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[Dec 30, 2015] IMF chief Lagarde warns of disappointing global growth in 2016

Notable quotes:
"... Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases. ..."
www.theguardian.com

The IMF managing director, Christine Lagarde, said the prospect of rising interest rates in the US and an economic slowdown in China were feeding uncertainty and a higher risk of economic vulnerability worldwide.

Added to that, growth in global trade has slowed considerably and a decline in raw material prices was posing problems for economies reliant on commodities, while many countries still had weak financial sectors as the financial risks increase in emerging markets, she said.

"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth. In October, the IMF forecast that the world economy would grow by 3.6% in 2016.

... ... ....

Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases.

Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could "infect" banks and states.

[Dec 27, 2015] Summer Rerun Why America Will Need Some Elements of a Welfare State

Notable quotes:
"... Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care. ..."
"... Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. ..."
"... Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire ..."
Dec 27, 2015 | naked capitalism

An excellent column by Martin Wolf in the Financial Times, where he is the lead economics editor. Starting with principles put forward by Ben Bernanke in his recent speech on income inequality, Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care.

James Levy, December 26, 2015 at 4:32 pm

I have no idea if Marx was right, in the long run, or wrong–the verdict is still out on the long-term viability of industrial capitalism, which is less than 250 years old and creaking mightily as I write this. It may be that when Rosa Luxemburg said that the choice was between Socialism and Barbarism, she underestimated how likely barbarism was. What I do know is that capitalism today isn't just too ugly to tolerate, it is downright murderous. Its imperatives are driving the despoliation of the planet. It's love of profit over all else is cutting corners and creating externalities that are lethal. But it has made a few percent of the global population comfortable and powerful, and they are holding onto that comfort and that power come hell or high water (and, ironically, if things continue apace both are on the menu).

Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. I am not enthusiastic that this will happen before it is way too late to save more than a fraction of the current world population, and send those people back to the lifestyles and thought patterns of 30 Year's War Europe.

    1. digi_owl

      Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.

      Reply
  1. Paul Tioxon

    What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.

    The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.

    Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.

    When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.

    Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.

    Reply
  2. jgordon

    There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.

    Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.

    Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.

    Reply
    1. Left in Wisconsin

      Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire

      This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.

      Reply
      1. jgordon

        Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.

        "Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?

        Reply
        1. Vatch

          "Did you know that Syria is a democracy"

          Here's a telling paragraph from the Wikipedia article about Syria:

          Hafez al-Assad died on 10 June 2000. His son, Bashar al-Assad, was elected President in an election in which he ran unopposed.[68] His election saw the birth of the Damascus Spring and hopes of reform, but by autumn 2001 the authorities had suppressed the movement, imprisoning some of its leading intellectuals.[84] Instead, reforms have been limited to some market reforms.

          [Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil

          Notable quotes:
          "... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
          "... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
          "... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
          "... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
          Dec 27, 2015 | naked capitalism
          LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?

          OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community.

          The idea was that more consumers would translate into more profits - which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.

          But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job - all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending - or justifying selected cuts.

          Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.

          I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.

          LP: You're really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?

          OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It's a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.

          Even the
          name of this tool, the "cyclically adjusted budget," carries an aura of respect. It diverts our attention. We don't question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil - the notion that the federal government budget is like a household budget. Actually, it isn't. Your household doesn't collect taxes. It doesn't print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.

          LP: How does all this play out in the U.S. and in Europe?

          OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It's a ceiling on a country's deficit, but it's also much more than that.

          Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it's a control mechanism.

          In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers' rights and benefits or face economic doom. Tune in to the presidential debates and you'll hear this played out - and it isn't strictly limited to one party.

          LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?

          OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.

          In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.

          craazyboy, December 25, 2015 at 10:10 am

          Most people don't eat, go to college, use healthcare, rent or buy housing on the east or west coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these things in the inflation data they create. The Fed then goes into a tizzy if the data comes in a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country in liquidity so our job creators – banks and large corporations – will hire us and give us raises, and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then know all our problems are solved. It just takes time.

          See the book "Treasure Island" for how things are going on the revenue side. But more tax breaks for large corporations and the wealthy are needed so we don't force them to do any illegal tax avoidance stuff and they will then happily pay whatever they think their fair should be. Might be zero. They will then have money to buy stuff too, which is a big plus as well, when you think about it.

          So clearly, you can see why deficit spending almost seems inevitable.

          Then the next problem is we still have unemployment, and something needs to be done about that. For instance, lots of room for more government contracts for social purposes. Take Obamacare. Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems company that employs independent contractor Indian programmers. Eventually, we have Obamacare!

          We can do this if we just get serious about this and say "No More Austerity In America!"

          likbez, December 27, 2015 at 9:31 pm

          Emperor Severus is famously said to have given the advice to his sons: "Be harmonious, enrich the soldiers, and scorn all other men"

          Brooklin Bridge

          Can education provide the solution?

          I suspect that the educational bias occurs at all levels in the sense that much the same misinformation is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity – this is your lot in life) to wealthy (austerity – you were born to make the tough decisions, it's in your genes – and you'll just have to accept the rewards, man up to your destiny and toss em a quarter on Sundays). The upper class does get a far better education, but the bias is or becomes unconscious over time.

          Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.

          washunate, December 26, 2015 at 8:09 am

          Yves, INET and NEP and others have been lecturing that topic for years. How many trillions of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis itself?

          Maybe what matters is not the amount of the spending, but rather, the distribution.

          And what is so bad about deflation? The attachment of moral judgment to inflation and deflation is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting the bottom 80% or so of American households is inflation, not deflation.


          Dan Lynch, December 25, 2015 at 11:27 am

          I don't buy the article's historical narrative.

          Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the New Deal; FDR himself was a deficit hawk.

          Nonetheless for years the public supported social programs and no politician dared to cut them. Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution.

          What changed? I would say the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do.

          The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things.

          Vatch, December 25, 2015 at 12:40 pm

          History teaches us that peacetime austerity can be horribly disastrous. Some examples:

          British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish population was about 8 million people in 1841, and the death toll of the famine was at least a million. This is a huge percentage loss of life. Due to the combination of deaths with emigration and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5 million lower than expected. Since food was exported during the famine, this was definitely an extreme case of austerity.

          Soviet austerity during the 1930s: Millions died, and food was exported during the famine period of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.

          Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died - perhaps as many as 45 million. The same irony about conservatives and Stalin is true about conservatives and Mao, but on a far greater scale.

          Merry Christmas.

          ben chifley

          july 24 2015: Krugman:Ignore the 'MIT gang' at US economy's peril Paul Krugman says while economists of the '70s discarded Keynes, he never went away at MIT.‏
          http://www.chron.com/opinion/outlook/article/Krugman-Ignore-the-MIT-gang-at-US-economy-s-6404243.php

          MIT: Libertarian Haven | Independent Political Report‏
          http://www.independentpoliticalreport.com/2011/01/mit-libertarian-haven/

          Soros | MIT Global Education & Career Development‏
          https://gecd.mit.edu/go-abroad/distinguished-fellowships/explore-fellowships/soros

          washunate

          This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be taken away from this, it appears there are at least two major flaws:

          1) There is absolutely no link between public opinion and CAB. Germany chooses to have national healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory medicine, and car-dependent sprawl.

          2) There is absolutely no link between austerity and concentration of wealth and power. France has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.

          The notion that 'austerity' is sold to the public is just a blatant falsehood. Americans don't support the budget priorities in Washington. It's a collective action problem, not a public opinion problem.

        2. [Dec 24, 2015] The Fed Has Created A Monster And Just Made A Dangerous Mistake, Stephen Roach Warns

          Zero Hedge
          Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.

          Lower for longer rates and the proliferation of unconventional monetary policy have created "a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world," Roach told Bloomberg TV in an interview conducted a little over a week ago.

          To be sure, Roach's sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the "very serious" people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:

          Perhaps Jeremy Grantham put it best: "..in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006."

          Indeed. It's with that in mind that we bring you the following excerpts from a new piece by Roach in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the Fed and how the FOMC ultimately became "beholden to the monster it had created".

          * * *

          From "The Perils of Fed Gradualism" as posted at Project Syndicate

          By now, it's an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization.

          A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009, there is mounting risk of yet another accident on what promises to be an even longer road to normalization.

          The problem arises because the Fed, like other major central banks, has now become a creature of financial markets rather than a steward of the real economy. This transformation has been under way since the late 1980s, when monetary discipline broke the back of inflation and the Fed was faced with new challenges.

          The challenges of the post-inflation era came to a head during Alan Greenspan's 18-and-a-half-year tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US equity prices, the Fed moved aggressively to support the brokerage system and purchase government securities.

          In retrospect, this was the template for what became known as the "Greenspan put" – massive Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis. As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis (late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed's market-driven tactics.

          The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy.

          Largely for that reason, and fearful of "Japan Syndrome" in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

          Today's Fed inherits the deeply entrenched moral hazard of the Asset Economy. The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater the systemic risks in financial markets and the asset-dependent US economy.

          Full post here

          * * *

          Roach goes on to say that we're already seeing the beginnings of what may very well turn out to be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring dollar (remember, even though EM has largely avoided "original sin" i.e. borrowing in dollars, at the sovereign level, corporates are another story).

          As an aside, those interested in a comprehensive account of what Roach covers in the article cited above are encouraged to reach David Stockman's "The Great Deformation."

          [Dec 24, 2015] European Leaders Cry Foul Against Germany's Support for Gas Pipeline

          Dec 21, 2015 | OilPrice.com
          There is a growing chorus in Europe against Germany's support to expand a major natural gas pipeline from Russia over fears that it will leave Europe more dependent on their eastern neighbor.

          The Nord Stream 2 would build on the existing Nord Stream pipeline, a conduit that delivers Russian natural gas to Germany via the Baltic Sea. Crucially, the project cuts out Ukraine, a key strategic objective for Russia since the original project's inception.

          The latest $11 billion expansion would double the pipeline's current capacity of 55 billion cubic meters of gas per year. From Russia's perspective, the project will increase market share and gas sales; from Germany's point of view, the project increases sources of supply. Nord Stream 2 was originally conceived of years ago, but in June 2015 Gazprom signed a memorandum with Royal Dutch Shell and OMV to move forward.

          Nick Cunningham is a Vermont-based writer on energy and environmental issues. You can follow him on twitter at @nickcunningham1

          [Dec 23, 2015] The Big Short Every American Should See This Movie

          Notable quotes:
          "... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."
          Zero Hedge
          The Big Short opens nationwide today. But it happened to have one showing last night at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman and Talledaga Nights handle a subject matter like high finance seemed odd.

          The choice of Adam McKay as director turned out to be brilliant. The question was how do you make a movie about the housing market, mortgage backed securities, collateralized debt obligations, collateralized debt swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations.

          Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P, Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators was to get a high paying job with banks they were supposed to regulate. He skewers the faux financial journalists at the Wall Street Journal who didn't want to rock the boat with the truth about the greatest fraud ever committed.

          ...Ultimately, it is a highly entertaining movie with the right moral overtone, despite non-stop profanity that captures the true nature of Wall Street traders. This is a dangerous movie for Wall Street, the government, and the establishment in general. They count on the complexity of Wall Street to confuse the average person and make their eyes glaze over. That makes it easier for them to keep committing fraud and harvesting the nation's wealth.

          This movie cuts through the crap and reveals those in power to be corrupt, greedy weasels who aren't really as smart as they want you to think they are. The finale of the movie is sobering and infuriating. After unequivocally proving that Wall Street bankers, aided and abetted by the Federal Reserve, Congress, the SEC, and the mainstream media, destroyed the global financial system, put tens of millions out of work, got six million people tossed from their homes, and created the worst crisis since the Great Depression, the filmmakers are left to provide the depressing conclusion.

          No bankers went to jail. The Too Big To Fail banks were not broken up – they were bailed out by the American taxpayers. They actually got bigger. Their profits have reached new heights, while the average family has seen their income fall. Wall Street is paying out record bonuses, while 46 million people are on food stamps. Wall Street and their lackeys at the Federal Reserve call the shots in this country. They don't give a fuck about you. And they're doing it again.

          Every American should see this movie and get fucking pissed off. The theater was deathly silent at the end of the movie. The audience was stunned by the fact that the criminals on Wall Street got away with the crime of the century, and they're still on the loose. I had a great discussion with my 16 year old son on the way home. At least there is one millennial who understand how bad his generation is getting screwed.

          wee-weed up

          I read the book last year... It is outstanding! Highest recommendation. If you have not read this book, you cannot understand how today's market really works.

          JRobby

          This subject matter has to be put in a form that can be understood by the masses. Hopefully the popular actors and this director is a step in that direction.

          Main stream Hollywood as an informer? Hmmmmm? This adds to the current assumptions and rumors of fractures among the elite groups.

          We are reasonable people. If the banking elite is sacrificed and the other corporate oligarchs come into a more socially acceptable line, we may be satisfied. However, the banking elite must be sacrificed. There is no negotiation on that point.

          Of course some will say I am over optimistic, they are throwing it in our faces to make $$$ and it ends up a total police state so enjoy your "entertainment" for now.

          Time goes on. Time will tell.

          chunga

          First you'd have to believe that politicians give a fuck about any damn thing but themselves. REAL concern for minorities or communities LOL! Then you'd have to believe banks were forced to do *anything* they don't want.

          Then, you'd have to fall right to sleep and miss the part where all this crap was sold on Wall Street while at the same time betting against all the "shitty deals" they made, then the whole thing getting bailed out @ par. With par being at the absurd fraudulent property appraisals that were made by the lenders or their agents. It's just nuts.

          This was all planned, beginning with Greenspan. AIG's Greenberg KNEW their CDS paper was no damn good, but didn't care because the also KNEW there would be a bailout. The only problem for him was Paulson and Blankfein conspired to steal the bailout money...and they did!

          That's why all this money went looking for people...it was all planned.

          chunga

          Hundreds of scandals have gone by since then, thoroughly unpunished, so I wonder why this movie is coming out now. I looked into some of the cronies calling the shots at the GSE's back then and saved it. A lot is outdated by now. Seems like a fairly bi-partisan effort.

          FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted "early retirement" from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie's own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of losses, so he and his fellow execs could "earn" large bonuses. The WSJ reported back in 2008 that Raines was one of several cronies that received below market rates for mortgages from Countrywide. Raines alone receive loans for over $3 million while CEO of FNMA. Raines' compensation for his "work" at FNMA - $90 million.

          RAINES GRADE – F

          DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp., "served" on the board of the Council of Foreign Relations, "consulted" at the World Bank, and held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named "Fortress". Fortress invested in purchasing tax liens on delinquent property taxes from local governments under many benign corporate names such as "Pleasant Valley Capital" and "Travis Farm Investments". Cozy. Mudd's compensation for his "work" at FNMA - $80 million.

          MUDD GRADE – F

          NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment banker for Goldman Sachs, was tapped by Hank "The Shank" Paulson to lend his skills over at TARP HQ, and now rather ironically, continues God's work as a Managing Director at PIMCO. Kashkari's compensation for his "work" at FNMA is also murky; I'll just assume it was too much.

          KASHKARI GRADE - F

          HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly whisked off to oversee the wildly successful TARP program. I didn't find much on his compensation during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.

          ALLISON GRADE – F

          MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20 year veteran at FNMA. While "serving" as FNMA CEO, Williams managed to scrape by on less than $6 million in 2011 alone. This could and should be considered a hardship, given the complexities involved in purloining ~ $60 billion of Fed bailout money.

          WILLIAMS GRADE – F

          FANNIE'S MAJOR DANCE PARTNER, FREDDIE MAC, HAS ALSO PERFORMED VERY POORLY.

          Charles (my friends call me "Ed") Haldeman has announced his retirement plans but intends to be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his wing-tips.

          That might take a while. "Serving" as CEO of the ultimate backstops for the lion's share of the MBS Ponzi is very stressful.

          We'll have to accept former Freddie exec David Kellermann's testimony posthumously. Mr. Kellermann was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police have stated there was no evidence of foul play.

          Urban Redneck

          GREED is non-partisan. And all sides agreed MOAR "home ownership" was desirable. The left got its SJW colorblind automation, while the underwriters were able to increase volumes by thousands of percent while reducing overall headcount. Securitization wasn't actually "automated" since the fuckwits were using MS-Excel, but it was commoditized with Blackrock's pricing model.

          These were the days of the original algorithms of mass financial destruction, which were primitive and largely FICO-centric, but everyone wanted to minimize the cost (of logic coding and external data sources) so they coding decisioning based solely on information contained in the mortgage application and the applicant's electronic credit report.

          khakuda

          Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once.

          Keynesians

          Wall Street is laughing at all the clowns who think this movie will "wake up America". It would have never came out if it was any kind of danger to Wall Street, the FED, or the establishment.

          Agent P

          Directed by Adam McKay (Anchorman, Step Brothers, The Other Guys....), so ... yeah I'm going to go see it. Remember the end credits for The Other Guys? He hates Wall Street....

          GoldenDonuts

          Perhaps you should read the book. These are real characters from a non fiction book. They may have changed a name or two but these are real people. I will lend you my copy if you can't afford one.

          conraddobler

          Yeah I can't imagine a commercially successful movie out of this that would actually tell the truth and make it to the screens.

          What someone should do is write one of those fantastical novels where everything is a symbol for something else and jazz it up, put some romance, danger, intrigue and of course big boobs in it.

          The real message ala the olden days usually had to be hidden to avoid the wrath of those it was really aimed at.

          [Dec 21, 2015] Weak president, neoliberal Obama and housing bubble

          Notable quotes:
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."
          "... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."
          "... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."
          "... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."
          "... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."
          "... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."
          "... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."
          "... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."
          "... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."
          "... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."
          economistsview.typepad.com
          reason said... December 18, 2015 at 02:20 AM
          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          JF said in reply to reason... December 18, 2015 at 05:19 AM

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of" ....

          Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          sanjait said in reply to david... December 18, 2015 at 02:47 PM

          Are there enough of those to dominate securities prices?

          I don't see how there possibly could be. For everyone trying to reach for yield there are a lot of people happy to arbitrage or otherwise exploit those inefficiencies.

          pgl said in reply to reason... December 18, 2015 at 05:53 AM

          Nice comment. I think Krugman is letting others take out the bubble brains. But if he's reading your excellent comment - maybe he will go the fray.

          BenIsNotYoda said in reply to reason... December 18, 2015 at 06:35 AM

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:35 AM

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:38 AM

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:38 AM

          I mean earnings yields not earnings growth.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:48 AM

          So you say. And yet, stock values today conform very well with the standard model Williams says doesn't historically fit the data. While you are talking bubbles, the equity risk premium is parked in the normal range.

          How do you explain that?

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:54 AM

          so says Williams. dividend yields, earnings yields and risk premiums are not necessarily weighted heavily in investors' formation of expected returns. past returns do, to a great extent. that is what Williams shows.

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:56 AM

          our prehistoric brains are wired to trend follow patterns.

          pgl said in reply to BenIsNotYoda... December 18, 2015 at 09:13 AM

          Williams actually tries to model the rise in stock prices and defines any increase the model cannot explain a bubble. Of course maybe his modeling is not entirely spot on and fundamentals can explain the rise stock prices.

          But this is not what you do as you see any asset price increase as a bubble. Which is beyond stupid. Of course it would help if you ever bothered to do what Williams attempted - use a basic model of financial economics. Then again my guess is that is beyond your understanding of basic financial economics. So troll on!

          BenIsNotYoda said in reply to pgl... December 18, 2015 at 10:40 AM

          You think a rise in stock prices created by a fall in the cost of capital is a bubble. But no - it is a change in fundamentals.

          keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this?

          JohnH said in reply to pgl... December 18, 2015 at 04:22 PM

          The first thing pgl did when stocks corrected this summer was to call for QE4...he panicked because his portfolio was threatened...but claimed that he was only worried about workers!

          Fred C. Dobbs said in reply to reason... December 18, 2015 at 10:57 AM

          It does not seem reasonable or
          fair to pay practically no interest
          on savings, which is a consequence
          of Fed policy.

          A consequence of this is that people
          go into risky investments that lead
          to catastrophe, sometimes widespread.

          If the goal was to get people to spend
          (i.e. consume) more, it seems that they
          are persistently & stubbornly frugal.

          Chris Herbert said in reply to Fred C. Dobbs... December 18, 2015 at 02:31 PM

          Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesn't favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didn't cost a dime.

          sanjait said in reply to reason...

          Let me be the fourth person to compliment that comment.

          "leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates."

          QFT!

          The one hypothetical caveat (as BINY alluded to, knowingly or not) is that expectations often get out of whack based on momentum trading. So hypothetically, lowering rates could possibly feed that.

          But guess what? Rates are already at zero. They can't go lower. It's not even a question of lowering rates, but rather whether to keep them where they are. So a bubbles-from-monetary-fed-momentum argument falls completely flat. We've been at zero for 7 years now!

          reason said...

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason...

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait...

          Here is how they evaluate models: Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.
          likbez said in reply to Sanjait...
          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          Peter K. said in reply to reason...

          And/or the markets are telling the Fed something, like they don't believe the Fed's forecasts about growth and inflation and are betting otherwise, but the hawks at the Fed dismiss the markets and say we need to raise rates now.

          It's all very convenient reasoning about markets.

          Vile Content said...

          "
          constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.
          "
          ~~pK~

          ... ... ...

          anne said...

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne...

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne...

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne...

          Yeah, the only thing he missed was the timing of the collapse.

          The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael...

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne...

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          JohnH said in reply to anne...

          Oh, please...Krugman could barely criticize Obama, even when Obama introduced an austerity budget back in 2011.

          The tendency of people like Krugman to overlook Democrats' bad behavior only encourages more bad behavior. If Krugman really cared about the policies he champions, he would let the chips fall wherever...and not let empty suits like Obama get away with austerity and failure to enforce the law when Wall Street willfully violates it.

          pgl said in reply to JohnH...

          Did you forgot to read the post before firing off your usual hate filled fact free rant? Here - let me help you out:

          "some members of the new commission had a different goal. George Santayana famously remarked that "those who cannot remember the past are condemned to repeat it." What he didn't point out was that some people want to repeat the past - and that such people have an interest in making sure that we don't remember what happened, or that we remember it wrong. Sure enough, some commission members sought to block consideration of any historical account that might support efforts to rein in runaway bankers."

          It seems Krugman indeed bashed how the government sort of let this crooks off the hook. We know you have an insane hatred for President Obama. But do you also hate your poor mom? Why else would you continue to write such incredibly stupid things?

          JohnH said in reply to pgl...

          As I expected, rationalizations for Obama's refusal to enforce the law...since when does the buck no longer stop at the White House? And what's with trying to defend people who refuse to do their job and uphold the rule of law?

          pgl said in reply to JohnH...

          Krugman did not rationalize that. Neither have I.

          Either you know you are lying or you flunked preK reading.

          JohnH said in reply to pgl...

          Of course pgl rationalizs Obama's failures...he spent a lot of time denying that Obama introduced and signed off on austerity...and that he proposed cutting Social Security. And now he can't admit that Obama and Holder have refused to defend the rule of law by not prosecuting...or even seriously investigating...Wall Street criminality.

          RGC said in reply to William...

          Prosecutions don't require congressional action.

          Most of the New Deal was accomplished in 100 days.

          Promotion by a president can galvanize action.

          pgl said in reply to EMichael...

          The lack of prosecutions was a bad thing. Of course any prosecutor would tell you putting rich people in jail for anything is often difficult. Rich people get to hire expensive, talented, and otherwise slimy defense attorneys. I have to laugh at the idea that JohnH thinks he could have pulled this off. The slimy defense attorneys would have had his lunch before the judge's gavel could come down.

          JohnH said in reply to pgl...

          Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest.

          pgl is intent on explaining away Obama's failure to enforce the law...thereby encouraging more lawlessness.

          JohnH said in reply to William...

          Democrats' filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. Even Lieberman had a good record on many issues. Except for ACA, it turned out to be a do-nothing Congress, reflecting an abject lack of leadership...which is why many are so desperate for leadership. Having lacked it for seven years, many are willing to turn to anybody, even Trump, to provide it. Pathetic!

          RGC said in reply to William...

          No vitriol, just facts. And Obama had the example of FDR to follow - why didn't he follow it? I have been deeply disappointed in Obama.

          JohnH said in reply to pgl...

          pgl conveniently forgets my choice words about Bill Clinton, Harry Reid and Nancy Pelosi. What I object to is Democrats who position themselves to sound like FDR and then prosecute a neo-liberal agenda.

          Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior.

          [Dec 20, 2015] Paul Krugman: The Big Short, Housing Bubbles and Retold Lies

          Notable quotes:
          "... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."
          "... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."
          "... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."
          "... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."
          "... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."
          "... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."
          "... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."
          "... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."
          economistsview.typepad.com

          Why are Murdoch-controlled newspapers attacking "The Big Short?"

          'The Big Short,' Housing Bubbles and Retold Lies, by Paul krugman, Commentary, NY Times: In May 2009 Congress created a special commission to examine the causes of the financial crisis. The idea was to emulate the celebrated Pecora Commission of the 1930s, which used careful historical analysis to help craft regulations that gave America two generations of financial stability.

          But some members of the new commission had a different goal. ... Peter Wallison of the American Enterprise Institute, wrote to a fellow Republican on the commission ... it was important that what they said "not undermine the ability of the new House G.O.P. to modify or repeal Dodd-Frank"...; the party line, literally, required telling stories that would help Wall Street do it all over again.

          Which brings me to a new movie the enemies of financial regulation really, really don't want you to see.

          "The Big Short" ... does a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black humor of how it went down. ... But you don't want me to play film critic; you want to know whether the movie got the underlying ... story right. And the answer is yes, in all the ways that matter. ...

          The ...housing ... bubble ... was inflated largely via opaque financial schemes that in many cases amounted to outright fraud - and it is an outrage that basically nobody ended up being punished ... aside from innocent bystanders, namely the millions of workers who lost their jobs and the millions of families that lost their homes.

          While the movie gets the essentials of the financial crisis right, the true story ... is deeply inconvenient to some very rich and powerful people. They and their intellectual hired guns have therefore spent years disseminating an alternative view ... that places all the blame ... on ... too much government, especially government-sponsored agencies supposedly pushing too many loans on the poor.

          Never mind that the supposed evidence for this view has been thoroughly debunked..., constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.

          Sure enough, "The Big Short" has already been the subject of vitriolic attacks in Murdoch-controlled newspapers...

          The ... people who made "The Big Short" should consider the attacks a kind of compliment: The attackers obviously worry that the film is entertaining enough that it will expose a large audience to the truth. Let's hope that their fears are justified.

          btg said in reply to pgl...

          I get the feeling that if doing a film review of "The Force Awakens", most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. Krugman would not, however.

          Sanjait said...

          In market fundamentalist world, markets don't fail. They can only be failed. Though it's still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs.

          Are markets efficient or not? I feel like the fundiesndont really have a coherent explanation for what happened, other than insisting the government somehow did it.

          reason said...

          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          reason said... December 18, 2015 at 02:32 AM

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason... December 18, 2015 at 08:06 AM

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait... December 18, 2015 at 08:18 AM

          Here is how they evaluate models:

          Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.

          likbez said in reply to Sanjait...

          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          JF said in reply to reason...

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of"

          ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          BenIsNotYoda said in reply to reason...

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda...

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait...

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth.

          http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          Fred C. Dobbs said in reply to reason...

          It does not seem reasonable or fair to pay practically no interest on savings, which is a consequence of Fed policy. A consequence of this is that people go into risky investments that lead to catastrophe, sometimes widespread. If the goal was to get people to spend (i.e. consume) more, it seems that they are persistently & stubbornly frugal.

          anne, December 18, 2015 at 06:37 AM

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne... December 18, 2015 at 06:43 AM

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne... December 18, 2015 at 06:44 AM

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne... December 18, 2015 at 06:59 AM

          Yeah, the only thing he missed was the timing of the collapse. The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael... December 18, 2015 at 07:43 AM

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne... December 18, 2015 at 07:52 AM

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          run75441 said in reply to JohnH...

          Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with "teaser" rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself "Greenspan."

          When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do.

          What was the SEC doing during this time period? What was the administration doing with Enron in 2002? Didn't Cheney get sued by the GAO to find out who he was talking to at Enron?

          Yes there is the matter of not prosecuting banking execs after 2008; however, the issue was allowed to grow during the prior administration and left on the next administration's doorstep. Closing the barn door after the perps have escaped is a bit late and it should have been stopped dead in its tracks during the prior 8 years.

          So keep going down that path and we can also talk about fraud with tranching, CDS, Naked CDs, reserves, etc.

          So, where was the administration during this time period?

          DeDude said...

          Subprime loans in poor communities represented a very small fraction of the total subprime volume and defaulted loans. I mean talk about the mouse and the elephant. Yet the FoxBots are being convinced to look at those scary mice and all that thundering noise they are making.

          Alex H said in reply to Peter K....
          In the book, one of the supposed villains went to the division of AIG that was selling CDSes (i.e. "insuring" the toxic crap) and explained to a direct subordinate of the division exactly how his bank and the other companies of Wall Street were suckering them into taking on absurd risks. In *2005*.

          Because he was massively short in this market, and AIG pulling the plug would have popped the bubble. Nobody else was selling CDSes (then), and Wall Street couldn't have pretended that their risks were covered without them. That doesn't make him a hero, but seriously, if AIG had listened, no collapse.

          Several of the characters effectively called up the ratings agencies to shout at them. Others called NYT and WSJ reporters, who ignored them. Then they called the SEC's enforcement division, who ignored them.

          Besides, if the other side in all of those bets were foreign "widows and orphans", then it wouldn't have wrecked the financial system. If Bear Stearns had been sitting as the middleman between a Korean pension fund and Steve Eisman, they'd have just taken their cut and moved on.

          [Dec 19, 2015] The Enduring Relevance of "Manias, Panics, and Crashes"

          Notable quotes:
          "... Manias, Panics, and Crashes ..."
          "... The New International Money Game ..."
          "... Manias, Panics and Crashes ..."
          "... Why Minsky Matters ..."
          "... Manias, Panics and Crashes ..."
          "... Manias, Panics and Crashes ..."
          December 17, 2015 | Angry Bear

          by Joseph Joyce

          The Enduring Relevance of "Manias, Panics, and Crashes"

          The seventh edition of Manias, Panics, and Crashes has recently been published by Palgrave Macmillan. Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed it with three more editions. Robert Aliber of the Booth School of Business at the University of Chicago took over the editing and rewriting of the fifth edition, which came out in 2005. (Aliber is also the author of another well-known book on international finance, The New International Money Game.) The continuing popularity of Manias, Panics and Crashes shows that financial crises continue to be a matter of widespread concern.

          Kindleberger built upon the work of Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was a proponent of what he called the "financial instability hypothesis," which posited that financial markets are inherently unstable. Periods of financial booms are followed by busts, and governmental intervention can delay but not eliminate crises. Minsky's work received a great deal of attention during the global financial crisis (see here and here; for a summary of Minksy's work, see Why Minsky Matters by L. Randall Wray of the University of Missouri-Kansas City and the Levy Economics Institute).

          Kindleberger provided a more detailed description of the stages of a financial crisis. The period preceding a crisis begins with a "displacement," a shock to the system. When a displacement improves the profitability of at least one sector of an economy, firms and individuals will seek to take advantage of this opportunity. The resulting demand for financial assets leads to an increase in their prices. Positive feedback in asset markets lead to more investments and financial speculation, and a period of "euphoria," or mania develops.

          At some point, however, insiders begin to take profits and withdraw from the markets. Once market participants realize that prices have peaked, flight from the markets becomes widespread. As prices plummet, a period of "revulsion" or panic ensues. Those who had financed their positions in the market by borrowing on the promise of profits on the purchased assets become insolvent. The panic ends when prices fall so far that some traders are tempted to come back into the market, or trading is limited by the authorities, or a lender of last resort intervenes to halt the decline.

          In addition to elaborating on the stages of a financial crisis, Kindleberger also placed them in an international context. He wrote about the propagation of crises through the arbitrage of divergences in the prices of assets across markets or their substitutes. Capital flows and the spread of euphoria also contribute to the simultaneous rises in asset prices in different countries. (Piero Pasotti and Alessandro Vercelli of the University of Siena provide an analysis of Kindleberger's contributions.)

          Aliber has continued to update the book, and the new edition has a chapter on the European sovereign debt crisis. (The prior edition covered the events of 2008-09.) But he has also made his own contributions to the Minsky-Kindleberger (and now –Aliber) framework. Aliber characterizes the decades since the early 1980s as "…the most tumultuous in monetary history in terms of the number, scope and severity of banking crises." To date, there have been four waves of such crises, which are almost always accompanied by currency crises. The first wave was the debt crisis of developing nations during the 1980s, and it was followed by a second wave of crises in Japan and the Nordic countries in the early 1990s. The third wave was the Asian financial crisis of 1997-98, and the fourth is the global financial crisis.

          Aliber emphasizes the role of cross-border investment flows in precipitating the crises. Their volatility has risen under flexible exchange rates, which allow central banks more freedom in formulating monetary policies that influence capital allocation. He also draws attention to the increases in household wealth due to rising asset prices and currency appreciation that contribute to consumption expenditures and amplify the boom periods. The reversal in wealth once investors revise their expectations and capital begins to flow out makes the resulting downturn more acute.

          These views are consistent in many ways with those of Claudio Borio of the Bank for International Settlements (see also here). He has written that the international monetary and financial system amplifies the "excess financial elasticity," i.e., the buildup of financial imbalances that characterizes domestic financial markets. He identifies two channels of transmission. First, capital inflows contribute to the rise in domestic credit during a financial boom. The impact of global conditions on domestic financial markets exacerbates this development (see here). Second, monetary regimes may facilitate the expansion of monetary conditions from one country to others. Central bankers concerned about currency appreciation and a loss of competitiveness keep interest rates lower than they would otherwise, which furthers a domestic boom. In addition, the actions of central banks with international currencies such as the dollar has international ramifications, as the current widespread concern about the impending rise in the Federal Funds rate shows.

          Aliber ends the current edition of Manias, Panics and Crashes with an appendix on China's financial situation. He compares the surge in China's housing markets with the Japanese boom of the 1980s and subsequent bust that initiated decades of slow economic growth. An oversupply of new housing in China has resulted in a decline in prices that threatens the solvency of property developers and the banks and shadow banks that financed them. Aliber is dubious of the claim that the Chinese government will support the banks, pointing out that such support will only worsen China's indebtedness. The need for an eighth edition of Manias, Panics and Crashes may soon be apparent.

          cross posted with Capital Ebbs and Flows

          [Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed

          Notable quotes:
          "... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
          Dec 19, 2015 | Beat the Press

          ... ... ...

          But what is even more striking is the Post's ability to treat the Fed a neutral party when the evidence is so overwhelming in the opposite direction. The majority of the Fed's 12 district bank presidents have long been pushing for a rate hike. While there are some doves among this group, most notably Charles Evans, the Chicago bank president, and Narayana Kocherlakota, the departing president of the Minneapolis bank, most of this group has publicly pushed for higher rate hikes for some time. By contrast, the governors who are appointed through the democratic process, have been far more cautious about raising rates.

          It should raise serious concerns that the bank presidents, who are appointed through a process dominated by the banking industry, has such a different perspective on the best path forward for monetary policy. With only five of the seven governor slots currently filled, there are as many presidents with voting seats on the Fed's Open Market Committee as governors. In total, the governors are outnumbered at meetings by a ratio of twelve to five.

          Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. Furthermore, it seems determined to use that influence to push the Fed on a path that slows growth and reduces the rate of job creation. The Post somehow missed this story or at least would prefer that the rest of us not take notice.

          * https://www.washingtonpost.com/opinions/the-federal-reserve-makes-a-good-judgment-call-in-raising-interest-rates/2015/12/18/7954e1c6-a4f8-11e5-ad3f-991ce3374e23_story.html

          -- Dean Baker

          [Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

          Looks like growth of financial sector represents direct threat to the society
          Notable quotes:
          "... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
          "... Growth of the non-financial-sector == growth in productivity ..."
          "... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
          December 18, 2015 | cepr.netDean Baker:
          Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.

          This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

          Flash | PDF

          RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

          "...the growth of finance capitalism was what would kill capitalism off..."

          "Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

          Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

          It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
          [THANKS to djb just down thread who supplied this link:]

          http://www.democraticunderground.com/10021305040

          Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

          [graph]

          Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

          Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

          Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

          Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

          In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

          http://en.wikipedia.org/wiki/Financialization

          pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
          Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.

          Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

          BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

          Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

          Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

          " and it takes "financialization" to extract big rents while maintaining low wages."

          It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

          djb said...

          http://www.democraticunderground.com/10021305040

          I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

          RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
          [Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]

          *

          [Smoking gun excerpt:]

          "...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

          [Ouch!]

          [Now the whole enchilada:]

          http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

          If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

          The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

          The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

          This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

          This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

          If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

          In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

          The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

          Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

          Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

          The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

          And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

          Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

          To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

          This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

          This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

          How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

          At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

          This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

          One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

          Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

          But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

          [Whew!]

          Puerto Barato said in reply to RC AKA Darryl, Ron,
          "3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
          ~~RC AKA Darryl, Ron ~

          Growth of the non-financial-sector == growth in productivity

          Growth of the financial-sector == growth in upward transfer of wealth

          Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

          Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

          Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

          Unexpected
          deflation
          !

          Gimme some
          of that

          pgl said in reply to djb...

          People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

          Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

          JEC - MeanSquaredErrors said...

          Wait, what?

          Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

          A little more generously, what Baker actually writes is:

          "The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

          But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

          So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

          tew said...

          Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

          Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
          If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

          Certainly a very unequal distribution of the productivity gains but hard to call "little".

          I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

          cm said in reply to tew...

          For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

          pgl said in reply to tew...

          Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

          anne said...

          In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

          -- Dean Baker

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Real Median Household Income, 1980 & 2014


          1980 ( 48,462)

          2014 ( 53,657)


          53,657 - 48,462 = 5,195

          5,195 / 48,462 = 10.7%


          Between 1980 and 2014 real median household income increased by a mere 10.7%.

          anne said in reply to don...

          I would be curious to know what has happened to the number of members per household....

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Household Size

          2014 ( 2.54)
          1980 ( 2.73)

          [ The difference in household size to real median household incomes is not statistically significant. ]

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/families/index.html

          September 16, 2015

          Real Median Family Income, 1948-1980-2014


          1948 ( 27,369)

          1980 ( 57,528)

          2014 ( 66,632)


          57,528 - 27,369 = 30,159

          30,159 / 27,369 = 110.2%


          66,632 - 57,528 = 9,104

          9,104 / 57,528 = 15.8%


          Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

          cm said...

          "protectionist measures that have boosted the pay of doctors and other highly educated professionals"

          Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

          A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

          This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

          That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

          Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

          [Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government

          Notable quotes:
          "... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
          "... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
          "... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
          "... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
          "... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
          "... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
          "... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
          "... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
          "... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
          "... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
          "... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
          "... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
          "... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
          "... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
          "... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
          "... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
          "... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
          "... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
          "... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
          economistsview.typepad.com

          RGC said...

          Hillary Clinton Is Whitewashing the Financial Catastrophe

          She has a plan that she claims will reform Wall Street-but she's deflecting responsibility from old friends and donors in the industry.

          By William Greider
          Yesterday 3:11 pm

          Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince wishful thinkers who are not familiar with the complexities of banking. But informed skeptics, myself included, see a disturbing message in her argument that ought to alarm innocent supporters.

          Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

          The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal banking model" was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

          Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees" against loss and sold them to both companies and market players. The fast-expanding financial sector claimed a larger and larger share of the economy (and still does) at the expense of the real economy of producers and consumers. The interconnectedness across market sectors created the illusion of safety. When illusions failed, these connected guarantees became the dragnet that drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign and domestic, to stop the bleeding.

          Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and had allowed AIG to fail, the banks would have gone down too.

          These sound like esoteric questions of bank regulation (and they are), but the consequences of pretending they do not matter are enormous. The federal government and Federal Reserve would remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers. If things go wrong, Uncle Sam cleans up the mess.

          Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall principles and give citizens a safe, government-insured place to store their money. "Banking should be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
          That's a hard sell in politics, given the banking sector's bear hug of Congress and the White House, its callous manipulation of both political parties. Of course, it is more complicated than that. But recreating a safe, stable banking system-a place where ordinary people can keep their money-ought to be the first benchmark for Democrats who claim to be reformers.

          Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who introduced this adventure in "universal banking" back in the 1990s. They used their political savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was chairman of the board and a brilliant financier who envisioned the possibilities of a single, all-purpose financial house, freed of government's narrow-minded regulations. They won politically, but at staggering cost to the country.

          Weill confessed error back in 2012: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."

          John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental business reasons. "One was the belief that combining all types of finance into one institution would drive costs down-and the larger institution the more efficient it would be," Reed wrote in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies that come from the merger of functions-indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players."

          The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers who are pulling in opposite directions. That tension helps explain the competitive greed displayed by the modernized banking system. This disorder speaks to the current political crisis in ways that neither Dems nor Republicans wish to confront. It would require the politicians to critique the bankers (often their funders) in terms of human failure.

          "Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward."

          Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that."

          This might sound hopelessly naive, but the Democratic Party might do better in politics if it told more of the truth more often: what they tried do and why it failed, and what they think they may have gotten wrong. People already know they haven't gotten a straight story from politicians. They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.

          Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows, maybe a little honest talk might lead to honest debate. Think about it. Do the people want to hear the truth about our national condition? Could they stand it?

          http://www.thenation.com/article/hillary-clinton-is-whitewashing-the-financial-catastrophe/

          EMichael -> RGC...
          "She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks."

          Of course this claim is absolutely true. Just like GS would not have affected the other investment banks, whatever their name was. And just like we would have had to bail out those other banks whatever their name was.

          Peter K. -> EMichael...
          Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspan's record?

          Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and seems to want to have her cake and eat it too.

          Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty club. Still, critics have a point.

          I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.

          sanjait -> Peter K....
          "Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed..."

          That, right there, is what's wrong with Bernie and his fans. They measure everything by whether it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this country. None.

          You guys want to punish Wall Street but not even bother trying to think of how to achieve useful policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only thing that were important were winning a power struggle.

          Hillary's plan is flat out better. It's more comprehensive and more effective at reining in the financial system to limit systemic risk. Period.

          You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it.

          likbez -> sanjait...

          "You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it."

          You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?" That's where differences and policy debate starts.

          RGC -> EMichael...
          "Her argument amounts to facile evasion"

          Fred C. Dobbs -> RGC...

          'The majority favors policies to the left of Hillary.'

          Nah. I don't think so.

          No, Liberals Don't Control the Democratic Party http://www.theatlantic.com/politics/archive/2014/02/no-liberals-dont-control-the-democratic-party/283653/
          The Atlantic - Feb 7, 2014

          ... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness for clout or assume that the left functions like the right. In fact, liberals hold nowhere near the power in the Democratic Party that conservatives hold in the Republican Party. And while they may well be gaining, they're still far from being in charge. ...

          Paine -> RGC...

          What's not confronted ? Suggest what a System like the pre repeal system would have done in the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system. But credit is elastic enough to build bubbles without the depository system involved

          EMichael -> Paine ...

          Exactly.

          Most people think of lending like the Bailey Brothers Savings and Loan still exists.

          RC AKA Darryl, Ron -> EMichael...

          Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact that in no way means that people that do understand are stupid. See my posted comment to RGC on GLBA just down thread for an more detailed explanation including a linked web article. No, GS alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it at the time. I doubt everyone on that list of Senators was just stupid because they did not see it your way.

          RC AKA Darryl, Ron -> EMichael...
          I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We have had a Republican majority in the House since the 2010 election and now they have the Senate as well. If you are that sure that voters just choose divided government, then aren't we better off to have a Republican POTUS and Democratic Congress?

          sanjait -> RC AKA Darryl, Ron...

          "I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "

          I know you think this is a really meaningful string that evidences causation, but it just looks like you are reaching, reaching, reaching ...

          RC AKA Darryl, Ron -> sanjait...

          Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I don't have time to hunt them up now. Besides, no one would read them anyway.

          I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded Congress would not do much good. But when we shoot each other down here at EV without offering any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with no consideration for validation or acceptance, but not everyone has that degree of a comfort zone. Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is one of the few things that I still care about.

          RGC -> Paine ...

          GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't equate to it wasn't beneficial.

          RC AKA Darryl, Ron -> RGC...

          [Lock and load.]

          http://www.occasionalplanet.org/2015/05/13/glass-steagall-one-democratic-senator-who-got-it-right/

          Glass-Steagall: Warren and Sanders bring it back into focus

          Madonna Gauding / May 13, 2015

          Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional Planet published several years ago :

          On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said "I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible."

          According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the "most important breakthrough in the world of finance and politics in decades"

          According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that Congress would "look back in a decade and say we should not have done this." The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

          Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

          Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder how the country was so asleep. It's just a nightmare."

          According to Stein:

          "The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

          Nevertheless, the bill did not lack champions, many of whom declared that the original legislation - forged during the Great Depression - was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

          "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

          "I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

          "The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

          "If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

          Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

          It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

          Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin – Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray – Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden

          Former House members who voted for repeal who are current Senators.

          Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown

          No longer in the Senate, or passed away, but who voted for repeal:

          Joe Biden -Ted Kennedy -Robert Byrd

          These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.

          *

          [The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail.]

          pgl -> RC AKA Darryl, Ron...

          Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. I think that is what Hillary Clinton is saying.

          RC AKA Darryl, Ron -> pgl...

          It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats.

          pgl -> RC AKA Darryl, Ron...

          We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse.

          I don't care whether Hillary says 1999 was a mistake or not. I do care what the regulations of financial institutions will be like going forward.

          RC AKA Darryl, Ron -> pgl...

          I cannot disagree with any of that.

          sanjait -> RC AKA Darryl, Ron...

          "Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus"

          Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another bill was passed, based on some some vague assertion about how the first bill made everyone think crazy.

          RC AKA Darryl, Ron -> sanjait...
          Democrats did not vote for GLBA until after reconciliation between the House and Senate bills. Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted to understanding the political economy. For that matter Republicans did not need Democrats to vote for the CFMA either, but they did. That gave Republicans political cover for whatever went wrong later on. No one with a clue believed things would go well from the passage of either of these bills. It was pure Wall Street driven kleptocracy.
          likbez -> sanjait...
          It was not one bill or another. It was a government policy to get traders what they want.

          See

          Bruce E. Woych | August 6, 2013 at 5:45 pm |

          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry-summers-the-truth-about-unlimited-risk-potential/

          The Untold Story: Brooksley Born, Larry Summers & the Truth …
          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry...
          Oct 5, 2012 … Larry Summers is attempting to re-write history at the expense of … and they might just find one critical point revealed in Mr. Cohan's article.
          [PERTINENT EXCERPT]: Oct 5, 2012

          "As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent voices are wondering how this manifested itself? As we speak, those close to the situation could be engaging in historical revisionism to obfuscate their role in the design of faulty leverage structures that were identified in the derivatives markets in 1998 and 2008. These same design flaws, first identified in 1998, are persistent today and could become graphically evident in the very near future under the weight of a European debt crisis.

          Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr. Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.

          At some point, market watchers will realize the debt crisis story will literally change the world. They will look to the root cause of the problem, and they might just find one critical point revealed in Mr. Cohan's article.

          This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley Born identified what now might be recognized as core design flaws in leverage structure used in Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just to study the issue, as appropriate action was not being taken. She issued a concept release paper that simply asked for more information. "The Commission is not entering into this process with preconceived results in mind," the document reads.

          Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately forced from office.

          This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling.

          According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. "

          RC AKA Darryl, Ron -> Paine ...

          TBTF on steroids, might as well CFMA - why not?

          Bubbles with less TBTF and a lot less credit default swaps would have been a lot less messy going in. Without TARP, then Congress might have still had the guts for making a lesser New Deal.

          EMichael -> RC AKA Darryl, Ron...

          TARP was window dressing. The curtain that covered up the FED's actions.

          pgl -> RGC...

          Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote about a Supreme Court decision:

          www.washingtonpost.com/news/volokh-conspiracy/wp/2014/06/06/how-many-errors-can-william-greider-make-in-two-sentences-describing-lochner-v-new-york/

          pgl -> RGC...

          "Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale."

          These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to find some critic of HRC who knows nothing about financial markets.

          RGC -> pgl...

          Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of GS helped commercial banks participate.

          RGC -> pgl...

          The repeal of GS helped commercial banks participate.

          Fred C. Dobbs -> pgl...

          Warren Buffet used to rail about how risky derivative investing is, until he realized they are *extremely* important in the re-insurance biz, which is a
          big part of Berkshire Hathaway.

          Peter K. said...

          http://cepr.net/blogs/beat-the-press/hillary-clinton-bernie-sanders-and-cracking-down-on-wall-street

          Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
          by Dean Baker

          Published: 12 December 2015

          The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding of Wall Street and that her plan would be more effective in cracking down on the industry. The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry.

          The piece assures us that too big to fail banks are no longer a problem, noting their drop in profitability from bubble peaks and telling readers:

          "not only are Sanders's bogeybanks just one part of Wall Street but they are getting less powerful and less problematic by the year."

          This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy is hardly a good base of comparison. The real question is should we anticipate declining profits going forward. That hardly seems clear. For example, Citigroup recently reported surging profits, while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.

          If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors agree with Sanders in thinking that these huge banks will have sizable profits for some time to come.

          The real question on too big to fail is whether the government would sit by and let a Goldman Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never met anyone in that group.

          Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation between commercial banking and investment banking. He makes the comparison to the battle over the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on exaggerated importance in the climate debate. There was never a zero/one proposition in which no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline that would facilitate bringing some of the world's dirtiest oil to market.

          In the same vein, Sernovitz is right that it is difficult to see how anything about the growth of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall were still in place. And, it is possible in principle to regulate bank's risky practices without Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial. Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting them get bigger and more complex?

          The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies from combining investment and commercial banking under one roof. But if the operations are kept completely separate, as is supposed to be the case, where are the synergies?

          But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste and exorbitant salaries in the industry.

          Most research shows that trading volume is very responsive to the cost of trading, with most estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent, then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the increase in trading costs.) The implication of this finding is that the financial industry would pay the full cost of a financial transactions tax in the form of reduced trading revenue.

          The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry.

          It is incredible that Sernovitz would ignore a policy with such enormous consequences for the financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton has proposed taken together by a rather large margin. It's sort of like evaluating the New England Patriots' Super Bowl prospects without discussing their quarterback.

          Syaloch -> Peter K....

          Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much.

          Peter K. -> Syaloch...

          Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not a good idea.

          EMichael -> Syaloch...

          Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation on their business.

          Syaloch -> EMichael...

          Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clinton's plan? I've heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/

          "Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday. The reaction from the banking community was a shrug, if not relief."

          pgl -> Syaloch...

          Two excellent points!!!

          sanjait -> Syaloch...

          "Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much."

          It has an effect of shrinking the size of a few firms, and that has a detrimental effect on the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.

          So if your main policy goal is to shrink the compensation for a small number of powerful Wall Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained this fairly well in her recent NYT piece.

          Paine -> Peter K....

          There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll let Hillary talk as big as she needs to . Why should we believe her when an honest guy like Barry caved once in power

          Paine -> Paine ...

          Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham bola

          Paine -> Paine ...

          Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we know it's no monolithic: there are serious differences

          When the street is riding high especially. Right now the street is probably not united but too cautious to display profound differences in public. They're sitting on their hands waiting to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and I really fear secretly Hillary gives them comfort

          This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire. Not Iowa

          EMichael -> Paine ...

          If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive movement for a decade or two. Congress will become more GOP dominated, and we will have a President in office who will make Hoover look like a Socialist.

          Syaloch -> EMichael...

          Of course. In politics, as they say in the service, one must always choose the lesser of two evils. https://www.youtube.com/watch?v=e4PzpxOj5Cc

          pgl -> EMichael...

          You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another 1964 with Bernie leading a united Democratic Congress.

          EMichael -> pgl...

          Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot, and will not, happen. He is a communist. Not to me, not to you, but to the vast majority of American voters.

          pgl -> EMichael...

          He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only one vote and in New York, I'm badly outnumbered.

          ilsm -> Paine ...

          I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam. Like Bill and Obomber.

          pgl -> ilsm...

          By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members in the State Department undermined his efforts in a cynical ploy to get Nixon to be President. The Republican Party has had more slime than substance of most of my life time.

          pgl -> Peter K....

          Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening to this guy too. It's like letting the fox guard the hen house.

          sanjait -> Peter K....

          "The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry."

          This is just wrong. Is financial system risk in any way correlated with the frequency of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again, great example of wanting to punish Wall Street but not bothering to think about what actually works.

          Peter K. said...

          Robert Reich to the Fed: this is not the time to raise rates.

          https://www.facebook.com/video.php?v=1116088268403768

          RGC said...

          Iceland's Radical Money Plan

          Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

          Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

          "The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

          Under this "Sovereign Money" proposal, the country's central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

          Public Banking Initiatives in Iceland, Ireland and the UK

          A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

          In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) - are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

          December 11, 2015
          Reinventing Banking: From Russia to Iceland to Ecuador

          by Ellen Brown

          http://www.counterpunch.org/2015/12/11/reinventing-banking-from-russia-to-iceland-to-ecuador/

          pgl -> RGC...

          "Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders."

          OK but that means they issue bank accounts which of course we call deposits. So is this just semantics? People want checking accounts. People want savings accounts. Otherwise they would not exist. Iceland plans to do what to stop the private sector from getting what it wants?

          I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen to Jamie Dimon anymore!

          sanjait -> pgl...

          I don't know for sure (not bothering to search and read the referenced proposals), but I assumed the described proposal was for an end to fractional reserve banking. Banks would have to have full reserves to make loans. Or something. I could be wrong about that.

          Syaloch said...

          Sorry, but Your Favorite Company Can't Be Your Friend

          http://www.nytimes.com/2015/12/13/upshot/sorry-but-your-favorite-company-cant-be-your-friend.html?partner=rss&emc=rss&_r=0

          To think that an artificial person, whether corporeal or corporate, can ever be your friend requires a remarkable level of self-delusion.

          A commenter on the Times site aptly quotes Marx in response:

          "The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left remaining no other nexus between man and man than naked self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

          "The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers."

          https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm

          [Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically

          "There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.
          Notable quotes:
          "... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
          "... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
          "... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
          "... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
          "... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
          "... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
          "... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
          Dec 11, 2015 | Economist's View
          anne said...
          Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.

          As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use was by a Washington Post editor and not by columnist Michael Strain.

          anne -> RW (the other)...

          As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy so why is Yellen subject to a different standard?

          [ Fine, I have reconsidered and agree. No matter how the headline was written, the headline was meant to be intimidating and was willfully mean and that could and should have been made clear immediately by the writer of the column. ]

          likbez -> anne...

          "Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate."

          Anne,

          I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          That's why Greenspan got it, while being despised by his Wall-Street colleagues...

          He got it because he was perfect for promoting deregulation political agenda from the position of FED chair.

          pgl -> likbez...

          Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.

          anne -> likbez...

          So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          [ I understand, and am convinced. ]

          Peter K. said...

          I respectfully disagree. Republicans are always working the refs and despite what the writer from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.

          Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about how since Clinton balanced the budget, the financial markets had too little safe debt to work with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade deficit reduction for lower interest rates. That's economics which have political outcomes.

          So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.

          The good thing about Yellen's speech is that it's a signal to progressives that inequality is problem for her even as she is raising rates in a political dance with hawks and Congress.

          The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks it's a bad thing and not American.

          Bernie Sanders is right that for change to happen we'll need more political involvement from regular citizens. We'll need a popular movement with many leaders.

          The Fed should be square in the sights of a progressive movement. A high-pressured economy with full employment should be a top priority.

          Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt asked her about Yellen raising rates.

          Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere. The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't want to motivate the Republicans to go after the Fed and oppose what she wants.

          Still I felt the Democratic leadership should be committed to a high-pressure economy. Her staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.

          She should have said "they shouldn't raise rates until they see the whites of inflation's eyes" as Krugman memorably put it. She should have said that emphatically.

          We need a Democratic Party like that.

          Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is afraid to comment on monetary policy.

          Peter K. -> Peter K....

          A longer reply from DeLong:

          http://www.bradford-delong.com/2015/12/must-read-i-would-beg-the-highly-esteemed-mark-thoma-to-draw-a-distinction-here-between-inappropriate-and-unwise-in-m.html

          Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate" and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century--with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

          But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

          That may or may not be true. I think it is not.

          But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

          Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with Brad DeLong...

          pgl -> Peter K....

          "my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous..."

          DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.

          sanjait said...

          Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that is relevant for her job. It's both an input and an output variable that is related to monetary policy.

          And, arguably I think, median wage growth should be regarded as a policy goal for the Fed, related to its explicit mandate of "maximum employment."

          But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop them from talking about other topics. Do people accuse the Fed of playing politics when they talk about desiring reduced financial market volatility? That has little to do with growth, employment and general price stability.

          likbez -> sanjait...

          I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times.

          Sandwichman said...

          I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic discourse is political and efforts to restrain the politics are inevitably efforts to keep the politics one-sided

          Dan Kervick said...

          This kind of debate seems to be a by-product of the contemporary obsession with having an "independent" central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy.

          But there really isn't. Different kinds of social, economic and political values and policy agendas are going to call for different kinds monetary and credit policies. It might be better for our political health if the Fed were administratively re-located as an executive branch agency that is in turn part of a broader Department of Money and Banking - no different from the Departments of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as ordinary executive branch appointees who report to the President, and whose policies are naturally an extension of the administration's broader agenda. Then if people don't like the monetary policies that are carried out, that would be one factor in their decision about whom to vote for.

          There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not. Decisions in that latter area should be no more politics-free than decisions about taxing and spending. If we fold the central bank more completely into the regular processes of representative government, then if a candidate wants to run on a platform of keeping interest rates low, small business credit easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting the independence of the sacrosanct bankers' temple.

          We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate under the political solution would just be whatever monetary policy the President ran on.

          likbez -> Dan Kervick...

          "The Fed's mandate under the political solution would just be whatever monetary policy the President ran on"

          Perfect !

          Actually sanjait in his post made a good point why this illusive goal is desirable (providing "electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest rates from now till election probably will doom Democrats.

          Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its value in enhancing the level of deregulation.

          Among other things it helps to protect large financial institutions from outright nationalization in cases like 2008.

          Does somebody in this forum really think that Bernanke has an option of putting a couple of Wall-Street most violent and destructive behemoths into receivership (in other words nationalize them) in 2008 without Congress approval ?

          Dan Kervick -> Sanjait ...

          Sanjait, with due respect, you are not really responding to the reform proposal, but only affirming the differences between that proposal and the current system.

          Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by Congress but actually made by Congress, subject only to an overridable executive branch veto. The executive branch is responsible primarily for carrying out the legislature's fiscal directives. That's the point. In a democratic system decisions about all forms of taxation and government spending are supposed to be made by the elected legislative branch, and then executed by agencies of the executive branch. My proposal is that monetary policy should be handled in the same way: by the elected political branches of the government.

          You point out that under current arrangements, central banks can, if they choose, effect large monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of those policies). I don't understand why any non-elected and politically unaccountable branch of our government should have the power to offset the policies of the elected branches in this way. Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those policy ends should be the ones people vote for, not the ones a handful of men and women happen to think are appropriate.

          JF -> Dan Kervick...

          "In a democratic system" is what you wrote.

          It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying the US constitution, is a reflection of James Madison's characterization in the 51st The Federalist Paper, and it is a US-defined republicanism that is almost unique:

          "the republican form, wherein the legislative authority necessarily predominates."

          - or something like that is the quote.

          In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders - I'd say the most important word in Madison's explanation is the word "necessarily" - this philosophy has all law and policy stemming from the public, it presumes that you can't have stability and dynamic change of benefit to society without this.

          Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that way, they see things as top-down ordering of society.

          The mythology of the monetary theorizing and the notions about a central bank being independently delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I don't believe in a religious sense that this is how it should be, nor do you it seems.

          It will be an interesting Congress in 2017 when new legislative authorities are enacted to establish clearer framing of the ministerial duties now held by the FRB.

          Are FED officials scared that this will happen, and as a result they circle the wagons with their associates in the financial community now to fend off the public????

          I hope this is not true. They can allay their own fears by leading not back toward 1907, in my opinion.

          Of course, I could say where I'd like economic policies to go, and do here often, but this thread is about Yellin and other FED officials.

          I recognize that FRB officials can say things too, and should, as leaders of this nation (with a whole lot of research power and evidence available to them their commentary on political economics should have merit and be influential).

          Thanks for continuing to remind people that we govern ourselves in the US in a US-defined republican-form. But I think the people still respect and listen to leadership - so speak out FED officials.

          JF -> Dan Kervick...

          But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as monetary theory based on a separate Central Bank, or some non-political theory of money.

          Don't mind the theory as it is an analytic framework that questions and sometimes informs - but it is good to step back and realize some of the religious-like framing.

          It is political-economy.

          Peter K. -> pgl...

          Yellen really lays it out in her speech.

          "The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2 It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

          And even links to Piketty in footnote 42.

          "Along with other economic advantages, it is likely that large inheritances play a role in the fairly limited intergenerational mobility that I described earlier.42"

          42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text

          Sanjait said...

          A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.

          The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries.

          Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.

          A Boy Named Sue said...

          Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.

          A Boy Named Sue -> A Boy Named Sue...

          I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike most RW hacks.

          Jeff said...

          As to "why risk a political backlash" in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all.

          [Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags

          Notable quotes:
          "... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
          "... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
          "... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
          "... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
          "... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
          "... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
          "... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
          finance.yahoo.com

          NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling investors it would make a $500 million share repurchase.

          In addition to soothing shareholders, the surprise buyback benefited the company's senior executives. It added around two cents to the company's annual earnings per share, allowing Humana to surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company's compensation agreement.

          Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014.

          Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price.

          But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers.

          As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

          "We've accepted a definition of performance that is narrow and quite possibly inappropriate," said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow, a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking."

          A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those companies reward executives in part by using EPS, while another 28 use other per-share metrics that can be influenced by share buybacks.

          In addition, 303 also use total shareholder return, essentially a company's share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

          STANDARD PRACTICE

          EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems Inc.

          ... ... ...

          As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

          Companies buy back their shares for various reasons. They do it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.

          Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness - and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company's underlying performance.

          "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets.

          The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

          At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit.

          SALARY AND A LOT MORE

          Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

          ...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a heavier emphasis on short-term results.

          Companies started tying performance pay to "short-term metrics, and suddenly all the things we don't want to happen start happening," said Lynn Stout, a professor of corporate and business law at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come up with an objective performance metric that can't be gamed."

          Shareholder expectations have changed, too. The individuals and other smaller, mostly passive investors who dominated equity markets during the postwar decades have given way to large institutional investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider that the average time investors held a particular share has fallen from around eight years in 1960 to a year and a half now, according to New York Stock Exchange data.

          "TOO EASY TO MANIPULATE"

          Companies like to use EPS as a performance metric because it is the primary focus of financial analysts when assessing the value of a stock and of investors when evaluating their return on investment.

          But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University of Illinois finance professor.

          ...By providing a lift to a stock's price, buybacks can increase total shareholder return to target levels, resulting in more stock awards for executives. And of course, the higher stock price lifts the value of company stock they already own.

          "It can goose the price at time when the high price means they earn performance shares … even if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor at the Southwestern Law School in Los Angeles.

          Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals that it add three-year targets based on shareholder return to its compensation program. In its most recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment to achieve short-term results.

          The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.

          ADDITIONAL TWEAKS

          While performance targets are specific, they aren't necessarily fixed. Corporate boards often adjust them or how they are calculated in ways that lift executive pay.

          [Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 04, 2015] The alleged 'decoupling' of GDP from energy

          peakoilbarrel.com
          Don Stewart, 12/01/2015 at 12:25 pm

          Dear Ron and Others
          Relative to the alleged 'decoupling' of GDP from energy. Please see:
          http://www.pnas.org/content/112/20/6271.full
          The material footprint of nations

          The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource some of the more energy and materials intensive operations to poor countries, but if you count back from consumption, the rich countries are essentially as energy and materials dependent as they ever were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed for a 100 point increase in GDP.

          Part of what happens can perhaps be understood by thinking about beef imports. If England imports beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce the beef. Only a small percentage of the resource used gets exported to England. If you start with the steak in England and look back at the supply chain, you find that the consumption of the pound of steak in England was responsible for the consumption of lots of energy and materials in Africa.

          I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days, the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.

          Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound quality. But suppose that the price you pay for the new radio is the same as it was for the old radio. GDP would be the same for both radios. But, recently, the US government has begun to make adjustments for the quality of the sound.

          Whether the hedonic adjustments make any sense depends on what sort of question you are trying to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters is your actual income. The fact that you had to improve the sound quality in order to remain competitive is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get any easier.

          Don Stewart

          Fred Magyar, 12/01/2015 at 1:41 pm
          Why the GDP Is Not An Good Measure of A Nation's Well Being
          https://goo.gl/xKKHZx

          In their book, The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show the gap between the poor and rich the greatest in the U.S. among all developed nations; child well being is the worst in the U.S. among all developed nations; and levels of trust among people in the U.S. among the worst of all developed nations.

          The Subcommittee on International Organizations, Human Rights and Oversight of the U.S. Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition. They testified that this opposition is strengthened by the perception that our decisions are made unilaterally and without constraint by international law or standards-and that our rhetoric about democracy and human rights is hypocritical."

          The US ranks 114th out of 125 countries in international peace and security.

          http://www.goodcountry.org/

          To those in power who believe that only strength counts, and that people are always self-interested, I say "We tried it your way, and it didn't work. Let's try something new."

          Simon Anholt

          Ves, 12/02/2015 at 8:49 am
          Hi Dennis,
          I see up there little discussion about GDP and what it means.
          Let's say:
          Country A: use washable rags to clean kitchen counter-tops.
          Country B: use paper towels to clean same kitchen counter-tops.

          As result they both have clean kitchen counter-tops but Country B has higher GDP due to use of paper towels.

          So GDP means absolutely nothing or anything depending what you want to present.

          GDP is like looking at the sunset and your mind is thinking that you are actually looking at the sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are looking at is already gone. (Since this site is loaded with scientist they can correct me with if that 8 minutes is more or less correct )

          Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story". For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one from last year. So you should be content and happy. Not convinced? Don't worry we will "super size" that GDP for you next year. Isn't your tummy already feeling full and content?"

          This kind of storytelling is usually printed as financial news about GDP. Meaningless if you ask me from the point of average citizen.

          I have to go now because I have whole day of work planned for me by this economy and I will catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that we work more or at least the same now when oil is at $40 compared to when oil was $100 last year? Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our life easier so we actually work less and spent more time with family & friends and doing odd staff like canoeing How come I don't feel that I did not get 60% discount due to price of oil in terms of work load from the last year Who is pocketing that 60%
          How about employed folks who bought kiwi Leaf? Do they work less and have more time with family and friends or they are paddling in the same hamster wheel we call economy?

          Dennis Coyne, 12/02/2015 at 12:39 pm
          Hi Ves,

          I agree GDP is a poor measure of well being. Another example would be World War 2 where a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading to a lot of economic growth. Were we better off? Probably not, especially the millions who died and their families.

          GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion) uses of resources.

          I did a different chart using the human development index (HDI) from 1980 to 2013 which shows World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly, not decreasing as is the case for energy intensity.

          The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.

          [Dec 04, 2015] German Financialization and the Eurozone Crisis

          Notable quotes:
          "... Bundenstalt für Finanzdienstleistungsaufsicht ..."
          naked capitalism
          Many studies of the Eurozone crisis focus on peripheral European states' current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe's subsequent crises.

          Increasing German financial sector competition encouraged German banks' increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

          After the 1970s, German banks' trading activity came to surpass lending as the largest share of assets, while German firms increasingly borrowed in international capital markets rather than from domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit, consequently had to compete with Germany's largest private banks for business. Changes in competition restructured the German financial system. Mergers and takeovers occurred, especially in commercial banks and Landesbanks. German financial intermediation ratios-total financial assets of financial corporations divided by the total financial assets of the economy-increased. Greater securitization and shadow banking relative to long-term lending increased German propensity for financial crisis, as securities, shares, and securitized debt constituted increasing percentages of German banks' assets and liabilities.

          Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002 did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities of three agencies to oversee the whole financial sector. However, neither institution could keep pace with new sources of financial and economic instability. German banking changes continued apace and destabilizing trends in banking grew.

          German desire for financial liberalization at the European level, meanwhile, helped increase potential systemic risk of European finance. Despite some European opposition to removing barriers to capital and trade flows, Germany prevailed in setting these preconditions for membership in the European economic union. Germany's negotiating power stemmed from its strong currency, as well as French, Italian, and smaller European economies' desire for currency stability. Germany demanded an independent central bank for the union, removal of capital controls, and an expansion of the tasks banks could perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD) mandated that banks perform commercial and investment intermediation to be certified within the EMU; the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP and SBCD increased the scope of activity that financial institutions throughout the union were expected to provide, and opened banks up to markets, instruments, and activities they could neither monitor nor regulate, and hence to destabilizing shocks.

          Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery. German banks lent increasing volumes to EMU member states, especially peripheral states. Though this lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented 17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP. Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations relative to its lending to richer European economies. These flows, more potentially disruptive for borrowers than for the lender, reflected lack of oversight in asset management. German lending helped destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions for large-scale capital flight in a crisis.

          Financial competition increased in Europe over this period. Financial merger activity first accelerated within national borders, and later grew at supra-national levels. These movements increased eurozone access to capital, but increased pressure for banks to widen the scope of the services and lending that they provided. Rising European securitization in this period increased systemic risk for the EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic risk increased as well.

          European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially larger portfolios of sovereign debt issued by other European states, which would not decrease until 2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments guaranteed their financial systems to minimize the costs of the ensuing financial crisis.

          The newly liberalized financial architecture of the eurozone increased both the market for German financial services and overall systemic risk of the European financial system; these dynamics helped destabilize the German financial system and economy at large. Rising German exports of goods, services, and capital to the rest of Europe grew the German economy, but divergence of current account balances within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently experienced such pressure to backstop national financial systems or to repay sovereign loans had German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis ignore the destabilizing power of financial liberalization, even for a global financial center like Germany.

          susan the other, December 3, 2015 at 1:06 pm

          This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with deregulation of the financial industry in the core. Big fish eat little fish. It is as if for 4 decades the banks in Germany compensated their losses to the bigger international lenders by taking on the riskier borrowers and were able to do so because of German mercantilism and financial deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively borrowed their own profits by speculating on bad customers. As German corporations did business with big international banksters, who lent at lower rates, other German banks resorted to buying the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest international banks. We could call this behavior a form of digging your own grave. In 2009 the periphery saw their borrowing costs threatened and guaranteed their own financial institutions creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity was in short supply. The whole thing fell apart. Deregulation was just another form of looting.

          washunate, December 3, 2015 at 1:28 pm

          German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis.

          I agree with the general conclusion at the end that German financialization is part of the overall narrative of EMU, but I don't follow this specific link in the chain of events as described. The eurozone has a sovereign debt crisis because those sovereign governments privatized the profits and socialized the losses of a global system of fraud. And if we're assigning national blame, it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.

          Current and capital account imbalances cancel each other out in the overall balance of payments. As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient degree to pay for these bailouts.

          [Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes

          EconoSpeak

          The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

          Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation's competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we'll hear about these concerns from the business community and others during today's hearing.
          Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
          in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States
          Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
          "We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries".
          In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding? Myrtle Blackwood
          The development model in nation after nation is dependent upon global corporations. What is happening is simply a byproduct of this.
          Jack
          Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing profits where they are not earned.

          [Dec 04, 2015] Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II.

          Notable quotes:
          "... "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term. Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020." ..."
          "... Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine . ..."
          marknesop.wordpress.com
          karl1haushofer, December 3, 2015 at 9:42 am
          Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II. Hopefully the US/UK/Baltics/Poland front will not be able to stop it. Because otherwise Russia is stuck with Ukraine as a transit country.
          marknesop, December 3, 2015 at 10:45 am
          Well, I don't think they want to stop it. They want the gas the same as before – they just want it on their own terms. Brussels wants to exercise control over whose gas goes through the pipeline, so that if they are have a "spat" with Russia, they can stop orders of Russian gas and bring some at-this-moment-unknown supplier's gas through the same pipeline, probably Azerbaijan.

          Read this 2011 press conference with Gazprom; I found it while looking for a layman's explanation of what the Third Energy Package actually entails. Because it appears what is most unappealing to it from Gazprom's point of view is that it limits vital investment in gas futures, considering it would substantially restrict long-term contracts. They could be happy with you today, buying off your competitors tomorrow. According to Brussels, that's healthy competition which ensures the customer gets the best price, while Gazprom naturally prefers to deal in long-term contracts which lock the customer in, although they are usually willing to talk out a deal if it looks like the customer is really unhappy because unhappy customers are bad for business, even in the gas industry.

          Right away, you notice that Europe accepts long-term contracts, but nonetheless takes the position that long-term capacity supply orders upset the market. As Gazprom correctly points out, these two views cannot reasonably coexist.

          In 2011, Gazprom was still considering a joint venture with NaftoGaz Ukraine, and intended to actually increase gas transit through Ukraine while simultaneously building South Stream. They were also considering a merger, and Miller said if that came about, Ukrainian gas consumers would pay the same prices as Russia. Look how far they are away from that now – funny old world, innit? Here was Miller's vision, at the time, for a Gazprom-NaftoGaz merger:

          "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term.
          Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020."

          You can see, I'm sure, why Brussels didn't like it. Under the Third Energy Package, the operator of the gas transit system will be elected by the European Union on a tender basis. You can see, I'm sure, why Gazprom didn't like that. If the merger between Gazprom and NaftoGaz Ukraine had come about, Ukrainians would have paid Russian domestic prices, in a word, forever.

          What Europe's position boils down to is it wants a system whereby its suppliers do not own anything of the transit system, and the operator could be anyone depending on who sucks up to Europe the most, so that it can make its suppliers fight with one another and be assured of the cheapest prices. Until that magical sugar-daddy supplier appears that can provide steady and sustained competition to Russia, Europe is not in a very good bargaining position. But you bet that would change fast if the western alliance could get rid of Assad, partition Syria and get a Qatari gas pipeline laid across it.

          Here's a poignant reminder of what might have been, which serves to point up who are the real troublemakers:

          "Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine."

          kirill , December 3, 2015 at 2:17 pm
          See above. It is time for Russia to lay down the law. Russia can go without the $25 billion per year of lost revenues. But whole EU economies will crash into epic depressions without this energy supply. In other words, the EU is looking at TRILLIONS of DOLLARS in economic damage. The Brussels Uncle Scam cocksuckers will have to justify their actions. Russia does not have to since it is the vendor. If you are not happy, then shop the fuck elsewhere, idiots.

          [Dec 03, 2015] GDP and energy

          Notable quotes:
          "... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
          "... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
          "... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
          "... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
          peakoilbarrel.com

          VK, 11/30/2015 at 4:10 pm

          So much for decoupling…

          http://www.theguardian.com/commentisfree/2015/nov/24/consume-conserve-economic-growth-sustainability

          "A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational.

          Here's how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called "domestic material consumption". But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.

          For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."

          BC, 11/30/2015 at 4:37 pm
          VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an unprecedented level to date debt to wages and GDP.

          Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world since 2005-08.

          Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence, and Pentagon planners all know this in varying degrees as it relates to their imperatives and prerogatives.

          However, the mass public and most political leaders are utterly unaware, or in the case of the latter, have no incentive to know or to share with the public what they know because they will not be able to raise a nickel thereafter for reelection if they do share.

          And so it goes . . .

          Ron Patterson, 11/30/2015 at 5:02 pm
          Thanks VK, I suspected as much.

          He told me that he and his colleagues had conducted a similar analysis, in this case of the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through buying stuff from abroad. This rose by 280m tonnes in the same period.

          GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.

          Jimmy, 12/02/2015 at 11:38 am
          I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling.

          Only a divergence due to more units of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic and uninformed.

          Ron Patterson, 12/02/2015 at 11:58 am
          Thanks Jimmy, with all the Pollyannas on this site I need all the support I can get.
          Dennis Coyne, 12/02/2015 at 1:56 pm
          Hi Jimmy,

          Look up the meaning of decouple it is reduce or eliminate the effect of one part of a circuit on another. In this context the appropriate meaning is reduce.

          Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.

          Dennis Coyne, 12/01/2015 at 8:07 am
          Hi VK,

          The problem is solved by looking at World output and World primary energy use.

          Energy intensity for the World has improved, though during the Chinese rapid expansion from 2000-2010, the progress stopped for a decade as energy was not used very efficiently in China over that period, since 2010 the progress has continued. Energy intensity is energy per unit of GDP produced.
          Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.

          Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real GDP (M2005$).

          Javier, 12/01/2015 at 9:23 am
          Hi Dennis,

          That graph shows several things mixed that have co-evolved independently, so not many conclusions can be extracted.

          • -It reflects improvements in energy usage, meaning we are able to extract more economic yield per unit of energy. This is the only real efficiency improvement.
          • -It reflects increase in debt, that is reflected in GDP but does not use energy. If I borrow money GDP increases yet no energy is used.
          • -It reflects increase in tertiary economy at the expense of primary and secondary economies. We pay more for services and less for resources and goods.

          We don't know the contribution of each to that graph (at least I don't), but given the magnitudes involved I would guess that the real efficiency improvement is small. This is supported by how the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main factor is economic, not energetic.

          Now we know that debt has a limit, and once debt saturation is reached the economy, and specially the tertiary sector would be very badly affected. If that happens we might very well see that graph turn around and energy intensity increase.

          Dennis Coyne, 12/01/2015 at 1:56 pm
          Hi Javier,

          GDP only increases if your money is spent on goods or services. It is output of goods and services. On a World level the debts and liabilities balance, so if I save my money and lend it to you, I spend less and you spend more. You should review your economics. At a World level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World recession from 2000 to 2010? I hadn't heard about that.

          Yes services might have increased, if that is what people want to spend their money on, then the share of services in the economy will increase. I don't have figures on the "non-service economy". Part of this increase reflects women entering the labor pool in greater numbers, some of the work cleaning the house or taking care of the garden are now part of GDP when before they were taken care of by the family. We may not have good data for the World on this effect.

          Javier, 12/01/2015 at 2:21 pm
          Dennis,

          I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan, that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000 $, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used to create the money, it counts as a reduction in oil intensity. Of course if I return the money to the bank the operation is reversed (they do keep the interests), but since on average debt is always expanding, except during crisis periods, oil intensity is always decreasing, except during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the ground is the same.

          Dennis Coyne, 12/01/2015 at 3:16 pm
          Hi Javier,

          The point is that you purchased a $200,000 house. That house was not created from thin air, not my house anyway. :)

          It is not the debt, it is building a house that creates the GDP.

          Rune Likvern, 12/01/2015 at 3:26 pm
          So what comes first; The debt that allows for building the house, or first building the house and then creating the debt?
          Dennis Coyne , 12/01/2015 at 3:47 pm
          Hi Rune,

          In most cases the debt will come first if the home is purchased with financing. It is possible to build a home using savings, in which case there would be no debt.

          So the debt is not a requirement for GDP, just creating a new house, car, or other good or service.

          Would GDP be lower if there were no debt, of course!

          As long as debt grows at reasonable rates (similar to GDP growth at full employment), when there is a recession debt will initially grow faster than GDP and then will slow down until GDP growth catches up and surpasses the debt rate of growth.

          Dennis Coyne, 12/01/2015 at 4:25 pm
          Hi Rune,

          I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.

          If all GDP was created with no debt (all of it was based on savings and income with no new borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level of GDP, would that mean in year 2 we have 150% of the first year because of the debt?

          I don't think so, but I may be missing something.

          Nick G, 12/02/2015 at 2:14 pm
          Dennis,

          Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP.

          Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses, the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.

          But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different kinds of ownership, and different obligations (the renter now has to fix his own roof!).

          Dennis Coyne, 12/01/2015 at 4:16 pm
          Hi Javier,

          You should read up on national income accounting. Debt does not really come into play, and more or less debt says absolutely nothing about the energy intensity of GDP. The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in millions of 2005$. Debt plays no role.

          Try the following link for a detailed introduction to national income accounting:

          http://grizzly.la.psu.edu/~bickes/nia.pdf

          Javier, 12/01/2015 at 7:06 pm
          Dennis,

          I still disagree. It is well known that the increase in debt has a positive effect on GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to sustain that debt plays no role in GDP in light of the evidence.

          For example China has had a phenomenal rate of growth accompanied by the highest rate of debt growth that the world has seen.

          I think it is easy to understand.

          • Country A finances everything with savings and profits without increasing debt and sees an increase in GDP of 2%.
          • Country B finances half of the goods and services with an increase in debt and sees an increase in GDP of 2%.

          Both countries use the same oil so both report the same oil intensity. However country B has brought half of the wealth used to increase the GDP from the future without bringing any future oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point no oil will be recovered.

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          Net effect is that debt reduces oil intensity when it is created and it increases oil intensity when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always increasing.

          Dennis Coyne, 12/01/2015 at 10:17 pm
          Hi Javier,

          Many problems with your example.

          First we need the GDP level of countries A and B, not just their growth rate. If we only talk about the incremental increases in GDP and energy use for each country it makes a little more sense.

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          What you say above is incorrect.

          For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further assume each country has the same GDP, we will say it is $100 million before the 2% growth in your example.

          If country B does not take on any debt and its GDP grows by 1%, then its energy use will also grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would remain the same. There is no reason for it to change, it depends on technology and the structural features of the economy (proportion of agriculture, manufacturing, and services).

          Another basic fact of economics is that the loans taken out by a business are to take advantage of a business opportunity and they will tend to lead to higher growth, so your example is flawed.

          If countries A and B are of similar size and similar levels of development (twins as it were), then if country A and country B both shunned any borrowing they will both grow at the same rate, say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both countries are the same except that country A's culture is such that they think debt is bad, but country B does not have the same aversion to debt.
          Country B borrows at 2% interest to take advantage of an investment opportunity which will have a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the debt and the individual businesses come out ahead earning a net profit of 2% after paying back the interest. This is how rational businesses operate, they borrow money to make money.

          Javier, 12/02/2015 at 8:54 am
          Dennis,

          I also have lots of problems with your example, so let's take a step back to look at the big picture.

          That an increase on debt increases GDP is not in doubt. It is not only supported by evidence, but the basis for an entire economic theory that supports fighting recessions with debt-based stimulus.

          So the question is if an increase in debt increases also GDP without oil consumption as to reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt increase. Net interest expenses in the financial sector are seen as production and value added and are added to GDP. Any service charged by financial companies also increases GDP, and none of this economic activities uses oil, and very little energy.

          I believe that a significant part of oil intensity reduction has come from the financialization of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling. If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are decoupling from energy because we are moving towards a fake economy based on financial instruments. Finanzialization also appears linked to raising inequality as it effect is to increase the wealth only of owners of financial instruments.

          I do not doubt that some oil and energy efficiency is real, after all it is a process that has been going on forever since the first oven was built to cook. But I seriously doubt that it is a process significant enough to solve an energy deficit problem which is what peak oil is going to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do not doubt are real but much overstated.

          Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article at TOD for anybody interested in the matter:

          http://www.theoildrum.com/node/8615

          Javier, 12/02/2015 at 9:23 am
          Or to put it more clearly:
          • These two things are related. And decoupling is largely a myth.
          • In blue US energy intensity inverted

          Dennis Coyne, 12/02/2015 at 10:43 am
          Hi Javier,

          Yes the financial sector has increased to a small degree from 4% of GDP to 8% based on the chart you posted (which is only for the United States rather than the World).

          This has probably increased to some degree (more or less than the US is unknown) at the World level as well. This might explain a very small slice of the decrease in energy intensity, but I doubt it accounts for most of the change.

          I agree with you that changes in the structure of the World economy (higher proportion of services) has probably decreased energy intensity, but I doubt that accounts for all of the change. The bottom line is that the World economic system is becoming more service oriented with services accounting for a larger share of GDP. At some point, services may reach some maximum level, in percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total debt of 300% to 350% of GDP at a World level as a potential maximum).

          When those points are reached growth may be limited by how much more efficiently we can use energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There is much that is unknown about the future.

          Dennis Coyne, 12/02/2015 at 10:51 am
          Hi Javier,

          Note that you keep talking about oil, the chart shows primary energy (all forms of energy used by the economic system.)

          Can you explain why country B in your example uses the same amount of energy whether it grows at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what the World data shows.

          Javier, 12/02/2015 at 11:55 am
          Dennis,

          That is not what I said or meant. Country B by increasing GDP 1% through an increase in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using present energy.

          The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts. Specially considering that only a minor part of the financial transactions are considered towards GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger share.

          Dennis Coyne, 12/02/2015 at 2:01 pm
          Hi Javier,

          You said:

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          You say above without the borrowing country B would grow by 1% (why does it grow less than country A?) but it uses the same amount of oil as country A, why if it grows more slowly?

          Dennis Coyne, 12/02/2015 at 5:57 pm
          Hi Javier,

          Look closely at your chart in 1970 (when energy intensity started to decline) it was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart (even though it is for the US rather than the World) and did an exponential trend from 1970 to 2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably not correct, but this is an illustration). Then I found the Energy intensity of the non-financial sector by assuming the financial sector has zero energy inputs (I expect they are low, this is an approximation). The Non-Financial Energy intensity is in the chart below.

          Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate supply of goods produced to meet that demand. Whether the aggregate demand is because of private or public debt or not does not change the amount of energy needed to produce the supply of goods and services, it only changes how much demand there will be for those goods and services. I really cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build a car (total energy embodied in all processes used to create the car and its components) changes if someone pays cash for the car vs financing the car?

          Rune Likvern, 12/01/2015 at 2:23 pm
          Dennis,

          Bank of England has a different take on this;

          " This article explains how the majority of money in the modern economy is created by commercial banks making loans.

          Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits."

          http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

          Dennis Coyne, 12/01/2015 at 3:37 pm
          Hi Rune,

          Yes that is correct. The banks create money by lending and borrowers destroy money as they pay back their loans. The money supply is controlled by the Central Bank buying and selling bonds.

          The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the rate of GDP growth increases there will not be a problem. There are differing views on how much debt is too much.

          For public debt there is:

          http://www.economist.com/blogs/freeexchange/2015/06/public-debt

          http://www.forbes.com/sites/michaellingenheld/2015/10/22/the-world-needs-more-debt/

          Rune Likvern, 12/01/2015 at 5:45 pm
          Dennis,

          Did you read the document from Bank of England?

          Dennis Coyne, 12/02/2015 at 8:30 am
          Hi Rune,

          Yes I did. Under normal circumstances the supply of money is primarily influenced by the interest rate that is paid by commercial banks for money borrowed from the central bank. When the economy is in a severe recession and this interest rate falls to the "effective lower bound" (about 0.5%), the central bank loses its ability to increase the supply of money through lower interest rates.

          Under these circumstances the central bank will buy assets (government bonds) to increase the money supply, it does not sell assets to reduce the money supply, it simply raises the interest rate it charges the commercial banks.

          Dennis Coyne, 12/02/2015 at 8:18 am
          Hi Rune,

          Thanks for that link, it is a nice review of how central banks influence the supply of money by setting the interest rate which banks must pay on money borrowed from the central bank, which feeds through to interest rates throughout the economy and affects saving and borrowing through market interest rates set by banks.

          I would encourage Javier to read that link as it addresses many misconceptions about money.

          Glenn Stehle, 12/01/2015 at 10:00 am
          Dennis,

          You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined using an intrinsic theory of value - the toe of energy.

          If you want to compare apples to apples, then you have to compare GDP to the market value of the energy used.

          Dennis Coyne, 12/01/2015 at 1:41 pm
          Hi Glenn,

          If we are concerned the energy constraints will limit real GDP, then the amount of energy consumed per unit of GDP produced is very relevant in my view.

          It is not a comparison, it is a measure of energy intensity and how it has changed over time. See

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

          I have simply charted the World Energy Intensity from 1965 to 2014.

          Glenn Stehle, 12/01/2015 at 10:17 pm
          Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and cents, not dollars and cents to toe.

          There was a time (1970 to 2010) when the EIA published the total amount spent in the United States on energy. I have plotted the ratio of total spent on energy to total nominal GDP for those years. This is a true measure of "energy intensity," as it compares apples to apples, and does not omit the price of energy as your graph does.

          I have added YOY growth in real GDP (calculated using constant 2009 dollars).

          I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then the economy began having convulsions.

          The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period of low and generally declining energy intensity. When energy intensity began increasing again, as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is this mere coincidence?

          Botton line: In my opinion not only is the quantity of energy (measured in toe) important to the performance of the economy, but the price of that energy is also important.

          Using your graph, which makes no allowance for the price of energy, it is easy to see how you have come to believe that the economy is decoupling from energy.

          Dennis Coyne, 12/02/2015 at 8:52 am
          Hi Glenn,

          It is not a comparison of money spent, energy intensity is defined as energy consumed per unit of output (measured in dollars) as there are many different goods and services and their monetary value is measured in constant dollars.

          The difficulty with using price is that there are many different forms of energy (oil, coal, natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the "primary energy" category. Note that your chart shows only one country not the world. I would present a chart for the World if I had it, I am using the data I have for primary energy divided by real GDP. I think it is useful because it is energy contraints we are concerned about, currently some forms of energy (fossil fuels especially) have very low prices so in monetary terms money spent on Energy divided by real GDP would be quite low.

          Energy prices are quite volatile so I like the Energy intensity measure better as it shows energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or an average annual decrease of about 0.8% per year).

          Glenn Stehle, 12/02/2015 at 12:28 pm
          Dennis,

          I suppose price doesn't matter as long as one can get somebody else to pick up the tab.

          For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for the Bolt? Well then, no sweat!

          As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about how EVs are sweeping Norway.

          http://www.cbsnews.com/videos/how-electric-cars-are-taking-over-norways-roads/

          They interviewed one fellow who said he "had done the math" and will be able to drive his new EV "for free."

          So I did a little bit more digging, and sure 'nuf, it looks like he's right.

          According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last year their owners received $540,000 in various forms of rebates, tax breaks and other perks from the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take 4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving, all on the government's tab.

          http://www.wsj.com/articles/electric-car-perks-put-norway-in-a-pinch-1442601936

          But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are set to end. The day of reckoning is still up in the air, but the latest date for phasing out the government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV crowd, of course, isn't taking this horrible injustice lying down:

          Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association, said the 25,000-member association has been stalking political parties and government officials to ensure the main incentives remain in place, at least until 2020.

          "If you cut all the incentives overnight, sales will plummet," she said.

          Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014, estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700 fewer sales annually, as a result of the loss.

          Glenn Stehle, 12/02/2015 at 1:06 pm
          Edit

          Last year their owners received $540 million in various forms of rebates, tax breaks and other perks from the Norwegian state.

          Dennis Coyne, 12/02/2015 at 2:06 pm
          Hi Glenn,

          Do you have the price of primary energy from 1965 to 2014? I would be happy to do the chart you would like, but I don't know the appropriate price of energy, which has many different forms and prices throughout the World.

          I agree price matters, as does the amount of energy available to purchase (which is what is in my chart).

          Nick G, 12/02/2015 at 2:32 pm
          Glenn,

          You're looking at something different.

          The original study in question was asking about whether an economy can grow without increasing it's inputs of oil, steel, etc.*

          That's a very different question than whether an economy will be hurt by a sudden increase in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock for the economy (e.g., people wait to see what happens with prices before they buy their next vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption has gone up.

          -----------------
          * (it can, of course, but that's separate issue from whether our societies have chosen to do so).

          Ralph, 12/02/2015 at 8:46 am
          I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's take an example from the UK economy. (btw I am not worried about the genders here, I would happily be a house husband if my wife's earning potential was close to mine).

          Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable standard of living. As a result, a large majority of UK children grow up in families with both parents working. Many parents end up sending young children to child minders and crčches so that they can work. This employs a lot of people, mostly women. More wealthy families then employ house cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't have time to do themselves. Poorer people do without. This employs a lot more people. All the working women and the people employed by the working women pay taxes which means that people end up working more hours to afford to pay someone else to do these jobs than it would take to do the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay to do the jobs, you would be financially better off doing it yourself. The government and the economists are delighted because tax take and GDP rise. All these extra people in useful employment driving around from low skilled job to to low skilled job, consuming extra resources, especially fossil fuels, when they would be a lot less stressed, more free time and financially better off, just doing all these activities for themselves.

          It is a major mistake to professionalise low skilled domestic work. All it does is free up time for the rich and increases government tax take. Society as a whole is worse off.

          Dennis Coyne, 12/02/2015 at 10:14 am
          Hi Ralph,

          I agree GDP is by no means a perfect measure, just a measure that is available at the World level. There are other measures such as the social progress index, but this is not available at the World level. There is also the United Nations Human Development Index(HDI), but again these measures are not published at the World level (or I couldn't find it). Actually I found some World data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:

          http://hdr.undp.org/en/content/table-2-human-development-index-trends-1980-2013
          Discussion of HDI at

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

          Also from UN document:

          Human Development Index (HDI): A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living. See Technical note 1 (http://hdr.undp.org/en) for details on how the HDI is calculated.

          Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based on the HDI, more energy is needed to improve well being and GDP is not a good measure of human welfare.

          There is also an index for HDI that takes account of inequality, but the index (called IHDI) is only available from 2010 to 2013.

          [Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
          "... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
          "... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
          "... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned:

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          NeqNeq, November 21, 2015 at 11:44 am

          One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock?

          Dumping cash into plants only makes sense in the places where the market is growing. For many years that has meant Asia (China). For example, Apple gets 66% (iirc) of revenue from Asia, and that is where they have continued investing in growth. If demand is slowing and costs are rising, and it looks like both are true, why would you put even more money in?

