, the sun, the palm trees, the nightclubs, the limos, the fact that Spiderman can get arrested on Hollywood Boulevard? Do we deserve this (new word) smack-talking from a bunch of dictionary writers? Maybe they should all be wearing (new word) tinfoil hats.

      But practically, California is now an industrial powerhouse, home to some of the world's largest corporations, a massive agricultural belt, Silicon Valley, Hollywood, Biotech, and Charlie Sheen.

      But all this happened in the last 60 years, during a post WW2 technology boom, such as the relocation of firms such as General Atomics and others; the connection between Hollywood and the US Military propoganda machine (did Hollywood really win the war for us?).

      California is a place filled with mystery, hypocrisy, and dreams. "The American Dream" can even be credited to coming from California. For example, when you are in Washington DC, there are no qualms or confusion about what they do.

      But there is a huge Military presence in California, probably even more than Washington, that is more subtle, unknown, and not admitted. For example in the tech sector, recent Snowden relevations have showed us the real relationship the government has with Google, (not to mention being an initial investor/founding partner) Microsoft, Facebook, and other tech giants. It is naive to believe that the organization called the US Government, possibly the most powerful in the world, created the internet, but then allowed it to be dominated by 'whiz kids' from their garages (mostly from California).

      The 'Disneyland' and 'Hollywood' model is uniquely Californian. But is the economy really a Potemkin village, fuelled by these dreams? When your car runs out of gas - you cannot keep going based on hope and love alone. Or is it as simple as a demographic shift, combined with environmental and other factors?

      Checkout the data from a report titled "The California Exodus":

      For decades after World War II, California was a destination for Americans in search of a better life. In many people's minds, it was the state with more jobs, more space, more sunlight, and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through this migration.

      This study describes the great ongoing California exodus, using data from the Census, the Internal Revenue Service, the state's Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other sources. We map in detail where in California the migrants come from, and where they go when they leave the state. We then analyze the data to determine the likely causes of California's decline and the lessons that its decline holds for other states.The data show a pattern of movement over the past decade from California mainly to states in the western and southern U.S.: Texas, Nevada, and Arizona, in that order, are the top magnet states. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states: Georgia and South Carolina.

      Water Concerns

      Recently there is a quiet exodus from California from those who are concerned about the water situation, that it will eventually collapse the real estate market. From Intellihub:

      With over ten percent of the U.S. population living in California a new problem is emerging as the wet season fell short of delivering adequate rainfall to sustain the populace. In fact snowpack and groundwater levels are now at historic lows and it has even been admitted that the state only has a 1-year supply of water left for residents to consume before California officially becomes a dust bowl.

      Shockingly according to NASA satellite data water levels in just two area river basins were "34 million acre-feet below normal in 2014? showing the vast extent of the problem, as reported by the LA Times in a recent piece. Moreover the report concluded that the state has been losing "12 million acre-feet of total water yearly since 2011? which is not good by any means.

      What's interesting, is that it was mostly environmental factors, i.e. Good Weather, and lack of rain, that brought so many to California willing to pay the high "Sunshine Tax." In other words, the lack of water is correlated with the good weather. It is a desert climate. Of course, in recent years it has gotten worse, due to a long term trend of more people living in California, overdevelopment, rampant pollution, and climate change. LA was able to get rid of the smog - you can see the foothills again!

      And let's think about this like a Californian - if Anthony Kiedis, General Atomics, the Chemtrail program, and Arnold Schwarzenegger can't make it rain, it doesn't look good.

      The impacts of climate change on the west coast are *rated* in the IPCC Fifth Assessment Report / Working Group 2 / Impacts, Adaptations, and Vulnerabilities. There's a world map on page 8 of the "Summary For Policymakers" pdf.

      AR5 (six years in the making, based on 30,000+ published science articles, and ~150,000 professional comments) was finally able to say that some events (~120 of them) were virtually inexplicable by anything else other than global warming (yes, they still call it that).

      WG2 SFP

      WG2 webcast press release video:

      https://www.youtube.com/watch?v=bZONwnqWFe8&feature=player_embedded

      ferret

      The information in this article concerning California radiation is a complete lie. The statement that the EPA no longer is collecting data is false. See the epa link below to see the readings of all the hundreds of government sites reporting. These readings correlate directly to the several thousands of private recording sites being reported daily (see the remaining links for all of the sites and their readings)

      Go to the Safecast link to see what the readings in Japan are. They are all very normal, except for Fukushima, which is only about twice normal background. The waters directly off Fukushima coast no so much. However, it turns out that the Pacific Ocean is a tremendous radiation sink.

      I monitor radiation at my site 24/7 (BlackCat site just east of Sacramento CA). Everything is normal. I periodically check my car air filters to see if there is anything off my property. Nothing but normal background radiation around the Sacramento/Tahoe area. My wife loves fish sticks. They all are Alaskan paddock. I check every bag she buys. All normal background radiation.

      The destruction of the CA coast has to do with the unexplainable gigantic blob of extremely warm water sitting off of Baja and souther california. That is what is causing the eco disruption.

      http://www.blackcatsystems.com/RadMap/map.html
      http://blog.safecast.org/maps/ (Japanese sites)
      http://www.radiationnetwork.com/
      http://www2.epa.gov/radnet

      Crocodile

      Never let a good crisis go to waste (i.e. Fukushima); now Haliburton can and has been dumping their radioactive waste into the Pacific, but it is Fukushima that is to blame. The same Haliburton that went to court in order to HIDE the fracking "solutions" being used; another good way to get rid of industrial waste; you know like the floride in your water that now accumulates in your brain.

      --------------------------------------

      FACTOID (BP's Deep Water Horizon) Goldman Sachs and Vanguard Funds sold off 50% of BP stock and Goldman shorted Trans Ocean stock just ahead of the explosion; in addition Trans Ocean double insured the rig just prior. The point? Everyone was covered. Halliburton caused the failure of the Well Foundation and had purchased "Boots and Coots", the world's largest Oil Spill Clean-up company just prior, raising its profits 80%. The "Black Box" was never recovered (1st time in history) and the last 6 hours of recordings from the Bridge mysteriously vanished (used same servers as Lois Lerner and Hillary Clinton). Oil and Corexit are destroying the Ocean ecosystem; Methane is dispersing into the New Madrid Fault with the predictable result of a major natural gas explosion. Happened on Earth Day of course; the psychopaths have a very sick sense of "humor"; worship the earth rather than the Creator of the earth...