          Dumping money into R&D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R&D cash is hidden inside M&A. M&A is up 2-3 years in a row.

          [Nov 30, 2015] Secular stagnation and the financial sector

          Notable quotes:
          "... Surely the answer is "risk transfer" ..."
          "... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
          "... the FIRE sector in particular, are parasitic on the economy. ..."
          "... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
          "... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
          "... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
          "... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
          "... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
          "... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
          November 29, 2015 | Crooked Timber

          In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

          The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn't produce much in the way of new private investment.
          This isn't an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it? I'm still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

          First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          (b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities. Most of the savings in tax is captured in the financial sector itself, but the amount flowing to corporations is sufficient to offset the high costs of the modern financial sector, relative to (for example) old-style bank finance and simple corporate structures financed by debt and equity

          (c) Volatility: the financialization of the economy has produced greatly increased volatility (in exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility, partly through regulatory arbitrage, and partly through entrenched and systematic fraud as in the LIBOR and Forex scandals.

          (d) Political capture: The financial sector controls political outcomes in both traditional ways (political donations, highly revolving door jobs for future and former politicians) and through the ideology of market liberalism, which is perfectly designed to support policies supporting the financial sector, while discrediting policies traditionally sought by other parts of the corporate sector, such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed in the previous post is part of this. The construction part of the infrastructure sector (which was always private) has suffered from the reduced flow of projects, but the finance part (previously managed through government bonds) has benefited massively.

          The result of all this is that the financial sector benefits from an evolutionary strategy similar to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires which kill competing species, and allow the eucalypts to extend their range.

          dsquared 11.29.15 at 1:24 pm

          Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision. Their role is to provide insurance to the rest of society and this is what they did – in fact, they provided too much of it, with too little capital which is why they went bust, and why their bankruptcy was so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised feature of the period of financialisation was the Great Moderation – in fact, the financial sector stored up volatility that would otherwise have been experienced by other people, including the intermediation of some genuinely historically massive imbalances associated with the industrialisation of China, and stored it up until it couldn't hold any more and exploded.

          I also don't think LIBOR and FX fit into that pattern at all very well either. Financial systems have two kinds of problem, which is why they often have two kinds of regulators. They have prudential problems and conduct problems. Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very much more a case of customers who wanted the benefits of tight regulation but didn't want to pay for them, and were lucky enough to find a political moment in which the time was right for an otherwise very unpromising case.

          In other words, the answer to all your questions is "leverage". That's why financial systems grew so fast, that's why they're associated with poor economic performance, and that's why they tend to show up in periods of secular stagnation – a secular stagnation is almost defined as a period during which people try to maintain their standard of living by borrowing. Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment.

          [1] I am never going to shut up about this. The real estate bubble was a policy-created bubble. It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the blow of the tech bust. If the financial sector had refused to finance it, the financial sector would have been trying to run a monetary policy directly opposed to that of the central bank.

          John Quiggin 11.29.15 at 1:55 pm 2

          I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial sector did a lot to insure households against most of the additional risk, or that the Great Moderation corresponded to a reduction in the volatility faced by households. On the first point, despite massive financial innovation since 1980, the set of financial instruments easily available to households hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage outcomes and home equity insurance hasn't really happened either.

          Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Eggplant 11.29.15 at 2:04 pm, 3

          (e) Principle-agent problem.
          (f) Implicit government backing allowing the underpricing of risk.

          dsquared 11.29.15 at 2:32 pm. 4

          Yeah, that's my point – the massive extension of credit to households was the financial sector's role in the big policy shift. At the end of the day, although we might with the benefit of hindsight agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid product that should never have been offered, they were a brand new financial product that had never been offered to households before! Even the example you mention – "insurance against bad employment and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.

          I guess my argument here is that it's the combination of deregulation and stagnation that was necessary to create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector. Because the high debt levels were a policy goal (or at least, were the inevitable and forseeable consequence of trying to do demand management without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt ratio by only doing sensible things.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded to monetary policy because there's no interest rate at which it makes sense to produce goods that can't be sold.

          DrDick 11.29.15 at 2:32 pm 5

          Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow unchecked, as they have now.

          Eggplant 11.29.15 at 2:37 pm 6

          (g) Rising inequality leading to an ever increasing savings glut, providing the financial industry with a target-rich environment.

          yastreblyansky 11.29.15 at 3:22 pm, 7

          Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth?

          T 11.29.15 at 3:31 pm, 8

          "But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector."

          A more sophisticated version of the widely debunked theory that Fannie and Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers' fault. Rule 2: see Rule 1. At least d-squared has been consistent…

          Or maybe there has been a systematic continuous effort to use political influence to garner rents by gutting both the regulatory and judicial constraints on their behavior. http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

          yastreblyansky 11.29.15 at 3:35 pm, 9

          Or rather through which rent-claimers concentrate wealth (@t) bringing long-term low growth.

          bjk 11.29.15 at 3:43 pm, 10

          Which direction is financialization heading? It looks to be decreasing. The mutual fund industry is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this). Banks are earnings low single digit returns in their trading divisions, which suggests they will be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself, with a little help from Elizabeth Warren.

          T 11.29.15 at 4:50 pm, 16

          There were several issues and arguments posed in the OP. I'm addressing this:

          "First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?
          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts."

          D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize"; "the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble was a policy-created bubble."

          So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh? Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation." In fact, tell 'um frickin' anything. It just wasn't our fault.

          Rakesh Bhandari 11.29.15 at 4:51 pm, 17

          I know that I shall have to read John Kay's Other People's Money at some point. I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit as a way to understand some financial sector activity. I posted this here a few years back.

          Here's his example, and I am trying to figure out to the extent that it throws light on the recent activity of Wall Street.

          Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000 marks with the average profit of 15 percent.

          With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated price of 3,000,000 marks (150,000/.05=3,000,000 marks)

          A deduction of 20,000 marks for the various administration costs and directors fees would make the actual payment to shareholders 130,000 rather 150,000 marks

          A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating the actual stock price

          So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks

          This 900,000 is free after deducting the initial investment of 1,000,000 marks

          The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of profit-bearing capital into interest bearing capital.

          In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned by the promoter by selling of stocks or the securitizing of income on the capital market.

          For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing capital, claims the promoters profit.

          The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's and others' thoughts about this.

          As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans, student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens, radio tower loans, boat loans, state revenues, the royalties of rock bands!

          We have seen, in their words, an explosion in the selling of future income of dependable projected revenue streams such as rents or interest payments on mortgage payments as securities.

          That securitization been driven by investors' quest for yield lift given the low rate of interest, itself the result of the global savings glut and Fed policy.

          And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate value from the purchasers of securities by understating the risk premia.

          The risk premium and promoters' profit are inversely correlated so there is a strong incentive to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.

          Aaron Brown 11.29.15 at 5:43 pm. 18
          I sincerely do not understand your point here. I'm not arguing, just asking for clarification:

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but certainly the Internet and housing bubbles were more productive and less threatening than the commodity, Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could certainly keep a straight face while saying that in the last 20 years financial volatility inflicted less real economic damage than in the preceding 20 years.

          But the bigger issue is no one claims the financial system encourages steady growth. Creative (bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation, loss of freedom and other consequences.

          If you want to argue that the financial system did not earn its profits in the last 20 years, it seems to me you have to argue that economic growth was slow, or that more people in the world are in poverty today, or that there was not enough innovation; not that the ride was too volatile. Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?

          It is certainly possible to argue that we could have had more growth and innovation and poverty reduction; and less volatility; with some third way that's better than both our current financial system and the alternatives practiced in the world today. But that point is not so obvious that any defender of the global financial system must be joking.

          Why do you think the booms and busts of the last 20 years are such a clear and damning indictment of the financial system that the point needs no further elaboration?

          Bruce Wilder 11.29.15 at 6:11 pm, 19

          The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary.

          There are really complicated ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the informational efficiency of financial markets).

          I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources into productive capital assets that represent financial claims on the additional income generated by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory manipulations of an emergent neo-feudalism.

          Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying, there are currently few opportunities to invest in additional productive "real" capital stock. For technological reasons, the new systems require much less capital than the old systems, so when an old telephone company replaces its expensive copper wire with fiber optics and cellphone towers, it may be able to fund a large part of the transition out of current cash-flow, even while maintaining the value of the bonds that once represented investment in a mountain of copper, but are now just rentier claims on an obsolete world.

          In the brave new world, a handful of companies, who have lucked into commercial positions with high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital, but their distribution of cash to people who don't need it, is generating a lot of demand for "financial product". The rest of the business world is just trying to manage a slow decline, able to throw off modest amounts of cash, desperate to find sources of political power that might yield reliable rents, but without opportunities to innovate that would actually require net investment in excess of current cashflows from operations.

          So, the financial system is just responding to this enlarged demand for non-productive investment in financial products that generate return from parasitic extraction.

          In the interest of parasitic extraction, the financial system pursues the politics of neoliberal privatization as a means of generating financial products to satisfy demand.

          Does that sound like a plausible narrative?

          Dipper 11.29.15 at 6:30 pm, 20

          re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse risk and so provide liquidity. One consequence was volatility was recorded because liquid markets allowed prices to be observed.

          Regulators have observed the conflict of interest caused by banks providing a financial service but also participating in the markets with their own money, and have acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine, but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There may well be more of this to come.

          Sebastian H 11.29.15 at 6:34 pm, 21
          "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision."

          I can't tell if you are arguing with John or agreeing with him. Is this agreement with his d) [the political capture explanation]? I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was the obvious conduit because they were among the important authors of the ideas?

          MisterMr 11.29.15 at 6:50 pm, 22

          Previously commented here as Random Lurker.

          In my opinion, finance had a passive role in the build up of the crisis.
          Others have said similar things uptread, however this is my opinion:

          1) the wage share of GDP depends largely on political choices; since the late seventies there has been a trend of a falling wage share more or less everywhere, as countries with a lower wage share are more competitive on the world market.
          2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their profits, so a falling wage share caused a worldwide saving glut.
          3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution chains or of famous consumer brands).
          4) this in turn causes an increased volatility of financial markets, and worse financial crises.

          This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide wage share.
          Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market" has any mechanism to push up said wage share.

          Rakesh Bhandari 11.29.15 at 7:08 pm, 23

          Bruce,
          What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to be maintained with "an abundance of capital and its need for high rates of return." (Understanding Piketty's Capital in the Twenty First Century).

          It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns are actually to be made. To the extent that he considers production it is through marginal productivity theory. Piketty claims that marginal rate of substitution of capital for labor will remain above unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used Sraffian theory to show the possibilities of high profits in even a fully automated economy).

          Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman also implies that Piketty also does not consider how finance can make higher rates of return by making higher-interest loans to weaker parties while having them absorb most of the risk (this would be your second kind of investment).

          Search for the several paragraphs on the rentier in this section. It is remarkable that no one has yet compared Piketty's criticism of the rentier to this.
          https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/introduction.htm

          felwith 11.29.15 at 8:31 pm, 24

          " I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns."

          Of course not, but there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker health insurance, which was carried out by their employers. While I doubt I could pick a bank owner out of a lineup filled out with captains of industry, they aren't actually interchangeable.

          Peter K. 11.29.15 at 9:43 pm, 25

          @1 Dsquared:

          "Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment."

          Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate demand for full employment and target inflation.

          Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers are buying their way into politics:

          http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

          The question about Dsquare's alternate history I would have is: what is the response of fiscal and monetary policy to the "domestication" of the financial sector via higher capital requirements and leverage regulations, etc.?

          If fiscal and monetary policy keeps the economy at a high-pressure level with full employment and rising wages, I don't see why secular stagnation is a problem.

          But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit their inflation target in a timely matter.

          Ze K 11.29.15 at 9:53 pm, 27

          My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it.

          [Nov 26, 2015] Incorporating the Rentier Sectors into a Financial Model

          Notable quotes:
          "... Finance is not The economy ..."
          "... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."
          "... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."
          "... even government tax revenue is diverted to pay debt service ..."
          "... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."
          economistsview.typepad.com

          RGC said in reply to JF... November 25, 2015 at 08:34 AM

          Incorporating the Rentier Sectors into a Financial Model

          Wednesday, September 12, 2012

          by Dirk Bezemer and Michael Hudson

          As published in the World Economic Association's World Economic Review Vol #1.

          .......

          2. Finance is not The economy

          In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with lending to the real sector, which has remained about constant relative to GDP. This is how our debt burden has grown.

          Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007

          Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.

          What is true for America is true for many other countries: mortgage lending and other household debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for Australia. Extending credit to purchase assets already in place bids up their price. Prospective homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from being spent on consumption or new capital investment. The effect is deflationary for the economy's product markets, and hence consumer prices and employment, and therefore wages. This is why we had a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.

          Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment.

          Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.

          It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is, pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks (mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard to find an example where rentier income and prices have diverged more sharply from wages and the "real" production economy.

          The more credit creation takes the form of inflating asset prices – rather than financing purchases of goods and services or direct investment employing labor – the more deflationary its effects are on the "real" economy of production and consumption. Housing and other asset prices crash, causing negative equity. Yet homeowners and businesses still have to pay off their debts. The national income accounts classify this pay-down as "saving," although the revenue is not available to the debtors doing the "saving" by "deleveraging."

          The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out home-equity loans, was not really like drawing down a bank account at all. When a bank account is drawn down there is less money available, but no residual obligation to pay. New income can be spent at the discretion of its recipient. But borrowing against a home implies an obligation to set aside future income to pay the banker – and hence a loss of future discretionary spending.

          3. Towards a model of financialized economies

          Creating a more realistic model of today's financialized economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole.

          http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

          pgl said in reply to anne...

          Peter Dorman's excellent rebuttal of John Harwood:

          http://econospeak.blogspot.com/2015/11/tax-policy-and-magic-investment-channel.html

          [Nov 22, 2015] The Political Aftermath of Financial Crises Going to Extremes

          Notable quotes:
          "... The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. ..."
          "... In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster. ..."
          "... If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them. ..."
          "... The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce. ..."
          "... Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate. ..."
          "... So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization". ..."
          Nov 22, 2015 | Economist's View

          mrrunangun:

          Given that honesty in politics and government is relative, I wonder if relatively honest politics and relatively honest regulation of financial systems prevents financial crises.

          pgl

          Hillary Clinton hedges on a key issue:

          http://talkingpointsmemo.com/news/hillary-clinton-break-up-big-banks

          She says she would break up the mega banks ... if needed. It is needed - so no hedging on this issue.

          JohnH -> pgl...

          Once again pgl shows how gullible he is...believing what Hillary says not what she has done. What has she done? Well, Wall Street made her a millionaire.

          http://money.cnn.com/2015/10/13/investing/hillary-clinton-wall-street/

          Second, she announced her run for Senator from New York (Wall Street) immediately after Bill did Wall Street the mother of all favors...ending Glass-Steagall. In his naivete, pgl certainly believes that there was no quid pro quo!!!

          Third, lots of people doubt whether she can be trusted to rein in Wall Street.
          http://www.nytimes.com/2015/11/22/us/politics/wall-st-ties-linger-as-image-issue-for-hillary-clinton.html?_r=0

          Of course, pgl believes lots of silly things...like his claim that Obama never proposed and signed off on austerity in 2011...or that he has proposed cutting Social Security...or that trickle down monetary policy hasn't overwhelmingly benefited the 1%.

          I wonder when somebody will finally get to sell him the Brooklyn Bridge [better act now, pgl, get a really cheap loan while you still can!!!]

          JohnH -> JohnH...

          pgl thinks that Obama NEVER proposed cutting Social Security's! What a rube!

          anne:

          http://www.voxeu.org/article/political-aftermath-financial-crises-going-extremes

          November 21, 2015

          The political aftermath of financial crises: Going to extremes
          By Manuel Funke, Moritz Schularick, and Christoph Trebesch

          Implications

          The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. These developments likely hinder crisis resolution and contribute to political gridlock. The resulting policy uncertainty may contribute to the much-debated slow economic recoveries from financial crises.

          In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster.

          anne -> anne...

          What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries. Leadership changes struck me as moderate, even moderate in beset Greece as the political stance of Syriza which looked to be confrontational with regard to the other eurozone countries quickly became accepting.

          European developed country governments have been and are remarkably stable. Japan has been stable. There is political division in the United States, but I do not attribute that to the financial crisis or recession but rather to social divisions.

          The essay is just not convincing.

          likbez said...

          "What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries"

          If you mean that the goal of the state is providing unconditional welfare for financial oligarchy (which actually is true for neoliberalism), then I would agree.

          But if you use any common sense definition of "restrained" this is a joke. Instead of sending criminals to jail they were awarded with oversized bonuses.

          I think the authors are way too late to the show. There is no much left of the New Deal anyway, so radicalization of the US society was a fait accompli long before crisis of 2008.

          If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them.

          The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce.

          Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate.

          So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization".

          [Nov 21, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned...

          ... ... ...

          Selected Skeptical Comments

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          [Nov 21, 2015] On the Lack of Courage in Regulators

          Notable quotes:
          "... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."
          "... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."
          Nov 21, 2015 | naked capitalism
          I'm embedding the text of a short but must-read speech by Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct and activities currently under investigation.

          Jenkins points out that regulatory reform has fallen short on multiple fronts, and perhaps the most important is courage. Readers may understandably object to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person, and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.

          Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not obvious how to reverse the corrosion of our collective values. But it is important to remember than norms can shift much faster than most people think possible, with, for instance, the 1950s followed by the radicalism and shifts in social values of the 1960s, which conservative elements are still fighting to roll back.

          Michael G

          A link to a text version of the speech for those with uncooperative computers
          http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
          Worth reading

          James Levy

          We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness and civic virtue that gives you courage. The author thinks the system needs courageous people, but posits no conception of where they would come from and how they would thrive in the current system (news flash: they won't). So this is a classic "I see the problem clearly but can't see that the solution is impossible under the current system" piece.

          TMock

          Agreed.

          For those who desire real solutions, try this…

          The Universal Principles of Sustainable Development

          http://www.triplepundit.com/2011/02/universal-principles-sustainable-development/

          Norb

          In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the two of them entertained throughout the years concerning which trait, Love or Courage, was more important in realizing a full life. Angelou argued that acting courageously was the most important. Smiley saw love as the moving force. While important and moving, the discussion has the dead-end quality of not being able to move past the current system of injustice. I say this because in the end, both support incremental change to the existing system as the means to bring about social justice. The powerful elite have perfected the manipulation of incremental change to render it powerless.

          When trying to change a social system, courage is needed. Courage to form a vision of the future that is based on public-mindedness and civic virtues that bring justice into the world. Our current leaders are delivering the exact opposite of civic justice. Its time to call them out on their duplicity, and ignore their vision of the future.

          The courage that is needed today is not the courage to stand up to the criminals running things and somehow make them change. It is the courage to make them irrelevant. Change will come from the bottom up, one person at a time.

          cnchal

          And when one shows up, look what happens.

          The disturbing fact is that laws have been broken but law breaking has not touched senior management.

          If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively, if the deserving dozens have indeed been banned from the field let the list be known – that we might see some of that "professional ostracism" of which Governor Carney speaks. One person who did lose his position and quite publicly at that was Martin Wheatley, the UK's courageous conduct enforcer.

          Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains in situ – despite having been on the board since 1995; despite having signed off on the acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered was among the first to be investigated for violations of rogue regime sanctions. The bank was fined heavily and may be so again.

          Courageous people get fired, which leads to no courageous people left.

          GlassHammer

          Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along.

          susan the other

          By extreme necessity (created by total dysfunction) we will probably wind up with planned and coordinated economies that do not rely on speculation & credit to come up with the next great idea. Those ideas will be forced to come from the top down. And the problems of unregulated capitalism frantically chumming for inspiration and extreme profits will shrink back down from a world-eating monster to just a fox or two.

          Oliver Budde

          It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment.

          Malcolm MacLeod, MD

          Oliver: I believe that you hit the nail on the head, and
          I wholeheartedly agree.

          [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 18, 2015] Can Anything Stop Companies From Loading Up on Debt UBS Says No.

          Notable quotes:
          "... When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower, they wrote. ..."
          "... That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. ..."
          "... Might the rating agencies spoil the party? they asked. In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call). ..."
          "... With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor] ..."
          finance.yahoo.com

          It's no secret that companies have been taking advantage of years of low interest rates to sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go on a spree of share buybacks and mergers and acquisitions.

          With fresh evidence that investors are becoming more discerning when it comes to corporate credit as they approach the first interest rate rise in the U.S. in almost a decade, it's worth asking whether anything might stop the trend of companies assuming more and more debt on their balance sheets.

          ... ... ...

          For a start, they note that higher funding costs are unlikely to dissuade companies from continuing to tap the debt market since, even after a rate hike, financing costs will remain near historic lows. "The predominant reason is the Fed[eral Reserve] is anchoring low interest rates," the analysts wrote.

          When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. "We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower," they wrote. "Several management teams have been on the road indicating higher funding costs of up to 100 to 200 basis points would not impede attractive M&A deals, in their view."

          Higher market volatility has often been cited as one factor that could knock the corporate credit market off its seat...

          That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. Here, Mish and Caprio offered some stunningly blunt words. "Might the rating agencies spoil the party?" they asked. "In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call)."

          With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor]

          "Bottom line, we struggle to envision an end to the releveraging phenomenon-absent a substantial correction in corporate earnings and/or broader risk assets," concluded the UBS analysts.

          [Nov 15, 2015] Election 2016 Democratic debate transcript Clinton, Sanders, OMalley in Iowa

          Hillary tried to play the gender card and the 9/11 card in an attempt to escape to accusation (actually a provable fact) that she is a Wall Street sheel. "Why has Wall Street been the major campaign contributor to Hillary Clinton?" Sanders asked loudly, concluding that big contributors only give because "They expect to get something. Everybody knows it."
          ...Clinton asserted that under her bank-regulation plan, if Wall Street institutions don't play by the rules "I will break them up."
          Sanders minced her defense into peaces: "Wall Street play by the rules? Who are we kidding?! The business model for Wall Street is fraud," Sanders fired back.
          A short time later, the moderators got a tweet calling her out for "invoking 9/11" to justify taking donations from Wall Street. One tweeter said they'd never seen a candidate "invoke 9/11 to champion Wall Street. What does that have to do with taking big donations," Clinton was asked.
          Sanders said that there's no getting around the fact that Wall Street has become a dominant political power and its "business model is greed and fraud, and for the sake of our economy major banks must be broken up."
          Bernie compared himself to Ike, scoring one of the few real laugh lines of the night. CBS News moderator Nancy Cordes asked Sanders how he's going to pay for expensive programs such as his tuition-free college plan. By taxing the wealthy and big corporations, he says. Asked how much of a tax hike he's planning to stick them with, he responded, "We haven't come up with an exact number yet … But it will not be as high as the number under Dwight D. Eisenhower which was 90%," Sanders said of the Republican president.
          "I'm not that much of a socialist compared to Eisenhower," Sanders concluded, to guffaws from the crowd.
          CBS News

          JOHN DICKERSON:

          Senator Sanders, let me just follow this line of thinking. You've criticized then Senator Clinton's vote. Do you have anything to criticize in the way she performed as secretary of state?

          BERNIE SANDERS:

          I think we have a disagreement. And-- the disagreement is that not only did I vote against the war in Iraq, if you look at history, John, you will find that regime change-- whether it was in the early '50s in Iran, whether it was toppling Salvador Allende in Chile or whether it was overthrowing the government Guatemala way back when-- these invasions, these-- these toppling of governments, regime changes have unintended consequences. I would say that on this issue I'm a little bit more conservative than the secretary.

          JOHN DICKERSON:

          Here, let me go--

          MARTIN O'MALLEY:

          John, may I-- may I interject here? Secretary Clinton also said that we left the h-- it was not just the invasion of Iraq which Secretary Clinton voted for and has since said was a big mistake, and indeed it was. But it was also the cascading effects that followed that.

          It was also the disbanding of-- many elements of the Iraqi army that are now showing up as part of ISIS. It was-- country after country without making the investment in human intelligence to understand who the new leaders were and the new forces were that are coming up. We need to be much more far f-- thinking in this new 21st century era of-- of nation state failures and conflict. It's not just about getting rid of a single dictator. It is about understanding the secondary and third consequences that fall next.

          JOHN DICKERSON:

          Governor O'Malley, I wanna ask you a question and you can add whatever you'd like to. But let me ask you, is the world too dangerous a place for a governor who has no foreign policy experience?

          MARTIN O'MALLEY:

          John, the world is a very dangerous place. But the world is not too dangerous of a place for the United States of America provided we act according to our principles, provided we act intelligently. I mean, let's talk about this arc of-- of instability that Secretary Clinton talked about.

          Libya is now a mess. Syria is a mess. Iraq is a mess. Afghanistan is a mess. As Americans we have shown ourselves-- to have the greatest military on the face of the planet. But we are not so very good at anticipating threats and appreciating just how difficult it is to build up stable democracies and make the investments in sustainable development that we must as the nation if we are to attack the root causes of-- of the source of-- of instability.

          And I wanted to add one other thing, John, and I think it's important for all of us on this stage. I was in Burlington, Iowa and a mom of a service member of ours who served two duties in Iraq said, "Governor O'Malley, please, when you're with your other candidates and colleagues on-- on stage, please don't use the term boots on Iraq-- on the ground. Please don't use the term boots on the ground. My son is not a pair of boots on the ground."

          These are American soldiers and we fail them when we fail to take into account what happens the day after a dictator falls. And when we fall to act with a whole of government approach with sustainable development, diplomacy and our economic power in-- alignment with our principles.

          BERNIE SANDERS:

          But when you talk about the long-term consequences of war let's talk about the men and women who came home from war. The 500,000 who came home with P.T.S.D. and traumatic brain injury. And I would hope that in the midst of all of this discussion this country makes certain that we do not turn our backs on the men and women who put their lives on the line to defend us. And that we stand with them as they have stood with us.

          JOHN DICKERSON:

          Senator Sanders, you've-- you've said that the donations to Secretary Clinton are compromising. So what did you think of her answer?

          BERNIE SANDERS:

          Not good enough. (LAUGH) Here's the story. I mean, you know, let's not be naive about it. Why do-- why over her political career has Wall Street a major-- the major-- campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're gonna get. But I don't think so.

          Here is the major issue when we talk about Wall Street, it ain't complicated. You got six financial institutions today that have assets of 56 per-- equivalent to 50-- six percent of the GDP in America. They issue two thirds of the credit cards and one third of the mortgages. If Teddy Roosevelt, the good republican, were alive today you know what he'd say? "Break them up. Reestablish (APPLAUSE) (UNINTEL) like Teddy Roosevelt (UNINTEL) that is leadership. So I am the only candidate up here that doesn't have a super PAC. I'm not asking Wall Street or the billionaires for money. I will break up these banks, support community banks and credit unions-- credit unions. That's the future of banking in America.

          JOHN DICKERSON:

          Quick follow-up because you-- you-- (APPLAUSE) Secretary Clinton, you'll get a chance to respond. You said they know what they're going to get. What are they gonna get?

          BERNIE SANDERS:

          I have never heard a candidate, never, who's received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate, go, "OH, these-- these campaign contributions will not influence me. I'm gonna be independent." Now, why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that. Once again, I am running a campaign differently than any other candidate. We are relying on small campaign donors, $750,000 and $30 apiece. That's who I'm indebted to.

          BERNIE SANDERS:

          Here's-- she touches on two broad issues. It's not just Wall Street. It's campaigns, a corrupt campaign finance system. And it is easy to talk the talk about ending-- Citizens United. But what I think we need to do is show by example that we are prepared to not rely on large corporations and Wall Street for campaign contributions.

          And that's what I'm doing. In terms of Wall Street I respectfully disagree with you, Madame Secretary in the sense that the issue is when you have such incredible power and such incredible wealth, when you have Wall Street spending five billion dollars over a ten year period to get re-- to get deregulated the only answer that I know is break them up, reestablish Glass Steagall.

          JOHN DICKERSON:

          Senator, we have to get Senator O'Malley in. But no-- along with your answer how many Wall Street-- veterans would you have in your administration?

          MARTIN O'MALLEY:

          Well, I'll tell you what, I've said this before, I-- I don't-- I believe that we actually need some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisors.

          HILLARY CLINTON:

          Anyone (UNINTEL PHRASE).

          MARTIN O'MALLEY:

          If they were architects, sure, we'll-- we'll have-- we'll have an inclusive group. But I won't be taking my orders from Wall Street. And-- look, let me say this-- I put out a proposal-- I was on the front line when people lost their homes, when people lost their jobs.

          I was on the front lines as the governor-- fighting against-- fighting that battle. Our economy was wrecked by the big banks of Wall Street. And Secretary Clinton-- when you put out your proposal (LAUGH) on Wall Street it was greeted by many as quote/ unquote weak tea. It is weak tea. It is not what the people expect of our country. We expect that our president will protect the main street economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern version of Glass Steagall and we should have done it already. (APPLAUSE)

          KATHIE OBRADOVICH:

          And I will also go after executives who are responsible for the decisions that have such bad consequences for our country. (APPLAUSE)

          BERNIE SANDERS:

          Look, I don't know-- with all due respect to the secretary, Wall Street played by the rules. Who are we kidding? The business model of Wall Street is fraud. That's what it is. And we-- we have-- (APPLAUSE) and let me make this promise, one of the problems we have had I think all-- all Americans understand it is whether it's republican administration or democratic administration we have seen Wall Street and Goldman Sachs dominate administrations. Here's my promise Wall Street representatives will not be in my cabinet. (APPLAUSE)

          BERNIE SANDERS:

          But let's-- let me hear it-- if there's any difference between the secretary and myself. I have voted time and again to-- for-- for the background checks. And I wanna see it improved and expanded. I wanna see them do away with the gun show loophole. In 1988 I lost an election because I said we should not have assault weapons on the streets of America.

          We have to do away with the strong man proposal. We need radical changes in mental health in America. So somebody who's suicidal or homicidal can get the emergency care they need. But we have-- I don't know that there's any disagreement here.

          MARTIN O'MALLEY:

          John, this is another one of those examples. Look, we have-- we have a lot of work to do. And we're the only nation on the planet that buries as many of our people from gun violence as we do in my own state after they-- the children in that Connecticut classroom were gunned down, we passed comprehensive-- gun safety legislation, background checks, ban on assault weapons.

          And senator, I think we do need to repeal that immunity that you granted to the gun industry. But Secretary Clinton, you've been on three sides of this. When you ran in 2000 you said that we needed federal robust regulations. Then in 2008 you were portraying yourself as Annie Oakley and saying that we don't need those regulation on the federal level. And now you're coming back around here. So John, there's a big difference between leading by polls and leading with principle. We got it done in my state by leading with principle. And that's what we need to do as a party, comprehensive gun--

          MARTIN O'MALLEY:

          John, there is not-- a serious economist who would disagree that the six big banks of Wall Street have taken on so much power and that all of us are still on the hook to bail them out on their bad debts. That's not capitalism, Secretary Clinton-- Clinton, that's crummy capitalism.

          That's a wonderful business model if you place that bet-- the taxpayers bail you out. But if you place good ones you pocket it. Look, I don't believe that the model-- there's lots of good people that work in finance, Secretary Sanders. But Secretary Clinton, we need to step up. And we need to protect main street from Wall Street. And you can't do that by-- by campaigning as the candidate of Wall Street. I am not the candidate of Wall Street. And I encourage--

          BERNIE SANDERS:

          No, it's not throwing-- it is an extraordinary investment for this country. In Germany, many other countries do it already. In fact, if you remember, 50, 60 years ago, University of California, City University of New York were virtually tuition-free. Here it's a new (?) story.

          It's not just that college graduates should be $50,000 or $100,000 in debt. More importantly, I want kids in Burlington, Vermont, or Baltimore, Maryland, who are in the six grade or the eighth grade who don't have a lot of money, whose parents that-- like my parents, may never have gone to college. You know what I want, Kevin? I want those kids to know that if they study hard, they do their homework, regardless of the income of their families, they will in fact be able to great a college education. Because we're gonna make public colleges and universities tuition-free. This is revolutionary for education in America. It will give hope for millions of young people.

          BERNIE SANDERS:

          It's not gonna happen tomorrow. And it's probably not gonna happen until you have real campaign finance reform and get rid of all these super PACs and the power of the insurance companies and the drug companies. But at the end of the day, Nancy, here is a question. In this great country of ours, with so much intelligence, with so much capabilities, why do we remain the only (UNINTEL) country on earth that does not guarantee healthcare to all people as a right?

          Why do we continue to get ripped off by the drug companies who can charge us any prices they want? Why is it that we are spending per capita far, far more than Canada, which is a hundred miles away from my door, that guarantees healthcare to all people? It will not happen tomorrow. But when millions of people stand up and are prepared to take on the insurance companies and the drug companies, it will happen and I will lead that effort. Medicare for all, single-payer system is the way we should go. (APPLAUSE)

          BERNIE SANDERS:

          Well-- I had the honor of being chairman of the U.S. Senate Committee on Veteran Affairs for two years. And in that capacity, I met with just an extraordinary group of people from World War II, from Korea, Vietnam, all of the wars. People who came back from Iraq and Afghanistan without legs, without arms. And I've been determined to do everything that I could to make VA healthcare the best in the world, to expand benefits to the men and women who put their lives on the line to defend (UNINTEL).

          And we brought together legislation, supported by the American Legion, the VFW, the DAV, Vietnam Vets, all of the veterans' organizations, which was comprehensive, clearly the best (UNINTEL) for veterans' legislation brought forth in decades. I could only get two Republican votes on that. And after 56 votes, we didn't get 60. So what I have to do then is go back and start working on a bill that wasn't the bill that I wanted.

          To (UNINTEL) people like John McCain, to (UNINTEL) people like Jeff Miller, the Republican chairman of the House, and work on a bill. It wasn't the bill that I wanted. But yet, it turns out to be one of the most significant pieces of veterans' legislation passed in recent history. You know, the crisis was, I lost what I wanted. But I have to stand up and come back and get the best that we could.

          JOHN DICKERSON:

          All right, Senator Sanders. We end-- (APPLAUSE) we've ended the evening on crisis, which underscores and reminds us again of what happened last night. Now let's move to closing statements, Governor O'Malley?

          MARTIN O'MALLEY:

          John, thank you. And to all of the people of Iowa, for the role that you've performed in this presidential selection process, if you believe that our country's problems and the threats that we face in this world can only be met with new thinking, new and fresh approaches, then I ask you to join my campaign. Go onto MartinOMalley.com. No hour is too short, no dollar too small.

          If you-- we will not solve our nation's problems by resorting to the divisive ideologies of our past or by returning to polarizing figures from our past. We are at the threshold of a new era of American progress. That it's going to require that we act as Americans, based on our principles. Here at home, making an economy that works for all of us.

          And also, acting according to our principles and constructing a new foreign policy of engagement and collaboration and doing a much better job of identifying threats before they back us into military corners. There is new-- no challenge too great for the United States to confront, provided we have the ability and the courage to put forward new leadership that can move us to those better and safer and more prosperous (UNINTEL). I need your help. Thank you very, very much. (APPLAUSE)

          BERNIE SANDERS:

          This country today has more income and wealth inequality than any major country on earth. We have a corrupt campaign finance system, dominated by super PACs. We're the only major country on earth that doesn't guarantee healthcare to all people. We have the highest rate of childhood poverty. And we're the only in the world, (UNINTEL) the only country that doesn't guarantee paid family and medical leave. That's not the America that I think we should be.

          But in order to bring about the changes that we need, we need a political revolution. Millions of people are gonna have to stand up, turn off the TVs, get involved in the political process, and tell the big monied interests that we are taking back our country. Please go to BernieSanders.com, please become part of the political revolution. Thank you. (CHEERING) (APPLAUSE)

          [Nov 14, 2015] Students across U.S. march over debt, free public college

          Neoliberal college is not about education. It is about getting wealthy a head start to enforce and strengthen separation between the elite and the rest. Other can only complain... But that e fact is the many large companies invite for interview for open positions only of Ivy Leagues graduates. Other do not need to apply. So it is mostly about "Class A" and "Class B" citizens. Talent and hard work can buy buy a ticket for vertical mobility (see some stories below), but that was true in any society. Actually mobility in the USA is below average, despite MSM non-stop brainwashing of the USA citizens about "the land of opportunities", the "American Dream", etc. And exorbitant salaries of University brass is a norm now. you can't change that without changing the neoliberal system as a whole. they are no longer bound by academic ethics. Like Wall Streeters, want to get the most of the life, no matter by what means (the end justifies the means mentality). They are masters of the universe. Others (aka suckers) can go to hell.
          Notable quotes:
          "... Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans. ..."
          "... I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO. ..."
          "... Ever visit a university in a country that has free college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for. ..."
          "... What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college. ..."
          "... College tuition cannot be allowed to just continue to escalate. ..."
          "... If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school. ..."
          "... I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. ..."
          "... If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault! ..."
          "... College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. ..."
          "... The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like chief diversity and inclusion officer and you have expensive college. ..."
          "... These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative. What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts? ..."
          "... Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. ..."
          Nov 14, 2015 | news.yahoo.com

          Students held rallies on college campuses across the United States on Thursday to protest ballooning student loan debt for higher education and rally for tuition-free public colleges and a minimum wage hike for campus workers.

          The demonstrations, dubbed the Million Student March, were planned just two days after thousands of fast-food workers took to the streets in a nationwide day of action pushing for a $15-an-hour minimum wage and union rights for the industry.

          About 50 students from Boston-area colleges gathered at Northeastern University carrying signs that read "Degrees not receipts" and "Is this a school or a corporation?"

          "The student debt crisis is awful. Change starts when people demand it in the street. Not in the White House," said Elan Axelbank, 20, a third year student at Northeastern, who said he was a co-founder of the national action.

          ... ... ...

          "I want to graduate without debt," said Ashley Allison, a 22-year-old student at Boston's Bunker Hill Community College, at the Northeastern rally. "Community college has been kind to me, but if I want to go on, I have to take on debt."

          Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans.

          ... ... ...

          Andrew Jackson

          Free taxpayer supported public education means more college administrators earning $200,000 or more, more faculty earning $100,000 or more working 8 months a year and more $300 textbooks. Higher education costs are a direct correlation to Federal Student Loans subsiding college bureaucracies, exorbitant salaries for college administrators and faculty.

          terrance

          What fantasy world do these people live in. There is nothing for free and if you borrow tens of thousands of dollars you can't expect later that someone else will pick up your tab. Pucker up bucky, it is your responsibility.

          Furthermore, a lot of this money didn't go to education. I have read where people went back to school so they could borrow money to pay their rent, or even their car payments. As for 15 dollars an hour to sling burgers, grow up.

          sjc

          Having been out of college for a few years, I am curious. I went to a State University. Tuition was high, I had to take loans, I drove a cheap 10 yr old vehicle, but it didn't kill me. My total debt was about the price of a decent new car back then.

          Today, the average student loan debt after graduation is just under $30,000. Around the price of a new car. And these kids are trying to tell us that this is too much of a burden??? Look around any campus these days, and you will see lots of $30,000 cars in the parking lots.

          I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO.

          Meed

          Careful what you wish for, kiddies. It's simple math and simple economics (things I learned in school while studying instead of protesting). Every university has a maximum number of students it can support, based on the number and capacity of dorms, classrooms, faculty, etc.

          The tuition rates have always closely matched the amount of easily-accessed loans available - the easier the access to loans, the higher tuition is. The simple reason is that the universities raise tuition rates to manage the demand for their limited resources, and can always raise rates when there is more demand than there are openings for incoming students.

          Thanks to the windfall from that high tuition, today's universities have student unions, recreation facilities, gyms, pools, and lots of amenities to attract students. Imagine what they will offer when they can't jack up the tuition. Ever visit a university in a country that has "free" college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for.

          matthew

          Oddly enough, a majority of these students attend colleges who has sport teams sponsored by Nike, Under Armour, Adidas, or Reebok. So, should theses companies atop providing the uniforms and equipment free of charge and donate the money to make more scholarships available? Then the student athletes can purchase their own gear on their own dime. Where one group attains, another must lose. Let this be debated on college campuses and watch the students divide themselves. We will find out what is most important to them.

          JB

          What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college.

          Some junk yard dog investigative journalist needs to dig into the rising cost of college education and identify the cause. Once the cause are understood then something can be done to make college more affordable. College tuition cannot be allowed to just continue to escalate.

          just sayin'

          Seriously how do we let our children out of high school without enough information to decide if going to college is actually a good investment? If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school.

          pcs

          I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. I mean, they had enough math skills to be accepted, then graduate, from college. If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault!

          E

          College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. If you tour colleges, and I toured many in the past few years with my kids, you don't see a classroom or lab unless you ask.

          The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like "chief diversity and inclusion officer" and you have expensive college.

          If students want a cheap education, go to the junior college for general ed classes then transfer to a four-year school. It is not glamorous but it yields a quality education without a fortune in debt.

          Rich

          Getting an education is obviously the biggest scam in history!!!! Look at who controls education. Look at all the Universities presidents last names then you will know what they are. I can't say it here on Yahoo because they will take my comments out for speaking the truth. These presidents make millions of $$$$$ a year off of students and parents who are slaves and work hard to pay those tuitions. Not only that but look at the owners last names of the Loan

          50 CAL

          Universities are money munching machines with no regard for how the students will repay the loans. Universities annually raise tuition rates(much of which is unnecessary) with no regard of how these young minds full of mush are going to repay the crushing debt, nor do they care. Locally one university just opened a 15 million dollar athletic center, which brings up the question, why did they need this? With that kind of cash to throw around, what wasn't at least some used to keep tuitions affordable?

          Mike D

          These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative.

          What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts?

          How are these loans to be made 'free' if existing loans bear interest? If the student of 'free education' defaults, doesn't graduate, will he owe money-will his parent, or will the 'free school' simply become a dumping ground for the youth without direction, simply housed in college's dorm rooms?
          Lots of questions and two things to keep in mind, the Banks and Teaching institutes love the idea of 'free', the students are believing there might be a free ride.. ignoring schools and Banks don't, won't and never do anything for free.

          This is not going to turn out well for consumers. Sure, Household payments of Education may drop, but the Institution of Education cannot keep even its slim success rate it has now. I don't know how educators managed to turn education into a purely self gratifying industry, giving anything to purchasers they wished for that Education loan, but never ever ever, has underwriting by the Central improved the quality of business. Complete underwriting of the important system of education at the Fed level will be a disaster.

          There will be almost zero accountability for institutes and students, we will have a more expensive system that turns out the worst grads.

          Don't try believing that other countries abilities with free Ed can be duplicated here.. not without serious socialism, a condition where qualifying for Ed advancement is determined by the Central.

          Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. Blanket quals are almost a condition here, American Students are in for a serious surprise. They will not be so able to buy/loan their way to college and have to excel to get into college.

          The joke is on the American student.

          Jim

          i was one of seven children- i worked my way through four years of undergrad and three years of grad school with my parents only being able to pay health insurance and car insurance- i worked shelving books, busing tables, delivering pizzas and for the last five years as a parimutuel clerk at dog and horsetracks- i never got to go on spring break, do a semester at sea or take classes in europe- i graduated debt free from public universities- have no sympathy for a bunch of whiny brats who have to drive better cars than their professors and believe they are entitled to special treatment- get a job and quit acting like a bunch of welfare queens who feel they deserve entitlements

          Linda

          My son is in college. Because grandpa saved his money over the years, he volunteered to pay for college costs. We hope to continue the tradition with our grandchildren and carefully save our money as well. We don't live high or purchase new. He will graduate zero dollars in debt.

          My son's college roommate comes from a very wealthy family. They own a plane - two houses - dad works on Wall Street - mom is a Doctor. He has to pay for his own education and gets loans for everything. His parents simply don't have the cash to pay for his education.

          It's priorities people! If something is worth it, you'll make it happen.

          [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. Ł20.

          [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] These 425 Goldman Bankers Just Hit The Jackpot

          Zero Hedge

          It's that time of year.... when the bank-that-does-God's-work chooses who to bless with mass affluence. This year 425 Goldman Sachs' employees were annointed "Managing Directors" which according to Emolumnet.com means an average annual comp of approximately $1 million.

          [Nov 12, 2015] Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

          Notable quotes:
          "... I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken. ..."
          "... One thing to be careful with the fracklog, is that not all of these will be good wells. ..."
          "... I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040. ..."
          "... "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, 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. ..."
          "... U.S. drillers account for 20 percent of the debt due in 2015, ..."
          peakoilbarrel.com

          ChiefEngineer , 11/09/2015 at 2:46 pm

          Saudi Arabia will not stop pumping to boost oil prices

          http://www.cnbc.com/2015/11/09/

          "Mr Falih, who is also health minister, forecast the market would come into balance in the new year, and then demand would start to suck up inventories and storage on oil tankers. "Hopefully, however, there will be enough investment to meet the needs beyond 2017."

          Other officials also estimated that it would probably take one to two years for the market to clear up the oil market glut, allowing prices to recover towards $70-$80 a barrel."

          Greenbub, 11/09/2015 at 2:54 pm

          Chief, that link went dead, this might be right:
          http://www.cnbc.com/2015/11/09/reuters-america-update-1-saudi-arabia-sees-robust-oil-fundamentals-as-rival-output-falls.html

          Ron Patterson, 11/09/2015 at 4:40 pm

          From your link, bold mine:

          "Non-OPEC supply is expected to fall in 2016, only one year after the deep cuts in investment," he said.

          "Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade away."

          I thought just about everyone was expecting a rebound in production by 2017?

          AlexS, 11/09/2015 at 7:50 pm
          Ron, Dennis

          The EIA. IEA. OPEC and most others expect non-OPEC production, excluding the U.S. and Canada to decline in 2016 and the next few years due to the decline in investments and postponement / canceling of new projects. Production in Canada is still projected to continue to grow, but at a much slower rate than previously expected.

          Finally, U.S. C+C production is expected to rebound in the second half of 2016 due to slightly higher oil prices ($55-57/bbl WTI). Also, U.S. NGL production proved much more resilient, than C+C, despite very low NGL prices.

          Non-OPEC ex U.S. and Canada total liquids supply (mb/d)
          Source: EIA STEO October 2015

          Dennis Coyne, 11/10/2015 at 9:10 am

          Hi AlexS,

          Thanks. I don't think oil prices at $56/b is enough to increase the drilling in the LTO plays to the extent that output will increase, it may stop the decline and result in a plateau, it's hard to know.

          On the "liquids" forecast, the NGL is not adjusted for energy content as it should be, each barrel of NGL has only 70% of the energy content of an average C+C barrel and the every 10 barrels of NGL should be counted as 7 barrels so that the liquids are reported in barrels of oil equivalent (or better yet report the output in gigajoules (1E9) or exajoules(1E18)). The same conversion should be done for ethanol as well.

          AlexS, 11/10/2015 at 9:54 am

          Dennis,

          Note that not only the EIA, but also the IEA, OPEC, energy consultancies and investment banks are projecting a recovery in US oil production in the later part of next year.

          That said, I agree with you that $56 WTI projected by the EIA may not be sufficient to trigger a fast rebound in drilling activity. However there is also a backlog of drilled but uncompleted wells that could be completed and put into operation with slightly higher oil prices.

          Most shale companies have announced further cuts in investment budgets in 2016, so I think it is difficult to expect significant growth in the U.S. onshore oil production in 2H16.

          If and when oil prices reach $65-70/bbl, I think LTO may start to recover (probably in 2017 ?). I think that annual growth rates will never reach 1mb/d+ seen in 2012-14, but 0.5 mb/d annual average growth is quite possible for several years with oil prices exceeding $70.

          Dennis Coyne, 11/10/2015 at 1:33 pm

          Hi AlexS,

          I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken.

          I have no idea what the frack log looks like for the Eagle Ford. If its similar to the Bakken and they complete 130 new wells per month, with about 61 oil rigs currently turning in the EF they can drill 80 wells per month, so they would need 50 wells each month from the frack log. If there are 800 DUCs, then that would last for 16 months.

          The economics are better in the Eagle Ford because the wells are cheaper and transport costs are lower, but the EUR of the wells is also lower (230 kb vs 336 kb), the well profile has a thinner tail than the Bakken wells. I am not too confident about the EIA's DPR predictions for the Eagle Ford, output will decrease, but perhaps they(EIA) assume the frack log is zero and that only 75 new wells will be added to the Eagle Ford each month. If my guess of 150 new wells per month on average from Sept to Dec 2015 is correct, then decline from August to Dec 204 will only be about 100 kb/d and 255 kb/d from March to Dec 2015 (155 kb/d from March to August 2015).

          Toolpush, 11/11/2015 at 12:45 pm

          Dennis,

          One thing to be careful with the fracklog, is that not all of these will be good wells. It is fair enough that companies like EOG will have some good DUCs, (should there be a "k" in that?) in their fracklogs. But as the fracklog is worked through, I am sure there will be a some very ugly DUCklings, that nobody wants to admit to.
          How many fall into this category, will be anybodies guess, but not all DUC, will turn out to be beautiful swans?

          Dennis Coyne, 11/10/2015 at 1:57 pm

          Hi AlexS,

          On the predictions of the EIA and IEA, they also expect total oil supply to be quite high in 2040. For example the EIA in their International Energy Outlook reference case they have C+C output at 99 Mb/d in 2040.

          Their short term forecasts are probably better than that, but my expectation for 2040 C+C output is 62 Mb/d (which many believe is seriously optimistic, though you have never expressed an opinion as far as I remember).

          So I take many of these forecasts with a grain of salt, they are often more optimistic than me, others are far more pessimistic, the middle ground is sometimes more realistic.

          AlexS, 11/10/2015 at 9:08 pm
          Dennis,

          You said above that estimated URR of all global C+C (ex oil sands in Canada and Venezuela) is 2500 Gb. And about 1250 Gb of C+C had been produced at the end of 2014. So the remaining resources are 1250 Gb.

          BP estimates total global proved oil reserves as of 2014 at 1700 Gb, or 1313 excluding Canadian oil sands and Venezuela's extra heavy oil. Their estimate in 2000 was 1301 Gb and 1126 Gb. Hence, despite cumulative production of 419 Gb in 2001-2014, proved reserves increased by 187 Gb, or 400 Gb including oil sands and Venezuela's Orinoco oil. Note that BP's estimate is for proved (not P+P) reserves, but it includes C+C+NGLs. My very rough guess is that NGLs account for between 5% and 10% of the total.

          You may be skeptical about BP's estimates, but the fact is that proved reserves or 2P resources are not a constant number; they are increasing due to new discoveries and technological advances.

          BTW, the EIA's estimate of global C+C production increasing from 79 mb/d in 2014 to 99 mb/d in 2040 implies a cumulative output of 836 Gb, about 2/3 of your estimate of remaining 2P resources of C+C or BP's estimate of the current proved reserves. Given future discoveries and improvements in technology, I think that further growth of global oil production to about 100 mb/d by 2040 should not be constrained by resource scarcity.

          What can really make the EIA's and IEA's estimates too optimistic is not the depleting resource base, but the high cost of future supply, political factors and/or lower than expected demand.

          Dennis Coyne, 11/11/2015 at 11:05 am
          Hi AlexS,

          Thanks.

          You are quite optimistic. Note that I add 300 Gb to the 2500 Gb Hubbert Linearization estimate to account for reserve growth and discoveries.

          The oil reserves reported in the BP Statistical review are 1312 Gb. Jean Laherrere estimates that about 300 Gb of OPEC reserves are "political" to keep quotas at appropriate levels with respect to "true" reserve levels. So the actual 2P reserves are likely to be 1010 Gb. Some of the cumulative C+C output is extra heavy oil so the cumulative C+C-XH output is 1240 Gb so we have a total cumulative discovery (cumulative output plus 2P reserves) of 2250 Gb through 2014.

          My medium scenario with a URR of 2800 Gb of C+C-XH plus 600 Gb of XH oil (3400 Gb total C+C) assumes 550 Gb of discoveries plus reserve growth.

          What do you expect for a URR for C+C?

          Keep in mind that at some point oil prices rise to a level that substitutes for much of present oil use will become competitive, so oil prices above $175/b (in 2015$) are unlikely to be sustained in my view.

          In a wider format below I will present a scenario with what extraction rates would be needed for my medium scenario to reach 99 Mb/d in 2040.

          Dennis Coyne, 11/11/2015 at 4:20 pm
          Hi Alex S,

          I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040.

          Depleting resources will raise production cost to more than these prices and demand will be reduced due to high oil prices. There will be an interaction between depletion and the economics of supply and demand. It will be depletion that raises costs, which will raise prices and reduce demand.

          AlexS, 11/11/2015 at 4:41 pm
          It will be depletion of low-cost reserves that raises marginal costs and prices. High-cost reserves may be abundant, but prices will rise.
          AlexS, 11/09/2015 at 7:55 pm
          corrected chart:

          TechGuy, 11/10/2015 at 10:19 am
          Oil Industry Needs Half a Trillion Dollars to Endure Price Slump
          http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive

          "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, 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.

          U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent."

          [These are just the bonds that have yields higher than 10%]

          [Its very unlikely that prices will recover in time to save many of the drillers, and even if prices recover, even $75 oil will not help since they need $90 to break even to service the debt. Also not sure who is going to buy maturing debt so it can be rolled over. Even if prices slowly recover, there is likely to be fewer people willing to loan money drillers.]

          Watcher, 11/10/2015 at 5:18 pm
          Don't bet on it. Probably be even better if the price declines more. Apocalypse will not be permitted.

          [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] Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute

          Zero Hedge

          agent default

          It's not just the oil. The oil is convenient to point at because the US can pretend that they got SA to cause the drop in order to stick it to Russia. Makes the US look really smug. Meanwhile the truth is, copper down, zinc down, iron ore down, you name it down.

          Baltic Dry almost crashing, soft commodities gone to hell. I guess SA can also influence these markets as well.

          [Nov 11, 2015] Questions for Monetary Policy

          Notable quotes:
          "... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."
          "... The drop in hours worked data in the productivity report is very confusing. ..."
          "... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."
          economistsview.typepad.com
          James Bullard, president of the St. Louis Fed, says there are five questions for monetary policy:

          The five questions

          • What are the chances of a hard landing in China?
          • Have U.S. financial market stress indicators worsened substantially?
          • Has the U.S. labor market returned to normal?
          • What will the headline inflation rate be once the effects of the oil price shock dissipate?
          • Will the U.S. dollar continue to gain value against rival currencies?

          I would add:

          • Will wage gains translate into inflation (or something along those lines)?

          Anything else?

          sanjait said in reply to Anonymous...

          Markets move based on expectations of both economic fundamentals and the Fed's reaction function. So both can create surprises.

          In this case, a relatively stronger than expected US economy could push the dollar up quite a bit. The central bank would be expected to dampen but not eliminate this effect, even without changing their perceived reaction function.

          DeDude said in reply to Anonymous... , November 10, 2015 at 02:35 PM

          Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next.

          What we can say is that the strengthening of the US$ that has happened recently will hurt the economy - whether it will hurt enough to slow the Fed is anybodies guess. Whether those guesses have already been baked into the exchange rates is impossible to predict.

          Bert Schlitz said...

          On Angry Bear, there is a post about 3rd quarter hours and Spencer's remark:

          "The drop in hours worked data in the productivity report is very confusing.

          The employment shows several measures of hours worked and they increased in the third quarter from 0.5% to 1,08 for aggregate weekly payrolls.

          Something is really change.

          The productivity report also had unit labor cost rising more than prices,
          This implies falling profits, what the S&P 500 shows."

          Basically wages accelerated rapidly in the 3rd quarter. The BLS didn't start catching up to it until October. My guess the hours drop and employment picks up trying to hold down costs. However, this will probably only level off things off for a few quarters, which would be good enough to profits catch back up until the labor market becomes so tight, they simply have no choice but to raise prices and hours worked surge again. Classic mid-cycle behavior (which Lambert should have noticed).

          This is what triggered the 3rd quarter selloff and inventory correction. That foreign stuff was for show. I think lower oil prices has lead to a stronger consumption boost than initially thought.

          am said...

          Clicked on this link for the answers but it is 34 blank pages, so i'll go for:
          1. No, they'll just devalue when need be to soften the landing. I think they will do another one before the end of the year.
          2. No idea.
          3. Near it if you believe the Atlanta Fed. They have a detailed analysis on their blog.
          4. 2.2 if you believe the St Louis Fed, end of December for the oil price decline washout from the system. So inflation will creep up by the end of the year.
          5. Yes and more so if they raise the rate.
          6. No. because it will just be oil led not wages (see 4).
          Anything else: the weather with apologies to PeterK.

          anne said...

          I am really having increasing trouble understanding, how is it that having a Democratic President means making sure appointments from the State or Defense Department to the Federal Reserve are highly conservative and even Republican. Republicans will not even need to elect a President to have conservatives strewn about the government:

          http://www.latimes.com/business/la-fi-neel-kashkari-federal-reserve-minneapolis-20151110-story.html

          November 10, 2015

          After failed GOP bid to be California's governor, Neel Kashkari will head Minneapolis Fed
          By Jim Puzzanghera - Los Angeles Times

          anne said in reply to anne...

          Neel Kashkari is another Goldman Sachs kid, what would you expect?

          anne said in reply to anne...

          http://www.nytimes.com/2015/11/11/business/ex-treasury-official-kashkari-named-minneapolis-fed-president.html

          November 10, 2015

          Neel Kashkari, Ex-Treasury Official, Named Minneapolis Fed President
          By BINYAMIN APPELBAUM

          Neel Kashkari is the third new president of a regional reserve bank named this year, and all three previously worked at Goldman Sachs.

          [ Really, well, creepy comes to mind. ]

          [Nov 11, 2015] Valentin Katasonov - Banks Rule the World, but Who Rules the Banks (II)

          Notable quotes:
          "... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."
          Strategic Culture Foundation
          Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.

          Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same 'big four' either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.

          Table 4.

          Leading institutional shareholders of the main US banks

          Name of shareholder company Controlled assets, valuation (trillions of dollars; date of evaluation in brackets) Number of employees
          Vanguard Group 3 (autumn 2014) 12,000
          State Street Corporation 2.35 (mid-2013) 29,500
          FMR (Fidelity) 4.9 (April 2014) 41,000
          Black Rock 4.57 (end of 2013) 11,400

          Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies' main assets, while in others they also include assets that have been transferred over to the companies' control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world's banks ranked by asset size with assets totaling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion).

          [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] Friction is Now Between Global Financial Elite and the Rest of Us

          Notable quotes:
          "... But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs ..."
          "... This means that the fracture in politics will move from left to right to the anti-establishment versus establishment. ..."
          "... In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. ..."
          "... when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital ..."
          "... Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity. ..."
          "... Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally. ..."
          "... Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power. ..."
          Economist's View

          Friction is now between global financial elite and the rest of us, The Guardian:

          ... ... ...

          But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. ...

          Dan Kervick said...

          "This means that the fracture in politics will move from left to right to the anti-establishment versus establishment."

          I think this is probably right, but the established parties are doing their best to prevent it. Each of them has an interest in continuing to divide people along various cultural, religious and ethnic identity lines in order to prevent them from achieving any kind of effective solidarity along class lines.

          Anyway, I fear we may be headed toward a turbulent and very unpleasant future.

          Kenneth D said...

          "Rethinking the Global Political Economy" By Jeff Faux April 24, 2002

          In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. As a retired U.S. State Department official put it to me bluntly a few years ago, "What you don't understand," he said, "is that when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital."

          Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity.

          But labor is typically at a disadvantage because it usually bargains under conditions of excess supply of unemployed workers. Moreover, the forced liberalization of finance and trade provides enormous bargaining leverage to capital, because it can now threaten to leave the economy altogether.

          Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally.

          Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power.

          [Nov 09, 2015] Supervising Culture and Behavior at Financial Institutions

          Notable quotes:
          "... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."
          "... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."
          Nov 09, 2015 | naked capitalism

          John Zelnicker, November 7, 2015 at 9:49 am

          Fascinating research. Thanks for posting this, Yves.

          Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so.

          Unfortunately, I don't see any of these executive psychopaths putting themselves through the self-assessment that is one of the necessary steps mentioned in the study. At least, not voluntarily.

          Sluggeaux, November 7, 2015 at 11:39 am

          Important.

          One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?"

          [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 06, 2015] The Oil Glut Outside Of The U.S. Is Surprisingly Small

          One plausible estimate from the discussion: "Unless I see something better to go on, I will go with Core Labs estimates of -10% production in 2016."
          Notable quotes:
          "... Right now, many investors seem fearful of where energy prices are going but I dont think the situation looks all that bad. While it is possible that events such as Iran exporting large amounts of crude (estimates of which are likely overstated) and Chinas economy collapsing could cause a drop in demand in relation to supply, any scenario outside of these transpiring shows a growingly bullish outlook for oil moving forward. ..."
          "... So where is the glut? Probablly only in heads of people that follow the mantras of US mass media machine. ..."
          "... It seems a lot of the addition to builds in liquids are from propane. If you look recently at the EIA weekly reports Gasoline , distillate, jet fuel imports to the US have all risen by a large amount compared to last year. ..."
          "... In March 2013, the inventory was 393 MM. In March 2015 it was 475 MM. Most of the additional inventory was held in tank farms and underground storage supporting pipeline. ..."
          "... It will tell you that US production is only 10% of world production and US spending 20% of world oil. So US is far biggest importer of oil on the world. ..."
          "... ...And importers by definition newer have a glut... Obviously imported oil is cheaper and more suitable than domestic. So WTI producers cant find buyers, hence the glut of US oil. ..."
          "... The adjustment number is running about 3 MM per week for the last 4 weeks. It is almost always in the positive direction that tells me the error bias is the same. ..."
          "... I will stop commenting on weekly EIA numbers because a smart petroleum engineer Gary Long (who compiles these numbers) said that you are dumb if you used his numbers for trades. ..."
          "... If you're using the weekly production numbers to do trades on Wall Street, you're dumb,' said Gary Long, a petroleum engineer who compiles numbers for the EIA. 'This is not going to work out for you. Don't do that. We've actually had people call us and be very angry with us because they've lost a lot of money. ..."
          "... At 10%, this implies oil production of 8.649 million barrels per day compared to the 9.610 million per day we peaked at. At 20%, we are looking at just 7.688 million barrels per day. This second scenario might be on the optimistic side but it would be incredibly bullish for crude if it does materialize. :) ..."
          "... Very likely that oil prices will react to the upside by Q1 or Q2 2016 at the latest...otherwise the world could face a global inventory shortfall of -200 to -300 million barrels by the end of 2016. ..."
          "... Global recessions are like the queen of spades in a game of hearts. If someone gives you the queen of spades in 2016, and you are not shooting the moon (short oil), but are long oil in some way, you LOSE... ..."
          "... Iraq will lead the decline in Middle east. From peak in June, I believe this a 400000-500000 barrels/day in export. The region is in turmoil. ..."
          seekingalpha.com

          Canada, the North Sea, and (maybe) Russia will see production drop over the next year due to decreased investment in drilling activities

          ... ... ...

          According to the IEA, production levels of light tight oil (LTO as they call it) generally fall by 72% within their first 12 months and by about 82% in the first two years.

          ... ... ...

          Right now, many investors seem fearful of where energy prices are going but I don't think the situation looks all that bad. While it is possible that events such as Iran exporting large amounts of crude (estimates of which are likely overstated) and China's economy collapsing could cause a drop in demand in relation to supply, any scenario outside of these transpiring shows a growingly bullish outlook for oil moving forward.

          This is especially true when you consider that the glut that's being experienced isn't all that large at the moment.

          mapodga

          Very good overview. Just excellent.

          So where is the glut? Probablly only in heads of people that follow the mantras of US mass media machine.

          If one accident in ME happen all hell can break out.

          bently

          Very concise but informative coverage of important points! I might add that there is likely to be bullish moves in the energy sector much sooner than people may expect, for the smart money takes their positions based on anticipation of things to come rather than after they are realized -- you know, the buy on the rumor and sell on the news strategy.

          We seem to be seeing the start of that now. But the momentum will build slowly; nothing happens overnight - usually.

          Robert P. Balan

          Mr. Jones,

          You wrote:

          "Using data presented in a previous article of mine, I figured that, at the time this data was gathered, about 96.4 million barrels worth of this glut was attributable to the U.S. This suggests that the OECD, excluding the U.S., has a glut of just 62.9 million barrels, which amounts to roughly 2.4 days of excess supply for the group."

          This chart will provide a scale of just how disruptive the impact of US shale oil production was to the global oil balance, triggering the backlash from the OPEC.

          http://tinyurl.com/p36...

          Also, you wrote:

          "The last piece that investors in the oil space should look at relates to China. I have been bearish on the country for quite some time but one goal they will likely continue to reach for (unless they see a complete economic collapse) is filling up their SPR (Strategic Petroleum Reserve). In the image below, you can see their schedule and estimated storage capacity for the development of storage facilities."

          You may have watch for indications of impending domestic currency CNY devaluations. The official oil imports data out of China tends to pick-up about 1 quarter before the CNY devaluation occurs. Talk of front-running . . . the Chinese have mastered the art.

          See this chart here:

          product.datastream.com


          Trixwd

          (From Oct OPEC report) OECD commercial oil stocks rose further in August to stand at 2,933 mb. At this level, inventories were around 194 mb higher than the five-year average. Crude and products showed a surplus of around 167 mb and 27 mb, respectively.

          In terms of days of forward cover, OECD commercial stocks stood at 63.3 days in August, some 4.5 days higher than the five-year average. http://tinyurl.com/pua ...

          mapodga

          So OPEC inventory is 8% above normal. Being so after 1 year of glut we can conclude there isn't any glut.

          Trixwd

          With more US domestic production being used you would expect a new higher normal for oil inventories because that production is in the US already, and not coming on tanker s(Temp storage) in the form of higher imports.In times of high demand you would also expect higher inventories in distillates , gasoline, jet fuel.

          It seems a lot of the addition to builds in liquids are from propane. If you look recently at the EIA weekly reports Gasoline , distillate, jet fuel imports to the US have all risen by a large amount compared to last year.

          Trixwd

          (Also more on China which is a significant bump to import Quota). China has more than doubled its non-state crude oil import quota for 2016 to 87.6 million tonnes, or 1.75 million barrels per day (bpd), as Beijing seeks to boost competition and attract private investment in its oil industry.

          The 2016 quota issued by the Ministry of Commerce on Friday compared to this year's figure of 37.6 million tonnes. http://tinyurl.com/owr ...

          Kxviswan

          I researched into how the inventory build in US was taking place and posted it in Investor Village. Part of the inventory elevation is a) because of tank farm builds to support tight oil increase and b) the way EIA does oil accounting. Oil in ocean is not counted until it clears customs. I am willing to concede that 30-50 MM barrels might be due to these two reasons and this may a new norm inventory levels. See below.

          I pursued this topic further and found out that Kinnear is partly right and mostly wrong.

          I found a website (see attached) that shows how the crude inventory is divided. Open the excel spreadsheet and you will get the answers.

          The inventory is not held in pipelines but in additional tank farms and underground storage that were built to handle additional flow through pipelines.

          The refiners are holding utmost 10 MM barrels.

          In March 2013, the inventory was 393 MM. In March 2015 it was 475 MM. Most of the additional inventory was held in tank farms and underground storage supporting pipeline.

          Also there is much more capacity to store additional oil.

          http://tinyurl.com/nqd ...

          Ben Ten

          Kxwisan -

          See below the link for an article from September 18th basically discussing the same ideas regarding US inventories you mention above in a different way.

          Check out my comments also in the article's reply section if you are interested.

          We will find out how much of this new inventory sticks - and how much gets burned off. If the oil market gets tight and prices are rising before the US inventory drops much then that will tell us something...

          http://tinyurl.com/pkb ...

          mapodga

          :-)
          It will tell you that US production is only 10% of world production and US spending 20% of world oil. So US is far biggest importer of oil on the world.

          And importers by definition never have a glut. Exporter league is that which define price of oil and when they will put their lines in order then US inventory won't count about anything.

          CarlSag

          "...And importers by definition newer have a glut..." Obviously imported oil is cheaper and more suitable than domestic. So WTI producers can't find buyers, hence the glut of US oil.

          Trixwd

          Kxviswan do you know when the EIA put's out the weekly report they have an adjustment added to crude oil inventory, which i think was around 450,000b/d. Do you have any idea where this oil comes from, it does say the adjustment number(formerly unaccounted for oil).

          But with out that adjustment number taking oil exports + refinery inputs - imports + production it would not show much extra oil left as a weekly build except for that adjustment number being added.

          Kxviswan

          Yes, I have some ideas on this. I have a Chemical Engineering background [and can tell you that] it is very difficult to do a material balance on a weekly basis. The amount of information you need to collect is indeed enormous.

          The adjustment number is running about 3 MM per week for the last 4 weeks. It is almost always in the positive direction that tells me the error bias is the same.

          What I found further that Genscape numbers are different than EIA numbers but their subscription is high- in the 10000 dollar range.

          A lot of people trust EIA numbers as "gospel". Here is what I found and posted on BRY board from Gary Long of EIA. What Gary Long said about EIA weekly numbers

          I will stop commenting on weekly EIA numbers because a smart petroleum engineer Gary Long (who compiles these numbers) said that you are dumb if you used his numbers for trades.

          Eloquently said. I would like to buy a drink or two for Gary.

          "' If you're using the weekly production numbers to do trades on Wall Street, you're dumb,' said Gary Long, a petroleum engineer who compiles numbers for the EIA. 'This is not going to work out for you. Don't do that. We've actually had people call us and be very angry with us because they've lost a lot of money. '"

          Kxviswan

          About propane build in US. I asked this question on BRY board and I got a very intelligent reply. US alone will use 35000 barrels/day for propylene production. This is a new technology that I am very familiar with called PDH or propane dehydrogenation. The others are slated for export. EPD is a major supplier. This is an on-purpose build.

          The message for Daniel is that since April, US is in supply-demand equilibrium because you need to subtract on-purpose build of propane.

          jeezuz30

          Nice summary and viewpoints,

          "Given that the number of oil rigs in the U.S. alone have dropped from 1,595 this time last year to just 594 (with the drop really starting around October and November) I suspect that the drop in output will get a bit more steep in the months ahead"

          I would be careful with that projection and general misconception. With the slowdown of rigs we get an increased performance as the few rigs left are highly competitive with the others as they don't want to be next ones idled. So we have a huge increase in efficiency (12000' laterals now being drilled in 3 days, completed in 4 or so).

          Only a year or two ago, this number was closer to 6 days to drill (and with a lot of the less efficient rigs that did get laid down, some as high as 12-14 days).

          So yes we only have half the rigs or less, but these are (were) probably the high performers and only getting faster and doing more with less.

          Not to mention all the gains that have been made on the production side (look at EOG and cemented liners and the increased production from improved fracking techinques).

          Daniel Jones , contributor

          Author's reply " That is all very true. I don't think a massive drop in rig count will have a similar drop in output but I'd imagine a 50% to 60% drop would result in at least a 10% drop in output, maybe even a 20% drop.

          At 10%, this implies oil production of 8.649 million barrels per day compared to the 9.610 million per day we peaked at. At 20%, we are looking at just 7.688 million barrels per day. This second scenario might be on the optimistic side but it would be incredibly bullish for crude if it does materialize. :)

          Kxviswan

          For what it is worth, Core Lab is projecting 10% drop next year- taking into account rig drop.

          22023171

          Wrong they are projecting a 3.1% decline from existing reservoirs being substantially offset by new production but not entirely net net they are forecasting a modest decline in global production.

          Kxviswan

          ...CLB has lot better models and back in June, Dave Demshur predicted that US production will fall by 500000 barrels/day by 2015. This completely went against the grain that EIA was predicting.

          In third quarter conference call, Core Lab has upped it to 700000 barrels/day.

          GOM picked up 209000 barrels/day in two months that is masking lower 48 states decline.

          EIA predicted a 169000 barrels/day drop in September. Ron Patterson predicted a similar drop in October. We will wait a month and see what happens.

          BRY board members are reporting that rigs will be idled between Thanksgiving and New Year.

          I am using 90000 barrels/day/month [drop] in my estimates based on drilling activity report of EIA.


          Ben Ten

          Kvxviswan -

          I am seeing the same thing...from the above reasoning and estimates.

          It looks to me like the current global surplus in crude oil production is now close to zero - probably in November or December it shifts to a small DEFICIT - difficult to notice at first...

          There are maybe 200 million barrels stored away in excess inventories (relative to "normal" inventories) all over the world - most in the US - these are inventories that are viewed by owners to some extent as temporary and they will use them up as prices rise.

          Unless prices rise in 2016...the data and thinking above speaks to me that global crude oil production will drop by -2.0 million barrels/day by the end of 2016...and demand rises by +1.5 million barrels/day by the end.

          So the deficit will start ramping up already in Q1, as long as prices stay low...hitting maybe -1.0 mmbpd at the end...then in Q2 we are looking at approaching -2.0 mmbpd by the end...and at this rate the global industry is burning through the 200 million barrel inventory cushion fast enough to finish it off in less than a quarter.

          And then it comes down to the turn around speed of US shale oil...when do they raise the rig count...by how much...what is the delay...

          I will be paying attention when the EIA STEO comes out on November 10th, and considering the monthly production for US shale for October.

          Conclusions

          1) Very likely that oil prices will react to the upside by Q1 or Q2 2016 at the latest...otherwise the world could face a global inventory shortfall of -200 to -300 million barrels by the end of 2016.

          2) Likely that US shale will NOT have the power alone to drive prices from WTI of $60-70 back down below $50 in 2016 or even 2017.

          3) Global recessions are like the queen of spades in a game of hearts. If someone gives you the queen of spades in 2016, and you are not shooting the moon (short oil), but are long oil in some way, you LOSE...

          Kxviswan

          I read today that Iraq export has dropped quite a bit to 2.7 MM barrels/day. Here again, Core Labs predicted that Iraq will lead the decline in Middle east. From peak in June, I believe this a 400000-500000 barrels/day in export. The region is in turmoil.

          Iraqi government has no money to pay the contractors and they have sent a letter to majors. 20% of the funds is ear-marked for defense!

          Core Lab said in July that Middle East production is not sustainable and it has zero spare capacity. The June production rate has not been matched yet!

          ... ... ...

          [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.

          • The EIA expects U.S. production to rebound in 2H16, from 8.77mb/d in June to 9.02 mb/d in December.
          • The EIA assumes WTI to average $55.3 in 2H16 vs. $51.7 in 1H16 and $45.9 in 2H15.

          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 04, 2015] Fifty Shades of Tax Dodging: How EU Helps Support Unjust Global Tax Systems

          www.nakedcapitalism.com

          Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes in. Rates of smoking did indeed fall as intended.

          Thus the debate about whether corporations should pay more taxes is not "naive" as the plutocrats would have you believe; in fact, they wouldn't be making such a big deal over it if it were. In the 1950s, a much larger percentage of total tax collections fell on corporations than individuals. And the political message was clear: the capitalist classes needed to bear a fair share of the total tax burden. Similarly, what has been the result of the preservation of a loophole that allows the labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates? A flood of "talent" into those professions at the expense of productive enterprise.

          And the result of having lower taxes on companies has been a record-high corporate profit share of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large companies have been net saving, which means liquidating, since the early 2000s. The trend has become more obvious in recent years as companies have borrowed money to buy back their own stock.

          Originally published at the Tax Justice Network

          In the past year, scandal after scandal has exposed companies using loopholes in the tax system to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying a high price for the crisis in the global tax system, and the discussion about multinational corporations and their tax tricks remains at the top of the agenda. There is also a growing awareness that the world's poorest countries are even harder impacted than the richest countries. In effect, the poorest countries are paying the price for a global tax system they did not create.

          A large number of the scandals that emerged over the past year have strong links to the EU and its Member States. Many eyes have therefore turned to the EU leaders, who claim that the problem is being solved and the public need not worry. But what is really going on? What is the role of the EU in the unjust global tax system, and are EU leaders really solving the problem?

          This report – the third in a series of reports – scrutinises the role of the EU in the global tax crisis, analyses developments and suggests concrete solutions. It is written by civil society organisations (CSOs) in 14 countries across the EU. Experts in each CSO have examined their national governments' commitments and actions in terms of combating tax dodging and ensuring transparency.

          Each country is directly compared with its fellow EU Member States on four critical issues: the fairness of their tax treaties with developing countries; their willingness to put an end to anonymous shell companies and trusts; their support for increasing the transparency of economic activities and tax payments of multinational corporations; and their attitude towards letting the poorest countries have a seat at the table when global tax standards are negotiated. For the first time, this report not only rates the performance of EU Member States, but also turns the spotlight on the European Commission and Parliament too.

          This report covers national policies and governments' positions on existing and upcoming EU level laws, as well as global reform proposals.

          Overall, the report finds that:

          • Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place. On some matters, such as the controversial patent boxes, the damaging policies seem to be spreading in Europe. Defence mechanisms against 'harmful tax practices' that have been introduced by governments, only seem partially effective and are not available to most developing countries. They are also undermined by a strong political commitment to continue so-called 'tax competition' between governments trying to attract multinational corporations with lucrative tax reduction opportunities – also known as the 'race to the bottom on corporate taxation'. The result is an EU tax system that still allows a wide range of options for tax dodging by multinational corporations.

          • On the question of what multinational corporations pay in taxes and where they do business, EU citizens, parliamentarians and journalists are still left in the dark, as are developing countries. The political promises to introduce 'transparency' turned out to mean that tax administrations in developed countries, through cumbersome and highly secretive processes, will exchange information about multinational corporations that the public is not allowed to see. On a more positive note, some light is now being shed on the question of who actually owns the companies operating in our societies, as more and more countries introduce public or partially public registers of beneficial owners. Unfortunately, this positive development is being somewhat challenged by the emergence of new types of mechanisms to conceal ownership, such as new types of trusts.

          • Leaked information has become the key source of public information about tax dodging by multinational corporations. But it comes at a high price for the people involved, as whistleblowers and even a journalist who revealed tax dodging by multinational corporations are now being prosecuted and could face years in prison. The stories of these 'Tax Justice Heroes' are a harsh illustration of the wider social cost of the secretive and opaque corporate tax system that currently prevails.

          • More than 100 developing countries still remain excluded from decision-making processes when global tax standards and rules are being decided. In 2015, developing countries made the fight for global tax democracy their key battle during the Financing for Development conference (FfD) in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking the proposal for a truly global tax body.

          Not one single EU Member State challenged this approach and, as a result, decision-making on global tax standards and rules remains within a closed 'club of rich countries'.

          A direct comparison of the 15 EU countries covered in this report finds that:

          • France, once a leader in the demand for public access to information about what multinational corporations pay in tax, is no longer pushing the demand for corporate transparency. Contrary to the promises of creating 'transparency', a growing number of EU countries are now proposing strict confidentiality to conceal what multinational corporations pay in taxes.
          • Denmark and Slovenia are playing a leading role when it comes to transparency around the true owners of companies. They have not only announced that they are introducing public registers of company ownership, but have also decided to restrict, or in the case of Slovenia, avoided the temptation of introducing, opaque structures such as trusts, which can offer alternative options for hiding ownership. However, a number of EU countries, including in particular Luxembourg and Germany, still offer a diverse menu of options for concealing ownership and laundering money.
          • Among the 15 countries covered in this report, Spain remains by far the most aggressive tax treaty negotiator, and has managed to lower developing country tax rates by an average 5.4 percentage points through its tax treaties with developing countries.
          • The UK and France played the leading role in blocking developing countries' demand for a seat at the table when global tax standards and rules are being decided.

          To read a summary of the report, please click here.

          A summary of the report is here.

          The full report is here or here.

          Stephen Rhodes, November 3, 2015 at 11:00 am

          Or try this, kids:

          Class Actions vs. Individual Prosecutions
          Jed S. Rakoff NOVEMBER 19, 2015 NYRB
          Entrepreneurial Litigation: Its Rise, Fall, and Future
          by John C. Coffee Jr.
          Harvard University Press, 307 pp., $45.00

          http://www.nybooks.com/articles/archives/2015/nov/19/cure-corporate-wrongdoing-class-actions/

          [Nov 04, 2015] Oil Market Needs Another Month to Decide If the Rebound Is for Real

          Notable quotes:
          "... Production in the U.S. will drop 1 million barrels a day from the peak by early 2016, Vitol SA Chief Executive Officer Ian Taylor said at a conference in London. ..."
          "... "Prices have not gone down below $40 a barrel for the last three months so maybe it is at the bottom," Omair said. ..."
          finance.yahoo.com

          Oil prices will increase if global economic growth improves, and high-cost production is cut, Omair said. "If the situation is as it is then the only parameter will be the withdrawal of the high-cost production." Brent rose 0.4 percent to $50.72 a barrel at 12:31 p.m. on the London-based ICE Futures Europe exchange.

          The number of rigs drilling for oil in the U.S. slumped to a five-year low last week as producers curbed investment because of low prices. Brent has slumped 38 percent in the past year, falling to as low as $42.23 a barrel in August.

          More from Bloomberg.com: That Time I Tried to Buy an Actual Barrel of Crude Oil

          U.S. crude output will retreat by about 10 percent in the 12 months ending April, according to Daniel Yergin, vice chairman of IHS Inc. Prices are near a bottom and global supplies look set to close the gap with demand amid declining output, he said in Tokyo on Oct. 30. Production in the U.S. will drop 1 million barrels a day from the peak by early 2016, Vitol SA Chief Executive Officer Ian Taylor said at a conference in London.

          Oil failed to sustain a gain above $50 a barrel last month as OPEC pumped above its quota for the past 17 months. "Prices have not gone down below $40 a barrel for the last three months so maybe it is at the bottom," Omair said.

          [Nov 02, 2015] Foreign Banks Such as Deutsche Using Variant of Lehman Repo 105 Balance-Sheet Tarting Up Strategy

          Notable quotes:
          "... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."
          "... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."
          "... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."
          "... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."
          "... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."
          "... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."
          "... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."
          "... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."
          "... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."
          Nov 02, 2015 | naked capitalism
          Deep Thought

          Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales

          Thank you for writing this bit. All the explanations I've read of Repo 105 seemed to be missing the step where liabilities were actually reduced – because what's the difference between an asset and an obligation/contract to buy said asset in X hours time?

          So I'm glad a more financially astute mind than mind wrote down what I'd suspected, that real liabilities weren't actually reduced by Repo 105 and it's just window dressing to fool the regulators. I'd hazard that it actually makes the situation worse, because it's pretty expensive window dressing and that's real cash that has to head out the door once a quarter.

          tawal

          Turning all the brokerages into bank holding companies, where now they all have a calendar year end and can't temporarily hide their trash on each other's books, but can all hide it on the Fed's unaudited balance sheet.

          Why isn't Deutsche Bank doing this too, and are UBS, Barclays and HSBC the next to fail?

          fresno dan

          "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…."

          Upon finding this out, tire squeal, sirens wail, lights flash, and grim faced men rush to take into custody little Timmy Geithner and serve warrants a the New York FED….

          LOL – of course not. Most government officials, of BOTH parties, would say Timmy Geithner and his ilk performed fantastically….
          After all, he worked hard to prop it up…. If you remove the corruption, the double and self dealing, price fixing, fraud, ad infinitum, and how could the system continue as constituted? And the people at the top of the system thinks it works very well indeed.

          Chauncey Gardiner

          This issue is unsurprising to me. Many signs over the past couple years of deeply troubling matters at this TBTF: CEO resignations, NY Fed criticisms of systems and financial reporting (as Yves pointed out), participation in market manipulations, billions in writedowns, suicide death of bank's regulatory lawyer, massive derivatives exposures, central bank calls for increased capital, etc.

          Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly.

          Recalling Ernest Hemingway in "The Sun Also Rises":
          "How did you go bankrupt?" Bill asked.
          "Two ways," Mike said. "Gradually and then suddenly."

          JustAnObserver

          • Deutche Bank = Germany's RBS (Royal Bank of Scotland) ?
          • All the Eurozone's nightmares since 2010 have been down to a desperate attempt to postpone DB's "Minsky Moment" ?

          I did see a report that DB is withdrawing from a number of countries but Wall Street wasn't on that list. Interestingly the list includes all the Scandinavian countries as well as the usual suspects – Mexico, Turkey, Saudi, etc.

          Oliver Budde

          The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst & Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105."

          Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that.

          The few banks who did dare to help out Lehman of course charged higher than market rates for those loans, even though they held an extra 3% in collateral, which was always made up of high quality Treasury bonds and the like. Those lenders charged more anyway, because they knew what Lehman was up to and knew they could wring out some extra cash in exchange for 'aiding' Lehman in its needs. Lehman gladly paid the higher interest.

          In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was.

          The scam began in 2001 or so and while it may not have been what blew up Lehman in 2008, it did importantly mislead a lot of people in 2007 and 2008, when its use was ramped up dramatically. And it put extra bonus money into the Lehman executives' pockets, year in and year out. No wonder others seek to emulate it.

          Tom

          Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense

          RBHoughton

          Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media.

          Thank Heavens for NC – one of the most important of a handful of sites that fearlessly report. Fingers crossed we can build a new media industry around this nexus of quality.

          Pearl

          Yves,

          Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105:

          http://www.bloomberg.com/news/videos/2014-12-11/banks-are-taking-cybersecurity-seriously-lawsky-says-video

          I know it may not be likely that Deutsche's U.S. banking license would get pulled, but it is possible, isn't it?

          (btw, here is what Lawsky is doing now:)

          http://nypost.com/2015/05/20/ny-financial-watchdog-ben-lawsky-leaving-to-start-firm/

          If enough folks became vocal (enough) about the issue–couldn't we make a difference this time? ("We," as in ordinary housewives from Roswell, GA and humble bloggers such as the illustrious Yves Smith?".) ;-)

          I think you are waaaay more famous than you think you are, Yves. Indeed, you are universally one of the most well-respected and straight-shooting authors/academics/authorities on such subjects. And I think Mr. Lawsky would take your call or reply to an email if written by you.

          I spoke with his staff (yes, me–a housewife from Roswell, GA) when he was at DFS during my "Ocwiteration Perseveration" days of yore, and his staff was unusually generous with their time and they seemed genuinely appreciative to get info and feedback from just regular folks.

          I think Mr. Lawsky himself would be thrilled to hear from someone like you. And I think the two of you would be an extremely formidable team.

          I just don't want to give up on this. It's too important. At the very least, I will forward to him this post of yours.

          Thanks again for everything you do, Yves.

          [Nov 02, 2015] Low Oil Prices Could Persist Through 2016

          This game became really interesting if prices will remain low for oil all 2016. That's another 200 billion stimulus for the US economy. People are genetically biased against change, because change means potential danger. People are also genetically biased against acknowledging this bias, because they wish to see themselves as being able to cope with both change and danger. Put together, this means that when changes come, people are largely unprepared or underprepared. This little bit of psychology 101 may seem redundant, but it is indispensable if we are talking about the current oil price slump...
          Notable quotes:
          "... The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016. ..."
          "... U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015. ..."
          "... ... ... ... ..."
          "... However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April. ..."
          Nov 02, 2015 | OilPrice.com

          A group of investment banks are becoming increasingly gloomy about the direction of oil prices in the near-term. A Wall Street Journal survey of 13 investment banks found a growing degree of pessimism about the oil markets.

          The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016.

          The growing pessimism is in part due to the potential slowdown in demand, particularly from China. At the same time, Russia and OPEC nations continue to produce at elevated levels. Only U.S. production appears to be declining in any substantial way. U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015.

          ... ... ...

          ... producing in places like the Permian Basin is still very much profitable today, even with prices at $50 per barrel or lower. While North Dakota, Louisiana, or Colorado have seen drilling grind to a halt, drilling in the Permian Basin in West Texas is still going strong. In fact, many oil companies are scrapping drilling in other parts of their portfolio and expanding their footprint in the Permian. As a result, production from the Permian is still rising. The Permian stands out because of the abundance of oil and gas in place, making each well more lucrative than a similar well in another basin.

          However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April.

          [Nov 02, 2015] It's Difficult to Make Predictions, Especially About the Future OIl Prices

          Initially Statoil was looking for $60 in 2016, $70 in 2017 and $80 in 2018, for planning purposes.
          Notable quotes:
          "... Mark Hanson, an analyst for Morningstar in Chicago, said the days of huge price cuts are nearly over."I don't think there is going to be meaningful reduction from here," he said. "To use a baseball analogy, you are probably in the seventh or eighth inning." ..."
          "... Given that many US oil companies were cash flow negative prior to the price collapse, do you think that US oil companies will be able to increase production in the future without being cash flow negative? ..."
          "... As there is a time lag of six to nine months between initial capex decision and actual production, it is in my view premature to have a final say about current emerging capital efficiency. The production numbers we have now are the harvest of the capex in the last quarter of 2014. ..."
          "... Range Resources had for example 400 mill capex in 4q14, which came down to just 188 mill in 3q15, when production went up 20% year over year. This is in my opinion not extremely capital efficient , yet is a harbiger of much lower production in the months ahead. ..."
          "... "We think that the price level now is too low," Eirik Waerness, chief economist and vice-president at Statoil ASA, said in an interview in Singapore on Thursday. "Some people will stop exploring for oil. With oil prices around $50, you get a stimulus for demand growth. That will tighten the market." Crude is expected to climb to $80 a barrel in 2018 and increase gradually after that as existing supplies get used up, he said. ..."
          "... the way this usually works the government will react and change taxes. As increased taxation takes effect production starts to drop. Evidently the Russian government is reluctant to change the current rates to signal it has a reliable tax system which allows investments to proceed with a very long term outlook. But I expect they'll be putting on the squeeze if they haven't done so. ..."
          peakoilbarrel.com

          R Walter , 11/01/2015 at 8:10 am

          Using Mr. Peabody's Wayback Machine, I found this quote:

          "We will never see eighty five dollar oil again except maybe as the whiplash negative feedback response to a sudden spike as happened the last time prices spiked very high. Think five hundred car pile up on a freeway after that happens with everybody flying and then traffic stopped or almost stopped with nobody buying but a lot of people contracted to take delivery- and the gasoline and diesel piling up at the retail end. Prices may collapse temporarily into the eighties or even lower but only for a few weeks or months." – Old Farmer Mac

          http://peakoilbarrel.com/enno-peters-post/

          Oil is at 45, so the price can fall and it did. 147 to 135, 125, 115, 105, 95, 85, 75, 65, 55, 45, then as low as 39, back to 45 and holding. Nowhere near 85, let alone 100. 45 dollars is a dead man walking.

          Wendell Lawson, the character played by Burt Reynolds in the movie 'The End', was swimming out to sea to make his final exit, deciding he wanted to live, he turned back and began to swim to shore.

          "90 percent, Lord, I'll give you 90 percent if you get me out of this." As he swam closer, the pledge began to decrease, it falls to 80 percent, then to 70 percent, by the time he got back to shore, the Lord was not getting much. When Sonny Lawson finally got there, Marlon Borunki, played by Dom Deluise, started to shoot rounds from a pistol at Sonny. He was helping out Wendell to kill himself.

          It was funny.

          The kind of help the oil industry is getting.

          Dennis Coyne , 11/01/2015 at 11:34 am
          I thought output would decrease at these prices much faster than they have. Until output drops prices will remain under 85 per barrel. Lots of people are wrong on oil prices. Only very wide guesses will be correct such as 5 to 200 per barrel.
          Fernando Leanme , 11/02/2015 at 3:52 am
          40 to 150 over the next 30 months.
          Dennis Coyne , 11/02/2015 at 8:08 am
          Hi Fernando,

          That is probably wide enough to get it right. I have seen some really bold price predictions from others such as, the oil price will be a positive number.

          I have lost confidence in my ability to predict future oil prices so $15/b to $200/b over the next 60 months(in 2015$) is about the best I could do. There are others who will only go so far as to say that oil prices will be "low" or "high" in the future which means very little with no number attached.

          old Farmer Mac , 11/02/2015 at 6:46 pm
          I made a fool out of myself that time sure enough by forgetting to add my usual weasel words such as barring miracle breakthroughs, the economy being in assisted living mode etc.

          It ( warning attempted humor) is all the fault of them there pinko commie environmental types that hang out in forums such as this one misleading me into believing that oil comes out of holes in the ground and does not grow back, that the population is growing and wanting more oil, etc etc.

          Seriously I forgot to consider the possibility that bankers would continue to loan money to tight oil losers at zero percent, that Russia and Saudi Arabia would be at war with the price of oil being the only real weapon the Saudis can bring to bear etc.

          The industry moves a lot slower than I thought, no question. It is taking a LOT longer than I would have thought for high cost producers to cut back their money losing production. Everybody with a barrel to sell seems to be really desperate for cash and willing to run in the hole to put their hands on it. Sooner or later enough production is going to be curtailed to put the price back into black ink territory for high cost producers.

          MarbleZeppelin , 11/01/2015 at 8:23 am
          Referring to Ovi's graph above.
          There is a 4.6% drop in production from March to August which gives a monthly loss of 0.92%.
          Alternatively from January to March there was a 5,6% gain in production. That gives a gain of 2.8% per month.
          Overall the graph shows a 1.4% gain in production or 0.14% gain in production per month.
          The graph does indicate the ability to increase production generally faster than it declines.
          The range is quite wide and the timescale short so it is not feasible to determine the typical range of variation or extrapolate future production.
          The only conclusion that can be made from this graph requires other sources of information, such as the current economic situation in the oil fields. One might conclude that this particular downturn in production is due to economic constraints involving low cash flow and loan contractual terms. The economic constraints lead to the need for a further analysis of situational parameters in the economic environment, such as involvements with other energy sources, demand analysis, efficiency changes as well as psychological changes in the social/political structure.
          AlexS , 11/01/2015 at 5:15 pm
          Big U.S. shale oil savings fast becoming a thing of the past

          http://www.reuters.com/article/2015/10/30/oil-results-costs-idUSL1N12M2KI20151030

          Huge cost savings are waning for U.S. shale oil companies, marking an end to the drastic price cuts on equipment and services over the past 16 months that helped them survive the worst industry downturn in six years.

          Companies including Anadarko Petroleum Corp, ConocoPhillips and Occidental Petroleum Corp have saved millions on drilling and fracking wells in Texas, Colorado and North Dakota since the oil price slide started by demanding that oilfield service companies slash prices by 20 percent to 30 percent or more.

          Those savings, coupled with big gains in rig productivity that allowed more oil to be pumped with less equipment, created a lifeline for companies coping with a more than 50 percent drop in crude prices. But productivity gains have stalled in the last few months and deflation may be slowing as well, just as producers try to withstand a lower-for-longer price outlook.

          ConocoPhillips has seen its onshore drilling and completion costs fall. More savings are expected, but not as much.

          "If prices stay low and activity levels stay low I think you will see more pressure on deflation, but not another magnitude of the leg down we've seen so far," Jeff Sheets, Conoco's chief financial officer, told Reuters on Thursday.

          The U.S. rig count has fallen by more than half from a year ago when nearly 1,600 rigs were working, so companies that lease rigs or do hydraulic fracturing have offered double-digit discounts to get work contracts.

          When asked if cost deflation is likely to continue, Darrell Hollek, head of U.S. onshore exploration and production at Anadarko, told analysts on Wednesday the company continues to see decreases in prices, but those declines are not "as significant as what we saw earlier in the year."

          In West Texas, Occidental said the cost for a 4,500-foot well has fallen 45 percent from a year earlier to $6.3 million now. The company said on a call with analysts it expects costs to come down more, but did not say by how much.

          RigData, which tracks oilfield activity, forecast cost declines for U.S. onshore wells of $1.2 million on average in 2015, a drop that is unlikely to be repeated next year, Trey Cowan, senior industry analyst with RigData, said.

          Currently, operators are drilling wells in so-called sweet spots that produce the most oil and gas. After they go through that inventory and move on to less prolific spots, it will cost more to drill, said Cowan.

          The chief executive of Baker Hughes, Martin Craighead, on the third-quarter conference call of the oilfield services giant, downplayed more cuts when an analyst asked if his company could offer additional cost reductions of 15 percent to 30 percent.

          "You are just not going to get out there and take your hats off to any customer," Craighead said. "They are going to obviously try to get as much as they can and there will be a point where it just doesn't make any sense."

          Mark Hanson, an analyst for Morningstar in Chicago, said the days of huge price cuts are nearly over."I don't think there is going to be meaningful reduction from here," he said. "To use a baseball analogy, you are probably in the seventh or eighth inning."

          shallow sand , 11/01/2015 at 7:15 pm
          AlexS. Thanks for the post!

          Given that many US oil companies were cash flow negative prior to the price collapse, do you think that US oil companies will be able to increase production in the future without being cash flow negative?

          It seems to me that if oil prices shoot back up at some point, service rates will also.

          Our lowest two OPEX years since 2006 will be 2009 and 2015. The highest 2008 and 2013.

          I really question whether US oil companies will ever be able to be "growth" companies anytime soon.

          Heinrich Leopold , 11/02/2015 at 3:40 am
          AlexS,

          As there is a time lag of six to nine months between initial capex decision and actual production, it is in my view premature to have a final say about current emerging capital efficiency. The production numbers we have now are the harvest of the capex in the last quarter of 2014.

          It will be interesting how the production numbers will develop over the next few months. Range Resources had for example 400 mill capex in 4q14, which came down to just 188 mill in 3q15, when production went up 20% year over year. This is in my opinion not extremely capital efficient , yet is a harbiger of much lower production in the months ahead.

          HR , 11/02/2015 at 9:30 am
          Heinrich, I am using the same logic as you. I guess the question is how long before reduced capex turns into lower production.
          shallow sand , 11/02/2015 at 7:44 am
          Statoil sees no oil price recovery till 2018. Any guesses on what that scenario does to US oil production?
          Dennis Coyne , 11/02/2015 at 8:19 am
          Hi Shallow sand,

          What does price recovery mean?

          Is that an oil price below $60/b until 2018?

          If so, I would expect US C+C output will fall to 6 Mb/d by 2018, possibly more, however, the oil price prediction will likely be incorrect as the fall in oil supply will lead to an earlier price recovery in 2016 or 2017 at the latest. By price recovery I mean an oil price above $75/b in 2015$.

          shallow sand , 11/02/2015 at 10:09 am
          Dennis. It is difficult to tell from the CNBC article, but looks to me that initially Statoil was looking for $60 in 2016, $70 in 2017 and $80 in 2018, for planning purposes. Now, possibly, they are looking at below $60 to 2018.

          I still feel that OPEC will cut at some point, the question is when. Read an analyst who thought they should 12/4, but would not to save face, as US production has not fallen much and Russian production has not fallen at all (see AlexS post herein). So very possible there will not be a production cut until US production falls significantly, maybe not till late 2016

          AlexS , 11/02/2015 at 10:55 am
          shallow sand,

          Statoil expects $80 by 2018. Here is a Bloomberg article:

          'Too Low' Crude Prices Seen Rising to $80 in 2018 by Statoil

          http://www.bloomberg.com/news/articles/2015-10-29/-too-low-crude-prices-seen-rising-to-80-in-2018-by-statoil

          • Supply growth seen falling amid industry cost-cutting
          • Current high oil inventories preventing price recovery

          Crude prices that have almost halved in the past year are unsustainable at current levels as cuts to investments and postponement of projects will lead to a decline in supply growth, according to Norway's biggest oil company.

          "We think that the price level now is too low," Eirik Waerness, chief economist and vice-president at Statoil ASA, said in an interview in Singapore on Thursday. "Some people will stop exploring for oil. With oil prices around $50, you get a stimulus for demand growth. That will tighten the market." Crude is expected to climb to $80 a barrel in 2018 and increase gradually after that as existing supplies get used up, he said.

          Oil slumped more than 44 percent in the past year as U.S. stockpiles expanded at a time when OPEC producers bolstered output to retain market share, exacerbating a global supply glut that the International Energy Agency estimates will remain until at least the middle of 2016. Producers hurt by the collapse in prices have had to fire workers, cancel projects and sell oil fields to conserve cash. Statoil on Wednesday announced cuts to planned investments in 2015 by $1 billion to $16.5 billion.
          "The question is how much of the current change in the industry will lead to long-term cost reductions," said Waerness. When "demand becomes larger than supply, and we will start drawing down storages. The market will suddenly realize that there's very little spare capacity out there."

          "The underlying trend is that it's going to come up, but it's going to take a while," Waerness said, referring to prices. "One of the reasons why it takes a while is because the storage is too high, and therefore the price mechanism doesn't really work."

          AlexS , 11/02/2015 at 8:43 am
          Russian Crude Output Hits Post-Soviet Record Defying Price Slump

          http://www.bloomberg.com/news/articles/2015-11-02/russian-crude-output-hits-post-soviet-record-defying-price-slump

          • October output averaged 10.776 million barrels a day
          • Oil exports increased 10% compared with October last year

          Russian oil production broke a post-Soviet record in October for the fourth time this year as earlier investments boosted output and producers prove resilient to lower crude prices.

          Production of crude and gas condensate, which is similar to a light oil, averaged 10.776 million barrels a day during the month, according to data from the Energy Ministry's CDU-TEK unit. That is an increase of 1.3 percent from a year earlier and up 0.3 percent from the previous month.

          "Russian oil production is still reflecting oil prices above $100 a barrel due to long lead times in the investment cycle," Alexander Nazarov, an oil and gas analyst at Gazprombank JSC, said by e-mail from Moscow. "The reason behind growth this year dates back to 2010-2014, when a number of projects were financed."

          ---------------
          My comment:
          – Using 7.3 barrels per ton conversion rate, Russian C+C production was 10,731 kb/d.
          – The industry only reduced production m-o-m in 2015 in April and July, indicating stable performance.
          – The companies' upstream margins are supported by weaker rouble and progressive tax system with a very steep scale.
          – There are no signs of reduced investment/drilling activity in the sector in rouble or volume terms.

          Russian C+C production (mb/d) (7.3 bbl/ton conversion rate)
          Source: Russia's Energy Ministry

          Dennis Coyne , 11/02/2015 at 8:55 am
          Hi AlexS,

          Thanks. Has there been any slow down in new oil field developments in Russia due to the lower oil price environment? I wonder if lower capital investment today may result in a fall in Russian output (or possibly an end to the recent growth in output) a few years down the road. Is your expectation a continued plateau in output between 10.6 and 10.7 Mb/d, even if oil prices remain under $60/b (2015$) until 2018?

          Fernando Leanme , 11/02/2015 at 9:42 am
          Dennis, the way this usually works the government will react and change taxes. As increased taxation takes effect production starts to drop. Evidently the Russian government is reluctant to change the current rates to signal it has a reliable tax system which allows investments to proceed with a very long term outlook. But I expect they'll be putting on the squeeze if they haven't done so.
          AlexS , 11/02/2015 at 3:46 pm
          Dennis,

          Development capex increased in local currency terms in 2015.

          From the IEA OMR: "Record high output follows a boom in development drilling, up 8.9% y-o-y for the first 8 months of 2015 compared with the same period a year earlier, as well as a greater share of horizontal wells and a continued focus on brownfield maintenance."

          The IEA now expects Russian oil production to decline by 85 kb/d in 2016. But in July they were expecting a decline of 120 kb/d.

          Similarly, the IEA had projected a decline of 140 kb/d for 2015 (January 2015 OMR), and now they forecast an increase of 110 kb/d (October 2015 OMR).

          As regards longer-term prospects, new projects, which are expected to come onstream in the next 5 years, are on schedule. Only some Arctic offshore projects were postponed, but they were not expected to start production before 2020-2025.

          The Energy Ministry's long term projections anticipate more or less flat production until 2035. I think production can be maintained close to current levels in the next 5-6 years. Longer term prospects depend on the development of the new resource base in the Arctic offshore and unconventional resources, such as tight oil

          Green People's Media , 11/02/2015 at 1:50 pm
          Ron, have you (or your readers) seen this one yet? As a regular follower of Peak Oil Barrel I have to count myself a "BP Skeptic" with regard t o this headline "BP sees technology nearly doubling world energy resources by 2050."

          It's the ancient "technology will save us" mantra re-applied. Wondering if you or any readers have any wisdom or insights on this article. Where is BP getting the claim of a doubling of "global reserves?" (Not daily production in MM Bbl/day, just "reserves," mind you.

          http://finance.yahoo.com/news/bp-sees-technology-nearly-doubling-world-energy-resources-143523912–finance.html

          Doug Leighton , 11/02/2015 at 3:32 pm
          Well it was BP who developed (and deployed) wide azimuth towed streamer technology which totally revolutionized marine seismic acquisition and decades before that they invented hydraulic fracturing (in the 1940s, I think) plus they pioneered ways of refining so-called dirty oil so God knows what kind of stuff they've got up their sleeve. Actually, credit where it's due, wasn't it BP who gave birth of the offshore oil/gas industry with exploitation of the North Sea via development of the Forties platform, what, 50 odd years ago.
          Fred Magyar , 11/02/2015 at 4:53 pm
          Yes, I read that article and almost posted it myself. There is so much contradictory information in that article that I think one would really need to read BP's actual press release. It's quite the mish mosh.

          Just this little tid bit should underscore what I mean:

          When taking into account all accessible forms of energy including nuclear, wind and solar, there are enough resources to meet 20 times what the world will need over that period, David Eyton, BP Group Head of Technology said.

          "Energy resources are plentiful. Concerns over running out of oil and gas have disappeared," Eyton said at the launch of BP's inaugural Technology Outlook.

          Oil and gas companies have invested heavily in squeezing the maximum from existing reservoirs by using chemicals, super computers and robotics. The halving of oil prices since last June has further dampened their appetite to explore for new resources, with more than $200 billion worth of mega projects scrapped in recent months.

          By applying these technologies, the global proved fossil fuel resources could increase from 2.9 trillion barrels of oil equivalent (boe) to 4.8 trillion boe by 2050, nearly double the projected 2.5 trillion boe required to meet global demand until 2050, BP said.

          With new exploration and technology, the resources could leap to a staggering 7.5 trillion boe, Eyton said.

          So basically BP is counting on alternative energy sources, electric vehicles, carbon taxes and reduced demand on top of new discoveries for which they no longer have financial incentives, to all come together to increase resources… Yeah, right!

          The article stinks!

          Watcher , 11/02/2015 at 5:53 pm
          If profit is not relevant to the exercise, a great deal more oil can come out of the ground than we have believed.

          [Nov 02, 2015] Peak Oil Review - Nov 2

          Notable quotes:
          "... Goldman Sachs continues to talk about the possibility of a major price drop in the next year as global capacity to store more crude and oil products runs out. There have been a number of analyses concluding that this will never happen, however, as there is still much storage space available. ..."
          "... It is generally believed that US shale oil production will drop further in the coming year but that it will be offset by increased production overseas. ..."
          "... Tehran will officially notify OPEC next month that it plans to increase production by 500,000 b/d and that it expects other OPEC members to cut production by enough to keep the cartel's production below the agreed-upon 30 million b/d ceiling. OPEC has been producing about 1.7 million b/d above this ceiling lately. ..."
          www.resilience.org

          originally published by ASPO-USA | TODAY

          ... ... ...

          Goldman Sachs continues to talk about the possibility of a major price drop in the next year as global capacity to store more crude and oil products runs out. There have been a number of analyses concluding that this will never happen, however, as there is still much storage space available. People with greater insight into this issue point out the problem is much too complex to be determined with a simple recitation of EIA tank capacity. Serious storage problems could still arise due to the spare storage capacity being in the wrong place or being of the wrong type for the liquid needing to be stored. The EIA says it really cannot calculate the amount of "swing space" necessary to keep operations flowing smoothly. There have already been reports of shortages of distillate storage in the New York area.

          It is generally believed that US shale oil production will drop further in the coming year but that it will be offset by increased production overseas. Iran announced this week that it is preparing to increase its production by 500,000 b/d, which should be enough to offset a large part of the decline in US production we have seen in recent months. This assumes that Tehran can sell its additional barrels which may be difficult without substantial price discounts. The future of the Chinese and US economies remains the major unknown. Chinese crude imports have held up pretty well this year despite its economic slowdown. Much of this is due to low prices which have allowed Beijing to fill its newly built strategic stockpile tanks and to feed new refining capacity. These new refineries are simply dumping more oil products on the world markets rather than increasing domestic oil consumption.

          Like the Chinese economy, that of the US seems to be slowing of late. While there has been much publicity about growing gasoline consumption in the US, this is obviously due to low prices which now average about $2.18 a gallon. The weak earnings reports from the oil industry and announcement that GDP growth fell to 1.5 percent in the third quarter from 3.9 percent in the second quarter raises questions about how long US demand for oil products will hold up. There are already tentative indications that the recent growth in gasoline consumption is starting to slip despite the falling prices.
          ... ... ...

          Iran: Tehran will officially notify OPEC next month that it plans to increase production by 500,000 b/d and that it expects other OPEC members to cut production by enough to keep the cartel's production below the agreed-upon 30 million b/d ceiling. OPEC has been producing about 1.7 million b/d above this ceiling lately.

          Iran has proposed establishing an oil and gas swap with Russia as it has had in place with Turkmenistan, Kazakhstan, and Azerbaijan for over a decade. Under this arrangement, the Iranians would receive gas and oil along their northern border for domestic consumption and then ship a similar quantity from its Gulf ports to Russia's customers. This presumably would save on transportation costs and difficulties in moving oil and gas produced in Central Asia to world markets.

          In the wake of the nuclear agreement Tehran has been feeling its oats by announcing plans to become the largest oil and gas producer. At a conference last week, the Iranians said they will need about $250 billion in new investment in the next ten years. Given the massive cutbacks by nearly all the international oil companies in recent months, the possibility of foreign investment on such a scale is remote.

          [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 02, 2015] US Oil Production by State

          Oct 30, 2015 | Peak Oil Barrel

          The EIA's Petroleum Supply Monthly is just out with production numbers, through August, for each state and offshore territories. The EIA's Monthly Energy Review is also out. This publication has US production data through September but not for individual states.

          US Total C+C

          The Petroleum Supply Monthly June 15 production numbers were revised down considerably this month. And you can see they had a drop of 169,000 bpd in September. I think there will likely be an even larger drop in October. At any rate US production is finally starting to drop significantly.

          The Gulf of Mexico is the one place that is bucking the trend. The GOM was up 146,000 bpd in July and up another 63,000 bpd in August for a total of 209,000 bpd for the two months.

          Texas was down for the fifth straight month. North Dakota has been moving sideways but is now below their September 2014 level. Alaska is slightly above their August 2014 level but their average annual production will drop by between 25 and 50 thousand bpd this year. Oklahoma has dropped 59,000 bpd since March. New Mexico which holds part of the Permian recovered slightly in August. Montana which, holds part of the Bakken, has been in a downward trend since March. Wyoming had been bucking the trend but now looks like it has succumbed to low oil prices also.

          Longtimber, 10/30/2015 at 5:03 pm

          Cold winter in Alaska? Meanwhile on the other side of the pond, Mr Yergin thinks Frackers may invade the Old World.
          "Europe has shale gas potential, but political obstacles prevent its development, he said. IHS research indicates that by the mid- 2030s Germany could be getting 35 of its natural gas from domestic shale gas produced from non-sensitive areas, equivalent to current import levels from Norway or Russia."

          YERGIN: ENERGY HAS ENTERED 'NEW ERA OF SHALE' WITH BIG BENEFITS FOR PETROCHEMICALS

          http://www.ogfj.com/articles/2015/10/yergin-energy-has-entered-new-era-of-shale-with-big-benefits-for-petrochemicals.html


          shallow sand, 10/30/2015 at 8:44 pm

          Ron. Thanks for the post!

          Some interesting things, to me anyway.

          After reading several company earnings releases and conference calls, it appears that all want to develop US shale over anything else they own. Unless foreign companies pick up the slack, it appears US majors' lack of foreign investment might result in some steep declines.

          Second interesting tidbit. Read a Seeking Alpha article about ConocoPhillips today that indicated they lost $3 for every BOE they produced company wide on a GAAP basis, with the US lower 48 incurring the highest BOE losses at $9. These figures were for the third quarter, 2015.

          Finally, read that Whiting is in process of selling its water disposal infrastructure. I touched on this earlier. I was unaware this is a common industry practice. To me, selling these assets at this time is a sign of desperation. IMO this permanently devalues the producing assets with an unnecesaary expense burden. If anyone has some data on how much of this infrastructure has been sold off by the shale companies, let me know. Likewise, as I am not familiar with this practice, and especially if you think I am off base, please chime in. I can't imagine us ever wanting to do such a thing. I note both clueless and John S posted this is quite common.

          To me, selling these assets is like selling off the plumbing, wiring, furnace and air conditioner in your house and having to rent them forever.

          gwalke, 11/02/2015 at 7:45 am

          Beyond the infrastructure sale, Whiting's 3Q2015 results seemed like a real disaster to me, though many analysts thought it was a good quarter.

          The three things that stood out to me were:

          • They announced 38% production increase – so they told investors that in response to prices falling 60%, they produced more oil (?!);
          • They announced that they have increased the sand per frack job, and intend to increase it further – telling investors that they are risking the long-term recovery factors of their wells for short-term production rate gains;
          • They announced they will update their EUR curves on the basis of the IP of these new "enhanced completions", and even used 24hr IP to discuss how amazing their 7 million lb of sand fracks are – essentially telling investors that they are juicing their IP in order to hoodwink them about well profitability.
          BC, 10/30/2015 at 9:28 pm

          TX, ND, WY, and LA are in recession.

          CO, OK, AK, and WV might have been/be in recession, or close enough.

          VK, 10/31/2015 at 5:47 am
          Down the slippery slope of descent and ruin. For 80% of Americans life has been getting harder and harder.

          http://www.paulcraigroberts.org/2015/10/29/us-on-road-to-third-world-paul-craig-roberts/

          The evidence is everywhere. In September the US Bureau of the Census released its report on US household income by quintile. Every quintile, as well as the top 5%, has experienced a decline in real household income since their peaks. The bottom quintile (lower 20 percent) has had a 17.1% decline in real income from the 1999 peak (from $14,092 to $11,676). The 4th quintile has had a 10.8% fall in real income since 2000 (from $34,863 to $31,087). The middle quintile has had a 6.9% decline in real income since 2000 (from $58,058 to $54,041). The 2nd quintile has had a 2.8% fall in real income since 2007 (from $90,331 to $87,834). The top quintile has had a decline in real income since 2006 of 1.7% (from $197,466 to $194,053). The top 5% has experienced a 4.8% reduction in real income since 2006 (from $349,215 to $332,347). Only the top One Percent or less (mainly the 0.1%) has experienced growth in income and wealth.

          The Census Bureau uses official measures of inflation to arrive at real income. These measures are understated. If more accurate measures of inflation are used (such as those available from shadowstats.com), the declines in real household income are larger and have been declining for a longer period. Some measures show real median annual household income below levels of the late 1960s and early 1970s.

          [Nov 01, 2015] Chevron Takes Drastic Measures, Lays Off Another 7000 Employees

          "... And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier. ..."
          OilPrice.com

          Back in January, in the aftermath of the first plunge in commodity prices, and oil in particular, oil major Chevron had the unsavory distinction of being the first US oil giant to admit cash flow "constraints" when it was forced to scrap its buyback. And since oil's dead cat bounce fizzled just around the summer before resuming is slide, it was inevitable that Chevron would proceed with trimming even more cash outflows.

          It did so for the first time in July, when as we reported at the time, Chevron would layoff 1,500 jobs globally, saying that "the cost reductions due to cuts in the corporate center are expected to total $1 billion with additional cost savings expected across the company."

          And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier.

          [Oct 31, 2015] No Real Chance of Another Financial Crisis - Silly

          Notable quotes:
          "... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."
          "... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."
          "... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."
          "... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."
          "... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."
          "... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."
          "... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."
          "... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."
          jessescrossroadscafe.blogspot.com

          I like Dean Baker quite well, and often link to his columns. On most things we are pretty much on the same page.

          And to his credit he was one of the few 'mainstream' economists to actually see the housing bubble developing, and call it out. Some may claim to have done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman for example. But very few spoke about doing something about it while it was in progress. The Fed was aware according to their own minutes, and ignored it.

          The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it.

          Am I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered, grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?

          That difficulty arises because economics is no science. It involves judgment and principles, and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none of those and wish none.

          But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective.

          Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be 'philosopher kings.'

          The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring the global financial system to its knees?

          The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.' In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.' The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within.

          I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger, global, and more profoundly influencing the political processes.

          The only question is what 'trigger event' might set it spinning, and how great of a magnitude will it have to be in order to do so. The more fragile the system, the less that is required to knock it off its underpinnings.

          And a crisis is not a binary event. There is the 'trigger' and the dawning perception of risks, and the initial responses of the political, social, and regulatory powers.

          There is no point in debating this, because the regulators and powerful groups like the Fed are caught in a credibility trap, which prevents them from seeing things as they are, and saying so.

          So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way?

          I think if one exercises clear and open judgement, they can see that we have stirred up the same pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has kept it so.

          A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan' events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain,

          The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the TBTF Banks with their serial crime sprees and accommodative regulators in particular.

          And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select few with the bulk of new income, then there is little more that can be said.

          Neil Irwin, a writer for the NYT Upshot section, had an interesting debate with himself about the likely future course of the economy. He got the picture mostly right in my view, with a few important qualifications.

          "First, his negative scenario is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff, but it's frankly a little silly. The basis of the last financial crisis was a massive amount of debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks the economy needs this sort of basis.

          If a lot of people are speculating in the stock of Uber or other wonder companies, and reality wipes them out, this is just a story of some speculators being wiped out. It is not going to shake the economy as a whole. (San Francisco's economy could take a serious hit.)

          Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in the largest market in the world. Perhaps there is another bubble out there like this, but neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously.

          If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story...

          Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad story to most of the country. It may not be as dramatic as a financial crisis that brings the world banking system to its knees, but it is far more likely and therefore something that we should be very worried about."

          Dean Baker, Debating the Economy with Neil Irwin, 31 October 2015

          [Oct 28, 2015] The Full Details Of How Goldman Criminally Obtained Confidential Information From The New York Fed

          Zero Hedge
          Two days ago we reported that the saga of Rohit Bansal, Goldman's "leaker" at the Fed is coming to a close with the announcement of a criminal case filed against Goldman's deep throat who had previously spent 7 years at the NY Fed, and was about to spend some time in prison, and who had been providing Goldman with confidential information sourced from his contact at the NY Fed for months, as a result of which Goldman would be charged a penalty.

          Moments ago the NY DFS announced that the best connected hedge fund in the world would pay $50 million to the New York State Department of Financial Services and "accept a three-year voluntary abstention from accepting new consulting engagements that require the Department to authorize the disclosure of confidential information under New York Banking Law"

          Goldman Sachs would also admit that a Goldman employee engaged in the criminal theft of Department confidential supervisory information; Goldman Sachs management failed to effectively supervise its employee to prevent this theft from occurring; and Goldman failed to implement and maintain adequate policies and procedures relating to post-employment restrictions for former government employees.

          Below are the unbelievable, details of just how Goldman was getting material information from the NY Fed, from the FDS:

          Violation of Post-employment Restrictions

          On July 21, 2014, an individual began work at Goldman, Sachs & Co. as an Associate in the Financial Institutions Group ("FIG") of the Investment Banking Division ("IBD"). The Associate reported to a Managing Director and a Partner at Goldman.

          Prior to his employment at Goldman, from approximately August 2007 to March 2014, the Associate was a bank examiner at the U.S. Federal Reserve Bank of New York ("the New York Fed"). His most recent position at the New York Fed was as the Central Point of Contact ("CPC") – the primary supervisory contact for a particular financial institution – for an entity regulated by the Department (the "Regulated Entity").

          In March 2014, the Associate was required to resign from his position at the New York Fed for, among other reasons, taking his work blackberry overseas without obtaining prior authorization to do so and for attempting to falsify records to make it look like he had obtained such authorization, and for engaging in unauthorized communications with the Federal Reserve Board.

          The Associate was hired in large part for the regulatory experience and knowledge he had gained while working at the New York Fed. Prior to hiring him, the Partner and other senior personnel interviewed and called the Associate several times, and the Partner took him out to lunch and dinner.

          Prior to starting at Goldman, in May 2014, the Associate informed the Partner of potential restrictions on his work, due to his previous employment at the New York Fed, and specifically as the CPC for the Regulated Entity. The Partner advised the Associate to consult the New York Fed to obtain clarification regarding any applicable restrictions.

          Accordingly, the Associate inquired with the New York Fed Ethics Office and was given a "Notice of Post-Employment Restriction," which he completed and signed with respect to his supervisory work for the Regulated Entity. The Associate provided this form to Goldman. This Notice of Post-Employment Restriction read that the Associate was prohibited "from knowingly accepting compensation as an employee, officer, director, or consultant from [the Regulated Entity]" until February 1, 2015.

          On May 14, 2014, the Associate forwarded this notice of restriction to the Partner, the Managing Director, and an attorney in Goldman's Legal Department. In his email, the Associate also included guidance from the New York Fed, stating, in short, that a person falls under the post-employment restriction if that person "directly works on matters for, or on behalf of," the relevant financial institution.

          Despite receiving this notice and guidance, Goldman placed the Associate on Regulated Entity matters from the outset of his employment. As further detailed below, the Associate also schemed to steal confidential regulatory and government documents related to that same Regulated Entity in advising that client.

          Unauthorized Possession and Dissemination of Confidential Information

          During his employment at Goldman, the Associate wrongfully obtained confidential information, including approximately 35 documents, on approximately 20 occasions, from a former co-worker at the New York Fed (the "New York Fed Employee"). These documents constituted confidential regulatory or supervisory information – many marked as "internal," "restricted," or "confidential" – belonging to the Department, the New York Fed or the Federal Deposit Insurance Corporation (the "FDIC"). The Associate's main conduit for receiving information from the New York Fed was his former coworker, the New York Fed Employee, who has since been terminated for this conduct. While still employed at the New York Fed, the New York Fed Employee would email documents to the Associate's personal email address, and the Associate would subsequently forward those emails to his own Goldman work email address.

          On numerous occasions, the Associate provided this confidential information to various senior personnel at Goldman, including the Partner and the Managing Director, as well as a Vice President and another associate who perform quantitative analysis for Goldman. In several instances where the Associate forwarded confidential information to other Goldman personnel, the Associate wrote in the body of the email that the documents were highly confidential or directed the recipients, "Please don't distribute." At least nine documents that the Associate provided to Goldman constituted confidential supervisory information under New York Banking Law § 36(10). Pursuant to the statute, such confidential supervisory information shall not be disclosed unless authorized by the Department. The documents included draft and final versions of memoranda regarding and examinations of the Regulated Entity, as well as correspondence related to those examinations.

          At least 17 confidential documents that the Associate had improperly received from the New York Fed – seven of which constituted confidential supervisory information under New York Banking Law § 36(10) – were found in hard copy on the desk of the Managing Director. Additional hard copy documents were found on the desks of the Vice President and the other associate, including at least one document constituting confidential supervisory information under New York Banking Law § 36(10).

          On August 18, 2014, the Associate shared three documents pertaining to enterprise risk management with the Managing Director, writing, "Below is the ERM request list, work program and assessment framework we used for ERM targets. Again this is highly confidential as its not public and has not been issued a[s] guidance yet. Not sure where it is at anymore due to internal politics. I worked on this framework and guidance within the context of a system working group with the Fed system. We ran several pilots to test it was well. Please don't distribute." The Managing Director replied, "I won't. Will review on plane tomorrow to DC." The documents were marked as "Internal-FR" or "Restricted-FR."

          Part of Goldman's work for the Regulated Entity included advisory services with respect to a potential transaction. A certain component of the Regulated Entity's examination rating was relevant to the transaction. The Regulated Entity's examinations were conducted jointly by the FDIC, DFS and the New York Fed. As described below, the Associate used confidential information regarding the Regulated Entity's examination rating – obtained both from his prior employment at the New York Fed and from his contacts there – and conveyed this information to the Managing Director, who then conveyed the information to the Regulated Entity on September 23, 2014, in advance of it being conveyed by the regulators.

          On August 16, 2014, the Associate emailed the Managing Director regarding the regulators' perspective on the Regulated Entity's forthcoming examination rating, writing "You need to speak to [the CEO of the Regulated Entity] about scheduling a meeting with all 3 agencies ASAP. He needs to meet with them and display and discuss all the improvements and corrections they have made during the last examination cycle."

          On September 23, 2014, the Associate attended the birthday dinner of the New York Fed Employee at Peter Luger Steakhouse, along with several other New York Fed employees. Immediately after the dinner, the Associate emailed the Managing Director, divulging confidential information concerning the Regulated Entity, specifically, the relevant component of the upcoming examination rating. The Associate wrote, "…the exit meeting is tomorrow and looks like no [change] to the [relevant] rating. I heard there won't be any split rating… [The Regulated Entity] should have listened to you with the advice…hopefully [the CEO] will now know you didn't have phony info."

          In this email, the Associate also provided advice to relay to the Regulated Entity's management, stating that they should "keep their cool, not get defensive and not say too much unless the regulators have a blatant fact wrong" as it "will go off better for them in the long run. Believe it or not the regulator's [sic] look for reaction and level of mgmt respectiveness [sic] during these exit meetings." The Managing Director replied "Let's discuss . . . I'm seeing [the CEO of the Regulated Entity] tmw afternoon alone."

          Later that night, the Associate followed up with another email to the Managing Director, writing, "I feel awful not being there to wrap up 2013. I would have been able to pull all this through. I was a real advocate for all the work they have done." He also offered to join a meeting with the CEO of the Regulated Entity if the Managing Director wanted.

          On September 26, 2014, Goldman had an internal call regarding the calculation of certain asset ratios, during which there was disagreement over the appropriate method. During the call, the Associate circulated an internal New York Fed document – which the Associate had recently obtained from the New York Fed Employee – relating to the calculation, to the call participants, writing, "Pls keep confidential?" Following the group call, the Partner called the Associate to discuss the document, including where he had obtained it, and the Associate told him that he had obtained it from the New York Fed. The Partner then called the Global Head of IBD Compliance to report the matter and forwarded the document.

          Compliance Failures, Failure to Supervise and Violation of Internal Policies

          After receiving notice of the Associate's prohibition on working on matters for the Regulated Entity, Goldman, including the Partner and the Legal Department, failed to take any steps to screen the Associate from such prohibited work. Instead, Goldman affirmatively placed the Associate on matters for the Regulated Entity beginning on his first day, and added the Associate to the official Goldman database as a member of the Regulated Entity "Team" – a team led by the Partner.

          Goldman failed to provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded. While Goldman policies provided that confidential information received from clients should only be shared on a "need to know" basis, Goldman did not distinguish between this broader category of confidential information and the type of confidential supervisory information belonging to a regulator or other government agency, which is protected by law, such as confidential supervisory information under New York Banking Law § 36(10). Indeed, Goldman policies failed to adequately address Department confidential supervisory information.

          As noted above, the Associate also violated Goldman's internal policy on "Use of Materials from Previous Employers," which states that work that personnel have done for previous employers, and confidential information gained while working there, should not be brought into Goldman or used or disclosed to others at Goldman without the express permission of the previous employer.

          * * *

          The Managing Director is safe, as are all other Goldman employees: nobody aside for Bansal who was merely trying to impress his superiors, has anything to worry about.

          Anyone else found to have obtained at least "35 confidential documents" from the Fed on at least "20 occassions" would be sent straight to jail with a prison sentence anywhere between several decades and life.

          Goldman's punishment? 0.6% of its 2014 Net Income.

          Duc888

          How could this happen? Seriously. Aren't the FED and GS separate entities?

          Oh, wait.....

          LetThemEatRand

          The fact that these documents were sent via email only tells me how widespread this is. Most of these guys are probably smart enough to put a paper copy in their briefcase and deliver it to Goldman the old fashioned way bankers do things (over drinks and coke at a strip bar).

          But when "everyone is doing it," a guy may get careless and start using email, figuring what the fuck.

          Urban Redneck

          Did Goldman's Marketing Department write that release for their FRBNY subsidiary??? They deserve the $50 million fine for being an embarrassment to scheming bankers everywhere. This is a company that has destroyed companies, entire economies, and countless (not so little) investors by placing their own financial interests above their clients and regularly using inside information and access to do so. Then Goldman is "caught" when they turn themselves in (not that they had a lot of choice given the amateur hour performance) for actually "helping" one of their clients (for once)... This whole thing stinks, in more ways than one.

          Sudden Debt

          What a joke!!!

          GS and JPM ARE THE FED!!!

          and that "fine"... THAT'S THEIR DONUT BUDGET!!

          J J Pettigrew

          Bagels....please!

          Elliott Eldrich

          "Feel sorry for the poor schmuck, cuffed and heading to a sallyport, to be booked, and serve 6 months in jail, for stealing a carton of ciggs..."

          Little crimes are punished with great fervor, while the biggest criminals get their wrists slapped. This is outrageous, and I just have to ask how much more we are supposed to bear before breaking?

          Lord Ariok

          I Love my Country and Hate Our Government. But If our government isn't "Gangster" well believe it there will be another "Government" that is even more "Gangster" then ours to take the number 1 spot in the Syndicate. The way I see it if we have to do this in order to compete with China's Level of Corruption. Damn Chinese Efficiency. ~ Lord Ariok

          venturen

          they have Bill Dudley...they were worried that this underling would do something. Heck Goldman gives the orders not the other way around

          Bay of Pigs

          The William Dudley is the main man at the FED (and the BIS), not Yellin or Fischer.

          "Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm's chief U.S. economist for a decade. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.

          In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the former Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He is a member of the board of directors of the BIS and chairman of the Economic Club of New York."

          http://www.newyorkfed.org/aboutthefed/orgchart/dudley.html

          [Oct 27, 2015] OECD Chief Economist: Its Time To Temper The Frothiness In Markets

          www.zerohedge.com
          "... if you look at what is supporting equity prices - how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.

          These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness.

          Eliminating the incentive to engage in that kind of activity seems to me to be a good idea... There would be a proportion of the population that would have less capital gains - but they've been enjoying very big capital gains, and it is a narrow segment of the population."

          [Oct 23, 2015] US. Shale Drillers Running Out Of Options, Fast

          Notable quotes:
          "... The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs. ..."
          "... However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article. ..."
          "... Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian. ..."
          oilprice.com

          Much has been made about the impressive gains in efficiency and productivity in the shale patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits to such an approach are becoming increasingly visible. The U.S. shale revolution is running out of steam.

          The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs.

          However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article.

          For evidence that the productivity gains have run their course, take a look at the latest Drilling Productivity Report from the EIA. Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian.

          [Oct 23, 2015] Saudi Arabia Russia, Iran Forge Energy Partnerships

          Oct 23, 2015 | Zero Hedge

          No, the "atmosphere is not well," because again, the Saudis are out to achieve "ancillary diplomatic benefits" (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to the market.

          As you can see, all of this is inextricably linked and it looks as though Russia and Iran may be on the verge of attempting to challenge the Saudis for domination of the oil market (don't forget Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).

          Is a "new oil order" in the works? We shall see.

          pot_and_kettle

          Can someone point out when Syria didn't sign off on the Qatar - Turkey pipeline and when the pipeline was first proposed? This is news to me and seems like the watershed event for what the zio-US fomented in that part of the world.

          Sergeiab

          http://ftmdaily.com/what-jerry-thinks/whysyria/

          4shzl

          Next step: open that eastern front on the Arabian Peninsula.

          Freddie

          Persia has been around thousands of years.

          A person may not like the Russians or Iranaians but they "ain't" going anywhere. They are also pretty tough on the battlefield (see Hezbollah). They also stood up for Syrian and the Syrian people including Syrian Christians.

          Persians are a lot smarter than Saudis too.

          alphahammer

          Yea lets take a look. Good of you to point that out.

          ---

          China Not So In Love With Russia After All

          JUN 17, 2015

          Shunned by the West, Russia may want to promote its new Chinese love affair to the world these days, but Czar Romeo shouldn't get his hopes up.

          Russia's second biggest lender, VTB Bank, said that most Chinese banks have foregone doing business with them. The reason? Western sanctions against VTB. China lenders don't want to get caught up in the drama and - having more business with the U.S. and Europe than with Russia - have opted to play it safe.

          "China's ambiguous position regarding Russian banks in the wake of US and EU sanctions is a key issue holding back progress toward greater bilateral cooperation," VTB Bank First Deputy Chairman Yuri Soloviev write in an op-ed published by the FinanceAsia news agency on Tuesday.

          Freddie

          Anything that smacks the shit out of the Saudis or Qatar makes me happy. What they did to Syria with the help of the USA, Turkey, UK, Israel and others is sickening.

          [Oct 23, 2015] Is Russia The King Of Arctic Oil By Default

          This is a very expensive oil that Russians now selling at loss. Financial capitalism in action.
          Notable quotes:
          "... Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). ..."
          "... No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields. ..."
          Oct 23, 2015 | Zero Hedge
          ... ... ...

          A cursory search of 'Arctic' and 'oil' elicits little in the way of positivity. Certainly, Shell's failure in the Chukchi Sea is notable. Combined with the Obama administration's waffling distaste for future offshore Arctic development, it marks what should be a period of relative dormancy in U.S. waters. Still, it's not indicative of the sector globally, which is seeing progress, albeit at a glacial pace.

          The shining example of such development to date is Gazprom Neft's Prirazlomnaya platform. Located nearly 40 miles offshore in the Pechora Sea, the rig is the world's first Arctic oil project involving a stationary platform – though the general concept itself has been employed before (see: BP's Northstar Island).

          Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). With production well number two (of 19) now online, output should reach somewhere between 10,000-15,000 bpd by year's end.

          To be fair, several important tests lie ahead for Prirazlomnaya and Russia's Arctic shelf development in general. Chief among them is rapidly addressing its import dependence – one of the primary targets of U.S. and EU sanctions. No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields.

          Attention, domestic and international, has been given to the courting of China, India, and other backers – both financial and technological – but all eyes should be on the Russian solution, which will seek to demonstrate its efficacy by 2020.

          At the Prirazlomnoye field, the Russian institute Omskneftekhimproekt has begun work on the modernization of the rig's drilling installations, technological equipment, and safety and telecommunications systems. The primary objectives are to boost production capacity (to ~120,000 bpd) toward 2020 and lay the building blocks for the future development of Russian-sourced platforms.

          The work by Omskneftekhimproekt mirrors that of several institutes, companies, and universities across the country, rallying around the call for import substitution. However, just how much can actually be accomplished is the billion dollar question.

          [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.

        3. "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 22, 2015] Peak Oil is a Function of Oil Price

          Notable quotes:
          "... The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar. ..."
          "... My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way. ..."
          "... In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected. ..."
          "... "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like ..."
          "... ... ... ... ..."
          "... we can say with a pretty high degree of certainty "The world has passed peak $20 oil." ..."
          "... That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices. ..."
          "... But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe ..."
          "... When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up. ..."
          "... This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. ..."
          "... While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices. ..."
          "... At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. ..."
          "... What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. ..."
          "... Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldnt use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. ..."
          "... You are right as far as the EROEI of oil is concerned, but I believe that Joes comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. ..."
          "... Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the worlds historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubberts models. ..."
          "... One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such. ..."
          "... I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the worlds oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like? ..."
          "... I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the oceans depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient. ..."
          "... Climbing for decades would not make PO bunk , it would only make Hubbert´s estimate a bit more inaccurate and drag the decline out by a generation. ..."
          "... But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again. ..."
          "... Isnt it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel.... ..."
          "... The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and that too is peaking. Next will be peak population. ..."
          "... I agree that the issue with Peak Oil isnt that were going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online. ..."
          "... If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment. ..."
          "... And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you? ..."
          "... I think thats going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world. ..."
          "... The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups. ..."
          "... what you wrote above hit me: Its such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption. ..."
          "... Peak oil isnt just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability. ..."
          www.energytrendsinsider.com

          The Origins of Peak Oil Awareness

          The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.

          Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas. He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was 150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd) extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in the US, Hubbert's base case estimate was that oil production in the US would reach maximum production in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum production rate of 34 million bpd.

          Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels (about which he expressed doubts), peak production would occur in 1970, a delay of five years from his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with precisely calling the US peak, but few know that he was actually skeptical that the peak would take place as late as 1970.

          The US has now surpassed Hubbert's most optimistic estimate for US oil production. Through 2014, cumulative US production stands at ~ 215 billion barrels, with a remaining estimated proved reserve of 48.5 billion barrels (but with the caveat this reserves estimate is based on crude prices near $100/bbl).

          The Modern Peak Oil Debate

          In the ensuing decades since Hubbert's original work, discussion of peak oil ebbed and flowed. But the modern peak oil debates really heated up a decade ago. In 2005 the late Matt Simmons, an investment banker to the oil industry, published Twilight in the Desert. The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar.

          ... ... ...

          Peak Oil Camps

          At one extreme of this debate was the camp that believed peak oil was happening at that time (~2005), and that it was going to spell the end of civilization. This camp was often referred to as "doomers", because they believed that humanity was doomed. (And many haven't changed from that position). At the other extreme were those who believed technology could continue to squeeze ever more oil out of the ground. This camp was sometimes referred to as the "technocopians."

          Most of us were somewhere in the middle. In 2005 I felt like we still had a few years to go before we reached peak oil. My general position was that we were 3-5 years away at that time, and I spent a lot of time debating the evidence with the imminent peakers. I wrote a number of articles addressing the topic of peak oil (e.g., Five Misconceptions About Peak Oil). My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way.

          Overconfidence in these discussions over peak oil (and peak natural gas) was prevalent. For instance, in 2003 Matt Simmons predicted, with "certainty," that by 2005 the US would begin a long-term natural gas crisis for which the only solution was "to pray." This sort of confidence was prominent in the debates. If you had argued at that time that by 2015 US and world oil production would be where they are today, you would have been deemed certifiably insane.

          In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected.

          I had this idea bouncing around my head that higher prices would spur more oil production, but I agreed with those who argued that there were limits to this and we had to take steps to address the risks. The limits wouldn't necessarily be technological, but would rather depend on the amount of energy required to extract and process the oil. At some point it simply becomes too energy-intensive, and even if you are using a cheaper source of energy to do the extraction, there comes a point that the cost of energy inputs exceeds the cost of energy extracted. Since the energy inputs and outputs are related via price, it's a pretty good argument.

          It's Not That Simple

          Jeff Rubin - the former chief economist at CIBC World Markets - eventually crystallized in my mind the relationship between peak oil and oil prices. I saw Rubin give a presentation in 2011, and he said something like "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like

          ... ... ...

          ,,,the bottom line is that there is a lot of oil that will come online at higher oil prices. How much is truly unknown, but it is estimated to be in the 10′s of millions of barrels per day. (For those who believe this is unlikely, think back to 2005 and how much chance you would have given for the current levels of oil production). Similar graphics have been produced for the break-even price in shale oil plays, and the message is similar: Higher oil prices will spur oil production in more marginal areas.

          So we should really talk about peak oil as a function of oil prices. In that case, we can say with a pretty high degree of certainty "The world has passed peak $20 oil." If we could magically freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected. That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices.

          But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe we have past peak $50/bbl oil.

          The peak oil story turned out to be more complex than most of us who were debating it could have imagined back in 2005. What many thought was peak oil at that time was just one more cycle in the gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up.

          But what we have seen in this most recent cycle is that the trough isn't as deep as it has been in the past. This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold, and most likely the $50 threshold.

          ... ... ...

          Link to Original Article: Peak Oil is a Function of Oil Price

          Joe Clarkson a month ago

          While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices.

          At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. If so, we will know that we have passed peak oil when oil prices again rise to record highs (over $100/bbl) and production fails to respond and exceed the volumes that were produced the last time oil was $100/bbl.

          What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. If they haven't happened already for other reasons, debt deflation and financial panic will then exacerbate all our other resource depletion predicaments. It won't be pretty.

          Robert Rapier Mod Joe Clarkson a month ago
          "people can afford to pay is a function of the EROEI of oil extraction."

          Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. So EROEI is something that tells us about the relative efficiency, but it doesn't address the economics. Nor does it include a time factor. I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis.

          Advocatus Diaboli -> Robert Rapier a month ago
          Robert,

          "You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline."

          You are right as far as the EROEI of oil is concerned, but I believe that Joe's comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. Your example assumes that coal will continue to have a much higher EROEI than (marginal) oil, but to the extent oil needs to be cross-subsidized in energy terms, it ceases to be an energy source to the economy, it just becomes an expensive energy carrier. And the more we subsidize oil with coal (in energy terms), the faster will the EROEI of coal decline and more of society's resources will have to be invested in the energy sector.

          "I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis."

          Let's assume you can run your economy on the "right kind of energy" (let's call it gasoline) that has an EROEI of 1.1 I.e., every day you need to invest one unit of this energy to get 0.1 unit available to (and sufficient for) the rest of the economy. But if you need three units of the "wrong kind of energy" (coal) to produce one unit of this gasoline (meaning that gasoline has an EROEI of 1/3, i.e. it is not a net "source" of energy) and the actual process you are running the economy on (coal production) has an EROEI of 1.1, then returning that every day would only give you 1/30 units of gasoline a day, which is only a third of what you need for the rest of the economy. You would therefore have to return the 1.1 coal energy not on a daily basis, but every 8 hours to get your fix of gasoline. That would mean having to triple the throughput of coal, meaning three times more mines, rail transport, power capacity, etc.

          Joe's argument may have been simplistic, but I think it is clear that there are limits that monetary cost cannot represent. Measuring the price of oil in dollars seems to assume that somehow dollars can represent a value independent of the cost of oil, which is questionable. Higher oil price cannot postpone peak oil indefinitely, as it can just crush society's ability to maintain the complexity needed to maintain (let alone increase) oil production from increasingly difficult places.

          davidgmills1 -> Glen McMillian 24 days ago
          I guess its high time on this board that people learn about Liquid fluoride thorium reactors (maybe you do but you don't act like it). This was the nuclear power we should have had and never got because a decision was made by the US government to breed Uranium 238 instead of breeding Thorium 232. We proved at Oak Ridge that breeding 232 was feasible. But Uranium 238 won out because it could be used to make bombs easily while breeding thorium couldn't make bombs easy. Using uranium we got a two-fer. But a number of Uranium 238 breeder reactors were built and no one ever made them work successfully. By then though, the Oak Ridge program had been shut down and all of the developers of the program were either dead or retired.

          People need to know that this form of energy is available to us, and it is capable of powering the world for thousands of years.

          Ten major attributes of thorium:

          http://energyfromthorium.com/2...

          Solar and wind are fine for many applications, but if you want to power ships or go to deep space or even colonize the moon or other places, there are many times they just don't work.

          Russ Finley -> davidgmills1 24 days ago
          We can't hang our hats on unproven technology, but we certainly should be trying much harder to prove it. These reactors are not a done deal:

          http://euanmearns.com/molten-s...

          This is the kind of technology the Google Engineering team was talking about when they concluded that we don't have the weapons to fight climate change.

          http://www.energytrendsinsider...

          davidgmills1 -> Russ Finley 24 days ago
          We ran a reactor for 20,000 hours in the 60's and 70's. It would not take that much to get them going again if we had the will. I would say that 20,000 hours was a pretty good start at proving the technology.

          And I looked at Euan Means' article. It clearly does not address LFTRs. LFTRs run in the thermal spectrum, not the fast spectrum.

          The reason uranium breeders were not successful is that they ran in the fast spectrum, which has a target 1/25 the size of the thermal spectrum's target that a neutron has to hit.

          It is much easier to breed fertile elements when having a neutron hit a target 25 times as big and splitting an atom 2/3 of the time than it is to hit a target 1/25 the size and splitting the atom 90% of the time. That is the difference between breeding in the thermal spectrum and the fast spectrum. The people who wanted to breed uranium believed uranium could be bred in the fast spectrum. It proved to be very difficult.

          Only thorium breeds in the thermal spectrum. Uranium does not. Breeding thorium was much easier and consequently it is not surprising we were able to do it at Oak Ridge for 20,000 hours.

          The only thorium reactor discussed in Means' article runs in the fast spectrum. Euan Means' article proves he does not know what LFTRs are and consequently his article is not a valid analysis of LFTR's capability.

          Rob Andrews a month ago
          Peak Oil is also a function of demand, if alternate energy sources create an energy price that is lower than the $20 peak oil price you may end up with a lot of trapped oil that not extractable. Of course research on both sides seeks innovation to beat the floor price of the competition

          davidgmills1 -> Robert Rapier 24 days ago

          Maybe not today. But China has begun work on Liquid Fluoride Thorium Reactors which we pioneered in the 60's. They hope to have one operational by 2020.

          See my post about 4 comments above and the link I cited.

          If the world starts to make them in the 2020's, by 2035 or 40, the world will drastically change from what it is now. The thorium age will be vastly different from the fossil fuel age.

          Ed Dodge a month ago
          Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the world's historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubbert's models.

          There are more unconventional resources to be tapped, so reserves can continue to grow. Tight oil recovery rates are very low with huge margin for improvement. CO2-EOR opens up billions of barrels, methane hydrates are massive and yet to be tapped (gas not oil but the point remains), and synthetic fuels can be produced from coal, biomass and garbage.

          I agree that prices drive development, and obviously environmental concerns are huge, so we must be smart and manage carbon emissions and everything else, but we are certainly not about to run out of hydrocarbons though they would not be as cheap as they once were.

          Robert Rapier Mod Ed Dodge a month ago
          "Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models..."

          He was WAY off on his numbers. He vastly underestimated future production rates. So his peak predictions are based on production rates that were much lower than they actually were. If he had plugged in what the numbers actually ended up being, he would have forecast peak years earlier than he did.

          Cracker -> Robert Rapier 21 days ago
          Robert, I suspect he underestimated reserve growth (increase of proven reserves over time) in US oil over those decades, as well. Variables and unknowns are why long term numbers are seldom correct.

          One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such.

          I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the world's oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like?

          Forrest 18 days ago
          Would it be more accurate to say oil production is a factor of price? As the market will be energized by future profits that in turn will spur innovation, technology, investment, R&D, tax incentives, etc..

          I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the ocean's depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient.

          I can think of no reason the petrol fossil fuel supply will run out. It will get more expensive, but the earth makes a good storage container as such the supply will quietly and safely sit in place until needed. I remember reading of natural gas reserves of 100 or 200 years out, depending on exports and consumption.

          That's the known (current) recoverable reserves of which should increase. Also, coal was rated the same. Maybe GW concerns will eliminate or limit the fuel source, but the enthusiast of such planet killing phenomenon seem to be fickle bunch that only concern themselves with political leadership and solutions of their choosing. For example they claim corn ethanol is worse than gasoline per CO2. The EPA follows suit with outdated data and unproven penalties and utilize illegal rule governing power to limit the production of the fuel. Contrast this with Energy department's evaluation of ethanol fuel upon GW very positive as compared and gaining strength wile the EPA buries it's head to avoid reality check. Think of the taxpayer cost and politics invested to promote wind and solar energy without accurate analysis and comparison. Think of the same costs and quality of evaluations of BEV. Then compare the taxpayer cost of the ethanol fuel solution and hydro power already in the position of solving problems and reducing cost. What's the holdup if as they say GW will destroy the planet. Shouldn't environmentalist be shouting for joy, for example, that a new auto company utilizing all American built material is about to debut it's 2016 production and drive a spike in auto pollution problems. A simple low cost safe and reliable auto that's rated at 84 mpg. A $6,800 vehicle that needs no taxpayer subsidy and should replace a large segment of the used car market. A market of 90 million clunkers that average less than 20 mpg. I don't hear shouts of joy? Why is that? You could double the GW emission benefit of this vehicle with mid level blend ethanol fuel. An easy move up to E85 fuel engine that would decrease carbon pollution 85% if fueled with cellulosic ethanol. The Energy Department's rating of Miscanthus grass ethanol drives the carbon rating to negative. Meaning you actually improve. Shouts of Joy per not needing horrendous taxpayer investment and no need to lose citizen and private market freedoms per government regulation should soon spout. Don't hold your breath as they will attempt to kill such solutions not aligned with their ideals.

          Optimist 20 days ago
          More to the point, Peak Oil is bunk, thanks to markets.

          When production dips below demand, price increases until either demand drops or supply increases (or both). May take months or years, but that's inevitably how it works. There are many options for adding to liquid fuel supply that have not even been seriously explored and therefore remains available as future options, including gas-to-liquid, coal-to-liquid, biomass-to-liquid, etc.

          The main threat to the system are foolhardy politicians, a species that seem to be out-breeding the other kind at a most disconcerting rate. When, and only when, one of these dimwits attempt to put a ceiling on fuel prices, shortages ensue.

          At least we still have Nixon to kick around, jackass...

          Advocatus Diaboli -> Optimist 18 days ago
          Are you suggesting that the Earth has infinite reserves of oil? If there is no peak oil, then oil production would need to increase monotonously forever. That is only possible if the Earth has infinite amounts of the stuff. The volume of the Earth is finite, and most of it is not oil (consider the core, the mantle, most of the crust, etc.).
          TimC -> Advocatus Diaboli 17 days ago
          "The volume of the Earth is finite, and most of it is not oil..."

          Okay, so how much of it IS oil?

          Modern drilling equipment can reach a depth of about 12 thousand meters beneath the surface of the earth. This makes the volume of the portion of the crust that can be explored by drilling about 6.2x10^18 cubic meters, equal to 3.9x10^19 barrels. The earth's ultimate recoverable reserves (URR) of oil has been estimated at two trillion (2x10^12) barrels. If that URR estimate is true, then the pre-industrial concentration of oil in the earth's crust was about 51 ppbv, or fifty-one parts per billion by volume.

          It isn't possible to quantify any concentration accurately near the detection limit of the quantitative method. No one knows how to analyze the earth's crust to accurately quantify the concentration of recoverable oil remaining. It could be 25, 50, 100, 200, or 400 ppbv. When petroleum engineers or geologists estimate the global oil URR value, they use crude accounting methods that have very poor sensitivity, so the estimate that they produce is at or below the detection limit of any analytical method. Instead of two trillion barrels, there may be four trillion, or eight trillion barrels of recoverable resources yet to be discovered.

          You are certainly correct that the earth's crust can only contain a finite quantity of fossil hydrocarbon resources. But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries.

          Advocatus Diaboli -> TimC 16 days ago
          "But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries."

          Whether decades or centuries; it will peak (=reach an all-time maximum) at some point (if it hasn't done so already).

          Rereading my earlier comment, I have to correct myself: a monotonous increase would not be necessary to disprove PO, as production could fluctuate or stabilise. But it would need to be infinite, which it won´t be.

          Climbing for "decades" would not make PO "bunk", it would only make Hubbert´s estimate "a bit" more inaccurate and drag the decline out by a generation.

          Climbing for "centuries" would probably require our understanding of the climate system to be proven wrong. I´d welcome that, but doubt that we are that lucky. I consider it more likely that we shall give up going after oil way before that, either deliberately (less likely) of for the lack of ability to maintain production.

          Optimist -> Advocatus Diaboli 16 days ago
          Basically, as far as your lifespan is concerned, the supply of oil is infinite. It's just a matter of developing the technology that enables us to tap into those supplies. This is where the markets serve as an active encouragement to research when demand exceeds supply.

          But let's take a step back and look centuries or millennia down the line, to the point where we really have exhausted all the planet's available oil: at this point oil prices increase, until some smart inventor, probably working for Big Oil discovers a process for converting ________* into liquid fuels. Crisis averted yet again. PO believers repeat their claim that PO will destroy civilization in the next 25 years. Some things never change.
          * For _____ insert your choice of coal, natural gas, agricultural waste, solids municipal waste, sewage sludge, the one energy crop that might make sense: algae grown in the open ocean or any combination of the above.

          Claims of Peak Oil, Peak Soil, Peak Water, etc. all rely on two assumptions: (1) we keep our consumption at the same levels as in the past and (2) we aren't able to expand supply beyond what we use today. Both are foolish assumptions. Both ignore the impact of markets on innovation.

          Advocatus Diaboli -> Optimist 16 days ago
          You seem to ignore even the possibility that climate change may play an important role in our ability to cope or choice of energy. That alone disqualifies you from a civilized discussion. Not because climate change is a certainty (I think it is as certain as it gets, but it is always legitimate to ask questions), but to ignore a vast body of evidence that has made even stalwart skeptics shut up or even convert is simply not serious or honest (yoir choice).

          But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again.

          Everything you eat comes from soil and oceans. Oceans are wrecked, even cornucopians don't predict an increase of food from the oceans. You'd better respect soil. Or suggest you eat your coal.

          Optimist -> Advocatus Diaboli 15 days ago
          Wait, you are going to exclude people from the discussion who don't have the same priorities as you do? I hope you like talking to yourself.

          Nice bait and switch, by the way. We were talking about Peak Oil and suddenly you want to exclude me for not mentioning climate change. The point remains: Peak Oil is bunk.

          Climate change is a different topic. No doubt it needs some attention. We need to find a way to beam more heat into outer space. Where is NASA when you need them? Stop fooling around on Mars, already!

          Food production is yet another matter. Japan better get used to importing rice, because sushi is going off the menu fast, as you point out. It is unfortunate that some cultures are so short-sighted, but what are you going to do? Have the US navy sink fishing boats taking more then their quota? The good news is that nature has a capacity to rebound.

          BTW, who needs soil? Ever heard of hydroponics? There are even plants being developed that can grow using seawater while producing normal food. Hard to keep up with all the science, I know.

          And, you're right future generations may eat coal, though I suspect natural gas would be the first fossil fuel to be converted to food. Basically you'd do a conversion of methane to something more biodegradable like methanol or one of the volatile fatty acids. Grow some fungus on that mix (think of it as related to mushrooms) and viola...

          Science won't limit the future of mankind. If science was the only concern the future would be exceedingly bright.

          Advocatus -> Diaboli Optimist 15 days ago

          Science is just science, a way to understand nature, and perhaps use it better.

          The limitation is not imposed by science, but by the laws of nature, the limitations of our natural endowment and the needs of humans. Science can help us live better within the constraints, but cannot lift the constraints. Science allows us to understand and make use of the laws of thermodynamics, but it will never allow us to change those laws. It is utterly unscientific to expect that it would. Science can tell us about the role of phosphorous, it can help us find deposits of phosphorous, but cannot create those deposits.

          I won't go into detail on your points as I do not have the time and don't see the point. Don't take it personally. I think you are delusional, but I wish you were right.

          Optimist -> Advocatus Diaboli 15 days ago

          That's OK.

          Typical, when a pessimist can't make his point, he just claims the optimist is delusional. End of argument.

          You'll excuse me if I remain unconvinced.

          Advocatus Diaboli -> Optimist 15 days ago
          No. All I dared to suggest was that science can tell us about the laws of nature, but cannot change the laws of nature. You and Forrest seem to believe otherwise, as suggested by your last comment (dismissing my argument) and a number of your expectations from science, which are unscientific. Beaming more heat into space without warming the planet? You don't even need NASA for that: Simply reducing GHGs in the atmosphere would do that. Too bad that you want to 'beam' so that you can continue releasing CO2.

          Science tells you to to stop digging, and you propose buying a bigger excavator.

          Forrest -> Advocatus Diaboli 16 days ago
          Diaboli, Optimist is right on this one. Your premise is correct, "the earth is finite", but given the scale, technology, etc. a poor restriction or arbitrary talking point. Just to many unknowns and the power of the market will make the transition automatically and effortlessly. Your 2rd premise of eating coal, totally wrong. We're actually upon a great historical revolution that is yet to be named. Every aspect of societal need is currently being evaluated, improved, reinvented. Think of the current magnitude of change upon us. All of it is very positive, unless one is a suffering pessimist. Farming is just entering the beginning stages of empowering the biological world by design. Agronomics, GMO, global positioning, drone workers, robotic workers, soil engineering, fungi exploitation, and the rest. Their is no limit in sight for improving production per acre, quality of food, and fuel feed stock. Most of it directed to negative carbon rating.

          Metals and metallurgy continues to accelerate progress. Nuclear physics continue to accelerate, engineering skills and tools continue to accelerate improvements. Think of the short time span predicted for autonomous vehicles and resulting light vehicle fleet.

          Miles per energy unit will no doubt be a magnitude improved. Heavy transportation and distribution equally being radically improved. Same for grid and green power. Fuel cell and bio energy chemistry making strides that will gradually offset petrol. Hydroponics, aquaponics, fish farming, and the rest already enable privatization of food production for those so motivated. Even to the extent of power and fuel supplies for those so motivated even upon small suburban house lots. The biggest threat to humanity is radicalism of terrorist that attempt to destroy society or destabilize. This will limit invention and progress and result in suffering. Same with radical ideals of "change" per some perceived danger. Politics can be very destructive if citizens lose historical understanding and clamor for quick solutions that require no work.

          Advocatus Diaboli -> Forrest 16 days ago
          I agree on the " privatization of food production". You should have added water. As for the rest, I cannot quite tell whether you are being sarcastic or you really believe all this, but if the latter: dream on.
          Optimist -> Advocatus Diaboli 15 days ago
          Forrest is serious. And right. The main challenge for mankind is the fact that democracy is giving us the leadership we deserve. Worldwide the results are utterly depressing...

          Glen McMillian a month ago

          I think a lot of regular readers would like to see you update some of your older articles now that the costs of renewables have fallen so much in the last few years.
          Advocatus Diaboli a month ago
          Robert,

          I wonder what (if any) assumption Hubbert made on oil prices. I don't know his writings, but I do not suppose that he would discount the possibility that higher efforts could shift his curves. Isn't is so that he assumed (explicitly or implicitly) that prices would remain relatively stable. That would have been reasonable for his analysis of the US production, as he could assume that the (presumably much larger) production of other regions could take over (i.e., reduced supply from the US would not push prices up). In that case the US would essentially be a price taker, and its production would develop along a depletion curve as he predicted (although not necessarily at that level).

          Such an assumption of relative price stability would be more difficult to assume for the global supply (with no alternative sources of oil). However, optimists who believe that other energy sources (renewables or CTL) would fully substitute oil above a certain price level could still assume a relative oil price stability at the global level.

          I believe that the problem comes in when oil is considered critical and not practically substitutable. Then demand becomes inelastic and prices get volatile, represented by boom-and-bust cycles with an increasing overall trend, as you describe. I take this volatility as a sign of instability.

          Isn't it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel....

          Forrest a month ago

          Some of the commentators, share the idea that the days of no compete high cost of oil products may be numbered. This is juxtaposed with alternative energy decreasing in cost over time. This is new phenomena with no historical path to predict new trends. History is full of examples of supply problems such as war, threat to environment, high cost of capital, etc that impacted price. The economic ramifications always shot oil prices to extreme as traders worked the pricing to new highs. This threw the economies of the world into harsh inflation of energy costs that dampened economic growth.

          Oil was the economic life blood and took much military investment to ensure the supply. Also, because of the crucial need for ample supply, gov't artificially amped up supply per subsidy such as regulated by tax code. So, are entering into a brave new world without this holdup reliance of corp oil supply? Appears so, with a positive trend line of diverse and renewable energy supply. Currently, most consumers do have some choice at the pump.

          Limited, but economic analysis have studied this "competition" and have found a powerful dampening effect of gasoline per the U.S. ability to produce a million barrels of ethanol a day. It's not limited to FFVs either as the driving public have learned to utilize higher blends within entire light vehicle fleet. Also, diesel engine testing with ethanol describe a path way if diesel fuel price zooms up. Adding a alternative E85 fuel system to offset the diesel fuel consumption per intake air injection. Apparently, a quicker lower cost alternative as compared to CNG conversion. Ethanol processing plants have stored feed stock that can come to the rescue for short term increase supply needs. BEV's play into this alternative choice as consumers are increasing expected to have one of these vehicles sitting in garage. Same with small ultra efficient cars sitting next to the SUV that can take over transportation needs upon high price of fuel times.

          Harquebus a month ago

          The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and
          that too is peaking. Next will be peak population.
          Glen McMillian a month ago
          Robert , what is your personal opinion on the minimum necessary energy return on energy invested as a practical matter given the nature of our present day economy?

          I have seen figures as low as four to one and as high as ten to one or even higher.

          fozzydabear a month ago
          "Oil prices did in fact rise sharply in the 2nd half of 2015" - Don't you mean 2005?
          Robert Rapier Mod fozzydabear a month ago
          It seems that no matter how many times I proofread an article a typo always makes it through. Thanks for that. It's fixed.
          Over the Hill a month ago
          I agree that the issue with "Peak Oil" isn't that we're going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online.

          It won't be the end of the world. It will be a different world that we will have to make a commitment to adapt to, however.

          Sam Taylor a month ago
          Robert,

          If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment.

          Then the question becomes, when do we reach this ceiling? Peak $20 oil was perhaps around the early 2000's, and maybe peak $50 is around now (inflation adjuested). The costs facing the majors appear to be accelerating quite rapidly, and if that breakeven chart is accurate the price curve seems to accelerate quite steeply, so perhaps an optimistic estimate might give us a decade or two.

          And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you?

          Robert Rapier -> Sam Taylor a month ago
          "what is the highest oil price that the world can sustain."

          I think that's going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world.

          Dipchip -> Robert Rapier a month ago
          The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups.

          10% increase for one is $1.10 the other is 6 cents per day. A 5% increase in world consumption will bring back $100 oil. Who do you suspect will cause the increased consumption, developed or undeveloped nations?

          Robert Rapier -> Dipchip a month ago
          Of course. I have written lots on this. A decade ago I thought poor countries would be priced out of the market. As prices rose, I saw that it wasn't impacting demand in developing countries. I also went to India in 2008 and saw 7 people on a motorcycle. And what you wrote above hit me: It's such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption.

          It was an example of the data causing a 180 degree shift in my opinion.

          Glen McMillian -> Robert Rapier a month ago
          A gallon of diesel fuel burnt in a tractor or irrigation pump generates hundreds of times more economic return than a gallon burnt fetching beer in an oversized pickup truck.
          Forrest -> Glen McMillian a month ago
          What's the return on Prius owner driving coast to coast to demonstrate against use of oil? Maybe she or he is smoking pot and wrecks an expensive asset that cost the environment dearly. So, the multi use pickup driving to neighborhood grocery not so bad after all. The pickup utilized in providing services and supplemental income. The pickup life cycle extends multiples of the Prius and powered upon environmentally friendly fuel that per gallon provides more jobs and economic stimulus. The fuel supply will never diminish per continued use of processing plant and solar powered feed stock. No need to be on a continuous search and development cycle of diminishing supplies of raw material.
          Dipchip -> Robert Rapier a month ago
          R Squared: The first time I ran across your name was back in 2005. I was having a disagreement with some Minnesota renewable fuel agency folks, when suddenly you came into the conversation. They were trying to say that ethanol was more efficient to produce than Gas; after reading your comment I decided to let you take over, as you seemed to be someone from the tail end of energy production and I was on the front end.

          Been following your opinions ever since. Seems the internet is a good way to keep from becoming obsolete since retiring twenty years ago. Thanks for your years of effort to inform.

          Robert Rapier -> Dipchip a month ago
          I remember that. It was one of those things that inspired me to start writing more. So much misinformation. I actually got the state of Minnesota to change that claim on their website after having several exchanges with them.
          davidgmills1 -> Forrest 24 days ago
          For a different kind of nuclear technology, one which we developed at Oak Ridge in the 60's, see Liquid Fluoride Thorium technology. It's top ten attributes and why it will change the world:

          http://energyfromthorium.com/2...

          LuapLeiht1 a month ago
          I agree that peak oil is a function of price rather than raw supply numbers. However, I think that drawing conclusions from the price is still a bit naive. Prices spiked in the late 70s, early 2000's, and early 2010's. What do those three time periods have in common? The Middle East was on fire in all three periods (Arab oil embargo, Iraq war, and the "Arab Spring").

          Peak oil isn't just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability.

          Like most things in life, reality is much harder to predict than theory would indicate.

          [Oct 21, 2015] Devastating Shale Oil Losses

          October 19, 2015 | Peak Prosperity

          Sometimes it helps to examine one narrow slice of the pie as a means to understanding the entire pie. In the case of the shale oil Ponzi scheme, we can both wrap our minds around the scale of the predicament and also answer the question of who the losses will be foisted on.

          Once we've done that, you should be able to simply apply the same logic and learning to other sectors of the financial universe. Learn one sub-bubble, learn them all; like a fractal foam of misadventure.

          [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:

          • …though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy,… p. 49
          • As Ruskin said, a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science. p. 102
          • The vast potential productivity of the industrialised world, particularly in the engineering and chemical industries, must find an outlet. If that outlet is by financial folly denied it in the building up and reconstruction of the home-life of nations, it remains as a direct and powerful incentive to the fomenting of war. p. 303

          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] US oil output on brink of dramatic decline

          Notable quotes:
          "... world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. ..."
          "... We are about to see a pretty dramatic decline in U.S. production growth, the former head of oil firm EOG Resources Mark Papa, told the conference. ..."
          "... U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments ..."
          "... The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. Producers are now looking for new cash to survive and they will probably struggle to get it, Ben van Beurden said. ..."
          "... Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said. ..."
          "... Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever. ..."
          "... The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment. ..."
          "... But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. I see the United States as a long-term growth producer, he said. If low oil prices prevail - then the correction in oil prices will be much more severe. ..."
          Oct 6, 2015 | af.reuters.com
          • World prices seen too low to support U.S. shale oil output
          • Lack of bank financing seen for new shale developments
          • Risk low production levels may cause price spike
          • U.S. oil sector productivity improvements seen near limit (Recasts; adds U.S. production forecasts)

          Oil executives warned on Tuesday of a "dramatic" decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases.

          Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade.

          "We are about to see a pretty dramatic decline in U.S. production growth," the former head of oil firm EOG Resources Mark Papa, told the conference.

          Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments.

          Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year.

          Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

          Benchmark Brent crude was up 5 percent, or $2.50 a barrel, at $51.75 on Tuesday as investors digested news from the London conference. It peaked in recent years above $115 a barrel in June 2014.

          SPIKE

          The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. "Producers are now looking for new cash to survive and they will probably struggle to get it," Ben van Beurden said.

          Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

          If prices remained low for a long time and oil production outside OPEC and the United States declined due to capital expenditure cuts, there was not likely to be any significant spare capacity left in the system, he said.

          "This could cause prices to spike upwards, starting a new cycle of strong production growth in U.S. shale oil and subsequent volatility," van Beurden said.

          Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever.

          "Now we are seeing the limits at least in the near term and it is beginning to impact production," Sieminski said. "We see (U.S. oil production declines) continuing into next summer."

          The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment.

          But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. "I see the United States as a long-term growth producer," he said. "If low oil prices prevail - then the correction in oil prices will be much more severe."

          [Oct 20, 2015] Crude Tumbles As API Reports Another Huge Inventory Build

          Notable quotes:
          "... What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today. ..."
          "... Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits. ..."
          "... ... ... ... ..."
          Zero Hedge
          Escrava Isaura

          This post is by Gail Tverberg. Worth reading:

          I was also mystified by Kurt Cobb's statement,

          What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today.

          Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits.

          ... ... ...

          [Oct 19, 2015] Halliburton Cuts More Jobs as Fracking Hit Worst in Downturn

          Notable quotes:
          "... The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best, President Jeff Miller told analysts and investors Monday on a conference call. This is the segment that we expect to rebound the most sharply. ..."
          Bloomberg Business

          Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world's largest provider of fracking services.

          The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton's pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.

          "The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best," President Jeff Miller told analysts and investors Monday on a conference call. "This is the segment that we expect to rebound the most sharply."

          Oil has swung between a bear and a bull market in North America this year as the drilling rig count slid. Explorers have cut more than $100 billion from global spending plans for the year after crude prices fell by more than half since June 2014.

          Quarterly Loss

          Halliburton had a loss of 6 cents a share in the third quarter compared with net income of $1.2 billion, or $1.41, a year earlier, according to a statement Monday. Excluding certain items, the per-share result was 4 cents more than the 27-cent average of 34 analysts' estimates compiled by Bloomberg. Sales dropped 36 percent to $5.6 billion.

          The company has now cut its workforce by 18,000, or about 21 percent, since its peak last year, Emily Mir, a spokeswoman, said Monday in an e-mail.

          Prices that service companies charge for hydraulic fracturing, which blasts water, sand and chemicals underground to release trapped hydrocarbons, are projected to fall as much as 37 percent in North America this year, according to IHS Inc. Fracking represents about 70 percent of the cost for an average U.S. well, Chief Executive Officer Dave Lesar said on the call.

          [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 16, 2015] Wolf Richter Debt Fueled Stock Buybacks Now Eating into Earnings

          "... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser , what we've accomplished in the last year , and our second target , funding for travel to conferences and in connection with original reporting. ..."
          "... These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. ..."
          "... last thing ..."
          "... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. ..."
          "... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy. ..."
          "... But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering ..."
          "... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living. ..."
          "... "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering" ..."
          "... I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill ..."
          "... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar. ..."
          "... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip. ..."
          "... Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win. ..."
          "... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit? ..."
          Oct 16, 2015 | naked capitalism
          This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar, which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser, what we've accomplished in the last year, and our second target, funding for travel to conferences and in connection with original reporting.

          Yves here. As anyone who has been in finance know, leverage amplifies gains and losses. Big company execs, apparently embracing the "IBG/YBG" ("I'll Be Gone, You'll Be Gone") school of management, apparently believed they could beat the day of reckoning that would come of relying on stock buybacks to keep EPS rising, regardless of the underlying health of the enterprise. But even in an era of super-cheap credit, investors expect higher interest rates for more levered businesses, which is what you get when you keep borrowing to prop up per-share earnings. As Richter explains, the chickens are starting to come home to roost.

          Companies with investment-grade credit ratings – the cream-of-the-crop "high-grade" corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before.

          These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

          Risks are piling up too: according to Bloomberg, companies' ability pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009.

          Companies also have to refinance that debt when it comes due. If they can't, they'll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court.

          But high-grade borrowers can always borrow – as long as they remain "high-grade." And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

          As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased.

          And the benefits of refinancing at lower rates are dwindling further:

          Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12 percent to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

          That was in the second quarter. Since then, conditions have worsened. Moody's Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.

          What's left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.

          "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

          But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days:

          US-junk-bonds-CCC-2014_2015-10-15

          Yields have risen not because of the Fed's policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

          If the global economy slows down further and if revenues and earnings get dragged down with it, all of which are now part of the scenario, these highly leveraged balance sheets will further pressure already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades, and demand even more compensation for taking on these risks. It starts a vicious circle, even in high-grade debt.

          Alas, much of the debt wasn't invested in productive assets that would generate income and make it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share repurchases designed to prop up the company's stock and nothing else, and they plowed it into grandiose mergers and acquisitions, and into other worthy financial engineering projects.

          Now the money is gone. The debt remains. And the interest has to be paid. It's the hangover after a long party. And even Wall Street is starting to fret, according to Bloomberg:

          The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they'd prefer companies use cash flow to improve their balance sheets outnumbered those who said they'd rather have it returned to shareholders, according to a survey by Bank of America Merrill Lynch.

          But it's still not sinking in. Companies are still announcing share buybacks with breath-taking amounts, even as revenues and earnings are stuck in a quagmire. They want to prop up their shares in one last desperate effort. In the past, this sort of financial engineering worked. Every year since 2007, companies that bought back their own shares aggressively saw their shares outperform the S&P 500 index.

          But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S&P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering

          Wolf Richter is a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.


          TomDority, October 16, 2015 at 8:01 am

          One wonders where all that "investment" goes…pretty much into the CEO's pockets and investors pockets because banks do not create money by investing in real legitimate capital formation or producing anything tangible…..i

          It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living.

          These trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering….at the expense of a habitable peaceful planet. Soon, I hope, this dislocation will be corrected. As I have said before, a good start would be to tax that which is harmful (unearned income and rent seeking) and de-tax that which is helpful – real capital formation, infrastructure and maintenance of a habitable planet and the absolutely necessary biodiversity that sustains us.


          david, October 16, 2015 at 8:57 am

          "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering"

          I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill

          this is not "useless" from the standpoint of those who direct this game.

          Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar.

          the money is used for dividends and buybacks all that money is accumulated by the LBO firms and management to maneuver the situation / process to the point of the bust up – this time they are all going simultaneously for the exit even the most high end S&P firm – the HY prices are deteriorating quickly beyond energy related as % LTV goes higher – before 82′ the LTV of Fortune Cos. was way below 20% – 35% was considered max –

          the same characters / groups will be formed to get to 51% to buy and control the bonds at 20-30% on the dollar in BK and take the assets.

          35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip.

          USA, USA, USA !

          cnchal, October 16, 2015 at 9:38 am

          . . .Now the money is gone. The debt remains. And the interest has to be paid,. . .

          Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win.

          Just Ice, October 16, 2015 at 10:53 am

          "Companies with investment-grade credit ratings …"

          With government-subsidized private credit creation, the whole concept of "creditworthiness" is suspect. Example, is Smith-Wesson "credit-worthy" to many Progressives? Yet, it's their credit, as part of the public, that would be extended should S&W take out a bank loan.

          Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit?

          From Hubris to Disgrace: The End of Finance as we Know it…

          March 26, 2015 •

          By Mark Esposito and Terence Tse

          In this article, Mark Esposito (co-editor with O'Sullivan and Allington of the book From Hubris to Disgrace) and Terence Tse, take a closer look at the economic and philosophical domain of finance in order to understand the circumstances in which market corruption unfolds and explore what appears to be ingrained attitude of disregard for rules and regulations in the financial sectors.

          Following the September 2008‭ ‬financial crisis‭, ‬in which the players of the financial industry caused the near collapse of the U.S‭. ‬economy‭, ‬a proverbial narrative has emerged‭. ‬The rich‭, ‬who controlled America's investment banks and financial institutions‭, ‬had schemed‭, ‬lied‭, ‬and cheated Americans and the American system‭. ‬In the aftermath‭, ‬a disgrace shadowed over banks and financial institutions‭, ‬but the consequences of greed and deception were already set in motion‭. ‬Small companies and businesses could not get the credit they needed to stay open and unemployment soared for most of the world‭, ‬while financiers took home big checks‭. ‬Although now history generally assigns the blame on an abstract‭, ‬faceless entity colloquially known as‭ ‬"the greedy rich‭,‬"‭ ‬we seek a closer examination of the economic and philosophical domain of finance in order to understand the circumstances in which market corruption unfolds‭, ‬and ask what can be done to prevent future economic debacles‭.‬

          Although the U.S. economy has managed to put itself on the road to recovery, future crises may not be very far off. As government officials and the public continue to discover, lessons of morality still have yet to be learned globally across the financial sector. Even as the economic crisis unfolded in 2008, banks did not stop manipulating LIBOR and EURIBOR rates but instead chose to continue manipulating rates to hide their financial positions rather than to face the music. In another case in the much more recent past, proceedings began on yet another rate-fixing scandal in 2013, this time involving a cartel in Yen interest rate derivatives (YIRD) between 2007-2010.

          As history appears to be repeating itself even in the wake of financial crisis and disgrace, it would appear that the regulators who failed to protect the people from past crises are still not doing enough to stop what seems to be an ingrained attitude of disregard for rules and regulations in our financial sectors. Images of the last recession are still painful: the government ferociously pumping out newly printed currency or taxpayer money into the banking system, Bernie Madoff and the likes of him preying on unsuspecting clients, institutions dictating economic policy to governments, and powerful investors systematically setting speculative runs in motion against an array of Eurozone member states' bonds.

          As government officials and the public continue to discover, lessons of morality still have yet to be learned globally across the financial sector.

          The scale of how intertwined the financial world and our societies are is often underestimated. Consider, for instance, how the power of the press is also a force when it comes to finance: newspapers and publications too can influence public opinion and hinder economic recovery. In Germany, tabloids spread distortive stereotypes of Greeks at a time when Germans were angry and resentful over a possible default in Greece and fearful for the stability of the Eurozone. The tabloid press affected investor opinion of European financial markets, and Southern European markets, in particular. Since the time of Keynes, it has been reluctantly but clearly recognised by most economists that financial markets and public opinion are based to a large extent on herd mentality and animal spirits rather than on rationality. Whether the future is uncertain, this is to a degree inevitable. But once we admit that emotion and herd mentality have a preponderant influence on financial market decision-making, we are more able to recognise when herd mentality leads to adverse economic consequences and stereotyping as an outcome of emotion and prejudice.

          It is these types of influence and interrelationships with the financial system that make reform mandatory for the entire system, not just one or two particular parts. The propositions set forth here and in the book, From Hubris to Disgrace, aim to discuss the multifarious contemporary problems of finance. The research delves into the economics of finance to explain the supposed ultimate function of finance and the financial system in the wider real economy; to look at the power relationships that underpin finance, its regulation, and its manipulation by key actors; and to probe such fundamental questions such as how money, initially designed to be a medium of exchange and so an instrument to serve mankind, has somehow evolved into an end-in-itself which transcends every other sort of value in its path. In the book, the contributing authors and editors dissect the issue into four parts: 1) The Mechanics of Money, Banking, and Finance, 2) The Economics of Finance, 3) The Politics of Finance, and 4) The Philosophy of Finance.

          The Mechanics of Money, Banking, and Finance

          We first set the stage for how markets work and how markets are regulated by introducing the mechanics of finance. There are many interrelated functions, including the role of central banks and seigneuriage, the role of financial intermediaries, the basics of portfolio choice theory, liquidity preference and attitudes to risk and uncertainty, the creation of new and ever more complex derivative assets since the early 1990s, and the role which they were expected to play. There are also the mechanics of financial regulation through a Central Bank or other authority, the trend of deregulation starting in the mid-1980s in the Western financial world, the hidden increase in financial risk and uncertainty for many actors in the system as more and more complex derivative assets were being created, and finally, the role of the rating agencies, both historically and in the contemporary context of extreme uncertainty. With these mechanics in place, some of the questions that arise include how some financial transactions were ever allowed to take place. For example, some of the derivative assets that were based on collections of American subprime mortgages were sold to financial institutions and brokers outside of the U.S. with a take it or leave it clause, whereby the buyer of the derivative asset agreed not to inquire into the detailed composition of the asset being bought, or, at the very least, not to hold the seller liable if afterwards the derivative turned out to be a dud. The as-is arrangement has more in common with a used car dealership than it should. Under the span of implications mentioned before, understanding the mechanics of the various types of financial assets and the regulations that rule them is crucial to be able to properly examine the forces that shape the financial sector and its actors in the wider economy.

          146295285_CMYK

          The Economics of Finance

          There seems to be an inevitable tendency of financial firms and institutions to outwit or "run ahead" of any type of imposed regulation by workarounds and the invention of ever-newer types of financial instruments.

          Current discussions of the financial and debt crises have often been characterised by a reflection on the contrast take it or leave it between the financial sector and the real economy. The financial sector is seen as somehow increasingly unreal and out of touch with the economic reality of everyday trade, commerce and exchange; after all, despite the headlines of financial crisis, people are still buying food and clothing, traveling, and taking holidays. So while the financial chaos has indeed wrought havoc with some aspects of the real economy - most notably through unemployment - there is also a clear sense that the chaos seems unreal. There has been no war or great natural catastrophe that would have fundamentally undermined everyday commerce and supply chains, and in that sense, the pain and suffering seems somewhat artificial and self-inflicted in nature. This leads us into that great debate of classical macroeconomics: the veil of money. Has the financial sector evolved to serve only a monetary economy and disconnected itself from the real economy of concrete production and consumption of commodities, services, and activities? If so, it begs the question whether the financial sector is a smoke screen that distorts the real economy, in which case, macroeconomic policy should seek to dispel the smoke screen in order to reveal the true workings of the real economy.

          Another perspective to evaluate is whether or not we might consider the financial sector as an integral part of the real economy, producing real products and services to facilitate trade, and therefore just one sector among many others. One of the most striking features to any neutral observer of finance and money is the regularity with which financial crises have been reproduced repeatedly in modern times. Since the essential causal mechanisms of these crises rarely differ from one to the other, one must be led to ask why the cause of financial crises always stems from this particular sector, and what is it about our financial systems that leaves us seemingly incapable of permanently rooting out the source of the problem.

          With this debate in mind, From Hubris to Disgrace considers the relevance of the basic economic role and function of money as well as the typical mechanisms of money creation. It also considers how the old gold standard - which some see as a panacea to all of our current ills - and the Hayekian project to replace state-backed money with an array of private sector-competing currencies might offer a solution to preventing future crises.

          The Politics of Finance

          As sensationalist as it may sound at first, there is a real political question about who rules the world today: an ill-defined coterie of financiers and financial institutions, or elected (and non-elected) officials? From one point of view, our financial system can be described as a case of modern Darwinism. There seems to be an inevitable tendency of financial firms and institutions to outwit or "run ahead" of any type of imposed regulation by workarounds and the invention of ever-newer types of financial instruments, leading to an uncanny semblance between Charles Darwin's theory on survival of the fittest and those who walked away from the financial crisis with full pockets. To that end, we must ask which 'species' truly dictates the macroeconomic policies of states: financiers, rating agencies, politicians, or yet another actor.

          Events since 2010 in the Eurozone suggest that the demonisation of finance has gone from being a hypothetical question to becoming an authentic public concern. In his 2012 presidential election campaign in France, François Hollande declared that the real enemy of the state was "finance." This amorphous 'enemy' struck a very respondent chord with much of the French electorate and with the electorates of many other Eurozone states. If divisive macroeconomic policy and regulatory malfeasance is an obvious area of conflict between financial interests and the interests of the common good, it should also be possible to identify the reasons behind the conflict.

          The most obvious reason is the short-term bias in the microeconomic investment appraisal of both public and private sector projects. In these appraisals, there is a concentration on narrow financial return, without taking into account the potential costs or benefits to wider groups of stakeholders or future unborn generations. To many nowadays, it seems as though the concerns of financiers, be they either at the micro or macro level, trump or drown out the political consideration of any other types of interest. That which was supposed to be a set of economic instruments of intermediation to serve the public has instead become an all dominating political end-in-itself. In that respect, the political dominance of the financial sector may be a manifestation of a wider delusion in materialistic societies, whereby the acquisition of ever-more material wealth becomes an end in itself rather than at most a useful means to securing a degree of happiness.

          The Philosophy of Finance

          A final theme here is the legal framework of finance and the degree to which the legal framework of contracts may or may not harbor the potential for some challengeable features from both the point of view of business ethics (extortion of various kinds) and of natural justice. Politicians of many stripes today like to trumpet about the "rule of law," but in light of the many financial scandals that keep coming to pass, one must ask if the law is, in some cases, nothing more than just a convenient device for the domination of certain interests. For instance, are contracts too loaded in favor of creditors? If so, then perhaps we should be more concerned about the rule of justice rather than the rule of law. As any serious student of business ethics learns in one of their very first classes, law and morals do not coincide and there can indeed be bad laws.

          The themes that emerged in the Politics of Finance inevitably lead on to a deeper level of reflection on the entire role, purpose and power of finance in contemporary society. We might reasonably label these broader themes and reflections as the Philosophy of Finance. It is true that finance and philosophy are strange bedfellows, but over the centuries they have occasionally encountered each other. "Wealth," Aristotle once wrote, "is evidently not the good we are seeking; for it is merely useful and for the sake of something else." Given some of the financial excesses of recent years, it is time that philosophy and finance encounter each other again in a critical reflection of the role that the financial sector ought ideally to be playing in advanced contemporary societies. It is just such an encounter that this final section of the work attempts to create.

          FJDBHJF

          The predominance of financial interests has permeated many areas of society and science. The world of sports is a prime example of the overemphasis on wealth and monetary reward. The most successful football clubs buy the world's most talented players, so in effect, the club with the greatest financial means is most likely to win. In the pharmaceutical industry, many beneficial yet experimental drugs are never taken to full development because drug companies don't want to pay for the costs of trials. Such is also the case in the field of education, where students with a more financially advantageous life have a competitive edge over others. Ultimately, with a better college education, they will lead more financially prosperous lives. It is sobering to remember that what will maximise profits for private, for-profit healthcare institutions (but not for private health insurance companies) is to have more sick people. Venture capitalists are another example of this fixation on financial returns. Though venture capitalists can and should play a useful financial intermediary role in the development of new businesses or the transformation of older stagnant ones, they too often approach a business with only an eye toward seeing the financial bottom line, while being blind to such factors as climate change, humanitarian needs, capacity building, or other basic but important products and services that have minimal returns on investment.

          In all of the instances above, interests are driven by money and identified with the pursuit of maximum profits. While one might quibble about the exact definition of profits or about long-term vs. short-term perspectives in calculating profits, there is no doubt that when a financier looks at any business, it is inevitably in terms of profit and loss and in terms of a "financial bottom line" to be expected at some future date.

          As the world continues to become more intertwined and complicated, we seek answers in new places. By stepping away from the notion of 'business as usual,' we hope to shed light on the sophisticated relationships between the financial world and everyone else. Between this article and From Hubris to Disgrace, we illuminate some of the shortcomings the world faces today in light of the current domination of finance along with all of its drawbacks. We also seek to suggest solutions. The revamping of the entire financial world and its motivations may not be possible, but recalibrating our systems of checks and balances, instilling a new code of ethics and a sense of responsibility in the people who run our financial institutions, and ensuring severe repercussions for those involved in immoral turpitude and negligent risk may offer plausible results.

          Special Thanks to Stella Tran, Research Aide at Harvard University, for the research conducted.

          About the Authors

          Dr. Mark Esposito is an Associate Professor of Business & Economics at Grenoble Graduate School of Business in France and Instructor at the Harvard Extension School in the USA. He serves as Senior Associate for the University of Cambridge Institute for Sustainability Leadership in the UK. He is the founder of the Lab-Center for Competitiveness and has worked with governments, the UN, and the NATO over the past 10 years on economic development and sustainability issues. He holds a PhD from the International School of Management in Paris/New York.

          Dr. Terence Tse is an Associate Professor in Finance at the London campus of ESCP Europe Business School. He is also the Head of Competitive Studies at i7 Institute for Innovation and Competitiveness academic think-tank at ESCP Europe. He began his career in investment banking at Schroders and Lazard Brothers, and later as an independent consultant to a University of Cambridge-based biotech start-up and various major corporations. He worked as a consultant at Ernst & Young in London. He holds a PhD from the Judge Business School, University of Cambridge, UK.

          Sep 11, 2013 | Asia Times

          "The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole." - Prof Caroll Quigley, Georgetown University, Tragedy and Hope (1966).

          Iraq and Libya have been taken out, and Iran has been heavily boycotted. Syria is now in the cross-hairs. Why? Here is one overlooked scenario.

          In an August 2013 article titled "Larry Summers and the Secret 'End-game' Memo," Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and US Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement (FSA) of the World Trade Organization (WTO).

          The "end-game" would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned, and "usury" - charging rent for the "use" of money - is viewed as a sin, if not a crime.

          That puts them at odds with the Western model of rent extraction by private middlemen. Publicly owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don't need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations.

          Bank deregulation proceeded according to plan, and the government-sanctioned and -nurtured derivatives business mushroomed into a US$700-plus trillion pyramid scheme. Highly leveraged, completely unregulated, and dangerously unsustainable, it collapsed in 2008 when investment bank Lehman Brothers went bankrupt, taking a large segment of the global economy with it. The countries that managed to escape were those sustained by public banking models outside the international banking net.