      ---------------------------------------

      http://www.businessinsider.com/tons-of-hedge-funds-are-losing-big-on-bp-...

      kevinearick

      too funny, but, as difficult as it may seem, Bernie Sander's Vermont has upped the pot for dissonance, MHs eating and smoking their own excrement, in a much shorter duration mismatch.

      BlowsAgainstthe...

      Got this far, " . . . no substantial natural resources . . ," chuckled, quickly realized that the author is an idiot, and stopped reading. Whew; saved myself from wasting anymore time.

      Toolshed

      But you wasted even more your time by annoying us with your deranged comment. Thanks.

      Crocodile

      "also the state with the highest population per capita of lawyers" - the gov't mismanagement stems from a state that has mitigated itself to death; like the nation...you know sentence someone for 20 years for killing a hummingbird and let the child molester off on probation...that is one aspect of California.

      ----------------

      Another is axiomatic - Jerry Brown

      henry chucho

      Last time I was driving through there (Cali) on I-5,I actually saw a man wearing a Groucho Marx disguise pull down his pants at a public rest area, and insert a cucumber up his anus.. The other motorists didn't even seem to notice,or didn't care..

      williambanzai7

      Is there enough water to keep Zuckerberg's lawn green?

      Crocodile

      Yes and he can use rain barrels as well, but you better not.

      TheGreatRecovery

      Should be interesting to watch. I wonder what the Hollywood billionaires are eating these days, if there is so much nuclear fallout in the Pacific? I can't picture them eating Tilapia.

      Chauncey Gardener

      Tilapia is SO, like yesterday. They are eating $35.00 hydroponically grown arugula salads topped with Delta Smelt at all the trendy places.

      IronForge

      When I moved to CA, we had Nissan, Toyota, and Honda with US HQs in/around Torrance.

      Now, Nissan moved (bankrupt/bought by Renault) and Toyota's moving to TX.

      I don't think Honda's going to stick around for too long...

      [Apr 12, 2015] Secular stagnation A deficit of demand

      Dec 14, 2013 | The Economist

      fundamentalist, Dec 14th 2013, 003:54

      There are many reasons for unemployment to be high other than because of tight monetary policy. Micro econ is full of reasons. When the only tool you have is a hammer, every problem looks like a nail. Rabid monetarist simply need more tools.

      Ohio, Dec 12th 2013, 15:23

      Monetary policy is not the villain in all economic tales of woe; neither can it be the hero in all of them. While we can debate endlessly about whether the Fed's monetary policy is too tight or too loose, it is important to remember that Fed policy is only one of many different inputs that determine the important outcomes of growth and employment. At times (and this appears to be one of those times), Fed monetary policy is not the most important. Hangover from the financial crisis, changes in demography and changes in technology are exerting wrenching changes to the economy. Thinking that there is a magic monetary bullet which will solve all of our economic problems is at best a rose-colored outlook, and expects far too much of the Fed.

      fundamentalist, Dec 14th 2013, 03:33

      Of course, mainstream economists would judge monetary policy by the unemployment rate. If unemployment is too high, then policy is too tight regardless of any other data such as interest rates.

      But hold on! What is the mechanism that translates policy into reality if not interest rates? Monetary policy seeks to put cash into the hands of people. How? By having them borrow more as a result of lower interest rates is the main mechanism.

      So RA you can't have your Kate and Edith, too! Either monetary policy lowers interest rates or it don't! Which is it?

      QE is a different matter. QE depends on people loaning to the Fed and spending the cash. Part of the effect of QE is to reduce long term interest rates and make borrowing easier. But if people use their cash from the Fed to buy other assets, such as stocks, QE fails.

      What RA refuses to see is that QE policy can be very loose and causing low interest rates and still fail. I realize no amount of evidence will convince rabid monetarists, but open minded people can easily grasp it.

      Monetary policy has been very loose for five years and failed to accomplish what the Fed wanted because businesses aren't borrowing to invest because of high taxes and regulations in the US. If businesses are investing its overseas, but that does not require a trade surplus as RA thinks. Loose monetary policy gooses imports as the dollar falls, which overwhelms the money leaving. In addition, the federal deficit is soaking all US savings plus all Chinese savings.

      Dialectic18 in reply to Doug Pascover, Dec 12th 2013, 19:18

      Or, we can use the unemployment rate until the whole thing bubbles, crashes, and drives a bazillion construction workers to food stamps.

      Doug Pascover

      Dialectic18, Dec 12th 2013, 18:34

      "A paper published this year...estimates that prolific saving by the top 5% has been suppressing demand since the mid-1980s."
      .
      Being at or near this number, due to being incredibly cheap and investing over a long period, this theory makes sense to me.
      .
      If you make money in investing and find yourself having done well by it, it's tough to consume all your assets. So, you just keep investing it, while the bottom 50% are living, in their own way, hand-to-mouth.
      .
      If more was distributed to them, more of the economy would be spent in every-day consumable products like homes, cars, new refrigerators, evenings out, et al.

      Dialectic18 in reply to hedgefundguy, Dec 14th 2013, 10:41

      The model is already being applied in US states that are not homogeneous, and the results are the same. California and New York are wealthy. Mississippi isn't.

      hedgefundguy in reply to Frank McCormcik, Dec 14th 2013, 01:02

      Friedman talked himself blue in the face making the point that past tight monetary policy can cause a lack of aggregate demand, and hence a lack of credit demand and lower inflation expectations, and hence lower interest rates.

      hedgefundguy can talk himself blue in the face making the point that past easy credit can cause a lack of aggregate demand, and hence a lack of credit demand and lower inflation expectations, and hence lower interest rates.

      Afterall, due to the easy credit many people found themselves with lots of debt, no or a low paying job (after being previously laid off), and thier biggest asset - thier house - gone or underwater.

      NSFTL
      Regards

      Dialectic18 in reply to Dave Price, Dec 13th 2013, 22:33

      The TE put out a series of articles about a year ago making a strong case that the Skandinavian economic model - which includes redistribution - appears to create the greatest amount of wealth, as well as quality of life.

      hedgefundguy, Dec 12th 2013, 17:29

      "secular stagnation", or the argument that a chronic shortfall of investment relative...

      Investment in what?

      The other night I read a paper from my copy of The American Economist's fall 2013 edition.
      http://www.americaneconomist.org/abstracts.html

      The author used GDP growth in Goods to show that the US has been in a deceleration. The premise it that Goods can be stored or used to produce other Goods, whereas Services are mostly consumed instanteously.

      The GDP growth for Goods has been increasing, but at slower rate almost each decade.

      The share of Goods in GDP has also declined as the share of Services has increased.