          These countries were not all Islamic. Forty percent of banks globally are publicly owned. They are largely in the BRIC countries - Brazil, Russia, India and China - which house 40% of the global population. They also escaped the 2008 credit crisis, but they at least made a show of conforming to Western banking rules.

          This was not true of the "rogue" Islamic nations, where usury was forbidden by Islamic teaching. To make the world safe for usury, these rogue states had to be silenced by other means. Having failed to succumb to economic coercion, they wound up in the crosshairs of the powerful US military.

          Here is some data in support of that thesis.

          The end-game memo

          In his August 22 article, Greg Palast posted a screenshot of a 1997 memo from Timothy Geithner, then assistant secretary of international affairs under Robert Rubin, to Larry Summers, then deputy secretary of the Treasury. Geithner referred in the memo to the "end-game of WTO financial services negotiations" and urged Summers to touch base with the CEOs of Goldman Sachs, Merrill Lynch, Bank of America, Citibank, and Chase Manhattan Bank, for whom private phone numbers were provided.

          The game then in play was the deregulation of banks so that they could gamble in the lucrative new field of derivatives. To pull this off required, first, the repeal of Glass-Steagall, the 1933 Act that imposed a firewall between investment banking and depository banking in order to protect depositors' funds from bank gambling. But the plan required more than just deregulating US banks. Banking controls had to be eliminated globally so that money would not flee to nations with safer banking laws.

          The "endgame" was to achieve this global deregulation through an obscure addendum to the international trade agreements policed by the World Trade Organization, called the Financial Services Agreement. Palast wrote:

          Until the bankers began their play, the WTO agreements dealt simply with trade in goods - that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in "bads" - toxic assets like financial derivatives.

          Until the bankers' re-draft of the FSA each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives "products".

          And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

          The job of turning the FSA into the bankers' battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

          WTO members were induced to sign the agreement by threatening their access to global markets if they refused; and they all did sign, except Brazil. Brazil was then threatened with an embargo, but its resistance paid off, since it alone among Western nations survived and thrived during the 2007-2009 crisis.

          As for the others:

          The new FSA pulled the lid off the Pandora's box of worldwide derivatives trade. Among the notorious transactions legalized: Goldman Sachs (where Treasury Secretary Rubin had been Co-Chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation. Ecuador, its own banking sector de-regulated and demolished, exploded into riots. Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans. Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim - and the continent is now being sold off in tiny, cheap pieces to Germany.

          ... ... ...

          Ellen Brown is an attorney and president of the Public Banking Institute, PublicBankingInstitute.org. In Web of Debt, her latest of 11 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are WebofDebt.com and EllenBrown.com.

          Economist's View 'What to Do with the Hypertrophied Financial Sector'

          Brad DeLong:
          ... Over the past year and a half, in the wake of Thomas Philippon and Ariel Resheff's estimate that 2% of U.S. GDP was wasted in the pointless hypertrophy of the financial sector, evidence that our modern financial system is less a device for efficiently sharing risk and more a device for separating rich people from their money--a Las Vegas without the glitz--has mounted. Bruce Bartlett points to Greenwood and Scharfstein, to Cechetti and Kharoubi's suggestion that financial deepening is only useful in early stages of economic development, to Orhangazi's evidence on a negative correlation between financial deepening and real investment, and to Lord Adair Turner's doubts that the flowering of sophisticated finance over the past generation has aided either growth or stability.
          Four years ago I was largely frozen with respect to financial sophistication. It seemed to me then that 2008-9 had demonstrated that our modern sophisticated financial systems had created enormous macroeconomic risks, but it also seemed to me then that in a world short of risk-bearing capacity with an outsized equity premium virtually anything that induced people to commit their money to long-term risky investments by creating either the reality or the illusion that finance could, in John Maynard Keynes's words, "defeat the dark forces of time and ignorance which envelop our future". ...
          But the events and economic research of the past years have demonstrated ... I should ... have read a little further in Keynes, to "when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done". And it is time for creative and original thinking--to construct other channels and canals by which funding can reach business and bypass modern finance with its large negative alpha.

          Anthony Juan Bautista said...

          Financial innovation is a risk factor as regards outsized boom/bust business cycles? Sure. But central banks are the greatest financial innovators in the history of humankind! Central banks make the Goldman guys look like amateurs.

          Darryl FKA Ron said in reply to Anthony Juan Bautista...

          The economy is a fabric.

          Arbitrage and speculation eat away at that fabric.

          The central banks just comes in to stitch up the holes.

          No one wants to stop the arbitrage and speculation, because that is where the big money candy store has been built.

          Eventually the central bank will run out of thread.

          Peter K. said in reply to Anthony Juan Bautista...

          Nonsense. Per usual.

          Where's your evidence? You have none.

          Conservatives bribe their way into a deregulated system. What happens? Epic bubble and epic downturn after the bubble pops. And so they blame the Fed without evidence. Or they blame Fannie/Freddie.

          The economics are well know. Limit leverage. More regulations. Financial transactions taxes. Domesticate the banking sector to the way it was during the post-War years.

          The Fed needs help supporting growth via fiscal and currency/trade policies.

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

          The economics are well known, but the politics are another matter.

          The Republicans have a blocking minority in the Senate and control the House.

          "Eventually the central bank will run out of thread."

          Not anytime soon.

          Anthony Juan Bautista said in reply to Peter K....

          My evidence is written in the annals of a century of Fed-facilitated boom/bust economic cycles.

          And do you really think deregulation caused this latest cycle? Jack Lew disagrees with you:

          http://www.motherjones.com/mojo/2013/01/jack-lew-treasury-secretary-deregulation-financial-crisis

          Darryl FKA Ron said in reply to Anthony Juan Bautista...

          ...Here's a crucial piece of information about Lew: He has said he doesn't believe financial deregulation was a major cause of the financial crisis. In 2010, Lew testified before Congress that the deregulation of Wall Street in the Clinton era-the repeal of Glass-Steagall, say, or the ending of real regulation of complex derivatives-wasn't a critical factor. "The problems in the financial industry preceded deregulation," Lew told members of the Senate budget committee in September 2010. He added that he didn't "personally know the extent to which deregulation drove it, but I don't believe that deregulation was the proximate cause."...

          [Jack Lew is certainly somewhat correct here. Securitization, the global savings glut, limits to growth, wealth distribution, Triffin's Dilemma, and the rating agencies compensation plans all preceded deregulation and were entirely sufficient to create the bubble itself.

          The deregulation of derivatives, notably CDS, and repeal of Glass Steagal introduced institutional agency problems into the investment banking sphere. The agency problem at AIG had to do with an executive framework trained for managing large derivative contracts and other hedging techniques carefully planned for merger and other large discrete activities and transposing that into a high volume commodity market. It lead to a massive error of assumptions that eventually trapped the firm into making up their losses with volume until they became insolvent. Leaman and Bear Stearns may have been similar, but I don't have the time to research them. AIG was the subject of a very revealing book. The smarter players shorted their own risk errors with CDS bets, many covered by AIG which had to get bailed out to keep Goldman and Citi from suffering big losses.]

          Darryl FKA Ron said in reply to Anthony Juan Bautista...

          Well I will let you deal with Peter, but remember when the other guys are wrong and you take the opposite position that does not necessarily put you one bit closer to being correct.

          Liberals want to practice neoliberalism with controls and safety nets. Others might embrace neoliberalism with the full power of the Fed Reserver leaning against global financial imbalances. In either case it is still neoliberal financialization and it will only lead to economic collapse.

          Peter K. said in reply to Darryl FKA Ron...

          "Liberals want to practice neoliberalism with controls and safety nets."

          And what do you want to practice? Anarchist/Communist/socialist utoptia?

          Will be difficult to achieve seeing as we couldn't even get the public option.

          But it does allow you to call everyone else sell-outs.

          Darryl FKA Ron said in reply to Peter K....

          NOT neoliberalism. Something a little more paleo would suit me better. Conservative finance, high tax rates on capital gains with a long tape on holding terms, but lower tax rates on dividends and interest. But different rules on 1031-eligible or hard assets so that the taxable was zero after five years of holding time.

          On soft assets after five year of holding time I would like to see a 40% tax rate stepped down from 80% for under one year. Then provide an inflation indexed discount to the cap gains equal to the SSA COLA inflation index.

          A radically different pedagogy, roughly along the lines of that used by the Sudbury Valley School. Public daycare. Public heatlhcare administered by commercial non-profit insurers. There is more. My dream pony is a cross between a Clydesdale and an Appaloosa, big strong sure footed and able to pull any load across any ground.

          Peter K. said in reply to Darryl FKA Ron...

          Sounds like "neoliberalism with controls and safety nets.""

          Darryl FKA Ron said in reply to Peter K....

          Well my pony trades offshore in bancor notes and must also observe capital controls on cross border flows. So when you sum it all up then it is neoliberalism with every principle that makes neoliberalism neoliberal reversed. So, if you like to still call it neoliberalism, then fine. A rose by any other name is not a dandelion, but have it your way.

          Mark A. Sadowski said in reply to Anthony Juan Bautista...

          Financial innovation generally refers to the creating and marketing of new types of securities, something which, arguably, central banks have absolutely nothing to do with.

          On the other hand there have supposedly been a number of monetary policy "innovations" by central banks in response to the Global Financial Crisis. (And even even this is debatable, as QE, for example, is really just a fancy acronym for enlarging the monetary base, something which central banks have been doing since Johan Palmstruch first invented central banking over 350 years ago.) But these "innovations" came in response to the bust and consequently can hardly be considered a causal factor in the current bust.

          Darryl FKA Ron said in reply to Mark A. Sadowski...

          [Tony posted this on the Karicature thread. It is not a bad paper up until the actual analysis and recommendation:]

          http://www.cultureofdoubt.net/download/docs_cod/global%20crisis%20causes%20and%20cures.pdf

          II. Monetary anchors for ever rising asset prices

          Monetary policy in the United States was accommodating throughout the 1990s and became aggressively expansionary in the 2000s: nominal interest rates fell below levels indicated by the Taylor rule and in 2003-04 also below inflation (IMF 2007, Taylor 2009, Visco 2009). The Bank for International Settlements has long maintained that this provides the main explanation for the speculative bubbles (Borio and Lowe 2002, Borio and Shim 2007). In their view central banks should use their policy and regulatory tools to 'lean against' accelerating credit and asset prices (cf. also De Grauwe and Gros 2009, ECB 2005, IMF 2000, Mussa 2003).

          The Federal Reserve has consistently opposed this view on the grounds that bubbles cannot be identified ex ante since an objective definition of 'fundamental' asset values cannot be readily obtained (Bernanke 2002 and Bernanke and Gertler 2001). Moreover, since a stable empirical relation between monetary policy and asset prices does not exist, any attempt to halt specific asset price increases could destabilize the economy as a whole. As a consequence, monetary policy would need 'to focus on policies to mitigate the fallout when it occurs and, hopefully, ease the transition to the next expansion' (Greenspan 2002).

          [Bottom line is whoever we blame for the financial crisis, it was just the problem too big to brush under a rug. We got lots of problems, which lead too much money into the search for yield on AAA rated MBS junk bonds. So, now we have various little ponies that we wish for, none of which actually address the current account imbalance, consolidation of wealth and power in too few hands, or a littany of other economic disfunctions. Well I want a pony too. I want a pony with legs long and strong enough to win the big race. But it don't matter. Tony ain't gonna get his pony. Peter K ain't gonna get his pony. And I ain't gonna get my pony either.]

          Mark A. Sadowski said in reply to Darryl FKA Ron...

          Tightening monetary policy to fight asset bubbles is like tent fumigating a house with the inhabitants still inside.

          Interestingly, Taylor never thought monetary policy was loose until after the recession.

          And which Taylor Rule are we talking about, the 1993 version or the 1999 version? Obviously the former. which called for tighter monetary policy in 2008, after the recession had already started.

          And consider the other sources: the BIS and Borio. Enough said, considering this year's BIS annual report. (Oh, and don't forget the 1933 annual report.)

          The bottom line is the following:

          "Moreover, since a stable empirical relation between monetary policy and asset prices does not exist, any attempt to halt specific asset price increases could destabilize the economy as a whole."

          The only thing I would change is to replace the word "could" with "will".

          Anthony Juan Bautista said in reply to Mark A. Sadowski...

          So, my head is spinning. You're stating we CAN'T use monetary policy to forestall a boom; but, we CAN (as we are attempting at present) use monetary policy to ameliorate a bust?

          Punch bowl be damned and all that?

          Mark A. Sadowski said in reply to Anthony Juan Bautista...

          You're not seriously claiming that there was an economic boom during the 2000s are you?

          Private employment peaked at 111.8 million in December 2000. It wasn't until June 2005 that a new record was set. Private employment went on to peak at 115.7 million in January 2008, a average rate of increase from the previous peak of 0.5%. Even before the recession the 2000s was the slowest growing decade from the standpoint of employment since the Great Depression.

          Measured rationally, that is in terms of inflation and employment, monetary policy hasn't been loose since the 1970s.

          Anthony Juan Bautista said in reply to Mark A. Sadowski...

          No, I'm claiming there was a credit boom during the 2000s, caused in (large) part by the Fed.

          And your understanding of the 2000s monetary spigot is at variance with lots and lots of folks, like liberal econ lion Jeff Sachs:

          http://www.project-syndicate.org/commentary/the-roots-of-america-s-financial-crisis

          And too many more to cite.

          But per our prior talks, you're aware of this.

          EMichael said in reply to Anthony Juan Bautista...

          "No, I'm claiming there was a credit boom during the 2000s, caused in (large) part by the Fed."

          BS.

          Seems to me you like to talk about the housing bubble on both sides of the Atlantic right up until the point where doing so would stop you from going after the FED.

          Darryl FKA Ron said in reply to Anthony Juan Bautista...

          [Correcction: NEO-liberal econ lion Jeff Sachs:

          I cannot think of any liberal econ lion alive today. Stiglitz is liberal, but a few bricks short of a full load. Krugman tries hard to be liberal but carries an establishment bias neoliberal stinch along with the fact that he is no lion. He plays well at home but cannot win on the road,]

          The Roots of America's Financial Crisis

          ... Today's financial crisis has its immediate roots in 2001, amid the end of the Internet boom and the shock of the September 11 terrorist attacks. It was at that point that the Fed turned on the monetary spigots to try to combat an economic slowdown. The Fed pumped money into the US economy and slashed its main interest rate – the Federal Funds rate – from 3.5% in August 2001 to a mere 1% by mid-2003. The Fed held this rate too low for too long.

          [Okay, he makes the claim.]

          What was distinctive this time was that the new borrowing was concentrated in housing. It is generally true that lower interest rates spur home buying, but this time, as is now well known, commercial and investment banks created new financial mechanisms to expand housing credit to borrowers with little creditworthiness. The Fed declined to regulate these dubious practices. Virtually anyone could borrow to buy a house, with little or even no down payment, and with interest charges pushed years into the future.

          CommentsView/Create comment on this paragraphAs the home-lending boom took hold, it became self-reinforcing. Greater home buying pushed up housing prices, which made banks feel that it was safe to lend money to non-creditworthy borrowers. After all, if they defaulted on their loans, the banks would repossess the house at a higher value. Or so the theory went. Of course, it works only as long as housing prices rise. Once they peak and begin to decline, lending conditions tighten, and banks find themselves repossessing houses whose value does not cover the value of the debt.

          CommentsView/Create comment on this paragraphWhat was stunning was how the Fed, under Greenspan's leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash. There were a few naysayers, but not many in the financial sector itself. Banks were too busy collecting fees on new loans, and paying their managers outlandish bonuses.

          CommentsView/Create comment on this paragraphAt a crucial moment in 2005, while he was a governor but not yet Fed Chairman, Bernanke described the housing boom as reflecting a prudent and well-regulated financial system, not a dangerous bubble. He argued that vast amounts of foreign capital flowed through US banks to the housing sector because international investors appreciated "the depth and sophistication of the country's financial markets (which among other things have allowed households easy access to housing wealth)."

          [Not feeling the Fed rate yet. Am feeling regulatory failure though. Realing feeling total intellectual breakdown in fealty to market fundamentalism.]

          Having stoked a boom, now the Fed can't prevent at least a short-term decline in the US economy, and maybe worse. If it pushes too hard on continued monetary expansion, it won't prevent a bust but instead could create stagflation – inflation and economic contraction. The Fed should take care to prevent any breakdown of liquidity while keeping inflation under control and avoiding an unjustified taxpayer-financed bailout of risky bank loans.

          CommentsView/Create comment on this paragraphThroughout the world, there may be some similar effects, to the extent that foreign banks also hold bad US mortgages on their balance sheets, or in the worst case, if a general financial crisis takes hold. There is still a good chance, however, that the US downturn will be limited mainly to America, where the housing boom and bust is concentrated. The damage to the rest of the world economy, I believe, can remain limited.

          [Yeah the inflation has been terrible, but thankfully the ROW economy is doing fine.

          No support for his claim about the Fed rate, so I won't bother with all the nutty things he said.]

          Darryl FKA Ron said in reply to Mark A. Sadowski...

          Actually, yes I even know that much, but thanks for taking the handoff and carrying the ball while I was busy elsewhere. You did a pretty dandy job and this is really your game far more than mine.

          THANKS!

          Anthony Juan Bautista said in reply to Mark A. Sadowski...

          There was a GLOBAL expansion of business and consumer credit in the 2000s. This indeed correlated with **global** asset price inflation. In America if I recall, the real Federal Funds rate was actually negative for two-plus years in the mid 2000s. And the Fed most certainly facilitated (if not outright supported) loosening of bank (mortgage) lending standards.

          Lots and lots and lots of "mainstream" economists agree (and I witnessed it with my own eyes) that central banks' "loose" money policies played a significant role in **causing** the financial boom/bust (in the context of a multifactorial phenomenon). Meaning, if you don't believe global monetary policy significantly creeped into the real economy in the 2000s, you're likely in a slight minority.

          Too many papers to cite on the topic of "Did the Fed do it?". (It is still controversial.) Perhaps not surprisingly, lots of central bankers think the central bankers didn't do it!!

          Here's some guys that think the Fed didn't do it; I share the reference owing to its discussion and citations re the issue.

          http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37462291

          _______________________________________

          "History has not dealt kindly with the aftermath of protracted periods of low risk premiums." -AJB (or maybe Alan Greenspan)

          Mark A. Sadowski said in reply to Anthony Juan Bautista...

          "There was a GLOBAL expansion of business and consumer credit in the 2000s."

          Agreed.

          "This indeed correlated with **global** asset price inflation."

          Global house price inflation *is* significantly positively correlated with increases in household sector leverage.

          "In America if I recall, the real Federal Funds rate was actually negative for two-plus years in the mid 2000s."

          This is a complete nonsequitor as the Federal Funds rate has almost no correlation with mortgage rates. In fact even using the 1993 version of the Taylor Rule (the "hawkish" one) on 20 advanced countries only 5% of real house price variation can be explained by Taylor Rule residuals:

          http://www.federalreserve.gov/newsevents/speech/bernanke20100103slide9.gif

          This shouldn't at all be a surprise as Spain and Germany had the same exact monetary policy and one had a housing bubble and the other one didn't. The same thing of course applies to Arizona and Texas. (This is exactly where your argument completely collapses.)

          "And the Fed most certainly facilitated (if not outright supported) loosening of bank (mortgage) lending standards."

          The Fed has almost no macroprudential role as the paper you just cited points out, so if the Fed facilitated it is a clear case of immaculate conception.

          "Lots and lots and lots of "mainstream" economists agree (and I witnessed it with my own eyes) that central banks' "loose" money policies played a significant role in **causing** the financial boom/bust (in the context of a multifactorial phenomenon)."

          I didn't realize you also were a central banker. It's been a busy decade for you, hasn't it?

          "Meaning, if you don't believe global monetary policy significantly creeped into the real economy in the 2000s, you're likely in a slight minority."

          Let me give you an example of that "majority" that you mention. The paper you link to (Cesa-Bianchi and Rebucci 2013) specifically cites Bean, Posen and Svensson as providing arguments against the thesis that monetary policy contributed to the financial boom that preceeded the global financial crisis. This barely scratches the surface of mainstream monetary economists who share that opinion.

          In contrast they list Taylor, Borio, White and Gordon as supporting the thesis.

          Let's consider Robert Gordon first. His paper was published in 2005 and written in 2004. It contains absolutely no mention of a financial boom. It does however investigate the sources of a decline in business cycle volatility in the U.S. and explores the contribution of monetary policy to this decreased economic volatility. In short I think Robert Gordon would be extremely surprised to find out he supports this argument.

          Next, let's consider Borio and White. Borio and White are quasi-Austrian economists and are mainstream the same way the Sex Pistols are Easy Listening.

          Finally there's John Taylor, who actually had fairly mainstream views until the 2008 recession and election. The paper you link to even presents a graph of the 1993 Taylor Rule versus the actual Fed Funds rate through 2007 as support for the argument that monetary policy contributed to the financial boom.

          Here's the same exact rule (red using headline CPI) with the fed funds rate (blue) and with the same exact 1999 version of the rule (green with core PCEPI) that has recently been used in speeches by both FOMC doves (e.g. Yellen) and hawks (e.g. Bullard):

          http://research.stlouisfed.org/fred2/graph/?graph_id=126859&category_id=0

          Note that when extended to present day, the 1993 Taylor Rule depicted in Figure 1 on Page 3 of your link recommends raising the fed funds rate to 7.0% in 2007Q4, the quarter the recession started. And all the way up to 8.9% in 2008Q3, the same quarter that Lehmans Brothers filed for bankruptcy, setting off the U.S. portion of the global financial crisis.

          It does recommend lowering it below zero in the second and third quarters of 2009 but then it recommends raising it all the way up to 4.5% in 2010Q1 and to 6.6% in 2011Q3.

          In contrast the Taylor Rule that monetary policymakers actually refer to suggests that monetary policy was not overy lax during the mid-2000s. More importantly it did not recommend raising the federal funds rate to ridiculous levels during the financial crisis or more recently.

          Anglo-Irish Picked Bailout Number Out Of My Arse To Force Shared Taxpayer Sacrifice Zero Hedge

          The Irish people, who sacrificed their sovereignty and billions of Euros, are waking this morning to a stunning revelation that the bailout to save Anglo-Irish was engineered by the Bank's leadership to game as much money as possible from the central bank. The Irish Independent has secret recordings from the period in 2008 - below - that show senior management luring the State into giving it billions as they admit the EUR 7 billion number was "picked out of my arse."

          The bottom-line is that the bank knew they were in trouble and so decided to game the Central Bank and their regulators knowing that once the State began the flow of money, it would be unable to stop: "If they (Central Bank) saw the enormity of it up front, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high . . . if it doesn't look too big at the outset... if it looks big, big enough to be important, but not too big that it kind of spoils everything, then, then I think you have a chance. So I think it can creep up... [once] they have skin in the game." Will there be an Irish Spring as the conspiracy theory of the banking bailout now become conspiracy fact?

          gjp

          Just remember this every time you hear the word 'sophisticated' attached to the financial kleptocracy. About as sophisticated as my arse.

          Kiss My Iceland...

          Hmmm. People are surprised at this sort of thing? Think AIG, Goldman, financial crisis, etc, etc, ....

          BurningFuld

          So what. It's not a crime to do that is it? Not if you are a Banker anyhow.

          Big Banks Still Write the Rules Fmr. Inspector General of Bank Bailout

          Former Federal Reserve Chairman Paul A. Volcker has announced he's taking on the public's eroding faith in government with a new foundation called the Volcker Alliance. He's set to address an audience today in New York on the challenges facing regulatory reform, including how slowly Washington has moved on putting Dodd-Frank financial reform into effect.

          Remember Dodd-Frank? That was the huge reform effort signed into law nearly three years ago to prevent a repeat of the 2008 financial crisis.

          But according to CFTC Commissioner Bart Chilton, barely a third of the rules have been written to actually implement the law.

          "Much of Dodd-Frank is dying on the vine," Chilton writes in an email exchange with The Daily Ticker. "Lobbying, litigation and lawmakers who have tried to defund and defang Dodd-Frank have all brought rule-writing to a crawl. Regulators themselves have become overly concerned about finalizing rules. Over-analysis paralysis, fears of litigation risks, and the lack of people-power have all contributed to the slowdown."

          He describes the so-called Volcker Rule – a key aspect of Dodd-Frank meant to keep big taxpayer-backed banks from speculating – as "apparently dead in the water."

          The potential headwinds that Chilton names aside, you have some big banks involved in literally writing bills to soften the impact of the reform on their business.

          The New York Times recently reported Citigroup's (C) input was reflected in more than 70 lines of an 85-line bill that sailed through the House Financial Services Committee this month. The bill would exempt broad swathes of derivatives trades from new regulation. Two key paragraphs, according to the Times, prepared by Citigroup together with other Wall Street banks, were copied almost word for word.

          In the accompanying video, former Special Inspector General of the Treasury's TARP bank bailouts, Neil Barofksy, explains why this behavior doesn't surprise him at all.

          "There's nothing particularly new about big banks – and there's nothing particularly new about Citi – being involved in drafting legislation that goes to the very heart of its business, that's deregulatory," says Barofsky, author of Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. "It's only surprising in that we don't learn from our mistakes and history just repeats itself."

          Barofksy goes on to discuss whether or not Washington has become friendlier to Wall Street as the memory of the financial crisis starts to fade and the economy gets stronger, and why we seem to be seeing a rise in big bank "brashness."

          Robert P. Murphy The Scott Horton Show

          4-5-13

          Robert P. Murphy, author of The Politically Incorrect Guide to Capitalism, discusses the new monthly Federal Reserve Awareness Day; the connection between central banking and war; cutting the size of government to enable long-term sustainable growth; why President Nixon ended the last vestiges of the gold standard in 1971; the non-monetary reasons for taxes; and the limits of Fed chairman Ben Bernanke's control of interest rates and inflation.

          Podcast: Play in new window | Download (Duration: 1:05:48 - 15.1MB)

          Bank leverage cycles Galo Nuńo, Carlos Thomas

          Another positive feedback loop.

          March 12, 2013 | vox

          Economists tend to agree that explosive deleveraging in the banking sector was a central element of the 2008 global financial crisis. This column argues that such deleveraging is far from unique. In fact, there is a 'bank leverage cycle' in which bank leverage, assets and GDP ramp up and down together; and this is true across financial subsectors. Such procyclicality strengthens the case for macroprudential regulations.

          The 2007-09 financial crisis witnessed a severe disruption of financial intermediation in many industrialised economies. Recent literature has focussed on the role played by the 'shadow banking' sector in the origin and propagation of financial turmoil. Shadow banking comprises all those financial intermediaries – investment banks, hedge funds, finance companies, off-balance-sheet investment vehicles – that have no access to central-bank liquidity or public-sector credit guarantees, and that are not subject to regulatory capital requirements.

          Many of these financial intermediaries have primarily funded their asset purchases by means of collateralised debt with very short maturity, such as sale and repurchase ('repo') agreements or asset backed commercial paper. As argued by Brunnermeier (2009), Gorton and Metrick (2010, 2011), Krishnamurthy et al. (2012) and others, the initial losses suffered by some of the assets that served as collateral in repo or asset-backed commercial paper transactions, together with the uncertainty surrounding individual exposures to such assets, led the holders of that short-term debt – mostly institutional investors, such as money-market funds – to largely stop rolling over their lending. This funding freeze forced the shadow financial intermediaries to deleverage, with resulting contractions in financing flows to the real economy.

          Bank leverage cycles in the US economy

          The observed deleveraging of shadow intermediaries during the 2007-09 financial crisis is not an isolated episode. Since the 1960s the leverage ratio of banks has exhibited a markedly procyclical pattern, in the sense that expansions (or contractions) in balance-sheet size have gone hand in hand with increases (or decreases) in leverage. In a recent paper (2013), we perform a systematic analysis of the cyclical fluctuations in the leverage ratio – that is, the ratio between total assets and equity capital – of US financial intermediaries. Our analysis includes depository intermediaries such as US-chartered commercial banks and savings institutions, as well as non-depository intermediaries such as security brokers and dealers and finance companies. We find that:

          • First, leverage fluctuations contribute at least as much as equity fluctuations to the cyclical movements in banks' balance-sheet size;
          • Second, leverage, equity capital and total assets have roughly the same volatility, and are themselves several times more volatile than GDP.
          • Third, leverage is positively correlated with total assets and (to a lesser extent) GDP, and negatively correlated with equity capital.

          All these findings are robust across financial subsectors.

          Why is leverage volatile and procyclical?

          The volatility and procyclicality of leverage can be understood as the result of the interplay between collateralised bank debt, moral hazard, and changes in uncertainty. A significant share of banks' liabilities are risky collateralised debt contracts funded by institutional investors. Due to limited liability, banks enjoy the upside risk in their assets over and above the face value of their debt, leaving the institutional investors to bear the downside risk. This provides banks with an incentive to engage in inefficiently risky lending practices, that is, engage in moral hazard (see Adrian and Shin 2011a). Such an incentive increases with the assumed debt commitment relative to the size of the bank's balance sheet. In order to induce each bank to invest efficiently, institutional investors restrict their lending to a certain ratio of the bank's net worth – that is, they impose a leverage constraint.

          Consider now an increase in uncertainty regarding banks' asset returns. The higher uncertainty, in combination with limited liability, makes it more attractive for banks to finance riskier projects. In order to prevent them from doing so, institutional investors must impose a tighter constraint on banks' leverage. For any given net worth, this deleveraging forces banks to contract their balance sheets, producing a fall in intermediated credit. This leads to a fall in capital investment by firms and a consequent fall in aggregate output. This creates a positive co-movement between leverage, assets and GDP. As we show (Nuńo and Thomas 2013), this mechanism can produce empirically plausible fluctuations in bank leverage in the context of a general equilibrium model with financial intermediaries.

          Conclusions

          The presence of limited liability and moral hazard in the banking sector breaks the perfect-information/complete-markets paradigm of the real business-cycle models. On the positive side, this may help to explain the observed procyclicality of bank leverage and its links with business cycles. On the normative side, the allocation of resources in this economy is not efficient, thus leaving the door open for the study of different policy interventions which may improve this allocation.

          One possibility, for example, is that the government extends its public guarantee to certain types of non-deposit liabilities. In this case, institutional investors have no incentive to apply any discipline on the debt contracts, and therefore the bank could leverage as much as it wished without paying any premium. In order to avoid it, the government should also introduce some form of macroprudential regulation, such as minimum capital requirements, to limit the growth of leverage. The dynamic design of this regulation should be aimed at improving the efficiency of the economy.

          Booms and Systemic Banking Crises

          Economist's View
          Everyone at the conference seemed to like this model of endogenous banking crises (me included -- this is the non-technical summary, the paper itself is fairly technical):
          Booms and Systemic Banking Crises, by Frederic Boissay, Fabrice Collard, and Frank Smets: ... Non-Technical Summary Recent empirical research on systemic banking crises (henceforth, SBCs) has highlighted the existence of similar patterns across diverse episodes. SBCs are rare events. Recessions that follow SBC episodes are deeper and longer lasting than other recessions. And, more importantly for the purpose of this paper, SBCs follow credit intensive booms; "banking crises are credit booms gone wrong" (Schularick and Taylor, 2012, p. 1032). Rare, large, adverse financial shocks could possibly account for the first two properties. But they do not seem in line with the fact that the occurrence of an SBC is not random but rather closely linked to credit conditions. So, while most of the existing macro-economic literature on financial crises has focused on understanding and modeling the propagation and the amplification of adverse random shocks, the presence of the third stylized fact mentioned above calls for an alternative approach.
          In this paper we develop a simple macroeconomic model that accounts for the above three stylized facts. The primary cause of systemic banking crises in the model is the accumulation of assets by households in anticipation of future adverse shocks. The typical run of events leading to a financial crisis is as follows. A sequence of favorable, non permanent, supply shocks hits the economy. The resulting increase in the productivity of capital leads to a demand-driven expansion of credit that pushes the corporate loan rate above steady state. As productivity goes back to trend, firms reduce their demand for credit, whereas households continue to accumulate assets, thus feeding the supply of credit by banks. The credit boom then turns supply-driven and the corporate loan rate goes down, falling below steady state. By giving banks incentives to take more risks or misbehave, too low a corporate loan rate contributes to eroding trust within the banking sector precisely at a time when banks increase in size. Ultimately, the credit boom lowers the resilience of the banking sector to shocks, making systemic crises more likely.
          We calibrate the model on the business cycles in the US (post WWII) and the financial cycles in fourteen OECD countries (1870-2008), and assess its quantitative properties. The model reproduces the stylized facts associated with SBCs remarkably well. Most of the time the model behaves like a standard financial accelerator model, but once in while -- on average every forty years -- there is a banking crisis. The larger the credit boom, (i) the higher the probability of an SBC, (ii) the sooner the SBC, and (iii) -- once the SBC breaks out -- the deeper and the longer the recession. In our simulations, the recessions associated with SBCs are significantly deeper (with a 45% larger output loss) than average recessions. Overall, our results validate the role of supply-driven credit booms leading to credit busts. This result is of particular importance from a policy making perspective as it implies that systemic banking crises are predictable. We indeed use the model to compute the k-step ahead probability of an SBC at any point in time. Fed with actual US data over the period 1960-2011, the model yields remarkably realistic results. For example, the one-year ahead probability of a crisis is essentially zero in the 60-70s. It jumps up twice during the sample period: in 1982-3, just before the Savings & Loans crisis, and in 2007-9. Although very stylized, our model thus also provides with a simple tool to detect financial imbalances and predict future crises.

          [Oct 14, 2015] The Financial Sector is Too Big

          October 9, 2015 | naked capitalism

          By Philip Arestis Professor and Director of Research at the Cambridge Centre for Economic & Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge, UK, and Professor of Economics at the University of the Basque Country and Malcolm Sawyer, Professor of Economics, University of Leeds. Originally published at Triple Crisis

          Has the financial sector become too large, absorbing too many resources, and enhancing instabilities? A look at the recent evidence on the relationship between the size of the financial sector and growth.

          There has been a long history of the idea that a developing financial sector (emphasis on banks and stock markets) fosters economic growth. Going back to the work of authors such as Schumpeter, Robinson, and more recently, McKinnon, etc., there have been debates on financial liberalisation and the related issue of whether what was relevant to financial liberalisation, namely financial development, "caused" economic development, or whether economic development led to a greater demand for financial services and thereby financial development.

          The general thrust of the empirical evidence collected over a number of decades suggested that there was indeed a positive relationship between the size and scale of the financial sector (often measured by the size of the banking system as reflected in ratio of bank deposits to GDP, and the size of the stock market capitalisation) and the pace of economic growth. Indeed, there have been discussion on whether the banking sector or the stock market capitalisation is a more influential factor on economic growth. The empirical evidence drew on time series, cross section, and panel econometric investigations. To even briefly summarise the empirical evidence on all these aspects is not possible here. In addition, the question of the direction of causation still remains an unresolved issue.

          The processes of financialisation over the past few decades have involved the growing economic, political and social importance of the financial sector. In size terms, the financial sector has generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits, stock market valuations, or more significantly in the growth of financial products, securitisation, and derivatives as well as trading volume in them. This growth of the financial sector uses resources, often of highly trained personnel, and inevitably raises the question of whether those resources are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests, "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources" (MarketWatch, Aug. 1 2015).

          Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening. The claims were often made by the mainstream that financial liberalisation had removed "financial repression" and stimulated growth. Yet, financial liberalisation in a country often led to banking and financial crises, many times with devastating effects on employment and living standards. Financial crises have become much more frequent since the 1970s in comparison with the "golden age" of the 1950s and 1960s. The international financial crisis of 2007/2008 and the subsequent Great Recession were the recent and spectacular crises (though the scale of previous crises such as the East Asian ones of 1997 should not be overlooked). The larger scale of the financial sector in the industrialised countries has been accompanied (even before 2007) with somewhat lower growth than hitherto. As the quote above suggests there has not been an upsurge of savings and investment, and indeed many would suggest that the processes of financialisation dampen the pressures to invest, particularly in research and development. Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?

          An interesting recent development has been a spate of research papers coming from international organisations and many others, which have pointed in the direction that indeed the financial sector in industrialised countries have become too big-at least when viewed in terms of its impact on economic growth. (See Sawyer, "Financialisation, financial structures, economic performance and employment," FESSUD Working Paper Series No. 93, for a broad survey on finance and economic performance.) These studies rely on econometric (time series) estimation and hence cover the past few decades-which suggests that their findings are not in any way generated by the financial crisis of 2007/2008 and the Great Recession that followed.

          A Bank of International Settlements study concluded that "the complex real effects of financial development and come to two important conclusions. First, financial sector size has an inverted U-shaped effect on productivity growth. That is, there comes a point where further enlargement of the financial system can reduce real growth. Second, financial sector growth is found to be a drag on productivity growth." Cournčde, Denk,and Hoeller (2015) state that "finance is a vital ingredient for economic growth, but there can also be too much of it." Sahay, et al. (2015) find a positive relationship between financial development (as measured by their "comprehensive index") and growth, but "the marginal returns to growth from further financial development diminish at high levels of financial development―that is, there is a significant, bell-shaped, relationship between financial development and growth. A similar non-linear relationship arises for economic stability. The effects of financial development on growth and stability show that there are tradeoffs, since at some point the costs outweigh the benefits."

          There are many reasons for thinking that the financial sector has become too large. Its growth in recent decades has not been associated with facilitating savings and encouraging investment. It has absorbed valuable resources which are largely engaged in the trading in casino-like activities. The lax systems of regulation have made financial crises more likely. Indeed, and following the international financial crisis of 2007/2008 and the great recession a number of proposals have been put forward to avoid similar crises. To this day, nonetheless, the implementation of these proposals is very slow indeed (see, also, Arestis, "Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications," for more details).

          See original post for references

          MartyH, October 9, 2015 at 10:28 am

          Now that Michael Hudson's Killing the Host has been available for a while, one suspects a Picketty-like effect with folks "discovering" that Taibbi's Giant Vampire Squid characterization of Goldman-Sachs (one of many) wasn't funny.

          blert, October 9, 2015 at 5:24 pm

          It's a squid that squirts RED INK - onto everyone else.

          susan the other, October 9, 2015 at 11:03 am

          This is a great and readable essay. Sure sounds like Minsky. And even Larry Summers when he advocates for more bubbles. And Wolfgang Schaeuble said repeatedly that "we are overbanked." We just don't know how to do it any other way. When everything crashes it's too late to regulate. Unless Larry knows a clever way to regulate bubbles.

          JTMcPhee, October 10, 2015 at 8:40 am

          The Banksters' refrain:

          "Don't regulate you,
          Don't regulate me!
          Regulate that guy over behind that tree…"

          MY scam is systemically important!

          Just Ice, October 10, 2015 at 3:34 pm

          "We just don't know how to do it any other way. " STO

          Yet there is another way, an equitable way :) Dr. Michael Hudson himself says that industry should be financed with equity, not debt.

          Leonard, October 10, 2015 at 3:53 pm

          Susan
          There is way to manage bubbles before they get out of control. This article explains how. Go to wp.me/WQA-1E

          ben, October 9, 2015 at 11:17 am

          Wasted resources are way higher than the Vanguard example. They misdirect resources especially into land and issue new money as debt.

          RepubAnon, October 10, 2015 at 11:29 pm

          They think that they make their living by "ripping the eyes out of the muppets" – so they're opposed to regulations which would protect the muppets' eyes.

          I look at the financial industry as sort of like sugar for the economy – the right amount is good for you, but too much will kill you.

          Just Ice, October 9, 2015 at 12:35 pm

          "The lax systems of regulation have made financial crises more likely."

          Actually, it's the near unlimited ability of the banks to create deposits ("loans create deposits" but also debts) that causes large scale financial crises. And what is the source of this absurd ability of the banks? ans: government privileges including deposit insurance instead of a Postal Savings Service or equivalent and a fiat (the publics' money) lender of last resort.

          Besides, regulations typically do not address the fundamental injustice of government subsidized banks – extending the publics' credit to private interests.

          Synoia October 9, 2015 at 12:53 pm

          There is something very wrong about money creation from loans. I'm not arguing that this is incorrect, I'm looking at money creation being a burden on the citizenry. I cannot see how this will end well, because of the asymmetric nature, money creation only benefits the banks, of the burden of money creation.

          Just Ice October 9, 2015 at 1:40 pm

          "There is something very wrong about money creation from loans."

          More precisely, there is something very wrong about being driven into debt by government-subsidized private credit creation. Source of the rat race? Look no further.

          zapster October 10, 2015 at 9:32 am

          It's the bank-money vs. government money situation. The hysteria over "The Deficit (gasp)" insures that none of us have cash and must borrow to live. The bankers won.

          Just Ice October 10, 2015 at 1:56 pm

          "It's the bank-money vs. government money situation." zapster

          More precisely, who gets to create the government's money since it is taxation* that drives the value of fiat. But it's an absurd situation since obviously the government ALONE should create fiat, not a central bank for the benefit of banks and other private interests, especially the wealthy.

          As for the private sector, let it create its own money solutions and my bet is that we'll have a much more equitable (pun intended) society as a result.

          The problem then is taxation. How does one tax someone's income in Bitcoins, for example? How does one preclude tax evasion? Unavoidable taxes such as land taxes (except for a homestead exemption) are one possibility.

          *As well as the need to pay the interest on the debt the government subsidized banking cartel drives us into.

          Yves Smith Post author October 10, 2015 at 5:17 pm

          *Sigh*. The government alone does control the money supply in a fiat currency issuer. The government hasn't bothered to do so actively because the only time it DID try doing that (under Reagan and Thatcher) they found out, contra Friedman, that money supply growth bore no relationship to any macroeconomic variable. Monetarism was a failed experiment.

          readerOfTeaLeaves October 9, 2015 at 10:58 pm

          I happened upon a great link - about the probable origins of interest. Here's the link: http://viking.som.yale.edu/will/finciv/chapter1.htm

          Scroll down to "The Idea of Interest". This author posits that back in the (ancient, herding) day, people lent cattle. I lend you my cow, your bull impregnates her, and I get a part of the calf.

          What the author probably didn't understand, but is known to those of us interested in the history of metallurgy, is that there was a belief that metals 'grew' - after all, plants grew from the ground, vines grew from the ground, trees and bushes also grew from the ground. It was not a great stretch to suppose that metals also grew within the ground, and back in those ancient days they expected the same kind of 'growth' from metals that happened with agricultural products.

          Perhaps if I ever get to retire, I can read Hudson's entire work, and possibly he covers this topic. But I do think that it is time for the rest of us to rethink the nature of money - particularly in an emerging digital era.

          cnchal October 10, 2015 at 10:42 am

          Thanks for that link. Here is a little nugget that relates to today.

          The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such strictures - they simply charged the legal limit for shorter and shorter term loans! Curiously, while mathematics during this era was extraordinarily advanced, the government failed to understand, or at least effectively regulate the close link between time and money.

          Sound familiar. It's more like the banksters regulate government.

          As for compound interest, it seems to be the most diabolical human invention yet, as it infers exponential growth without limits.

          Here is Keynes discussing compound interest in his speech "Economic Possibilities for our Grandchildren" (1930)

          From the earliest times of which we have record – back say to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilized centres of the earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps 50 per cent better than others – at the utmost 100 per cent better – in the four thousand years which ended (say) in A.D. 1700.

          This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.

          The absence of important technical inventions between the prehistoric age and comparatively modern times is truly remarkable. Almost everything which really matters and which the world possessed at the commencement of the modern age was already known to man at the dawn of history. Language, fire, the same domestic animals which we have today, wheat, barley, the vine and the olive, the plough, the wheel, the oar, the sail, leather, linen and cloth, bricks and pots, gold and silver, copper, tin, and lead – and iron was added to the list before 1000 B.C. – banking, statecraft, mathematics, astronomy, and religion. There is no record of when we first possessed these things.

          At some epoch before the dawn of history – perhaps even in one of the comfortable intervals before the last ice age – there must have been an era of progress and invention comparable to that in which we live today. But through the greater part of recorded history there was nothing of the kind.
          The modern age opened, I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until today the power of accumulation by compound interest, which seems to have been sleeping for many generations, was reborn and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.

          Let me give in illustration of this a sum which I have worked out. The value of Great Britain's foreign investments today is estimated at about Ł4,000 million. This yields us an income at the rate of about 6 1/2 per cent. Half of this we bring home and enjoy; the other half, namely, 3 1/2 per cent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.

          For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England's foreign debt, balanced her budget, and found herself with about Ł40,000 in hand. This she invested in the Levant Company – which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England's subsequent foreign investment. Now it happens that Ł40,000 accumulating at 3 1/2 per cent compound interest approximately corresponds to the actual volume of England's foreign investments at various dates, and would actually amount today to the total of Ł4,000 million which I have already quoted as being what our foreign investments now are. Thus, every Ł1 which Drake brought home in 1580 has now become Ł100,000. Such is the power of compound interest !

          From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.

          What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundred-fold of what any previous age had known. And from now on we need not expect so great an increase of population.

          This reminds me of the huge fortunes growing at compound interest today.

          Take the Gates Foundation as an example.

          From Wikipedia: It had an endowment of US$42.3 billion as of 24 November 2014.

          If this were to grow at a compound interest rate of 7.2% annually, it would double every ten years, and in one hundred years would be $43 trillion dollars and in two hundred years $44,354 trillion or $44.354 quadrillion. It's as if Bill and Warren are playing a practical joke on the world, as their compound interest monster swallows every available dollar.

          I wonder what a loaf of bread will cost in two hundred years?

          nigelk October 9, 2015 at 3:20 pm

          Fractional-reserve banking is anathema to human dignity itself. What was it Gandhi said about "wealth without work"…?

          griffen October 9, 2015 at 12:56 pm

          Top heavy might be the marginally better angle to take here. Although I recently left the state (N Texas, Dallas), Texas banks are being merged or acquired left and right. On some occasions it is necessary if very small institutions are unable to compete, unable to meet a decent ROE bogey (6.0% ROE is sorta low), or just unable to fend off progress.

          Other occasions the larger regional and national banks can just win on scale.

          Noni Mausa October 9, 2015 at 1:10 pm

          I have long thought about the banking system as a beating heart. Of course it needs fuel, like the rest of the body, but when a heart gets larger and larger, and contains more and more blood, and uses more and more fuel, the rest of the body never fares well.

          "Surging bank profits" is never a headline that makes me happy.

          Carla October 9, 2015 at 11:43 pm

          Yes, congestive heart failure kills the host - this is a great analogy - Thanks!

          anders October 9, 2015 at 2:01 pm

          The real question is: why was it that the "creation of wealth" had to turn to the financial sector. IMHO it's because the productive sector is lesser and lesser able to produce surplus value. So that free capital istn't attracted to it. Of course in the financial sector there isn't any value created at all.

          Just Ice October 9, 2015 at 3:33 pm

          " IMHO it's because the productive sector is lesser and lesser able to produce surplus value. "

          Yes, because of unjust wealth distribution; the host has finally been exhausted. With meta-materials, nano-technology, genetic engineering, better catalysts, etc. and with practical nuclear fusion on the horizon (because of new superconducting materials) mankind has probably never been on the verge of creating so much value as now but can't because of lack of effective demand, not for junk but for such things as proper medical and dental care while the wealthy have more than they know what to do with.

          blert October 9, 2015 at 5:22 pm

          Is the sky blue ?

          Decades of 'political – solvency' insurance has permitted 'the blob' to overwhelm all.

          &&&

          If all of society played Poker … would anything be produced ? THAT'S the aspect that has metastasized. It's not proper to term it the 'financial sector' - gambling// speculation emporium… now you're talking. When the government chronically intervenes to bail out highly sophisticated fools…. Jon Corzine is the result. - And he's not even the target of law enforcement !!!!

          equote October 10, 2015 at 7:40 am

          "A business that makes nothing but money is a poor business." -- Henry Ford

          sd October 10, 2015 at 4:18 pm

          Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening.

          Release the Kraken comes to mind.

          [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 13, 2015] My comprehensive plan for US policy on the Middle East

          "... US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction. ..."
          Oct 04, 2015 | Crooked Timber

          geo, 10.04.15 at 6:28 pm

          JQ@9: the supposed need to control ME oil was always nonsense, but it's nonsense on stilts now

          http://www.dreamscape.com/morgana/enforce.htm:

          "Documents recently obtained from Cheney's Energy Task Force as the result of a Freedom of Information Act lawsuit filed by the public-interest group Judicial Watch indicate that Cheney and his colleagues had their sites on the black gold under the Iraqi desert well before Sept. 11.

          "Last July, the Commerce Department finally turned over records that included "a map of Iraqi oilfields, pipelines, refineries and terminals, as well as two charts detailing Iraqi oil and gas projects and 'Foreign Suitors for Iraqi Oilfield Contracts'," according to Judicial Watch's subsequent press release. There were also similar maps and charts for Saudi Arabia and the United Arab Emirates. The documents were dated March 2001."

          See also: http://www.informationclearinghouse.info/article4458.htm.

          If only Bush and Cheney had listened to people who knew something about the oil industry and believed in the free market …


          Layman 10.04.15 at 8:38 pm

          "To cite just one example, cutting off aid to Saudi Arabia, Egypt, and Israel would cause a huge international crisis."

          I'm afraid it's not at all clear that the resulting crisis would be 'huger' than the ones we get for the aid. U.S. aid to Israel (for example) is almost entirely military aid. We're sponsoring Israel's efforts to colonize the West Bank and to periodically destabilize Lebanon. These are international crises, and we're funding them.


          Ze K 10.04.15 at 9:04 am

          30 minutes before opening this page I read this: http://www.counterpunch.org/2015/10/02/a-useful-prep-sheet-on-syria-for-media-propagandists/

          …and sent them $100.

          @16 "the overwhelming majority of civilian deaths are down to the regime."

          That is not what I get from The Angry Arab News Service, and no offense but I trust that As'ad AbuKhalil knows what he's talking about.

          Peter T 10.04.15 at 9:17 am

          Okay. So we airlift Allawis, Druze, Syrian Shia, Christians (30 per cent or so of the Syrian population) out, re-settle them in Arizona and leave the Islamists to fight it out. Oh, wait, we need to airlift out the Assyrians and Yezidi too. Then the Iraqi Shia and ISIS can fight it out. Iran will certainly intervene in force, but not our worry. Oh, and we'd better get most Jordanians out of the way too.

          US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction.

          Donald Johnson 10.04.15 at 5:46 pm

          And here is a link to a Physicians for Social Responsibility paper which discusses the various studies and estimates of the death toll in Iraq, Afghanistan, and Pakistan. Their numbers are on the higher side–

          http://www.psr.org/assets/pdfs/body-count.pdf

          [Oct 12, 2015] Saudi Arabia Halts Government Spending Due To Oil Price Fall

          Aug 30, 2012 | OilPrice.com

          Saudi Arabia has reportedly resorted to spending cuts to cope with a budget deficit caused by the steep decline of oil prices over the past year.

          Bloomberg reported Oct. 8 that the Saudi Finance Ministry has directed government agencies not to embark on any new spending initiatives for the rest of the year. It also froze government hiring and promotions, suspended the purchase of furniture and vehicles and urged revenue collectors to accelerate their operations.

          ...oil accounts for around 90 percent of Saudi revenue. But the kingdom's finances also have been strained by its involvement in wars in Syria and Yemen.

          As a result, Saudi Arabia's ratio of debt to GDP is in danger of rising to 33 percent in five years, according to a new report by the International Monetary Fund (IMF). The report says the Saudi budget has gone from a surplus to a deficit of more than 20 percent of GDP, more than twice as deep as those that beset the United States and Britain in 2008 and 2009, the darkest period of the recent recession

          ... ... ...

          The spending cuts aren't Saudi Arabia's first effort to manage its deficit. Bloomberg quoted other anonymous sources as saying Riyadh had planned to raise at least $24 billion from bond sales by the end of 2015. This was in response to a drop in the kingdom's foreign assets, which at that time had fallen for the seventh consecutive month to $654.5 billion, its lowest in more than two years.

          [Oct 12, 2015] Could oil prices really shrink to twenty dollars per barrel

          "... When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up, ..."
          "... So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking ..."
          "... Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production. ..."
          Oct 06, 2015 | finance.yahoo.com

          ... Fatih Birol, the executive director of the International Energy Agency (IEA), told CNBC on Tuesday that low prices would prompt U.S. producers to cut output, creating upward price pressure.

          "When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up," Birol told CNBC on Tuesday from the Oil & Money conference.

          "So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking."

          ... ... ....

          Whether or not U.S. shale players will cut production in response to ongoing low prices is a moot point however. They could instead respond by increasing production in order to satisfy creditors eager for results. Plus, against some odds, shale producers have managed to lower productions costs, although these remain high in comparison to conventional oil production.

          Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production.

          "It is proven it is a very resilient type of production, but this level of prices, $45, $50 is not good enough to induce reinvestments and for production to continue to grow. Therefore, we expect as of next year, production growth will decline in the United States," Birol told CNBC.

          The secretary general of OPEC, Abadall El-Badri, also forecast that oil production from countries outside his group would fall next year.

          ... ... ...

          "We see that non-OPEC supply is declining and in 2016, we see there is an increase in demand … so in a nutshell, there is a balance in the market in 2016. How much this will reflect on the price I really cannot tell," he later added.

          ... ... ...

          Standard & Poor's (S&P) appeared more bullish on oil prices than Goldman, forecasting on Tuesday that Brent oil would average $55 per barrel in 2016, up from an average of $50 for the remainder of this year.

          [Oct 12, 2015] Oil rig count drops for a 6th week

          According to driller Baker Hughes, the number of active oil rigs fell by 9 to 605, putting the count at the lowest level since the week ending July 30, 2010. The combined tally of oil and gas rigs fell 14 from last week to 795, the lowest since May 2002. We saw a renewed drop in the oil rig count last week, which fell by 26, the biggest decline since the rig count topped out a year ago.

          Earlier this week, Baker Hughes reported that the average US rig count for September was 848, down 35 from the prior month.

          [Oct 12, 2015] OPEC Crude Little Change - Peak Oil BarrelPeak

          "... Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon. ..."
          "... It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again. ..."
          "... Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not. ..."
          Aug 30, 2012 | peakoilbarrel.com

          Oil Barrel

          OPEC says world upstream spending will be down only 20% in 2015 but North American upstream spending will drop by 35%. I guess that is because of the big drop in shale spending.

          Ovi, 10/12/2015 at 10:52 am

          3Q15–4Q15–1Q16–2Q16–3Q16–4Q16
          -13.5-13.4-13.4-13.5--13.5-13.7

          Above is the OPEC projection for US production out to Q4-16. Looks optimistic to me. For the above to be true, there must be some underlining assumption regarding increasing oil prices to restart drilling.

          Ron Patterson, 10/12/2015 at 1:01 pm

          Yes those numbers are totally unrealistic, just as unrealistic as the US Short Term Energy Outlook numbers. In the chart below US Total Liquids are the left axis while C+C numbers are the right axis.

          Total liquids for the US STEO includes refinery process gain. And they even count refinery process gain on imported oil. So it looks like the OPEC MOMR numbers do not include refinery process gain.

          AlexS, 10/12/2015 at 2:53 pm

          The EIA expects U.S. non-C+C liquids supply to increase by 1.17mb/d between January 2014 and December 2016, of which 1.03 mb/d – NGPLs.

          brian, 10/12/2015 at 1:40 pm

          'God-trader' Andy Hall's fund loses $500M

          http://www.cnbc.com/2015/08/06/god-trader-andy-halls-fund-loses-500m.html

          Ves, 10/12/2015 at 2:05 pm

          Was he trading based on IEA, EIA or OPEC forecast numbers? :)

          Old Farmer Mac, 10/12/2015 at 2:31 pm

          Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon.

          It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again.

          Am I right about this? Are there any other countries that have any real hope of substantially increasing production near term?

          I am thinking about buying a LOT (for an individual) of diesel fuel as soon as I think the price is starting up again. I know, predicting IS HARD , but a bigger stash of diesel is as good as silver and gold in a jar buried in the back yard. Will probably stock up on lime and fertilizer as well, these inputs are extremely sensitive to and correlate with oil and gas prices.

          Dennis Coyne, 10/12/2015 at 2:53 pm

          Hi Old Farmer Mac,

          Just take my price predictions and assume the opposite will be true, or flip a coin :)

          Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not.

          Petro, 10/12/2015 at 10:26 pm

          …there will be no price rise, just the volatility of: "…a bomb went off here…", "…a war started there…" and "…a russian jet was shot down over there…somewhere…".

          be well,

          P.S: the "hoard" of diesel is not a bad idea, OFM

          Old Farmer Mac, 10/12/2015 at 2:52 pm

          This new SEC regulation might help people interested in peak oil and oil prices come by more and better data.

          It will probably go into force second half next year from the looks of things.

          http://thehill.com/blogs/congress-blog/economy-budget/256535-wind-at-secs-back-on-long-overdue-oil-transparency-rule

          Chris, 10/12/2015 at 3:31 pm

          OPEC has reached a plateau, oscillating between 28 mbpd to 31.6 mbpd since 10 years now. World production peaked so far in June. Saudi Arabia production in decline since June, US production in decline since several months. Peak oil in 2015? I am curious to see the December production…

          Dennis Coyne, 10/12/2015 at 6:23 pm

          It looks like the latest OPEC Monthly Oil Market Report predicts that World Oil Supply and Demand will be in balance by 3Q16, if OPEC output remains at 3Q15 levels. There will still be a supply overhang which may require another quarter or two of either decreased supply or increased demand (or both) to bring oil stocks back to normal levels.

          As always, these forecasts are notoriously inaccurate so oil prices could remain low until 2018 if demand is lower or supply is higher than OPEC forecasts, or they might rise in early 2016 if the opposite is true. It's a coin flip.

          Greenbub, 10/12/2015 at 7:43 pm

          Wouldn't most oil producers go out of business if prices stayed low until 2018?

          [Oct 11, 2015] Series of small earthquakes hit near Oklahoma crude oil storage hub

          The US Geological Survey (USGS) reported that nine quakes ranging in magnitude from 2.5 to 3.7 were recorded between 5.07pm on Saturday and 5.27am on Sunday. No injuries or damage were reported. Geologists say damage is not likely in quakes below magnitude 4.0.

          The latest seismic activity came after a 4.5 magnitude temblor on Saturday afternoon near Cushing and a 4.4 magnitude quake on Saturday morning south-west of Medford.

          The Oklahoma Geological Survey has said it is likely that many recent earthquakes in the state have been triggered by the injection of wastewater from oil and natural gas drilling operations.

          Cushing is home to the world's most important crude oil storage hub, which is used to settle futures contracts traded on the New York Mercantile Exchange.

          Cushing emergency management director Bob Noltensmeyer said on Sunday that no significant damage was found at the oil facility, only "shattered nerves".


          Orwell2015 11 Oct 2015 19:50

          Oh the irony of it all, which sadly will be lost on most.

          [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] 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. ..."
          "... 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. ..."
          "... 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. ..."
          "... To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the worlds only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what its taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper. ..."
          Oct 10, 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!

          Lumberjack

          Just in:

          http://www.marketwatch.com/story/statoil-reports-oil-spill-of-norway-coa...

          news printer
          Muslim Press Claims Saudi King Salman bin Abdulaziz Hospitalized for Dementia

          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.


          According to witnesses, his exact state of dementia is a source of speculation but he is known to have held cogent conversations as recently as last October. !!!!!!!


          He can also forget what he said minutes ago, or faces he has known all his life. This is typical of the disease.

          en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

          Jack Burton

          "the world of petrodollar recycling"

          The USA Dollar hegemony system was partly built upon Petro Dollar recycling. And of course Chinese trade surplus recycling. We have already seen the Chinese Treasury selling. That is a nail in the world reserve currency. Falling oil revenues dry up another major dollar recycling system.

          Many on ZH have noted the not so gradual approach of World War. To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the world's only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what it's taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper.

          To be clear. When Washington loses the power to print, it has lost over half of it's global power in one stroke. The prospect of that can only lead to global war. The US Neoconservatives are laying the foundations for global war, World War Three. It is either go to war, or lose the global super power status built on Money Printing.

          Unless you think America remains the global super power based on it's vibrant productive economy?

          [Oct 09, 2015] Russian military operation in Syria bolsters oil market, domestic stocks

          Oct 09, 2015 | RT Business

          Oil prices have risen 12 percent in October to a two-month high. Rising crude coincides with Russia's airstrikes against Islamic State targets in Syria which began on September 30.

          The price of Brent in London increased over one percent to $53 per barrel on Friday. US benchmark WTI is trading higher than $50 per barrel for the first time in three months after hitting six-year lows in late August. Other factors contributing to rising oil prices include a weakened dollar and shrinking US production.

          Crude prices can be particularly responsive to unrest or violence in the Middle East, one of world's biggest oil-producing regions. While Syria does not have significant oil reserves, crude prices rise over fears the conflict could spread to the broader region.

          "Syria is not a crude oil producer-its real significance to the energy markets is not a heightening of its ongoing internal conflict but rather the risk of contagion within the region at large," the Wall Street Journal quotes NUS Consulting Group as saying.

          norbert kimar 4 hours ago

          "Syria is not a crude oil producer.." the Wall Street Journal.." I thought ISIS etc made $1-2million/day from smuggling Syrian oil.

          Nana Akosua -> Baakan Agyiriwah 6 hours ago

          LOL, it's all about the war, the fighting, the blood and the gore that makes the stocks rise and the blood boil in delirium. Funny how war makes the cash registers ring and the banksters happy, they don't care who does it, just do it!! what a mad, mad, mad world we live in.

          Illya Kuryakin 7 hours ago

          So Russia's CIA-Saudi Extermination Policy is paying for itself. Nice!

          PeterNZL 11 hours ago

          grzeghh

          Putin's the man. He scored 7 goals in the ice hockey match in Sochi and that was just
          more...

          Obama, too, was a skilled athlete. He scored 2000 civilians before winning his Nobel Peace Prize. Remarkable!

          [Oct 09, 2015] As oil bust takes hold, Eagle Ford workers losing jobs, pawning goods -

          Oct 09, 2015 | www.expressnews.com
          Sep 5, 2015 | San Antonio Express-News

          Eagle Ford production peaked in March at 1.7 million daily barrels, but then slid six straight months, the U.S. Energy Information Administration reports. The agency expects the field to pump 1.48 million barrels daily in September, still enough to fill 94 Olympic-sized swimming pools every day.

          Allen Gilmer, CEO of Austin-based Drillinginfo, said dropping prices chip away at the Eagle Ford.

          At $100 oil, most operators can make money.

          Because costs for everything from drilling to fracking have come down 30 percent this year, vast swaths of the field still are profitable at $60 per barrel, the oil price for much of the spring.

          "The Eagle Ford at $60 a barrel is not a whole lot different than the Eagle Ford at $100 a barrel," Gilmer said.

          But crude oil prices around $40 turn the economics of the field upside down, and only 15 percent of the whole field makes money, Gilmer said.

          ... ... ...

          The numbers show an industry fallen on hard times.

          The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

          McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

          DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

          The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

          Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

          Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

          He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

          Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

          Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

          ... ... ...

          Boom-bust cycle

          In some ways, Texas still hasn't outrun the long shadow of the 1980s oil bust, an implosion that took down the state economy. So many people left the industry then, never to return, that there's a gap in the workforce. Nearly everyone is old or young. The industry calls it the "great crew change," and it means that a large part of the workforce never has seen a downturn.

          ,,, ,,, ,,,

          Eric Bell of San Antonio energy services umbrella company Group 42, said the U.S. oil business has gone through the stages of grieving this year. "The first quarter was a complete sense of denial," Bell said.

          Then came anger and a "bargaining and sad mopey phase" when everyone talked about how oil would pop to $70 or $80 by summer. It didn't. "Now finally it kind of seems like there's a sense of resignation or acceptance," Bell said. "Some companies are just in trouble."

          And yet, the familiar grind of the oil patch continued in so many ways. The Eagle Ford this year still is expected to draw $20 billion in industry investment, far more than any other field, says research firm Wood Mackenzie.

          Kim Triolo Feil

          if only these guys had the foresight to do BTEX blood/urine baseline testing before a workday and then after a workday...nah these companies come and go so even if they had evidence of being exposed...who they gonna sue to pay their cancer bills if that happens down the road?

          [Oct 09, 2015] Oil bust

          Oct 09, 2015 | jdeanicite.typepad.com
          I cite

          excerpt from here

          The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

          McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

          DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

          The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

          Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

          South Texans track other economic measures - traffic jams on rural roads or the advertised prices for hotel rooms in the region, now as low as $40.

          A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the oil field. The police academy in Victoria had to cancel classes because everyone was going to work in the oil field instead. "We've got great benefits," Zavesky said. "But a young guy can't buy diapers on great health insurance."

          Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

          He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

          Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

          Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

          That left Tipton as the only one to give unsolicited advice to oil field workers who stop to buy a soft drink or after-work beer: "Don't speed. Don't eat your dessert before you eat that sandwich. There's a police officer down there."

          [Oct 09, 2015] How do consumers respond to lower gasoline prices

          Oct 09, 2015 | Econbrowser
          The evidence thus is that consumers were indeed responding to the most recent price declines the same way they usually did, namely, by spending most of the windfall. The fact that we don't see this as clearly in the aggregate data suggests that the economy has been facing other headwinds that partly offset the stimulus from lower gasoline prices.

          Another consumer response to lower gasoline prices is increased consumption of gasoline itself, though these adjustments take more time to develop. U.S. vehicle miles traveled, which had been stagnant while gas prices were high, have since resumed their historical growth.

          ... ... ...

          And the average fuel efficiency of new vehicles sold in the United States, which had been improving steadily through most of 2014, has fallen with oil prices.

          [Oct 09, 2015] Goldman Sachs This Oil Rally Is Not Going to Last

          Oct 09, 2015 | www.bloomberg.com

          Bloomberg Business

          Currie claims that the oil glut is now being sustained by production outside the U.S.

          [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] Is russian oil production peaked ?

          Oct 09, 2015 | peakoilbarrel.com

          AlexS, 10/04/2015 at 5:11 pm

          RE: Russian oil production statistics from various sources

          Ron,

          I personally never questioned the reliability of Russian oil statistics. But as you have repeatedly raised this issue, I did a brief assessment of the data from various sources.

          The Russian Energy Ministry provides very detailed data on oil + condensate production by each Russian producer on a daily basis. As in Soviet times, these numbers are reported directly by the companies to the Ministry. They can be easily verified as all oil produced is transported by pipelines owned by the state –owned Transneft. Small quantities are processed for internal use by the companies at mini-refineries, but their throughput is also reported to the ministry.

          The Ministry reports production in tons without converting it in barrels per day. However other sources (including Russian and foreign oil companies operating in Russia) use conversion ratios at 7.33 and 7.3 for Russian oil production. In the table below I calculate both numbers.
          NGL production is reported separately and is not included in C+C numbers.

          IEA oil production statistics include C+C+NGLs, however in their recent monthly Oil Market Reports the IEA is also mentioning C+C production for Russia. These numbers are very close to the data provided by the Russian Energy Ministry. In the past, the IEA did not disclose separate numbers for the Russian C+C, and it was first mentioned in the May OMR (p.25):

          "Despite sanctions and lower oil prices, Russian producers managed to maintain crude oil output near record levels through April, hovering around 10.7 mb/d since the start of the year. Including gas liquids, Russian output exceeded 11 mb/d in both March and April."

          Note, that the IEA works closely with Russia and gets data directly from the Russian Energy Ministry.

          The EIA has detailed oil and other liquids production data for many countries and releases it excel format:

          (International Energy Statistics, Petroleum Production http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1). This is very useful when you don't have other sources of data. However in many cases the EIA does not get information directly from national sources and uses third party data. Besides these numbers are relatively rarely updated and in some cases look incorrect. For example, their newest international oil production data are for April 2015.

          The EIA also publishes "Total liquids supply" data for the key producers in the STEO, where the numbers are updated monthly. (STEO excel file, Table 3b. Non-OPEC Petroleum and Other Liquids Supply).

          Note that the updated numbers for Russia in the September STEO are 143 kb/d higher for April and 132 higher for March, compared with the EIA International Energy Statistics. Given that the EIA constantly estimates Russian refinery processing gains at 26 kb/d, we can easily calculate C+C+NGL production estimates up to August by subtracting 26 kb/d from the STEO Total liquids numbers.

          As a result, as can be seen from the table below, EIA's C+C+NGL production estimates for Russia are only marginally below the IEA's numbers (the average discrepancy for Jan.-Aug. 2015 is ~40 kb/d).

          You can also note that the EIA's estimate for Russia's NGLs output in the first 4 months of 2015 is around 755kb/d, while the IEA's number is only ~350 kb/d. I think that the EIA classifies all or part of Russian condensate production as NGLs, while in the IEA and the Russian Energy Ministry's statistics it is included in the C+C output.

          Finally, JODI data is based on national statistics. As it says on its website: "The data are submitted by the national authority of the participating country. These data are considered authoritative and are not subject to alteration by any of the JODI partner organisations." (https://www.jodidata.org/about-jodi/faqs.aspx). Nevertheless, in some cases JODI
          data differs significantly from national statistics. JODI does not explain its methodology, and its officials do not respond to emails to comment on why its data differs from figures provided by national agencies.
          JODI provides data on both Russian oil and NGL production. NGL data is much higher than IEA's numbers, but slightly lower than the EIA.
          JODI data is released with significant delay to the IEA and especially to national statistics. I also noticed that, unlike the IEA, they generally do not update the numbers released earlier. That can partly explain, why JODI numbers for Russia are lower than data from other sources. On average, JODI's C+C+NGL numbers for January-July 2015 are
          203 kb/d lower than IEA and 164 lower than EIA.

          In general, all serious experts on Russian oil industry use the official numbers provided by the Energy Ministry.

          Russian oil production statistics from various sources

          shallow sand , 10/04/2015 at 5:33 pm

          I think Russian production would be easier to measure given it is much lower decline, there aren't as many companies nor as many governmental agencies measuring it.

          It appears to me US data is the most variable and likely inaccurate.

          Dennis Coyne, 10/05/2015 at 3:48 pm

          Hi Ron,

          I think AlexS has solved the discrepancy between the EIA/JODI data and the IEA/Russia data. It is mostly a matter of how pentanes plus should be classified.

          The EIA puts some of these(field or wellhead pentanes plus) in the C+C category and the pentanes plus produced during natural gas processing (to produce dry gas to ship to customers) is included in the NGL category. Canada and Russia group all pentanes plus together in the condensate category (which makes perfect sense from a chemistry perspective), this accounts for about a 400 kb/d difference between EIA estimates for Russian C+C and the Russian Energy ministry estimates. The rest of difference might be due to the EIA assuming a different estimate for the density of Russian C+C (possibly they use the density of the Urals blend which would have a reciprocal of 7.25 barrels per metric ton) than the IEA (which uses about 7.31 barrels per metric ton).

          AlexS, 10/05/2015 at 10:15 am

          Dennis,

          In fact, the lighter is the barrel, the more barrels are in 1 ton.
          43961 ktons reported by the Energy Ministry for September
          is 10741 kb/d with 7.33 conversion ratio
          10697 kb/d with 7.3
          10551 kb/d with 7.2
          10404 kb/d with 7.1
          10258 kb/d with 7.0
          10111 kb/d with 6.9

          As I said earlier, the most widely used ratio is 7.33 (the numbers in Reuters and Bloomberg articles, as well as all Russian statistics by Energy Intelligence, etc.) and 7.3 (apparently used by the IEA)
          I also prefer 7.3, as I think the average Russian barrel is heavier than 7.33.

          That said, the Russian oil output is getting lighter due to the growing share of new fields in eastern Siberia, Far East (Sakhalin) and some other regions. Thus, according to Platts, the Urals blend API is 31.55 API,
          ESPO (East Siberia) is 34.8, Sokol and Vityaz (Far East) are 39.7 and 34.4 API degrees, respectively.
          (Source: http://www.platts.com/im.platts.content/insightanalysis/industrysolutionpapers/espoupdate0510.pdf )
          So in theory, as the share of lighter crudes rises, the conversion ration should also increase. But I doubt that the IEA, EIA or JODI are changing their conversion ratios.

          The EIA and JODI do not specify which conversion ratios they are using for Russia. If they are using 7.2 or 7.1, that could partly explain the discrepancy between their numbers and Energy Ministry and the IEA numbers.

          However the key difference is the volume of condensate and NGL output. It seems that JODI and the EIA account most of condensate production as NGLs. Therefore, their NGL volumes for Russia are much higher than the IEA, and their C+C volume estimates are lower than the numbers provided by the IEA.
          The IEA normally reports only combined C+C+NGL volumes, but this year they also include C+C production numbers for Russia (in the OMR main text). By subtracting C+C from C+C+NGL we get the IEA's estimate for Russian NGL production at 340-350 kb/d in the past several months. This compares with the EIA's 755 kb/d average monthly estimates (January-April) and JODI's 710 kb/d estimate (January-July).

          I think that the IEA's numbers are more accurate, as in 2010 they published a study on global NGL production, where they carefully analyzed NGL and condensate production for the key producing countries using national statistics, as well as information provided by individual companies.
          ("Natural Gas Liquids Supply Outlook 2008-2015." IEA, April 2010. http://www.iea.org/publications/freepublications/publication/ngl2010_free.pdf )
          Here are their numbers for Russia's output levels in 2008:
          Condensate: 356 kb/d
          "Other NGLs": 180 kb/d
          Total NGL and condensate: 536 kb/d

          From the IEA report: "The Russian Ministry of Oil and Energy does not report NGLs per se, but they do report LPG and condensate production per company. In this study we have applied the reports of LPG and condensate production per company as a starting point to arrive at a proxy for Russian NGL production. Based on the reported figures at August 2009 the LPG production of Russian gas processing plants was 230 kb/d, while the condensate production was 361 kb/d, a total of 591 kb/d."

          In this report, the IEA projected a sharp increase in Russia's "Condensate and other NGLs" production from 536 kb/d
          In 2008 to 817 kb/d in 2015. Indeed, as we know now, both condensate and NGL output has increased even faster in the past few years due to: 1) increasing production of wet gas, 2) better utilization of previously flared associated gas, and 3) development of several new gas condensate fields. Thus, in the first quarter of 2015, gas condensate output jumped 18% year on year to 7.86 million tons (~640 kb/d) due to the launch of new production facilities in West Siberia, primarily by Novatek and Gazprom Neft. As per the IEA numbers, NGL output also almost doubled from 180 kb/d in 2008 to 340-350 kb/d in 2015.

          Apparently, JODI did not researched as deep as the IEA into the Russian NGL and condensate output, so they account most of condensate as NGLs.
          As regards the EIA, their list of sources for International Energy Statistics [http://www.eia.gov/cfapps/ipdbproject/docs/sources.cfm] does not include the Russian Energy Ministry. This is rather strange, as they get data from the national agencies of such countries, as Cuba, Mongolia and others. Apparently their numbers for Russia are based on statistics from JODI, the IEA and the "Russian Energy Monthly, Eastern Bloc Research" (never heard of it).

          That said, I do not suspect JODI and the EIA of being biased against Russia. These are just different statistical methodologies.

          Ronald Walter , 10/05/2015 at 10:34 am

          If you measure 100 cc of oil in a graduated cylinder, since the density, specific gravity, is less than water, 100 cc of oil will weigh less than 100cc of water. 1 cc of agua weighs 1 gram, 1 cc of oil will weigh less than one gram, you will need more oil, a greater volume, to obtain a weight of one gram for the oil.

          A metric ton of oil will occupy a volume greater than one cubic meter, more barrels.

          AlexS , 10/05/2015 at 11:51 am

          Russian crude oil and NGL production (kb/d)
          Source: JODI

          Longtimber, 10/06/2015 at 3:40 pm

          Jan 2012 Refineries came on line (?) Mother Russia keeps the good stuff for value added high density i.e.. Diesel/jet fuel? Russian polymers in the 90's were terrible and next to useless for packaging. Many markets now well supplied with SABIC Polymers. https://www.sabic.com/americas/en/productsandservices/plastics/

          AlexS, 10/06/2015 at 4:13 pm

          In January 2012 JODI changed its methodology and started treating Russian condensate production as NGL

          Stavros H, 10/05/2015 at 7:36 am

          No, Russian production is genuinely at an all-time high. It's not like the Russians count Lukoil's production in Iraq as "Russian" LOL!

          Consider also that Russia is under sanctions specifically designed by the West to harm its oil output.

          Peak-oilers are over-eager to claim that country "X" or "Y" has peaked in terms of oil production. This is often not the case.

          The only countries that have peaked in oil production, are the capital rich ones of the West. The reason for that is very clear. Those countries started exploiting their oil reserves earlier, and even more importantly have had the capital and technology to extract even the most marginal of deposits. Even in those cases, ultra-cheap financing can lead to temporary booms (US shale, Canadian sands) even if production takes place at a considerable financial loss.

          Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

          This also partly explains the current World Crisis that could even escalate into WWIII.

          Glenn Stehle, 10/05/2015 at 7:45 am

          There's an interesting article in OilPrice on Russia:

          http://oilprice.com/Energy/Energy-General/Is-Russia-Plotting-To-Bring-Down-OPEC.html

          The author uncritically accepts the myth of the "Great American Shale Revolution," which, as you say, is a play in which "production takes place at a considerable financial loss."

          Nevertheless, the take-away is the importance that oil and gas play in geopolitics.

          Frugal, 10/05/2015 at 8:51 pm

          Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

          Which oil reservoirs are untapped in these countries?

          [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] WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Aint Buying It)

          "... output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees lower for longer suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed. ..."
          "... at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez. ..."
          "... ..."
          Oct 09, 2015 | www.zerohedge.com

          Zero Hedge

          WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.

          ... ... ...

          As Bloomberg reports,

          Oil may rise to a "baseline" of about $60 a barrel in one year's time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.

          Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain "lower for longer" because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.

          "People could be thinking, how much worse can it get from here, so there's a rotation from short positions to long," Michael Powell, a managing director of investment banking at Barclays Plc, said in London this week. "Then you ask, is this the spring of this year all over again?"

          buzzsaw99

          at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez.

          Herdee

          Suckers rally, just manipulated like all markets in order to give big oil in the U.S. the chance to hedge on the downside for winter recession. All the crooks on Wall Street need another load of suckers for a big fat pay check before Christmas.

          LawsofPhysics

          Who gives a shit about paper bullshit?

          Some people will have access to the calories and commodity chemicals required to maintain a decent standard of living. Most will not.

          Same as it ever was...


          [Oct 09, 2015] Problem of toxic water disposal in shale industry

          "... An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer. ..."
          "... If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone". ..."
          "... Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil. ..."
          "... He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry. ..."
          "... I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old. ..."
          "... I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff. ..."
          "... So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%. ..."
          "... Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense. ..."
          Oct 09, 2015 | peakoilbarrel.com

          Old Farmer Mac, 10/04/2015 at 1:05 pm

          ... ... ...

          An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer.

          We have a somewhat better shot at limiting coal consumption because wind and solar power plus gas can be readily substituted for coal.

          This comment is about what WILL be rather than what OUGHT to be.

          Ovi, 10/04/2015 at 8:00 pm

          ... ... ...

          If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone".

          If the environmental lobbies were really concerned about CC, they should be pushing for a North American approach on how to deal with all oil production, not just focused on Canadian oil.

          SRSrocco, 10/04/2015 at 1:58 pm

          Ron & Group,

          Maybe some of you that are working in the field can add to this. I had a phone conversation with a fella who has been looking for oil in Texas, Louisiana and Oklahoma for the past 30+ years. Says… he knows just about everyone looking for conventional plays in his neck of the woods.

          Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil.

          Says this could become a big issue going forward as the EPA may start cracking down on this further. He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry.

          Would love to see if anyone else here can comment on this.

          shallow sand, 10/04/2015 at 2:19 pm

          Depends on the well.

          Bakken wells seem to produce less water as they age. Mississippian production in KS and OK seems to have a high water cut, making same uneconomic. EFS and Permian more of a mixed bag.

          Earthquake issues arise from these wells, not from the frac itself.

          shallow sand, 10/04/2015 at 2:57 pm

          Steve. I'm not entirely sure on water cut in Bakken, seems it does vary well to well.

          Just as with any other oilfield, some wells are better than others.

          As I have pointed out here many times before, OPEX per BOE usually is lowest immediately after the well is completed, especially if it is flowing.

          I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old.

          LTO economic issues are coming home to roost. Just hard to say how much longer banks and investors keep propping it up.

          I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff.

          However, no personal liability for debt and hype can keep extend and pretend going for a long time, maybe long enough to kill a lot of other high cost production.

          SRSrocco, 10/04/2015 at 3:17 pm

          shallow,

          I couldn't agree more about your assessment of the current state of affairs in the U.S. Shale Oil Industry. Actually, I have found out a lot of data by reading many of your comments here in the blog. I have been a bit low-key in commenting lately, but I still enjoy reading many of Ron's posts and comments.

          As you may be aware, I have my own blog, https://srsroccoreport.com/ . It's a precious metal website that includes energy into the mix. Energy is excluded by most precious metal analysts… which I find completely frustrating to say the least.

          While some label me a Gold or Silver Bug, I look at the precious metals as stores of economic energy… whether that be oil, gas, coal or human-animal labor. I agree that the "Extend & Pretend" model has been going on longer than most realized. However, when it finally cracks, I would stand very far away from anything tied to debt… STOCKS, BONDS, REAL ESTATE and etc.

          So, it will be interesting to see how things play out this fall if we finally get the Stock Market Crash from hell.

          steve

          Dennis Coyne, 10/06/2015 at 11:25 am
          Hi Shallow Sands,

          They started drilling in the Bakken in 1953. Very few wells that started producing in 2007 have stopped producing, only 3% in the Bakken/Three Forks. For wells starting production in 2008 about 5% of wells have stopped producing, for 2009 wells 3% have stopped producing.

          I define "stopped producing" as 12 months or longer of zero output counting back from the most recent month reported. I used the data through Feb 2015 so these numbers may have changed somewhat over the past 8 months.

          I question whether Rockman used a reliable method for reporting on the Eagle Ford. In many cases the RRC will report output as zero when the company has not yet reported output for a lease (or the data is pending review for accounting reasons), Drilling info gets its data from the RRC and the data is not very complete. The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.

          Ron Patterson , 10/06/2015 at 1:21 pm
          The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.

          I really don't think so. Rockman wrote:

          So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%.

          I don't think Rockman would make such a silly mistake as you suggest. It appears to me that he is tracking each well and the 40 that dropped out did so at different times and simply never returned to production.

          Dennis Coyne, 10/07/2015 at 11:43 am
          Hi Ron,

          I don't have access to the Drilling info database so perhaps you are correct. I am very skeptical of Rockman's claims. I think he assumes that because output is reported as zero, that the output is in fact zero.

          I followed some Eagle Ford wells for a while and the "missing output" is often just delayed reporting which shows up later. For a better test Rockman would have to look at wells that started producing in July 2013 and see how many of those wells were still producing in July 2014, that would avoid most of the delayed reporting artifacts.

          If he did so he would probably find that 5% or fewer wells had stopped producing (where this is defined as zero production for 12 consecutive months or more).

          Rune Likvern, 10/04/2015 at 4:22 pm
          Steve and FWIIW,
          In December 2014 I presented an analysis based on work by Enno and I that showed actual developments for water cut for LTO wells in Bakken (lots of charts).
          General trend is that water cut (and GOR) increases as the LTO wells ages.
          http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/
          shallow sand, 10/04/2015 at 5:18 pm
          Rune. Thanks! I thought maybe you had addressed this.

          I think an interesting exercise related to the high decline and increasing water cut would be to assume a company, such as Oasis, we're to cease all drilling, completion and refrac work.

          Is there any way OAS, who I think is 100% ND and MT, could come close to retiring debt at the present strip.

          I would note OAS is attempting to sell all of its non-Bakken/TF acreage and production.

          A confidentiality agreement is required to view the data. The public data indicates 625 BOEPD from 95 wells. I looked at MT site, several wells are shut in. Looks the same for ND.

          I read the article Jeffrey linked comparing LTO wells to water soluble houses. I can't really tell what is better for these companies. Keep drilling at a loss or stop and try to pay down debt. What a deal.

          Might be amusing if we weren't in a pickle with much of our production also.

          Jeffrey J. Brown, 10/05/2015 at 6:42 am
          A rough metaphor for the shale players is the book and movie "Thinner," by Stephen King. A gypsy places a curse on the lead character, who weighs about 300 pounds. No matter how much he eats, he loses weight, and only by consuming vast quantities of food per day is he able to minimize the weight loss.
          Rune Likvern, 10/05/2015 at 8:15 am
          shallow,
          I posted the chart below some weeks ago.

          The chart shows Oasis credit and debts stacked (columns) along their retirement profile (time axis) and the growing lines (using October-15 as baseline) shows estimates on Oasis cumulative net cash flow with oil prices at respectively $50/b and $70/b [WTI] and no wells added post October-15 (this causes a steep decline in LTO production).

          The chart assumes that the credit facility is fully utilized by October 2015.

          With average oil price of $50/b Oasis may clear the first hurdle, the second one (due Feb 2019 becomes challenging).
          With average oil price of $70/b Oasis may find it difficult to meet debt retirements as from 2022.

          How oil prices develop is a big if, but I expect these to be low for some time. The other thing is possible rollovers of debts.
          To me the best strategy in a low oil price environment would be to stop drilling (LTO) wells that has the prospects of becoming unprofitable [due to the high front end loaded production]…..and pray for a higher oil price.

          Fred , 10/04/2015 at 2:20 pm

          EPA's regulations require that all onshore "produced water" be reinjected, very few exceptions. Of course, as well age, the water cut increases and reinjection becomes a significant cost factor.
          Boomer II , 10/04/2015 at 2:45 pm

          Says this could become a big issue going forward as the EPA may start cracking down on this further.

          Given the corporate and political opposition to the EPA, I can envision waste water wells being regulated at the state level.

          Oklahoma Acts to Limit Earthquake Risk at Oil and Gas Wells – The New York Times

          Watcher, 10/04/2015 at 2:59 pm

          Noted last post, I suspect we have underestimated OPEX for shale out years. Lower oil output means the onsite tanks fill slower to be off loaded by less frequent truck visits.

          But the trucks for production water still have to make the trip to drain the faster filling water tanks.

          John S, 10/04/2015 at 9:49 pm

          SRSRocco,

          A water injection well is a different animal to me than a "water disposal well". An injection well is used in field operations to maintain reservoir pressure by injecting water or reinjecting gas into the reservoir and would be drilled by the operator not a third party service provider. Water would probably have to be treated chemically before injecting into a reservoir.

          A salt water disposal well is used to dispose of produced water that is a by product of field operations. Often these are drilled and operated by 3rd party service contractors but many times an operator will drill and operate its own disposal wells.

          In Texas, the general rule is that produced salt water from one surface tract can not be disposed of on a another surface tract without the consent of the surface owner. Consent is generally given in return for a per barrel fee. It is my experience, that operators take advantage of surface owners in this regard especially when the surface owner is absentee. Other times the surface owners operate these wells as a business and accept produced water from many different operators.

          Some surface owners also sell fresh water to operators as a business too.

          Large unitized fields generally have their own disposal wells for produced water and the operators run them as part of the unit operations.

          Many salt water disposal operators try to convert old abandoned wells into disposal wells. There has to be a formation with enough porosity and permabilty to take the water either on a vacuum (which is the ideal situation) or on a pump which takes a lot of electricity to operate.

          shallow sand , 10/04/2015 at 10:58 pm

          John S, good comment.

          How much electricity it takes to dispose of produced water makes a big difference in well economics right now.

          In my experience, it takes more pressure, and thus more electricity, to inject water in the producing zone, as opposed to disposing of water in the most suitable non-producing zone.

          Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense.

          Having a salt water disposal well that can take a lot of water on a vacuum or at low pressure can be an asset. I have recently seen some commercial disposal wells for sale, with monthly net income as high as $30K.

          A good water supply well is also very useful in water flood operations. However, very important that the water can easily commingle with water in the producing zone. Otherwise, tremendous chemical expense and/or down hole problems may result. Also, tends to clog lines.

          I would say most US water floods are not doing well economically at present. In the last thread had a discussion about an MLP, Mid-Con, and their expenses.

          Many MLP are heavy into water floods. Also, think OXY and Chevron are big water flood players in the Permian, in addition to CO2 floods. I think many CO2 floods originally were water floods.

          MBP indicated secondary and tertiary production is still profitable in the Permian. Would be interested to see OPEX, taxes and G&A for some of the larger water and CO2 floods.

          Kinder Morgan has two of the largest CO2 floods in SACROC and Yates. Might see if they break out those costs. I think they have an advantage in that they own a lot of CO2 transmission lines.

          [Oct 09, 2015] Possible super spike in oil prices

          "... CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand. ..."
          "... In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market. ..."
          "... Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me. ..."
          "... I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct). ..."
          Oct 09, 2015 | Peak Oil Barrel
          AlexS, 10/06/2015 at 12:09 pm
          Dennis,

          You said: "Here is the problem if OPEC follows the path that you suggest. CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand."

          In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market.

          Finally, while LTO output might indeed "begin to crash in 2016" if oil stays below $50, the shale industry will not be killed. After all, the necessary infrastructure remains in place; there is a vast fleet of drilling rigs and fracking equipment. Some companies might go bust, but their assets will be bought by bigger and stronger players. Financial markets will be cautious and access to capital for LTO producers will be more difficult, but it will not be cut. I agree that "LTO may not rebound as fast as some believe", but I think it will take no longer than 6 to 9 months. If and when WTI reaches $65 LTO industry will show first signs of life, and at $75-80 it will resume steady growth.
          Annual growth rates of 1 mb/d are in the past, but 500 kb/d are quite possible, probably not for 7-8 years, as Mark Papa says (see Ron's link below), but at least for 4 -5 years.

          Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me.

          Dennis Coyne, 10/07/2015 at 12:21 pm
          Hi AlexS,

          Well if your assumptions about new oil coming to market are correct then there will be no danger of a superspike in oil prices.

          I don't think $70/b oil will cause a lot of new output to come to market. The Saudis export about 8.8 Mb/d of crude and petroleum products, an extra $20/b amounts to $176 million per day or $64 billion per year.

          For all of OPEC about 27 Mb/d of crude plus products are exported, so raising oil prices by $20/b increases revenue by $520 million per day (assuming 1 Mb/d lower output) or about $190 billion per year.

          The oil market may adjust very smoothly in the absence of any cartel action, but this will be historically unprecedented.

          I have a little faith in markets, but you must be a true believer in free markets. I am not, markets need some regulation and in the absence of the RRC or OPEC, the oil market will be Volatile.

          Rune Likvern, 10/06/2015 at 3:45 pm
          Shallow,
          I am much on the same page as AlexS here.
          It is hard to know what OPEC's true objectives are; there is a lot of chatter in the media.
          I noticed KSA recently (again) cut the price to some of their Asian customers.

          A lower oil price stimulates consumption (demand) and there are some new developments that still may grow the supply side. Then there is Brazil, Iran, Iraq and Libya (to name some).

          To me the big unknown is how demand, especially in emerging Asian economies develops and the slowdown in China's imports of commodities (iron ore, coal, nat gas etc) are signs of a slowing economy. China has been pulling their neighbors, so as China slows so will others.

          If one follow the commodities flows to China through the Chinese factories the end products normally ends up with consumers all over the world. Lower commodity prices may be a sign about consumer's general financial health (a demand issue). These are indicators that may be helpful in understanding directions for global oil demand.

          There are also some reports about China now filling their strategic petroleum reserve. In other words, what one needs to do is break the demand into consumption and stock build.
          OECD has a huge (and growing) stock overhang which needs to be worked through.

          Now I hold it 70+% probable that OPEC will not cut during their next meeting later this year.

          Dennis Coyne , 10/07/2015 at 1:22 pm
          Hi Rune,

          Interesting.

          I would think that $50/b will not result in a lot of new oil coming from Brazil, Iraq is in chaos, Libya about the same so probably not a lot of new supplies coming from any of those 3. We might see some new output from Iran, the question for me is will this offset the declines in Canada, US, and the North Sea due to CAPEX cutbacks. You are correct that there are a lot of stocks out there, so any danger of a spike in oil prices is minimized by the excess stocks (roughly 250 million barrels based on OPEC's Monthly report in September).

          I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct).

          The slowdown in China may be positive for many Asian nations that compete with China exporting their products to other nations, but only if there is not a bigger fall in exports to China than the increase in exports to other nations. The fall in the value of the Yuan in August may help China's exports.

          Most economic forecasts have World growth at about 3% in 2015, these are not much better than long term weather forecasts so we will find out in time.

          One thing I would say is that if AlexS and Rune agree on a forecast of the oil industry, it is likely correct.

          On the other hand Jeffrey Brown and Steve Kopits seem to think the oil market will become tight sooner rather than later.

          I just don't know what the future will bring.

          AlexS, 10/07/2015 at 1:49 pm
          Dennis,

          IEA, EIA and OPEC forecast that supply and demand will be balanced by 4Q 2016 ,
          and they anticipate relatively modest increase in Iran supply and no increase in Libya.
          That means that global crude and products inventories will continue to increase for at least the next 3 or 4 quarters, although not as fast as in the first half of 2015.
          Once the balance is reached and then demand starts to exceed supply, it will take time before the excess volume of inventories is wiped out.

          [Oct 09, 2015] Open Thread, Oil and Gas

          "... Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term. ..."
          "... Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another. ..."
          "... Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve. ..."
          "... We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI. ..."
          "... That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.) ..."
          Oct 09, 2015 | peakoilbarrel.com
          Oct 04, 2015 | Peak Oil Barrel

          Longtimber , 10/05/2015 at 12:47 pm

            Gotta wonder bout such an Ad in an article titled "us-shale-oil-industry-will-simply-vanish"

            Most Likely it's the Investor that will vanish – the oil industry will be "right sized" when forced focus on fundamentals. Sad.. but the Ad title … OIL BOOM is spot on.

          shallow sand, 10/05/2015 at 3:50 pm

          Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term.

          Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another.

          KSA realizing around $180 billion less on an annual basis. Wonder how long before they feel backed into a corner enough to do something. Looks like Russia may outlast them, as KSA is pegged to dollar and Russia isn't.

          Maybe Jeffrey can send KSA royals some good bean dish recipes and some free ice cream cone coupons from DQ. LOL!!

          AlexS , 10/05/2015 at 4:47 pm
          shallow sand,

          Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve.

          shallow sand , 10/05/2015 at 7:14 pm
          AlexS. KSA could go longer than that as I assume many banks would be willing to loan them money with reserves as collateral. They also could issue many more billions of unsecured bonds.

          However, OPEC did not go years without cutting in 1986, 1999 and 2009.

          Each time the cut worked. The price went up significantly. 1986 was not as successful as the other two cuts.

          I may be wrong, but for US producers, it is likely the only hope.

          AlexS, 10/05/2015 at 8:49 pm

          shallow sand,

          In 1986, OPEC actually started increasing production after unsuccessfully trying to stabilize prices by cutting output over the previous 5 years. Their market share dropped from 45.4% in 1979 to 27.6% in 1985, but was constantly increasing from 1986 and has reached 41.9% in 1998. Over the whole period prices remained low (with only a short spike during the Gulf war in 1990). But, for OPEC countries, this was partially offset by the increased production volumes from 15.9 mb/d in 1985 to 30.7mb/d in 1998 (almost twice).

          shallow sand, 10/05/2015 at 10:45 pm
          AlexS.

          I am just looking at history regarding a cut. The past may not be repeated, I agree.

          • 1985-1986. WTI dropped 62.4% from 11/85 to 7/86, from around $31 to $11.50. In November, 1986, OPEC set a target price of $18. 1/87 WTI averaged $18.65. By 7/87 the average was up to $21.34. I do agree the price collapsed again in 1988, but recovered. The price typically was 60-70% of the $31 high in 1985 until the 1998 collapse.
          • 1998-1999. The price dropped approximately 55% from late 1997 to 12/98, when the monthly average was $11.35. I remember that very well. Glum Christmas Party. We were at $8 and change. 3/23 OPEC announced 2.2 million barrel cut. 7/99 average $20.10. 12/99 average $26.10.
          • 2008-2009. Price dropped 71%. June, 2008 average $133.78. February average $39.09. OPEC announced stages of cuts, 500K 9/08, 1.5 million 10/08, 2.2 million 12/08. By 6/09, monthly average 69.64. By 12/09, $77.99
          • 2014-15. Price dropped almost 64% from June, 2014 to August, 2015. June averaged $105.79. August, 2015 averaged $42.87.

          Maybe OPEC will not cut in December, 2015. Going by history they will soon. They have not let things go more than 18 months from the peak in the past. 12/4 meeting will be at 18 months from June peak.

          Go read news stories from 1986, 1999 and 2008-2009. KSA was concerned about the price each time and stated such. Things are not peachy, contrary to both KSA and Russia official mantras.

          Again, I could be wrong, just looking at history. Otoh, maybe lower for longer is needed to stifle the ridiculous North American CAPEX. When reading stories from late 2008, COP had announced a CAPEX budget cut of 18% to $2.8 billion for 2009. By 2014 the CAPEX budget had ballooned to over $17 billion. COP, of course, is a big player in tar sands and all major US LTO plays, so would be a good proxy for "out of control spending.".

          shallow sand, 10/05/2015 at 10:56 pm

          AlexS

          We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI.

          Apparently at this time the crude market does not believe this is enough to stifle North American (sans Mexico) production.

          What do you think about this price range from maybe 7/16-12/20? Where do you see LTO in that scenario?

          Dennis Coyne , 10/06/2015 at 9:53 am

          Hi Shallow Sands,

          That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.)

          Others predict a permanent recession (or very slow growth) due to high debt levels.

          If that hypothesis is correct, the future economic outlook is indeed very grim, even in this scenario supply would decrease faster than demand (due to low prices and lack of investment) and oil prices would eventually rise (probably not until 2020), but at a slower rate of increase maybe reaching $100/b in 2025.

          I don't find the excess debt story very compelling, but many do.

          AlexS, 10/06/2015 at 9:41 am

          Shallow sand,

          Parallels with 1985-86, 1998-99, 2001-02 and 2008-09 may lead to erroneous conclusions.

          Sharp oil price declines in 1998-99, 2001-02 and 2008-09 were caused by cyclical demand reduction during global recessions. It was relatively easy, for OPEC, to support prices by cutting output, as demand quickly rebounded. OPEC restored production levels in a few months and didn't lose its market share.

          By contrast, oil price decline in the 80s was due not only to a deep recession (1980-83), but also to long-term trends triggered by the oil price shocks of 1973-74 and 1979-80. These included oil substitution by natural gas in power generation and industry, oil/energy saving measures, and a sharp increase in oil production in the North Sea, Alaska, Mexico and Western Siberia. OPEC initially tried to offset falling demand and the tide of rising non-OPEC supplies by cutting its own output, but this proved inefficient. Competitors were taking its market share and prices continued to decline. Therefore, Saudi Arabia and other OPEC members changed their market strategy from defending prices to defending market share.

          The current oil price slump is due to long-term trends in supply (primarily LTO, but also Canada and some OPEC members). Cutting OPEC output to maintain prices would only support LTO and other non-OPEC supplies, including costly projects such as Arctic. As we have seen in 2Q15, even at $60 WTI tight oil producers are ready to increase drilling activity, but at the current $45 LTO production is declining.

          Therefore, it doesn't make sense for Saudi Arabia and its neighbors to cut output and support competitors. They will wait until rising demand and stagnating or declining non-OPEC production will finally erase excess supply. That will take much less time than in the 80-90s, as current spare capacity is only about 2.5 mb/d vs. 11-12 mb/d in 1985.

          [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] Crude Oil Surges Above $50 a Barrel for First Time Since July

          Oct 08, 2015 | www.bloomberg.com
          Oil surged above $50 a barrel in New York for the first time since July on speculation that demand is picking up.

          ... ... ...

          WTI for November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It was the highest settlement since July 21. Futures touched $50.07. The volume of all futures traded was 45 percent higher than the 100-day average at 3:01 p.m.

          ... ... ...

          Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. Commercial oil inventories in developed countries remain about 190 million barrels above the five year average , he said.

          [Oct 08, 2015] Oil's Rally Was A Bunch Of Noise And Won't Last, Goldman Sachs Says

          While financial market can dictate oil price for a considerable length of time then can't do it forever. At some point the fact that a lot of oil production need break-even price of 65 and realistic price $75 per barrel will change the game Wall Street is playing. Some "overenthusiastic" shorts might lose. Also credibility Wall Street is probably close to zero to attempt to manipulate market via MSM are not as effective as in the past.
          Oct 08, 2015 | Barrons.com
          Last month, Courvalin said that oil prices could fall as low as $20 as the global glut drags into next year. See last month's post, "There Will Be Blood: Goldman Slashes Oil Price Forecasts." Here's the laundry list of what Goldman says hasn't changed in the past week:
          1. The global oil market is currently well oversupplied.
          2. This oversupply is driven by strong production growth outside of the US with Lower 48 production already declining and gradually tightening light US crude balances.
          3. Low prices are required in 2016 to finally bring supply and demand into balance by year-end and sustain a US production decline of 585 kb/d next year.
          4. Although demand growth has surprised to the upside this year at 1.6 million b/d growth, risks are clearly to weaker demand growth in 2016.

          Dave wrote:

          Goldman has lost all credibility LONG ago. They are looking to load up before the rebound and are trying to drive prices down temporarily.

          Earnst wrote:

          Only about 20% of trade is between actual buyer's and seller's. There is a terrific bias towards longs and the use of technical analysis as well as conditioned responses to factors such as middle east conflict. It was a new day yesterday but by God it's an old day now; they'll capitulate.

          Big Al wrote:

          These are the same guys who called for oil in the $20s. They are either: trying to protect some short positions, clueless as to oil and gas industry fundamentals or incompetent at best. Everyone in the industry knows that shorting energy is like playing Russian roulette. You could get lucky, but if you keep playing long enough, you wind up dead.

          Jeff wrote:

          Hmmmm.... Rig count at lowest level in years. US production swinging lower. Saudis signaling for higher prices as they bleed $12B per month. Seems like higher prices up to $60 not unreasonable.

          dsr wrote:

          Not many know this, but Goldman owns a large interest in an oil refinery in Indiana. The lower oil is the higher the crack spreads for them, equals $$$$$. They also sell 70,000 barrels of crude per day to another refinery and then buy the product to sell on the market. Do a Google search on Goldman's forecast for energy over the last 18 months and you will see the light of absurdity. It's beyond funny. We have lost 1 million barrels of oil per day in non-opec production in the last 6 months, and at the same time demand is surging, and this guy says "not much has changed." No credibility.

          kim wrote:

          The vampire squids are having to eat crow right now and they are trying harder than ever to jawbone down the price of oil to save their credibility and probably make a few shekels in the process. Put a little salt and pepper on that 20 dollar per barrel crow that you are having to eat there Damien; makes it go down better.

          Phil wrote:

          If Goldman said it will go down, bet for oil, it will go up!

          George wrote:

          And where is the $200/barrel oil they predicted a couple of years ago? Oh, not here yet so now they are predicting $20. Losers.

          anonymous33 wrote:

          people should read the report. Nowhere does the analyst or Goldman predict $20 oil. That number is specified as a very specific condition which even they say is not going to happen. Typical over-reaction by the public.

          [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 08, 2015] Why Barrons Is Wrong On $75 Oil

          Blast from the past. Note that key arguments still look reasonable... But prediction is not ;-)...
          "... New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price. ..."
          "... Barrons assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case. ..."
          "... The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price. ..."
          "... after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. ..."
          "... This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015. ..."
          Apr. 2, 2014 | Seeking Alpha
          Barron's assumptions as to the leading factors of lowered oil pricing do not make sense after examining the supply side economics.

          New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price.

          Barron's assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case.

          The cover of Barrons this past week read "Here Comes $75 Oil". The article highlights that due to several new "game changers" in the oil production market that within the next 5 years the oil market would fall to $75 a barrel. The three main reasons that would contribute to cheaper oil are deep-water oil, shale oil, and oil sands. All of these newfound resources are estimated at roughly one trillion barrels in newfound oil. Adding that onto the existing global oil reserve estimated at 1.5 trillion, makes this newfound oil a major factor in the future of oil pricing. The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price.

          As much as $75 oil sounds nice and would no doubt be a major boon to the U.S. and world economies. Yet after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. According to the U.S. Energy Information Administration (EIA), they expect worldwide consumption of petroleum products to grow by 1.2 million barrels per day in 2014 and 1.5 million barrels per day for 2015.

          This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015.

          [Oct 08, 2015] What's Next For Oil Prices

          "... investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices. ..."
          "... He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016. ..."
          "... When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted. ..."
          Oct 08, 2015 | OilPrice.com

          In London, OPEC Secretary-general Abdallah Salem el-Badri said investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices.

          "Less supply in the very near future. Less supply means high prices," el-Badri said in a speech at the Oil and Money conference.

          El-Badri's expectations on investment were supported by the executive director of the International Energy Agency (IEA), Fatih Birol, who told the meeting that investments in oil projects this year will fall by about the same rate forecast by el-Badri.

          "Upstream investment will be at least 20 per cent lower [this year] than in 2014," said the chief of the Paris-based IEA, which represents 29 oil-consuming countries. "In terms of money spent, it's the highest [drop] in history."

          Oil prices will also rise, ironically, because the current low prices have encouraged consumers to buy more fuel, according to el-Badri. He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016.

          The current low price of oil has strained the budgets of many oil-producing countries, including wealthy Middle Eastern states. The price of oil is now less than $50 per barrel, less than half what it was in June 2014. Yet el-Badri argued, "We are not in disarray. We see some light at the end of the tunnel."

          When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted.

          Ben van Beurden, the CEO of Royal Dutch Shell, doesn't see oil prices stabilizing quite that soon, however. He told the conference that while oil prices are due to recover, their rise won't be as fast as el-Badri expects

          ... ... ...

          This [shale] technology can't make money unless oil sells for at least $60 per barrel.

          Related: A Key Indicator Low Oil Prices Are Lifting Demand

          [Oct 08, 2015] Oil prices are soaring as Saudi Arabia gets the upper hand over shale producers

          "... At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year. ..."
          "... The International Energy Agency now expects global demand to rise by 1.7 million b/d this year. ..."
          "... Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business. ..."
          "... Massive credit is required to drill, and it's not there. ..."
          Oct 08, 2015 | fortune.com
          October 7, 2015 | Fortune

          Baker Hughes' closely-watched rig count showed that the number of drilling rigs in the U.S. turned down sharply in September after signs of a brief revival in the previous two months. At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year.

          ... ... ...

          The International Energy Agency now expects global demand to rise by 1.7 million b/d this year.

          KI time

          Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business.

          Massive credit is required to drill, and it's not there. Government has effectively provided more than $4.2 Trillion$ in bailouts since 2005 as cover for the worldwide credit collapse. Now Government is stone broke and can't do it anymore...

          [Oct 08, 2015] Black Gold May Be Down, but Its Not Out

          "... while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. ..."
          "... the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. ..."
          "... Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result. ..."
          Oct 08, 2015 | news.yahoo.com

          For better or worse, oil never really seems to lose out in the long run. You’d think the case against it would be easy to make: It’s last century’s go-to energy source and a nightmare for the environment. There are also those nagging concerns about peak oil and even peak car, given that millennials seem way less interested in their own wheels than their elders were at that age. But oil is still by far the biggest traded commodity in the world. It’s uniquely useful, and so far irreplaceable, as a cheap, liquid fuel â€" after all, you can’t run a car on coal or fly a plane on solar, and while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. All the fracking in the world hasn’t yet diminished the sense that the days of Texas Tea are far from over.

          By contrast, the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. OPEC, long the bogeyman of the oil market, has been neutered by a huge surge in U.S. production; at the same time, low gas prices don’t seem to be encouraging people to drive longer or buy more gas guzzlers the way they have in the past. “This time it is not business as usual,” said Maria van der Hoeven, executive director of the Paris-based International Energy Agency, in a recent speech.

          The most jaw-dropping change by far: OPEC’s effective capitulation in its decades-old game of rigging oil prices. Last November, Saudi Arabia opened its oil taps in what experts considered an attempt to kill off “high cost” U.S. shale-oil production. But it turned out that U.S. operations haven’t been so high cost after all; oil expert Daniel Yergin, vice chair of the research and consulting company IHS, notes that U.S. prospectors improved their efficiency by 65 percent in just a year. U.S. oil production is up to stay, he says â€" and that means oil prices are likely to stay low.

          Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result.

          Some forecasters believe oil’s great run won’t end for decades â€" most of us still love our cars, and demand for them continues to grow in the developing world. But there’s also the threat that governments worried about global warming and pollution might finally cap the gusher.

          Says Verleger: “The oil industry has no friends.”

          [Oct 07, 2015] This Month Could Make Or Break The Oil Markets

          Russia forecasts that its production will be drop 2 million tons (to 528 from the current 530) .
          "... ... ... ... ..."
          Oct 07, 2015 | Zero Hedge

          October could be a crucial month for struggling drillers. With drillers undergoing credit redeterminations, October could see a wave of debt restructuring and cuts to credit lines, potentially forcing deeper cuts in the shale patch.

          ... ... ...

          In the U.S., production declines continue, although fitfully and inconsistently. After several months of large declines in production, the supply picture has become a bit murky. For example, output fell by 222,000 barrels per day between April and May, and then by another 115,000 barrels per day from May to June. But in July, production actually increased by 94,000 barrels per day. The gains came from the Gulf of Mexico, and not the shale patch. Offshore projects are long-term propositions and don't respond quickly to shifts in oil prices. However, even taking out the offshore gains, U.S. production would have only declined by 53,000 barrels per day, a slower pace than what was seen in previous months.

          gcjohns1971

          "Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States."

          This is a red herring because the United States, even in the unlikely event of an oil surplus, is by law not an oil exporter.

          What the 'Shale Revolution' has done is send those formerly exporting to the US to fight for markets elsewhere.

          ... ... ...

          cashtoash

          But Garrrrrtman said on CNBS [yesterday on fast money] that oil has bottomed, time to buy buy buy

          [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 07, 2015] Volatility and Oil

          "... For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion. ..."
          "... Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly. ..."
          "... Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure. ..."
          "... In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. ..."
          Oct 07, 2015 | community.3dsbiovia.com
          Petroleum is a volatile product. The chemistry that enables it as such a high density energy and ubiquitous energy source is volatile. The economic environment around oil is volatile, with a growing tide of alternative energy sources, and climate change issues. The political environment around oil is volatile. However oil currently is and will I believe remain for the foreseeable future, the essential underpinning of modern societies around the globe. This is why companies like Exxon call themselves energy organizations. Its not a vain attempt to change their image but rather a real understanding of the nature of chemicals and energy and the value they bring. if you need to understand this, image that we had no fuel for transportation, goods delivery, power-stations, and lights; it would be a very cold parochial world.

          User-added imagel

          Recently we have seen a precipitous change in the energy or per barrel price of oil, across the broad markets. To many people this is shocking and upsetting; a sign of a global economic contagion. However this is not the first significant price shock in the energy sector. When I started in BP oil was about 65-70 dollars a barrel for Brent Crude and was projected to go to 80-90. Unfortunatley due to economics and supply or demand, it actually dropped. Well the oil majors learnt from that shock, the Gulf and early Oil crises. They became fully integrated corporations. The drill, produce, refine, blend, distribute and own end point of sales. They balance their exposure in the upstream and highly risky area, with that of continuous margin driven volume production in refining, and more batch driven specialty chemicals in the downstream and products domain. Now as the oil price drops, the margins and profit in upstream decreases, but the energy costs of running crackers and separating and converting columns decreases.

          For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

          So as prices drop the downstream parts of integrated petrochemicals is healthy. The gasoline stations, do not clearly make a lot of money, but the refineries and chemical production outlets are very healthy and currently running at maximum capacity, (a friend verified last week). This balanced portfolio is how the companies manage the significant shifts in costs. It also is why they really need an integrated systems view of the whole business. They need to manage, cost, risk and velocity across different sectors, with differing information, material and economic considerations. being able to have flexibility across a refinery to take advantage of local and global price shifts and consequent supply and material shifts (quality content etc) is important.

          Further to this, oil and the exploration of oil has often been subject to regulations. There have been a number of very sad incidents involving oil companies that have affected the environment. In order to continue to operate, the petrochemical companies are very mindful of their "Green License to Operate". therefore they carefully track using inventory and supply chain technologies all of the products, their regulatory and environmental impact and their health, safety and fire code compliance. They do this across all their divisions, to both ensure information tractability and of course compliance to specified procedure.

          Lastly oil has always been as a product subject to taxation regimes. These change and as many of you will have heard the allowances for drilling in for example the United States are considerable. Exploration and Production has always been the riskiest side of the vertically integrated, oil company's portfolio. Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly.
          http://www.exxonmobilperspectives.com/wp-content/uploads/2011/10/Global-oil-price-factors-420x305.png

          Note Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure.

          In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. In order to provide a mode complete energy portfolio, Petrochemical companies are actively investigating carbon capture and conversion to methanol for energy consumption. They are likewise working very hard to optimize their entire business processes, documentation and innovation activities along a systems model approach

          [Oct 07, 2015] Uncertain Times Ahead For The Saudis

          "... If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share ..."
          "... However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic. ..."
          Oct 07, 2015 | OilPrice.com

          ...between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia's fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20 percent of GDP.

          ... ... ...

          Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper reported.

          Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper reported. "On the contrary, OPEC's market share will be higher," he said.

          Maybe so, but make no mistake, this is a precarious time for the Saudis. If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share, and if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm.

          However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.

          [Oct 06, 2015] Oil jumps $2, breaking range as supply seen ebbing

          Oct 06, 2015 | finance.yahoo.com

          Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, according to a monthly U.S. energy report that suggests a surplus of crude is easing more quickly than expected.

          Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less than forecast last month, the U.S. Energy Information Administration said in its Short-Term Energy Outlook. Demand is expected to rise 270,00 bpd to 95.2 million barrels a day, up 0.3 percent from September's forecast.

          Russia's energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last week and would continue to consult each other.

          OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut.

          Iran's crude sales were on track to hit seven-month lows as its main Asian customers bought less than before.

          [Oct 06, 2015] Oil needs a capitulation Goldman Sachs

          "... The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say ..."
          Oct 06, 2015 | finance.yahoo.com

          Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil reaching $20 a barrel is driven by "breaching storage capacity."

          R.T. Arcand

          The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say. After all they're the ones who will tell you to buy, so they can do a pump and dump against you.

          Not to mention that these pathetic fools in 2008 had to go so low as to throw in the towel on Free Market Economics to become a bunch of pathetic Fascist TARP Welfare Queens because they were too stupid to keep their fraud with the Ratings Agencies alive with their fraudulent bundled mortgages. Goldman Sachs is the parasite that needs to be destroyed if this nation or even humanity is to advance.

          Compare how much the Apollo program cost, compared to the Fascists in the banks and their fraud and bailouts. It's time Americans go after these fascists with the same urgency the "Greatest Generation" did.

          [Oct 04, 2015] Funds To Play Oil's (Slow) Recovery: ETF.com

          "... USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices. ..."
          Oct 04, 2015 | Barrons.com
          Unfortunately, Roy notes, the United States Oil Fund (USO), the most common way to play oil, has often backfired for investors. USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices.

          Luckily, USO isn't the only way to play oil. The PowerShares DB Oil Fund (DBO) seeks to minimize the costs of rolling contracts forward by choosing the most advantageous futures contract to switch to, instead of always using the next month's, as USO does. Roy also notes that the United States Brent Oil Fund (BNO) holds Brent oil, popular in Europe, which in recent years has started to diverge in price more frequently from West Texas Intermediate, a grade of oil commonly sold in the U.S. In the first three quarters of 2015, Brent lost less than WTI.

          However, none of those oil products were able to avoid the big drop in crude prices. For more buy-and-hold investors, Roy suggests the Energy Select SPDR (XLE) that holds energy-related stocks (like Exxon (XOM), Chevron (CVX) etc.). He concludes:

          For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based ETFs mentioned earlier, for several reasons: 1) an investor doesn't have to worry about roll costs; 2) the companies can grow their oil production, creating value for shareholders even in a flat oil price environment; 3) they often pay dividends. XLE currently has a yield of more than 3.3 percent.

          Year-to-date, XLE is down by 21 percent, less than the futures-based ETFs. Over the past five years, XLE is up 20.4 percent, compared with losses ranging from 40 to 58 percent percent for the other three ETFs.

          [Oct 04, 2015] Nonsense on data revisions

          "... I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired. ..."
          "... they are all of the neo-liberal religion; group-thinkers ..."
          Oct 04, 2015 | mainlymacro.blogspot.com
          mainly macro
          Anonymous, 1 October 2015 at 01:04
          When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired.

          Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic crises, and it must be more than just governmental pressure that has produced such concentrated ineptitude.

          acorn, 1 October 2015
          Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the difference between a currency issuing government and a currency using non-government sector. Hence, government financial accounts are totally different to a households financial accounts.

          They all think that the government has to tax and/or borrow "money", before it has any to spend. Never stopping to think where the people it taxed or borrowed from, got such "money" in the first place.

          Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the accountants.

          http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/fall-in-tax-receipts-hinders-progress-in-deficit-reduction-says-icaew

          [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] Reflections on Ten Years Deficits, the Financial Crisis, Textbook Economics and Data Paranoia

          Oct 03, 2015 | Econbrowser

          "When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."

          [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] Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps

          Oct 03, 2015 | Bloomberg Business

          The world's biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.

          Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

          [Oct 03, 2015] Shale High depletion rates in Bakken

          "... Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines. ..."
          "... ... ... ... ..."
          "... Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you. ..."
          Oct 03, 2015 | www.oil-price.net

          As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?

          Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable resources undergo reduction over a period of time. Oil and gas aren't exempted from this equation, either

          ... ... ...

          Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down?

          The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.

          ... ... ...

          Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you.

          [Oct 03, 2015] Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut

          Looks like Bloomberg is becoming Fox of economic and financial news...
          "Other countries, such as Russia, are pumping at full tilt" looks like a lie. Russia production might be cur if additional tax on oil producers is restored by government.
          I also like ""The U.S. producers are the only ones doing their part to reduce the global glut," -- another lie. shale producers are uncompetitive at this level f prices and some can't even serve their debt. the same is true for oil sands. They are cutting all corners, endangering the environment.
          There is no return to "cheap oil" regime despite period of overinvestment that was bright by prices above $80 per barrel.
          The fact that "Retail investors which pulled $393 million in September" just confirm that they are a food for Wall Street sharks... Moreover investment in oil ETFs with their complex "futures based" algorithms of matching oil price is in itself probably a sign of not being too intelligent. The game on this table of Wall Street casino is a for professionals and HFT robots, not for lemmings (aka retail investors).
          "... U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. ..."
          Oct 03, 2015 | Bloomberg Business

          Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.

          Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.

          U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.

          "The U.S. producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."

          ... ... ...

          Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.

          ... ... ...

          Investors pulled $393 million in September from United States Oil Fund, the largest U.S. exchange-traded product that tracks crude futures, the biggest withdrawal since April.

          See also:

          [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 03, 2015] What Blows Up First Part 5 Shale Oil Junk Bonds

          Prediction "The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. " definitely proved to be false. But it looks like junk bond problem does exist. see Icahn warning Spe 26, 2015. Actually he issues similar varning in Ocr 2014 -- Carl Icahn says high-yield 'junk' bond market in a bubble - CNBC Reuters
          "... As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads. ..."
          "... ... ... ... ..."
          Oct 03, 2015 | November 18, 2014

          One of the surest signs that a bubble is about to burst is junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as "safe". So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.

          This pretty much sums up today's fixed income world. And if past is prologue, soon to come will be a brutally rude awakening. Most of the following charts are from a long, very well-done cautionary article by Nottingham Advisors' Lawrence Whistler:

          Junk yield premiums over US Treasuries are back down to housing bubble levels...

          ... ... ....

          As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads.

          ... ... ...

          The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. This will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around.

          Bruce C

          The whole "shale oil" theme is a "scam". The original investors fell for the very same thing that continues to be rehashed, so they engineered a way to unload it onto the "relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers realized that projected resources were not the same as extractable ones (at certain price levels) and that current production rates were subject to (downward) change (because the whole process is basically insane and extreme) it only makes sense that more funding could only be obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered, etc.)

          But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full of shit President, a desperate national central bank, and "TBTF" philosophy in general, this construct may well be supported way beyond its "natural" life.

          History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the lows or the highs, and especially the durations of effort and "pragmatism" to advance certain agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in real time.

          socalbeachdude

          John, you are 100% correct in your article, particularly with your conclusion that this "will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around."

          Frank DiGiovanni

          Funny.. Your website is about the demise of the dollar.. Than its about oil stocks who have plunged along with oil due to a strong dollar
          .. Seems you are just looking for negatives..

          digriff > Frank DiGiovanni

          While you are assuming the strong dollar is the cause of the oil prices I would say "the last guy to drown in the pool is technically the best swimmer (dollar) but did still drown in the end".

          Frank DiGiovanni > digriff

          Point is .. You have been complete incorrect on the dollar.. Then write negatively on oil.. You are just a negative person.. Currency value is all relative to other currency; have to have winners and losers.. Not everybody drowns. You seem foolish with such a comment..

          [Oct 02, 2015] EIA's Latest Petroleum Report Yields Few Surprises

          "... If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday. ..."
          Oct 02, 2015 | OilPrice.com

          ... ... ...

          I took the Weekly Energy Review and averaged it into monthly average. As you can see it differs greatly from both the Monthly Energy Review and the Petroleum Supply Monthly. However for last July and August it agrees pretty closely with the Monthly Energy Review. And it says [USA] production dropped just over 200,000 barrels per day from August to September.

          This is the weekly data, since December from the Weekly Petroleum Status Report. It has U.S. production dropping every month since June.

          ... ... ...

          I thought the below article said a lot about Russia.

          Russian Oil Producers Head for Tax Showdown Amid Output Warnings

          Russia's Energy Ministry estimated last week that oil output would be stable until 2035 at a level of about 525 million metric tons a year, or 10.5 million barrels a day, as investment in new projects offset declines at older fields. If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday.

          "In a lower capex environment, the output decline at mature Russian fields may reach some 5 percent already next year," Alexander Nazarov, oil and gas analyst at OAO Gazprombank, said by phone. "New projects won't be able to cushion the total decline."

          They are saying that if they get enough investment in new projects to offset declines in their old fields, then they can keep production flat for the next 20 years. Otherwise they are headed lower. Their old fields will be declining at about half a million barrels per year. I don't think even if they do get the tax breaks they can come up with that much new oil. And most certainly they cannot do it for 20 years.


          [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?

          [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 30, 2015] Are American Schools Making Inequality Worse

          Sep 30, 2015 | Economist's View

          Education is not the only cause of inequality, but it's part of the problem:

          Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.

          Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.

          Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...

          "Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."

          In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...

          "Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."

          Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.

          Anonymous -> Anonymous...
          do you think schools in China/India have funding on the level you are implicitly arguing for? As Eva Maskovich is showing in NYC - it takes better teachers, not more money.

          pgl -> Anonymous...

          I live in NYC

          "According to Success Academy Charter Schools founder and President Eva Moskowitz".

          Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public education system. They have a lot of really dishonest ads attacking our new mayor. So you are with these privatization freaks? Go figure!


          Anonymous -> kthomas...

          I am an Asian immigrant who came to the US to pursue the American dream. My education allowed me to run circles around most students at the university. I ended up with triple major and a post grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly productive people who want less money are. Then they will have to face reality anyway. We can sit here and argue about it all we want. The truth is that kids in Asia can do the job I started with sitting there better for a fraction of the cost here. And this is a job requiring advanced degrees.

          Anonymous -> Anonymous...

          And you can add Eastern Europe to Asia. The competition is going to degrade our standard of living as it has whether we like it or not.


          DrDick -> Anonymous...

          Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and advanced math classes. Having new textbooks and enough textbooks for all students, class sizes, laboratory equipment for science classes, and building maintenance, among many other very significant differences.

          https://edtrust.org/press_release/funding-gap-states-shortchange-poor-minority-students-of-education-dollars-2/

          https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/

          https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0CEYQFjAGahUKEwiglsjRgZ_IAhWJOIgKHQgGAW8&url=http%3A%2F%2Fwww.schoolfunding.info%2Fnews%2Fpolicy%2FFundingGap2005.pdf&usg=AFQjCNGL7igeCiXrs8pI7cxcwgb0JTKdtg&cad=rja

          Anonymous -> DrDick...

          yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for toddlers.

          DrDick -> Anonymous...

          None of which are characteristic of public schools. Have you ever even visited reality? Charter schools suck up a much greater share of available public resources and further starve the schools serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision making.

          http://www.washingtonpost.com/blogs/govbeat/wp/2013/10/15/charter-schools-are-hurting-urban-public-schools-moodys-says/

          https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CCwQFjACahUKEwiB5ci8rZ_IAhWLRYgKHR5dCgU&url=http%3A%2F%2Fwww.luc.edu%2Fmedia%2Flucedu%2Flaw%2Fcenters%2Fchildlaw%2Fchilded%2Fpdfs%2F2015studentpapers%2FReyes.pdf&usg=AFQjCNFP1l3BdJ-Hjm0FFv-KDtYMk3E5FA&cad=rja

          http://www.progressillinois.com/posts/content/2014/05/20/report-school-closures-charter-expansion-causing-catastrophic-harm-us-minor

          EMichael -> Tom aka Rusty...

          few anecdotes

          geez

          " The new school year has been marred for many students all over the country by severe budget cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school Monday, is seeing some of the most extreme effects of these budget cuts.

          Nine thousand students will attend 53 different schools today than they did last fall after 24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.

          A new policy also eliminates guidance counselors from schools with fewer than 600 students, which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five or six schools at once. Arts and sports programs have also been sacrificed.

          Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus funds cushioned schools from state cuts for a couple of years, but they are now dwindling.

          The district is struggling to fill a $304 million deficit. In order to open schools on time, the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also withholding a $45 million state grant until teachers unions agree to concessions of about $133 million in a new labor pact. The district plans to sell 31 shuttered school properties. "

          http://thinkprogress.org/education/2013/09/09/2588691/philly-schools-budget-cuts/

          pgl -> Anonymous...

          I love how the Aussies do the terminology:

          "All Australian private schools receive some commonwealth government funding. So they are technically all "Charter" schools although the term is not used in Australia."

          Charter schools are precisely what Milton Friedman recommended. He has the integrity to call this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.

          Anonymous - have the courage to admit your agenda next time.

          ilsm -> pgl...

          Charter schools are like privatized arsenals, all cost cutting, profit and no performance.

          US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms to the Brits.

          How long before the charter industry complex has enough unwarranted influence to ruin education?

          djb -> Anonymous...

          the charter schools cherry pick the best students and they don't deal with problem kids

          this I known, they do poorly especially in new York city

          as pgl said it is the fact that schools are fund locally that is the problem

          to use a favorite right wing phrase

          public education is an "unfunded mandate"

          it should be paid for by the federal government

          then all the mostly right wing politician could use property tax for divide and conquer politics

          and funding can go where it is needed

          djb -> djb...

          then all the mostly right wing politician could NO LONGER use property tax for divide and conquer politics

          DrDick -> pgl...

          I think this is the primary issue. The schools in my hometown of 30K, national headquarters for Phillips Petroleum with a major research facility at the time, were excellent and most students went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities and the failure of the poor. This is exacerbated in larger communities by differential funding and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the predominately black west side and south side were literally falling apart with peeling lead paint and asbestos insulation falling on the students (along with occasional pieces of the cielings).

          [Sep 29, 2015] World set for emerging market mass default, warns IMF - Telegraph

          "... Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress. ..."
          "... We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. ..."
          "... The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world. ..."
          Sep 29, 2015 | telegraph.co.uk

          TheBoggart

          "The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging
          market corporate defaults"

          https://www.youtube.com/watch?...

          blueba • 7 hours ago

          Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.

          We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. Then a few more small transfers and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were consolidated in the hands of oligarchs.

          First load on the debt with money created out of thin air by banks, then foreclose after the phony "bubble" bursts. Then walk away Scott free with the assets.

          The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.

          [Sep 28, 2015] Exuberance and Disappoin4tment at Shell's About-Face in the Arctic

          Looks like Shell wants to wait out the period of low oil prices, cutting investments to bare minimum.
          "... More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. ..."
          Sep 28, 2015 | The New York Times

          In Alaska, Shell's announcement that it would suspend drilling in the Chukchi Sea after a test well showed less promise than hoped for was one more blow to a state where energy-tax revenues - which pay for most of the budget - are drying up as prices and production have fallen. More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. The Trans-Alaska Pipeline that made the state rich after its completion in the 1970s is pumping only a quarter of its oil capacity.

          "It's tough times," said Kara Moriarty, the president of the Alaska Oil and Gas Association, who said that rumors of layoffs in the next few weeks or months, in both the corporate offices of oil companies in Anchorage and in the drilling fields, were flying everywhere. "It's an incredibly sobering day," she added.

          [Sep 28, 2015] Shell Exits Arctic as Oil Slump Forces Industry to Retrench

          Sep 28, 2015 | The New York Times

          As oil prices have continued their steady decline this year, rig after rig has been shut down, costing thousands of jobs in the United States. Yet major oil producers have been loath to pull the plug on their most ambitious projects - the multibillion-dollar investments that form the backbone of their operations.

          Until now. On Monday, Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic - a $7 billion investment - in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.

          ... ... ...

          The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. Companies also have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota.

          American oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States...

          ... ... ...

          With demand dwindling, the current market of 94 million barrels a day has roughly two million barrels in surplus supply.

          Steve Projan

          This decision was not based on the test results of a single well but the current glut of oil and its depressed price and renders the expensive to get arctic oil a poor investment, for now. But I'll bet that Shell isn't giving back its lease. The (short term) losers are the Alaskan citizens who are addicted to oil money that is rapidly running out (heavens these takers might actually have to pay taxes rather than getting a check from the government).

          At least for today a modest, although probably short term, win for the environment.

          rexl, phoenix, az. 1 hour ago

          Just think what is going to happen when the price of oil goes back above one hundred dollars per barrel.


          [Sep 28, 2015] Economic impo4rtance of China

          "... China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet. ..."
          "... I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, ..."
          "... Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. ..."
          "... US QEs went into the stock market and via the carry trade into EM debt. ..."
          "... For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession. ..."
          "... India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s ..."
          "... 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. ..."
          "... Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together. ..."
          Sep 28, 2015 | Econbrowser
          U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3% from U.S. GDP.

          Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating.


          Tom Warner, September 27, 2015 at 1:22 pm

          China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet.

          I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, which was to some extent driven by wrong hopes that the Saudis would accommodate higher US output by cutting theirs. The global knock-on effects are mainly among oil producers, many of which didn't pass on the oil price drop to their domestic consumers, and many of which have reacted to falling oil prices by increasing their net energy exports.

          But the general tone of caution about China I agree with. The main effect from China globally has been to reduce prices of building materials and metals, especially iron ore.

          BC, September 27, 2015 at 5:58 pm

          Tom, WRT to China's oil imports, take a look at China's oil production, consumption, imports as a share of consumption, net imports of oil, the extent to which China is storing/hoarding oil as a share of consumption, and electricity consumption, and the aggregate suggests that the Chinese economy is growing at a fraction of the reported 7% real rate.

          JBH, September 28, 2015 at 9:03 am

          Tom: The main effect from China has been to wreak havoc on EM economies. Simultaneous with the reversal of the US dollar carry trade, this has caused an increasing number of EMs to tilt toward recession. EMs (ex China) have the largest ppt contribution to global growth this recovery.

          When the locomotive slows, the train slows. EM currencies are plunging. To support them, monetary policies are being tightened. Much EM corporate and sovereign debt is denominated in dollars. Hence the need to support currencies to service debt and stave off default.

          Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. Since 2014:Q1, the net export contribution to real GDP has been minus 0.6%. Another leg down coming. The daisy-chain from EMs to the US is multi-stemmed real and financial. Growing fissures in the financial system are the worry. US QEs went into the stock market and via the carry trade into EM debt. All this is unwinding, as it was always going to. Promises to become known the Great Unwind.

          BC, September 27, 2015 at 1:23 pm

          What must be understood is that China's "miracle" was not an organic process but one "made in the USA" (and in part Japan), in that US supranational firms have invested (via offshoring in search of labor arbitrage) trillions of dollars since the 1980s-90s, resulting in a scale and rate of growth per capita in China that otherwise would not have occurred.

          US and Japanese FDI peaked in 2011-13 and began contracting in the past year or so, not coincidentally when China's "exports" (largely from US and Japanese firms' production of components, intermediate goods, and finished goods) and goods-producing sectors began to contract.

          Since 2013, China's labor force has been contracting. Along with reported wage growth, contracting production, M1 and M2 growing 9-13%, and money supply at ~195-200% of GDP, China's productivity is growing no faster than ~1%. Then, at a population growth rate of 0.5%, in aggregate, China's real potential GDP per capita hereafter is effectively 0%, which is the post-2007 average trend rate (new normal of secular stagnation) for the US, EZ, and Japan.

          This outcome was never in doubt, as it was implied by the precedent of the middle-income trap, excessive debt to GDP, and the demographic drag effects China is now experiencing, as is occurring for the countries that make up 70-75% of world GDP.

          Moreover, under these conditions, it should be no surprise that growth of trade has peaked and begun contracting, as the US-China "trade" flows made up the largest share of global "trade" for what I refer to as the Anglo-American imperial trade regime, which is not unlike that of Britain from the 1870s-80s to WW I.

          Now with the onset of the cumulative, self-reinforcing effects of Peak Oil, record debt to GDP coinciding with unprecedented asset bubbles to GDP, hyper-financialization of the economy (net flows to the financial sector absorbing all output), population overshoot, climate change, low labor share, decelerating productivity, extreme wealth and income inequality, decelerating money velocity, and fiscal constraints, the world faces the new normal/neutral of global secular stagnation, which is likely to be further entrained by another global deflationary recession and bear market possibly underway.

          Tweaking tax, fiscal, and monetary policies under the foregoing conditions will make little difference. The assumptions and policies that were deemed appropriate during the inflationary and reflationary regimes of the Long Wave will be rendered ineffective or irrelevant during the current debt-deflationary regime. The primary causes of the malaise are demographics, low labor share, too much debt, overvalued assets hoarded by the top 1-10% at zero velocity, and extreme inequality exacerbating the effects on capital formation and productivity (and growth of profits) from low labor share and excessive debt.

          Until debt is forgiven sufficiently and labor share/purchasing power increases (by higher wages or lower or no regressive taxation on earned income) for the bottom 80-90%, the secular stagnation will persist and its effects worsen until a crisis that risks the collapse of the mass-consumer economy and of the institutions that depend on growth of the economy per capita.

          It's "different this time", but apparently most eCONomists don't know it, don't know why it's different and the implications, or they aren't paid to tell us.

          Steven Kopits, September 27, 2015 at 3:06 pm

          For those interested, please find the first edition of my China Tracker here: http://www.prienga.com/blog/2015/9/27/china-tracker-sept-2015

          The evidence suggests that China most likely has been suffering the side-effects of an over-valued yuan since Q3 2014. Such a situation would benefit importers and consumers and hurt exporters and producers. And it has.

          For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession.

          On the other hand, the Chinese have resisted devaluing the yuan in line with the won, yen or Euro, and so China's competitiveness has substantially eroded, and that's clearly visible in capital flows, exports, and industrial production. In principle, if China devalues, the demand for Nikes and oil should ease off a bit, and exporters should be revitalized.

          I would add that China's private debt-to-GDP ratio is very high, indeed, at levels associated with financial crisis in many other countries historically. However, the proximate issue in China is the exchange rate. We would get a better sense of the state of the underlying economy once that issue is addressed.

          Find more in the Tracker.

          BC, September 28, 2015 at 6:49 am

          Jeffrey, I suspect that the "Limits to Growth" (LTG) to global real GDP per capita from Peak Oil, falling GNE, population overshoot, etc., will force a decline in demand for oil imports in China and India as trade slumps and real GDP per capita decelerates to 0%.

          India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s, i.e., peak industrialization. India is 40-45 to 80+ years too late to industrialization, and China's growth has peaked and will decelerate to ~0% real per capita.

          The oil/commodities cycle is contracting, implying $20-$30 oil in the years ahead.

          That fits with the ongoing decline per capita for US oil production (now at the level of the late 1940s) as the log-linear US oil depletion regime inexorably continues. Despite the fastest 5- and 9-year rates of US oil production since 1927-30, the shale boom/bubble is but a blip for the long-term US oil depletion regime per capita.

          At the long-term trend rate of US oil depletion, US oil production per capita will have declined by 50% since 1970 by no later than the early 2020s; however, the 50% threshold could occur sooner were another global deflationary recession to occur, which appears increasingly likely. In fact, as little as a decline in US oil production to 8-8.2Mbd in the next 3-5 years will achieve the 50% decline per capita. I suspect that we will see the 50% per-capita threshold exceeded before 2020.

          And we know what the implications are for when the US reaches and sustains 50% oil depletion per capita. The structural effects have already begun to occur with real GDP per capita since 2007-08 averaging barely faster than ~0% for the US, EZ, and Japan, and now for China's real potential GDP. No amount of QE, ZIRP in perpetuity, and unprecedented asset bubbles can reverse the inexorable US depletion regime and its effects of real GDP per capita.

          Neither will wind and solar (renewable energy or RE) make much of a difference during the remaining oil depletion regime's descent. In fact, growth of wind and solar has likely peaked with the price of oil and will follow the oil cycle into negative growth in the years ahead. In effect, given Peak Oil and LTG, we cannot afford to grow real GDP per capita AND build out RE to necessary scale AND maintain the fossil fuel infrastructure indefinitely hereafter. Something has to give and it will be growth of real GDP per capita and the RE build-out.

          As a result, we are likely to experience a last-man-standing contest between the West and China for the world's remaining vital resources of finite planet Earth.

          Jeffrey J. Brown, September 28, 2015 at 4:15 am

          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 (complete data not yet available from EIA). GNE fell from 46 MMBPD (million barrels per day) 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, 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).

          Jeffrey J. Brown September 28, 2015 at 3:48 pm

          Minor correction: In 2013, India's total petroleum liquids production + other liquids production was 25% of total liquids consumption, China's was 42%.

          Jeffrey J. Brown September 28, 2015 at 6:57 am

          Interesting article on Saudi Arabia:

          The collapse of Saudi Arabia is inevitable

          http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

          Steven Kopits September 28, 2015 at 12:23 pm

          Here's a bit I wrote on oil prices and Arab unrest. Interestingly, unrest seems more correlated with high oil prices, rather than low prices.

          Keep in mind, the Saudi fiscal model went to hell after 1983, and particularly after the big oil price drop from Feb. 1986–and this at a time when they were pumping only 3 mbpd. And yet the monarchy survived.

          It's not entirely clear that low oil prices lead to revolution.

          http://www.prienga.com/blog/2014/12/1/arab-unrest-linked-to-oil-price-spikes-not-price-collapses

          And by the way (speaking of being quoted), I should be on NPR's Marketplace again tonight.

          Steven Kopits September 28, 2015 at 7:32 am

          Do you ever have a cheery day, BC?

          Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together.

          BC September 28, 2015 at 1:08 pm

          Thanks, Steven, but what's "normal" WRT inventories going forward? Do your data account for tanker oil storage?

          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.

          What if "normal" for 2011-14 is well above the trend rate of growth of demand hereafter?

          What is the source of your data? Thanks.

          Cheers!

          Ricardo September 28, 2015 at 4:56 am

          The Professor wrote:

          "I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies. A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects.

          Professor,

          Thank you once again for a bit of reason in your analysis. Krugman as the leaders of the far-left Progressive economists leads so many astray with his ultra-aggregate economics.

          Excellent article!

          Steven Kopits September 28, 2015 at 8:36 am

          "Demand out of China [for Apple iPhone 6s] looks white-hot," Ives said.

          http://news.yahoo.com/apple-reports-record-sales-iphone-6-6s-plus-124914752–finance.html

          Doesn't really scream recession, does it. It sure screams over-valued currency, though.

          [Sep 27, 2015] How Russia and Iran Plan to Push Oil Prices Back above $100

          Notable quotes:
          "... And in turn, Remove the United States as a Superpower in the Middle East ..."
          "... The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC ..."
          "... This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the Wests Middle East petro partners. ..."
          "... The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. ..."
          "... Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed. ..."
          "... Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a peace keeping role is viable, usurping the U.S. hegemony in the region. ..."
          "... The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russias, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace. ..."
          Sep 27, 2015 | johngaltfla.com
          September 27, 2015 | Shenandoah

          And in turn, Remove the United States as a Superpower in the Middle East

          On post super blood moon Monday, Vladimir Putin will be meeting with President Obama to discuss the ISIS crisis in the Middle East. There are many within the U.S. media who are promoting this meeting as some strange idea that the Russians are about to ask the Americans for help against ISIS. While there might be a small gnat's hair bit of truth to this, in reality, Putin is about to dictate terms and the United States is ill prepared to deal with the consequences.

          In 2014, I penned a piece reflecting the true reason ISIS was created so that the Arabian sheikdoms could establish pipelines through Iraq and Syri a to permanently shift Europe's dependency on Russian oil and natural gas over to their own private market where they can re-assert control over the world market price. The problem is that Russia failed to see the US, British, and Arab point of view and offered what they thought was enough support to block ISIS from overthrowing Bashir Al-Assad and keep this dream from becoming reality.

          ... ... ...

          The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC as of Friday, 9/25 ):

          This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the West's Middle East petro partners.

          ... ... ...

          The Middle East is aflame right now and the economic situation along with terrorist Islamist ideologues have exported their problems into Europe with a massive migration of millions of refugees from Syria, Jordan, Libya, and Iraq. Mixed within these people are numerous terrorist operatives as was promised by ISIS and Al Qaeda years ago but ignored by the naive European Union. The future problems this will create are another story but the question has been promoted by some in the United States asking why the Arab nations of the Arabian Peninsula have not taken any of the refugees. That answer is obvious; their economies and domestic political situations are so tentative and fragile that an influx of millions of new residents would probably tip nations like Kuwait and Saudi Arabia closer to full blown civil war within their own borders.

          ... ... ...

          The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. By later on this year and early next year their should be sufficient forces on the ground in Syria and Iraq to push the ISIS militants into a meat grinder, eventually cutting them off from their northern forces somewhere in north central Iraq. Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed.

          Meanwhile in the southern part of Iraq, ISIS will be left unchecked for a short duration and eventually pushed into Saudi Arabia and the GCC states, to let the sponsors of this terrorist army deal with the problems they funded and created. The brilliance of this strategy by the new alliance of Egypt, Russia, Iran, Iraq, and Syria (which may soon include Jordan) is obvious; the return of the malcontents who will feel betrayed by the House of Saud and other various sheikdoms of the region will create domestic instability and as a result the destruction wrought on Iraq's oil infrastructure will now become a GCC problem.

          Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a "peace keeping" role is viable, usurping the U.S. hegemony in the region.

          The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russia's, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace.

          [Sep 27, 2015] Kiev professes itself "satisfied" with the gas price deal

          Sep 27, 2015 | marknesop.wordpress.com

          marknesop, September 25, 2015 at 12:34 pm

          Kiev professes itself "satisfied" with the gas price negotiated in the deal, in which the fact that Ukraine's gas supply will be entirely paid for by Europe is spun as a victory for Naftogaz and Demchysin personally, after he wrestled Russia into submission and made them drop their prices.

          "As customers, we're interested in a lower price". Dear God, you could laugh until you died. As customers who have to beg our boss for money because we're broke, we're interested in at least the appearance of being in control of something. Anything.

          marknesop, September 25, 2015 at 3:22 pm
          Ha, ha, ha!! If you were thinking "Nord Stream II in Ukrainian Perspective" could be summarized as "Wahhhh!!! I Went Crazy And Now Russia Won't Talk To Me!" crackpottery, you would be right.

          Standout points are (1) Raising transit fees is normal procedure when transit volumes drop, and (2) Ukraine's transit system will register a net loss if transit drops below 40 BCm a year. The volume in 2015, while Ukraine is still being used as a transit country, is expected to top out at 51 BCm.

          I would say the writing is on the wall there, and the message does not…ummm…look positive for Ukraine. You pissed in the pickles one time too often. Notably, however, although some of the reduced transit volume is due to Europe taking less gas, a stronger limiting factor is more gas being sent through Nord Stream. You can see why Europe was desperate to stop South Stream, and why it is now trying out a tough-guy approach as if it can force Russia to continue using Ukraine as a transit country, to a background of despairing wails from Ukraine.

          [Sep 26, 2015] Paul Krugman Dewey, Cheatem Howe

          "... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
          "... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
          Sep 26, 2015 | economistsview.typepad.com

          Economist's View

          Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
          Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.
          • Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.
          • Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

          There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

          Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

          A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

          The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

          But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

          So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

          reason

          "Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

          That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

          reason

          "So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

          Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

          [Sep 26, 2015] The Table Is Set For The Next Financial Crisis

          "... The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. ..."
          Sep 26, 2015 | Zero Hedge
          The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

          The millions in upfront fees, along with their lack of conscience in bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared to the last six years).

          ... ... ...

          Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic" mortgages to dupes who weren't capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

          Once the Wall Street machine runs out of people with the financial means to purchase a home or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate dupes. There is a good reason people with credit scores below 620 are classified as sub-prime. Scores this low result from missing multiple payments on credit cards and loans, having multiple collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They have low paying jobs or no job at all. They do not have the financial means to repay a large loan. Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives. They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed in the middle of the night.

          The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working on behalf of their Wall Street owners. When interest rates are set by central planners well below levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment, and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn their lesson? No. Because we bailed them out with our tax dollars and have silently stood by while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of our financial system accelerates by the day.

          The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW 2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble. They even threw in a student loan bubble for good measure.

          ... ... ...

          The entire engineered "housing recovery" has had a suspicious smell to it all along. The true bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and on par with 2001 recession levels. With mortgage rates at record low levels for five years, this is all we got?

          What really smells is the number of actual mortgage originations that have supposedly driven this 35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010 lows, how could mortgage purchase applications be flat since 2010?

          New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and 25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.

          As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical thinking individual might wonder how new home sales could be down 60% from 2005, while home prices are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical trend can be seen in the existing homes sales market. The median price for existing home sales of $228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005. I wonder who is responsible for this warped chain of events?

          AlaricBalth

          This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in the article, will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand is high, it could be a sign of a robust economy, with the usual corresponding inflationary pressure.

          As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have.

          Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.

          This is not an issue that can be fixed by political promises. So no matter which political party is in control, this will not be repaired with platitudes. This is a structural macro-economic phenomenon which is caused by demographics and poor long term fiscal planning.

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Vst

          TeethVillage88s

          Anyone have this video?

          Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.

          Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints handled, and many changes forced on corporations.

          Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go through whole show or just the 2:00 minute segment that only shows her saying she is not running for President.

          Shame on CBS, as usual.

          http://www.cbs.com/shows/the-late-show-with-stephen-colbert/video/jUNG_y...

          Apparently I don't have the computer configured to play it anyway.

          FreedomGuy

          I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here. Frankly, they look at the rules and try to make a living in the mortgage business. They are not angels but neither are they demons and I do not think they purposely write bad business.

          I think the Wizard of Evil behind the curtain is first and last the government including a GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly stuff and off-load risk. They hold rates near historic lows so people can buy more.

          This drives prices and all the flipping crap and related stuff I hate.

          I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I did a cash-out refi and am paying off virtually all other loans...or more properly moving them to the tax deductible home loan. I was going to rent and move north because of work but after lots of research, breathtaking price increases and a few other cautions I decided to sit it out.

          I am going to see what the economic terrain looks like in 6 months or more.

          The thing is you have to play the game as it is, today, not as you think it should be.

          marts321

          Don't hate the player, hate the game.

          TeethVillage88s

          Check out the growth of Holding companies.

          Financial Business; Credit Market Instruments; Liability, Level
          2015:Q1: 14,104.57 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,

          Holding Companies; Credit Market Instruments; Liability, Level
          2015:Q1: 1,380.52 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS,
          https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFS

          U.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level
          2015:Q1: 669.90 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,

          Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA. So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit Bank while an Investment Bank.

          So today we have Holding Companies that are allowed to have Deposits while doing commercial and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and transfer of Taxpayer and Retirement Funds to them.

          Holding Companies have Doubled Liability since 3QTR 2007

          Wow

          TeethVillage88s

          Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC

          I'm not sure how you can isolate or focus your condemnation or fault.

          • - Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential Rate meaning Risk is Exponential as well
          • - Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)
          • - Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)
          • - 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
          • - 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion

          Edit: This applies, $8.16 Trillion in US Deposits

          Total Savings Deposits at all Depository Institutions
          2015-09-07: 8,164.3 Billions of Dollars (+ see more)
          Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS,
          https://research.stlouisfed.org/fred2/series/WSAVNS

          dizzyfingers

          "Sociopaths" (psychopaths) rise to the top. They are not like others. http://www.healthguidance.org/entry/15850/1/Characteristics-of-a-Sociopath.html

          EndOfDayExit

          To all hysterical critics of the FED, what do you suggest they do instead? The rich can do nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).

          The poor need jobs. Now almost at any cost, because those jobs are few and far in between as we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally force the rich to spend. For, if people do not spend there will be even less jobs…and less tax revenue collected for the government to run and distribute around… and it all starts going downhill.

          The FED is just trying to keep the system at the higher spending point. It does not seem to work very well, but the next option is a direct confiscation and redistribution of assets (to keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.

          Batman11

          The globalists rush to take the profits in the good times but run and hide in the bad.

          Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out the mess loading the costs onto national tax payers.

          When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.

          • 1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
          • 1929/2008 - Wall Street crash
          • 1930s/2010s - Global recession, currency wars, rising nationalism and extremism
          • 1940s/? - Global war

          We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's throats.

          Maybe next time we will know better, third time lucky.

          mianne

          Cherry picker, I agree with you : " All our government up here has to do is get out of NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to the hilt, keep our water, electricity and natural resources to ourselves and manufacture our own products... Then you can have all the wars you want in the middle east and we will watch it on television without worrying about whether to be part of the murder brigade or not."

          But as for ourselves, as governed by the totalitarian EU whose representatives are non elected by people, but were chosen by the international finance tycoons ( our elected presidents deprived of any power by the supranational non elected entity, US- OTAN driven European Union), we are just powerless slaves .

          However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon European Constitution, but they do not take it into account, submitting us to the ignominious treaty . Democracy ?

          [Sep 26, 2015] Is the shale gas revolution over

          "... natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years. ..."
          "... While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom. ..."
          Sep 20, 2015 | www.usatoday.com

          While everyone is watching the oil bust, there is another bust going on - one for natural gas.

          Before there was a boom in oil production in the United States, there was the "shale gas revolution." That is where we all became familiar with terms like "fracking." And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian.

          The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008.

          But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low.

          Much of that has to do with the huge innovations in drilling techniques, including fracking and horizontal drilling, which allowed for production to remain profitable despite the downturn in prices. But some of the credit also goes to drillers searching for more lucrative natural gas liquids and crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially in the period between 2010 and 2014, drillers continued to produce natural gas even if they were looking for oil.

          So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years.

          It is no surprise that the Eagle Ford will represent the largest losses, with a decline of 117 million cubic feet per day expected in October. That is because oil is a much more prized commodity in South Texas, so the decline is largely attributable to disappearing crude oil rigs.

          While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom.

          MORE:

          [Sep 25, 2015] Why Dont Commercial Bankers Understand the Interests of Their Class Fraction

          " ...As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects."
          " ...A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk."
          Sep 25, 2015 | www.bradford-delong.com
          Cervantes said: September 14, 2015 at 11:23 AM
          Well, I'm just a medical sociologist, so what do I know, but my bank essentially pays zero interest on deposits and charges 4.5% interest on mortgages. So they seem to be in a perfectly good place as far as I can tell.

          BruceJ -> Cervantes: September 14, 2015 at 11:48 AM

          Beat me to it. My savings interest rate is 0.1%. The bank's (actually a credit union) current 30-year mortgage rate is 4.125%, inflation right now is 0.2%. (so in real world terms I'm losing money daily on my "savings").

          By my admittedly non-R-programmed mere fingermath calculations they're making 412.5- 3=409.5 basis points on those loans, comfortably above their 300 point bar. They may not be maximizing their profits, but they're making them, and playing safe to boot.

          And so long as the 0.01% have a stranglehold on profits and wages, inflation isn't going anywhere, except, of course, for yachts and Picassos.

          Of course so long as the 0.01% have that stranglehold, not much of anything is going anywhere.

          jorgensen said: September 14, 2015 at 12:13 PM

          I do not understand Brad's faith in the magical ability of inflation to stimulate the economy.

          Jerry Brown said: September 14, 2015 at 01:57 PM

          To the extent that commercial bankers are able to exploit their very special access to the Federal Reserve, they are most certainly rentiers. At least if I am understanding that term correctly.

          Michael Finn said: September 14, 2015 at 03:55 PM

          `Brad, I don't think you get that a lot these people are not rational. These are people who think that as soon as inflation starts up then the entire bill of treasuries that the Fed has will come due.

          They actually do believe in Glenn Beck and the rest of the psychos. A man that I knew who owns several million ft^2 of timber that got rid of it because he thought inflation was coming. He liquidated everything he had and I haven't seen him since.

          These people are probably not the majority of their clients but they are definitely the LOUDEST.

          Graydon said: September 14, 2015 at 06:41 PM

          They certainly are part of the rentier class. They didn't used to be, and they shouldn't be, but iron and gold they are today.

          Banks make their money on fees; the interest rate spreads are a mere bagatelle. This is a consequence of deregulation more than it's a consequence of electronic transaction technologies.

          It's pretty darn near the power to tax; banks get a cut of the entire economy because they get at least a couple percent every time money changes hands. (Look at Square's pitch to merchants -- a consistent two-point-something percent rate for clearing credit card transactions. The bank version goes up to 10%.)

          As long as that's true, the zero lower bound is annoying, but it doesn't really affect profitability. Profitability is guaranteed by the existence of an economy.

          Graydon -> Graydon: September 14, 2015 at 06:45 PM

          And I note that it purely doesn't matter what the fees are as long as the banks don't significantly vary among themselves as to what the fees should be.

          That is, there isn't a market for commercial banking services. There's an ostensibly informal cartel.

          Max Rockbin -> BruceJ: September 14, 2015 at 11:11 PM

          I'm with you guys. This article makes no sense. What loans (of any kind really) is he seeing banks make at <3%? Even a 5/1 ARM (with points) is over 3% and most loans are fixed rate anyway.

          reason said: September 15, 2015 at 12:19 AM

          Jorgensen

          I do not understand your magical faith in inflation arriving without stimulation.

          kbis said: September 15, 2015 at 01:13 AM

          Well I'm not very sure that commercial banks are intermediaries. Not anymore. They have a far bigger role in the financial landscape: money creation. There's no intermediation involved here, just leveraged money creation on the basis of the fractional reserve.
          That's a huge role, one that private off-bank lenders cannot do.

          bakho said: September 15, 2015 at 05:26 AM

          The Fed's "official" reasoning:

          "The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term. "

          http://www.federalreserve.gov/faqs/economy_14400.htm

          I don't know why they think a higher inflation rate would make it harder to make long term decisions.

          bakho said: September 15, 2015 at 05:31 AM

          Here's Stanley Fisher:
          "It is important to keep inflation low enough so that people need not pay it any attention. At 2 percent annual inflation, a dollar loses half its value in about 36 years; at 4 percent inflation it takes about 18 years. When you start getting up to 4 percent inflation you begin to see signs of indexation coming back and a whole host of the inefficiencies and distortions. A 4 percent target a mistake."

          Rob said: September 15, 2015 at 05:33 AM

          "And commercial banks really do not want to sock their depositors with unexpected fees"

          BWAHAHAHAAHAHA!

          Wow Brad that is a good joke there! Of course banks use unexpected fees. Lock in with a bank is real. do you want to go and change your autopay every month? Banks compete for deposits on rates and "free" checking and then hit customers after lock in.

          bakho said: September 15, 2015 at 05:52 AM

          Two percent inflation might work if fiscal stimulus would reliably fill the output gap during steep recessions. Fiscal policy has proved unreliable and prone to making matters worse with austerity policy.

          Current policy seems to be driven by failed models and misinformation.

          Should the Fed make policy based on ideal fiscal policy? or the ugly reality of misguided fiscal policy?
          What are the odds of a candidate from the Clown Car stepping into the driver's seat for fiscal policy?

          bakho said: September 15, 2015 at 06:07 AM

          From Money, Banking and Financial Markets. By Laurence Ball

          Inflation and the Savings and Loan Crisis
          In the early 1960s* U.S. inflation rates averaged less than 2 percent per year. This situation appeared stable, so people expected low inflation to continue in the future. However, inflation rose rapidly in the lace 1960s and 1970s. Because actual inflation over this period was higher than expected, ex post real interest rates were lower than ex ante rates. In real terms, lenders received less from borrowers than they expected to receive when they made the loans.

          Losses to lenders were greatest for long-term loans, especially home mortgage. In 1965, the nominal interest rate on 30-year mortgage was less than 6 percent. This rate was locked in until 1995. Because inflation was expected to be less than 2 percent, the ex ante real interest rate was positive. However, the inflation rate averaged 7.8 percent over the 1970s, implying negative ex post rates.

          Negative real interest rates on mortgages were a great deal for homeowners. But they caused large losses for banks that specialized in mortgages, such as savings and loan associations. These losses were one reason for the so-called S&L crisis of the 1980s, when many savings and loans went bankrupt.

          The preceding case study illustrates a general point: uncertainty about inflation makes it risky to borrow or lend money. This is true for bank loans, and also when firms borrow by issuing bonds. In both cases, borrowers and lenders agree on a nominal interest rate but gamble on the ex post real rate. Borrowers win the gamble if inflation is higher than expected, and lenders win if inflation is lower than expected.

          Can borrowers and lenders avoid this gamble? One tool for reducing risk is inflation-indexed bonds. This type of bond guarantees a fixed ex post real interest rate. Unlike a traditional bond, it does not specify a nominal interest rate when it is issued. Instead, the nominal rate adjusts for inflation over the life of the bond, eliminating uncertainty about the real rate."

          After a decade of telling the markets that the interest rate would be 2%, the Fed does not want to change to a 4% target. ARMs and a move to 15 year largely solved the mortgage problem. However if the Fed wants tight control of the inflation rate, they can't do much about the unemployment rate unless fiscal policy cooperates. Fiscal policy has been not only uncooperative but in many cases in opposition to monetary policy.

          jorgensen -> reason: September 15, 2015 at 08:11 AM

          I don't want or expect inflation. I see no benefit flowing from inflation.

          Altoid -> jorgensen: September 15, 2015 at 09:51 AM

          If you have assets or non-fixed income, or if you're projecting returns from a capital investment, a slow and steady rise in the number that expresses the value means people can behave as though they expect larger numbers in the future. Expecting numbers that will grow, they're more likely to spend today's money on consumption goods and capital assets like houses, and more likely to make capital investments because they can project that the number used for today's investment will breed numbers that grow over whatever period they're planning for. Because people use nominal figures for almost everything in ordinary life, not real inflation-adjusted values, this tends to work.

          About 15 or so years ago the Guardian had an economic columnist, Will something iirc (Will Self? don't really remember at this point), who explained this very well. Its prime virtue is that it works in a modern economy to make people feel better and act in ways that add to measurable GDP. It's a utilitarian, not a moral, view.

          bakho -> jorgensen: September 15, 2015 at 10:59 AM

          Inflation requires wage inflation meaning both wages and prices go up.
          Deflation means downward pressure on sticky wages and sticky prices. Sticky wages mean that wages, do not deflate, instead, reduction in hours worked and increase in unemployment result. Sticky occur as businesses cannot sell below cost of production for long: price deflation leads to business failure. You want your economy managed so that relative wages and prices reset in the non-sticky direction: upward. This avoids recessions, high unemployment and broad business failure.
          Inflation must be high enough that an economic shock can be absorbed by upward relative price reset. Inflation - deflation is a continuum. All economists agree deflation should be avoided for obvious reasons. A rate of inflation that is too low is only marginally less bad than deflation.
          jorgensen -> Altoid: September 15, 2015 at 11:34 AM
          An economic policy designed to trick the middle class into over spending and under saving (by confusing nominal and real gains) is a recipe for long run disaster.

          To some extent since 2007 we have been reaping the consequences of that policy as carried out since 1980.

          jorgensen -> bakho: September 15, 2015 at 11:39 AM

          I'm in private business. In my world overall wages and prices are adjustable downward at a rate of at least two percent a year. High cost employees retire or rotate out to other jobs. Companies with high cost structures re-organize or go bankrupt and are replaced by companies with lower cost structures. There is enough natural churn in the market that downward stickiness is at worst a short term phenomenon. We are 8 years into this downturn. Downward stickiness is not the problem.

          To believe that downward sticky wages are so big a problem as to justify inflation you have to believe that there are a material number of workers who are materially over-paid at the moment and whose real wages should be cut but who do not have the bargaining power to protect themselves from inflation.

          jorgensen -> jorgensen: September 15, 2015 at 11:41 AM

          sorry I should have added: If you believe in downward sticky wages then you should be able to identify the groups of workers whose real wages should be cut and could effectively be cut through inflation.

          Thomas More said... September 15, 2015 at 03:33 PM

          As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects.

          Bankers act perfectly rationally, but in ways DeLong and Krugman et al. do not expect. A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk.

          Consequently your typical banker finds it much more profitable to engage in control fraud today rather than the old boring business of making sensible loans at low interest to customers who are likely to pay the money back. Identifying good credit risks in a depressed economy takes a lot of work, and the result even if successful is low profits -- a squeezed profit margin of circa 300 basis points or less, as DeLong points out. But why settle for a measley 0.3% or 0.2% or less profit, when you can make 20% or 30% or 60% profit with no economic risk and no real risk of being indicted?

          The way you make 20% or 30% or 60% as banker in 2015, obviously, is to buy up large numbers of foreclosed liar-loan houses and apartment buildings and then rent them out. Since most people can't afford a home today because they're got rotten credit and are burdened down with debt from the financial crash, rents are inflated in 2015. The bankers then aggregate speculative financial instruments based on these inflated rents and the inflated valuations of the homes and apartment buildings they've bought, and issue those speculative financial instruments as investment vehicles to a gullible public and other financial institutions desperate for decent returns on their investment capital. These bogus junk-quality financial instruments made up of shares in aggregated foreclosed properties generate income which is then used to buy more overvalued foreclosed properties which can be rented out in inflated prices, which then generate more bogus securities which then generate more income...and so on. In short, you get a vicious cycle and a real estate bubble 2.0, but this time based on buying and renting out foreclosed properties with money borrowed from investors based on fraudulent securities. As opposed to real estate bubble 1.0 -- which was based on buying and selling mortgages for newly-built homes with money borrow from investors based on fraudulent securities like CDOs etc.

          Bankers in 2015 are behaving perfectly rationally and they understand with pellucid clarity the interests of their class. They simply are doing so in ways that neoliberal technocrats like Brad DeLong can't fathom, because bankers in 2015 are continuing the very profitable control fraud of real estate bubble 1.0...but by slightly different means (renting foreclosed properties, rather then mortgaging newly built properties). The bankers correctly deduce that there is no financial or criminal penalty for this kind of control fraud, since neither Bush nor Obama showed the slightest interest in prosecuting bankers for their role in robosigning fraud in real estate bubble 1.0. And when the whole ponzi scheme goes bust this time, the government will step in and bail the banks out. In the meantime, the bankers are making bank (all puns intended) on all those fees and that sweet, sweet income stream generated from all those fake liar-loaned forelosed properties being rented out.

          So why wouldn't a banker choose to make 20% or 40% or 60% by spewing out liar-loan investment instruments based on foreclosed overvalued properties that are supposedly going to rise in value limitlessly while the rents increase every year without bound? Why would a banker ever settle for a mere 300 basis points return?
          Brad DeLong, like so many neoliberal economists, is book-smart, but not street-smart when it comes to these matters.

          Richard said: September 15, 2015 at 03:39 PM

          Graydon: I'm sorry, you're wrong. Banks make their money off of the spread, loans, and markets. Fees are a negligible amount of income.

          Brad:
          One: banks are long duration/fixed income assets. Most mortgages are fixed rate mortgages. What happens to the value of a fixed rate loan when inflation or interest rates move up? What about mortgage production?
          Two: bank executives are rich. There's no reason personally for them to cheer for inflation.

          That said, yes, an upward sloping yield curve is a commercial banker's best friend.

          In any case, I haven't seen much sentiment about rates one way or the other. Commercial banks, from what I've see, are fairly subdued about rates. The increase in regulation is another matter.

          Altoid -> jorgensen: September 15, 2015 at 08:15 PM

          So, the business world has no problem with deflation because, even though there's a consistent and ongoing squeeze between what's paid at the front end for something and what can be realized at sale time later as the secular nominal price level falls, the difference can always be made up by cutting labor costs?

          I'm having trouble understanding what the desired state is: deflation, or neither deflation nor inflation but neutrality? If neutrality is the target, we know how to dampen inflation-- by raising interest rates the requisite amount. In times of deflation, how do we move out of that toward neutrality without mirror-image negative interest rates that make people pay to hold cash? Isn't there an asymmetry? What happens then?

          ezra abrams -> Richard...

          Richard, methinks it is you who is wrong on fees
          http://www.nubank.com/downloads/ep_4qtr2004_part3_DeYoung_Rice.pdf

          but maybe above is outdated, see
          http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980

          [Sep 25, 2015] If a counterparty liquidates, net exposure becomes gross,"

          "... A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most." ..."
          "... unfriendly ..."
          Sep 25, 2015 | www.nakedcapitalism.com

          abynormal September 24, 2015 at 8:12 pm

          "This is the best recovery in all recorded history." Lambert

          Is GS preparing to Sacrifice the next Lehman (at zh find it yourselves')
          short list:
          It goes without saying that courtesy of HFTs and China's hard landing, a 5% drop in commodities could happen overnight.

          So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:

          ** Commodity prices drop another 5%
          ** The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
          ** Waterfall cascade of margin and collateral calls promptly liquidates Glencore's trading desk and depletes the company's cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those "physical" commodities are.
          ** Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
          ** Fed and global central banks are called in to come up with a "more powerful" form of stimulus
          ** The money paradrop scenario proposed by Citigroup yesterday, becomes reality

          Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.
          **********************************************
          i did a 4th course on Hunger http://marketwatch666.blogspot.com/2012/11/hunger-4th-course.html (scroll down to bold red, can't miss the Glen history that we WILL NOW BE BACKSTOPPING)
          A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most."

          craazyboy September 24, 2015 at 8:22 pm

          " If a counterparty liquidates, net exposure becomes gross,"

          This is the really, really important concept. Whenever someone mentions our $600 Trillion in global derivatives, Wall Street pipes up and says that is NOMINAL. It NETS out to ZERO (minus fees).

          But yeah if the chain breaks, it is really two halves, $300 Trillion a piece. Which I think someone recently estimated is 1.5 times the dollar value of the planet. (just the $300T half) Which has me wondering where the regulators went to accounting school. But I never took accounting, so maybe it's me that's mixed up.

          abynormal September 24, 2015 at 9:33 pm

          i forgot most of my Glencore 411 is in the comments following the post…i don't think the swiss are prepared for this 'issue'

          craazyboy September 24, 2015 at 10:37 pm

          Yeah, I see you've been following this fine company for some time now. Sure, they are bigger than Swissistan. What's to worry?

          craazyboy September 24, 2015 at 8:55 pm

          Just read the full ZH article.

          The only thing I'd point out is our sophisticated financiers always say don't wait for the rating agency downgrade – because they are always last to make a move.

          Other than that, sounds about right.

          Other thing I remember in 2008 was Goldman increased broker margin requirements maybe a month or two before Lehman.

          abynormal September 24, 2015 at 9:19 pm

          ck back i got a post waiting with a link that's unfriendly…don't know why IT'S THE BIS DOT ORG…my netbk should blow up any sec

          [Sep 25, 2015] Big Business Is Economic Cancer, Part I Zero Hedge

          It is under state capitalism that TBTF can't exists. Under neoliberalism they rule the country, so the question about cutting their political power of dismantling them is simply naive. Nobody give political power without a fight.
          "... Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators". ..."
          "... There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality. ..."
          "... An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition. ..."
          "... But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks. ..."
          "... Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state. ..."
          Sep 25, 2015 | www.zerohedge.com

          Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators".

          Today we have corporate monoliths which are literally orders of magnitude larger than any remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks gotten?

          Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop itself from openly salivating about how much "profit" could be had, just by beginning to chop-down the financial fraud-factory which we know as JPMorgan Chase & Co.:

          JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW unit said.

          Note that there is not one word in the article indicating that there couldn't be a lot more profit to be made, by then smashing those pieces into much smaller pieces still. This article simply pointed to the instant profit of 30% which would be available just by beginning to chop-down this obscenely large behemoth, and in the simplest manner possible.

          Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit quotient would have to be derived from greater efficiency. Smaller is better.

          However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has observed how we would all be better off if the Big Banks were smaller is only a start. We then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too big to fail".

          This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical to any economic system which even pretends to adhere to the principles of "free markets". Free markets demand that insolvent entities fail, it is the only way for such free markets to heal, when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business, or group of businesses could ever be "too big to fail".

          There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality.

          Understand that our own, corrupt governments embarked upon this criminal insanity long after the equally criminalized government of Japan already proved that too-big-to-fail was a failed policy. Not only could there never be an argument in favor of this criminality, our governments knew it would fail before they ever rubber-stamped this systemic corruption.

          But all of these arguments against the insanity of perverting and skewing our economies in favor of Big Business, and against Small Business pale into insignificance compared to the principal condemnation of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.

          For readers unfamiliar with these terms because the Corporate media and charlatan economists try to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly is where a single enterprise effectively controls an entire market or sector. While a "monopoly" may be desirable when playing a board-game, in the real world these parasitic entities do nothing but blood-suck, from any/every economy they are able to "corner".

          However, the majority of people, even today, are at least partially familiar with the evils of monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.

          An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition.

          These corporate fronts cooperate as closely as possible in systemically plundering economies. How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do so was via simple price-gouging. When you have complete control over a sector/market, you can charge any price you want.

          However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies represent, and that is "bad for business" (i.e. crime).

          Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies and oligopolies perpetrate, with overwhelming success? Naked extortion.

          As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate such a crime (terrorism).

          But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks.

          Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give us everything we want, or we will close our factory/business, and you will (temporarily) lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:

          U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and cut off health care and other benefits to 20,000 retirees and their dependents. [emphasis mine]

          ... ... ...

          kanoli

          Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more people to produce the same product or service as a big business, they cannot do so at the same or lower price unless they are paying a lower wage.

          The problem with big business isn't that it is big - it is their tendency to lobby government for regulations that stifle small business competitors.

          If politicians were not for sale, it wouldn't matter whether a business is big or small. Neither would have undue influence on the law.

          The problem is regulatory democracy where all laws are constantly subject to fiddling by an elected legislature.

          Element

          In practice a balanced mix of all sized businesses are necessary in a planetary civilization that trades products globally. Getting the mix 'right' and not having big business get away with preventing competition, or of govt throttling to skim and micro-control is most of the deleterious effect on business, and on human beings in general.

          Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.

          iDroned on a bit,

          2c

          newnormaleconomics

          Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state.

          The current state of the evolution of "capitalism" is its advanced, late-stage, financialized, globalized phase.

          With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth, climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and income inequality, and increasing geopolitical tensions, growth of real GDP per capita is done, which means that growth of profits, investment, and capital formation/accumulation is done, which in turn means "capitalism" is done.

          ... ... ...

          [Sep 25, 2015] Upstream oil execs agree Low, long and living within means

          "...If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America"
          Sep 25, 2015 | The Barrel Blog

          •Capital spending for 2016 will be lower than in 2015 - which itself has been 35%-40% below last year and could actually come in steeper in relative cuts than that, given that some operators have further slashed 2015 outlays and may still do so.

          ... .,. ...

          Said Barclays in a report on conference takeaways: "If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America.

          [Sep 25, 2015] Paul Krugman Dewey, Cheatem Howe

          The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.
          "... So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell. ..."
          "... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
          "... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
          "... The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust. ..."
          "... Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model. ..."
          "... But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go! ..."
          "...


          ..."

          Sep 25, 2015 | Economist's View
          Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
          Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.

          Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.

          Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

          There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

          Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

          A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

          The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

          But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

          So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

          reason

          "Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

          That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

          reason

          "So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

          Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

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

          YEP!

          What politicians can get away with is an artifact of the limited toolset that the electorate has to express its informed will. We need a well educated democracy and the democratic part of that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit of the educational aspect of a voting actually democratic republic would naturally work itself out with a more engaged and empowered electorate participating ACTIVELY.

          With the system as it is then it takes a shock wave through the electorate for them to throw the bums out, but there is no follow through. There is a failsafe reaction function, but no more than that except on specific social issues that get overwhelming support where politicians can move with the electoral majority at zero cost while reactionary politicians can triangulate and pander some votes from the minority opinion of those too old or set in their ways to participate in the social sea change.

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

          The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the world.

          DrDick said in reply to reason...

          Krugman is far too kind to the businessmen. The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust.

          DeDude said in reply to reason...

          Exactly; what we need is a detailed debate on each specific regulation. What it intends to accomplish, whether that could be accomplished in a less burdensome way, and whether the accomplishment is sufficient to justify the burden. However, that is not something that can happen in the 15 second soundbite that appears to be the attention span of the average voter.

          Lee A. Arnold said in reply to Second Best...

          Second Best: "Markets work if allowed to self regulate."

          No. Never happened, except in local instances. For self-regulation you need proper prices, and for proper prices you need proper supply and demand.

          For proper supply you need perfect competition, so there must be numerous competitors entering the same market, and this requires, among other things, almost no intellectual protection.

          For proper demand, you need perfectly informed consumers, and this is not only impossible, but it is getting far far worse, because the complexity of the world is increasing.

          The problem with state regulation is that it also falls prey to the same objections, although at a slower rate. We use votes not prices, but the same imperfection of information and lack of flexibility causes problems with the voting system.

          When you combine this problem with the increase in inequality (which was masked temporarily by World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an accelerated amelioration of the market system by greater public ownership.


          RC AKA Darryl, Ron said in reply to Lee A. Arnold...

          "Peanut butter does not kill people, people kill people."

          [If you can read a opening sentence like that and not recognize it as satirical parody, then you might want to look around to find the sense of humor that you lost. When the will of the people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a healthy dose of cynicism are called for.]

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

          Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the orphaned poor infants, it is to reduce their number so we feel good about the fact that we help the few poor infants left alive.

          I reacted a few times to Second Best's comments before I recognized the satire.

          But I also have used his comments as a way to bring out the more logical, real-world of facts and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests too.

          JF said in reply to JF...

          I believe the Jonathan Swift recommendations are the preferred republican-party approach to Social Security too. Really need fewer claimants, that will solve the accounting problems.

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

          "Peanut butter does not kill people, people kill people. Car emissions do not kill people ... high drug prices do not kill people ... people do."

          [This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize your satire. Maybe there is a humorous math equation that economists can understand. I guess economics graduate school is so boring that most people lose all sense of humor. I am glad that Krugman has kept his.]

          Richard H. Serlin said...

          "Then there's for-profit education, an industry wracked by fraud - because it's very hard for students to assess what they're getting - that leaves all too many young Americans with heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a cleanup."

          And worse, wasting their incredibly valuable and rare young years, quite possibly their only chance before age and children make it extremely hard, not getting an education. Such a big thing. You don't do it when you're young, with the power and freedom and lack of dependents of youth, the opportunity may easily be gone forever. Such a brutal cost these predators and their Republican allies extract.

          RC AKA Darryl, Ron said in reply to Richard H. Serlin...

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

          Cost shifting and privatization

          One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[10] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[9][11] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[11][12] About 80 percent of American college students attend public institutions...

          bakho said...

          Economics Professors of the "free market" bent for years have indoctrinated youth with the misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg, are always better. " You don't need to regulate pollution, just put a tax on it," as an example. Even cap and trade would not work without stiff emissions regulations.

          Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model.

          ilsm said in reply to bakho...

          Sanctity of the "market"......

          I got a jar of this snake oil here too!

          The market they sell is the one that runs in Honduras

          Tom aka Rusty said...

          A couple of random observations:

          Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA regs are three years late.

          Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.

          No mention of the Obama-Holder "too big to prosecute doctrine."

          The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.

          But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!

          pgl said in reply to kthomas...

          Rusty wants us to believe he is the only one who understands health care so he is a persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade any financial market regulation is a good idea - he is the most clue person ever.

          DrDick said in reply to pgl...

          He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk opposition to regulation ."

          JF said in reply to Tom aka Rusty...

          Have you ever looked at the multi-party derived hedging instruments in play now - they can hardly get more complex, and indeed most didn't understand them when they were made, and these are still complex now.

          So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from humans cunningly doing stuff that serves their interests at the time as they see it. Not always wisdom at work here.

          But it is complex, and so regulation of such complexity, if the generally applicable rules seek some fairness (classes of people are usually affected differently) and stands a test of due process too - the regulations will also need to be complex. The complexity came first, the regulations come afterwards (after society learns of the stupidity the hard way).

          Railing about this is a form of misleading sophistry, a rhetorical device to reverse the causality.

          We can think with more foresight and regulate before the stupid complexity arises, but it does take a rational policy making environment for this exploration, discussion and policy-making to occur with good foresight - I am waiting for the new Congress in 2017.

          If the Warren-Sanders people have any influence then, we may see a whole lot less complex financial system (it's a riot when you think how the Efficient Market Hypothesis, a theoretical justification for the marketplace's range of instruments in fact led to more complexity, less real efficiency and effectiveness, and ossification of the system when it needed to be resilient but stable as a well-behaved system can be).

          We will probably be better off after the 2017 debates. After all, this community of actors are only intermediaries on behalf of real productive outcomes truly needed by society - right, they are just intermediaries? How much inter-mediation does the economy need?

          david s said...

          The Obama Administration has been friendlier to corporate America than W's was.

          http://theweek.com/speedreads/454963/matt-taibbi-bush-far-tougher-than-obama-corporate-america

          im1dc said...

          While it was Ronald Reagan and his Republican Party that called for deregulation not much was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation his blessing in speeches from NY to Aspen to California in which he said "the market" will reign in excesses and regulate itself b/c of competition acting egregiously would create.

          Oopsie, Old Alan got it ALL WRONG again!

          I thought a little history would help in this thread.

          likbez said...

          My impression is that regulation always reflects the needs of who is in power today. One the key ingredients of political power is the ability to push the laws that benefit particular constituent. And to block laws that don't.

          If we assume that financial oligarchy is in power today, then it is clear that there can be no effective regulation of financial services and by extension regulation of derivatives. And if on the wave of public indignation such regulation is adopted, it will be gradually watered down and then eliminated down the road.

          And you can always hire people who will justify your point of view.

          In this sense neither Milton Friedman nor Greenspan were independent players. They sold themselves for money and were promoted into positions they have for specific purpose. I am not sure the either of them believed the crap they speak or wrote.


          [Sep 24, 2015] Peak Oil Notes - 24 Sep

          Sep 24, 2015 | www.resilience.org

          The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers mean. Some say they could indicate that the decline in production is slowing from what the EIA has been forecasting. However, some note that if there is any indication of production actually increasing, we would quickly see oil prices down in the $30s.

          ... ... ...

          The financial press continues to highlight the woes of the global oil industry as it tries to contend with falling oil prices. Waterford International, one of the world's largest drilling contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world's oil companies have now cut $220 billion in planned investments. Wood Mackenzie also says that if oil prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over the next few years. If these predictions come to pass it is difficult to foresee how world oil production can stay anywhere near current levels.

          ... ... ...

          In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving daily. While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad's power base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with most of ISIL's forces hunkered down in the northeast to avoid the continuing US arterial bombardment.

          Another cholera epidemic has broken out in Iraq where the sanitation and water systems continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not help the situation. The flow of middle class Iraqis to Europe is increasing. It becomes increasingly difficult to see how Iraq can continue to increase or even maintain its oil production given the numerous problems it is facing.

          [Sep 24, 2015] Drilling Deeper

          Sep 24, 2015 | Post Carbon Institute

          Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy's Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.

          This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA's forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA's reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

          [Sep 24, 2015] Is Goldman Preparing To Sacrifice The Next Lehman

          Sep 24, 2015 | Zero Hedge

          Wow, talk about a nice fit! The following image describes a speed wobble when going too fast on a bicycle.

          Bay Area Guy

          Paulson should most definitely be in prison. I was no fan of Lehman, but what happened to them was nothing short of a criminal conspiracy.

          Thorny Xi

          He's suffered so much though.

          http://www.forbes.com/sites/morganbrennan/2012/06/05/billionaire-john-pa...

          RopeADope

          Hank not John.

          John is the colossal failure that could not come up with a good trade idea on his own if his life depended on it.

          Debt-Is-Not-Money

          I was fascinated that Bear Stearns was the first to go as Bear was the only large company that failed to respond to the Fed's calls when LTCM almost brough down the house in 1998.

          Not if_ But When

          Well, you know........he also lied to Congress. (but that's small potatoes).

          froze25

          Very true, let them fall and then bailout the rest. Well played Goldman.

          KnuckleDragger-X

          Lehman had to die to save GS since GS were actually in more trouble......

          Bay of Pigs

          What ever happened to Douche Bank anyway?

          Edit: Damn, good ole Marty beat me to the punch.

          Deutsche Bank – the New Lehman Brothers?

          http://www.armstrongeconomics.com/archives/37443

          jeff montanye

          the greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors corrected until the psychopaths at the head of our society are neutralized.

          only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable, without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very important) and really comprehensive in its list of perps, especially after the fact (the editors of the new york times don't actually have to go to jail; just most people have to think they should).

          https://www.youtube.com/watch?v=OsoY3AIRUGA.

          https://www.youtube.com/watch?v=0GNww9cmZPo

          http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...

          mind by mind. do your part.

          Divine Wind

          Bullish for PMs, right?

          HardlyZero

          After MF Global, it is not clear how the markets are safe for buyers, sellers, brokers, banks, etc.

          But as always, have your physical setup and safe first before going out to see what's going on.

          NoDebt

          "If a counterparty liquidates, net exposure becomes gross [emphasis added by me], and suddenly everyone starts wondering where all those "physical" commodities are."

          For those who may not quite grasp this, it means all your "hedging" against falling prices is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver" on contracts they've signed.

          But, then again, 2016 is the last year for a lame duck president... traditionally a very good year to "clean house" and get the government to bail you out.

          [Sep 24, 2015] Michael Hudson – Episode 19

          Sep 24, 2015 | store.counterpunch.org

          Audio Player

          Podcast: Play in new window | Download

          support this podcast, donate today

          This week, Eric has an in depth conversation with economist Michael Hudson, author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof. Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism, how debt is used as a weapon, and the disastrous effects of the financialization of the real economy. Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity, providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance of left economic organizing, and much much more.

          Musical interlude from the exciting new band GospelbeacH, and intro and outtro from David Vest.

          [Sep 24, 2015] The Oligarch Recovery 30 Million Americans Have Tapped Retirement Savings Early In Last Year

          Sep 24, 2015 | www.zerohedge.com

          Zero Hedge

          Submitted by Mike Krieger via Liberty Blitzkrieg blog,

          The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

          Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery," which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here's an excerpt:

          Families' savings not where they should be: That's one part of the problem. But Mills sees something else in the recovery that's more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

          According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

          It's not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. "People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences," Mills says.

          Of course, it's not just "alternative financial services." Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a "recovery."

          From Time:

          With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

          Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

          Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

          So now we know what has kept meager spending afloat during this pitiful "recovery." A combination of "alternative loans" and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

          Don't forget to send your thank you card to you know who:

          Screen Shot 2015-08-20 at 3.21.02 PM

          * * *

          For related articles, see:

          [Sep 24, 2015] Central Banks Have Made the Rich Richer

          Sep 24, 2015 | economistsview.typepad.com
          Economist's View
          Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:
          Central banks have made the rich richer: Labour's new shadow chancellor has got at least one thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer. ...

          It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person's bank account..., it might have been fairer.

          Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. ...

          QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.

          [Sep 24, 2015] Tight Oil Reality Check

          "... The EIAs 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. ..."
          "... The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices. ..."
          "... As it has acknowledged, the EIAs track record in estimating resources and projecting future production and prices has historically been poor. ..."
          "... How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period? ..."
          "... Americas energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy cant be overstated. Its for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIAs rosy projections at face value but rather to drill deeper. ..."
          Sep 24, 2015 | www.resilience.org
          In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA's AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.

          Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays.

          Key Conclusions

          • The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.
          • The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.
          • At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.
          • These assumptions-low prices, continued growth through this decade, and a gradual decline in production thereafter - are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.
          • Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken, the projected recovery of which was raised by a whopping 85%.
          • As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections for the major tight oil plays have shifted up or down significantly.
          After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions:
          • Why is there so much difference at the play level between AEO2014 and AEO2015?
          • Why does Bakken production rise 40% from current levels, recover more than twice as much oil by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at production levels considerably above current levels?
          • How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in AEO 2014?
          • What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014 that required a 78% reduction in estimated cumulative recovery in AEO2015?
          • How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period?

          America's energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can't be overstated. It's for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections at face value but rather to drill deeper.

          [Sep 21, 2015] The Pope the Market

          "... Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone". ..."
          "... Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes. ..."
          "... MARKETS 'R' US! ..."
          "...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."
          "... The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years. ..."
          Sep 21, 2015 | economistsview.typepad.com

          ilsm -> RC AKA Darryl, Ron...

          Gosar was educated by the "Jesuits" (they are a minority of Jesuits today) who brought you the Inquisition. Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone".

          Religious freedom is not the practice of bigotry and intolerance.

          Gosar would be best served listening to the Pope. He needs the truth.

          ... ... ...

          Sandwichman said...

          "...market-based environmental policies such as carbon pricing..."

          "...the fact that environmental problems are caused by market distortions rather than by markets per se..."

          Who will teach the economists?

          Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes.

          And this is not Catholic theology -- it is economics as practiced by some of the most perceptive economists of the 20th century who must be ignored because... MARKETS 'R' US! Too bad, because I get the sense that Nordhaus's heart is in the right place even if his economic theory is in the wrong century.

          Sandwichman...

          "...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."

          [Priceless!]

          Sandwichman -> RC AKA Darryl, Ron...

          Credit to Joan Martinez-Alier, paraphrasing Karl William Kapp, "Externalities are not so much market failures as cost-shifting 'successes'."

          Kapp, Karl William (1971) Social costs, neo-classical economics and environmental planning. The Social Costs of Business Enterprise, 3rd edition. K. W. Kapp. Nottingham, Spokesman: 305-318

          Sandwichman -> Sandwichman...

          K.W. Kapp:

          "Environmental problems are being forced today into the conceptual box of externalities first developed by Alfred Marshall. In my estimation this concept was not designed for and is not adequate to deal with the full range and pervasive character of the environmental and social repercussions set in motion by economic activities of producers or the goods produced and sold by them to consumers. I agree with those who have criticized the use of the concept of externalities as empty and incompatible with the logical structure of the static equilibrium theory."

          Sandwichman -> Sandwichman...