      Just something to think about.

      chernyshevsky in reply to hedgefundguy, Dec 12th 2013, 18:41

      Services also tend to be heavily dependent on human capital, whose creation cannot be easily accelerated. Take medical services, for instance. In both Europe and America, there's enormous unmet demand for them. Yet we cannot just print some money and buy ourselves more doctors.

      Human capital isn't just knowledge and skills. It's also character--something that easy money tends to destroy rather than build.

      BenIsNotYoda, Dec 12th 2013, 15:48

      Whether monetary policy has been loose or not is beside the point.

      The proof is in the pudding. From the mid-80s onto 2007, US has had low unemployment rates. Average of 5.6% from 1985-2007. That is NOT high.
      Couple that with persistent and large trade deficits. Demand that spilt over into demand for overseas products.

      No one can argue that demand was low.

      On Secular Stagnation: A Response to Bernanke

      economistsview.typepad.com
      Larry Summers responds to Ben Bernanke:
      On Secular Stagnation: A Response to Bernanke, by Larry Summers: Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates – since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate. ...

      His conclusion:

      I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation. It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.

      But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.

      If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

      Bud Meyers:
      "Saving relative to investment" -- Those at the are top hoarding cash; the money supply isn't being re-circulated to drive economic activity; instead it's perpetuating future generations of heirs.

      To expand public and private investment would require changing the tax code and having better enforcement by the IRS (offshore accounts, etc.) An adequate level of demand and its appropriate distribution can be acquired by raising the federal minimum wage to $25 an hour -- all the things that the current congress is against.

      Benedict@Large:

      "Those at the are top hoarding cash ..."

      From the opposite viewpoint, there are few suitable (risk v. reward) investment opportunities. For the same reason, stock buy-backs are popular with corporations.

      The real problem is and has always been a lack of demand. Without demand, there is no reason to invest. Just surplus savings. Excess reserves. Those at the top are simply doing the best they can with them.

      reed hundt

      Gentle economists: a global or even national project to rebuild the energy platform on sustainable and much more affordable grounds would eliminate all vestiges of stagnation. Taxing GHG is only one part, and not an absolutely necessary part, of that project. This is the infrastructure plan par excellence. I might add that the avoided costs are, well, er, mind bogglingly large.

      I predict absolutely no one will comment on what I've posted; no one paid any attention to the same prediction made in or about 1994 by the FCC chairman with respect to the rebuilding of the communications platform. Who was that guy?

      RGC:

      I think we have two distinguishable problems:

      1. Effective demand is inadequate and the private sector is extremely unlikely to provide it any time soon. As mentioned, corporations are swimming in cash and are buying back their stock - meaning they don't see good investment opportunities in their marketplace. If the federal government doesn't spend for infrastructure and other things we are likely stuck.

      2. The FIRE sector is sucking an ever-increasing amount of income out of the real economy. The average consumers' money is going to pay interest on debt rather than goods and services. The Fire sector uses their income to make more loans and thus collect even more interest or they speculate in the price of existing assets. Thus the real economy continues to shrink.

      If fundamental changes re fiscal policy and the treatment of returns to finance versus returns to productive investment are not made, we are screwed.

      The Rage said in reply to RGC

      "Effective demand" is irrelevant with a strong "FIRE" sector. It is credit expansion and financing of that credit expansion that drive the economy.

      So people say "effective demand" is not good enough, but the economy keeps on expanding and expanding as commercial paper surges despite "effective" demand not rising.

      This is why I say there was no recession in the early 2000's. Businesses overreacted to the digital booms end and over cut production while commercial paper was booming. Then they had to snap back over 2003 to reflect reality of condition. It is a different economy and one not built on industrial production or consumer savings. The "real" economy is the FIRE sector.

      To unbuild that, would require a medium nobody wants to go through.

      djb said...

      i am glad to see someone blaming hansen, not keynes for the idea that secular stagnation is best we can do

      keynes is often attributed to having said this in the general theory, but NEVER said such a thing

      he defined several scenarios where it could occur,

      believing a true general theory should be able to explain reality

      but NEVER said that the scenarios were unsolvable

      "But we must not conclude that the mean position thus determined by "natural" tendencies, namely, by those tendencies which are likely to persist, failing measures expressly designed to correct them, is, therefore, established by laws of necessity.

      The unimpeded rule of the above conditions is a fact of observation concerning the world as it is or has been, and not a necessary principle which cannot be changed."

      thats from the end of chapter 18, the general theory


      Fred C. Dobbs said...

      Bottom line, the Bernankes
      & Yellens can only do so much.
      Monetary policy won't get it all done.

      That's where Tim Cook & Elon Musk
      come in, to do the rest.

      Min

      Long Depression 2.0?

      The Rage said in reply to Min...

      Been going on since the early 80's.

      anne said in reply to anne...

      I too come down on the side of Lawrence Summers. The problem in Europe is domestic demand and that could have and should have been handled by a Keynesian spending approach from 2008 on:


      http://research.stlouisfed.org/fred2/graph/?g=VRj

      August 4, 2014

      Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013

      (Percent change)


      http://research.stlouisfed.org/fred2/graph/?g=16ei

      August 4, 2014

      Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013

      (Indexed to 2007)


      Reply

      [Apr 01, 2015] Liquidity Traps, Local and Global (Somewhat Wonkish) By Paul Krugman

      Apr 01, 2015 | krugman.blogs.nytimes.com

      There's been a really interesting back and forth between Ben Bernanke * and Larry Summers ** over secular stagnation. I agree with most of what both have to say. But there's a substantive difference in views, in which Bernanke correctly, I'd argue, criticizes Summers for insufficient attention to international capital flows – but then argues that once you do allow for international capital movement it obviates many of the secular stagnation concerns, which I believe is wrong.

      As it happens, the role of capital flows in the logic of liquidity traps is an issue I tackled right at the beginning, back in 1998; and I've been trying to work out how it plays into the discussion of secular stagnation, which is basically the claim that countries can face very persistent, quasi-permanent liquidity traps. So I think I may have something useful to add here.

      Start with Bernanke's critique of Summers. The most persuasive evidence that the US may face secular stagnation comes from the lackluster recovery of 2001-2007. We experienced the mother of all housing bubbles, fueled by a huge, unsustainable rise in household debt – yet all we got was a fairly unimpressive expansion by historical standards, and little if any inflationary overheating. This would seem to point to fundamental weakness in private demand. But one reason for the sluggish growth in demand for U.S.-produced goods and services was a huge trade deficit, the counterpart of huge reserve accumulation in China and other emerging markets. So Bernanke argues that what Summers sees as evidence of secular stagnation actually reflects the global savings glut.

      That's a good point. But Bernanke then goes on, as I understand him, to argue that international capital flows should solve the problem of secular stagnation unless if affects the world as a whole, because capital can seek higher returns abroad; he also argues that the global savings glut is mainly a thing of the past, and that in any case such problems can be addressed mainly by putting pressure on foreign governments to open their capital accounts and stop pursuing policies that promote excessive current account surpluses. And in these assertions, I'd suggest, he goes somewhat astray.

      Let's first ask whether the possibility of investing abroad obviates the problem of liquidity traps in general (as opposed to secular stagnation.) To do this, consider the analysis I laid out a couple of months ago when I was trying to think about the dollar and U.S. recovery, but run it in reverse. Suppose that a country or currency area – let's call it Europe - suffers a decline in aggregate demand. And suppose that this threatens to push the Wicksellian natural rate of interest – the rate of interest at which desired savings and investment would be equal at full employment - below zero. Can this happen if there are positive-return investments outside of Europe?

      You might think not: as long as there are positive-return investments abroad, capital will flow out. This will drive down the value of the euro, increasing net exports, and raising the Wicksellian natural rate. So you might think that you can't have a liquidity trap in just one country, as long as capital is mobile.

      But this isn't right if the weakness in European demand is perceived as temporary (where that could mean a number of years). For in that case the weakness of the euro will also be seen as temporary: the further it falls, the faster investors will expect it to rise back to a "normal" level in the future. And this expected appreciation back toward normality will equalize expected returns after a decline in the euro that is well short of being enough to raise the natural rate of interest all the way to its level abroad. International capital mobility makes a liquidity trap in just one country less likely, but it by no means rules that possibility out.

      Still, secular stagnation – as opposed to liquidity-trap analysis in general – is concerned with excess saving that lasts a very long time, that's quasi-permanent. So in that case wouldn't we expect capital mobility to be decisive? Shouldn't it be impossible to have secular stagnation in just one country?

      When I first approached this issue, that's what I thought. But I immediately ran up against a big real-world counterexample: Japan. Japan has effectively been at the zero lower bound since the 1990s, and it wasn't until the end of 2008 that the rest of the advanced world joined it there. So why didn't capital flood out of Japan in search of higher returns, driving the yen down and boosting Japan out of its trap?

      The answer is that real returns in Japan weren't exceptionally low – they were, in fact, more or less equal to those abroad. But this equalization of real rates didn't occur through an equalization of Wicksellian natural rates. Instead, what happened was that persistent deflation in Japan, combined with the zero lower bound, kept the actual real interest rate well above the Wicksellian rate. Here's the data from 1996 to 2008, with inflation measured by the GDP deflator and interest rates measured by 6-month Libor:

      [Graph]

      OK, it's not full equalization. but not too far off - despite being at the zero lower bound for many years, Japan ended up offering more or less competitive real returns.

      The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into "lowflation", you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.

      Which brings me to the future of the global savings glut.

      As Bernanke notes, as far as big current account surpluses go, Germany is the new China. However, he argues that the large current account surplus of the euro area as a whole is a temporary phenomenon driven by cyclical weakness in the euro periphery, and therefore not likely to be a source of persistent trouble.

      But look at what bond markets are saying! German interest rates – presumably an indicator of perceived euro safe rates – are negative out to seven years; the 10-year rate is only 16 basis points. This is telling us that markets expect the euro area economy to be depressed, and ECB rates very low, for many years to come. In effect, European bond markets are flashing a secular stagnation warning.

      And this makes sense: the case for secular stagnation in Europe is considerably stronger than it is for the U.S.. Working-age population is declining, Japan-style; the euro system, with a shared currency but no fiscal integration, arguably imparts a strong contractionary bias to fiscal policy; and core inflation is already down to just 0.6 percent.

      By the logic I've already laid out, this should imply a persistently very weak euro and a persistently large European current account surplus, as Europe in effect tries to export its secular stagnation – a process limited only by the way low inflation or deflation interact with the zero lower bound to keep interest rates from falling to their Wicksellian equilibrium rate.

      Sure enough, if we try to figure out the market's implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

      What this in turn implies is that even if you downplay domestic U.S. weakness and focus on the export of capital from other countries, especially Germany, there's no good reason to believe that this new version of the global savings glut will end any time soon.

      Which brings me to the policy debate. Bernanke seems to be saying that if there is a problem, it can be solved by cracking down on currency manipulation:

      "The US and the international community should continue to oppose national policies that promote large, persistent current account surpluses and to work toward an international system that delivers better balance in trade and capital flows."

      If my analysis of the European problem is right, however, this is pretty much irrelevant: Europe's trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren't that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.

      * http://www.brookings.edu/blogs/ben-bernanke

      ** http://larrysummers.com/2015/04/01/on-secular-stagnation-a-response-to-bernanke/

      [Mar 20, 2015] The Fed's Reckless Gamble by Christopher Whalen

      But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth.
      February 23, 2015 | The National Interest
      WHEN PICMO founder William Gross coined the term the "new normal," he both stated the obvious and offered a fresh insight. Most people understand in a visceral way that things have changed dramatically when it comes to jobs and economic opportunities since the financial crisis of 2008. But more than something new, the current state of the U.S. economy represents a reversion to the old normal-the price deflation and slack job market that existed in the 1920s and 1930s-which was interrupted by World War II and the subsequent decades of the Cold War and massive government spending.

      It is safe to say that everyone wishes for a return to business as usual, at least insofar as "normal" is understood by most Americans. Plentiful jobs, along with rising home and stock prices, worked for most of us. The only problem is that the old normal economy of the 2000s, for example, saw prices for homes, stocks and other asset classes growing at levels that were clearly not sustainable. When we saw annual double-digit increases in home prices in the United States during the mid-2000s, the one thing you could be sure about was that this rate of price change was unsound and probably a function of external factors such as low interest rates and easy credit.

      Since the 2008 financial bust, the U.S. economy has been anything but normal. The housing market, for example, rebounded at double-digit rates in 2011–2013, but now seems to be losing momentum rapidly. Near-zero interest rates maintained by the Federal Open Market Committee (FOMC) prevented an immediate apocalypse in the form of a 1930s-style price deflation, but this is both good and bad news. The lack of a true debt deflation commensurate with the degree of excess prior to 2008 has left the U.S. economy hanging in a form of economic stasis. Without price deflation and debt restructuring, there is no economic "bounce" and thus no recovery in demand or jobs.