          From "Social Costs of Business Enterprise" by K. W. Kapp. pp. 69-70:

          http://www.kwilliam-kapp.de/documents/SCOBE_000.pdf

          How the principles of business enterprise favor the emergence of the social costs of air pollution

          "The initial concentration of industrial production in a few centers, as indeed the location of industries in general under conditions of unlimited competition, will take place in accordance with private cost-benefit calculations. Once established, the industry widens the market for a host of other industries; it offers employment and income opportunities to labor and capital; it provides a broader tax base for the emerging urban communities and the necessary public services. The locality becomes generally more attractive for additional investments, enterprise and labor and urban settlement. It is this expansionary momentum which serves to 'polarize' industrial development in certain 'nodal' centers, which soon gives rise to secondary and tertiary spread effects in the form of increasing outlets for agricultural products and consumers' industries in general. In the light of traditional economic theory the process seems to proceed in harmony with the principle of social efficiency. For, after all, internal economies combine with external economies (in the narrow Marshallian sense) to make it appear rational to concentrate production in centers which are already established and offer some guarantee that the necessary social overhead investments (in roads, schools, communication) can be shared by a larger community. What is overlooked is that the concentration of industrial production may give rise to social costs which may call for entirely new and disproportionate overhead outlays for which nobody may be prepared to pay. Thus by concentrating on the analysis of internal and external economies, and by stopping short of the introduction of the concept of social costs of unrestrained industrial concentration, traditional theory lends tacit support to the overall rationality of cumulative growth processes, no matter what their socially harmful effects may be. After all, what could be more 'rational' than to exploit to the fullest extent the availability of internal and external economies? As long as social costs remain unrecognized and as long as we concentrate on costs that are internal to the firm or to the industry we shall fail to arrive at socially relevant criteria.

          "It may be argued that, while the neglect of social costs may contribute to the cumulative growth process it still would not explain the incomplete and inefficient process of combustion which gives rise to the emanation of pollutants into the atmosphere. For obviously, if air pollution is a sign of inefficient and incomplete combustion of coal or oil the question arises why would business enterprise permit such waste to continue? The answer is simply that what may be technologically wasteful might still be economical considering the fact that not only social costs can be shifted with impunity but, above all, that discounted private returns (or savings) obtainable from the prevention of the technological inefficiency and social costs may not be high enough to compensate for the private costs of the necessary abatement measures. The fact that the resulting pollution of the atmosphere may cause social costs far in excess of the costs of their abatement is not, and indeed cannot, be normally expected to be considered in the traditional cost-benefit calculations of private enterprise."

          Sandwichman -> Sandwichman...

          More K. W. Kapp:

          "My central thesis was and has remained that the maximization of net income by micro-economic units is likely to reduce the income (or utility) of other economic units and of society at large and that the conventional measurements of the performance of the economy are unsatisfactory and indeed misleading. To my mind, traditional theoretical inquiry was neither guided nor supported by empirical observations and available data. I tried to show that micro-economic analysis ignored important relationships between the economy (wrongly viewed as a closed system) and the physical and social environment and that these intrinsic relationships gave rise to negative consequences of the economic process. It was and is my contention that the nature and scope of economic theory is too narrow. This restriction has affected economic theory at its foundation: i.e., at the stage of concept formation (e.g., costs and returns), in the choice of criteria of valuation and aggregation (in terms of money and exchange values) and hence in the delimitation of the scope of the inquiry. Not only the dynamic interconnection of the economy with the physical and social environment and the impact which the disruption of the environment has upon the producer (worker) and consumer but also the relationship between human wants and needs and their actual satisfaction have remained outside the scope and preoccupation of economic theory. Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.

          "This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development. In fact, the whole procedure "alienates" economic analysis from what I consider to be one of its most important objectives, namely the appraisal of the substantive rationality (Max Weber) of the use of society's scarce resources. Critics of the traditional approach from Marx and Veblen to Myrdal and more recently H. Albert and W.A. Weisskopf have pointed out that the restriction of the analysis is the result of specific analytical preconceptions as well as hidden value premises. In short, the critics have argued that the restriction of economic analysis reflects a subtle dogmatism on the part of its practitioners."


          GeorgeK -> Sandwichman...

          WSJ
          Updated April 19, 2013 6:27 p.m. ET

          "One of the great policy bubbles of our times has been cap and trade for carbon emissions, and on Tuesday it may have popped for good. The European Parliament refused to save the EU's failing program, which is the true-believer equivalent of the pope renouncing celibacy.

          The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing supply. After carbon traders realized they weren't getting more artificial scarcity, they drove the price of emissions permits down by 40% at one point on Tuesday."....

          Maybe Mr Nordhaus miss this little gem when he was "researching" his article

          anne -> GeorgeK...

          http://www.wsj.com/articles/SB10001424127887324030704578426520736614486

          April 19, 2013

          Cap and Trade Collapses
          Even the European Parliament rejects carbon price-fixing

          ilsm -> Sandwichman...

          The author does not think greed and failed distribution are market distortions.


          Sandwichman -> ilsm...

          No. Nordhaus appears to believe that general equilibrium describes a tendency of economies rather than a feature of abstract mathematical models. After all, didn't Arrow and Debreau "prove" its existence (given certain implausible assumptions)?

          The mathiness fetish began long before Lucas and his bogus "critique." Only a profession that was desperately eager to "pay no attention to the man behind the curtain" could have fallen for such a blatant display of OzWizardry.

          Sandwichman -> Sandwichman...

          I repeat:

          "Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.

          "This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development."

          david -> Sandwichman...

          I always find it very hard to get over this fundamental objection. And wonder why I think I should.

          DrDick -> ilsm...

          Why would he? They are the very heart and soul of capitalist markets.


          anne said...

          https://www.washingtonpost.com/opinions/pope-franciss-fact-free-flamboyance/2015/09/18/7d711750-5d6a-11e5-8e9e-dce8a2a2a679_story.html

          September 18, 2015

          Pope Francis' fact-free flamboyance
          By George F. Will - Washington Post

          Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert's indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak - if his policy prescriptions were not as implausible as his social diagnoses are shrill.

          Supporters of Francis have bought newspaper and broadcast advertisements to disseminate some of his woolly sentiments that have the intellectual tone of fortune cookies. One example: "People occasionally forgive, but nature never does." The Vatican's majesty does not disguise the vacuity of this. Is Francis intimating that environmental damage is irreversible?

          [ A wildly offensive essay from a typically offensive writer, but so much so as to be deserving of reading at least for the idea that environmental damage, damage to life as such, is inevitably and necessarily reversible. ]

          Sandwichman -> anne...

          Yuck. There is a reason I don't read George Will. He is a political pornographer whose intended audience is composed of post-adolescent crypto-fascists.

          Sandwichman -> Sandwichman...

          "[William F.] Buckley is survived by his hip satirical novelist son Christopher, his pale imitation of its former self magazine, and George Will's wardrobe and middle initial."

          http://gawker.com/361402/william-f-buckley-crypto-fascist-is-correcting-usage-in-heaven


          cm -> Sandwichman...

          But in reference to your first comment in this post, there is a market for his writing, so ...

          DrDick -> cm...

          There is a market for underage prostitutes as well. That does not mean that we should encourage it.

          Sandwichman -> Sandwichman...

          Wikipedia: "A shill, also called a plant or a stooge, is a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization."

          Ben Groves said...

          Follow the actual policy and reject the dialect. There has been almost no move against what is called "Climate Change". The "deniers" try to mutter dialectical nonsense there has been this great move, but they are lying. Look at the Rockefeller fortune split. While Jay has moved David's fortune to supporting moves to combat climate change, the Rockefeller Foundation has consistently financed denier bullshit globally and they own most of the money. Thus, the climate denier is a globalist. Why? Because global capitalism can't run without oil and specifically, cheap oil in the developed world for them to make profit.

          If you want to enmass a battle against "climate change" (a word the deniers existed), you must use fear and nationalism. This is the weakness in the current response. When you don't use fear and nationalism, it creates a emasculated response and people don't drift to Beta's. Alpha response in politics cannot be underestimated. It is how the neocons suck in the fools and what they learned watching 100 years of anti-capitalism in action (especially the Cuban revolution, with mega alpha males Fidel and Che).

          ilsm said...

          From the start the carbon cabal has created immense externalities which governments have responded with coddling them with subsidies and defending their foreign "assets".

          From wars (US since WW II), to support of corrupt royals and ruthless dictators, to cadmium in the livers of ungulates, to blighted cities and to massive degradation of the public health.

          While the right wing is defending the soccer Mom's SUV!

          The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years.

          The Pope is being Jeremiah!

          [Sep 21, 2015] Peak Oil Review - Sep 21

          "... The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. ..."
          "... According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down. ..."
          "... US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas ..."
          "... the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. ..."
          "... The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices. ..."
          "... In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump. ..."
          "... the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production ..."
          Sep 21, 2015 | www.resilience.org
          The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. Only four years ago KKR & Co. and a group of other investors spent $7.2 billion in buying Samson. According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down.

          Moody's and Goldman's were out last week with pessimistic forecasts about the outlook for the oil industry over the next two years. Moody's says that earnings from the global oil and gas industry will decline by 20 percent this year and only recover modestly in 2016. Goldman's says the the current crude surplus may keep prices low for the next 15 years and reiterated that it could take prices as low as $20 a barrel to clear the oil glut which is threatening to overrun storage capacity.

          The US Secretary of Commerce noted last week that interest in acquiring new drilling rights in the Gulf of Mexico is dropping due to low oil prices. This year the auction of drilling rights in the Western Gulf of Mexico yielded only $22.7 million as compared with $110 million last year. High-cost off shore drilling is in a lot of trouble with participants scrambling to mothball drilling rigs and fleets of support ships and to defer new equipment that was ordered during the boom years.

          ... ... ...

          Lost in all the furor over oil prices and declining production is that US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas which fell on Friday to $2.60 per million BTU's in NY. These prices have led to an increase in demand for gas by the power companies and the ongoing construction of several export terminals for LNG.

          ... ... ...

          In the meantime, the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. Tehran has announced that new types of oil contracts aimed at attracting foreign investment to the country's oil industry will be announced soon. Trade delegations from France and the UK are scheduled to visit Tehran soon.

          ... ... ...

          Down in Iraq, the government is trying to cope with lower oil prices by increasing exports. The latest plan calls for shipments of Basra crude to increase by 26 percent next month. In the meantime, Baghdad has warned the foreign oil companies working in the country that it will not have much money to pay them for their drilling efforts in the coming year so they should cut back on capital expenditures.

          ... ... ...

          There is unlikely to be much change in the oil situation unless there is some type of foreign intervention to contain the Islamic State or stop the refugee flow into the Mediterranean.

          ... ... ...

          The Saudis are starting to feel the impact of lower oil prices as the kingdom faces the biggest financial deficit in decades. Steps to cut spending are underway and the privatization of state-owned companies and elimination of fuel subsidies are likely. The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices.

          Recent data shows that the Saudis are holding their own in efforts to maintain market share. In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump.

          ... ... ...

          Russia's economy continues to deteriorate. Moscow's labor minister said that real incomes in Russia are expected to contract by 5 percent this year. Efforts to ramp up domestic substitutes for food and goods previously imported from the West are going slowly and it may be years before they are implemented. To offset growing budget deficits, the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production which is still doing well thanks to the greatly devalued ruble and large export sales which have combined to leave oil export revenues largely unchanged when measured in rubles.

          Work on the "Turkish Stream" pipeline which Moscow is planning to build to move natural gas to the EU while bypassing Ukraine has not begun. Delays have moved completion of the project into 2017.

          ... ... ...

          China's diesel exports may surge to a record in the coming months as refinery output increases while domestic demand growth for the fuel slows. The nation's diesel shipments might have risen to a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million tons a month in the fourth quarter. (9/14)

          ... ... ...

          Uganda/Kenya: Low crude prices have thrown the future of East African oil projects into doubt. With oil prices languishing below $50 a barrel, there's little incentive for companies such as Tullow Oil Plc, Africa Oil Corp., China's CNOOC Ltd. and France's Total SA to keep investing. (9/16)

          ... ... ...

          Gasoline consumption: U.S. motor gasoline use has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use. (9/16)

          [Sep 21, 2015] Economic Outlook, Indicators, Forecasts - Your Business

          "... More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. ..."
          Sep 21, 2015 | Kiplinger

          Then the Federal Reserve announced its decision to keep its benchmark interest rate at rock-bottom levels, citing concerns about the health of the global economy. Those worries promptly sent oil prices sliding, with WTI trading near $45 per barrel.

          More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. Any sort of sustained price rally looks unlikely until global supply is dialed back from its current high level. Even though U.S. production is slipping a bit, output remains strong in the Middle East and Russia.

          [Sep 21, 2015] Oil Prices Gain On Higher Investor Confidence In Tightening Markets

          "... hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June: ..."
          Sep 21, 2015 | OilPrice.com

          The crude complex is ripping higher after Friday's lambasting, encouraged higher by signs of a tightening market and further closing of short positions in the latest CFTC data. As the below chart illustrates, hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June:

          [Sep 21, 2015] Is This The Bottom For Oil Prices

          "... Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average. ..."
          "... The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage ..."
          Sep 21, 2015 | OilPrice.com
          Global oil demand also continues to rise. The IEA again revised its demand projection for 2015 upwards, with consumption expected to grow by 1.7 mb/d, a five-year high. "The market's not as oversupplied as we think it is," David Pursell, managing director at Tudor Pickering Holt & Co., told Bloomberg in an interview.

          The long-term picture shows even stronger signs of bullishness. For example, it is unlikely that Iraq will be able to reach its ambitious production targets for the future, and because energy forecasters like the IEA are counting on Iraq to make up a large share of global production growth in the coming decades, the failure to reach those targets could leave the world short of supply. The same can be said for Brazil. In June, Petrobras acknowledged it will be unable to meet its production goals as well. The several million barrels per day lost between just these two countries alone mean that the long-term supply picture looks a lot tighter than we once thought.

          But it goes beyond Iraq and Brazil. Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average.

          Other market watchers concur. "The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage," Commerzbank concluded in another report. Lower production over the longer-term could send oil prices up.

          However, it is short-term market conditions that dictate the huge gyrations in crude oil prices. And for now, based on the positions of oil speculators, prices may have bottomed out.

          By Nick Cunningham of Oilprice.com

          Related: Iran Deal May Redefine The Middle East

          [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 21, 2015] Iran Deal May Redefine The Middle East

          "... A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. ..."
          "... The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons. ..."
          "... Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. ..."
          "... The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). ..."
          "... They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death. ..."
          Sep 21, 2015 | naked capitalism
          This has led to a new emerging relationship between the Saudis and Russia, where negotiations between Russia and OPEC emerged over the possibility of coordination of oil production levels. OPEC hinted that it was open to coordinated production cuts with non-OPEC members in its latest bulletin report, saying that "if there is a willingness to face the oil industry's challenges together" then the future would "be a lot better." Russian officials held meetings with their counterparts from OPEC, fueling speculation of some sort of accommodation.

          Despite positive language from the negotiators, the talks so far have not amounted to much. Rosneft's Igor Sechin seemed to rule out such a scenario on September 7 in comments to the press, in which he said that Rosneft can't operate the way OPEC can. It would be difficult for Russia to cut back on its production, even if that meant some chance of higher prices. Russia's economy is hurting, and it needs to sell every barrel that it can.

          Although there won't be a deal on oil output, Saudi Arabia and Russia made more progress on discussions regarding the purchase of Russian nuclear power plants and military equipment, a likely wake-up call to the U.S. and UK, the Saudis' longtime military suppliers. Still to be determined is whether this is a new alliance or merely a show of Saudi independence.

          ... ... ...

          The EIA reports that in the last five years, the U.S. 'shale oil revolution' has enabled the U.S. to more than halve its oil imports, making it far less dependent on imports from OPEC, and significantly changing the terms of the relationship.

          There is a lively ongoing argument in the world press about the possibility of the nuke deal leading to an entente between the U.S. and Iran, or even the possibility of an actual alliance.

          Hardcore opponents of the deal claim that Iran is already in a quasi-alliance with the U.S. in the fight against ISIS in Iraq. And, although both countries hotly deny any intent to form an alliance, there are many in the region who believe that perhaps 'the ladies doth protest too much'.

          ... ... ...

          As reported by Nick Cunningham, on these pages, the recently announced agreement with European oil companies to extend Gazprom's Nordstream gas pipeline into Germany was a clear sign that the EU is willing to do business with Russia again; this despite the Ukraine crisis, which in the face of Middle Eastern conflicts, seems to be fading into the background.

          Selected Skeptical Comments

          Vince in MN, September 21, 2015 at 6:39 am

          39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping.

          EoinW, September 21, 2015 at 8:58 am

          In my lifetime, the Middle East has had two problems: Wahabbism and Zionism. We've been on the wrong side of both. One can count on western leaders to always be on the wrong side.

          If Putin appears the voice of reason, what does that make Obama? He often seems like a housewife reacting to the dramatic conclusion of his favourite soap opera…with a new episode to follow tomorrow. Almost want to write – same Bat time, same Bat channel – it's so cartoonish.

          The refugee crisis has made Merkle seem almost like a compassionate human being. But we know she only cares about keeping the EU going on her watch and she can see what a threat the refugee crisis is to EU unity. How worse will that threat be when Ukrainian refugees start coming? Better make nice with Russia!

          Bill Smith September 21, 2015 at 10:17 am

          "Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran" This has been reported on and off for several years.

          The "sudden military alliance between Israel and Saudi Arabia" seems overblown. There have been very scattered reports of intelligence cooperation in the past but that is it.

          Of course FARS reports stuff like this:

          "20 Israeli officers and 63 Saudi military men and officials were killed"

          likbez September 21, 2015 at 11:22 am

          "39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping."

          I would agree. It is clear for me that the quality of reporting about Russia is on the level of presstitutes from WashPost.

          Also it is unclear that is the USA game plan as for Iran and what this article tries to communicate does not look plausible. It might well be that the USA wants to spread their bets by including Iran into the cycle of vassals (the USA does not need allies, only vassal states) but I think Iran elite still remembers years of crippling sanctions pretty well to jump into Uncle Sam embraces. The deal is needed mainly to put additional pressure on oil prices and if it achieves its goals and Russia crumbles, Iran will be thrown under the bus by US neocons very soon and without any hesitation.

          It also looks like SA leadership wants some kind of rebalancing of relations with Russia as after Egypt to rely on US neocons is simply stupid. They proved to be pretty treacherous folks and promises given are not worth the paper they were printed on.

          But if we assume that neocons dominate the USA foreign policy in foreseeable future, then the key policy in Middle East will be usual "divide and conquer" policy like we saw in Iraq, Libya and Syria. And bloodshed financed from usual sources (is not ISIS the USA and friends creation ?) will continue.

          What is interesting is that SA never managed considerably increase their oil exports as their internal consumption grows more rapidly then extraction. They just refused to drop the volume of their exports. Probably with tacit approval of the USA. So it looks like drastic oil price drop is mainly financial markets play (derivative and futures games) - and that means that one plausible scenario is that this is another attempt to hurt Russia and depose Putin, even by taking a hit for own shale industry and decimating Canadian oil sands. Lifting sanctions from Iran is just the second step of the same plan.

          EoinW -> likbez, September 21, 2015 at 12:32 pm
          If Vietnam can forget over 2 million murdered by Americans and cozy up to Washington then it must be possible to find elites in any society(even Iran) who will sell out for the right price.
          Paul Tioxon September 21, 2015 at 12:34 pm

          A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. Not completely unsurprising, but unusual in that the only constant in the social order is change and the people making sense out of the change have to look ahead to consequences real and unintended from political decisions that impact global energy production, particularly oil. The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons.

          The failure of the Project for A New American Century as a bid for a unipolar, unilateral Militaristic American Hegemony has resulted in a shift back to the International as opposed to Global relations. The institutions of the Post WWII world, The United Nations, the IMF and the World Bank, with the emphasis on diplomacy as opposed to nation to nation warfare is being resurrected in the Iranian Nuclear Non-Proliferation Treaty. What has been nearly completely absent is the naming of the UN Security Councils permanent members, the victors of WWII were united in staring down Iran until they produced the desired results, namely, giving up on pushing its way into the nuclear power club. The re-establishment of normal diplomatic relations with Cuba is a corroborating development. Russia has worked with the US in Syria to eliminate the chemical warfare stockpiles of Syria as well as patiently worked to conclude a successful Iran re-approachment.

          Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. And the war party demanded that a better deal could be had, what, they could get it for us WHOLESALE! Nuclear Non Proliferation was what was at stake and the UN Permanent Security Council Members were all present to negotiate the re-integration of Iran into the United Nations.

          Presidents Obama and Putin are more allied than not and the structure of an inclusive international social order are being worked out without the lies of the Bush family´s war party plans. The USA is not falling apart at the seams because other nations are finally enriching themselves, thus putting them beyond the simple command and control of Neo-con warlords. The USA is relatively weaker not due to being hood winked or conquered but because other nations have risen in their own capacity to direct self determination. Iran is welcomed to do so, just not with nuclear weapons. That is a good thing, in the eyes of the Iranians and the rest of world.

          mark September 21, 2015 at 12:59 pm

          Interesting article about the people that worked on this over the years.

          "Who made the Iran deal happen? Here are some of the people behind the scenes.
          PRI's The World"

          http://www.pri.org/stories/2015-07-14/who-made-iran-deal-happen-here-are-some-people-behind-scenes

          Praedor September 21, 2015 at 1:35 pm

          I DO so hope it leads to a completely new alignment in the ME. I am sick to death of "Iran the great evil" bullcrap.

          It has always struck me as purely a childish temper tantrum on the part of the USA because the Iranian people had the GALL to toss out OUR murderous dictator and actually run their own country for their own people. Who do they think they are?

          How DARE they use THEIR oil for THEIR country rather than to serve Western oil company bottom lines and provide the US with oil that, by rights, belongs to it. Because America! That and the fact that the Iranians held some US neocolonials/neoliberals hostage for a year-ish. That's unacceptable! Americans can do anything they want to whomever they want, damnit!

          The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). Imagine what Iran and even the ME could have been by now if Mossedegh had been allowed to stay in rightful power? Iran would be a true beacon of liberty and freedom and modernity in the heart of the ME. Israel doesn't even come close. They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death.

          [Sep 21, 2015] The Mystery Of The Missing Inflation Solved, And Why The US Housing Crisis Is About To Get Much Worse

          For the last 20 years, realistic US inflation rate was probably higher then official figures considerably. Some estimate it between 4% to 5% a year. Medical expenses rose probably 200%. Cost of higher education skyrocketed. We can say that rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure). Food prices are highly correlated with oil and they rose more (but they do not represent major expense item in most budgets).
          "... Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400. ..."
          Sep 21, 2015 | Zero Hedge
          We hinted at the key features of this unprecedented conversion in June, when we wrote the following:

          ... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.

          There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.

          Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.

          Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.

          According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

          It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

          ... ... ...

          And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.

          ... ... ...

          What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.

          And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!

          And here is the punchline:

          "in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

          ... ... ...

          Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."


          Hype Alert

          Housing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.

          Never One Roach

          I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.

          AGuy

          "I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "

          Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.

          However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.

          Consuelo

          "The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."

          All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...

          Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?

          WTF_247

          Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.

          Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.

          The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.

          Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for it.

          novictim

          Tyler! "Missing Inflation" is not a mistake or a misunderstanding or an accounting glitch.

          Inflation really is low. People have insufficient money.

          Do not confuse asset inflation with real inflation. Stock overvaluations and real estate over-evaluations do not create real inflation because prices drop when people sell. Assets are self correcting and non-inflationary.

          adr

          I shouldn't have to worry about affording somewhere to live with the job I have, yet because of where the job is I have to.

          The entire Northeast is fucking insane.

          Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400.

          I posted a three bedroom ranch that was renting for $3200 a month a little while ago. What do millionaires rent shitty 1950s ranch homes in a hick town?

          Then you have property taxes. Up 100% in five years in almost every town even though assessments are actually down. I saw a home listed with a 2009 value of $364k and property taxes of $2800 a year. The current assessed value is $289k but taxes are $5200.

          How are you supposed to live?

          [Sep 20, 2015] Fed To Main Street Screw You - Wall Street Matters More

          "... A troika of the military, Wall Street and spooks run the land of the free. ..."
          "... The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess. ..."
          "... Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika. ..."
          "... it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back ..."
          "... So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus. ..."
          "... "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008) ..."
          Sep 20, 2015 | Zero Hedge
          JustObserving
          Fed To Main Street: Screw You

          That is nothing new. That has been the official policy for a few decades.

          A troika of the military, Wall Street and spooks run the land of the free.

          Who cares about Main Street except pandering politicians before elections?

          Who rules America?

          The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

          Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.

          https://www.wsws.org/en/articles/2013/06/10/pers-j10.html

          The Fed Won: America's 0.1% Are Now Wealthier Than The Bottom 90%

          http://www.zerohedge.com/news/2014-11-11/fed-won-americas-01-are-now-wea...

          Usurious

          USURY redistributes wealth from the bottom to the top......

          BoNeSxxx

          ' I wonder how the Bank of International Settlements feels about this latest move?'

          I am pretty sure they are aboard... The tail does not wag the dog

          Atomizer

          Jeb Bush And Mr. Slim connection:

          Election 2016: Jeb Bush Got $1.3M Job At Lehman After Florida ...

          numbers

          This guy is fucking clueless. Anybody who thinks higher rates will help main street is delusional. I'm sure that higher rates will help the Fed meet its 2% inflation target. Right. I think there was a Fed Chairman who proved what higher rates do to inflation and economic activity. Yes, I believe his name was Paul Volcker.

          As for the 5.1% UE rate. Anybody who believes that is the real UE is clueless and has never even heard of the LFPR. We have an LFPR that was last seen in the 1970s but we are supposed to believe clowns like St. Cyr when he says the UE is really 5.1%

          Yup, higher rates will have the average consumer stampeding through bank doors to borrow money to buy homes, cars, appliances, everythng they couldn't afford to buy with rates at zero. Yeah, right.

          besnook

          it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back.

          austerity economics is a great euphemism for depression.

          polo007

          http://news.goldseek.com/GoldSeek/1442494200.php

          Try making up for a past mistake and make another? That's playing from behind, if you will, and it's not out of the question if you know the Fed's history:

          1. Not a single post-war recession has been predicted by the Fed a year in advance, according to former U.S. Treasury Secretary Lawrence Summers; and
          2. Neither of the last three recessions were recognized until they were already under way.

          Incompetent or ulterior motives for policy?

          Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world is easing.

          What's notable for investors is that since the 2008 crash, we have not been able to achieve new market highs without central bank stimulus. Full stop.

          But it's only a quarter point…

          According to a study released by McKinsey Global Institute in February of this year, global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming nothing more than a currency game; and the currency game is a relative one. I print, you print, they print, but who's printing more and where is capital flowing in and out of? Within this context, a quarter-point rate hike would be much more than simply symbolic.

          As we have seen since late 2012, the rise in the U.S. dollar has had major implications on global markets, whether it be currencies, commodities or interest rates. A rate hike would equate to further USD strength and will accelerate the deflationary spiral we have witnessed over the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to recession in 2016.

          Conversely, no rate increase does not meet the expectations set by the Fed and will re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4 as well.

          So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus.

          As always, government remains the No. 1 risk to financial markets, and I will change my views as the facts change.

          "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)

          [Sep 16, 2015] Bankers Will Be Jailed In The Next Financial Crisis

          "...For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organized crime. "
          Sep 16, 2015 | Zero Hedge

          Submitted by Mike Krieger via Liberty Blitzkrieg blog,

          Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

          What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

          I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

          Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

          – From the excellent article: The Banking Criminals Exposed

          My prediction is that bankers will be jailed in the next economic/financial crisis. Lots and lots of bankers.

          It may seem to many that those working within this profession will remain above the law indefinitely in light of the lack of any accountability whatsoever since the collapse of 2008. It may seem that way, but extrapolating this trend into the future is to ignore a monumentally changed political environment around the world. From the ascendancy of Donald Trump and Bernie Sanders here in the U.S., to Jeremy Corbyn becoming Labour leader in the UK, big changes are certainly afoot.

          I have become convinced of this change for a little while now, but we won't really see evidence of it until the next collapse. However, something I read earlier today really brought the point home for me. Rowan Bosworth-Davies recently attended the 33rd Cambridge International Symposium on Economic Crime and provided us with some notes in an excellent piece titled, The Banking Criminals Exposed. Here are a few excerpts:

          Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

          This Symposium has indeed become an icon among other international gatherings of its knd and over the years, it has proved to be highly influential in the driving and development of international policy aimed at combating international financial and economic crime.

          What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

          I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

          Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

          Speaker after speaker addressed the implications of the scandalous level of PPI fraud, whose repayment and compensation schedules now run into billions of pounds.

          Some speakers struggled with the definition of such activity as 'Mis-selling' and needed to be advised that what they were describing was an institutionalized level of organised financial crimes involving fraud, false accounting, forgery and other offenses involving acts of misrepresentation and deceit.

          One of the side issues which came out of this and other debates, was the general and genuine sense of bewilderment that management in these institutions concerned, (and very few banks and financial houses have escaped censure for this dishonest practice) have walked away from this orgy of criminal antics, completely unscathed. The protestations from management that these dishonest acts were carried out by a few rogue elements, holds no water and cannot be justified.

          In the end, I sat there, open-mouthed while evidence against the same old usual scum-bag financial institutions, was unrolled, and a lengthy list of agencies, all apparently dedicated to dealing with fraud and financial crime, lamely sought to explain why they were powerless to help these victims.

          This was followed by a lengthy list of names of major law firms, and Big 5 accounting firms who were willing to join with these pariah banks to bring complex and expensive legal actions against these victims, bankrupting them, forcing them from their homes, repossessing properties they had worked for years to create, while all the time, the regulators and the other agencies, including to my shame and regret, certain spineless police forces, stood by and sought to justify their inaction.

          At one stage, we were shown how banks ritually and deliberately take transcripts of telephone calls made between complainants and the bank, and deliberately and systematically go through these conversations, re-editing them and reproducing them in a format which is much more favourable to the bank.

          For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organised crime. Many otherwise more conservative attendees expressed their grave concern and their repugnance at the way in which so many of our most famous banking names were now behaving. It is becoming very much harder to believe that the banks will be able to rely on the routine support they have traditionally enjoyed from most ordinary members of the public.

          The election of Jeremy Corbyn to the leadership of the labour Party means that banking crime and financial fraud will now become an electoral issue.

          But now, the new Labour leadership will focus the attention of the electorate on the relationship between the Tory party and their very crooked friends in the City, and the degree of protection that the Square Mile gangsters and their Consiglieri, their Capos, and their Godfathers will become much more identifiable. Bank crime will now become much more identifiable as a City practice and their friends in the Tories will be seen as being primary beneficiaries.

          Things are moving in the direction of justice. At a glacial place for sure, but moving they are.

          pot_and_kettle

          When they're swinging from lamp posts lining Broadway and Water St,
          *then * I'd call it progress.

          Til then, same old same old...

          11b40

          There were over 1,000 felony prosecutions that came out of the Savings & Loan fiasco in the 80's, with a 90% conviction rate.

          But, to your point, these were not the big Wall Street Bankers. Mostly just your local common banker thief and his cronies, with a few politicians thrown in for good measure. No big fish were prosecuted during the Depression era, either.

          vincent

          A reminder of how JPM saved its own ass in 2008. Worth bookmarking....

          The Secret Bailout of JP Morgan

          http://www.webofdebt.com/articles/banking-bailout.php

          Ulludapattha

          Dream on, Mike. Just who will jail the banksters? They own the governments of USA, Canada, and Western Europe. Not a chance in my lifetime.

          GCT

          Politicians and the judicial branch are in the banks pockets. I will believe it when I see it to be honest. I have yet to see real bankers or for that matter politicians go to jail. As long as the big fines are paid nothing will change. Must be nice to create money from nothing to pay these fines and fucking your customers over at the same time.

          Fahque Imuhnutjahb

          Wishful thinking. If any justice is to be meted out then the "little people" will have to take it upon themselves.

          And by little people I mean the plebes, not dwarves; but the dwarves are welcome to help, unless of course

          some of them are little bankers, then they're not welcome, but the rest are. Glad we got that cleared up.

          [Sep 09, 2015] The Fed Must Act Soon Why

          "...You're an econ prof, no? In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation."
          "...The Fed does absolutely nothing to require that the money it creates pays workers to build anything. Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow."
          Sep 08, 2015 | Economist's View

          JohnH -> to pgl...

          pgl still hasn't demonstrated the iron economic law that says that inflation increases must necessarily be passed along to labor, not stolen by capital.

          The precedent of productivity increases stolen by capital over the past 40 years is not encouraging, but there are economists like Janet Yellen who still disingenuously are that productivity increases get passed along! And despite the evidence, pgl chooses to believe her!

          mulp said...

          But printing more money just forces the exiting money to be spent paying workers slower and slower.

          The national economic policy selected by We the People is clearly:

          DO NOT PAY WORKERS TO BUILD ANYTHING.

          The Fed does absolutely nothing to require that the money it creates pays workers to build anything.

          Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow.

          We the People understand that paying labor to build new assets will crater the prices of all the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which will cause cratering prices, profits turning to losses, and the asset price bubble popping in a big way.

          The 21st century has proved to me that I was totally wrong to believe in monetary theory based on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR in the face of a populist Congress.

          Insight one: deep crisis is required to motivate We the People.
          Insight two: the only way to create a better economy is to pay more workers to work more
          Insight three: the only way to pay more workers more to work more is for taxes taking money from those who have money which is basically everyone in the upper half who will then demand benefits NOW for all their taxes

          Doing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats should have made demands that Bush and Republicans would totally refuse to agree to, so all the money market funds experienced runs and 50% of the depository banks got taken over by the FDIC, and half the businesses in the US stopped paying workers because they could get their cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats should have kept increasing demands and demanding ever higher tax hikes every time Republicans fought to block Democratic budget bills keeping the economy sinking deeper and deeper making more and more people poor.

          The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5% ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all capital investment excluding buying existing corporations or partnerships. And 90% income tax rates in excess of twice the median income, excluding buying tax exempt infrastructure construction bonds or investing in energy efficiency capital assets.

          Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax revenue used to repay Federal debt.

          Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is productive.

          The Fed can't do anything but prevent the required crisis to force the required political change.

          Or cause the crisis that will create change.

          The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit rapidly by increasing the interest costs.

          One of two things would happen: Republicans would win in 2016 and crash the economy by massive spending cuts driving tens of millions into poverty, homelessness, etc.

          Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would make hiring workers the cheapest way to cut taxes due and get some benefit.

          If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next three years.

          likbez said...

          The USA now reminds me the USSR in a sense that government figures are not using open verifiable methodology. Some thing that those metrics became yet another "number racket". Some measures like inflation and GDP are definitely politicized.

          That gives an impetus for sites like http://www.shadowstats.com

          Those people who operate using pure government statistical figures without questioning their error range are just another brand of highly paid charlatans. And their papers and articles should be viewed as exercise in "tail wags the dog"

          Actually that can be viewed as another dimension of mathiness.

          For example government announced that GDP is 3.7%. And everybody jumps in admiration. And nobody asks what was GDI released for this period. Suckers...

          Peter K. said in reply to likbez...

          "The USA now reminds me the USSR in a sense that...

          Republicans are dynamic scoring in order to massage the numbers to that their favored policies look better?

          likbez said in reply to Peter K....

          My point is the USA now reminds the USSR with its tendency to "beautify" economic data.

          Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of "discouraged workers" and "marginally attached workers"), redefining full employment metric (which no longer means 40 hours a week employment), hedonic adjustments/substitutes, "managing" inflation by changing the way it is calculated, price anomalies that bump GDP up, like tremendously overpriced military hardware, etc.

          Please don't throw the baby out with the bathwater

          Dan Kervick

          "Finally, why the huge fear over a little bit of inflation rather than huge fear over higher than necessary unemployment?"

          It is a good question, and frankly I have trouble believing that people like Fisher actually *are* worried about a little bit of inflation. Fisher set out his fuller position over a year ago, and I doubt it has changed much:

          http://www.dallasfed.org/news/speeches/fisher/2014/fs140716.cfm

          He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of the political Fed is being compromised by it's being dragged into service to compensate for the lack of fiscal and regulatory action by Congress.

          I would suggest that, on the second point at least, everyone should get used to the fact that central bank policy is inevitably a response to politics. That's because central bank policy is always based on general economic conditions, and general economic conditions are always to a substantial extent a function of government policy. So central bank policy has to be responsive to government policy. Tough cookies for all of those believers in an "independent" central bank. There is no such thing as an autonomous "economy" that is independent of political choices.

          Other not fully acknowledged factors driving the recent debate are equally political. The Fed is worried that if normalization is delayed, then some time next year the Fed will *have to* reverse course, one way or another. If that takes place after the parties have chosen their nominees and the political race is in full gallop, the Fed will be accused of intervening (in some way, on behalf of someone) in the campaign, and will become a political football. (As far as I'm concerned that would be great, because the US central banking system needs radical reform - but the Fed guys wouldn't like it.)

          The other thing they are obviously worried about is a recession. If the US experiences a recession for any reason over the next 18 months, and the Fed is still stuck down close to the zero bound, then it will not be able to exert a substantial stimulative impact - at least not without radical new measures like helicopter money. Again, that's something that wouldn't both me personally, but Independent Fed establishmentarians would freak.

          John said...

          You're an econ prof, no?

          In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation.


          [Sep 08, 2015] Mystery Buyer Of US Treasurys Revealed

          Zero Hedge

          This makes one wonder if the wiz kid is a proxy for the Fed... Where is does one come up with billions of $$$ for this purchase program?

          TSA Thug

          http://www.aipac.org/~/media/Event%20Forms/2012/Northeast%20Region/NY%20...

          Search for Mara & Jeffrey Talpins.

          Also check for Sachs.

          mtl4

          His hiring of Richard Tang is a pretty good clue and it seems his strategy changed around the same time.......spidey sense is tingling on this one for sure.......he's a proxy but not sure for who exactly at this point.

          ZD1

          "This makes one wonder if the wiz kid is a proxy for the Fed..."

          He is a donor to both political parties... but the links as to a proxy for the Fed will be harder to find

          http://individual-contributors.insidegov.com/d/c/Jeffrey-Talpins

          pods

          Not that tough:

          http://lmgtfy.com/?q=Jeffrey+Talpins+AIPAC

          pods

          TSA Thug

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

          McCormick No. 9

          Yale, Goldman, Bernanke (How well do you have to know someone to "test their patience"? A: pretty fucking well.)

          This is a set-up. He's not buying billions of Treasuries with his own money. This fucker is a front/cut-out. He is doing the dirty, er "God's" work. Someone has to buy this Chinese paper, or else yield contagion screws the pooch. Where is he getting the money? Bernanke knows.

          ... ... ...

          Freddie

          Just like Citadel and Ken Griffin and a few other HFT trading front companies. They all are run by Fed, Goldman et al.

          AGuy

          How the hell does a fund make money by accumulating low yield bonds? Where is the source of capital to purchase all this? I can't imagine hes managed to get that much OPM (Other People's Money).

          RopeADope

          By using multiple lenders and not letting them find out that collateral has already been overpledged by 700%. It is the LTCM model after all.

          Argenta

          A glaring example of what counts as math these days, and who's a whiz at it, lol. If a math genius loves US Debt, so should you!

          -Argenta

          Irishcyclist

          Amen.

          maths whizz my arse.

          VinceFostersGhost

          Compared to all our youth learning Common Core math.....everyone is a math whiz.

          [Sep 07, 2015] Central banks can do nothing more to insulate us from an Asian winter

          "...Central banks are independent. Independent of their nations best interests."
          .
          "...Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy. Just a con trick."
          .
          "...Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market. "
          Sep 07, 2015 | The Guardian

          okisthislongenough 7 Sep 2015 06:39

          Nothing more -- they have collectively destroyed the diligent savers, pensioners and even the value of small taxed gifts to children.

          To many central bankers are interested in their own existence, hang the rest who rely on a perceived value that they under right in Fiat currencies.


          kimdriver -> miceonparade 6 Sep 2015 16:07

          Agreed. It's all a con trick.

          Sometimes con tricks can be justified, but this one is so piss poor, and has such adverse consequences (the inflation of the price of financial assets, not through the injection of money but through the lowering of long term interest rates and the desire for yield).

          Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy.

          Just a con trick.


          soundofthesuburbs 6 Sep 2015 15:54

          Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

          After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

          When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.

          The end result 2008.

          With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.

          Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.

          The broad brush effect has blown bubbles everywhere.


          miceonparade 6 Sep 2015 15:14

          Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

          That is correct. All central banks can do is swap assets with banks. That is not economically stimulative. Changing the composition of bank portfolios does nothing to get money to people to spend. They still have to borrow it, and who wants to borrow right now in order to invest in an economy in which nobody is spending? The answer lies in fiscal policy. The treasury must increase net spending to get money directly in the hands of people so they can spend it and turn it into somebody else's income (and so on).

          And the market gyrations of recent weeks have been a reminder of a lesson the world learned in the crisis of 2008 and beyond: central banks are not the omniscient puppet masters of the global economy they seemed before the crash. Instead, in resorting to trillions of dollars' worth of quantitative easing, they may have conjured up forces they can barely control.

          Central banks have little effect on economies. But that also means that quantitative easing won't have conjured up any forces beyond their control. It's just a fruitless exercise in changing the composition of bank holdings. Unsurprisingly, no reasons are given for this assertion in the article.


          soundofthesuburbs soundofthesuburbs 6 Sep 2015 12:07

          The BIS directors:

          Mark Carney, London
          Agustín Carstens, Mexico City
          Jon Cunliffe, London
          Andreas Dombret, Frankfurt am Main
          Mario Draghi, Frankfurt am Main
          William C Dudley, New York
          Stefan Ingves, Stockholm
          Thomas Jordan, Zurich
          Klaas Knot, Amsterdam
          Haruhiko Kuroda, Tokyo
          Anne Le Lorier, Paris
          Fabio Panetta, Rome
          Stephen S Poloz, Ottawa
          Raghuram Rajan, Mumbai
          Jan Smets, Brussels
          Alexandre A Tombini, Brasília
          Ignazio Visco, Rome
          Jens Weidmann, Frankfurt am Main
          Janet L Yellen, Washington
          Zhou Xiaochuan, Beijing

          The banking cartel that runs the world.

          soundofthesuburbs 6 Sep 2015 12:03

          Central banks are independent. Independent of their nations best interests.

          But the heads of all major Central Banks are directors of the Bank of International Settlements in Switzerland (including China). Our policy makers are the same the world over and they reside in the BIS in Switzerland. The policy is to prop up the global banking system and stock markets.

          Dunbar1999 6 Sep 2015 10:16

          The common-sense relationship between lending and borrowing seems to have been lost since computer programs started working out profit-and-loss equations to ten decimal places in micro-seconds for the benefit purely of agents -- middlemen, or facilitators Ordinary people with even a little cash to spare used to be able to lend it, probably to a bank; and then the bank would lend it to someone else who would pay the bank enough for the use of the money to enable the bank to pay the lenders. About 3 per cent over the general rate of inflation was generally agreed to be fair, I believe, for years and years. But now that the act of lending money (to a bank, lets say, i.e. saving) gets a lot less back than what inflation actually costs the saver, it makes more sense for millions of people with a bit of spare cash to put it where they think they'll get a bit more back -- like a posher house, maybe. Or stock in a snazzy new tech company. And then economists start worrying about asset bubbles, and things get out of whack and start going to hell in a handbasket. I have never understood why professional economists, especially those labeled in America "freshwater" economists, never seem to have studied psychology along with all those charts and equations. There are actually real people living their daily lives in every part of every economy, after all.

          burgermeister 6 Sep 2015 09:43

          I suspect, for many normal people, the 2008 crash was a wake-up call. Too much private debt and not having any spare money lying around for an emergency is no way to live when the economy can change on a whim.

          We've certainly been tightening our belts here since the Tories got in, stockpiling spare cash in an easy-access savings account (on top of existing investments) and making over-payments on the mortgage. I have no faith at all in this recovery or in the government to provide a decent safety-net if it all goes tits-up so this consumer's spending will not be doing what the economy wants it to.

          NWObserver -> MattyTwo 6 Sep 2015 08:56

          Gold is merely another token of wealth, although not something that can be created out of thin air. The true source of wealth is the ability and willingness to create it out of the resources available in nature and those who possess it are the best positioned to ride out the storm. Of course, also holding time-tested tokens of wealth like gold can't hurt either.

          But those who think creating tokens of wealth in endless supply can make them skim the wealth produced/owned by the others and do so forever will get a harsh dose of reality.

          candidliberal 6 Sep 2015 08:46

          Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market.

          Social market Europe will have to liberalise substantially to return to anything approaching old patterns of growth - only Germany has managed this if under now dusty Schroeder reforms from the late 90s.

          Shakerman 6 Sep 2015 08:46

          According to legend, the location of Wall Street, the New York financial district, was chosen because of the presence of a chestnut tree enormous enough to supply tally sticks for the emerging American stock (stick) market.

          There was a time when the English government created money debt free using wooden (Tally) sticks.

          As Ellen Brown points out in her book "The Public Bank Solution" when debt based money was forbidden in Medieval England, despite the Black Death and other scourges that had to be contended with, the economy itself seems to have provided quite easy living conditions.

          Introduced by King Henry I (son of William the Conqueror) to thwart the debt creating money changers, wooden tallies were wooden sticks with notches cut in them and then split length-ways.

          One half of such a stick, which was given to the party advancing funds, had a handle and was called the "stock", while the other half was called the "foil".

          The "foil" was the origin of the term "the short end of the stick."

          The term "stock" has evolved to describe shares in publicly listed corporations today.

          Thorold, Rogers, a nineteenth century Oxford historian, wrote that during this time (Middle Ages) when money was not created bearing debt, "a labourer could provide all the necessities for his family for a year by working 14 weeks."

          Fourteen weeks is only a quarter of a year and so for the rest of the time some men worked for themselves, some chose to study and some fished or engaged in other leisure activities.

          Indeed some helped to build the cathedrals and churches that appeared all over England during that time – massive works of art that were built mainly with VOLUNTARY labour.

          Over one hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other shrines yearly.

          William Cobbett, author of the definitive "History of the Reformation," wrote that Winchester Cathedral "was made when there were no poor rates; when every labouring man in England was clothed in good woollen cloth and when all had plenty of meat and bread."

          Money was available for inventions and art, supporting the Michelangelo's, Rembrandt's, Shakespeare's and Newton's of the period.

          windwheel 6 Sep 2015 07:42

          'weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease' Wow! Has the author not heard of the Permanent Income Hypothesis? Is he not aware that Technology is changing unpredictably - we don't know what sort of education and training is worth investing in, let alone which Companies have a robust business model - as is Demographics - with the result that Uncertainty has increased and, assuming the Ellsburg effect holds, expected Permanent Income must have declined more than proportionately?

          What is this guff about Central Bankers having been considered omniscient gods prior to 2007? Greenspan mania had nothing to do with Monetarism but was about American exceptionalism and Randian animal spirits.

          Britain is differently placed and may well see some tightening even if the Market continues to misunderstand what Hu is up to.

          NicholasB 6 Sep 2015 06:58

          The Shanghai Stock Market is still up on the year. Don't get carried away by the hype. There was a stock market bubble and it burst. This is not a sudden collapse of the Chinese economy.

          JaneThomas 6 Sep 2015 05:42

          That tree is such a metaphor- like a version of the story of King Midas who received his wish and turned everything into gold, including his child.

          '"A piece of bread," answered Midas, "is worth all the gold on earth -- Oh my child, my dear child I" cried poor Midas, .wringing his hands.'

          A real forest is worth all the gold on earth.

          Perhaps a better sculpture would be this one- http://www.sculptor.com.au/#!/zoom/cay5/imagebv0

          andydav 6 Sep 2015 05:23

          the problem is in europe and america people are not buying therefore in asia the maker's of the product have to downsize .The problem is not in Asia but the lack of buyer's in america and europe .So why do people not buy.Simple they don't have a jobs no saving's

          johnbig 6 Sep 2015 04:32

          Central banks can do nothing more to insulate us from an Asian winter

          I did hear of an intelligent proposal from a Labour politician, which was supported by several respected economists. It was called People's Quantitative Easing to be used for investment in infrastructure. Perhaps though we should not spend a much as the Ł200bn already channeled through the banks

          someoneionceknew 6 Sep 2015 04:18

          The way out of depression is fiscal policy. All this rubbish about central banks is a distraction. They don't have the tools to lift aggregate demand.

          The European Central Bank proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to "convey a sense of stability and growth"

          A cruel joke. The Stability and Growth Pact is a suicide cult. Macroeconomic madness.

          [Sep 06, 2015] The Margin Debt Time-Bomb

          "... "At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."
          • How much debt is on the books of corporations that was used for share buybacks?
          • Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?
          • How much leverage is in the Interbank Repo Market?
          • How much leverage is in the Derivatives Market?
          Yeah, yeah, yeah, I know. Ok: net it out and tell me how much. "
          Sep 05, 2015 | Zero Hedge
          The final important observation germane to our current circumstances is that when market prices turn down, margin debt levels drop like a rock. Think about leverage. It works so well when the price of assets purchased using leverage rise. Yet leveraged equity can be eaten alive in a declining price environment. Forced liquidations are simply price insensitive selling. Of course, this will only occur after prices have already dropped meaningfully enough to either force margin calls, or cause margined investors to liquidate simply in order to remain solvent or limit loss. We have certainly seen a bit of this in recent weeks.

          Why is all of this talk about margin debt important?

          In Part 2: The Criticality Of Monitoring Margin Debt Closely From Here we explore how ever higher levels of margin debt represent tomorrow's heightened price volatility in some type of a stressed market environment, whether that be a meaningful correction or outright bear market.

          Both are an eventuality, the only question is When?

          Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

          AlaricBalth

          nmewn, that is what the pit boss says at a casino.

          When the odds are in the houses favor or it's a rigged game, why not loan money to the suckers at the table.

          Casino markers can be issued to just about anyone who requests one. It is a zero-interest line of credit that is intended to make gambling easy and accessible to everyone. A gambler fills out an application for the line of credit, and pursuant to NRS 205.130, a gambler is given 30 days to pay back the debt.

          nmewn

          "nmewn, that is what the pit boss says at a casino."

          Exactly my friend, its all in how one interprets the question being posed.

          "What have you got to lose? ;-)"

          BullyBearish

          CREDIT==invented by Banksters to enslave the weak

          Insurrexion

          Fuck you Brian.

          This article is more bullshit marketing to sell more bullshit.

          The fucking fear of raising interest rates is an acknowledgment that the Fed has supported a phoney recovery that no one believed in anyway.

          The taper tantrum was the first wheel removed. The interest rate rise will be the second wheel removed. Ending the Fed will be the last wheel removed.

          Love, Alexa

          ThroxxOfVron

          "At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."

          • How much debt is on the books of corporations that was used for share buybacks?
          • Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?
          • How much leverage is in the Interbank Repo Market?
          • How much leverage is in the Derivatives Market?

          Yeah, yeah, yeah, I know. Ok: net it out and tell me how much.

          [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 04, 2015] What Happened to the Moral Center of American Capitalism?

          "...The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete."
          .
          "...The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)"
          The latest from Robert Reich begins with:
          What Happened to the Moral Center of American Capitalism? : An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.

          It is ironic that at a time the Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – we are experiencing a far more significant crisis in public morality.

          We've witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.

          CEOs of large corporations now earn 300 times the wages of average workers. Wall Street moguls take home hundreds of millions, or more. Both groups have rigged the economic game to their benefit while pushing downward the wages of average working people.

          By contrast, in the first three decades after World War II – partly because America went through that terrible war and, before that, the Great Depression – there was a sense in the business community and on Wall Street of some degree of accountability to the nation.

          It wasn't talked about as social responsibility, because it was assumed to be a bedrock of how people with great economic power should behave.

          CEOs did not earn more than 40 times what the typical worker earned. Profitable firms did not lay off large numbers of workers. Consumers, workers, and the community were all considered stakeholders of almost equal entitlement. The marginal income tax on the highest income earners in the 1950s was 91%. Even the effective rate, after all deductions and tax credits, was still well above 50%.

          Around about the late 1970s and early 1980s, all of this changed dramatically. ...[continue]...

          Peter K. said...
          Krugman speculated it started when sports fans began discussing star baseball players' salaries. CEOs went Galt and asked why not us also?

          Workers are just inputs like fixed capital nothing more.

          What's good for GE and Goldman Sachs - profits - is good for America.

          DeLong asks the more central question. When did business leaders decide that growth, aggregate demand and full employment wasn't in the interest of their companies?

          In the 1950 and 1960s they were in favor of a high-pressured economy. That changed.

          Maybe it was the 1970s and "take this job and shove it."

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

          They also forget about the Great Depression as it faded from memory.

          And the Cold War ended. Would they risk Western nations like Greece and Spain going to the other side because of sky high unemployment? No they'd govern them with military dictatorships.

          Ben Groves said in reply to Peter K....

          US investment/capital markets were semi-nationalized from WWII into the mid-70's. The whole basis was to fight the Nazis then Soviets. The economic crisis of the mid-70's, detente and excessive growth beyond cohort changed things. For all the 79-89 hype, the cold war died with that global economic crisis of the 1970's as the Soviet Union never recovered and China bailed.

          Business view was that the pre-WWII order needed to be restored. I think many people mistake the 50's and 60's as "normal", but they weren't. They were a time of war.

          Peter K. said in reply to Ben Groves...

          "War is the health of the state."

          We need an invasion from aliens.

          mulp said in reply to Ben Groves...

          Well, given the US has been at war since Reagan, elected because Carter would not go to war, how do you explain the punishment of workers to reverse the glorifying of workers from the 30s through even the 70s??

          It was not war that made the period before 1980 better over all, but the understanding that consumers could only spend as much as they were paid, and the problem for a corporation seeking to grow was making sure all the other corporations paid their employees well.

          By the end of the 80s, the iconic corporations of the 60s in terms of growth and loyalty to employees were criticized by free lunch MBAs for sticking with the old ways of treating employees as assets because they were being creamed by competitors who treated employees as liabilities. Eg, IBM was badly managed because it was not screwing its workers like Dell, HP was doomed because it was not firing all its US factory workers and contracting with Asia factories.

          You see, the MBAs were teaching that US workers are liabilities to replaced with the cheapest non US workers and the US consumer needs to be mined for ever more dollars of spending. And if consumers were not spending enough, the problem was they were taxed too much, so the calls for tax cuts to put money in consumer pockets so consumers could shop 24 by 7.

          Before 1980, everything was zero sum. If you want that $1000 car or boat, you had to first earn $1000, unless the manufacturer float you a loan with a threat of the repo man. That meant manufacturers needed every consumer to have a job. And every dollar paid to workers came back to them in consumer spending. And government was the same way - if you wanted better roads, you first had to agree to taxes to pay for it.

          After 1980, the idea economies were zero sum were thrown in the trash can. Want something, borrow and spend. Republicans would get government out of the way of the loan sharks. The loan sharks became bank owners and got rid of their enforcers, turning that over to Congress. Think of all the debt you can not shed but that government collects by force by the IRS and attaching your Social Security benefit.

          Once consumers could borrow and spend, workers are now purely liabilities. Get rid of them.

          In the real world, the ivory tower of business and economics is not able to be applied 100% or even 20%, but that even 20% of the connection between payroll and business sales is lost means an ever deepening pit of debt.

          Federal debt declined from before the end of WWII as a burden on GDP until Reagan and then it grew as if the US were waging a war larger than the Korean war or Vietnam war or WWI or maybe the Civil war.

          With the exception of the Clinton years which were not free of war, the budget has looked like a major war was going on.

          DrDick said...

          The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete.

          Paine said in reply to DrDick...

          Sweet bobby

          bakho said in reply to DrDick...

          Indeed. Greedy "Malefactors of Great Wealth" don't become wealthy by fair play. Nothing obtained by workers was ever got without a fight. Many bloody union battles over dead bodies won worker's rights. Once the unions lost power, workers went backward.

          mulp said in reply to bakho...

          And union leaders were all choir boys....

          raping their members like priests.

          As a liberal, I can play the game of name calling, character assassination, etc.

          How do you think it is that there are capitalists with loyal workers? Do you think there are capitalists who understand that economies are zero sum and that you can't have customers wealthier than employees are wealthy?

          I see lots of worker advocates who seem to think that every worker can be paid $1000 and only pay $500 for everything produced.

          Paine said in reply to mulp...

          Reading this is like chewing glue

          DrDick said in reply to Paine ...

          Which he was obviously huffing while writing it.

          Paine said in reply to Paine ...

          A system is not judged by its functioning components but by its malfunction components and the emergent failures of the system of components
          U know that

          Social production systems often grow and develop

          they re not zero sum !


          They produce a social surplus when functioning well

          That social surplus gets ex appropriated by an exploiter class in class systems

          The primary producers may add 1000 in value and receive only 600 of that value as compensation

          Suggesting radicals or at least some radicals want more then one hundred percent of the social product for the producers themselves is blatant Tom foolery

          bakho said in reply to mulp...

          "How do you think it is that there are capitalists with loyal workers?"

          The same way plantation owners had "loyal slaves". Loyalty lasted until Sherman's boys came and said, "You are free and if you show us where the silverware is hid, we'll split it with you."

          Loyalty only goes as far as the next better offer.

          anne said...

          Assuming there was at least a superficial acknowledgement of a "moral center of American capitalism," that surface acceptance was methodically worn away from the 1970s on. An early sign of the wearing away and the need to turn away from a moral center of capitalism came with this article in 1970:

          http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

          September 13, 1970

          The Social Responsibility of Business is to Increase its Profits
          By Milton Friedman - New York Times

          The carefully cultivated "Chicago Boys" not long after the article in the New York Times even gained a country to play with, Chile.

          anne said in reply to anne...

          http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html

          July 23, 2015

          If you don't know what I'm talking about, the term "Chicago boys" was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas....

          -- Paul Krugman

          Paine said in reply to anne...

          A charming little toad that Milty

          Swallow him and die of his poisons

          Paine said in reply to Paine ...

          Street value of milty's elixir: Oligopolistic Corporate free range capitalism

          Sandwichman said...

          1. The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)

          2. Slavery was extolled by Southern slaveowner aristocratic "ethics and theology" as the pinnacle of bible-based Western Civilization.

          3. After defeat of the Confederacy, the neo-Confederate heirs of the old slaveowner plutocrats rewrote history to deny that the South fought the Civil War to retain slavery.

          4. The big lie of "Lost Cause" neo-Confederacy is the secret sauce of the Republican Party "Southern strategy" emulated by the "centrism" of the Democrats.

          5. What happened to the "moral center" of American Capitalism?

          6. Just what "moral center" are you referring to, Bob?

          Sandwichman said in reply to Sandwichman...

          John Cairnes, 1862:

          "in spite of elaborate attempts at mystification, the real cause of the war and the real issue at stake are every day forcing themselves into prominence with a distinctness which cannot be much longer evaded. Whatever we may think of the tendencies of democratic institutions, or of the influence of territorial magnitude on the American character, no theory framed upon these or upon any other incidents of the contending parties, however ingeniously constructed, will suffice to conceal the fact, that it is slavery which is at the bottom of this quarrel, and that on its determination it depends whether the Power which derives its strength from slavery shall be set up with enlarged resources and increased prestige, or be now once for all effectually broken."

          Ben Groves said in reply to Sandwichman...

          Don't forget about 1600's Amsterdam. That was the kickstarter for finance capitalism. William the Orange exported it to the Brits and the rest is history. The link between the 2 is indeed "bible based".

          Sandwichman said in reply to Sandwichman...

          James Henley Thornwell:

          "The parties in this conflict are not merely abolitionists and slaveholders - they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground - Christianity and Atheism the combatants; and the progress of humanity at stake."

          Ben Groves said in reply to Sandwichman...

          Thornwell was a Rothschilds bagman fwiw. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the Rothschilds business interests.

          That is why quotes never workout. You create a dialect when it is all personal motive. Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          anne said in reply to anne...

          Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          [ I am waiting for the documentation of the many socialists who thought.... ]

          Paine said in reply to anne...

          Socialist is a very eclectic catch all term Anne

          Some socialist by self description probably believed in human sacrifice

          Oh ya that was us Stalinists

          anne said in reply to Paine ...

          http://economistsview.typepad.com/economistsview/2015/09/what-happened-to-the-moral-center-of-american-capitalism.html#comment-6a00d83451b33869e201b7c7c9199f970b

          September 4, 2015

          Ben Groves said in reply to Sandwichman...

          Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          [ I know precisely what I have been asking for. I am still waiting for the documentation of the many socialists who thought.... ]

          anne said in reply to Ben Groves...

          Thornwell was a ----------- bagman for what it's worth. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the ----------- business interests.

          [ Again, where is the documentation, the "----------- bagman" documentation, to what I consider simply calumny? ]

          Sandwichman said in reply to Ben Groves...

          Wikipedia:

          James Henley Thornwell (December 9, 1812 – August 1, 1862) was an American Presbyterian preacher and religious writer from the U.S. state of South Carolina. During the American Civil War, Thornwell supported the Confederacy and preached a doctrine that claimed slavery to be morally right and justified by the tenets of Christianity.

          "Thornwell, in the words of Professor Eugene Genovese, attempted "to envision a Christian society that could reconcile-so far as possible in a world haunted by evil-the conflicting claims of a social order with social justice and both with the freedom and dignity of the individual."

          Sandwichman said in reply to Sandwichman...

          The "cornerstone speech"

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

          "The ideas entertained at the time of the formation of the old Constitution," says the Vice President of the Southern Confederacy [Alexander Stephens],

          "...were that the enslavement of the African race was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. Our new government is founded on exactly opposite ideas; its foundations are laid, its corner-stone rests, upon the great truth that the negro is not equal to the white man; that slavery-subordination to the superior race-is his natural and moral condition. This our Government is the first in the history of the world based upon this great physical, philosophical, and moral truth. It is upon this our social fabric is firmly planted, and I cannot permit myself to doubt the ultimate success of the full recognition of this principle throughout the civilized and enlightened world.... This stone which was rejected by the first builders 'is become the chief stone of the corner' in our new edifice."

          Sandwichman said in reply to Sandwichman...

          Harry Jaffa: "this remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy."

          But not just the Jim Crow South, also the enduring white supremacy that permeates and dominates the American (incarceration nation) political discourse under code word dog whistles like "law and order" and orchestrated abhorrence of "political correctness".

          Where is the "moral center" of a cesspool whose "cornerstone" is hatred? Ask Dante.

          Mike Sparrow said in reply to Sandwichman...

          True, but accepting Jim Crow allowed the capitalists to expand down south slowly but surely. By 1950 the south was becoming industrialized and Jim Crow was under attack. Their agriculture had been automated. Jim Crow just delayed history.

          The problem I think people have with white neo-confeds is not so much "black slavery", but that white's were basically being starved and living standards reduced by the same system. The 1% of white's made it big with a global system at the expense of country. The anti-confeds are basically in a race war against what they see as foreign invasion. While the neo-confeds think they are protecting white "traditions" that really aren't really traditional to the white population as a whole. It is a good reason why socialists who patriot nationalism and organic unity can't unite with them. What they view as "white" is different. It leads toward political divide and conquer.

          Paine said in reply to Mike Sparrow...

          Jim crow delayed southern development

          Only if you abstract from the northern social formation that hatched and husbanded it. For 100 years
          Much as the slave system was husband by unionist northerns for 80 years

          Paine said in reply to Paine ...

          One could talk of a moral core to capitalists like thadeus Stevens
          But the north ended reconstruction not because of southern white resistance
          But because nothing more was need at that time and level of development
          Of the north and of the union

          Paine said in reply to Paine ...

          The Grant years were like a sign in the sun and a sign in the moon

          The sympathetic nations of Ameriika would remain in mortal struggle

          Race Injustice would rule to the horizon of time and space

          Paine said in reply to Paine ...

          We would and will live side by side and yet turn away from each other
          One side in torment the other in wrath

          Sandwichman said in reply to Sandwichman...

          I think it would be useful to cite the whole paragraph of Harry Jaffa's comment on the cornerstone speech. Who was Harry Jaffa, anyway? Some politically correct Marxist America hater? Jaffa was the guy who wrote Barry Goldwater's 1964 Republican nomination acceptance speech. You know, "Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue." That's who.

          "This remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy. From the end of Reconstruction until after World War Il, the idea of racial inequality gripped the territory of the former Confederacy-and not only of the former Confederacy-more profoundly than it had done under slavery. Nor is its influence by any means at an end. Stephens's prophecy of the Confederacy's future resembles nothing so much as Hitler's prophecies of the Thousand-Year Reich. Nor are their theories very different. Stephens, unlike Hitler, spoke only of one particular race as inferior. But the principle ot racial domination, once established, can easily be extended to fit the convenience of the self-anointed master race or class, whoever it may be."

          Paine said in reply to Sandwichman...

          The battle between the declaration of independence and the constitution

          Sandwichman said in reply to Sandwichman...

          A MEASURING ROD FOR TEXT-BOOKS

          "The Committee respectfully urges all authorities charged with the selection of text-books for colleges, schools and all scholastic institutions to measure all books offered for adoption by this "Measuring Bod" and adopt none which do not accord full justice to the South. And all library authorities in the Southern States are requested to mark all books in their collections which do not come up to the same measure, on the title page thereof, "Unjust to the South."

          Reject a book that says the South fought to hold her slaves.

          Reject a book that speaks of the slaveholder of the South as cruel and unjust to his slaves.

          Sandwichman said in reply to Sandwichman...

          "How the Negroes Lived Under Slavery

          "Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."

          What's a "coffle"? http://tinyurl.com/pkdxuvq

          anne said in reply to Sandwichman...

          Excellent series of posts.

          anne said in reply to Sandwichman...

          http://www.nytimes.com/2014/10/05/books/review/the-half-has-never-been-told-by-edward-e-baptist.html

          October 4, 2014

          A Brutal Process
          By ERIC FONER

          THE HALF HAS NEVER BEEN TOLD
          Slavery and the Making of American Capitalism
          By Edward E. Baptist

          For residents of the world's pre-­eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that "came in the first ships," as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.

          Slavery plays a crucial role in this literature....


          Eric Foner is the DeWitt Clinton professor of history at Columbia.

          DrDick said in reply to Sandwichman...

          As Sydney Mintz showed, capitalism was founded on and made possible by slavery.

          Paine said in reply to DrDick...

          Marx sounds this theme powerfully in his chapter in Kap I
          on primitive or primal accumulation

          Sandwichman said in reply to Paine ...

          Sounded the theme... but then failed to develop it. Maybe it was too obvious in those days, soon after the Civil War and before the "measuring rod" of neo-Confederate censorship rewrote history.

          anne said in reply to Sandwichman...

          http://www.common-place.org/vol-10/no-03/baptist/

          April, 2010

          Toxic Debt, Liar Loans, and Securitized Human Beings
          The Panic of 1837 and the fate of slavery
          By Edward E. Baptist

          Early in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government's powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: "Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago."

          At the beginning of this decade, in the wake of the failure of Greenspan's faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan's credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not "real," but fictitious wealth: "Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the 'real' economy that provides us with goods and services, now and for the future?" ...

          chris herbert said...

          I don't think Capitalism has much to do with morality. Capitalists employed 8 year olds and a workweek of 60 hours at subsistence pay was the norm. Even today, look what American capitalists do to their employees in the Far East! Adam Smith figured that capitalism improved people's lives unintentionally. Not much of a moral statement, that one. That's why capitalism fails so miserably if not tightly regulated. Democracy, on the other hand, has pretty well defined moral foundations; Liberty, rights, equality etc. etc. Social democracies, in my opinion, have a stronger tether to the moral side of Democracy than we currently have here in the U.S. Our moral tether was shredded by the political right turn accomplished in the 1980s under Reagan. A similar degradation began in the U.K. about the same time under Thatcher. Oddly enough, that 30 plus year period between the end of WWII and 1980, was a period of strong progressive policy making. Pro labor laws, steeply progressive tax rates, voting rights, sensible retirement funding and Medicare for the elderly were all products of that time period. Maybe it was all an anomaly. A brief period of egalitarian ideals that created a middle class and produced a manufacturing hegemon. No longer. We are a military hegemon now. We are no longer a Democracy either. Most people haven't realized it; most especially working men and women who freely give up their rights and protections by voting for Republicans. We have the government we deserve. We are the most entertained and least informed citizens of any of the rich countries.

          Paine said in reply to chris herbert...

          Exploitation has a morality

          All that exists must be torn apart
          Rest is sin
          The future is blocked only by the present

          Faust

          Peter K. said...

          Off topic but everyone's favorite subject: monetary policy.

          http://macromarketmusings blogspot.com/2015/09/revealed-preferences-fed-inflation.html

          http://tinyurl.com/povj6qe

          Friday, September 4, 2015

          Revealed Preferences: Fed Inflation Target Edition
          by David Beckworth

          Over the past six years the Fed's preferred measure of the price level, the core PCE, has averaged 1.5 percent growth. That is well below the Fed's explicit target of 2 percent inflation. Why this consistent shortfall?

          Some Fed officials are asking themselves this very question. A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: "central bankers aren't sure they understand how inflation works anymore". The article goes on to highlight some deep soul searching being done by central bankers in the Wyoming mountains. It is good to see our monetary authorities engaged in deep introspection, but let me give them a suggestion. Dust off your revealed preference theory textbooks and see what they can tell you about the low inflation of the past six years.

          To that end, and as a public service to you our beleaguered Fed officials, let me provide some material to consider. First consider your inflation forecasts that go into making the central tendency consensus forecasts at the FOMC meetings. The figures below show the evolution of these forecasts for the current year, one-year ahead, and two-years ahead. There is an interesting pattern that emerges from these figures as you expand the forecast horizon: 2 percent becomes a upper bound.

          ....

          So rest easy dear Fed official. No need for any existential angst. According to revealed preferences, you are still driving core inflation--which ignores supply shocks like changes in oil prices--it is just that you have a roughly 1%-2% core inflation target corridor rather than a 2% target. So even though you may not realize it, you are doing a bang up job keeping core inflation in your target corridor."

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

          Our Neo-Classsical single equilibrium friend Don Kervack says the economy "naturally" healed itself despite unprecedented fiscal austerity, a trade deficit and strong dollar.

          I don't buy it. Economics isn't broken. Politics is.

          The center-left party for the job class should be calling up the Fed and asking "WTF?"

          SomeCallMeTim said...

          In the mid-1970s, at some universities economics was still called 'political economy', micro began with consideration of equity vs. efficiency, and the legitimacy of countercyclical social programs wasn't so widely questioned.

          Was there a loss of nerve, at least in the U.S., following the Vietnam War, the 1973 oil shock, and the following recession that led to a quantum shift in generosity of spirit / belief in children exceeding their parents material well-being (or as politicians would later put it, voting one's fears instead of one's hopes)?

          Second Best said...

          http://www.counterpunch.org/2015/08/21/the-plague-of-american-authoritarianism/

          The Plague of American Authoritarianism

          by Henry Giroux

          Authoritarianism in the American collective psyche and in what might be called traditional narratives of historical memory is always viewed as existing elsewhere.

          Viewed as an alien and demagogic political system, it is primarily understood as a mode of governance associated with the dictatorships in Latin America in the 1970s and, of course, in its most vile extremes, with Hitler's poisonous Nazi rule and Mussolini's fascist state in the 1930s and 1940s. These were and are societies that idealized war, soldiers, nationalism, militarism, political certainty, fallen warriors, racial cleansing, and a dogmatic allegiance to the homeland.[i] Education and the media were the propaganda tools of authoritarianism, merging fascist and religious symbols with the language of God, family, and country, and were integral to promoting servility and conformity among the populace. This script is well known to the American public and it has been played out in films, popular culture, museums, the mainstream media, and other cultural apparatuses. Historical memory that posits the threat of the return of an updated authoritarianism turns the potential threat of the return of authoritarianism into dead memory. Hence, any totalitarian mode of governance is now treated as a relic of a sealed past that bears no relationship to the present. The need to retell the story of totalitarianism becomes a frozen lesson in history rather than a narrative necessary to understanding the present

          Hannah Arendt, the great theorist of totalitarianism, believed that the protean elements of totalitarianism are still with us and that they would crystalize in different forms.[ii] Far from being a thing of the past, she believed that totalitarianism "heralds as a possible model for the future."[iii] Arendt was keenly aware that the culture of traditionalism, an ever present culture of fear, the corporatization of civil society, the capture of state power by corporations, the destruction of public goods, the corporate control of the media, the rise of a survival-of-the-fittest ethos, the dismantling of civil and political rights, the ongoing militarization of society, the "religionization of politics,"[iv] a rampant sexism, an attack on labor, an obsession with national security, human rights abuses, the emergence of a police state, a deeply rooted racism, and the attempts by demagogues to undermine critical education as a foundation for producing critical citizenry were all at work in American society. For Arendt, these anti-democratic elements in American society constituted what she called the "sand storm," a metaphor for totalitarianism.[v]

          Historical conjunctures produce different forms of authoritarianism, though they all share a hatred for democracy, dissent, and human rights. It is too easy to believe in a simplistic binary logic that strictly categorizes a country as either authoritarian or democratic and leaves no room for entertaining the possibility of a mixture of both systems. American politics today suggests a more updated if not different form of authoritarianism or what some have called the curse of totalitarianism. In this context, it is worth remembering what Huey Long said in response to the question of whether America could ever become fascist: "Yes, but we will call it anti-fascist." [vi] Long's reply indicates that fascism is not an ideological apparatus frozen in a particular historical period, but as Arendt suggested a complex and often shifting theoretical and political register for understanding how democracy can be subverted, if not destroyed, from within.

          (more at link above)

          Anonymous said...

          1) Gut all regulation in the name of free markets.
          2) Sprinkle with the fairy dust of zero or negative real interest rates.
          3) Let it rip.

          I mean the moral fiber of society. this had a big hand in it.

          Anonymous said in reply to Anonymous...

          If anyone thinks incentives have nothing to do with deteriorating moral fiber, you are delusional.

          ezra abrams said...

          Is this the same RR who crossed a picket line at huff post, or someplace like that ?
          cause ya know, his views are just so critical...
          as my dad use to say, a scab never has to worry bout getting by, he can always steal from blind mens cups

          and liberals wonder why blue collars hate hi falutin people

          anne said in reply to ezra abrams...

          Where is the precise reference to this nastiness?

          Since Robert Reich provides his essays to any publication through a Creative Commons license, I cannot imagine how he could have crossed any picket line. Any essay by Reich can be used on any Internet site.

          Returning now to the nastiness....

          ilsm said...

          Thuglican Jesus, thuglican God......

          Factitious values based on thuglican God ordained "lesser people" should be property and the 98% exploited for the chosen .01%.......

          See Sandwichman at Angry Bear.

          cm said...

          I suspect the moral center has been declared as a cost center, and not only yesterday.

          [Sep 04, 2015] Belabored and Befuddled - 'Error and Repair'

          "...The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.

          And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'"

          Sep 03, 2015 | Jesse's Café Américain

          "Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal. An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him- all but the people of the United States."

          Franklin D. Roosevelt

          The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.

          And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'

          ... ... ...

          [Sep 03, 2015] Links for 09-01-15

          Economist's View

          pgl said...


          That paper that Matty Boy Bot obviously did not read is quite good. A highlight:

          "Two years after a 1 percentage point increase in the short-term interest rate, real house prices are estimated to decline by over 6%, while real GDP per capita declines by nearly 2%. This implies a ratio of 3.3 in terms of the decline in house prices for a 1% decline in the level of output after two years. Looking at a longer time horizon of three or four years (not shown in the figure), the ratio rises to about 3˝. Although imprecisely estimated, inflation also responds negatively to a monetary policy shock after a two-year lag."

          Once our favorite gold bug recovers from his chocolate coin hangover I wonder if he was unpack this. After all his recommendation of tight money does lower inflation. Cheers! And the fall in nominal interest rates is less so his 80 year old girl friend sees a rise in her real interest rates. Cheers!

          But real housing prices fall. That's bad for home owners - right? JohnH still says cheers as he is under the illusion that this actually benefits the banks. EMichael by now is going WTF?

          And real GDP per capita falls. That is really bad - right? Not to fret. JohnH will find some data source to manipulate and tell us that people actually benefit from a fall in real income per person.

          More evidence to manipulate. Cheers!

          JohnH said in reply to pgl...

          Of course, interest rates affect houses prices. Well, duh!

          The problem is, that house prices have been going up mostly in wealthier neighborhoods, reflecting the Fed's focus on driving the wealth effect for top incomes, which is supposed to trickle down, but hasn't.

          The second problem is that low interest rates haven't driven new housing starts, which is where you get real, direct economic impact--construction jobs.

          IMO this is just another superfluous study that does nothing to address the real problem of Fed policies not trickling down.

          pgl said in reply to JohnH...
          You have evidence for all your assertions. Of course you do - your 80 year old girl friend lives in the hood.

          "just another superfluous study". One you could not cherry pick and misrepresent so it is "superfluous"!

          JohnH said in reply to pgl...
          pgl treats the self-evident findings of this report as if they were some kind of divine revelation, which in fact they probably are for him.

          After all, this is the same pgl who spent weeks trying to convince me that low interest rates have no effect on stock prices, although even the Fed admits as much.

          JohnH said in reply to JohnH...
          Of course, pgl's campaign to convince me that interest rates don't affect stock prices came on the heels of his campaign to convince me that Obama didn't propose cutting Social Security... His rationale? Congress didn't pass his proposal; therefore Obama didn't propose it! You have to love pgl's contorted logic.

          And this is the idiot who is convinced that the Fed is doing a great job. Of course, pgl's probably a Mets fan (who haven't won anything in a decade), so his standard of success is clearly
          bizarre.

          With the Fed, like with the Mets, there's always next year!

          Anonymous said in reply to JohnH...
          for these people, Fed only effects housing and asset prices on the way up and not on the way down. pgl probably works for CNBC
          Paine said in reply to Anonymous...
          House LOTS are very much assets. So housing markets are coosite markets both asset and durable product

          It's the asset component that needs to be regulated by the state

          pgl said in reply to JohnH...
          See my comments agreeing with Dean Baker. Low interest rates increased P/E ratios. Do you know what a P/E ratio even is? Price of stock over earnings per share. And you are stupid enough to write:

          "pgl's campaign to convince me that interest rates don't affect stock prices".

          Oh that's right. You are campaigning for stupidest man alive. Well, you won - hands down!

          Anonymous said in reply to pgl...
          This is a stupid comment from a novice. When stocks go down, interest rates go down. When you say low interest rates increase PE ratios, you have no idea what you are talking about. Japan has had rock bottom interest rates and low PEs for decades. At the end of 2008, we had 2% bond yield; 0% fed funds and very low PE. Why? ask yourself. You are nothing but a novice. Armed with this kind of logic, you would lose a fortune in the stock market in no time.
          pgl said in reply to Anonymous...
          LOL! Let us known when you are teaching finance so we can tell the undergrads to run. Run far away! But yea - there is something here JohnH never got. Shift of an investment demand schedule versus shift along an investment demand schedule. Oh wait - you don't quite get this either. Idiots to the left of me. Idiots to the right of me.
          pgl said in reply to Anonymous...
          Did you know that during the 2001 recession the P/E ratios of stocks like Cisco doubled? Surprised I bet. Oh yea - Cisco's market valuation fell by 60% but then its earnings fell by 80%. Do the math - we'll wait a few days for you to do so.

          Of course the finance has something to do with how valuations respond to permanent versus temporary changes in earnings. We'll still be here in 10 years when you finally figure that one out.

          By then you good buddy JohnH may have read Finance for Dummies.

          Paine said in reply to Anonymous...
          Not a novice
          He's a side walk superintendent with a phd in textbookery and some information please almanac
          Fat of the land facts
          Paine said in reply to Paine ...
          Nothing more ridiculous then an academic on wall street [payroll]...

          [Sep 03, 2015] Non-intuiti4ve Neo-Fisherism

          Sep 01, 2015 | Noahpinion

          Comments from Economist's View Links for 09-01-15

          RogerFox said...

          'Non-intuitive Neo-Fisherism - Noahpinion'

          "So when the Fed lowers interest rates, it prints money in order to do so. But in a Neo-Fisherian world, that makes inflation fall ...."

          That has been the counter-intuitive observed phenomenon in the wake of QE3 - why?

          IMO it has to do with locking up ALL the QE$, all $4-trillion of it, at the Fed as 'excess reserves', and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation.

          Stop paying and start charging banks to keep such reserves and see what happens to inflation and asset prices - that would be informative, and dramatic IMO.

          Anonymous said in reply to RogerFox...

          Everytime, they announced a new QE, nominal yields on 10 year bonds rose and vice versa. That is evidence that we are living in a neo-Fisherian world.

          QE-1 was formally adopted in March 2009, when the U.S. T-Bond yield was 2.53%, but by the end of QE-1, in March 2010, the yield had moved up to 3.83%, for a rise of 1.3% points. When the Fed launched QE-2 in November 2010 the T-Bond yield was 2.62%, but 3.16% when QE-2 was ended in June 2011 – a rise of 0.5% points. QE-3 began at the end of 2012, when the T-Bond yield was 1.76%, by the end of QE, it was 2.4%.

          Peter K. said in reply to Anonymous...

          Everytime inflation expectations dipped, they did a new QE and inflation expectations went back up.

          Anonymous said in reply to Peter K....

          Yes. Another way to say the same thing. Question is isn't that neo Fisherian?

          Peter K. said in reply to Anonymous...

          Looks paleo-Keynesian to me, anonymous, whoever the fuck you are.

          The dipping of inflation expectations means the market expects less aggregate demand going forward.

          The central bank does a little stimulus.

          The market sees that and expects higher inflation going forward.

          JohnH said in reply to Peter K....

          Every time they did a new QE, stock prices rose. Asset inflation was right on target to serve the vast majority of stockholders ... the 1%.

          Peter K. said in reply to JohnH...

          So what? You want asset price deflation so that the economy tanks?

          How can we decouple the two? Usually the stock market goes up as the economy grows. Sorry.

          JohnH said in reply to Peter K....

          Usually the stock market goes up when the economy grows. Exactly! But this time around the stock market goes up when the real economy flat lines...which is pretty good proof that the Fed's low interest rates were used for speculation, not productive investment.The 1% figured out how to game a system that was already rigged in their favor.

          As a result monetary policy must be changed to discourage abuse and encourage productive investment, which is what ultimately drives job creation.

          pgl said in reply to Anonymous...

          a neo-Fisherian world? There is no neo-Fisherian world. The economists who have read these neo-Fisherian rants see them as just that - insane rants. Next discussion - what is it like to live in a world where trees grow sideways and the earth is flat.

          EMichael said in reply to RogerFox...

          "and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation."

          Any chance you know what that interest rate is?

          Any chance you think banks would not do this if they had real options to earn a higher interest rate?

          RogerFox said in reply to EMichael...

          Any banker who can't earn better than 0.25% on marginal AUM should be fired. Banks keep funds at the Fed because that was part of the deal for the Fed to buy them out of their largely worthless MBS stuff, and save them from the MTM-insolvency they were in up to their kosher necks.

          EMichael said in reply to RogerFox...

          So, can you tell me how much of the MBS purchases were owned by banks?

          In terms of the ability of bankers, they do need borrowers.

          EMichael said in reply to RogerFox...

          BTW, if you can find out which MBSs the FED bought I would love to see it.

          OTOH, there are some things I know for sure.

          1) Prior to QE in 2009, US depository institutions owned about a third of agency MBSs, or $1.3 Trillion.

          2) It is not possible that those banks owned only "worthless MMS stuff".

          pgl said in reply to RogerFox...

          Go to the income statement and balance sheet of JPMorgan Chase. A return on its assets. Yes banks do better. A lot better. But how would you know? This is accounting 101 - way over your head.

          EMichael said in reply to RogerFox...

          Oh, before I head out to lunch.

          I would love to see the conversation between the FED and Jamie Dimon where they tell him that now that all of his toxic MBSs are gone, you still have to keep excess reserves with the FED.

          Anonymous said...

          As Bernanke outlined over the years, monetary policy success is to be measured, in good part, by stock prices. Welcome to the hell created by Bernanke, Ms Yellen.

          http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews

          http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm

          kthomas said in reply to Anonymous...

          Why not cut to the chase and tells about how wealthy youve become trading in Gold?


          Share with us your financial wisdom.

          And Im thinking, as well, you are drawing false conclusions from former Chairman Bernanke. Perhaps you did not read any of this material, as pgl suggests.


          I also detect a subtle woft of anti-semitism in this post. It has an odor.

          Anonymous said...

          The great unresolved question in central banking today is: Should monetary policy be used to foster financial stability, even at the expense of achieving other macroeconomic goals such as inflation and employment?

          It is completely un symmetric. Always one way. ok to boost house prices, never to restrain them. why don't they leave regulation to boost prices? or regulation to say interest rates are too broad a tool to use in a situation?

          meanwhile, they will never use regulation.

          Second Best said...

          Will Americans Become Poorer? - Martin Fedlstein

          'Gordon argues that the major technological changes that raised the standard of living in the past are much more important than anything that can happen in the future. He points to examples such as indoor plumbing, automobiles, electricity, telephones, and central heating, and argues that all of them were much more important for living standards than recent innovations like the internet and mobile phones.'

          ---

          Plastics are also highly underrated in the contribution to living standards. Plastics show up in 90% of seabirds that eat them and die which makes more room for humans to consume plastics in peace and quiet, free of noise pollution from screeching seabirds.

          RC AKA Darryl, Ron said...

          RE: A Tale of Two Theories

          [We must choose between Larry Summers' sec stag theory and the hard money supply side theory of the BIS which is a repulsive idea. Thankfully though secular stagnation theory came about during the Great Depression from the works of Keynes and Alvin Hansen. So, I guess that I can stomach Summers given that consideration. There may be a bit more to it though, but I don't have another lifetime to become an economists and put together a better theory.

          The BIS is not entirely wrong about structural issues not getting addressed by purely demand side policies, but it was supply side policy going way back to Schumpeter and the consolidation of firms and wealth for efficient and innovative monopolies and capital formation that created this huge mess and now they suggest more supply side economics will get us out of it. We got more supply side with Reagan (and Thatcher in the UK) and that just made matters worse.]

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

          Your pet theory appears to be about monopoly (influenced by Sweezy?) while mine is about insufficient demand and more specifically an insufficient monetary-fiscal mix.

          Maybe the reality is a mix of both?

          The BIS is the Death Star/Sauron's Eye of bad economic theory. All of the trolls regurgitate their theories in one form or another.

          Summers's idea is that we can't have full employment without bubbles. What if hadn't deregulated the financial sector and cut taxes on capital gains?

          If Larry were Fed Chair, I bet he would be telling us "sorry we can't have rising wages because that would give us bubbles which would cause downturns and unemployment. We will have to raise rates even though there is labor market slack." Circular reasoning and a Hobson's choice.

          James Hamilton et al have a paper which is sited to counter the secstags theory. During the housing bubble, supposedly, the large trade deficit and high oil prices were subduing demand such that the Fed was in a fix as the housing bubble blew. It had rates at the right price.

          If oil prices had been lower and there was no trade deficit, then the Fed could have had higher interest rates and no housing bubble.

          Seems like Summers is saying the same thing in a way. Better fiscal policy and no secstags.

          Thanks to Kervick, I'm moving away from the fiscalist position to more of a monetarist or fiscal-monetarist agnositic mix.

          There are no secstags because the Fed didn't exhaust its powers or employ all of its tools. It hit the ZLB and then employed the weakest possible QE just to avoid deflation. It's no wonder people believe QE doesn't work.

          Reply Tuesday, September 01, 2015 at 05:38 AM

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

          Understood. I'm could say I am moving to fiscal-monetarist gnostic mix but I have been there all along. Either if done wrong in context can defeat the other. An unflinching bold application of both in tandem are necessary for rapid results.

          Reply Tuesday, September 01, 2015 at 06:13 AM

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

          Ah but do you believe an unflinching bold application of monetary policy would work?

          I don't know. It hasn't been tried.

          No I believe it may be sufficient if combined with other robust regulatory measures - all things anathema to a Republican Congress:

          stronger financial regulations
          financial transaction taxes
          stronger anti-monopoly and anti-trust policies
          stronger safety net
          stronger workers rights
          etc.

          given all of those things a robust monetary policy could provide tight labor markets and wage gains without Kervack's politburo's picking winners and losers in the economy.

          Reply Tuesday, September 01, 2015 at 06:35 AM

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

          Granted - eventually. If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy. No interest loans at long terms to households might not even have been enough unless defaults were easy on households. Sending out checks free of debt is fiscal policy regardless which agency sends them out.

          Under ordinary circumstances then monetary policy is entirely sufficient. I am not sure that any cognizant being says otherwise.

          Reply Tuesday, September 01, 2015 at 08:59 AM

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

          "If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy."

          Again, I don't know if I agree with you. It hasn't been tried.

          With short term rates, the Fed says "we'll lower the rate to .25 percent..."

          With long term rates and MBS they said "we'll do QE and buy a certain amount each month" and we'll see what happens.

          What if they said, "we'll buy enough to lower long term rates and mortgages" to .5 percent?

          We don't know because they didn't try.

          Reply Tuesday, September 01, 2015 at 10:23 AM

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

          "Your pet theory appears to be about monopoly (influenced by Sweezy?)"

          [My pet theory is of my own design and monopoly is just part of it. I am for tax preferences on dividends and interest earnings, and penalizing levels of taxation on capital gains for assets held less than one year. That would do more about the BIS complaints on how well money is invested than tight fiscal and monetary policy, but BIS would not like the public investment aspect that goes along with the other part of my pet theory. Increased oligopoly enabling mergers were just one aspect of the capital gains tax preference, especially since the dividends tax credit was permanently rescinded in 1954. The entire gamut of the financialization of non-financial firms has troubled me from my earliest understanding of it in high school in the 60's. It just kept getting worse as time passed.

          Who is Sweezy? ]

          Reply Tuesday, September 01, 2015 at 08:54 AM

          RC AKA Darryl, Ron said...

          RE: Whither inflation?

          [I must leave this to pgl to tackle. Is the goal of monetary policy to lower output? I guess that is one way to get inflation, but I doubt that it would do anything for real wages.]

          Reply Tuesday, September 01, 2015 at 04:42 AM

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

          "But in 2008, interest rates hit zero. The broom handle could not move. The conventional view predicted that the broom will topple. Traditional Keynesians warned that a deflationary "spiral" or "vortex" would break out [if the Fed didn't take extraordinary measures which it did including recommending Obama's fiscal stimulus]. Traditional monetarists looked at QE, and warned hyperinflation would break out."

          Fixed. Cochrane is a dishonest ideologue who enjoys expensive bottles of wine with the likes of villians like Republican Paul Ryan and hedge fund manager Clifford Asness. Let them eat cake!

          http://www.slate.com/blogs/browbeat/2011/07/12/so_what_if_paul_ryan_drank_a_350_bottle_of_wine_.html

          Reply Tuesday, September 01, 2015 at 05:50 AM

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

          Oh he does admit he was being dishonest later on in the post:

          "Maybe the Fed is so wise it neatly steered the economy between the Great Deflationary Vortex on one side with just enough of the Hyperinflationary Quantitative Easing on the other to produce quiet. Maybe the great Fiscal Stimulus really did have a multipler of 6 or so (needed to be self-financing, as some claimed) and just offset the Deflationary Vortex.'

          Reply Tuesday, September 01, 2015 at 05:53 AM

          pgl said in reply to Peter K....

          Great Fiscal Stimulus? WTF? OK, there was that 2009 thing where Cochrane said the multiplier was zero as he never understood his own Ricardian Equivalence proposition. Now he says it is 6? Talk about malleable opinions. Cochrane is insane.

          Reply Tuesday, September 01, 2015 at 06:17 AM

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

          We still drink way more beer than wine in my part of the country. I have a bottle of port on my bar that has been there since last year and I have not had any other wine at all this year. But I agree with the article in that all of those people are assholes regardless of what they are drinking.

          But I know that pgl really loves Cochrane, loves as in can resist screwing with him. Too mathy for me, but framing the idea of raising interest rates to increase inflation while lowering output as an economic solution does not pass the sweat shirt test (H. Pat Artis's euphemism for reality check).

          Reply Tuesday, September 01, 2015 at 06:44 AM

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

          can't resist - oops

          Reply Tuesday, September 01, 2015 at 06:45 AM

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

          Agreed. Maybe he'd a have a problem with lowering output if it hurt profit margins.

          Reply Tuesday, September 01, 2015 at 06:47 AM

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

          This is what DeLong has a tough time understanding. He's too naive or something. Or things have changed with the financialization of the economy.

          Businesses and business leaders should want more demand for their products and services. They *should* want full employment and full output.

          And yet the creditors and bankers really run things. Inflation is more of problem for them. And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity.

          Reply Tuesday, September 01, 2015 at 06:50 AM

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

          DeLong points out that in the post-war golden years business leaders were for full employment and full output.

          I tend to believe it was because of the Cold War. Would Europe risk sky high unemployment in the Spain, Greece, Italy etc. now if the Cold War was still on? They'd risk those countries falling under the control of the Communists.

          Reply Tuesday, September 01, 2015 at 06:53 AM

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

          "DeLong points out that in the post-war golden years business leaders were for full employment and full output.

          I tend to believe it was because of the Cold War..."

          [Yep, Paine has mentioned that fairly often. Maybe it is just a way that commies like Paine can take credit for the post war boom in the free world :<) - LOL}

          Reply Tuesday, September 01, 2015 at 09:06 AM

          Dan Kervick said in reply to Peter K....