      TODAY, THE U.S. economy is like a cardiac patient on artificial life support. Flat employment, flat credit growth (at least for productive purposes) and falling inflation-adjusted incomes are the attributes of the new normal. Nobel laureate Robert Shiller draws an explicit parallel between today's "new normal" of no or slow wage and job growth and the late 1930s, when the U.S. economy began to sink under the weight of FDR's New Deal experiment:

      The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins.

      Shiller's point about how World War II rescued America from the deflation of the late 1930s is often missed, deliberately, by many economists. FDR's antibusiness rhetoric during the New Deal actually made the deflation of the 1930s worse by chasing private capital out of the U.S. economy. In their classic book A Monetary History of the United States, 1867–1960, Milton Friedman and Anna Jacobson Schwartz documented how private capital formation in the United States essentially went to zero by the late 1930s, leaving the public sector as the only engine of growth into the 1950s and 1960s. Large corporations and banks aligned with the federal government were the most significant source of credit and economic prosperity in that period. It took until the 1970s for private risk taking to truly reemerge in the U.S. economy, driving growth for decades thereafter. After these dramatic swings in growth and demand, however, we still have a muddled view of what constitutes long-term economic expansion.

      While politicians and central banks can artificially increase the nominal growth rate for relatively short periods of time-we know this as a "bubble"-such machinations create no real wealth. We feel wealthier for a time, as in the Roaring Twenties and the 2000s. Yet when any significant proportion of the population tries to take its chips off the gaming table, the good times end. Given that an economy only truly grows wealth at the rate of real GDP growth, as Alex Pollock of the American Enterprise Institute observes, why do so many economists and the members of the FOMC call for policies to push higher and unsustainable rates of economic growth? The answer comes down to a basic difference between conservatives and liberals when it comes to inflation, a conflict of visions that has its roots in the dark days of the Great Depression.

      Some on the left, like author William Greider, believe that a little inflation is good for working people and debtors, even if it erodes the purchasing power of wages. But just as a steady 2 percent increase in real wealth provides enormous benefits to a society, a steady 2 percent annual inflation rate can rob workers and families of the ability to meet basic needs in a matter of a few scant years. For example, an item that cost $20 in 1930 would cost $283 as of this writing, reflecting a cumulative rate of inflation of 1,315 percent, according to the Consumer Price Index (CPI) maintained by the Bureau of Labor Statistics (BLS).

      Remember that because of various adjustments and omissions from the underlying data, the CPI greatly understates the actual rate of inflation experienced by individual consumers. Inflation, after all, is a monetary phenomenon that occurs when the value of money declines relative to the goods and services it can purchase. Small wonder that Americans have seen a steady decrease in real income over the past several decades. And yet the Federal Reserve and other central banks explicitly target inflation levels that are ultimately destroying consumer purchasing power.

      WHEN POLITICIANS or members of the FOMC promise growth above that 2 percent long-term average, they are being more than a little disingenuous. Not only will using government policy to stimulate demand and keeping interest rates low create financial bubbles and other problems in the short term, but such expedients will also actually hurt all of us by eroding the purchasing power of wages and income. The housing boom of the 2000s, for example, was supported with public-policy initiatives from Washington and low interest rates from the Fed, but the result was a massive financial collapse and the destruction of trillions of dollars in notional wealth. Meanwhile, the cost of housing has continued to climb, even as real incomes have fallen.

      Nobel laureate Paul Krugman is one of the leading exponents of the inflationist view. Week in and week out in his New York Times column, Krugman derides those who spend too much time worrying about inflation and advocates an increase in government spending, fueled by higher taxes or additional debt, as a means of stimulating demand for goods and services, and thus jobs. Krugman ridicules "the wealthy" for advocating low inflation and insists that the road to salvation is to continue the policies of the past half century, which includes using government spending and easy money to increase nominal private demand.

      But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth. Krugman and his fellow travelers on the left correctly point out that there is little or no wage inflation in the U.S. economy, but that does not mean that inflation, broadly defined, is not a serious problem. The combination of decades of deficit spending and more recent experiments in radical monetary policy has contributed to a slow but steady increase in the cost of living for all Americans, an increase that's caused real incomes and the value of savings to fall.

      Krugman and other advocates of secular inflation point to the period after World War II as proof that deficit spending and a large national debt help economic growth. But such views are myopic. The massive government spending during and after World War II helped to pull the United States out of the debt and deflation of the 1930s, much of which was worsened by the excesses of FDR's New Deal. But you cannot treat the period immediately following the Second World War as "normal" in any dimension.

      In fact, the key driver of prosperity following World War II was not government spending but demographics. Johnny came marching home, got married and had lots of babies. Between 1950 and 2000, the civilian labor force grew by an average of 1.6 percent per year, according to the BLS. This may not sound like a big number, but over fifty years that meant that the cohort of working-age Americans more than doubled in number from 62 million to 141 million by the start of the twenty-first century. The BLS estimates that, between 2000 and 2050, the working-age population will grow just 36 percent, or about 0.6 percent annually.

      With a smaller demand "pull" from shrinking demographic growth, a slower economy is hardly surprising. If we recall that the real, long-term growth of wealth is a function of increases in population and production, then the fact of slower U.S. population growth in the twenty-first century suggests that we will also see more modest growth in GDP. Under such circumstances, what is normal? More important, with nominal GDP growth in the 2–3 percent range absent shocks from external factors, and the Fed targeting similar levels of price inflation, will Americans see any improvement in their real inflation-adjusted income or wealth?

      Sadly, you will never hear Federal Reserve chair Janet Yellen and the members of the FOMC admit that the real, long-term growth rate for wealth or GDP is just 2 percent. Because of the dual mandate given to the U.S. central bank of encouraging employment and ensuring price stability, the FOMC has tended to focus policy on trying to encourage job growth while pretending that inflation is not a problem. Indeed, over the past two decades, as real growth prospects have waned, the FOMC has used progressively lower interest rates to both stimulate growth and rescue the economy from the aftereffects of the latest Fed-inspired boom. Whatever concerns the Fed still harbors regarding long-term price stability have been overwhelmed by the political imperative to achieve short-term job growth.

      Economists in both private and public life make a living by talking about levels of potential growth that are far above the long-term average increase in real wealth. One reason for this is that suggesting that the long-term average growth rate will not exceed 2 percent implies a future of limited job opportunities, something that's hardly popular with voters or elected officials. The remarkable growth rates claimed by China's authoritarian regime illustrate the political imperative behind such efforts. As a result of the one-child policy, China's population is growing at just 0.5 percent annually, according to the World Bank. When you see official Chinese GDP growth rates of more than ten times the rate of population increase, the one thing you can be sure about is that the claimed rate of "growth" is unsustainable and driven by politically motivated government spending.

      <

      OVER THE past several years, members of the FOMC have maintained ultralow interest rates, ostensibly to boost economic activity in such areas as housing and job growth. But despite low interest rates and massive purchases of government debt and mortgage securities by the FOMC, volumes of residential mortgage lending have plummeted down to decade-low levels, and job growth remains anemic and of poor quality. Instead of stimulating a recovery in the real economy, the policies followed by the FOMC under first Ben Bernanke and now Janet Yellen have only created new asset bubbles in sectors like real estate, public equities and the corporate bond market. With interest rates and commodity prices now falling around the world and the dollar soaring against other currencies, the FOMC seems to have created a "deflation trap" whereby investors are unwilling to put capital at risk as they await higher interest rates. Meanwhile, job creation and spending suffer due to a lack of investment.

      Some Fed officials are increasingly uncomfortable with the Fed's policies. Richard Fisher, president of the Federal Reserve Bank of Dallas, dissented from his colleagues on the FOMC, saying he'd like to see rates begin to go up in 2015. Philadelphia Fed chief Charles Plosser also dissented on similar grounds. But both Fisher and Plosser no longer vote on the FOMC. A decidedly left-wing majority on the Fed's policy-making body continues to support the extraordinary low-rate policies in an effort to boost job growth. In the European Union, the European Central Bank is pursuing a similar policy.

      But the sad fact remains that the use of interest rates or fiscal policy to stimulate nominal growth is of limited utility today. In the 1970s and 1980s, when the children of the post–World War II baby boom were starting families of their own, a little bit of push in the form of low interest rates or increased government spending resulted in a substantial increase in job creation and economic activity-along with higher inflation. Today, with lower population growth rates and relatively high levels of public debt in most industrial nations, the utility of fiscal or monetary policy in boosting growth rates is very limited-but inflation remains a problem that affects all consumers, rich and poor.

      In the Fed's most recent report to Congress, Yellen repeated the Fed's explicit embrace of a 2 percent inflation rate, in order to help the employment picture, all the while paying lip service to the Fed's responsibility to ensure stable prices. She stated:

      The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.

      What Yellen is saying explicitly is that it is not possible for the FOMC to achieve the legal mandate of "maximum employment" without tolerating a 2 percent inflation rate. But a 2 percent rate of inflation, compounded over twenty years, will rob American consumers of half of the purchasing power of their wages and savings. Not only do the Fed's publicly stated policies doom many Americans to poverty in the future, but they are also an explicit admission that the Fed's dual legal mandate set by Congress in 1978 is unworkable. The Fed cannot both pursue "maximum employment" and safeguard against inflation. Indeed, there is a growing doubt that the Fed can truly change the employment picture. But the political attraction of promising people higher wage and job growth, it seems, is so powerful that members of the FOMC and central bankers around the world cannot help themselves. Ultimately, using low interest rates in an attempt to boost demand and job creation will fail.

      Christopher Whalen is senior managing director and head of research at Kroll Bond Rating Agency. He is the author of Inflated: How Money and Debt Built the American Dream (Wiley, 2010) and the coauthor, with Frederick Feldkamp, of Financial Stability: Fraud, Confidence, and the Wealth of Nations (Wiley, 2014).

      Economist's View Links for 01-29-15

      Darryl FKA Ron said...

      RE: Is the Economy Still Threatened by Secular Stagnation?

      [For the serious bloggers here this piece is totally pedestrian, but it is exactly what you need to give a link for your friends to read that keep wondering WTF that you are talking about all of the time. I plan to send a link to it to my wife this weekend. New Yorker articles are pretty good in general for this kind of purpose.]

      JF said in reply to Darryl FKA Ron...

      The Cassidy article highlights the fact that CBO estimates the govt debt is placed at higher interest rates than we see now, CBO moves them up to 4.6% (if I remember what I read). CBO also is projecting the GDP is on a lower trend line reflecting the loss of potential. CBO could have put the two points together and question their assumption about the interest-rate-price of govt borrowing.

      The CBO should re-issue its report or a portion of it using other interest rate assumptions. They might have to say, of course, that the 4.6% is the high-end scenario, especially when they show the same calculations but using current prices as the low-cost scenario (1.7% on the ten-year, right). It is much more believable to expect the price to be somewhere in between.

      Unless they are assuming a market-based price effect (credit pricing becomes 'inflated' and general pricing also picks up its pace) - but this should increase revenues on the same assumptions -- so they shouldn't have done that.

      CBO please offer additional calculations and explain why you chose the high-end scenario when looking at the price of govt debt.

      Oh, but wait, maybe the CBO is just trying to fuel an interest in the raising of taxes so we can avoid borrowing so much cash. Or their corollary point is that a policy stance that would cut future taxes simply forces you to borrow more, so let us question that financing scheme as it too would raise the interest-rates on govt debt.

      But that is just polemical wishing on my part. Other guys might see the same data and see it as a reason to cut spending. One last idea, maybe CBO wants people to recognize that helicoptering (printing to finance outlays, stop the borrowing) ought to be used more.

      Darryl FKA Ron said in reply to JF...

      Thanks for clarifying what I meant by "totally pedestrian." OTOH, my wife has no idea what secular stagnation even means or anything about why it might be occuring.

      Forecasts are always a figment of ones underlying assumptions. If nothing else the 2008 financial crisis taught us about how far off the assumptions of the governing elite can really be.

      Personally, I generally only engage in prognostications about interest rates and inflation for sport (i.e., blogging - for which there is no fuduciary relationship to me).

      However, when I bought a fixer-upper house in 2004 then I placed a large down payment and then in 90 days took out a prime-rate HELOC rather than hold cash and take a bigger mortgage because obvious fundamentals told me that a large protracted recession was coming soon and prime rate would be depressed for years while I paid down my home improvements HELOC.

      Still, I was surprised by how high prime rate had gotten by 2H2006 and also surprised later by how ineptly the subsequent recession was handled, which essentially offset each other in terms of my HELOC finance charges.

      Actual policy will be decided ad hoc anyway and wage boosting policy is a non-sequitur for our given establishment driven policy preferences, not just by the establishment politicians but actually driven by large corporations and banks that they serve.

      Only the ablibis will be changed to protect the guilty. This is our present constitutional process at work by design. The bipartisan nature of the political aparatus given its present republican form is just a matter of providing breathing room so that the alibis do not get too stale. The progressive ERA up through the New Deal was an exception to this process predilection, born first out of conscience over a violent class struggle with unions and later out of self-preservation from a growing socialist sentiment among the proles. The Great Society was in my mind more of just a convenient political adaptation than it was an exception to the process.