          Well CEOs have managed to increase their own compensation dramatically over the past several decades with less than full employment. The chronically under-employed workforce keeps labor costs down and the return to capital high; and the shareholders reward the CEO for treating the firm as a dividend farm, not a long term project. And if they do need to boost output, they can always hire poor people in other countries in the global supply chain. So from their point of view, why should they do anything differently?

          Reply Tuesday, September 01, 2015 at 06:44 PM

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

          "...And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity."

          [Yep to that and all you said before it.]

          Reply Tuesday, September 01, 2015 at 09:02 AM

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

          Cochrane seems to know a bit of finance although sometimes he gets a little sloppy. I love it when finance types think they are also masters at macroeconomics. Modigliani and Tobin could walk in both worlds but Cochrane could not hold their shoes in either.

          Reply Tuesday, September 01, 2015 at 08:56 AM

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

          Understood. Commenting on Cochrane's piece was all in fun. Even I got the problem with increasing the output gap in his model of interest rate increases; not good for full employment.

          Reply Tuesday, September 01, 2015 at 09:09 AM

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

          "Traditional monetarists looked at QE, and warned hyperinflation would break out."

          Actually monetarists like Scott Sumner predicted it wasn't enough to do the job.

          Goldbugs predicted runaway inflation.

          Cochrane is wrong again.

          Reply Tuesday, September 01, 2015 at 06:57 AM

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

          I started to read John Cochrane's insane modeling but as usual it made me sea sick. He has a habit of making easy things hard. The stated twin goals of monetary policy are to avoid accelerating inflation and to get us as close to full employment as possible. While one can argue that obtaining the latter jeopadizes the former, I don't see any real tradeoff at the moment. Expected inflation has been incredibly low for many years now and the output gap is still really high. I know some FED members are freaking out over INFLATION but I suspect they hate too much of that chocolate candy at Jackson Hole. Cochrane? Apparently he's been putting away too much of that expensive wine.

          Reply Tuesday, September 01, 2015 at 06:15 AM

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

          Since Cochrane appears quite sanguine about lowering output then that implies he does not really care much about employment either.

          I know that Cochrane is one of your favorite snack foods along with Taylor, the two too conservative Johns.

          Reply Tuesday, September 01, 2015 at 06:33 AM

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

          Cochrane is a New Classical type. Shorter version of their school - what recession? After all - the market is perfectly efficient and always clears in their ivory tower world.

          Reply Tuesday, September 01, 2015 at 08:57 AM

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

          Yep. I place neo-classical economics next to "natural law" (meaning social laws - not science laws) in the circular filing cabinet.

          Reply Tuesday, September 01, 2015 at 09:12 AM

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

          Cochrane leaves a lot to the imagination, sensitivity to assumptions etc.

          Then there is the main issue with Social Sciences validation and accrediting the models.

          While the fresh water school depends on belief resulting in epistemic closure.

          Reply Tuesday, September 01, 2015 at 03:19 PM

          Anonymous said...

          Shiller's CAPE debate:

          Saying that high PEs are fine because they just mean lower expected returns is like saying a blind man's eyes are fine just means he sees less than other people. Low expected returns do not come in 2%, 2%, 2%... kind of stream. They go down a lot and go up a lot. In 99-2000, people said high PE just meant low future returns. Yes, S&P had a zero return over almost a decade. But it had two huge drawdowns in the middle. Bernanke said the same of house prices in 2006 - they will be zero for a while. Yes, average is zero. does not mean you will go there in a straight line.

          Reply Tuesday, September 01, 2015 at 04:43 AM

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

          Yep! There are more troubles here than can be covered by Shiller's CAPE and Dick Serlin's robots are not likely to fix them either.

          Reply Tuesday, September 01, 2015 at 05:51 AM

          pgl said in reply to Anonymous...

          Hey is one thing a lot of us keep trying to tell Anne. There is not a single P/E ratio that is the right number for all times. This ratio depends on fundamentals with one of the fundamentals being the cost of capital. And I thought everyone knew by now that interest rates are currently a lot lower than they were in the 1980's.

          Reply Tuesday, September 01, 2015 at 06:18 AM

          Peter K. said in reply to pgl...

          Isn't that what Dean Baker was saying also?

          http://www.cepr.net/blogs/beat-the-press/robert-shiller-s-case-for-a-stock-bubble

          "The other reason why the current PEs in the stock market might be justified is that interest rates are well below their historic averages. With the nominal rate on 10-year Treasury bonds at just over 2.0 percent and the inflation rate around 1.6 percent, the real interest rate is roughly 0.5 percent. This compares to a long-period average in the range of 2.5-3.0 percent.

          With the alternatives to holding stock offering returns that are far lower than they have in the past, it makes sense that people would be willing to accept a much lower return on their stock. The current PE should still allow a premium in the range of 4.0 percentage points relative to bonds, which is roughly the long period average. Of course if we had reason to expect that the real returns on bonds would rise sharply in the near future, then this argument would not carry much weight, but there does not appear to be any good story as to why real bond yields should be headed much higher in the near future."

          Reply Tuesday, September 01, 2015 at 06:22 AM

          pgl said in reply to Peter K....

          Deano has this exactly right. Of course they are the idiots like JohnH who just claimed that Dean and I are saying lower interest rates have no effect on stock prices. Hmm - P/E ratios are defined as stock prices relative to earnings per share. So someone should ask JohnH how a P/E ratio is supposed to rise if P does not change. Oh that's right - his 80 year granny girl friend has no earnings (E).

          Reply Tuesday, September 01, 2015 at 09:00 AM

          JohnH said in reply to Peter K....

          pgl still can't admit that he tried to convince me that high stock prices (and the wealth of the 1%) were not fueled by low interest rates.

          pgl was so desperate to defend historically low interest rates, that he lied about their most obvious effect--higher asset prices and wealth redistribution upwards.

          Question is, why is pgl so zealous about defending the gains of the 1%?

          Reply Tuesday, September 01, 2015 at 09:59 AM

          pgl said in reply to JohnH...

          Find the comment where I allegedly made this statement. Either you are lying (which you often do) or you failed to get what I was really saying. Maybe it was the latter given how incredibly stupid you are.

          Reply Tuesday, September 01, 2015 at 11:47 AM

          RGC said...

          Low-Income Workers Have Nowhere Affordable To Live, New Report Shows

          Even the most affordable metropolitan areas in the country are beyond the reach of millions of American families.

          Daniel Marans
          Reporter, The Huffington Post
          Posted: 08/27/2015 07:34 AM EDT


          Low-income workers and their families do not earn enough to live in even the least expensive metropolitan American communities, according to a new analysis of families' living costs published Wednesday.

          The analysis, released by the left-leaning Economic Policy Institute, is an annual update of the think tank's Family Budget Calculator that reflects new 2014 data. The Family Budget Calculator is a formula designed to determine the income "required for families to attain a secure yet modest standard of living" in 618 different communities across the country that the U.S. Census Bureau defines as metropolitan areas. The formula uses data collected by the government and some nonprofit groups to measure costs of housing, food, child care, transportation, health care, "other necessities" like clothing, and taxes for families of 10 different compositions in these specific locales.

          The updated Family Budget Calculator shows that even the most affordable metropolitan areas in the country are beyond the reach of millions of American families with incomes above the official federal poverty level. The official federal poverty level for a family of two parents and two children in 2014 was $24,008, according to the EPI. But the least expensive metropolitan area in the country for this family type is Morristown, Tennessee, where a family needs an income of $49,114, according to the Economic Policy Institute's budget calculator.

          The Economic Policy Institute also estimates that minimum-wage workers -- who almost universally earn less than the federal poverty level -- lack the income needed to make an adequate living in any of the communities surveyed, even if they are single and childless. The think tank notes that this includes minimum-wage workers living in cities or states with a higher minimum wage than the federal minimum of $7.25 an hour, or $15,080 a year for a full-time worker.

          Even families with incomes closer to the middle of the earnings spectrum lack the means to maintain an adequate standard of living. The nation's median household income was $51,939 in 2013 -- the most recent year in which data were available -- not much higher than the cost of living in the relatively inexpensive Morristown.

          The median household income nationwide is also significantly less than is needed to live in the metropolitan area of Des Moines, Iowa, which is the median in costliness for a family with two parents and two children among the communities included in the Economic Policy Institute's budget calculator. A family of that makeup in Des Moines requires an income of $63,741 to live adequately.

          In addition, the updated Family Budget Calculator found that Washington, D.C., is the most expensive metropolitan area in the country for a family to raise children. A family with two parents and two children requires $106,493 to maintain an adequate living standard in the D.C. metropolitan area. Following D.C., the most expensive metropolitan areas for a family of the same makeup were Nassau-Suffolk, New York (Long Island); Westchester County, New York; New York City; Stamford-Norwalk, Connecticut; Honolulu; Poughkeepsie-Newburgh-Middletown, New York; Ithaca, New York; San Francisco; and Danbury, Connecticut.

          The Economic Policy Institute argues in a paper accompanying the release of the updated data that its Family Budget Calculator more accurately reflects people's actual living needs than traditional measurements like the federal poverty level, which does not account for the myriad geographic differences in living costs. (The federal government only provides separate, statewide poverty measurements for Alaska and Hawaii.) Critics have long argued that the federal poverty level formula, which was created in the 1960s, is outdated, significantly undervaluing the costs of essential goods like health care for contemporary families.

          The more recent Supplemental Poverty Measure developed by the U.S. Census Bureau tries to account for more current expenses and geographic differences in housing, as well as income from new benefit programs. But the Economic Policy Institute says that the measure still does not weigh child care costs sufficiently, or account for local variability in expenses other than housing.

          The Economic Policy Institute hopes the new figures strengthen the case for policies that augment the incomes of workers, particularly on the lower end of the earnings spectrum.

          "Wage growth has been stagnant for most workers for decades and, as a result, there is a mismatch between what workers are paid and what it takes to live and support a family," said Elise Gould, senior economist at the Economic Policy Institute, in a statement. "We need a variety of policies to boost wage growth, which includes a higher minimum wage, stronger overtime rules, collective bargaining rights, and enforcement of labor standards as well as the pursuit of a full-employment economy."

          http://www.huffingtonpost.com/entry/low-income-workers-have-nowhere-to-live-new-report-shows_55de2b29e4b029b3f1b17e4c?ncid=txtlnkusaolp00000592&kvcommref=mostpopular

          Reply Tuesday, September 01, 2015 at 05:00 AM

          Death B. Y. Humidity said in reply to RGC...


          "
          ; Poughkeepsie-Newburgh-Middletown, New York
          "
          ~~Daniel Marans~

          If you like cucarachas, you will simple love Honolulu.

          Reply Tuesday, September 01, 2015 at 05:28 AM

          JohnH said in reply to RGC...

          And pgl continues to insist that current economic policy, presided over by the Fed, is just great! And that it's trickling down to workers!

          But ordinary Americans get it, even if ivory tower 'economists' don't--a new Quinnipiac University Poll shows that by more than 7 to 1, Americans are "dissatisfied" with the way things are going in this country, including 41 percent who are "very dissatisfied."
          http://finance.yahoo.com/news/two-polls-show-exactly-why-190000376.html

          Reply Tuesday, September 01, 2015 at 10:06 AM

          pgl said in reply to JohnH...

          So many lies today and your 80 year old girl friend still refuses to have sex with you? Try Viagra. Oh wait - she is waiting for you to bring home the bacon. Which means you won't get laid until her 100th birthday!

          Reply Tuesday, September 01, 2015 at 11:48 AM

          JohnH said in reply to RGC...

          After seven years of an economic quagmire, presided over by the Fed, it's amazing that the Fed has any credibility left at all.

          I'm reading increasing numbers of articles that consider the Fed to be a laughing stock...

          Reply Tuesday, September 01, 2015 at 10:10 AM

          Peter K. said in reply to JohnH...

          So you obsolve Congress's fiscal austerity of any blame. They brought the deficit down from 10 percent to 2.3 percent and lo and behold, no confidence fairy.

          The Fed's QEs offset that to a degree, otherwise we'd have deflation, declining incomes and growing unemployment.

          Reply Tuesday, September 01, 2015 at 10:27 AM

          pgl said in reply to Peter K....

          That's what chocolate coin JohnH wants - declining incomes and growing unemployment. He seems to think this will get granny all hot and bothered!

          Reply Tuesday, September 01, 2015 at 11:50 AM

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

          Maybe metropolitan American communities are hoping that gentrification can cure urban blight.

          Reply Tuesday, September 01, 2015 at 10:30 AM

          RC AKA Darryl, Ron said...

          RE: Picasso: the price of everything

          [Best for the classic quote at the end:]

          ...There is, of course, a danger of confusing high prices with aesthetic value; as Oscar Wilde put it, of knowing 'the price of everything and the value of nothing'.

          [Oscar Wilde has often been quoted in discussions of economics and economists. This is the first time that I ever read it used with respect to art.]

          Reply Tuesday, September 01, 2015 at 05:59 AM

          Peter K. said...

          Obama and the National Labor Review Board and Clinton.

          "We're really digging out of a 40-year hole," Mr. Mishel said. "The Clinton years were ones where they more triangulated between business and workers rather than weigh in on the side of workers."

          One area where I believe Krugman and DeLong aren't on the up and up - for whatever reason - is the history of the Clinton years. Here's another example of where the Clinton years don't look so good and Obama looks better in comparison.

          Krugman had a column about paleoliberalism making a comeback not long ago. In reality it was never gone. The Clintonoids moved the Democrats to the right.

          Reply Tuesday, September 01, 2015 at 06:00 AM

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

          That's why I supported Obama over Hillary and support Bernie over Hillary. If Hillary is elected hopefully she has moved to the left along with the Democrats but I wouldn't hold my breath.

          It's possible that she'll do better than her Senate career would suggest. Finance is New York's local business and she was being cautious in order to run for President.

          Reply Tuesday, September 01, 2015 at 06:04 AM

          JohnH said in reply to Peter K....

          Yeah, it only took a lame duck Obama seven years to realize that workers needed some help. Now there was change you could believe in...

          It's amazing that there are still Democrats who can't admit that Obama is just another neo-liberal tool.

          Peter K. said...

          Noah Smith and the neo-Fisherians.

          Seems like Cochrane ignores fiscal policy. The Republican Congress hit the economy with unprecedented austerity. There was the sequester and debt ceiling clown show. The deficit went from 10 percent to 2.3 percent. Bernanke and the Fed complained regularly about fiscal headwinds. It's no wonder the Fed never managed to hit their 2 percent inflation target ceiling, given that all they tried was a few weak QEs.

          Whenever inflation expections dipped, they did a QE, and they went back up. That's it. They weren't trying to raise inflation quickly. They are paranoid about inflation getting out of hand and becoming "unmoored."

          Nothing surprising to me about inflation's behavior. Look at the employment-population ratio.

          Perhaps it's surprising that we didn't hit sustained deflation early on in the financial crisis, but perhaps the markets believed the Fed would get things back on track relatively quickly.

          That is they believed in the Fed's long-term inflation / implicit NGDP target and in the ability of the Fed to manage the economy.

          Reply Tuesday, September 01, 2015 at 06:18 AM

          anne said...

          http://krugman.blogs.nytimes.com/2015/08/31/the-china-debt-zombie/

          August 31, 2015

          The China-Debt Zombie
          By Paul Krugman

          Matthew Klein notes that Very Serious People are now worried that China's troubles, which have caused it to switch rather suddenly from a buyer of Treasuries to a seller, will cause U.S. interest rates to spike. He rightly finds this unconvincing. What he doesn't note is we're looking at another instance of an economic zombie in action.

          For the new concern about China is, in economic terms, the same as the old concern – that the Chinese could destroy our economy by cutting off funding, either for political reasons or out of disgust over our budget deficits. This always reflected a fundamental failure to understand the economic logic, as was pointed out many times not just by yours truly * (and much earlier here ** ) but also by people like Dan Drezner. *** But scare stories about our supposed financial dependence on China just keep shambling along, propounded by people who don't even realize that there are other views, let alone that they're talking nonsense.

          * http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

          ** http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

          *** http://belfercenter.ksg.harvard.edu/publication/19622/bad_debts.html

          Reply Tuesday, September 01, 2015 at 06:24 AM

          anne said in reply to anne...

          http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

          March 15, 2010

          China's Water Pistol
          By Paul Krugman

          Dean Baker * gets upset by this line in today's very useful Keith Bradsher article: **

          "China is the biggest buyer of Treasury bonds at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt."

          As I said, this was a very good article about China; the debt line was probably inserted because it's considered obligatory to say this in any article about US-China relations. As it happens, however, while it's part of what everyone knows, it's also completely false.

          Why don't people get this? Part of the answer is that it's really hard for non-economists - and many economists, too! - to wrap their minds around the Alice-through-the-looking-glass nature of economics when you're in a liquidity trap. *** Even if they've heard of the paradox of thrift, they don't get the extent to which we're living in a world where more savings - including savings supplied to your economy from outside - are a bad thing.

          Also, and I think harder to forgive, is the way many commentators seem oblivious to how we got here. Yes, we have large budget deficits - but those deficits have arisen mainly as the flip side of a collapse in private spending and borrowing. Here's what net borrowing by the US private and public sectors looks like in the Fed's flow of funds report:

          [Private and public net borrowing, 2003-2009]

          The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.

          The bottom line in all this is that we don't need the Chinese to keep interest rates down. If they decide to pull back, what they're basically doing is selling dollars and buying other currencies - and that's actually an expansionary policy for the United States, just as selling shekels and buying other currencies was an expansionary policy for Israel **** (it doesn't matter who does it!).

          As Dean nicely puts it, "China has an unloaded water pistol pointed at our heads." Actually, it's even better: China can, if it chooses, throw some cold water on us - but it's a hot day, and we would actually enjoy it.

          * http://prospect.org/article/nyt-spreads-nonsense-china-buying-us-debt

          ** http://www.nytimes.com/2010/03/15/business/global/15yuan.html

          *** Near zero short term Treasury interest rates

          **** http://krugman.blogs.nytimes.com/2010/03/14/israel-china-america/

          Reply Tuesday, September 01, 2015 at 06:24 AM

          anne said in reply to anne...

          http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

          October 18, 2013

          The China-Debt Syndrome
          By Paul Krugman

          Matthew Yglesias notes * an uptick in Very Serious People warning that China might lose confidence in America and start dumping our bonds. He focuses on China's motives, which is useful. But the crucial point, which he touches on only briefly at the end, is that whatever China's motives, the Chinese wouldn't hurt us if they dumped our bonds - in fact, it would probably be good for America.

          But, you say, wouldn't China selling our bonds send interest rates up and depress the U.S. economy? I've been writing about this issue ** a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work.

          Think about it: China selling our bonds wouldn't drive up short-term interest rates, which are set by the Fed. It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up.

          It's true that China could, possibly, depress the value of the dollar. But that would be good for America! Think about Abenomics in Japan: its biggest success so far has been driving down the value of the yen, helping Japanese exporters.

          But, you say, Greece. Well, Greece doesn't have its own currency or monetary policy; capital flight there led to a fall in the money supply, which wouldn't happen here.

          The persistence of scaremongering about Chinese confidence is a remarkable thing: it continues to be what Very Serious People say, even though it literally makes no sense at all. As Dean Baker once put it, "China has an empty water pistol pointed at our head."

          * http://www.slate.com/blogs/moneybox/2013/10/17/china_bond_purchases_stop_being_wrong.html

          ** http://krugman.blogs.nytimes.com/2013/10/03/phantom-crises-wonkish/

          Reply Tuesday, September 01, 2015 at 06:25 AM

          Peter K. said...

          http://krugman.blogs.nytimes.com/2015/09/01/multipliers-what-we-should-have-known/

          Multipliers: What We Should Have Known
          by Krugman

          SEPTEMBER 1, 2015 9:19 AM

          There's a very nice interview* with Olivier Blanchard, who is leaving the IMF, in which among other things Olivier says the right thing about changing one's mind:

          "With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of "mistakes,'' "Fund incompetence,'' and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a "mistake'' in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful."

          Indeed. There are a lot of people out there whose idea of a substantive argument is "you used to say X, now you say Y" - never mind the reasons why you changed your view, and whether it was right to do so.It's important not to fall into the trap of being afraid to let new evidence or analysis speak.

          One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence "turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts", but didn't we know that? I certainly did.

          And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.

          -------------------
          * http://www.imf.org/external/pubs/ft/survey/so/2015/RES083115A.htm

          Reply Tuesday, September 01, 2015 at 06:24 AM

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

          John Cochrane doesn't give an honest assessment of the Keynesian side of the argument. He pulls a Don Kervack and presents a straw man in order to knock it down.

          "Keynesians predicted a deflationary vortex!"

          And then when conservatives are confronted with what they actually said in the past, they dishonestly change their story. Kervack does the same thing.

          Reply Tuesday, September 01, 2015 at 06:26 AM

          pgl said in reply to Peter K....

          Cochrane goes on and on about nothing. Kervack goes on and on about nothing. Twins separated at birth?!

          Reply Tuesday, September 01, 2015 at 09:01 AM

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

          "in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. "

          Or rather monetary policy *will not* offset the negative effects of budget cuts.

          Fixed.

          Reply Tuesday, September 01, 2015 at 06:45 AM

          anne said in reply to Peter K....

          http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/

          November 10, 2009

          Depression Multipliers
          By Paul Krugman

          Barry Eichengreen and Kevin O'Rourke have lately been scoring a series of research coups, based on the combination of historical perspective and a global view. Most famously, they showed that on a global basis the first year of the current crisis was every bit as severe * as the first year of the Great Depression.

          Now they and collaborators have a new piece on policy effects, ** especially fiscal multipliers.

          The background here is that there are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions - and except in Japan,these haven't prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. We didn't have a really big fiscal expansion until World War II; and WWII isn't a good experiment because the surge in defense spending was accompanied by government policies that suppressed private demand, such as rationing and restrictions on investment. ***

          What E&R do here is use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s - fiscal expansions that can be regarded as exogenous to the economic situation, since they were

          "driven above all by Hitler's rearmament programmes and other nations' efforts to match the Nazis in this sphere, and by one-off events like Italy's war in Abyssinia."

          What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.

          * http://www.voxeu.org/index.php?q=node/3421

          ** http://www.econ.berkeley.edu/~eichengr/great_dep_great_cred_11-09.pdf

          *** I really, really don't understand why this point has been so hard to get across.

          Reply Tuesday, September 01, 2015 at 06:48 AM

          Peter K. said...

          http://www.cepr.net/blogs/beat-the-press/a-public-service-announcement-the-bureau-of-labor-statistics-budget

          A Public Service Announcement: The Bureau of Labor Statistics Budget
          by Dean Baker

          Published: 31 August 2015

          The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?

          Okay, I know that the data produced by the BLS doesn't sound especially sexy. After all, we aren't talking about children going hungry or pregnant women being denied medical care. But on a per dollar basis, I would argue that BLS funding is among the best investments out there.

          The purpose of the data collected by the BLS is to let us know how the economy is doing. Based on the data it produces we can know who is getting ahead and who is falling behind. We can know whether college degrees are really paying off, or paying off equally for everyone. We can know how long people spend being unemployed after losing a job or how much less they are likely to make when they find a new job.

          Yes, we all have common sense understandings of these issues. We have friends, neighbors, and co-workers all of whom have experiences in the labor market, dealing with health care insurance, planning for retirement. These impressions are valuable, but sometimes our impressions are wrong. Our immediate circles of contacts may not be typical. The data from BLS lets us get beyond these impressions to get a fuller picture of the economy.

          This matters hugely for important policy decisions. Right now there are many people who are anxious to have the Federal Reserve Board raise interest rates to slow the economy and the pace of job creation. The key factors in whether this makes sense are the pace of inflation, the pace of wage growth, and the extent of unemployment or various forms of under-employment.

          We should want the best possible data on all of these items. It would be an enormous tragedy if the Fed raised rates and prevented hundreds of thousands of workers from getting jobs, and millions from getting pay increases, because it thought the inflation rate was higher than it actually is.

          The BLS budget in 2015 was about $90 million less in real dollars than the 2010 budget. (That's roughly 0.002 percent of the total federal budget.) The BLS is looking at still further cuts in 2016. Suppose it would take another $100 million a year to keep BLS funded adequately. If a mistaken Fed decision on interest rates costs us just 0.2 percent in GDP growth, it would imply a loss of $36 billion in GDP and mean roughly 300,000 fewer people have jobs. (It probably also means some number of children are going hungry and pregnant women are being denied health care.)

          If it sounds far-fetched that the Fed may make a wrong decision because of bad data, consider the fact that the consumer price index (CPI) overstated the inflation rate that would be shown using current methods by roughly 0.5 percentage points annually in the early and mid-1990s. This means that if the current BLS methodology showed a 2.0 percent rate of inflation, the methodology used to construct the CPI in the early and mid-1990s would have reported the inflation rate as 2.5 percent.

          The Fed did in fact raise interest rates from 3.0 percent to 6.0 percent over the period from February of 1994 to March of 1995. This proved to be unnecessary, since inflation remained well-contained and the Fed eventually lowered interest rates in the second half of 1995. It's hard to say whether the wrong data on inflation contributed to the Fed's mistaken rate hikes. The problems with the CPI were known at the time and hopefully the Fed was able to adjust for them, but we can't know for sure if they did.

          There is a real cost to mistaken policy decisions. While the folks at Fed and other policy making bodies are perfectly capable of making bad decisions even when they have the right data, we should want to do everything we can to avoid preventable mistakes. This means ensuring that they have good data, which means giving the BLS the money it needs to do its job.

          One last point, this is not a partisan issue. There are plenty of economists across the political spectrum who support full funding for BLS. We all like to think that our arguments are based on data, but we can't know that is the case if the data are not available.

          --------------------------------

          Republicans: We're not scientists, but we just defund data collection so that the scientists are unable to do their science which may contradict our preferred policies.

          Reply Tuesday, September 01, 2015 at 06:41 AM

          pgl said in reply to Peter K....

          Bruce Bartlett has never forgiven Newt Gingrich for starting this trend in 1995. This is why we like the last honest conservative - Bruce that is!

          Reply Tuesday, September 01, 2015 at 09:02 AM

          Dan Kervick said in reply to Peter K....

          Always one of the easiest ways for reactionary forces to ward of social challenges, class conflict and criticism: destroy the data so that people can't figure out how bad things are.

          Note that Republicans have also had an obsession with the US Census. They don't want Americans to understand America.

          A couple of years ago, some interesting studies were carried out on public perceptions of inequality. It turns out that until they are presented with the actual data on economic distribution in the US, Americans tend to have a much rosier perception about how equal the US is than is actually the case.

          Apart from these cases were the politicians are trying to make the existing data worse, there are also important kinds of data which we need but do not yet collect. We're still in the dark ages when it comes to putting together a complete social inventory and accounting of all forms of private wealth, so that we know who owns what and where the stuff that is owned is located.

          Reply Tuesday, September 01, 2015 at 09:53 AM

          pgl said in reply to Dan Kervick...

          Uh Dan? It is the Census - not BEA - that reports on income inequality measure. FYI!

          Reply Tuesday, September 01, 2015 at 11:52 AM

          Dan Kervick said in reply to pgl...

          Yes, I know. But it doesn't collect that data nearly as frequently, and has no straightforward and reliable methods for combining the inequality data with the other economic measurements that the BEA does routinely.

          When the BEA reports on the growth of national income, Americans should be able to pull out right away information on what that growth looks like across income deciles. We deserve to know what an aggregate 3.7% growth quarter looks like for most Americans.

          Reply Tuesday, September 01, 2015 at 01:19 PM

          anne said...

          http://krugman.blogs.nytimes.com/2015/09/01/gravity/

          September 1, 2015

          Gravity
          By Paul Krugman

          Now that's fun: Adam Davidson tells us * about trade in the ancient Near East, as documented by archives found in Kanesh - and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

          But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it's an indication that policy can't do much to shape trade. That's not where I would have gone, and it's not where those who have studied the issue closely ** have gone.

          Here's my take: Think about two cities with the same per capita GDP - we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.

          So what's the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers - B's population.

          And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it's proportional to the number of potential buyers - A's population.

          So other things equal we would expect exports from B to A to be proportional to the product of their populations.

          What if GDP per capita isn't the same? You can think of this as increasing the "effective" population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.

          Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage - England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn't be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there's basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.

          Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, *** which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product - a banana isn't just a banana, it's an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 - or as some now call it, the "old new trade theory" - does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.

          And there's also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.

          Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along - and which, like Mexico, mainly trades with the US:

          [Graph]

          So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.

          * http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

          ** https://www2.bc.edu/~anderson/GravitySlides.pdf

          *** http://wits.worldbank.org/wits/wits/witshelp/Content/SMART/Demand%20side%20the%20Armington.htm

          Reply Tuesday, September 01, 2015 at 06:54 AM

          anne said in reply to anne...

          http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

          August 29, 2015

          The V.C.s of B.C.
          By ADAM DAVIDSON

          One morning, just before dawn, an old man named Assur-idi loaded up two black donkeys. Their burden was 147 pounds of tin, along with 30 textiles, known as kutanum, that were of such rare value that a single garment cost as much as a slave. Assur-idi had spent his life's savings on the items, because he knew that if he could convey them over the Taurus Mountains to Kanesh, 600 miles away, he could sell them for twice what he paid.

          At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man's donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-­Adad claimed he never knew how many textiles he had been given. Assur-idi spent the subsequent weeks sending increasingly panicked letters to his sons in Kanesh, demanding they track down Sharrum-Adad and claim his profits.

          These letters survive as part of a stunning, nearly miraculous window into ancient economics. In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal. Through a series of incredibly unlikely events, archaeologists have uncovered the comprehensive written archive of a few hundred traders who left their hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh, which sat roughly at the center of present-day Turkey and functioned as the hub of a massive global trading system that stretched from Central Asia to Europe. Kanesh's traders sent letters back and forth with their business partners, carefully written on clay tablets and stored at home in special vaults. Tens of thousands of these records remain. One economist recently told me that he would love to have as much candid information about businesses today as we have about the dealings - and in particular, about the trading practices - of this 4,000-year-old community.

          Trade is central to every key economic issue we face. Whether the subject is inequality, financial instability or the future of work, it all comes down to a discussion of trade: trade of manufactured goods with China, trade of bonds with Europe, trade over the Internet or enabled by mobile apps. For decades, economists have sought to understand how trade works. Can we shape trade to achieve different outcomes, like a resurgence of manufacturing or a lessening of inequality? Or does trade operate according to fairly fixed rules, making it resistant to conscious planning? ...

          Reply Tuesday, September 01, 2015 at 06:56 AM

          Dan Kervick said in reply to anne...

          One trading region, at one moment in history, based on "GDP" estimates from fragmentary records. From this, an economic law is abducted and proposed.

          There is the science of economics for you.

          Reply Tuesday, September 01, 2015 at 09:57 AM

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

          A lot of economics is an art, particularly surrounding financialization and globalization, and the primary practice of that art is equivocation. The science act in this case is a shell game. Under which shell is the arbitrage?

          Mineral resources, water, and land exist where they do, but the industrial revolution produced the means for sufficient skilled labor to reside almost anywhere.

          Reply Tuesday, September 01, 2015 at 10:51 AM

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

          "In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal."

          Dan K. is mad that the BEA for not reporting on GDP data back then. And he insists that they should have been reporting on income distribution during the Roman Empire as well.

          Reply Tuesday, September 01, 2015 at 11:55 AM

          pgl said in reply to Dan Kervick...

          FYI for the clueless one. GDP accounting was only invented in the 1940's. And you expect the BEA is report on information from centuries ago.

          Reply Tuesday, September 01, 2015 at 11:53 AM

          Dan Kervick said in reply to pgl...

          You're confused. I said nothing about the BEA in this comment. I talking about *economists* using limited data to propose grand laws.

          Reply Tuesday, September 01, 2015 at 01:21 PM

          anne said...

          http://www.cepr.net/publications/op-eds-columns/the-china-panic

          August 31, 2015

          The China Panic
          By Dean Baker

          One of the benefits of the massive inequality in the distribution of wealth is that the vast majority of us can sit back and enjoy the show when stock markets go into a worldwide panic, as they have been doing for the last couple of weeks. In spite of what you hear in the media, fluctuations in the stock market generally have little direct or indirect impact on the economy.

          This means that if you don't have a lot of money in the stock market, you don't have much to lose. And, according to data from the Federal Reserve Board, three quarters of households have less than $36,000 in the stock market, including their 401(k)s.

          But the markets have been putting on quite a show, so it is worth asking what is going on. At the most basic level, it seems evident that China's market had a very serious bubble. Its main index had increased by more than 150 percent from June of 2014 to its peak in June of this year. While it's possible that China's market has hugely undervalued in 2014, it seems more likely that this rise was bubble-driven. This means that people were buying into the market because they saw it going up, not because they had done an assessment of the future profit prospects for Chinese companies and decided that they were worth two-and-half times as much as they had been worth a year earlier.

          Bubbles inevitably burst. At some point there are no longer people willing to pay too much for stock, houses, tulips, or whatever. That seems to have been the story in China, where many new investors were buying into the market on credit. At some point they have trouble borrowing further and the upward spiral goes into reverse. The clumsy efforts of China's government to stop this correction proved largely futile.

          The next question is why did the fun spill over to Europe, the United States, and the rest of the world's stock markets? Most of these markets are high by historic standards, but they are not obviously experiencing bubbles. To use one common metric, Robert Shiller's ratio of the S&P 500 to trailing ten years' earnings peaked at just over 26 to 1 in June. This is higher than the long term average of 15 to 1, but well below the peak of 44 to 1 in the late 1990s bubble. There would be a similar story with most other major markets.

          Furthermore, in the late 1990s there was an obvious investment alternative. Ten-year U.S. Treasury bonds paid a nominal interest rate of over 5.0 percent which translated into roughly a 2.5 percent real rate at the time. Currently 10-year Treasury bonds are paying a bit over 2.0 percent interest, which translates into a real interest rate of roughly 0.5 percent. Given these fundamentals, there is no reason to expect sharp declines in the U.S. and other major markets, but nothing says that they can't be 5–10 percent below current levels.

          But there are some stories for the real economy that do go along with the stock market turbulence. First, China is going through a process of adjustment where it goes from growth led by investment and exports to growth led by domestic consumption. The stock market run-up was helping this transition as people increased their consumption based on bubble-generated wealth. The plunge in prices will hurt this process, but it is important to remember that stock prices are still almost double their level of last summer.

          While predictions of a collapse of the Chinese economy will almost certainly be proven wrong, it is likely to be on a slower growth path going forward. This is a major factor in the falloff in commodity prices, most notably oil, the price of which has dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela.

          However, the drop in commodity prices could have even more far-reaching effects. The economies of Canada and Australia have also been driven to an important extent by booming commodity exports. These economies recovered much more rapidly from the 2008 crash than most other wealthy countries. Part of this story is that that house prices in both countries quickly returned to bubble levels.

          The price of a typical home in Canada is 13 percent higher than in the United States despite the fact that its per capita income is more than 20 percent lower. In Australia, with an average income that is 93 percent of the U.S. level, the median house price is almost twice the U.S. level. It's pretty hard to tell a story where this gap is justified by the fundamentals of the market. After all, neither country is notably short of land (not that this explanation generally makes sense).

          It may turn out to be the case that the plunge in commodity prices will be the factor that will teach homebuyers and potential homebuyers in these countries the arithmetic they need to recognize the bubbles in their markets. If that proves to be the case, then we may see the unraveling of these bubbles, and that will not be a pretty picture.

          Unlike stock, middle income people do have a real stake in the value of their house. If prices in these countries were to fall to U.S. levels, it would imply a massive loss of wealth. This will almost certainly lead to a large drop in consumption and in all probability a serious recession....

          Reply Tuesday, September 01, 2015 at 08:00 AM

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

          Ouch! THANKS!

          Reply Tuesday, September 01, 2015 at 10:56 AM

          anne said...

          http://www.cepr.net/publications/op-eds-columns/the-china-syndrome-bubble-trouble

          August 31, 2015

          The China Syndrome: Bubble Trouble
          By Dean Baker

          The financial markets have been through some wild and crazy times over the last two weeks, although it appears that they have finally stabilized. The net effect of all the gyrations is that a serious bubble in China's market seems to have been at least partially deflated. After hugely over-reacting to this correction, most other markets have largely recovered. Prices are down from recent peaks, but in nearly all cases well above year ago levels.

          But the stock market is really a side-show; after all back in 1987 the U.S. market fell by almost 25 percent for no obvious reason, with little noticeable effect on the U.S. economy. The more serious question is what is happening with the underlying economy, and there are some real issues here.

          China's economy had become a major engine for world growth just as the U.S. economy had been a major engine for world growth in the last decade. While predictions of an economic collapse in China will almost certainly prove wrong (many China experts have a long history of such predictions), it does seem likely that its growth going forward will be considerably slower than it has been in the past.

          This will be bad news for exporters of oil and other commodities, the price of which were being sustained by the rapid growth in China. But a slowdown in China will also be bad news for the United States and other rich countries who were expecting that continued strong growth in China would boost their net exports, thereby lifting their weak growth rates.

          Over the longer term it is reasonable to expect that China will continue to move from large trade surpluses to trade deficits or at least near balanced trade, the movement will likely be in the other direction in the immediate future. This means that trade with China will be a factor slowing growth in Japan, Europe, and the United States for the immediate future.

          While we can be unhappy with China for slowing our growth, the important point to remember is that we do still possess the keys for more rapid growth. After all, the problem is simply a lack of demand in the U.S. and world economy. We can create more demand by having the government spend money or give out tax cuts. Larger deficits will boost the economy.

          If the private sector isn't prepared to spend, the government can increase demand by repairing and improving the infrastructure, increased funding for health care, child care, and education, or subsidizing wind, solar, and other forms of clean energy. With interest rates at extraordinarily low levels and no signs of inflation anywhere in sight, there is no economic barrier to spending in these and other areas. Such spending would both help to make up the demand gap resulting from our trade deficit, thereby creating jobs, and also increase our economy's longer term potential and the country's well-being.

          The only obstacle to such spending is political. This spending would mean larger budget deficits and our politicians are scared of talking about budget deficits.

          The current economic situation is more than a bit absurd. Essentially, we have a worldwide shortfall in demand. Countries that have their own currencies, like the United States, United Kingdom, and Canada could deal with their own shortfalls simply by running larger budget deficits. But for political reasons these countries don't want to run large budget deficits. Instead, they are praying that their trading partners will increase their budget deficits, which will increase net exports and lead to more economic growth.

          If the path to increase growth and employment remains blocked for political reasons, we should always remember that we can look to increase employment by going the opposite direction of decreasing supply. This can begin with work sharing, the policy of encouraging companies to reduce work hours rather than lay off workers. This was the key to Germany's low unemployment rate even at the worst points in the recession.

          And, we can look to measures such as mandated paid sick days, parental leave, and vacation, which have the effect of reducing the average number of hours worked in a year. These are all policies that can be implemented without running large budget deficits. Furthermore, since the reduced labor supply is likely to tighten up the labor market, it could lead to stronger wage growth. And, these measures will provide for a better balance between work-life and family life.

          The best part is that these policies may be more politically feasible than other approaches....

          Reply Tuesday, September 01, 2015 at 08:00 AM

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

          THANKS! Dean is the best.

          Reply Tuesday, September 01, 2015 at 11:00 AM

          Peter K. said...

          http://uneasymoney com/2015/08/31/economic-prejudice-and-high-minded-sloganeering/

          http://tinyurl.com/nv8uw2j

          Economic Prejudice and High-Minded Sloganeering
          by David Glasner
          Published August 31, 2015

          In a post yesterday commenting on Paul Krugman's takedown of a silly and ignorant piece of writing about monetary policy by William Cohan, Scott Sumner expressed his annoyance at the level of ignorance displayed people writing for supposedly elite publications like the New York Times which published Cohan's rant about how it's time for the Fed to show some spine and stop manipulating interest rates. Scott, ever vigilant, noticed that another elite publication the Financial Times published an equally silly rant by Avinah Persaud exhorting the Fed to show steel and raise rates.

          Scott focused on one particular example of silliness about the importance of raising interest rates ASAP notwithstanding the fact that the Fed has failed to meet its 2% inflation target for something like 39 consecutive months:

          "Yet monetary policy cannot confine itself to reacting to the latest inflation data if it is to promote the wider goals of financial stability and sustainable economic growth. An over-reliance on extremely accommodative monetary policy may be one of the reasons why the world has not escaped from the clutches of a financial crisis that began more than eight years ago."

          Scott deftly skewers Persaud with the following comment:

          "I suppose that's why the eurozone economy took off after 2011, while the US failed to grow. The ECB avoided our foolish QE policies, and "showed steel" by raising interest rates twice in the spring of 2011. If only we had done the same."

          But Scott allowed the following bit of nonsense on Persaud's part to escape unscathed (I don't mean to be critical of Scott, there's only so much nonsense that any single person be expected to hold up to public derision):

          "The slowdown in the Chinese economy has its roots in decisions made far from Beijing. In the past five years, central banks in all the big advanced economies have embarked on huge quantitative easing programmes, buying financial assets with newly created cash. Because of the effect they have on exchange rates, these policies have a "beggar-thy-neighbour" quality. Growth has been shuffled from place to place - first the US, then Europe and Japan - with one country's gains coming at the expense of another. This zero-sum game cannot launch a lasting global recovery. China is the latest loser. Last week's renminbi devaluation brought into focus that since 2010, China's export-driven economy has laboured under a 25 per cent appreciation of its real effective exchange rate."

          The effect of quantitative easing on exchange rates is not the result of foreign-exchange-market intervention; it is the result of increasing the total quantity of base money. Expanding the monetary base reduces the value of the domestic currency unit relative to foreign currencies by raising prices in terms of the domestic currency relative to prices in terms of foreign currencies. There is no beggar-thy-neighbor effect from monetary expansion of this sort. And even if exchange-rate depreciation were achieved by direct intervention in the foreign-exchange markets, the beggar-thy-neighbor effect would be transitory as prices in terms of domestic and foreign currencies would adjust to reflect the altered exchange rate. As I have explained in a number of previous posts on currency manipulation (e.g., here, here, and here) relying on Max Corden's contributions of 30 years ago on the concept of exchange-rate protection, a "beggar-thy-neighbor" effect is achieved only if there is simultaneous intervention in foreign-exchange markets to reduce the exchange rate of the domestic currency combined with offsetting open-market sales to contract – not expand – the monetary base (or, alternatively, increased reserve requirements to increase the domestic demand to hold the monetary base). So the allegation that quantitative easing has any substantial "beggar-thy-nation" effect is totally without foundation in economic theory. It is just the ignorant repetition of absurd economic prejudices dressed up in high-minded sloganeering about "zero-sum games" and "beggar-thy-neighbor" effects.

          And while the real exchange rate of the Chinese yuan may have increased by 25% since 2010, the real exchange rate of the dollar over the same period in which the US was allegedly pursuing a beggar thy nation policy increased by about 12%. The appreciation of the dollar reflects the relative increase in the strength of the US economy over the past 5 years, precisely the opposite of a beggar-thy-neighbor strategy.

          And at an intuitive level, it is just absurd to think that China would have been better off if the US, out of a tender solicitude for the welfare of Chinese workers, had foregone monetary expansion, and allowed its domestic economy to stagnate totally. To whom would the Chinese have exported in that case?

          Reply Tuesday, September 01, 2015 at 08:09 AM

          Peter K. said...

          http://jwmason.org/slackwire/is-capital-being-reallocated-to-high-tech-industries/

          Is Capital Being Reallocated to High-Tech Industries?

          by J.W. Mason
          Posted on September 1, 2015

          Readers of this blog are familiar with the "short-termism" position: Because of the rise in shareholder power, the marginal use of funds for many corporations is no longer fixed investment, but increased payouts in the form of dividends and sharebuybacks. We're already seeing some backlash against this view; I expect we'll be seeing lots more.

          The claim on the other side is that increased payouts from established corporations are nothing to worry about, because they increase the funds available to newer firms and sectors. We are trying to explore the evidence on this empirically. In a previous post, I asked if the shareholder revolution had been followed by an increase in the share of smaller, newer firms. I concluded that it didn't look like it. Now, in this post and the following one, we'll look at things by industry.

          In that earlier post, I focused on publicly traded corporations. I know some people don't like this - new companies, after all, aren't going to be publicly traded. Of course in an ideal world we would not limit this kind of analysis to public traded firms. But for the moment, this is where the data is; by their nature, publicly traded corporations are much more transparent than other kinds of businesses, so for a lot of questions that's where you have to go. (Maybe one day I'll get funding to purchase access to firm-level financial data for nontraded firms; but even then I doubt it would be possible to do the sort of historical analysis I'm interested in.) Anyway, it seems unlikely that the behavior of privately held corporations is radically different from publicly traded one; I have a hard time imagining a set of institutions that reliably channel funds to smaller, newer firms but stop working entirely as soon as they are listed on a stock market. And I'm getting a bit impatient with people who seem to use the possibility that things might look totally different in the part of the economy that's hard to see, as an excuse for ignoring what's happening in the parts we do see.

          ....

          Reply Tuesday, September 01, 2015 at 08:11 AM

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

          Part of the backlash Mason mentions and links to.

          http://www.newyorker.com/magazine/2015/08/24/the-short-termism-myth

          AUGUST 24, 2015 ISSUE

          The Short-Termism Myth
          BY JAMES SUROWIECKI

          In recent years, it's become a commonplace that American companies are too obsessed with the short term. In the heyday of Bell Labs and Xerox PARC, the argument goes, corporations had long time horizons and invested heavily in the future. But now investors care only about quarterly earnings and short-term stock prices, so companies skimp on R. & D. and waste hundreds of billions propping up their stock with share buybacks. This "tyranny of accountants" has damaged both the long-term prospects of companies and the U.S. economy as a whole.

          The latest public figure to embrace this diagnosis is Hillary Clinton. In a speech a couple of weeks ago, she unveiled a solution: changing the capital-gains tax in order to encourage investors to hold stocks longer. Right now, there are only two capital-gains categories: anything held for less than a year is short-term; anything longer is long-term. Clinton's plan, which would apply only to investors in the highest tax bracket, would expand the definition of short-term to include any investment held for less than two years, and it would create a sliding scale of rates. For every extra year (up to six) that you keep a stock, you pay a lower rate.


          The political appeal of the plan is clear. It targets wealthy investors, is friendly to executives, and is aimed at getting companies to spend more money. Unfortunately, it almost certainly won't work. The simplest reason for this is that the plan would affect only a small slice of the market. Len Burman, a tax expert at the Urban Institute, told me, "The plan's unlikely to have a major impact on stock prices, since most of the money in the market is controlled by institutions that don't pay capital-gains taxes, like endowments and pension funds." Burman also made the point that pushing people to hold stocks they would rather sell is hardly conducive to productive investment. "Even if short-termism is the problem, locking people into unprofitable transactions for long periods of time doesn't really seem like a great solution," he said.

          Aside from these practical problems, the plan rests on two common but ultimately questionable assumptions. The first is that corporate decision-makers care only about the short term. The second is that it's the stock market that makes them think this way. These assumptions are widely shared and long-standing, in both business and academe. A famous report from the Council on Competitiveness in the early nineties concluded that, compared with Germany and Japan, the U.S. was greatly underinvesting in the future. In 2005, the C.E.O. of Xerox, Anne Mulcahy, described the pressure from Wall Street for short-term profits as "a huge problem," and, in a survey of executives that same year, more than half said they would delay valuable new projects in order to boost short-term earnings.

          That sounds pretty bad. Yet when you actually look at the numbers the story gets more complicated. There is reason to think that some companies are investing too little in the future. As a whole, though, corporate spending on R. & D. has risen steadily over the years, and has stayed relatively constant as a share of G.D.P. and as a share of sales. This year, R. & D. spending is accelerating at its fastest pace in fifty years and is at an all-time high as a percentage of G.D.P. Furthermore, U.S. companies don't spend notably less on R. & D. than their international competitors. Similarly with investors: their alleged obsession with short-term earnings is hard to see in the data. Several studies in the nineties found that companies announcing major R. & D. investments were rewarded by the markets, not punished, and that companies with more institutional investors (who typically have shorter time horizons) spent more on R. & D., not less. A 2011 Deutsche Bank study of more than a thousand companies found that those which spent significantly more on R. & D. than their competitors were more highly valued by investors. And a 2014 study of companies that cut R. & D. spending in order to meet short-term earnings goals found that their stocks underperformed after earnings had been announced-hardly what you'd expect if the market cared only about the short term.

          Of course, there's no shortage of investors who are myopic. But the market, for the most part, isn't. That's why companies like Amazon and Tesla and Netflix, whose profits in the present have typically been a tiny fraction of their market caps, have been able to command colossal valuations. It's why there's a steady flow of I.P.O.s for companies with small revenues and nonexistent earnings. And it's why the biotech industry is now valued at more than a trillion dollars, even though many of the firms have yet to bring a single drug to market. None of these things are what you'd expect from a market dominated by short-term considerations.


          To the extent that companies are underinvesting in the future, the blame lies not with investors but with executives. The pay of many C.E.O.s is tied to factors like short-term earnings, rather than to longer-term metrics, which naturally fosters myopia. That 2014 study of companies that cut R. & D. spending found that the executives responsible saw their pay rise sharply, even though the stock didn't. If Clinton really wants to deal with short-termism, she'd be better off targeting the way executive compensation works, instead of the way capital gains are taxed. Ultimately, the solution to short-termism isn't on Wall Street. It's in the executive suite.

          Reply Tuesday, September 01, 2015 at 08:12 AM

          Peter K. said...

          http://www.avclub.com/article/stephen-colberts-second-week-guests-includes-berni-224697

          Bernie Sanders will be on Colbert's show in the second week.

          What are Sanders's views on monetary policy? He should have attended the Fed Up counter conference. Just as he should have attended black lives matter protests.

          If his views on monetary policy are like Kervick's I'll be voting for Hillary.

          Reply Tuesday, September 01, 2015 at 08:29 AM

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

          Corbyn has some sophisticated, cutting edge ideas about macro policy. Here's Richard Murphy, not to be confused with the Austrian Robert Murphy.

          http://www.taxresearch.org.uk/Blog/2015/08/30/corbynomics-four-weeks-on/

          Corbynomics Four Weeks On

          ....

          So, what of the most contentious one, People's Quantitative Easing? Let's break this down. For ease I will use The Economist again, but will refer to the many others who have made similar points.

          First, the debate on investment has been welcomed, from the Economist, to the FT, to the Guardian and in the blogosphere: indeed, one of the criticisms is I have not made it strongly enough. As the Economist says:

          "As a percentage of GDP, Britain's government investment is the seventh-lowest of 26 countries tracked by Eurostat (though it is higher than in some big economies, like Germany) and lower now than during the financial crisis."

          The first success of this policy has been to put this issue back into debate.

          Second, the idea of a National Investment Bank has been pretty widely welcomed. The Economist said:

          "To increase investment he wants to set up a "national investment bank", which would, under government direction, spend on roads, houses and green energy. Nothing wrong with that."

          Many agreed.

          Third, the argument on Bank of England independence has been shown to be a red-herring. All QE has been Treasury approved: the idea that the BoE had operational control of this policy cannot be supported by any evidence.

          Fourth, it has been agreed, by Chris Giles in the FT and Larry Elliott in the Guardian for example, that PQE would have made sense in 2012 when stimulus was needed. In other words, PQE could have directed funds to the real economy more effectively then than actually happened at that time. Their argument is that PQE is, however, no longer relevant because we were now growing and they assume that will continue to be the case. Technically, the case was won at that point: the argument that PQE might work was over when it was conceded it was all down to timing.

          Fifth, the argument that it is not legal has lost all head wind: it's been effectively authorised in the UK and my design is Article 123 of the EU compliant. I have made clear I would expect some of the bond sales from the NIB, at least, to be held by the public, especially by pension saving institutions.

          Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.

          Seventh, the inflation argument got silly. The Telegraph turned up with the Zimbabwe argument, on cue. The fact that PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered (in that case only) by tax was not noticed by them. That's just indication of the poverty of their thinking. There is no serious argument on this point: PQE is another tool in the armoury to create inflation when we do not have it, and need it.

          Eighth, along came China. A week after I told the FT that another recession was likely and tools to deal with it would be needed China tried to deliver one. Now, of course, we have no clue what will happen as yet on that front, but markets are down and will stay down in my view, whilst people are very worried about what will happen if the Fed and BoE are daft enough to raise rates. Whether or not they do the risk of long term export of both recession and deflation from China itself via the emerging markets looks very real indeed. In other words, the need for a new fiscal tool when all monetary options have now failed became very starkly apparent and the prescient adoption of PQE by Jeremy Corbyn began to look like a good move: even the Telegraph seemed to note that.

          Ninth, Mark Carney admitted monetary policy is near enough dead yesterday. He has said real interest rates of more than 1% (that means 1% over inflation) look unlikely for a long time to come. Thirty years ago real rates could be vastly higher: they have fallen 4.5% in real terms over that period, he says. The impact is significant. He is effectively saying that the room to manage the economy using interest rates has largely disappeared. With QE also largely discredited for creating asset price hikes, fiscal policy is now the only game in town. PQE is fiscal policy, but of course not the only fiscal policy. That is why it may well be important. What else is anyone going to use when the next crisis comes when no one else has suggested anything new: they just declare the cupboard bare?

          Tenth, discussion of modern monetary theory has increased as a result, and that has clearly upset those dedicated to bond financing and / or central bank control of monetary policy. This is not an academic debate: it is about whether or not unelected people and bond markets control the choices governments make. PQE is not just a technical issue: it is about making clear who is in control, and I am emphatic it must be politicians accountable to parliament who are. PQE is intended to achieve that goal. No wonder that this has become a key point of contention. This is not about economics at all, per se: it is about the politics of power and in whose interests the economy is run. Difference here is not an issue of right or wrong: it is about belief. Many have not spotted this: I make it explicit.

          And last, not everyone agrees on this issue. But haven't you heard the one about asking two economists for an opinion and you will get three answers?

          So, to summarise on PQE I suggest we've got somewhere near the following position:

          1) Austerity can be opposed and PQE has fuelled that debate.

          2) Investment is widely acknowledged to be needed. PQE delivers it.

          3) A National Investment Bank is needed: PQE can help fund it

          4) Private investors should not be excluded from these ideas: my suggestions on linking the NIB to pension saving as well as PQE should ensure that is possible. It also means the legality question goes away.

          5) Questions of Bank of England independence have been raised but those doing so are going to have a much tougher time defending their case in future

          6) Whether PQE is a policy only for recession is to be resolved: I certainly think it may have more use in that scenario but stress I do not think the state fills in the gaps left by the private sector. Sometimes it has to meet need and the curtail the private sector at the same time if social priorities are to be met. PQE and higher taxes can achieve that goal simultaneously. Those making the timing argument ignore this altogether and that is their mistake in my opinion.

          7) The cost issue remains out there, although I am not sure why.

          8) The bond preference issue is interesting, but is most often (but not always) used by those who have opposed their use for deficit funding, and so is in too many cases disingenuous. It also ignores the cost issue and the leakage out of the UK economy whilst still supporting the view that we are constrained by bond markets. We are not, and PQE indicates that fact. I fully admit that part of PQE is about changing narratives and power relationships and think that important.

          I stress: I hope it is clear that I am listening and I do note the points made. But I also think PQE is still, very firmly, on the agenda after all that. It will change (it has already in some ways) but I can't see it going away.

          No doubt omissions will be pointed out. But please keep to the arguments: I am bored by the rest.

          Reply Tuesday, September 01, 2015 at 08:38 AM

          im1dc said...

          US ECONOMIC INDICATORS - 1h ago

          "US construction spending rises 0.7% in July, reaches highest level in 7 years - @USATODAYmoney"

          Reply Tuesday, September 01, 2015 at 08:31 AM

          im1dc said...

          FORD MOTOR COMPANY - 1h ago

          "Ford senior economist Yong Yang says Chinese economic slowdown's effect on US is 'likely modest' - @NathanBomey"

          see original on twitter.com

          Reply Tuesday, September 01, 2015 at 08:32 AM

          pgl said in reply to im1dc...

          Ford has never been able to sell their cars to the Chinese before. Why start now?

          Reply Tuesday, September 01, 2015 at 11:56 AM

          im1dc said...

          US ECONOMIC INDICATORS - 1h ago

          "Dow Jones average sinks 300* points in early trading following weak China manufacturing data - @AP"

          *323 points as I type this

          Reply Tuesday, September 01, 2015 at 08:34 AM

          im1dc said in reply to im1dc...

          I don't think the China Data had anything much to do with this mornings weakness. It is more probable that this weekends bullish statements by FedRes member Stanley Fischer and other Interest Rate Hawks that put the notion of a September interest rate hike in play again caused market bulls to sell instead of buy in an effort to jiggle their portfolios with more cash and less exposure to volatile equities in a raising interest rate environment.

          That's just me thinking out loud.

          Reply Tuesday, September 01, 2015 at 08:39 AM

          pgl said in reply to im1dc...

          Yep - Stanley Fischer took some chocolate coins from JohnH, ate them, and then made JohnH happy by talking about higher interest rates. Stock values down - JohnH applauds, real GDP down - JohnH applauds. Inflation may fall - JohnH's 80 year old girl friend is getting all happy.

          Reply Tuesday, September 01, 2015 at 11:58 AM

          im1dc said...

          A major trading partner of the US is and will be buying less from us for awhile

          I do not understand the FedRes rush to raise Interest Rates under weaker global economic conditions given that the USA is doing well but obviously has limited upside until a global economic drivers return.

          CANADA - 3h ago

          "Canada slumps into technical recession after 2nd consecutive quarterly contraction of GDP - @CBCAlerts"

          Reply Tuesday, September 01, 2015 at 08:44 AM

          pgl said in reply to im1dc...

          Canada does buy more from us than China. This is worrisome.

          Reply Tuesday, September 01, 2015 at 11:59 AM

          im1dc said...

          Update re EL NIŃO

          Growing up in SF Bay Area EL NIŃO was a friendly force of nature. Will have to wait and see if that friendly force has returned or not.

          EL NIŃO - 3h ago

          "El Nińo weather conditions to strengthen before the end of 2015, UN weather agency says - @Reuters"

          Reply Tuesday, September 01, 2015 at 08:47 AM

          pgl said in reply to im1dc...

          Let it rain!!!

          Reply Tuesday, September 01, 2015 at 11:59 AM

          im1dc said...

          US Construction up, car sales not so much

          So the pendulum swings to neutral?

          HONDA - 2m ago

          "Honda US sales down 6.9% in August; Honda Division down 7.5%, Acura down 1-1% - @Automotive_News"

          Reply Tuesday, September 01, 2015 at 08:59 AM

          im1dc said in reply to im1dc...

          US auto sales top expectations in August - expect this to be to due fleet sales not individual sales as with Honda

          AUTO INDUSTRY - 31m ago

          "US auto sales top expectations in August; Fiat Chrysler sales rise 1.7%, Ford 5.4%, General Motors slips 0.7% - @forbes"

          read more on forbes.com

          Reply Tuesday, September 01, 2015 at 09:49 AM

          im1dc said...

          Everyone reading these emails will see Hillary Clinton and her team as the best of the best in DEM policy, realpolitik, and analysis, and therefore the best person for President in 2016.

          The import of Tumulty's article is that it fully comports with and lends substantial real-time inner circle proofs to Ron Suskind's "Confidence Men" take of the first term of the Obama presidency. I hope you all read it when I recommended it earlier this year.

          Hillary Clinton and her team have been and are far better analysts, strategists, and Policy makers than President Obama and his team were through 2011.

          Read the emails for yourself:

          http://www.washingtonpost.com/news/post-politics/wp/2015/09/01/within-clintons-circle-resentments-against-obama-persisted-for-years/

          "Within Clinton's circle, resentments against Obama persisted for years"

          By Karen Tumulty...September 1, 2015...10:00 AM

          "Within Hillary Clinton's inner circle, resentment over her defeat by President Obama in the bitter 2008 Democratic primary festered well into his presidency, as evidenced by a string of e-mails from one of her most frequent correspondents, who often passed along unflattering reports about Obama.

          In the latest trove of her emails, released late Monday night, Clinton confidant Sidney Blumenthal frequently makes subtle and not-so-subtle digs..."

          Reply Tuesday, September 01, 2015 at 09:32 AM

          Fred C. Dobbs said...

          Between Iraq and a Hawk Base
          http://nyti.ms/1JzngLJ
          NYT magazine - ROBERT DRAPER - SEPT. 1

          GOP presidential candidates struggle to craft a foreign
          policy that can please the gung-ho and win in 2016 -
          without overpromising military force.

          The first sign that the Republican Party's 17 presidential candidates might have trouble explaining what a conservative foreign policy should look like - beyond simply saying that it should not look like Barack Obama's - emerged on May 10. That's when the Fox News host Megyn Kelly asked Jeb Bush a rather predictable question about the Iraq war: ''Knowing what we know now, would you have authorized the invasion?''

          Bush said yes. Shortly after that, he said that he had misheard the question; later, that the question was hypothetical and thus unworthy of an answer; and finally, upon further review, that he in fact would not have authorized the invasion. The jittery about-face suggested that Bush had spent little, if any, time digesting the lessons of the war that defines his older brother's presidency.

          The shadow that George W. Bush's foreign policy casts over Jeb Bush's quest for the White House is particularly prominent. But it also looms over the entire G.O.P. field, reminding the candidates that though Republican voters reject what they see as Obama's timid foreign policy, the public has only so much appetite for bellicosity after more than a decade spent entangled in the Middle East. At some point, even the most conservative of voters will demand an answer to the logical corollary of Megyn Kelly's question: How does a president project American strength while avoiding another Iraq?

          Among the many advisers recruited to help Jeb Bush answer that question is Richard Fontaine, the president of the Center for a New American Security, a policy group based in Washington. Fontaine was a senior foreign-­policy adviser for Senator John McCain's 2008 presidential campaign, where he first learned that winning over voters was a radically different task from those he navigated during his career in the Bush administration. ''Diplomacy is about minimizing differences,'' he told me. '' 'Pol Pot and the Pope - surely there's something they can agree on.' A political campaign is exactly the opposite. It's about taking a minor difference and blowing it up into something transcendent.''

          Watching Jeb Bush flub the Iraq question confirmed a theory about that war and its unheeded lessons that Fontaine had been nurturing for several months. In February, he co-wrote an essay in Politico Magazine arguing that Congress should not authorize Obama to use military force against ISIS until it had done the kind of due diligence that Congress utterly failed to do before authorizing Bush to invade Iraq in 2002. In response to the essay, Fontaine said, many of his peers acknowledged to him ''that there actually hasn't been a lot of thinking on this from the entire foreign-policy establishment other than the knee-jerk 'Well, we're never gonna do that again.' ''

          Fontaine, who is 40, Clark Kentish in appearance and wryly self-deprecating in conversation, has been doing quite a bit of thinking on the matter of Iraq. He worked in the State Department as well as the National Security Council during the first year of the Iraq war before signing on as McCain's foreign-policy aide in 2004. Over the next five years, he and McCain traveled to Iraq 10 times. His boss had been one of the loudest advocates of toppling Saddam Hussein and then one of the most candidly chagrined observers when the war effort began to crumble before his eyes. ''We'd been running this experiment from 2003 to the end of 2006 of trying to make political changes in Iraq and hoping this would positively influence the security,'' Fontaine recalled. ''It only got worse and worse. Things got to the point where there was no political or economic activity in the country, because the violence was so bad.''

          The troop surge in 2007 succeeded in stabilizing the country. By then, however, Americans were weary of military aggression. In 2008, they elected president a one-term U.S. senator who had consistently opposed the war in Iraq and vowed to end it so he could devote most of his attention to a foundering economy. Four years later, the electorate awarded Obama a second term, with the same priorities in mind. Exit polls showed that 60 percent of voters regarded the economy as the predominant issue in 2012, while a mere 4 percent cited foreign affairs as their chief voting issue.

          Three years later, this has changed - especially for Republican voters, who, according to several polls, now say national security rivals the economy as a foremost concern. Several factors explain this. While the economy has continued to improve, the Obama administration has watched with seeming helplessness as ISIS dominates swaths of Iraq and Syria while beheading American hostages; as Iran threatens to make good on its nuclear ambitions unless the United States agrees to lift sanctions; as Vladimir Putin reasserts Russian primacy by invading the Crimean Peninsula; and as China spreads its influence across Asia and Africa. These and other developments have revived concerns that the United States has become dangerously weaker under a Democratic president, one whose first secretary of state happens to be the apparent favorite for that party's presidential nomination.

          The swaggering rhetoric of Donald Trump, the current Republican front-runner, seems deftly calibrated to reflect the mood of a G.O.P. base spoiling for fights abroad. According to a Quinnipiac University poll in July, 72 percent of registered Iowa Republican voters (where the first contest for presidential delegates will be held early next year) favor sending American ground troops into Syria and Iraq to fight ISIS. In August, Quinnipiac found that 86 percent of all Republicans opposed the Iran nuclear deal. ...

          Reply Tuesday, September 01, 2015 at 09:40 AM

          Fred C. Dobbs said in reply to Fred C. Dobbs...

          Why the 2007 surge in Iraq actually failed http://www.bostonglobe.com/opinion/2014/11/17/why-surge-iraq-actually-failed-and-what-that-means-today/0NaI9JrbtSs1pAZvgzGtaL/story.html?event=event25 via @BostonGlobe
          Alex Kingsbury - November 17, 2014

          "We had it won, thanks to the surge. It was won." - John McCain, Sept. 11, 2014


          The goals of the Iraq surge were spelled out explicitly by the White House in Jan. 2007: Stop the raging sectarian bloodletting and reconcile Sunnis, Shiites, and Kurds in the government. "A successful strategy for Iraq goes beyond military operations," then-President George W. Bush said.

          In light of all that has happened since that announcement, it is jaw-dropping to still hear the surge described as a success. Yet the myth of its success is as alive as it is dangerous. It's a myth that prevents us from grappling with the realities of the last effort in Iraq, even as we embark on another.

          To believe in the myth of the surge is to absolve Iraqis of their responsibility to resolve their differences. It gives the US government an unrealistic sense of its own capabilities. And it ignores the roots of the conflict now stretching from Damascus to Baghdad. ...

          For Americans, the myth of the victorious surge is so seductive because it perpetuates an illusion of control. It frames the Iraq War as something other than a geostrategic blunder and remembers our effort as something more than a stalemate. What's more, it reinforces the notion that it's possible to influence events around the world, if only military force is deployed properly. It's a myth that makes victory in the current Iraq mission appear achievable.

          Dispelling the myth of the successful surge begins by measuring it against its own metrics for success: violence and reconciliation.

          There is far too little written on the Iraqi perspective, but their evaluation of the surge is illustrative: In 2008, only 4 percent of Iraqis said additional US forces were responsible for the decline in violence. They know their own country well.

          Violence in Iraq began to decline before the surge started. Civilian deaths peaked in July 2006, at more than 3,250 per month, a full six months before the surge policy was even announced. This was the result of many factors, including the completion of the ethnic cleansing of Baghdad's neighborhoods. Some 80 percent of the casualties in the Iraqi civil war pre-surge occurred within 30 miles of Baghdad. ...

          Reply Tuesday, September 01, 2015 at 10:46 AM

          ilsm said in reply to Fred C. Dobbs...

          The Iraq surge [like Vietnam versions] was as successful as US "victory" in Tet '68 and the next year Tet II.

          Neither made it so the Iraqis would be nice to each other.

          Bombing and trillions from poor kids and the elderly cannot make it so US boys can do it for them when they want ISIS.

          Reply Tuesday, September 01, 2015 at 05:07 PM

          anne said...

          http://techscience.org/a/2015081104/

          August 11, 2015

          Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA
          By Eugene Wang and Grace Gee

          Abstract

          The Patient Protection and Affordable Care Act (ACA) has substantially reformed the health insurance industry in the United States by establishing health insurance marketplaces, also called health exchanges, to facilitate the purchase of health insurance. The ACA has increased transparency in insurance pricing and in issuer pricing behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study examines changes in health insurance premiums made by individual health insurance issuers in 34 federally facilitated and state-partnership health insurance exchanges.

          Results summary

          Our study shows that the largest issuer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. Moreover, the largest issuers' premium increase affects a larger proportion of plans and do not seem justified from the standpoint of incurred claims-to-premium ratio. Projected Index Rate from the rate review process is used as a summary of an issuer's premiums across different plans and Projected Member Months as a proxy for on-exchange market share. Our findings suggest that even after the Affordable Care Act, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts.

          Reply Tuesday, September 01, 2015 at 09:43 AM

          im1dc said...

          ISIL will not like this nor will Turkey, Iran, Iraq, SA, Emirates, et. al., Islam Consersatives

          http://news.discovery.com/history/religion/fragments-of-worlds-oldest-koran-may-predate-muhammad-150901.htm

          "Fragments of World's Oldest Koran May Predate Muhammad"

          by FoxNews.com/Science...Sep 1, 2015...09:10 AM ET

          "British scholars have suggested that fragments of the world's oldest known Koran, which were discovered last month, may predate the accepted founding date of Islam by the Muslim prophet Muhammad.

          The Times of London reported that radiocarbon dating carried out by experts at the University of Oxford says the fragments were produced between the years 568 A.D. and 645 A.D. Muhammad is generally believed to have lived between 570 A.D. and 632 A.D. The man known to Muslims as The Prophet is thought to have founded Islam sometime after 610 A.D., with the first Muslim community established at Medina, in present-day Saudi Arabia, in 622 A.D.

          "This gives more ground to what have been peripheral views of the Koran's genesis, like that Muhammad and his early followers used a text that was already in existence and shaped it to fit their own political and theological agenda, rather than Muhammad receiving a revelation from heaven," Keith Small of Oxford's Bodleian Library told the Times.

          The two sheets of Islam's holy book were discovered in a library at the University of Birmingham in England, where they had been mistakenly bound in a Koran dating to the seventh century. They were part of a collection of 3,000 Middle Eastern texts gathered in Iraq in the 1920s.

          Muslims scholars have disputed the idea that the Birmingham Koran predates Muhammad, with Mustafa Shah of the University of London's School of Oriental and African Studies telling the Times: "If anything, the manuscript has consolidated traditional accounts of the Koran's origins."

          The first known formal text of the Koran was not assembled until 653 A.D. on the orders of Uthman, the third caliph, or leader of the Muslim community after Muhammad's death. Before that, however, fragments of the work had circulated through oral tradition, though parts of the work had also been written down on stones, leaves, parchment and bones. The fragments of the Birmingham Koran were written on either sheepskin or goatskin.

          Small cautioned that the carbon dating was only done on the parchment in the fragments, and not the actual ink, but added "If the dates apply to the parchment and the ink, and the dates across the entire range apply, then the Koran - or at least portions of it - predates Mohammed, and moves back the years that an Arabic literary culture is in place well into the 500s."

          Reply Tuesday, September 01, 2015 at 09:45 AM

          Fred C. Dobbs said in reply to im1dc...

          A Find in Britain: Quran Fragments Perhaps
          as Old as Islam http://nyti.ms/1VtMTns
          NYT - DAN BILEFSKY - JULY 22, 2015

          LONDON - The ancient manuscript, written on sheep or goat skin, sat for nearly a century at a university library, with scholars unaware of its significance.

          That is, until Alba Fedeli, a researcher at the University of Birmingham studying for her doctorate, became captivated by its calligraphy and noticed that two of its pages appeared misbound alongside pages of a similar Quranic manuscript from a later date.

          The scripts did not match. Prodded by her observations, the university sent the pages out for radiocarbon testing.

          On Wednesday, researchers at the University of Birmingham revealed the startling finding that the fragments appeared to be part of what could be the world's oldest copy of the Quran, and researchers say it may have been transcribed by a contemporary of the Prophet Muhammad. ...

          Birmingham Qur'an manuscript dated
          among the oldest in the world
          http://www.birmingham.ac.uk/news/latest/2015/07/quran-manuscript-22-07-15.aspx

          Reply Tuesday, September 01, 2015 at 10:03 AM

          im1dc said...

          A look at today's business climate. Doesn't seem to shout 'time to raise interest rates' to me.

          http://money.cnn.com/2015/09/01/investing/stocks-plunge-china/index.html?section=money_latest

          "Uh-oh! Dow falls 400 points on more China fears
          CNN" - ‎2 hours ago‎

          http://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-1441120882

          "China Boosts Efforts to Keep Money at Home"
          Wall Street Journal - ‎22 minutes ago‎

          http://www.bloomberg.com/news/articles/2015-09-01/dollar-tree-falls-after-sales-forecast-lags-analysts-estimates

          "Dollar Tree Shares Fall as Sales Forecast Trails Estimates" Bloomberg - ‎1 hour ago‎

          and

          http://www.wsj.com/articles/ism-manufacturing-index-falls-to-51-1-in-august-1441116755

          "ISM Manufacturing Index Falls in August"
          Wall Street Journal - ‎51 minutes ago‎

          Reply Tuesday, September 01, 2015 at 09:54 AM

          Fred C. Dobbs said...

          Specialists see no criminal
          trouble for Clinton in e-mail flap http://www.bostonglobe.com/news/nation/2015/08/31/legal-specialists-see-criminal-trouble-for-clinton-thus-far/aSX8r2PtvCdCz26sDVpqaK/story.html?event=event25 via @BostonGlobe
          Ken Dilanian - AP - September 1, 2015

          WASHINGTON - Specialists in government secrecy law see almost no possibility of criminal action against Hillary Rodham Clinton or her top aides in connection with now-classified information sent over unsecure e-mail while she was secretary of state, based on the public evidence thus far.

          Some Republicans, including leading GOP presidential candidate Donald Trump, have called Clinton's actions criminal and compared her situation to that of David Petraeus, the former CIA director who was prosecuted after giving top secret information to his paramour. Others have cited the case of another past CIA chief, John Deutch, who took highly classified material home.

          But in both of those cases, no one disputed that the information was highly classified and in many cases top secret. Petraeus pleaded guilty to a misdemeanor; Deutch was pardoned by President Bill Clinton.

          By contrast, there is no evidence of e-mails stored in Hillary Clinton's private server bearing classified markings. State Department officials say they don't believe that e-mails she sent or received included material classified at that time. And even if other government officials dispute that assertion, it is extremely difficult to prove anyone knowingly mishandled secrets.

          ''How can you be on notice if there are no markings?'' said Leslie McAdoo, a lawyer who frequently handles security-clearance cases.

          The State Department posted 4,368 documents totaling 7,121 pages online Monday night.

          Parts of several e-mails, however, have subsequently been declared classified.

          On Monday, the State Department released a batch of about 7,000 e-mails - the largest such release to date. Those include about 150 that have been partially or entirely censored because the State Department determined they contain classified material.

          Department officials said the redacted information was classified in preparation for the public release of the e-mails and not identified as classified at the time Clinton sent or received the messages. All the censored material in the latest group of e-mails is classified at the ''confidential'' level, not at higher ''top secret'' or compartmentalized levels, they said.

          Still, the increasing amounts of blacked-out information from Clinton's e-mail history as secretary of state will surely prompt additional questions about her handling of government secrets while in office and that of her most trusted advisers.

          The Democratic presidential front-runner now says her use of a home e-mail server for government business was a mistake, and government inspectors have pointed to exchanges that never should have been sent via unsecured channels.

          Reply Tuesday, September 01, 2015 at 09:56 AM

          im1dc said in reply to Fred C. Dobbs...

          NPR this morning said it more simply this way, Hillary Clinton's emails were not Classified until well AFTER she read them, not when she read them, thus there is no there there for Boehner and the Boys of the Incompetent GOPster Hater Inner Circle to use against her.

          Nor for FOXNews, Rush Limbaugh, Mark Levine, Savage et. al., although that will not stop them all from claiming otherwise or for Republican Congressmen blaming her, calling her a traitor, and unfit for the presidency.

          The Republican Party's Propaganda Spin machine does not let facts stand in the way of their rhetorical smears, hate speech, or nonsensical idiotic diatribes.

          Reply Tuesday, September 01, 2015 at 11:03 AM

          Fred C. Dobbs said in reply to im1dc...

          So you would say it's ok for the
          most senior State Dept official
          to ignore rules that require e-mail
          activity to be conducted on servers
          under government control.

          Ok, fair enough. Such bad judgment
          should not preclude being president.

          Or maybe it's mandatory to hold the office.

          Reply Tuesday, September 01, 2015 at 12:28 PM

          im1dc said in reply to Fred C. Dobbs...

          Perhaps bad official administrative judgment for junior officials and those not running for president one day, however no rules were broken and no classified emails sent or received.

          If Hillary Clinton had departed from prior SoS behavior her own State Dept would have told her to use the .gov server or the White House, which did know about but chose to ignore her use of her own email account, would have enforced the administrative rule to use .gov.

          But FAR more importantly as SoS she knew her emails would become political football if she were to run for president so she kept them away from the prying eyes of her foes.

          I think her decision to use her own email server and keep absolute control over her personal correspondence, so prying eyes of foes could not see, was both politically smart and shows elite Presidential temperament, i.e., 'badges, I don't need no stinkin' badges'.

          Reply Tuesday, September 01, 2015 at 01:12 PM

          ilsm said in reply to Fred C. Dobbs...

          Fred I was a US gumint guy for years (overlapped Hil's time at State) never heard of any rule about not using my home computer.......

          Bad judgment seems to be a required trait of thuggie presidents since Nixon.

          Wonder where the e-mails of Iran Contra went?

          Oh yeah North was a Marine not techie.

          Reply Tuesday, September 01, 2015 at 05:12 PM

          Fred C. Dobbs said in reply to im1dc...

          Clinton private email violated
          'clear-cut' State Dept. rules - March 2015
          http://www.politico.com/story/2015/03/state-department-email-rule-hillary-clinton-115804

          The State Department has had a policy in place since 2005 to warn officials against routine use of personal email accounts for government work, a regulation in force during Hillary Clinton's tenure as secretary of state that appears to be at odds with her reliance on a private email for agency business, POLITICO has learned.

          The policy, detailed in a manual for agency employees, adds clarity to an issue at the center of a growing controversy over Clinton's reliance on a private email account. Aides to Clinton, as well as State Department officials, have suggested that she did nothing inappropriate because of fuzzy guidelines and lack of specific rules on when and how official documents had to be preserved during her years as secretary. ...

          http://www.state.gov/documents/organization/88404.pdf

          Reply Tuesday, September 01, 2015 at 07:32 PM

          anne said...

          http://www.cepr.net/blogs/beat-the-press/washington-post-ed-board-federal-reserve-board-cultists

          September 1, 2015

          Washington Post Editorial Board: Federal Reserve Board Cultists

          It's always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board * and the Federal Reserve Board Cultists.

          The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board's Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don't impinge on their thinking. According to the cultists, when the Fed sits down to decide on its interest rate policy they are acting solely for the good of the country.

          Those of us who live in the reality-based community know that the Fed is hugely responsive to the interests of the financial sector. There are many reasons for this. First, the twelve Fed district banks are largely controlled by the banks within the district, which directly appoint one third of the bank's directors. The presidents of these banks occupy 12 of the 19 seats (5 of the voting seats) on the FOMC.

          The seven governors of the Fed are appointed by the president and approved by Congress, but even this group often has extensive ties to the financial industry. For example, Stanley Fischer, the current vice-chair, was formerly a vice-chair of Citigroup.

          The third main reason why the Fed tends to be overly concerned with the interests of the financial sector is that its professional staffers are often looking to get jobs in the sector. While jobs at the Fed are well-paying, staffers can often earn salaries that are two or three times higher if they take their expertise to a bank or other financial firm. As economic theory predicts, this incentive structure pushes them toward viewpoints that often coincide with those of the industry.

          The net effect of these biases is that the Fed tends to be far more concerned about the inflation part of its mandate rather than the high employment part, even though under the law the two goals symmetric. If the Fed tightens too much and prevents hundreds of thousands or even millions of workers from getting jobs, most of the top staff would not be terribly troubled and it is unlikely anyone would suffer in their careers. On the other hand, if they allowed the inflation rate to rise to 3.0 percent, it is likely that many top officials at the Fed would be very troubled.

          There is very little basis in economic research for maintaining that a stable 3.0 inflation rate is more costly to the country that having 1 million people being needlessly unemployed, but the view coming from the Fed is that the former is much worse than the latter. The Fed cultists at the Washington Post and elsewhere want us to just accept that this is the way the world works. It's not surprising that some folks don't quite see it that way.

          * https://www.washingtonpost.com/opinions/the-federal-reserves-independence-is-a-strength/2015/08/31/511a3932-5010-11e5-933e-7d06c647a395_story.html

          -- Dean Baker

          Reply Tuesday, September 01, 2015 at 10:38 AM

          im1dc said in reply to anne...

          "Federal Reserve Cultists"

          Loved every word of Dean Baker's glimpse behind the curtain at the Federal Reserve.

          He is 100% SPOT ON.

          Reply Tuesday, September 01, 2015 at 10:54 AM

          im1dc said...

          NYMEX Crude Oil off 7%

          http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

          "Crude Oil - Electronic (NYMEX) Oct 2015"

          NMN: CLV5

          $45.67...Change -3.53... -7.18%

          Market still open

          Reply Tuesday, September 01, 2015 at 10:50 AM

          im1dc said in reply to im1dc...

          @ 2:36p

          "Oct. oil drops $3.79, or 7.7%, to settle at $45.41/bbl on Nymex"

          Lost most of its gain from Monday.

          Reply Tuesday, September 01, 2015 at 11:39 AM

          im1dc said...

          Dow Indu close 16,058 -470 ... 2.84%

          The squirrels were putting up nuts for winter's storms.

          Reply Tuesday, September 01, 2015 at 01:16 PM

          Fred C. Dobbs said in reply to im1dc...

          (Thank you sir, may I have another.)

          Kevin Bacon - Animal House
          https://youtu.be/qdFLPn30dvQ

          'The stock market's losses in August may be foreshadowing more declines in September, if history is any guide. ...

          In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ.' ...

          History points to more pain on Wall Street
          in September http://on.mktw.net/1PH9N61

          Reply Tuesday, September 01, 2015 at 03:47 PM

          im1dc said...

          How to capture pervasive scientific fraud in the Health Care Industry in an econ model?

          http://www.marketwatch.com/story/amgen-finds-data-falsified-in-obesity-diabetes-study-featuring-grizzly-bears-2015-09-01-121032242

          "Amgen finds data falsified in obesity-diabetes study featuring grizzly bears"

          By Jonathan D. Rockoff...Sept 1, 2015...12:23 p.m. ET

          "A scientific paper that had captured widespread attention because its subjects were massive grizzly bears was retracted on Tuesday after one of the authors was said to have manipulated some of the data.

          The paper attracted news coverage around the world after its publication in August 2014 in the journal Cell Metabolism, which put on its cover an image of a grizzly bear clutching a fish between its jaws.

          The paper discussed how grizzly bears' metabolisms adjust to hibernation, and the key role of a certain fat protein, which offered a clue to a new kind of treatment for diabetes. Biotech Amgen Inc. was working on the bear research to get a better grip on the biology behind diseases like obesity and diabetes.

          But Amgen AMGN, +0.71% said it discovered late last year, in reviewing the computer files of one of its researchers, that some experimental data cited in the Cell Metabolism paper had been changed in a way the company said made some of the results look stronger.

          Amgen and its collaborators at Washington State University and the University of Idaho said they quickly asked Cell Metabolism for a retraction. The journal then reviewed the matter, resulting in the paper's retraction."

          Reply Tuesday, September 01, 2015 at 01:25 PM

          im1dc said...

          Boston Fed agrees with me, do not raise in September

          http://www.wsj.com/articles/feds-rosengren-global-economic-weakness-argues-for-rate-rise-caution-1441127405

          "Fed's Rosengren: Global Economic Weakness Argues for Rate Rise Caution"

          'Boston Fed president says global weakness makes reaching 2% inflation more difficult'

          By Michael S. Derby...Sept. 1, 2015...2:45 p.m. ET

          "NEW YORK-Federal Reserve Bank of Boston President Eric Rosengren said Tuesday that global turmoil argues in favor of being cautious about starting the process to normalize monetary policy, in a speech that emphasized central-bank interest-rate increases likely would come at a slow pace.

          "Indications of a much weaker global economy would at least increase the uncertainty surrounding policy makers' economic growth and inflation forecasts," and that could affect how officials should proceed in boosting the Fed's target off its current near zero levels, Mr. Rosengren said in a speech given to an economists' group here..."

          Reply Tuesday, September 01, 2015 at 01:35 PM

          im1dc said...

          It is official, Mickey D's is rolling out breakfast all day1

          http://www.wsj.com/articles/mcdonalds-set-to-offer-all-day-breakfast-1441134058

          "McDonald's Set to Offer All-Day Breakfast"

          'National rollout marks company's biggest initiative in 6 years, will require menu changes'

          By Julie Jargon...Sept. 1, 2015...3:00 p.m. ET

          "McDonald's Corp. is embarking on its biggest operational change in years as it tries to juice flagging sales, with plans to offer breakfast items all-day at its more than 14,300 U.S. restaurants starting Oct. 6.

          The move to all-day breakfast, which McDonald's has been testing since March, was approved in a vote by franchisees last week and affirmed on Tuesday by a franchisee leadership council, the company said..."

          Reply Tuesday, September 01, 2015 at 01:37 PM

          ilsm said in reply to im1dc...

          Lovin' it...... (not me my cardiologist!)

          Reply Tuesday, September 01, 2015 at 05:14 PM

          im1dc said...

          Well it isn't secret anymore WaPo...what the hell is wrong with the MSM?

          Fight against Islamic State militants - 1h ago

          "CIA, US special operations forces launch secret campaign to hunt terrorism suspects in Syria - @washingtonpost"

          Read more on washingtonpost.com

          Reply Tuesday, September 01, 2015 at 02:54 PM

          im1dc said in reply to im1dc...

          "U.S. Makes Secret ISIS Drone Program"

          Turns out to be a Drone program. Drone programs are all secret until they kill someone.

          Reply Tuesday, September 01, 2015 at 03:09 PM

          ilsm said in reply to im1dc...

          Sending US spooks to hunt former Protege's.

          Reply Tuesday, September 01, 2015 at 05:16 PM

          im1dc said...

          Due to crude oil's low prices jobs go missing in the USA, 500 in Houston, TX all good paying jobs in the oil sector

          http://www.fox26houston.com/home/14925423-story

          "By: Carolina Sanchez...Sep 01 2015...02:40PM CDT

          "ConocoPhillips announced on Tuesday that it expects to cut 10% of its global workforce.

          The largest percentage of the layoffs will be in North America.

          Currently, the global company employs around 18,000 people.

          ConocoPhillips employs 3,753 workers in Houston. The expected reductions will be more than 500 of our Houston employees.

          In a statement the company said it took several steps to strengthen its position but ultimately decided workforce reductions were needed.

          Read part of the statement below:

          "We have taken several significant steps as a company to strengthen our position, including reducing our capital spending and future deepwater exploration program. However, the workforce reductions are necessary to become a stronger, more competitive company."

          Reply Tuesday, September 01, 2015 at 02:59 PM

          im1dc said...

          Original thinking or wishful thinking?

          http://www.thedailybeast.com/articles/2015/08/31/petraeus-use-al-qaeda-fighters-to-beat-isis.html

          "Petraeus: Use Al Qaeda Fighters to Beat ISIS"

          by Shane Harris & Nancy A. Youssef...08.31.15...9:00 PM ET

          'To take down the so-called Islamic State in Syria, the influential former head of the CIA wants to co-opt jihadists from America's arch foe.'

          "Members of al Qaeda's branch in Syria have a surprising advocate in the corridors of American power: retired Army general and former CIA Director David Petraeus.

          The former commander of U.S. forces in Iraq and Afghanistan has been quietly urging U.S. officials to consider using so-called moderate members of al Qaeda's Nusra Front to fight ISIS in Syria, four sources familiar with the conversations, including one person who spoke to Petraeus directly, told The Daily Beast..."

          Reply Tuesday, September 01, 2015 at 03:07 PM

          Fred C. Dobbs said in reply to im1dc...

          Could be he's looking for a
          job as a jihadist commander.

          Can the US Use al Qaeda Fighters to Defeat ISIS? David Petraeus Has a Plan http://www.thefiscaltimes.com/2015/09/01/Can-US-Use-al-Qaeda-Fighters-Defeat-ISIS-David-Petraeus-Has-Plan

          Reply Tuesday, September 01, 2015 at 05:04 PM

          ilsm said in reply to im1dc...

          A new surge from the guy who sold the last mistake.

          Like arming VC to fight NVA!

          Reply Tuesday, September 01, 2015 at 05:17 PM

          ilsm said in reply to ilsm...

          Hahhhh!, Haaaqaa!

          No regrets!

          US already doing this recruiting Sunnis to fight Sunnis ISIS.

          They have a few hundred 'recruits'.

          Obama already tried it to quiet Iraq down to get out: guns and money to Sunni tribes in Mosul, Tikrit and Fallujah. All of it ended up going to ISIS.

          I sold my war bonds in the 80's seeing how Reagan was tossing money out the door in cargo planes.

          No regrets there.

          Reply Tuesday, September 01, 2015 at 05:21 PM

          im1dc said in reply to im1dc...

          OK, it is a bad idea!

          Reply Tuesday, September 01, 2015 at 06:52 PM

          anne said...

          https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

          September 1, 2015

          The 3 month Treasury interest rate is at 0.03%, the 2 year Treasury rate is 0.70%, the 5 year rate is 1.48%, while the 10 year is 2.17%.

          The Vanguard Aa rated short-term investment grade bond fund, with a maturity of 3.1 years and a duration of 2.6 years, has a yield of 1.83%. The Vanguard Aa rated intermediate-term investment grade bond fund, with a maturity of 6.4 years and a duration of 5.5 years, is yielding 2.77%. The Vanguard Aa rated long-term investment grade bond fund, with a maturity of 22.3 years and a duration of 13.1 years, is yielding 4.09%. *

          The Vanguard Ba rated high yield corporate bond fund, with a maturity of 5.3 years and a duration of 4.3 years, is yielding 5.60%.

          The Vanguard unrated convertible corporate bond fund, with an indefinite maturity and a duration of 5.9 years, is yielding 1.79%.

          The Vanguard A rated high yield tax exempt bond fund, with a maturity of 16.2 years and a duration of 6.3 years, is yielding 2.87%.

          The Vanguard Aa rated intermediate-term tax exempt bond fund, with a maturity of 8.7 years and a duration of 4.9 years, is yielding 1.78%.

          The Vanguard Government National Mortgage Association bond fund, with a maturity of 6.5 years and a duration of 4.3 years, is yielding 2.22%.

          The Vanguard inflation protected Treasury bond fund, with a maturity of 8.5 years and a duration of 8.1 years, is yielding 0.27%.

          * Vanguard yields are after cost. Federal Funds rates are no more than 0.25%.

          Reply Tuesday, September 01, 2015 at 04:55 PM

          anne said...

          http://www.multpl.com/shiller-pe/

          Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015

          (Standard and Poors Composite Stock Index)

          September 1, 2015 PE Ratio ( 24.27)

          Annual Mean ( 16.62)
          Annual Median ( 16.01)

          -- Robert Shiller

          Reply Tuesday, September 01, 2015 at 04:55 PM

          anne said...

          http://www.multpl.com/s-p-500-dividend-yield/

          Dividend Yield, 1881-2015

          (Standard and Poors Composite Stock Index)

          September 1, 2015 Div Yield ( 2.19)

          Annual Mean ( 4.40)
          Annual Median ( 4.34)

          -- Robert Shiller

          Reply Tuesday, September 01, 2015 at 04:55 PM

          im1dc said...

          5 months in a row

          Hong Kong - 41m ago

          "Hong Kong retail sales decline for 5th month amid fewer tourist arrivals and stock market turmoil - @SCMP_News"

          Read more on scmp.com

          [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

          [Sep 01, 2015] Leveraged Bubbles

          "...When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting."
          "..."Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?"
          "...
          "When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."
          So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)
          "In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."
          If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets."
          "...Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?"
          economistsview.typepad.com

          The conclusion to "Leveraged bubbles," by Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:

          ... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.
          In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.

          Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink Comments (8)

          Double Capitulation said...

          "bursting of credit boom bubbles is significant and long lasting.

          In the past decades, central banks typically have taken"
          ~~Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:~

          Did Kurt Vonnegut once quip

          "Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?

          Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.

          djb said...

          of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less

          but I doubt BIS was worried about that particular issue

          Peter K. -> djb...

          "This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."

          Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.

          mulp -> djb...

          We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.

          If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.

          Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.

          Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.

          Arne said...

          Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.

          Blissex said...

          "When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."

          So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

          "In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."

          If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

          Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

          Not very hands-off at all.

          mulp -> Blissex...

          Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?

          Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?

          Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket.

          Signs of free lunch economic smoke and mirrors.

          Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.

          [Aug 31, 2015] Forget China Oil price main driver for market turmoil

          The story that really matters right now is oil derivatives and hedges
          "...Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. "
          "...Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these loses. "
          "...The problem, as with everything, was the financialization of oil."
          Aug 29, 2015 | GEFIRA

          Commentators are linking the current market turmoil to problems in China. Our team sees the oil price as the main driver behind the market route. Low oil prices are positive for consumers and it will lower production costs for numerous industries. However it will also lower the investments in energy such as sustainable energy and oil producers will see their high profits turn into losses. Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. World oil production is about 90 million barrels a day, representing a cash flow of about nine billion dollars a day which comes down to three trillion dollars a year. With the oil price 40 to 50% lower, this flow is also cut by 40 to 50%. This amounts to 10% US GDP. Compare it with the 0.5% growth we are now missing in China, we prefer to keep our eyes on the oil price. These extreme moves can not be without consequence.

          Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these loses.

          Comments from Zero Hedge
          adr

          The problem, as with everything, was the financialization of oil.