      The US Constitution was established in a compromise over the conflicting self-interests of northern and southern plutocrats. Nowadays there are less stark conflicting interests among plutocrats. The electoral fig-leaf was a necessary disguise to subjugate those that fought to overthrow the divine right of kings.

      Darryl FKA Ron said in reply to JF...

      "The Cassidy article highlights the fact that CBO estimates the govt debt is placed at higher interest rates than we see now"

      [Actually I could not FIND the word debt anywhere in the referenced Cassidy article on this links thread. What have you been smoking today?

      Pedestrians are allowed to cross the econ clown street at intersections and as long as they remain in the marked crosswalks and observe traffic signals then they have the legal right of way. So, don't honk at them for obeying the law.]

      [Jan 29, 2015] Is the Economy Still Threatened by Secular Stagnation By John Cassidy

      The key to good growth figures is manipulation of inflation...
      The New Yorker

      little more than a year ago, Larry Summers, the former Treasury Secretary and White House economic adviser, suggested that the United States economy might well have entered an an extended period of slow growth, in which workers and other resources remain idle and inflation is negligible. This depressing idea wasn't entirely new. Many Keynesian economists had warned that the aftermath of the Great Recession could linger on, with the economy trapped in a low-growth equilibrium. Mohamed El-Erian, a well-known financial commentator, christened this state of affairs the "New Normal." But Summers gave the pessimistic storyline a new twist and resurrected an older name for it, "secular stagnation," which was first used by Alvin Hansen, an eminent Harvard economist, in 1939.

      Before long, discussing secular stagnation turned into a growth industry. Other economists seized upon it, including some working at the International Monetary Fund. Newspapers and magazines published countless pieces about it. At Davos and other conferences, panel sessions were devoted to it. An e-book was published about it. A couple of smart academic economists devised a fancy mathematical model showing how it can come about. Policy makers, including Janet Yellen, the head of the Federal Reserve, were quizzed about it.

      About the only thing that didn't pay much heed to the secular-stagnation scare was the U.S. economy itself. After contracting in the first three months of 2014, it enjoyed a growth spurt. From April to September, the inflation-adjusted gross domestic product expanded at an annual rate of almost five per cent, the fastest rate of growth since the late nineteen-nineties. The official figures for the fourth quarter of the year aren't in yet, but most independent economists reckon that the growth rate stayed at three per cent, or a bit higher. With G.D.P. rising and businesses hiring, the unemployment rate has fallen sharply and consumer confidence has risen to levels not seen since before the financial crisis began, in 2008.

      In short, Summers's timing was unfortunate. With the U.S. economy looking stronger than it has in years, residents of Europe and Japan, whose economies remain depressed, are now looking on in admiration. Americans, too, appear finally to be willing to countenance the idea that things are getting better. In the past few weeks, President Obama's approval rating has risen sharply, and the terms of debate for the 2016 election have started to change.

      So has the secular-stagnation thesis been discredited? Not entirely. On Wednesday afternoon, at the end of a two-day meeting, Yellen and her colleagues at the Federal Reserve issued a statement that seemed to confirm that they would begin raising interest rates in the summer or fall. Until the U.S. economy shows that it can thrive without the extraordinary monetary stimulus that the Fed has been providing since 2008, many of the questions Summers raised will remain unresolved. And even if stagnation, or semi-stagnation, doesn't turn out to be the fate of the U.S. economy, it is clearly a serious possibility elsewhere, particularly in Europe, where rapid growth still seems like a forlorn hope.

      In any case, it is important to be clear about what the secular-stagnation thesis really entails, and how it relates to other debates about the long-term future of the economy. The economy's underlying growth rate is lower than it once was, if for no other reason than that the growth rate of the U.S. labor force is declining. From 1950 to 2014, the number of Americans working or looking for work expanded at an annual rate of about 1.5 per cent. But now that the baby boomers are retiring and immigration is falling, this figure is falling sharply. Between 2015 and 2025, according to a new forecast from the Congressional Budget Office, the potential labor force will rise at an annual rate of just 0.5 per cent.

      This slowdown has important implications. Over time, expansion in the labor force accounts for somewhere between a quarter and a third of all G.D.P. growth. (The rest comes from additional capital investment, and from rising efficiency wrought by technological advances.) The C.B.O. reckons that slower growth in the workforce has reduced the economy's underlying growth rate by almost a full percentage point. Between 1982 and 2001, the underlying G.D.P. growth rate was about three per cent a year. In the next ten years, it will be just 2.1 per cent, according to the C.B.O.

      Of course, annual growth of two per cent a year is hardly stagnation. And what matters for living standards isn't the headline rate of G.D.P. growth, but the growth rate of G.D.P. per person: i.e., productivity growth. The C.B.O., unlike some analysts, is relatively sanguine on this front. It predicts that productivity will grow at an annual rate of 1.6 per cent over the next decade, which isn't much different from the 1.8-per-cent-average figure for the period from 1950 to 2014.

      That's the good news, such as it is. However, these figures refer to the economy's capacity to expand-what economists refer to as the "potential growth rate." Will the economy actually achieve its full potential? That is where the theory of secular stagnation sneaks back in. Although things are going well now, it may well be difficult to achieve lasting full employment of the economy's resources without stoking another speculative bubble. And even if full employment is achieved, the lengthy period of recession and subpar growth that we have experienced will put a permanent damper on the economy's prospects. That is the Summers view, anyway, and, even today, there is quite a bit to be said for it.

      After six years of near-zero interest rates backed by a fiscal stimulus and repeated doses of quantitative easing, the economy is finally growing at a healthy clip. But for how long will this continue, and what will the financial consequences be? In a paper published by the National Association of Business Economics, Summers pointed out that in the past twenty years the economy has enjoyed just two prolonged periods of rapid growth: one in the late nineties and one in the period from 2004 to 2007. Both of these growth spurts were accompanied by low interest rates and speculative bubbles: the first bubble was in stocks, the second in real estate. A growth strategy that relies on unusually low interest rates "virtually ensures the emergence of substantial financial bubbles and dangerous buildups in leverage," Summers wrote last year, in the Washington Post.

      This part of the theory of secular stagnation certainly hasn't been disproved, and it won't be tested until the Fed starts raising rates. Even if this process begins in the summer, rates will remain low by historical standards for a considerable time period. (The Fed has been making it clear that it will move slowly, and its latest statement confirmed that.) Can Yellen tighten policy gently enough to preserve growth, but firmly enough to prevent the inflation of another bubble? We shall see.

      Whatever happens, we already know that the Great Recession and its aftermath have done lasting damage to the economy, which is something Summers (and other economists) have also warned about. During the past six years, millions of workers have dropped out of the labor force: many of them may never return. Businesses have hoarded capital rather than investing it, and the public sector has cut back on investments in education and infrastructure. All of these factors have reduced the economy's capacity to produce things and generate income.

      Just how big an impact will this have? Since 2007, the C.B.O. has cut its forecast of the U.S. economy's potential output in 2017 by nine per cent, or upward of $1.6 trillion. That's a lot of money-about five thousand dollars for every person in the country. The C.B.O. estimated that about half of this reduction was caused by long-term trends, particularly the fall in the labor force's rate of growth. But much of the rest was due to the recession and the weak recovery.

      Of course, this calculation is only an estimate. But it shows how important it is to maintain adequate growth, and it raises, anew, the most substantive question that Summers posed: Do we have the right policies in place to bring about lasting prosperity? In the United States, we are doing better than other advanced regions, such as the euro zone, Japan, and the United Kingdom. But even here, the recovery cannot be taken for granted.

      In the past few days, yields on long-dated Treasury bonds have hit historic lows, which indicates that investors don't expect the current growth spurt to last. (If rapid growth did persist, the Fed would probably raise interest rates more rapidly than anticipated, creating big losses for holders of Treasuries.) Of course, the bond markets may be wrong about where the economy and interest rates are heading, but, for now, investors don't seem convinced that the era of slow growth is behind us. And that means the spectre of secular stagnation hasn't gone away.

      [Jan 05, 2015] FRBSF Economic Letter Why Is Wage Growth So Slow

      I think there is a strong correlation of wage growth and energy consumption per capita.
      http://ourfiniteworld.com/2014/12/29/how-increased-inefficiency-explains-falling-oil-prices/
      As the latter now is shrinking the wages are stagnant.
      Neoliberal transformation of society since 1970th also suppresses wages by dramatically increasing the share of owners.
      Those two tendencies work together.
      January 05, 2015 | Economist's View

      anne:

      Despite considerable improvement in the labor market, growth in wages continues to be disappointing. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts....

      -- Mary Daly and Bart Hobijn

      [ What offensive nonsense, as though real after-tax corporate profits per employee had exploded, simply exploded, since 2000. ]

      drb48 -> anne:

      Thank you Anne for introducing some sanity to what is the biggest bunch of hogwash I've read in a while.

      drb48 -> anne:

      Wage growth has been "disappointing" for decades. If employers have a problem reducing wages, it's because they're already so low. Lack of bargaining power due to de-unionization, off-shoring, automation and massive numbers of cheap - and frequently undocumented - immigrant labor has placed downward pressure on wages in many industries, including most of the ones with the greatest job growth. All the gains in productivity have been accruing to capital, almost none to labor. Trying to rationalize with some bullshit study this as anything other than the powerful exploiting the weak is - as you say - offensive nonsense.

      Roger Gathmann -> anne:

      Exactly. Since economists like to think of themselves as physicians, perhaps they should consider a powerful force pushing on a weak force - a gorilla, for instance, squeezing a marshmallow. The gorilla is corporate power, the marshmallow, labor. Now perhaps the gorilla is able to squeeze the marshmallow because that marshmallow was so damn sticky and refused to budge last time - or maybe the marshmallow has been squeezed low these past thirty years.

      Obviously, the economists will jump for the sticky solution, since politics, the relative power of capital and labor, is an offense against all the wonderful models based on equilibrium and god's own free market.

      anne:

      http://research.stlouisfed.org/fred2/graph/?g=LcR
      http://research.stlouisfed.org/fred2/graph/?g=LcS

      January 15, 2014

      Real After-Tax Corporate Profits Per Employee, 2000-2014

      2000 01 ( 5,938) *
      2000 04 ( 5,771)
      2000 07 ( 5,618)
      2000 10 ( 5,312)

      2001 01 ( 5,655) Bush
      2001 04 ( 5,930)
      2001 07 ( 5,430)
      2001 10 ( 5,289) (Low)

      2002 01 ( 5,851)
      2002 04 ( 6,475)
      2002 07 ( 7,092)
      2002 10 ( 7,898)

      2003 01 ( 7,775)
      2003 04 ( 7,827)
      2003 07 ( 7,229)
      2003 10 ( 8,776)

      2004 01 ( 9,933)
      2004 04 ( 10,207)
      2004 07 ( 10,534)
      2004 10 ( 10,319)

      2005 01 ( 12,460)
      2005 04 ( 12,510)
      2005 07 ( 12,713)
      2005 10 ( 13,228)

      2006 01 ( 13,395)
      2006 04 ( 13,600)
      2006 07 ( 13,600)
      2006 10 ( 13,133)

      2007 01 ( 12,112)
      2007 04 ( 12,613)
      2007 07 ( 12,002)
      2007 10 ( 12,105)

      2008 01 ( 10,975)
      2008 04 ( 11,121)
      2008 07 ( 10,661)
      2008 10 ( 6,249)

      2009 01 ( 9,989) Obama
      2009 04 ( 10,850)
      2009 07 ( 12,319)
      2009 10 ( 13,260)

      2010 01 ( 13,988)
      2010 04 ( 13,814)
      2010 07 ( 14,324)
      2010 10 ( 14,113)

      2011 01 ( 12,572)
      2011 04 ( 13,005)
      2011 07 ( 12,919)
      2011 10 ( 13,486)

      2012 01 ( 14,756)
      2012 04 ( 14,437)
      2012 07 ( 14,926)
      2012 10 ( 14,579)

      2013 01 ( 14,447)
      2013 04 ( 14,921)
      2013 07 ( 15,129)
      2013 10 ( 14,861)

      2014 01 ( 14,303)
      2014 04 ( 14,982)
      2014 07 ( 15,274) (High)

      * Without inventory valuation and capital consumption adjustments,
      seasonally adjusted, 1982 - 1984 dollars

      likbez
      I think there is a strong correlation of wage growth and energy consumption per capita.
      http://ourfiniteworld.com/2014/12/29/how-increased-inefficiency-explains-falling-oil-prices/

      As the latter now is shrinking the wages are stagnant.

      Neoliberal transformation of society since 1970th also suppresses wages by dramatically increasing the share of owners.

      Those two tendencies work together.

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      War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes

      Bulletin:

      Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

      History:

      Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

      Classic books:

      The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

      Most popular humor pages:

      Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

      The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D


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      Last modified: March, 03, 2020