          Had oil not been turned into the latest greatest leveraging scheme by Wall Street, it probably never would have gone north of $40 in the first place.

          Rebalancing and true price discovery is needed. Oil needs to settle at $45 a barrel and allow this price to filter all the way through the supply chain. $45 still represents a 100% increase to the price of oil at the close of the 20th century.

          The USA can have $1.65 gasoline. Shipping rates can come down and perhaps the economy can truly mend.

          [Aug 30, 2015] Under the Hood of U.S. GDP Was Divide Between Growth, Incomes

          Aug 30, 2015 | Bloomberg Business

          Here's one key takeaway from the Commerce Department's report on gross domestic product Thursday in Washington: Gross domestic income climbed at a 0.6 percent annualized rate, well short of the rebound in growth.

          * The increase in GDI last quarter followed a 0.4 percent advance in the first three months of the year, marking the weakest back-to-back gains since mid-2012

          * The 3.1 percentage-point gap between GDI and GDP, which climbed at a 3.7 percent rate, was the largest in favor of GDP since the third quarter of 2007

          * While GDI and GDP should theoretically match over the long run, they can diverge from quarter to quarter. There has been a debate about which is more accurate, with some Federal Reserve researchers finding incomes give better signals

          [Aug 30, 2015] The Scary Number Hiding Behind Today's GDP Party

          "...Hmm. Which to believe? As the old joke goes: "A person with one clock always knows what time it is. A person with two is never quite sure.""
          Aug 30, 2015 | Bloomberg Business

          The federal government today released two very different estimates of the U.S. economy's growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

          That's a big discrepancy for two numbers that should theoretically be the same, since they're two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you're happy. If you believe the GDI number, you're thinking the U.S. is skating close to a recession.

          The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding-and in this case, that's probably closer to the truth than either number alone.

          There is no name for the new hybrid data series, which was described rather prosaically as "the average of real GDP and real GDI." President Obama's Council of Economic Advisers nicknamed it gross domestic output in a July issue brief. Here's what it wrote:

          GDP tracks all expenditures on final goods and services produced in the United States, whereas GDI tracks all income received by those who produced that output. Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.

          [Aug 29, 2015] Leveraged Financial Speculation to GDP in the US at a Familiar Peak, Once Again

          Aug 29, 2015 | jessescrossroadscafe.blogspot.com
          "I believe myriad global "carry trades" – speculative leveraging of securities – are the unappreciated prevailing source of finance behind interlinked global securities market Bubbles. They amount to this cycle's government-directed finance unleashed to jump-start a global reflationary cycle.

          I'm convinced that perhaps Trillions worth of speculative leverage have accumulated throughout global currency and securities markets at least partially based on the perception that policymakers condone this leverage as integral (as mortgage finance was previously) in the fight against mounting global deflationary forces."

          Doug Noland, Carry Trades and Trend-Following Strategies

          The basic diagnosis is correct. But the nature of the disease, and the appropriate remedies, may not be so easily apprehended, except through simple common sense. And that is a rare commodity these days.

          Like a dog returns to its vomit, the Fed's speculative bubble policy enables the one percent to once again feast on the carcass of the real economy.

          'And no one could have ever seen it coming.'

          Once is an accident.

          Twice is no coincidence.

          Remind yourself what has changed since then. Banks have gotten bigger. Schemes and fraud continue.

          What will the third time be like? And the fourth?

          Do you think that Jamie bet Lloyd a dollar that they couldn't do it again?

          Should we ask them to please behave, levy some token fines, watch the politicans yell and posture in some toothless public hearings, let all of them keep their jobs and their bonuses? And then bail them out, wind up the old Victrola, and have another go at the same old thing again?

          Maybe we can vote for one of their hired servants, or skip the middlemen and vote for one of the arrogant hustlers themselves, and hope they get tired of taking us for a ride before we all go broke.

          This policy we have now is the trickle down stimulus that the wealthy financiers have been sucking on with every opportunity that they have made for themselves since the days of Andrew Jackson. Whenever the ability to create and distribute money has been handed over by a craven Congress to private corporations and banking cartels without sufficient oversight and regulation, excessive speculation, financial recklessness, and moral hazard have acted like a plague of misery and stagnation on the real economy.

          "Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank.

          You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!

          You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."

          From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834, from Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

          I believe all of the above is entirely possible. Because we still have an unashamed cadre of quack economists and their ideologically blind followers blaming the victims, prescribing harsh punishments for the weak, laying all the blame on 'government' and not corrupt officials on the payrolls of Big Money, and giving the gods of the market and their masters of the universe a big kiss on the head, and expecting them to just do the right thing the next time out of the natural goodness of their unrestrained natures the next time. What could go wrong with that?

          Genuine reform. It's too much work, and too much trouble.


          Related: Comprehensive Tally of Banker Fraud

          h/t Jesse Felder for the chart

          [Aug 29, 2015] Maintaining Confidence - Keep On Dancing

          Aug 29, 2015 | Jesse's Café Américain

          The action was a bit heavy in the metals today, as the Powers-That-Be quietly attempted to restore confidence and a sense of well-being and recovery after the somewhat disconcerting equity market plunge of Monday.

          There was intraday commentary here about some interesting Goldman Sachs activity in an otherwise exceptionally sleepy week at The Bucket Shop.

          People often ask me for a possible motive as to why central banks might care about gold and silver. Willem Middelkoop does a decent job of briefly explaining why in the first pictorial below. It is all a part of the confidence game, when a series of bad decisions place a strain on one's full faith and credit.

          The goal of the financial class is to keep the music going, and the public out there on the floor dancing so they don't have time to think.

          Still out there bottom watching.

          Have a pleasant weekend.

          [Aug 29, 2015] Fly Me To the Moon

          Qualis dominus talis est servus.
          As is the master, so is the servant.

          Titus Petronius

          Stocks came in weakly, but managed to rally in the last hour to closely largely unchanged.

          The GDP revision for 2Q yesterday was a bit much.

          The conversation on financial tv today was replete with interviews from that moveable feast of finance, from the rarified world at Jackson Hole, where the black swans of monetary policy return every so often to molt old forecasts and acquire new ones that are certain to work better than the last seven years of the same old thing.

          Mostly it is just the usual nonsense. Alan Blinder had some interesting and surprisingly realistic things to say. Most of the others were just mouth breathing the talking points about our exceptional and improving economy which will allow the Fed to raise interest rates.

          The research paper from the Fed asserting that the US is relatively immune (ok they said insulated) from global currency and economic shocks because of the position of the dollar as the settling currency of choice for international invoices was-- interesting. Why is it that so many economic, and especially monetary, theories feel so comfortable inhabiting an alternate universe where trees are blue and pigs can fly?

          And as a particularly astute reader observed, if this is actually true, is there any wonder why the rest of the world would resent the dollar hegemony if it grants that sort of power to the single nation that controls it? That they are able to wreak havoc on the rest of the world, exporting malinvestment and willfully fraudulent financial instruments, without having to endure any consequences?

          Well it doesn't work so nicely as that, but yes they do resent it for other reasons, and they have been doing more than resenting it for some time now. And that is the basis for the 'currency war' that these jokers still do not understand. They think it is only 'currency devaluations' which, along with tariffs, was the tactic of choice in the last currency war in the 1930's.

          But the one that left me gaping was the tendentious conversation this afternoon on Bloomberg about how fragile China and its markets are. And as evidence they cited the 'obvious interventions' in their stock market this week, wherein the Chinese markets slump, but then miraculously recover in the last hours of trading. They are obviously doing this so the leadership will not be embarrassed for their 70th commemoration of the end of WWII next week. Which by the way, the US is gracelessly boycotting.

          Knock, knock, hello? Is self-awareness or unintentional irony at home?

          Is there any doubt that we have been seeing the exact types of intervention by a powerful unseen hand in our own stock markets this week, on steroids, after the Monday flash crash? Does that mean that our economy is fragile and doomed as well?

          Do these people actually believe what they are saying, or is this just some clumsy attempt to try to reassure our public that if their public gets into trouble there is no need to panic because, wait for it, we are so much better, more wisely and so much more virtuously blessed to be led by those archangels of benevolent wisdom in Washington and New York.

          One can only wonder.

          Have a pleasant weekend.

          [Aug 29, 2015] Here's Why The Markets Have Suddenly Become So Turbulent

          Aug 29, 2015 | Zero Hedge
          Submitted by Charles Hugh-Smith via PeakProsperity.com,

          When stock markets are free-falling 10+% in a matter of days, it's natural to seek some answers to the question "why now?"

          Some are saying it was all the result of high-frequency trading (HFT), while others point to China's modest devaluation of its currency the renminbi (a.k.a. yuan) as the trigger.

          Trying to finger the proximate cause of the mini-crash is an interesting parlor game, but does it really help us identify the trends that will shape markets going forward?

          We might do better to look for trends that will eventually drag markets up or down, regardless of HFT, currency revaluations, etc.

          Five Interconnected Trends

          At the risk of stating the obvious, let's list the major trends that are already visible.

          1. The China Story is Over

          And I don't mean the high growth forever fantasy tale, I mean the entire China narrative is over:

          1. That export-dependent China can seamlessly transition to a self-supporting consumer economy.
          2. That China can become a value story now that the growth story is done.
          3. That central planning will ably guide the Chinese economy through every rough patch.
          4. That corruption is being excised from the system.
          5. That the asset bubbles inflated by a quadrupling of debt from $7 trillion in 2007 to $28 trillion can all be deflated without harming the wealth effect or future debt expansion.
          6. That development-dependent local governments will effortlessly find new funding sources when land development slows.
          7. That workers displaced by declining exports and automation will quickly find high-paying employment elsewhere in the economy.

          I could go on, but you get the point: the entire Story is over. (I explained why in a previous essay, Is China's "Black Box" Economy About to Come Apart? )

          This is entirely predictable. Every fast-growing economy starting with near-zero debt and huge untapped reserves of cheap labor experiences an explosive rise as the low-hanging fruit is plucked and the same abrupt stall and stagnation when the low-hanging fruit has all been harvested, leaving only the unavoidable results of debt-fueled speculation: an enormous overhang of bad debt, malinvestment (a.k.a. bridges to nowhere and ghost cities) and policies that seemed brilliant in the good old days that are now yielding negative returns.

          2. The Emerging Market Story Is Also Done

          Emerging currencies and markets have soared on the back of the China Story, as China's insatiable demand for oil, iron ore, copper, soy beans, etc. drove global demand to unparalleled heights.

          This demand pushed prices higher, which then pushed production (supply) higher, as the low cost of capital globally enabled marginal resources to be put into production with borrowed money.

          Now that China's demand has fallen off-by some accounts, China's GDP is actually in negative territory, despite official claims that it's still growing at 7% annually-commodity prices have crashed, taking the emerging markets' stock and currency markets down. (Source)

          Here is a chart of Doctor Copper, a bellwether for industrial and construction demand:

          Here is Brazil's stock market, which has declined 54% in the past 12 months:

          These are catastrophic declines, and with China's growth story over, there is absolutely nothing on the global horizon to push demand back up.

          3. Diminishing Returns on Additional Debt

          The simple truth is that expanding debt has fueled global growth. Though people identify China as the driver of global demand for commodities, China's growth is debt-driven. As noted above, China quadrupled its officially tracked debt from $7 trillion in 2007 to $28 trillion as of mid-2014-an astonishing 282 percent of gross domestic product (GDP). If we add the estimated $5 trillion of shadow-banking system debt and another year's expansion of borrowing, China's total debt of $35+ trillion is in excess of 300% of GDP-levels associated with doomed to default states such as Greece and Spain.

          While China has moved to open the debt spigot in recent days by lowering interest rates and reserve requirements, this doesn't make over-indebted borrowers good credit risks or more empty high-rises productive investments.

          Borrowed money that poured into ramping up production in emerging nations is now stranded as prices have plummeted, rendering marginal production intensely unprofitable.

          In sum: greatly expanding debt boosted growth virtually everywhere after the Global Financial Meltdown of 2008-2009. That fix is a one-off: not even China can quadruple its $35+ trillion debt to $140 trillion to reignite growth.

          Here is a sobering chart of global debt growth:

          4. Limits on Deficit-Spending (Borrowed) Fiscal Stimulus

          When the global economy rolled over into recession in 2008, governments borrowed money by selling sovereign bonds to fund increased state spending. In the U.S., federal borrowing soared to over $1 trillion per year as the government sought to replace declining private spending with public spending.

          Governments around the world have continued to run large deficits, piling up immense debts since 2008. The global move to near-zero yields has enabled governments to support these monumental debt loads, but even at near-zero yields, the interest payments are non-trivial. These enormous sovereign debts place some limits on how much governments can borrow in the next global recession-a slowdown many think has already started.

          Here is a chart of U.S. sovereign debt, which has almost doubled since 2008:

          As noted on the chart: what structural inadequacies or problems did governments fix by borrowing gargantuan sums to fund state spending? The basic answer is: none. All the same structural problems facing governments in 2008 remain untouched in 2015. These include: over-indebtedness, bad debts that haven't been written down, insolvent banks, soaring social spending as the worker-retiree ratio slips below 2-to-1, externalized environmental damage that has yet to be remediated, and so on.

          5. Central Bank Stimulus (Quantitative Easing) as Social Policy Has Been Discredited

          In the wake of the Global Financial Meltdown of 2008-2009, central banks launched monetary stimulus programs aimed at pumping money into the economy via bank lending. The stated goals of these stimulus programs were 1) boost employment (i.e. lower unemployment) and 2) generate enough inflation to stave off deflation, which is generally viewed as the cause of financial depressions.

          While it can be argued that these unprecedented monetary stimulus programs achieved modest successes in terms of lowering unemployment and pushing inflation above the zero line, they also widened wealth and income inequality.

          Even as these programs made modest dents in unemployment and deflation, they pushed asset valuations to the moon-assets largely owned by the few at the top of the wealth pyramid.

          Here is a chart of selected developed economies' income/wealth skew:

          The widespread recognition that the benefits of central bank stimulus mostly flowed to the top of the pyramid places political limits on future central bank stimulus programs.

          The 2008-09 Fixes Are No Longer Available

          In summary, the fixes for the 2008-09 recession are no longer available in the same scale or effectiveness. Expanding debt to push up demand and investment, rising state deficit spending, massive monetary stimulus programs-all of these now face limitations. This means the central banks and states have very limited tools to reignite growth as global recession trims borrowing, investment, hiring, sales and profits.

          What Ultimately Matters: Capital Flows

          In Part 2: What Happens Next Will Be Determined By One Thing: Capital Flows, we'll look at the one dynamic that ultimately establishes assets prices: capital flows.

          I personally don't think the world has experienced a period in which capital preservation has become more important than capital appreciation since the last few months of 2008 and the first few months of 2009. Other than these five months, the focus has been on speculating to obtain the highest possible yield/appreciation.

          This suggests to me that the next period of risk-off capital preservation will last a lot longer than five months, and perhaps deepen as time rewards those who adopted risk-off strategies early on.

          Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

          A_MacLaren

          Sure would be nice if the the Tylers would post up a real discussion about the Markets vs the Real Economy, policy failures and problems aren't resolved with the same thinking that created them.

          Except the Central Wankers aren't really interested in the real economy, only the fictious one that wears the mask of financial markets.

          https://www.youtube.com/watch?v=lA0BbDe2RL4

          Are we experiencing the Great Recession of 2015 or merely a painful paradigm shift in how the global economy is run? Many in the West quickly blame China for mismanagement of its economy and currency. This may or may not be true, but this is only a small fraction of a much bigger story. Has anything been learned since the financial crisis of 2008?

          CrossTalking with Mitch Feierstein, Stephen Keen, and Mark Weisbrot.

          thunderchief

          Last week, 28 billion pulled out of the Market.

          28 billion pumped in by the PPT, to keep the market from accelerating into margin calls and panic.

          Ready, set, go on Monday. .Anyone else want out while the fed props this crap up a little longer?

          junction

          The markets are turbulent because people with insight are pulling their money out of the market, flight capital in the face of a fast spreading global war. Obama's ISIS is now out of control, there is a mass migration from war zones in the Middle East and North Africa and, worse of all, jihadists are pouring into Western Europe and America. Smiling, friendly jihadists like the guy who wanted to kill everyone on that French train. I wonder if, behind that smile, Obama also is a jihadist? Nah, he is a NWO follower through and through.

          Stroke

          What Ultimately Matters: Capital Flows.....


          Sounds like somebody's been reading Martin Armstron's blog

          B2u

          "We will not have any more crashes in our time."
          - John Maynard Keynes in 1927

          novictim

          ...he said, assuming that his sound policies would be followed to the letter.

          That the fiscal policies of Keyenes have been ingored in favor of monetary policy that just feeds asset bubbles lets Keynes off the hook.

          I might add that Keynes believed in cutting deficits and increasing taxes in prosperious years and the opposite in down years. No one can say that his policies have been followed in the least.

          polo007

          http://www.barrons.com/articles/quantitative-easing-redux-1440826605

          Quantitative Easing Redux?

          Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference.

          By Vito J. Racanelli

          August 29, 2015

          If a "rate hike" is Wall Street's obsession this year, the effective opposite, "quantitative easing," gets much less mention after three mammoth rounds of central-bank asset buying, or quantitative easing, in the past few years. But what's that we hear? Another thing the Fed's Dudley said last Wednesday was, "I'm a long way from quantitative easing. The U.S. economy is performing quite well."

          Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference. "It will take less than a 20% decline in U.S. stock prices for the Fed to begin discussing a new round of quantitative easing," says Darren Pollock, a portfolio manager with Cheviot Value Management.

          On several occasions in recent years, a Fed official has stepped in with easing statements following market routs. The Fed knows it can't let the stock market fall without backpedaling on its tough monetary talk, Pollock says. It must try to keep stock prices from plummeting and pulling down consumer confidence, which could affect the economy.

          Stocks recovered big-time last week, but remain vulnerable. Should the market fall some more, Pollock says, "It may force the Fed to do a U-turn and speak of a willingness to provide more stimulus-like QE."

          The Fed won't let all the effort and money invested in propping up the economy since 2008 go to waste. It won't stand at the plate and strike out looking. The Yellen put lives.

          Temerity Trader

          If the Fed bankers are so f***ing omnipotent, then they would NEVER let the markets drop at all. Why should they? It just makes the highly trained and obedient lemmings, get fearful and panic. The Dow tumbled almost 3,000 points from its recent Fed-enabled all time-high. Why did they not stop it, and stop EVERY fall, at -250 or so? Why did they not stop the last big decline to below 7K? Everyone would remain blissfully ignorant and living happily ever after in their personal 'Matrix'. If the Fed wound up owning 50% of the entire market float, who cares so long as millions of 401K's go up?

          Or, are these falls engineered conspiracies only designed to allow the wealthy to put billions in cash to work, before the next Fed pump begins? Maybe. At any rate, if the "growth" story is really dead and millions more immigrants just accelerate the decline of America, than more debt to hide the mess will fail. Entitlements will have to be cut, sowing the seeds of more anger in the entitled masses.

          In the end, Mr. Market will tame and humble even the arrogant Fed bankers and the multitudes who worship them.

          I Write Code

          CHS swings, and misses.

          QE as social policy was never more than an academic's vaporous apparition, like the succubus scene in Ghostbusters.

          Here's my take on the "China Story", which is they've now stolen all the manufacturing they can and now, for the first time in twenty years, can no longer grow by mere theft (of course I mean "theft" in a good way, they work smart and hard to "steal" manufacturing from the US and Europe, it's the vulture capitalists at *our* end who are the criminals).

          And, maybe their vaunted central planners didn't see this coming and they smashed through the wall and over the cliff. Oops.

          But y'know, it's not a disaster for all that, just an overshoot that requires a correction. It's not like China is about to dry up and blow away.

          TeethVillage88s

          Charles Hugh Smith has done twice as well as I could have done here.

          I like what he explained about China for instance. I'm still reading through it, think this would be great to forward to the DNC, RNC, and Congressmen.

          The Federal Reserve Created our Banking System.

          I think it is fair to place the blame on the FED and to end the FED on this basis... while stressing the S&L Crisis, the Deregulation, and the 2008 Global Financial Collapse which surely might have triggered a war with Europe. And the fact that the US TBTF Banks are much bigger than European Banks since the crisis even though the are responsible for poor stewardship of the World Reserve Currency and for Toxic Paper spread to pension funds world wide.

          Of course the solutions will be more controversial than this article that lays out part of the problem or symptoms.

          Solutions are like the Third Rail.

          tall sarah

          The multiple rounds of QE and ZIRP put the markets and the economy on a course for failure. There were four trends in place before the Great Depresion and FED POLICIES cemented those trends in place for this time period.

          1. the rich got richer- thanks to QE/ZIRP

          2. investing turned to speculation- on steroids thanks to QE/ZIRP

          3. soaring market credit- thanks to QE and ZIRP

          4. lagging business investment- stock buybacks are at all time highs since tracking began in 1990. Stock buy backs are not a business investmet. They are a disinvestment. A stock buy back is a loud and clear signal that there is no reason to invest in the business because economic conditions are not present that would allow the business to recoup those monies.

          The FED is the ultimate cause of all our woes as everyone at this site knows. Spread the word to those who do not. Preaching to the choir will not bring the end to the FED.

          Berspankme

          Don't forget to mention that US and EU enables China's corruption to continue by providing a safe place for money laundering. Asset prices in US are dramatically effected by China and other EM's corrupt practices


          [Aug 27, 2015] Smoke and Mirrors of Corporate Buybacks Behind the Market Crash

          "...What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term."
          .
          "...Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation."
          .
          "...HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.
          .
          So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.
          "
          .
          "...What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce."

          Michael Hudson, the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy, says the stock market crash on Monday has very little to do with China and all to do with shortermism and buybacks of corporations inflating their own stocks - August 25, 2015

          ... ... ...

          And this is what most of the commentators don't get, that all this market runoff we've seen in the last year or two has been by the Federal Reserve making credit available to banks at about one-tenth of 1 percent. The banks have lent out to brokers who have lent out to big institutional traders and speculators thinking, well gee, if we can borrow at 1 percent and buy stocks that yield maybe 5 or 6 percent, then we can make the arbitrage. So they've made a 5 percent arbitrage by buying, but they've also now lost 10 percent, maybe 20 percent on the capital.

          What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term.

          Now, it's amazing how today's press doesn't get it. For instance, in the New York Times Paul Krugman, who you can almost always depend to be wrong, said the problem is there's a savings glut. People have too many savings. Well, we know that they don't in America have too many savings. We're in a debt deflation now. The 99 percent of the people are so busy paying off their debt that what is counted as savings here is just paying down the debt. That's why they don't have enough money to buy goods and services, and so sales are falling. That means that profits are falling. And people finally realize that wait a minute, with companies not making more profits they're not going to be able to pay the dividends.

          Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation.

          PERIES: Michael, explain how buybacks are actually causing this. I don't think ordinary people quite understand that.

          HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.

          So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.

          PERIES: Michael, Lawrence Summers is tweeting, he writes, as in August 1997, 1998, 2007 and 2008, we could be in the early stages of a very serious situation, which I think we can attribute some of the blame to him. What do you make of that comment, and is that so? Is this the beginnings of a bigger problem?

          HUDSON: I wish he would have said what he means by 'situation'. What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce.

          So the real situation is in the real economy, not the financial economy. But Lawrence Summers and the Federal Reserve all of a sudden say look, we're not really trying–we don't care about the real economy. We care about the stock market. And what you've seen in the last few years, two years I'd say, of the stock runup, is something unique. For the first time the stock, the central banks of America, even Switzerland and Europe, are talking about the role of the central bank is to inflate asset prices. Well, the traditional reason for central banks that they gave is to stop inflation. And yet now they don't want, they're trying to inflate the stock market. And the Federal Reserve has been trying to push up the stock market purely by financial reasons, by making this low interest rate and quantitative easing.

          Now, the Wall Street Journal gets it wrong, too, on its editorial page. You have an op-ed by Gerald [incompr.], who used to be on the board of the Dallas Federal Reserve, saying gee, the problem with low interest rates is it encourages long-term investment because people can take their time. Well, that's crazy Austrian theory. The real problem is that low interest rates provide money to short-term speculators. And all of this credit has been used not for the long term, not for investment at all, but just speculation. And when you have speculation, a little bit of a drop in the market can wipe out all of the capital that's invested.

          So what you had this morning in the stock market was a huge wipeout of borrowed money on which people thought the market would go up, and the Federal Reserve would be able to inflate prices. The job of the Federal Reserve is to increase the price of wealth and stocks and real estate relative to labor. The Federal Reserve is sort of waging class war. It wants to increase the assets of the 1 percent relative to the earnings of the 99 percent, and we're seeing the fact that this, the effect of this class war is so successful it's plunged the economy into debt, slowed the economy, and led to the crisis we have today.

          PERIES: Michael, just one last question. Most ordinary people are sitting back saying well, it's a stock market crash. I don't have anything in the market. And so I don't have to really worry about it. What do you say to them, and how are they going to feel the impact of this?

          HUDSON: It's not going to affect them all that much. The fact is that so much of the money in the market was speculative capital that it really isn't going to affect them much. And it certainly isn't going to affect China all that much. China is trying to develop an internal market. It has other problems, and the market is not going to affect either China's economy or this. But when the 1 percent lose money, they scream like anything, and they say it's the job of the 99 percent to bail them out.

          PERIES: What about your retirement savings, and so on?

          HUDSON: Well, if the savings are invested in the stock market in speculative hedge funds they'd lose, but very few savings are. The savings have already gone way, way up from the market. And the market is only down to what it was earlier this year. So the people have not really suffered very much at all. They've only not made as big of gains as they would have hoped for, but they're not affected.
          ... ... ...

          Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

          'Did Socialism Keep Capitalism Equal?'

          "...The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously."
          "...So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change. "

          economistsview.typepad.com

          Branko Milanovic:

          Did socialism keep capitalism equal?: This is an interesting idea and I think that it will gradually become more popular. The idea is simple: the presence of the ideology of socialism (abolition of private property) and its embodiment in the Soviet Union and other Communist states made capitalists careful: they knew that if they tried to push workers too hard, the workers might retaliate and capitalists might end up by losing all.

          Now, this idea comes from the fact that rich capitalist countries experienced an extraordinary period of decreasing inequality from around 1920s to 1980s, and then since the 1980s, contradicting what a simple Kuznets curve would imply, inequality went up. It so happens that the turning point in 1980s coincides with (1) acceleration of skill-biased technological progress, (2) increased globalization and entry of Chinese workers into the global labor market, (3) pro-rich policy changes (lower taxes), (4) decline of the trade unions, and (5) end of Communism as an ideology. So each of these five factors can be used to explain the increase in inequality in rich capitalist countries.

          The socialist story recently received a boost from two papers.

          I am not sure that this particular story can alone explain the decline in inequality in the West, and certainly it is a story that one hears less often in the US than in Europe, as the United States believed itself to be sufficiently protected from the Communist virus (although when you look at the repression in the 1920s and McCarthyism in the 1950s, one is not so sure). But even Solow's recent mention of the changing power relations between capitalists and workers (the end of the Detroit treaty) as ushering in the period of rising inequality is not inconsistent with this view. In a recent conversation, and totally unaware of the literature, an Italian high-level diplomat explained to me why inequality in Italy increased recently: "in then 1970s, capitalists were afraid of the Italian Communist Party". So there is, I think, something in the story.

          The implication is of course rather unpleasant: left to itself, without any countervailing powers, capitalism will keep on generating high inequality and so the US may soon look like South Africa. That's where I think differently: I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism).

          Posted by Mark Thoma on Saturday, August 22, 2015 at 11:52 AM in Economics, Income Distribution | Permalink Comments (65)

          doug

          Is the implication unpleasant? Inequality will remain high unless the forces that aim to curb it reclaim some amount of social power; discursively, this will look like "socialism becoming more popular again," but put in these broader terms, the argument is almost tautological-- power will remain unequal if power remains unequal.
          mulp -> doug
          Socialism is based on a free lunch economic theory...

          What we have today in the US is basically free lunch economics that idiots call capitalism, but that is really pillage and plunder, monopoly rent seeking, with capital asset destruction to create monopoly power, and most important, government crony lending to consumers to pay for profits while trying to eliminate all workers to eliminate all labor costs.

          The ideology is pervasive in the optimism that everyone else that works will be replaced by robots and the authors will be one of the elites getting paid to explain how great it is that there are no workers and how fantastic wealth has produced massive growth in consumer spending to generate Jeb!'s 4% GDP growth forever.

          In free lunch economics, the ideal economy has profit equal consumer spending equal GDP and labor cost equal zero.

          This replaced the dismal science economics of the era which created the middle class American Dream.

          What was dismal is GDP was limited to the wages paid all the workers.

          What was dismal was profits were pretty much zero every where and capitalists were rewarded with returns on their money they paid workers to build productive capital assets which came from paying workers enough to buy what the capital assets plus labor produced.

          What was dismal was needing to have savings, steady income, to get a loan to buy an asset that cost more to build than the loan amount.

          What was dismal was having to pay taxes to have the educated workers corporations needed, having to pay taxes to have the roads, rail, water, energy, air travel, etc workers and corporations needed for a growing economy.

          Free lunch economics calls for replacing everything dismal with the invisible hand full of cash which will pay whatever price you charge for the stuff you produce without paying workers.

          Workers might be suffering with low incomes, but if they can't or won't borrow and spend, the capitalist rent seekers suffer.

          Mitt Romney, Jeb!, and Trump promise a free lunch - they will produce lots of paying customers buying a lot more GDP to produce high growth WITHOUT PAYING WORKERS A PENNY MORE by getting the dismal Obama out of the way who is blocking tax cuts that will put money in your pocket to spend, and blocking loans to buy the food and vacation you want on the stupid requirement you have income and assets.

          DrDick -> mulp

          Obviously you have no understanding of communism or socialism, but that is just a small part of a much longer list. Capitalism is the embodiment of "free lunch economics", at least for the rich. Communism/socialism just rewards productive workers, not capitalist parasites. Reply Saturday, August 22, 2015 at 04:36 PM
          Procopius -> mulp
          Actually, socialism is based on a "just deserts" social theory. Under capitalism, the owner of capital has power to distribute gains from an enterprise that employs both capital and labor. Under socialism, the owner of capital is the government, which is supposed to be more responsive to the needs of the people. In practice than hasn't worked out well, but that doesn't prove it couldn't. Capitalism works a lot better when there's some government intervention as a countervailing power, especially when they adopt policies permitting the organization of laborers, which has been seriously eroded since Reagan and Volcker.

          ilsm -> mulp

          Socialism received only violent answers, because socialist free lunch for the masses is always better than the hoarding endemic to cappitalism as practiced by the fasicsts.

          Violence breed violence and dictators.

          The billionaires started it.

          Bounader Lahcen

          Hello,
          I find your idea very interesting, but it is hard to generalize this story. In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism. Firstly, in a socialist economy there is no motivation to work hard and progress and this fact involves a huge gap between workers and the leadership of ,say, a state-owned firms. Secondly, when there is no motivation no progress, the stagnation would be in place and in this particularly case we can't talk about inequality because all people are in a bad situation (poverty). Finaly, socialism in my view is not efficient and the history said his word by the abolition of socialism.
          Carol -> Bounader Lahcen
          Yep, we see all those lazy Scandinavians and French etc swanning around lacking motivation to work which is why they are more productive than US workers

          anne -> Bounader Lahcen

          In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism...

          [ What country would serve as a specific example and in what way would there be more inequality in that more socialist country than in the United States? The United Kingdom, Australia, Canada, Germany, France, Netherlands, Japan

          anne -> anne

          In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism

          [ I still cannot think of an example. ]

          Procopius -> anne

          I suspect he's thinking of the former Soviet Union and such Eastern European countries as Albania. I don't know how we could compare the inequality in those places with the current U.S. Certainly there was great inequality, but it was based on family connections, party connections, and personal ability to bullshit. I don't see how that's different from what we're living with now, and the capitalist system uses government power to deflect wealth to the elite as much as the former "socialist" countries did. Reply Saturday, August 22, 2015 at 07:15 PM
          Ben Groves -> Bounader Lahcen
          It depends on whether liberal or conservatives run socialism. Liberals would try to make it universal Christian melting pot. Conservatives would make it Pagan tribal and war against other tribes.

          Many leftists over the years have a very conservative streak.

          ilsm -> Ben Groves

          Logical fallacies.
          DrDick -> Bounader Lahcen
          Another refugee from the John Birch chapter of the Chamber of Commerce. Do you have any idea what you are talking about?

          Ben Groves -> DrDick

          I am the anti-Bircher. Birchers are rich, wall street scum trying to destroy the country. I despise Propertarianism. Lets remember, the split between the Democrats wasn't just necessarily the low income religious people, but from the elitist, secular types who saw the Democratic turn toward Affirmative Action and Forced Buses as racial treason. They may have been even ones that turned a blind eye toward years of Civil Rights, saying the time to move on had come. The 70's "reforms" were just to much. They saw the party backing away from Populism and instead, using special interest to keep their seat of power in the 70's to cultural groups. Hubert Humphrey very much warned us against that, yet, they did. I always saw the people attracted to AA and forced busing as "Progressive Republicans" hiding as Democrats. It is the deep injury in the Democratic Party that has never been shown to the public or healed. Their mentality and cheap parlor tricks were very Republican historically(which modern Republicans still use to support neo-conism, propertarianism and other wealthy schemes). Reply Saturday, August 22, 2015 at 09:38 PM
          DrDick -> Ben Groves
          WTF? Do you have any idea what you are talking about? Having you been taking history lessons at Stormfront?

          ilsm -> Bounader Lahcen

          Actually, basic science thrived in Soviet sphere. Reply Sunday, August 23, 2015 at 04:53 AM
          ilsm -> Bounader Lahcen
          Start with fallacy and go down from there. Reply Sunday, August 23, 2015 at 04:55 AM

          anne

          https://twitter.com/vijayprashad

          Vijay Prashad ‏@vijayprashad

          The links between @jeremycorbyn and Genghiz Khan. Be very afraid. https://markfiddaman.wordpress.com/2015/08/21/6-links-jeremy-corbyn-doesnt-want-you-to-know-about/

          anne -> anne

          http://krugman.blogs.nytimes.com/2015/08/04/corbyn-and-the-cringe-caucus/

          August 4, 2015

          Corbyn and the Cringe Caucus
          By Paul Krugman

          I haven't been closely following developments in UK politics since the election, but people have been asking me to comment on the emergence of Jeremy Corbyn as a serious contender for Labour leadership. * And I do have a few thoughts.

          First, it's really important to understand that the austerity policies of the current government are not, as much of the British press portrays them, the only responsible answer to a fiscal crisis. There is no fiscal crisis, except in the imagination of Britain's Very Serious People; the policies had large costs; the economic upturn when the UK fiscal tightening was put on hold does not justify the previous costs. More than that, the whole austerian ideology is based on fantasy economics, while it's actually the anti-austerians who are basing their views on the best evidence from modern macroeconomic theory and evidence.

          Nonetheless, all the contenders for Labour leadership other than Mr. Corbyn have chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis. As Simon Wren-Lewis says, ** when Labour supporters reject this move, they aren't "moving left", they're refusing to follow a party elite that has decided to move sharply to the right.

          What's been going on within Labour reminds me of what went on within the Democratic Party under Reagan and again for a while under Bush: many leading figures in the party fell into what Josh Marshall used to call the "cringe", basically accepting the right's worldview but trying to win office by being a bit milder. There was a Stamaty cartoon during the Reagan years that, as I remember it, showed Democrats laying out their platform: big military spending, tax cuts for the rich, benefit cuts for the poor. "But how does that make you different from Republicans?" "Compassion - we care about the victims of our policies."

          I don't fully understand the apparent moral collapse of New Labour after an election that was not, if you look at the numbers, actually an overwhelming public endorsement of the Tories. But should we really be surprised if many Labour supporters still believe in what their party used to stand for, and are unwilling to support the Cringe Caucus in its flight to the right?

          * http://www.theguardian.com/commentisfree/2015/aug/03/jeremy-corbyn-new-labour-centre-left

          ** http://mainly macro.blogspot.com/2015/07/corbyns-popularity-and-relativistic.html Reply Saturday, August 22, 2015 at 12:09 PM

          anne -> anne

          http://www.independent.co.uk/voices/comment/with-hundreds-of-thousands-of-new-supporters-labour-is-on-the-verge-of-something-big--what-a-complete-disaster-10454504.html

          August 14, 2015

          With hundreds of thousands of new supporters, Labour is on the verge of something big – what a complete disaster!
          Having loads of young voters engage with your party must be terrifying
          By MARK STEEL

          It's easy to see why those in charge of the Labour Party are so depressed. They must sit in their office crying: "Hundreds of thousands of people want to join us. It's a disaster. And loads of them are young, and full of energy, and they're really enthusiastic. Oh my God, why has it all gone so miserably wrong?"

          Every organisation would be the same. If a local brass band is down to its last five members, unsure whether it can ever put on another performance, the last thing it needs is young excited people arriving with trombones to boost numbers and raise money and attract large audiences. The sensible response is to tell them they're idiots, and announce to the press that they are infiltrators from the Workers' Revolutionary Party

          anne -> anne

          The sheer nuttiness of the Labour elite's fear of Labour's Jeremy Corbyn, tells me that from conservative to so-called liberal political parties through the West the operating ideas and policies are startlingly similar and actually conservative. How nice to have alternative social-economic ideas in political play to limit conservatism.
          anne -> anne
          https://twitter.com/ggreenwald

          Glenn Greenwald ‏@ggreenwald

          Lady Boothroyd joins Lord Falconer in warning about the gauche leftist hordes regrettably allowed to vote for Corbyn http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroyd

          anne -> anne

          http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroyd

          August 23, 2015

          Labour heading for scrapheap if it elects Jeremy Corbyn, says Betty Boothroyd
          Former Speaker of the Commons claims the leadership frontrunner's hard-left supporters are peddling same 'claptrap' that gripped the party in the 1980s
          By Rajeev Syal - Guardian

          lilnev

          Capitalism conquered socialism. Now it's in the process of conquering democracy.
          ilsm -> lilnev
          Violent capitalism

          DrDick -> ilsm

          Is there any other kind? Henry Ford mounted .50 caliber machine guns on the roof of the Rouge plant.
          Carolyn Kay
          From the book I'd write, if I could ever find a publisher:

          "Human greed can, and often does, go too far by treading on the needs and rights of others. In addition, the human need for security and the illusion of certainty tends to encourage the leaders of businesses to collude to set prices, carve up markets, and combine forces by merging their companies. Totally unfettered, the end result of capitalism would be one big company that made and sold everything everywhere, and that kept competitive businesses from existing-by force, if necessary. If you were to want something not made by this master conglomerate, named something like MicroMax, perhaps, you would not be able to get it."
          http://bit.ly/Q3zdMU
          Reply Saturday, August 22, 2015 at 12:41 PM

          paine

          The corporate titans won the kold war with the nixon-mao pact. Soon social democracy became a nuisance not a bulwark

          Niq

          no motivation to work in socialism?

          This comes I think from an argument about alienation but really makes no sense at all. After all, the vast majority of the workforce in modern capitalist societies have no meaningful ownership over their companies or what they produce.

          Incentives are an issue of policy (whether it be corporate policy or whatever) We don't live in a world of billions of small business owners we live in a world of huge collective organizations that use some form of centralized planning.

          If people need to have a stake to have a work ethic, then support collectivization of private industry (which is communism). Reply Saturday, August 22, 2015 at 01:37 PM

          Procopius -> Niq

          I think you're misunderstanding. The people who say that there's no motivation to work under socialism are thinking of CEOs of massive international corporations, who claim that the only reason they work is because they are paid millions of dollars a year.

          They think that if people weren't forced into the "vast reserve army of the unemployed" on the verge of starvation, they's spend all their time watching reality shows on the electric teevee machine.

          ilsm -> Niq
          Only greed motivates!

          ilsm -> ilsm

          Keeping your country from third world status is not a motivator.

          The billionaires are fuill of it, but better comply or the US police equipped with MRAPs will take it out on you. Reply Sunday, August 23, 2015 at 05:00 AM

          Dan Kervick

          It's not just that socialism made capitalism more equal. Its presence in the intellectual-political mix produced a variety of mixed economy alternatives to capitalism which were adopted throughout the developed world. A large number of everyday and widely supported economic institutions and innovations originated in the thought of the socialists.

          In many countries, everyone seems to understand that the economic system they live under reflects a fusion of capitalist and socialist ideas, and so they call it "social democracy", "democratic socialism" or what have you. Americans have traditionally insisted for deep-seated ideological reasons on using the term "capitalism", come what may, and are in permanent denial about the socialist elements of their own system.

          One thing the arrival of socialist ideas helped do was prevent the pre-capitalist or nascent capitalist societies of early modern Christian Europe from evolving into full-blown total capitalist barbarisms under the pressure of industrialization. Socialism and other, older forms of religious and humanitarian thought worked together to prevent the infernal machinery of capitalism from devouring everything. Reply Saturday, August 22, 2015 at 01:41 PM

          anne

          Brank Milanovic adds:

          http://glineq.blogspot.com/2015/08/did-socialism-keep-capitalism-equal_52.html

          August 22, 2015

          Did socialism keep capitalism equal?

          I think the fundamental question that these and similar papers ask is the following: does capitalism contain "automatic stabilizers" that would curb the rise of inequality before it goes over the top; or do "stabilizers" always have to be revolutions, wars and economic crises? I do not think that we have an empirical answer to it. Reply Saturday, August 22, 2015 at 01:48 PM

          anne -> anne

          Naomi Klein, I suspect, would argue that conservatives have a purpose in and have become adept at using social upheavals to force movement away from social-democratic institutions. Reply Saturday, August 22, 2015 at 01:51 PM
          Second Best
          Eminent domain powers of the ruling oligarchy, deeply embedded inseparably in markets and government, also eliminate private property. Predatory socialism is disguised as capitalism, otherwise known as privatized gains and socialized losses.

          The top 1% has accumulated assets over $60 trillion including 49,000 families with assets over a billion dollars. Corporations contribute the lowest percentage of tax revenue in history, 1% of GDP.

          The socialist-capitalist dichotomy is naive at best, anything but countervailing forces. Reply Saturday, August 22, 2015 at 01:54 PM

          ilsm -> Second Best

          The new Dudes.

          Naziism: "privatized gains and socialized losses."

          No Krugge or "civil" Nazi was brought to Nuremburg.

          Krugges abide! Reply Sunday, August 23, 2015 at 05:03 AM

          Jim Harrison

          It wasn't just communism. There were many countervailing forces: populism, the social gospel, democratic socialism of various kinds, labor movements, and political progressivism, not to mention the conservatism of older economic elites whose status was based primarily on land. What's novel about our situation is the scarcity of organized opposition to unfettered capitalism. Obviously that may change, but I'm impressed with the ability of the system to quickly co-opt its enemies. Reply Saturday, August 22, 2015 at 02:18 PM
          Richard Lee Bruce Econ PhC
          The turn around in income distribution for the United States was in 1973, long before the fall of communism. The percentage of income going to the top one percent was declining until 72 or 73.

          The percentage falling below the poverty threshold was falling until 1973, and has not gotten back to the 73 level in the 42 years since then.

          So 1973 was the inflection point. Of course 1973 was also the year that Roe was decided.

          Abortion, Roe, the sexual revolution, and other social issues drove a wedge between religious voters and the Democratic Party. The Religious vote had been liberal, progressively it became conservative and Republican.

          Religious voters have high voter turn out. Voting is a religious duty. So we particularly see the results in off year elections.

          The religious are also far more fertile, so there influence grows, as they and their numbers grow.

          On the other hand many factors are important and the article has mentioned one of them. Reply Saturday, August 22, 2015 at 03:30 PM

          Paine -> Richard Lee Bruce Econ PhC

          But after the Nixon Mao pact

          The turning point of no return

          Eric377 -> Paine

          Thanks. I think determining what happened would be very difficult. The increase in competition from non-Detroit manufacturers was pressuring the dollar value of the added value. It is only value to the limit that customers buy the product. When GM and Chrysler sought protection about 40 years after 1970, the claims on the value of these firms by the UAW members and retirees were a very large contributor to the unsustainable situations they found themselves in. The Detroit treaty effects lasted much longer than the 1970s, but there was a lot less value to share relative to expectations.
          Ellis -> Eric377
          In other words, the workings of capitalism drives down wages.

          Redwood Rhiadra

          "I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism)."

          There is such a long term force, of course. It is called climate change, which will make everyone equal by either killing them all, or, at best, what few survivors remain will be reduced to a Stone Age subsistence lifestyle.

          Not exactly a rosy scenario. I'd like a solution that leads to more equality *without* the complete collapse of human civilization. Unfortunately, I don't actually see one. Reply Saturday, August 22, 2015 at 05:33 PM

          Paine -> Redwood Rhiadra

          Quietism till the rapture then ? Reply Saturday, August 22, 2015 at 06:00 PM

          Robert Waldmann

          I think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party.

          I think few doubted that the aim of the reformers was mainly to settle the issue. In fact, I think the pattern is that anti-communist egalitarianism actually works
          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html

          This lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes).

          Notably sincere socialists didn't always manage so well. I think (as argued in the linked post) that an eagerness to settle the class conflict permanently tends to promote effective policy. Reply Saturday, August 22, 2015 at 06:56 PM

          ilsm -> Robert Waldmann

          Gimo?

          He was Mao's supply officer while the Birchers legislated huge arms support.

          Once Mao got to the Yantgze Chiang's mask fell away.

          Taiwan is about equally split today between Chiang fasicst, Formosans who see Chinese no better than Japanese and leftists favoring union.

          Someday the enough fascists will be jailed for corruption

          anne -> Robert Waldmann

          I think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party

          [ Important argument, with which I would agree. Worth further writing about.

          anne -> Robert Waldmann

          https://research.stlouisfed.org/fred2/graph/?g=1APt

          August 4, 2014

          Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011

          (Percent change)


          https://research.stlouisfed.org/fred2/graph/?g=1APw

          August 4, 2014

          Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011

          (Indexed to 1954) Reply Sunday, August 23, 2015 at 05:33 AM

          anne -> Robert Waldmann

          https://research.stlouisfed.org/fred2/graph/?g=1FXy

          August 4, 2014

          Real Gross Domestic Product for China, Italy and Spain, 1953-2011

          (Percent change)


          https://research.stlouisfed.org/fred2/graph/?g=1FXz

          August 4, 2014

          Real Gross Domestic Product for China, Italy and Spain, 1953-2011

          (Indexed to 1953) Reply Sunday, August 23, 2015 at 05:42 AM

          anne -> Robert Waldmann

          In fact, I think the pattern is that anti-communist egalitarianism actually works:

          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html .

          This lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes)

          [ Do write more on this matter. ]

          anne -> Robert Waldmann

          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html

          May 17, 2007

          Land Reform in Venezuela
          By Robert Waldmann

          My personal thought is that it's about time. This article is interesting but I think it is slanted against the land reform which is described as "brutal and legal" because

          "The violence has gone both ways in the struggle, with more than 160 peasants killed by hired gunmen in Venezuela, including several here in northwestern Yaracuy State, an epicenter of the land reform project, in recent years. Eight landowners have also been killed here."

          Sounds to me that the resistance to land reform is roughly 20 times as brutal as the land reform effort. The disproportion between quotes of supporters and opponents is much less extreme.

          The part that irritated me (and makes an alternative title "why do people hate economists") is that "economists" appear to be all opposed to land reform.

          "Economists say the land reform may have the opposite effect of what Mr. Chavez intends, and make the country more dependent on imported food than before

          . Agricultural economists say the government bureaucracy, which runs a chain of food stores, is also rife with inefficiencies." Finally economists get a name:

          "Carlos Machado Allison, an agricultural economist at the Institute for Higher Administrative Studies in Caracas."

          anne -> anne

          http://www.nytimes.com/2007/05/17/world/americas/17venezuela.html

          May 17, 2007

          Clash of Hope and Fear as Venezuela Seizes Land
          By SIMON ROMERO Reply Sunday, August 23, 2015 at 06:34 AM

          Barkley Rosser

          One basic fact and one speculation.

          The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously.

          So, the last measured Gini in the Soviet Union was .26, with Czechoslovakia around .20, and Maoist China at .16. Yes, these were probably too low due to non-counting of in-kind perks to nomenklatura elites, but, frankly, these generally were not all that great, and there were not that many privately held fortunes, given the lack of private ownership of capital. And if anybody does not think that Ginis in the US and other maraket capitalist nations are not understated, well, think about how much high income people hide their incomes and their wealth.

          So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s. But certain eastern European nations have maintained quite low Ginis, such as the Czech and Slovak Republics and Slovenia, and some other reasonably democratic and not overly corrupt of those nations, with Ginis still holding in the mid 20s. Big surprise that those that have maintained more equality have also generally done much better on many measures than those that have had their Ginis soar as corrupt new elites have seized control of the means of production.

          So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change.

          Ben Groves -> Barkley Rosser

          Capitalism can continue on as long as the government bails it out. When it doesn't bail it out, you get depressions, collapse into socialism and tribalism. When there is nothing left for you, you bare arms and slaughter the decadent.
          ilsm -> Ben Groves
          As long as greed exceed charity in the popular view.

          anne -> Barkley Rosser

          So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s

          [ When possible set down the reference link to the database being used:

          http://data.worldbank.org/indicator/SI.POV.GINI ?

          http://www.lisdatacenter.org/lis-ikf-webapp/app/search-ikf-figures ? ]

          Ben Groves

          The US for example was a moderate fascist country from 1933-80 when the government ran investment cycles through public investment and using high marginal tax rates to literally force the wealthy to invest nationally. Then it became a Oligopoly slowly over time from 1983 onward, when the state began to disinvest and capital concentration took off by the 90's.

          Another big part that went into that was the end of military spending and north sea oil findings. In 1979, everybody was bleak. The Soviet Union was going to last for the foreseeable future, keeping spending high. The world was running out of oil. That all changed by 1981. The Soviet empire was turning into a joke and its Afgan follies were looking bad. The North Sea oil finds helped spur the cheap economy oil onward. The "rich" became cool again. So the political theme was to allow them more latitude. Lets don't forget, businesses were pumping assets into foreign countries even in the 60's. One of them was China well before 1997. The final end of the cold war tripe pushed that on steroids.

          So we live in a world without any real military threats outside "terrorists" (which itself is suspicious in their financing) and global capital flows. No longer is investment seen as the path toward happiness, but consumption. Real PCE replaced industrial production as "the" bean counter boosting valuations for the wealthy with credit expansion its chariot.

          ilsm -> Ben Groves

          Today the US spends more on war in real $ than when it had 500K engaged in Vietnam blowing up nationalists at decent profit per body count, with a good number a tripwire against the 40000 tanks the soviets had parked facing west.

          [Aug 09, 2015] Hillary Clinton State Department Emails, Mexico Energy Reform, and the Revolving Door

          Notable quotes:
          "... By Steve Horn, a Madison, WI-based Research Fellow for DeSmogBlog and a freelance investigative journalist. He previously was a reporter and researcher at the Center for Media and Democracy. Originally published at DeSmogBlog . ..."
          "... Originally stored on a private server , with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton's State Department helped to break state-owned company Pemex 's (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create. ..."
          "... The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio. ..."
          "... David Goldwyn , who was the first International Energy Coordinator named by Secretary of State Hillary Clinton in 2009, sits at the center of the story. As revealed by DeSmog, the State Department redacted the entire job description document for the Coordinator role. ..."
          "... The emails show that, on at least one instance, Goldwyn also used his private " [email protected] " (Goldwyn Global Strategies) email address for State Department business. ..."
          "... It remains unclear if he used his private or State Department email address on other instances, as only his name appears on the other emails. But Cheryl Mills, a top aide to Secretary Clinton at the time, initiated the email that he responded to on his private account. ..."
          naked capitalism
          By Steve Horn, a Madison, WI-based Research Fellow for DeSmogBlog and a freelance investigative journalist. He previously was a reporter and researcher at the Center for Media and Democracy. Originally published at DeSmogBlog.

          Emails released on July 31 by the U.S. State Department reveal more about the origins of energy reform efforts in Mexico. The State Department released them as part of the once-a-month rolling release schedule for emails generated by former U.S. Secretary of State Hillary Clinton, now a Democratic presidential candidate.

          Originally stored on a private server, with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton's State Department helped to break state-owned company Pemex's (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create.

          The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio.

          The Trio

          David Goldwyn, who was the first International Energy Coordinator named by Secretary of State Hillary Clinton in 2009, sits at the center of the story. As revealed by DeSmog, the State Department redacted the entire job description document for the Coordinator role.

          Goldwyn now runs an oil and gas industry consulting firm called Goldwyn Global Strategies, works of counsel as an industry attorney at the law firm Sutherland Asbill & Brennan, and works as a fellow at the industryfunded think tanks Atlantic Council and Brookings Institution.

          The emails show that, on at least one instance, Goldwyn also used his private "[email protected] " (Goldwyn Global Strategies) email address for State Department business.

          It remains unclear if he used his private or State Department email address on other instances, as only his name appears on the other emails. But Cheryl Mills, a top aide to Secretary Clinton at the time, initiated the email that he responded to on his private account.

          [Aug 08, 2015] The $12 Trillion Fat Finger How A Glitch Nearly Crashed The Global Financial System - A True Story

          Aug 08, 2015 | Zero Hedge

          For all the talk of how the financial world nearly ended in the aftermath of first the Lehman bankruptcy, then the money market freeze, and culminating with the AIG bailout, and how bubble after Fed bubble has made the entire financial system as brittle as the weakest counterparty in the collateral chain of some $100 trillion in shadow liabilities, the truth is that despite all the "macroprudential" planning and preparations, all the world's credit, housing, stock, and illiquidity bubbles may be nothing when compared to the oldest "glitch" in the book: a simple cascading error which ends up taking down the entire system.

          Like what happened in the great quant blow up August 2007.

          For those who may not recall the specific details of how the "quant crash" nearly wiped out all algo and quant trading hedge funds and strats in a matter of hours if not minutes, leading to tens of billions in capital losses, here is a reminder, and a warning that the official goalseeked crisis narrative "after" the fact is merely there to hide the embarrassment of just how close to total collapse the global financial system is at any given moment.

          The following is a true story (courtesy of b3ta) from the archives, going all the way back to 2007:

          I.T. is a minefield for expensive mistakes

          There's so many different ways to screw up. The best you can hope for in a support role is to be invisible. If anyone notices your support team at all, you can rest assured it's because someone has made a mistake. I've worked for three major investment banks, but at the first place I witnessed one of the most impressive mistakes I'm ever likely to see in my career. I was part of the sales and trading production support team, but thankfully it wasn't me who made this grave error of judgement...

          (I'll delve into obnoxious levels of detail here to add color and context if you're interested. If not, just skip to the next chunk, you impatient git)

          This bank had pioneered a process called straight-through processing (STP) which removes the normal manual processes of placement, checking, settling and clearing of trades. Trades done in the global marketplace typically have a 5-day clearing period to allow for all the paperwork and book-keeping to be done. This elaborate system allowed same-day settlement, something never previously possible. The bank had achieved this over a period of six years by developing a computer system with a degree of complexity that rivalled SkyNet. By 2006 it also probably had enough processing power to become self-aware, and the storage requirements were absolutely colossal. It consisted of hundreds of bleeding edge compute-farm blade servers, several Łmulti-million top-end database servers and the project had over 300 staff just to keep it running. To put that into perspective, the storage for this one system (one of about 500 major trading systems at the bank) represented over 80% of the total storage used within the company. The equivalent of 100 DVD's worth of raw data entered the databases each day as it handled over a million inter-bank trades, each ranging in value from a few hundred thousand dollars to multi-billion dollar equity deals. This thing was BIG.

          You'd think such a critically important and expensive system would run on the finest, fault-tolerant hardware and software. Unfortunately, it had grown somewhat organically over the years, with bits being added here, there and everywhere. There were parts of this system that no-one understood any more, as the original, lazy developers had moved company, emigrated or *died* without documenting their work. I doubt they ever predicted the monster it would eventually become.

          A colleague of mine one day decided to perform a change during the day without authorisation, which was foolish, but not uncommon. It was a trivial change to add yet more storage and he'd done it many times before so he was confident about it. The guy was only trying to be helpful to the besieged developers, who were constantly under pressure to keep the wretched thing moving as it got more bloated each day, like an electronic 'Mr Creosote'.

          As my friend applied his change that morning, he triggered a bug in a notoriously crap script responsible for bringing new data disks online. The script had been coded in-house as this saved the bank about Ł300 per year on licensing fees for the official 'storage agents' provided by the vendor. Money that, in hindsight, would perhaps have been better spent instead of pocketed. The homebrew code took one look at the new configuration and immediately spazzed out. This monged scrap of pisspoor geek-scribble had decided the best course of action was to bring down the production end of the system and bring online the disaster recovery (DR) end, which is normal behaviour when it detects a catastrophic 'failure'. It's designed to bring up the working side of the setup as quickly as possible. Sadly, what with this system being fully-replicated at both sites (to [cough] ensure seamless recovery), the exact same bug was almost instantly triggered on the DR end, so in under a minute, the hateful script had taken offline the entire system in much the same manner as chucking a spanner into a running engine might stop a car. The databases, as always, were flushing their precious data onto many different disks as this happened, so massive, irreversible data corruption occurred. That was it, the biggest computer system in the bank, maybe even the world, was down.

          And it wasn't coming back up again quickly.

          (OK, detail over. Calm down)

          At the time this failure occurred there was more than $12 TRILLION of trades at various stages of the settlement process in the system. This represented around 20% of ALL trades on the global stock market, as other banks had started to plug into this behemoth and use its capabilities themselves. If those trades were not settled within the agreed timeframe, the bank would be liable for penalties on each and every one, the resulting fines would eclipse the market capital of the company, and so it would go out of business. Just like that.

          My team dropped everything it was doing and spent 4 solid, brutal hours recovering each component of the system in a desperate effort to coax the stubborn silicon back online. After a short time, the head of the European Central Bank (ECB) was on a crisis call with our company CEO, demanding status updates as to why so many trades were failing that day. Allegedly (as we were later told), the volume of financial goodies contained within this beast was so great that failure to clear the trades would have had a significant negative effect on the value of the Euro currency. This one fuckup almost started a global economic crisis on a scale similar to the recent (and ongoing) sub-prime credit crash. With two hours to spare before the ECB would be forced to go public by adjusting the Euro exchange rate to compensate, the system was up and running, but barely. We each manned a critical sub-component and diverted all resources into the clearing engines. The developers set the system to prioritise trades on value. Everything else on those servers was switched off to ensure every available CPU cycle and disk operation could be utilised. It saturated those machines with processing while we watched in silence, unable to influence the outcome at all.

          Incredibly, the largest proportion of the high-value transactions had cleared by the close of business deadline, and disaster was averted by the most "wafer-thin" margin. Despite this, the outstanding lower-value trades still cost the bank more than $100m in fines. Amazingly, to this day only a handful of people actually understand the true source of those penalties on the end-of-year shareholder report. Reputation is king in the world of banking and all concerned --including me-- were instructed quite explicitly to keep schtum. Naturally, I *can't* identify the bank in question, but if you're still curious, gaz me and I'll point you in the right direction…

          Epilogue… The bank stumped up for proper scripts pretty quickly but the poor sap who started this ball of shit rolling was fired in a pompous ceremony of blame the next day, which was rather unfair as it was dodgy coding which had really caused the problem. The company rationale was that every blaze needs a spark to start it, and he was going to be the one they would scapegoat. That was one of the major reasons I chose to leave the company (but not before giving the global head of technology a dressing down at our Christmas party… that's another QOTW altogether). Even today my errant mate is one of the only people who properly understands most of that preposterous computer system, so he had his job back within six months -- but at a higher rate than before :-)

          Conclusion: most banks are insane and they never do anything to fix problems until *after* it costs them uber-money. Did I hear you mention length? 100 million dollar bills in fines laid end-to-end is about 9,500 miles long according to Google calculator.

          * * *

          And here is Zero Hedge's conclusion: the next time you think all those paper reps and warranties to claims on billions if not trillions of assets, are safe and sound in some massively redundant hard disk array, think again.

          exi1ed0ne

          Ha. Keep offshoring IT jobs to kraplocastan and fucking over your competent IT staff with furloughs, pay freezes, and no training you cheap cunts. I've seen this time and again over 25 years in IT and it fucks over everyone who tries to cheap out, but at least there are handy scapegoats in IT putting 18 hour days to fix it. Fucking assholes eat their seed corn all the time just to eek out quarterly numbers.

          Zoomorph

          A fat finger may cause a few days of downtime, but it's unlikely to bring the whole system to an end or cause irreparable damage. These systems are designed to survive all kinds of disaster scenarios including some amount of human error.

          [Jul 31, 2015] Stumbling and Mumbling On Corbynomics

          Jul 30, 2015 | stumblingandmumbling.typepad.com

          ON CORBYNOMICS

          Jeremy Corbyn's economic policy deserves more attention than it's getting.

          It seems to me that this comprises two necessarily related elements. One is higher corporate taxes: he wants to "strip out some of the huge tax reliefs and subsidies on offer to the corporate sector" - which he claims to be Ł93bn a year. This would depress investment, by depriving firms of some of the means and motive to invest. However, this would be offset by "people's quantitative easing" - a money-financed fiscal expansion:

          The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects.

          This amounts to what Keynes called a "socialisation of investment":

          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. (General Theory, ch 24)

          This is a response to a genuine problem - low capital spending. The share of business investment in GDP has (in nominal terms) been trending downwards since the mid-70s.

          Quite why this has happened is unclear: I suspect it owes more to fundamental problems of a lack of monetizable investment opportunities than to short-termism, but this doesn't much matter for current purposes. Corbyn's view seems to be that, if private enterprise won't invest, the public sector should. Businv

          I don't have much problem with the diagnosis here. But I do with the remedy, for three reasons.

          First, how exactly will the public sector investment projects be chosen? One reason why the Bank of England didn't conduct QE through the corporate bond or equity markets was that it didn't think it had the expertise to pick companies. So how can it appraise energy and digital projects?

          One answer to this is to have a National Investment Bank. But again, where will its expertise be drawn from? I fear this is a form of managerialism - a faith in central managers.

          The second question is: who will do the actual investing? There's a case for the state to invest in infrastructure. But we also need corporate investment, to raise private sector productivity.

          It's possible that the higher aggregate demand created by people's QE will stimulate private sector investment via accelerator mechanisms. Maybe high expected demand will overcome higher corporate taxes. Or maybe not.

          My third problem is raised by David Boyle: where are the mutuals? Corbyn's world seems to comprise just two actors: the state and capitalist corporations. There seems insufficient emphasis upon decentralized forms of economic control, be they Robin Hahnel's participatory planning, Roemerian market socialism or workers' control.

          Granted, Corbynomics might be a building block towards these. But as it stands, it looks to me like replacing one set of bosses with another - which isn't as egalitarian as it could be.

          Nevertheless, Corbyn is at least asking the right question - how to stimulate investment - which is, sadly, more than his rivals are doing.

          July 30, 2015 | Permalink

          Matthew Maloney | July 31, 2015 at 10:20 AM

          Dangerous. Chris brings up Hayek's central proposition - centralised decision makers can't make optimal decisions. I'd imagine a government investment bank would start pumping money into political crony type projects, millitary rubbish and other aristocrat welfare measures. Not a good idea. Better to cut taxes for the middle class, and raise it on the rich.

          [Jul 30, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

          "...In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman."
          .
          "...The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile."
          .
          "..."It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters,""
          .
          "..."When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold", With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim."
          economistsview.typepad.com
          Jul 21, 2015 | Zero Hedge

          "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

          In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

          Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

          Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

          As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

          Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

          During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

          Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

          In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

          A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

          Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

          Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

          It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

          THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

          Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

          At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

          The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

          Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

          The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

          Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

          The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

          Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

          Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

          THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

          According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

          Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

          The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

          In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

          Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

          Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

          As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

          After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

          "It's a wonderful idea," Friedman told him. "You must do it!"

          Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

          He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

          Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

          In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          *****

          Source: The Great Deformation by David Stockman

          falak pema

          Hahaha, for the FIRST time I see a post here on ZH where the "profoundly erroneous monetarist doctrine" of Milton Friedman gets blamed for what follows : the greatest monetary sin of the West (after the gold exchange standard according to Jacques Rueff).

          The Friedmanite floating rate regime is what started the instability in the world monetary casino and yes the futures market did the rest.

          Yipeeee, we have it right there. The monetary SIN laid out here at ZH and it had NOTHING to do with Keynesian plays. The Casino was a PURE product of the CHICAGO school so dear to Hayek. Who approved the supply side "liberalisation" of Reaganomics that followed.

          ZH has vindicated that very important piece of the puzzle in the global financial time line of our present age.

          Now Keynes's ghost can rest in piece. Monetarism will have to carry its own Cross on its Golgothan march.


          The Delicate Genius

          I think there may be a middle you're excluding...

          falak pema

          May be a middle called Nixonian petrodollar anchoring. But that did not change the Casino mantra. It just anchored "our money your problem" to Saud's Oil guzzler.

          All that did was to suck the Oil into the fiat bonanza world.

          Something the Sauds don't appreciate anymore as the Fiat pile is making Pax Americana fragile and it cannot zero hedge its support of Sunni Saudi hubris. It has to HEDGE with IRAN...now having showed its resilience after 40 years of confronting the USA.

          C'mon Genius don't just mumble in your libertarian beard, put up or shut up.

          hxc

          Not all monetarists are chicagoan. They became book cookers for Keynesian discretionary policy... Hence NK's, New Classicals, "market monetarists," et cetera. Friedman's been reduced to the guy in the back room, wearing a green visor and rigging up Keynes' insane monetary system.

          Check it out

          The Perversion of Monetarism

          MASTER OF UNIVERSE

          Agreed, but only because you know more than I do when it comes to Economics, and because I always thought that cocksucker Freidman, and the Chicago School, were crooked snakes-in-the-grass all along. And frankly, Z/H does kind of beat on Keynes a bit too much sometimes, but the SOB is dead, so who cares anyhow. Historiography has a nothing to do with reality in this day and age, methinks.

          falak pema

          1946 Keynes dies. 1965 De Gaulle starts talking about "exorbitant privilege" and US hubris.

          At the end of the 60s the London Gold club that tries to bridge French concerns about US spending profiglacy (Vietnam war, great society) and US balance of trade deterioration, collapses. Harold Wilson caves in to "gnomes of Zurich" and London loses pivotal role with a devalued Ł.

          By 1969 the French have put the fear of God up Nixon when a french gunboat arrives reclaiming French gold deposited in NY. SO...1971 and Nixon makes the plunge.

          You can say what you like about Keynes. He had nothing to do with Nixon/Johnson's spending spree which made gold revoke inevitable. It was not his philosophy which was ŕ la mode in 1969 but the Chicago school.

          MASTER OF UNIVERSE

          From what I have read about Keynes he was appropriately characterized as 'brilliant'. Of course, no amount of Keynesian Stimulus could have shut down the Bear Stearns bear raid, or the Lehman Bros. Chapter 11. Ergo, the downfall of Freidman's orthodoxy was bound to occur as soon as Glass-Steagall deregulation provided the leverage via the FCC. Since the exemption on leverage for Bear Stearns it took five years to melt down to a systemic Worldwide intractable problem. Keynes was right about CB intervention, but he had no way of knowing that certain fundamentals would be altered beyond logic of failsafe.

          p.s. thanks for going into detail on history. I always appreciate historical background given my background in Experimental Psychology/Personality/Biography/Historiography and Sociology.

          withglee

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar.

          Oh really? What would you have done ... with the street price of gold at over $70, the official price at $35, and the French choosing to be compensated in gold rather than dollars, as they were supposedly the same thing.

          What would you have done?

          knukles

          Another reason the Chitown Loop banks were not supportive of Melamed's currency futures ideas was that the Harris primarily was at the time "the" Bulge Bracket Big Swinging US Based Dick of the cash and forward 4X markets as well as one of the largest financers of the futures businesses on the CME and CBoT. They saw Leo not as a product extension, but a threat to their dominance.

          withglee

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold,

          With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim.

          armageddon addahere

          Everybody acts like Nixon closing the gold window was the beginning of something. It wasn't. It was the end. At that point the US had been spending money like water overseas for everything from the Marshall Plan, Volkswagens and Japanese transistor radios to the Korean and Vietnam wars. There was a net inflow of gold during the depression and WW2, but after that there was a steady outflow all through the fifties and sixties.

          The whole world wanted American dollars, and a lot of it got turned in for American gold. The gold was nearly gone. At the rate it was going, the last ounce would leave Fort Knox in less than two years. They had no choice but to end the convertability of gold - sooner or later. Nixon's only choice was to take action and make a smooth transition or let everything go to hell at once.

          most-interesting-frog-world

          Bear

          "The Great Deformation by David Stockman" ... This is the most remarkable treatise on economic history ever written. If you haven't read it you are still in the dark.You will continue to see many excerpts from this book on ZH ... and well deserved.

          David Stockman should be given a Nobel Prize for Economics ... for exposing Economics as the insanity it is and fully captive to politics.

          [Jul 29, 2015] Using Math to Obfuscate - Observations from Finance

          Notable quotes:
          "... then from Romer's assumptions the rival inputs cannot be earning their marginal product. ..."
          "... The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ... ..."
          "... Four-fifths of the "Economy" is a Complete Waste of Time ..."
          "... I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output. ..."
          "... The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output. ..."
          "... "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness." ..."
          "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models." ..."
          "... why do economies grow vulnerable over time ..."
          "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. ..."
          "... Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment ..."
          economistsview.typepad.com
          More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:
          Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.

          In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.

          One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...

          I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.

          Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...

          We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...

          Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.

          Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)

          [Jul 20, 2015] The Rivals (Samuelson and Friedman)
          Jul 19, 2015 | Economist's View

          pete said...

          I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."

          http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents

          pgl -> pete...
          Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.
          likbez -> pgl...
          You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".

          Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".

          This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.

          anne -> anne...

          All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.

          [ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]

          pgl -> anne...

          Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.

          likbez -> pgl...

          "Had they listened to Keynes - the recoveries would have been much faster."

          This was impossible. There is such thing as "Intellectual capture". As Keyes noted

          "The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

          [Jun 15, 2015] What Assumptions Matter for Growth Theory
          Jun 15, 2015 | Economist's View
          Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
          What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.
          There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.
          Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.
          • Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
          • Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
          • The income earned by both rival and non-rival inputs has to add up to total output.
          Okay, given all that setup, here are three statements that could be true.
          1. Output is constant returns to scale in rival inputs
          2. Non-rival inputs receive some portion of output
          3. Rival inputs receive output equal to their marginal product
          Pick two.
          Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.

          Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

          Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...
          The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

          [There's a lot more in the full post. Also, Romer comments on Vollrath here.]

          Paine

          Excellent

          Lots of conclusions are per determined by simple assumptions like constant returns to scale

          If by scale we mean replication of the existing production system on a larger scale

          Where say we triple every plant and highway etc

          The model nicely captures the reality of a static production system
          Where all factors are expandable even if at a cost

          This is a very narrow notion of scale effects

          If for example markets for oust expand and a different technique is optimal
          Then there's a dynamic transition
          Where residuals emerge.

          anne -> Paine ...

          I assume this is the reference which the writer is too inconsiderate to mention:

          http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html

          June 13, 2015

          Are ideas really non-rival?
          By Nick Rowe

          Paine -> anne...

          Rowe thinks he is making a great joke

          But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

          No matter how carefully these atoms are defined they remain figments

          That one can conjure like epicycles

          Example

          Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

          Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

          To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

          Paine -> Paine ...

          My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible

          Nothing fits this description exactly. And almost is as bad as not at all.

          Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

          anne -> Paine ...

          All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

          [ I understand and am pleased. ]

          Sandwichman said...

          Four-fifths of the "Economy" is a Complete Waste of Time

          "There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

          "Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"

          Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

          "As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

          Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

          Name one.

          Carry on, growth theorists.


          anne -> Sandwichman...

          http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html

          June 6, 2015

          The Chimerical Analogies of Growth and Distribution


          http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html

          June 14, 2015

          Four-fifths of the "Economy" is a Complete Waste of Time

          -- Sandwichman

          Sandwichman -> Sandwichman...

          1. "growth is a concept whose proper domicile is the study of organic units..."

          2. "The belief that society is an organism is an old but fanciful notion."

          3. ?

          4. Growth!

          Sandwichman -> anne...

          "the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

          It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.

          Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

          Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

          Sandwichman -> anne...

          A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.

          When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.

          Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

          anne -> Sandwichman...

          Can't we just forget about the confounded aggregate and get on with promoting the good?

          [ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

          anne -> Sandwichman...

          Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

          Paine -> anne...

          We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

          Sandwichman -> Paine ...

          "If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

          http://www.theatlantic.com/past/politics/ecbig/gdp.htm

          And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

          Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

          "Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

          I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

          The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

          anne -> Sandwichman...

          http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html

          June 14, 2015

          Some Kind of an Index -- No Normative Connotations

          -- Sandwichman

          Julio -> Sandwichman...

          A question for you folks in this subthread:

          "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."

          Proposition: That myth underlies our world.

          Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

          Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

          Julio -> Sandwichman...

          Aggregate is not the same as average.

          The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.

          But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

          We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

          A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

          Sandwichman -> Julio...

          "is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"

          No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.

          The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

          A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

          anne -> Sandwichman...

          The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....

          [ Agreed. ]

          anne -> Sandwichman...

          The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

          Sandwichman -> anne...

          anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

          The Case of the Missing Minsky by Paul Krugman
          "...On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models."

          NYTimes.com

          Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying

          the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.

          Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.

          As I see it, it makes sense to think of what happened in terms of three phases.

          • First, a buildup of vulnerability, with rising leverage and an increasingly fragile financial system.

          • Second, the acute phase of crisis, with bank runs or their functional equivalent, collapsing liquidity, and more.

          • Then a long period of depressed employment and activity, which still isn't over.

          The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.

          On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.

          What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.

          On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.

          And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.

          Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.

          Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.

          Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models


          kbaa, The Irate Plutokrat

          It is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.

          Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

          NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.

          Book Review "Keynes The Return of the Master"
          WSJ.com

          Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

          This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

          Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

          Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

          Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

          [Jul 22, 2015] Financial Regulation Which Reform Strategy is Best

          Economist's View

          ...in the WSJ two days ago, there was an opinion piece with the title "After Five Years, Dodd-Frank Is a Failure," and the sub-header "The law has crushed small banks, restricted access to credit, and planted the seeds of financial instability."

          There is a problem with small banks. Here's an email I received earlier this year (last March, in response to an article of mine at CBS MoneyWatch on the decline in the number of small banks and how that could harm smaller buinesses):

          Mr. Thoma,
          I am a regular reader of your columns, and lean more to the left than virtually any banker I know, but I have to tell you that you are on to something with the decline in the number of small banks, and regulations. As the Chairman of a small bank in [state omitted], the shear amount of regulations that have come out since the banking crisis started are incredible. I know of banks in the area which have simply had to hire a full time staff person to help with compliance. Our bank has had to hire the CPA firm [omitted] to have them come in once a quarter to help us keep up with the compliance. Obviously, this crimps our profits, as does the ZLB which we have had to deal with for six years now, through no fault, at all, of our own.
          Don't get me wrong, I understand why all these regulations have been put in place, but unfortunately for us, most of these have little to do with our small bank. They seem to be designed to keep the behemoths out of trouble, and we got dragged along. There needs to be a different set of rules for banks under a certain size. Banks like ours, who keep all our loans in house, and aren't a threat to the economy as a whole, have never been ones to "screw" our customers, or write "bogus" loans, and sell them. Our loan losses since 2008 have been minimal to say the least, because we try very hard to make loans that are going to be repaid. Our total losses over the last six or seven years are not any worse than, and probably, better than they were before the banking crisis arrived.
          We, as a board of the bank, have talked on numerous occasions in the last few years on what to do about this problem, and have brought it up with the federal regulators at our last two exams, but have really gotten no where as far as coming up with any ideas on what to do to try and alleviate these burdens on small banks. Any suggestions, or publicity regarding the issue, would be greatly appreciated.

          The point I'm trying to make is this. There are two choices when trying to fix a financial system after a crisis. The first is to move fast while the politics are supportive, and put as many of the needed rules and regulations in place as possible. Then, over time, *carefully* adjust the rules to overcome unforeseen problems (while resisting attempts to rollback needed legislation, a delicate balance). The second is to proceed slowly and deliberately and "consider the regulatory moves carefully" before implementing legislation. But by the time this deliberate procedure has been completed, it may very well be that the politics have changed and nothing will be done at all. So I'd rather move fast, if imperfectly, and then fix problems later instead of waiting in an attempt to put near perfect legislation in place and risk doing very little, or nothing at all.

          RC AKA Darryl, Ron said...

          For starters, Glass-Steagall.

          Then put a high tax on capital gains and an even higher tax on short term capital gains partially offset by lower taxes on interest and dividends. Rather than regulate corporate buyouts and derivatives then just tax them to death. Fire sale buyouts are done at a capital loss so would continue unaffected to rescue the good wood left in insolvent firms.

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

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

          ...From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively...

          *

          [Starting with a high tax rate then I kind of like that. Make the tax rate on capital gains so that either the 5 year exclusion is on parity with current long term capital gains rates or even parity with the 10 year effective tax rate if we give them inflation adjustment to the basis. SSA annual COLA inflation index works fine for me. If the rich want chained CPI then let them share in the losses benefits :) ]

          pgl

          The thing that gets me is that the issues with lax regulation of financial institutions were basically clear 80 years ago and were crystal clear 30 years ago. And fixing them would not require complex regulations. Real capital adequacy rules, avoiding conflicts of interest, addressing the issue of adverse selection even as we give deposit insurance, and avoiding too big to fail are all things any good economist knows about and how to address. And with Dodd and Frank being center stage after the financial crisis - this could have gotten done. Ah but the political interests of the megabanks did not want this done so they undermined the efforts. Of course we also see some stupid taxi service known as Uber playing this game too. But that is more of a personal rant as I'm really beginning to get sick of their dishonest attacks on my mayor.
          bakho
          That is what happened. As much as was done happened right away.
          Now it is being rolled back.
          DeDude said...
          Yes we need to loosen up on the small banks. There is naturally less concern for banks below a certain size. It should be possible to say that banks below size X who does not do any of risky transactions Y,Z and W do not need to comply with certain regulations. We give regulatory relief to other small businesses; fair enough to also do it with the banks. However, this is a difficult process since the regulators are likely to resist "deregulation" as much as the big banks are resisting regulations.

          [Jul 22, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

          Jul 21, 2015 | Zero Hedge

          "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

          In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

          Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

          Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

          As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

          Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

          During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

          Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

          In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

          A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

          Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

          Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

          It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

          THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

          Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

          At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

          The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

          Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

          The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

          Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

          The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

          Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

          Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

          THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

          According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

          Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

          The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

          In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

          Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

          Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

          As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

          After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

          "It's a wonderful idea," Friedman told him. "You must do it!"

          Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

          He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

          Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

          In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          *****

          Source:

          [Jul 20, 2015] Which Is A Bigger Act Of Faith - Owning Gold Or Stocks?

          07/19/2015

          The WSJ has released yet another gold hit piece calling it a "pet rock' and gold bugs "subjects of a laboratory experiment on the psychology of cognitive dissonance" just one day after the PBOC reveals it has added the biggest amount of gold in history in order to "ensure security." But the biggest irony is that none other than Citigroup made a far bolder case that it is not the ownership of gold but of stocks that is the ultimate act of faith: "investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display." So who is right?

          Financial_skeptic/ Casino_capitalism/ Systemic_instability*/ Stagnation/

          [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 11, 2015] Gold Daily and Silver Weekly Charts - Some Group Is Sitting On These Markets

          Jul 11, 2015 | jessescrossroadscafe.blogspot.com
          "Gold is looking like the dog that just did not bark -- but not uniquely so. Most safe-haven assets are looking distinctly lackluster, including the VIX index. Either 5,000 years of safe-haven buying has just become bunk, or there is a desire to portray what is evidently a financial and economic crisis as nothing to be concerned about."

          Ross Norman, Sharps Pixley

          "In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."

          Aleksandr Solzhenitsyn, The Gulag Archipelago

          At least in my judgement, the precious metal markets are being consistently rigged.

          I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.

          We are just defending what is ours, right? And what is ours is the global dollar hegemony.

          This is really just another excuse for looting, picking both the global public pockets and the Treasury's.

          This sort of thing seems to happen periodically, at least once per generation, and the system generally has to get washed out badly, and then reform may come. You can see a clear trend back to the early Reagan years for this particular dalliance with the overreach and madness of the moneyed interests.

          Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historic imbalance of wealth and power. And the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.

          Oh well. Interesting times.

          Have a pleasant evening.

          [Jul 10, 2015] Are Big Banks Using Derivatives To Suppress Bullion Prices

          Jul 9, 2015 | Zero Hedge
          Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,

          We have explained on a number of occasions how the Federal Reserves' agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in "paper gold" is created, and this increase in supply drives down the price.

          This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts ("open interest') can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

          In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

          For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.

          Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world's reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington's ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.

          It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.

          OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.

          The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.

          During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.

          If these were long positions hedging the banks' Comex shorts, why did the price of gold and silver decline?

          More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.

          The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.

          If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

          Pinto Currency

          The price is set in London where they trade 200 million oz spot every day.

          It is a paper spot market fraud.

          http://www.safehaven.com/article/36534/lbma-data-points-to-gold-and-silver-default

          SafelyGraze

          supply and demand still set the price as PCR points out, the demand is not for physical hugs,
          mark dice and a handful of chocolate bars

          "you can't eat chocolate!"

          SafelyGraze

          spoiler:

          https://www.youtube.com/watch?v=bYhTFz_SGw0

          Oldwood

          I thought Kyle Bass told us that there was no way near enough physical to cover paper gold. This would mean that they are simply printing gold to push "supply" up and prices down. On the other side we have stocks and with exception to splits or IPOs, they aren't making more, but companies are buying them up which decreases supply and with a little QE stimulus, pushes prices up. To me it all looks manipulated, but I'm sure they are only trying to make us all rich.

          Captain Debtcrash

          As shown in China, manipulation eventually always fails. Any manipulation of gold and silver will too. Those that say zero is the correct allocation to gold and silver these past weeks are using it as evidence that it doesn't even serve as a safe haven, exactly what a manipulator would want.

          BaBaBouy

          Its A Dirty Stinking Putrid Trading World For GOLD SILVER And Now Also Most Other Commods...

          [Jul 04, 2015] Yanis Varoufakis accuses creditors of terrorism ahead of Greek referendum

          Like any neoliberal country Greece is a divided country with 20% of population representing "fifth column of globalization" and benefiting from it and 80% suffering from it.
          .
          "...Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value."
          .
          "...Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
          "

          .
          "...The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal."
          .
          "...The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss."
          .
          "...The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs."
          .
          "...Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
          "

          .
          "...Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.

          I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.

          The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down."
          .
          "...No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks! "

          Jul 04, 2015 | The Guardian

          Banksterdebtslave -> conor boyle 4 Jul 2015 11:15

          Yes it should have been, by letting the banks go under as per Iceland. Or were too many people (living in vacuums ?) unprepared to deal with the short term pain ? Now it seems the world of people must suffer to service the Banks' bad debt.....what good slaves we are! The Emperor has no clothes!

          Duncan Frame -> Brasil13 4 Jul 2015 11:10

          Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value.

          W61212 -> Brasil13 4 Jul 2015 11:08

          Careful what you wish for. From the EC

          'In 2013 the EU recorded a trade surplus in goods (more than double the surplus registered in 2012). The EU also has a surplus in commercial services trade.
          The EU is the biggest foreign investor in Brazil with investments in many sectors of the Brazilian economy. Around 50% of the FDI flows received by Brazil during the last 5 years originated in the EU.'

          This debacle with Greece demonstrates the EU can't run itself and yet it has huge holdings with Brazil and has recently reversed to a trade surplus in to Brazil, a nation with huge natural, industrial and human resources of its own. Brazil exports mainly agricultural and mining products to the EU and imports manufactured products. See the imbalance? Brazil exports primary products and imports finished products made elsewhere and those jobs are elsewhere. See the problem?

          http://ec.europa.eu/trade/policy/countries-and-regions/countries/brazil/

          GordonGecko 4 Jul 2015 11:07

          There's only one letter difference but choice for the Greeks is to become either the new Ireland (and suffer self-inflicted austerity for decades to come) or the new Iceland (by tearing up the rule book and starting again).

          I hope they watch this before voting;

          https://www.youtube.com/watch?v=xu5sTyAXyAo


          usufruct -> Laurelei 4 Jul 2015 11:07

          Germans (for the most part) are not Nazis or terrorists, and should not have to take the blame for this crisis. They are, however, dupes, like people living under capitalism everywhere. They are willing to let the international banksters and their political cronies in the European parliament run their lives and create whatever mischief they believe is in their interest.


          ToddPalant -> Scaff1 4 Jul 2015 11:06

          Tell us suckers then, about how Ukraine, a run down country that was just made worse by regime change. From bad Yanukovich to much worse American puppet and idiot Poroshenko plus a catastrophic war. Tell us about Lybia and bad Qaddafi, who in his life time killed 3-4000 people and the much worse UK-France that caused at least a 100000 dead with their pet invasion at the behest of our friends from across the Atlantic.

          May be you need to dust your mirror.


          Duncan Frame -> Laurelei 4 Jul 2015 11:05

          Terrorists primary aim is to promote fear rather than harm. That's far more effective in getting their way. You close the banks you show the public what you're capable of.

          Saaywar Montana -> thisisafix 4 Jul 2015 11:04

          Their economies are naff. Spain and Italy are the two countries most likely to join Greece in a new union. Portugal and Ireland are too far gone but Ireland has been rebelling. Once people see a progressive union to compete with the rubbish EU then these countries will gain support for joining a new southern European union.

          These countries are not out of the water and won't get out of it either. Austerity will do what it does and the people will rise up. It's inevitable. The EU doesn't have a monopoly on unions lol.

          Greece, as did every other country, got left with the bill of the private banking sector. Yes, it was their fault for running a deficit but a significant proportion of the debt owed by the Greek gov is bank bailouts.

          It's the same here. The UK paid Ł700bn to private banks to make sure they didn't fail. The deficit has nothing to do with that. so around 50% of the debt is a mixture or deficit spending and capital investments made by the government.

          Robape Laurelei 4 Jul 2015 10:57

          Financial terrorists, just interested in the bottom line, not countries.

          elcomm W61212 4 Jul 2015 10:56

          When fascist governments get in trouble at home they start wars to distract people. It's not that far out.

          Duncan Frame Laurelei 4 Jul 2015 10:56

          Yes everything's exceptional. 2008 was the biggest economic collapse since the great depression. And Greece was the most exposed country. No difference.

          Alfie Silva karlmiltonkeynes 4 Jul 2015 10:55

          My mistake, I thought you were intelligent.

          It is common knowledge that only around 10% of bailout monies went to the real economy. You are correct indeed in that creditors got a haircut, mainly hedgefunds and most foreign banks by 2015 had reduced their exposure to Greece. The issue today is sovereign debt. Do you realise that sovereign debt is the senior collatoral for Eurozone banks?

          So we are back to banks again Mr Banker.

          Duncan Frame ID13579 4 Jul 2015 10:53

          I don't have to excuse giving voice to the victims of those in power to you or anyone else. And it seems to me Tsipras is taking the same line. You confuse the Greek people with the people who actually profited from that debt. Why should they be forced to starve on the back of decisions over which they had influence?


          usufruct -> HoorayHenrietta 4 Jul 2015 10:44

          Like Americans and most other people around the globe, the German people have allowed the international banks to pull the wool over their eyes. There is no reason for taxpayers to bail out the banks as we are still doing here in the U.S. For the past six years my wife and I have been paying down mortgages on real estate hoping to reestablish equity in properties whose value was gutted by cavalier banksters on Wall Steet. A few clicks to gamble away the hard work of millions! These people should be arrested and tried for their crimes. In a fair court they would be sent away for life.


          Chris Hindle 4 Jul 2015 10:42

          'Yanis Varoufakis accuses creditors of terrorism.'

          So what is wrong with that? Financial terrorism is a much more protracted and painful process to the victims than sudden violence, but the end result is the same.

          The Vermin Who Would Be Kings have discovered they no longer need the fuss and expense of maintaining a standing army of occupation, far simpler to get countries/continents/ the world in deep debt (via bent politicians making private bankster debt into sovereign debt - just like they did in Greece ) and exert control through that.

          BTW the UK has some Ł9 trillion in foreign debt (much of which is the bad debts of the City - and the highest of any stand-alone country on earth) So now you know what next months austerity drive is all about

          InjunJoe -> degardiyen 4 Jul 2015 10:24

          The "slovakian tax payer" will not be paying to maintain the Greek standard of living,
          but to shore up the ECB, the IMF and the private lenders to Greek banks, as 90% of the "bail-out" goes to serving interest. Haven't you been reading the news?

          Duncan Frame -> karlmiltonkeynes 4 Jul 2015 10:20

          That's weird because at the same time the banks collapsed in 2008 the deficit went up from 57% to 82%, lots of people lost their jobs or had to take pay cuts. I'm sure it was just a coincidence.

          LeftToWrite -> ID6487190 4 Jul 2015 10:17

          Yeah the EU has shown itself to want a compromise. All those nice compromised offers it made. Yep we all remember those.

          Compromise means both sides giving ground, not one side accepting everything the other demands. Use a dictionary next time.

          For once a nation is standing up to EU bullying and we have ignorant fools like you turning it the other way in an attempt to change the narrative.

          LeftToWrite 4 Jul 2015 10:11

          How can the Troika have fucked up this badly? It seems they forgot that Greece is actually a construct that represents the people who live there, and you can't just impose misery after misery on a people without expecting them to finally have enough. Even if they vote yes, all it does is postpone that that time when they will have had enough.

          Honestly, this has shown the true greed at the hearts of Merkel et al, and by extension the people they represent. Save the French and German banks, fuck over the Greek people. If people think anti German rhetoric in Greece is extreme now, decades of resentment is about to follow.


          שוקי גלילי Steve Collins 4 Jul 2015 10:09

          You probably meant to say "when you ask for it back from someone ELSE, who didn't actually get your money". Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?

          -> dniviE 4 Jul 2015 10:06

          01

          Sorry: its Wednesday 8th, I wrote Tuesday ;-))

          email from Green Party Brussels office.
          TTIP and ISDS - Call to action by Keith Taylor MEP!

          Breaking news! We've just been informed that the postponed vote on the European Parliament resolution on TTIP has been put on the agenda for Wednesday 8th July.

          MEPs will be voting on the resolution as a whole, but also on a whole array of amendments to the text.
          Among these is a compromise amendment on the investor-state dispute mechanism, or ISDS. The compromise amendment suggests replacing ISDS courts with some kind of 'new' system, but there is no further explanation or details. As long as there is any system in place for investors to sue governments, as the compromise calls for, it is still ISDS. The fact that the Parliament's President is trying to spin this as something different by giving it a new name does not change anything.


          The compromise amendment has been agreed by the largest groups in the European Parliament: the centre-left Socialists & Democrats (which includes the UK's Labour MEPs), the centre-right European People's Party, and the European Conservatives and Reformists group (which includes the UK's Conservative MEPs) and the Alliance of Liberals and Democrats (which includes the UK's Liberal Democrat MEP).

          On Wednesday, all MEPs will get a chance to vote on this amendment and the resolution as a whole.

          The Greens are calling on citizens, trade unions, NGOs, towns and regions and businesses to speak out and contact their elected representatives and hold them to account on this attempt to privatise justice and infringe democratic rights.

          How you can help
          This is our last chance to make sure that damaging ISDS provisions are not given the green light by the European Parliament. MEPs need to know the full force of public opinion on this threat to our national laws and our democratic rights.
          Contact your other MEPs before Wednesday asking them to oppose TTIP and the Investor State Dispute Settlement (ISDS).
          - use Write To Them to email your MEPs directly with your own concerns
          - use the 38 Degrees campaign to send a quick template email
          - call your MEPs in Brussels to let them the reasons you're opposed
          - spread the word! Share your concerns on social media, tweet your MEPs, encourage your friends and family to contact their MEPs, use Greens/EFA resources to campaign.
          Message from Keith

          "I've been extremely heartened to receive so many emails from constituents voicing their opposition to ISDS and the TTIP proposals in the last few weeks. It's clear that there's a powerful and growing democratic movement to protect our laws, our public services and our regulatory standards from potential devastation.

          The decision to postpone the vote on TTIP earlier in the month stinks of political parties running scared of the huge public opposition to TTIP.

          TTIP represents a monumental power grab by corporations and it must be stopped in its tracks.

          The sudden re-scheduling of this vote means we are now short on time to make our voices heard. The Greens need all the help we can get to spread the word and put pressure on other MEPs to do the right thing and represent the views and interests of their constituents."
          You can keep up-to-date with the Greens/EFA campaign and what the Greens are doing in the European Parliament via their TTIP campaign website and their twitter feed.

          Thank you for your support.
          Best wishes,


          LeftToWrite ID105467 4 Jul 2015 10:14

          To bail out German banks, get your facts straight before posting nonsense.

          Kalandar 4 Jul 2015 10:14

          Propoganda galore from the mainstream media but its fooling no one, except perhaps themselves.

          ID345543 4 Jul 2015 10:04

          This Is Why The Euro Is Finished

          The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal.

          http://www.zerohedge.com/news/2015-07-04/why-euro-finished

          Ninetto owl905 4 Jul 2015 10:03

          The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss.

          NeverNotHereTV gsxsure 4 Jul 2015 09:59

          Syriza does not want "free money". They want a fraction put toward economic growth, and then payments as a meaningful fraction of that growth. It is simple enough.

          Alfie Silva 4 Jul 2015 09:50

          Please can anyone explain to me why we are letting the bankster cabal turn European against European?

          The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs.

          Finnbolt 4 Jul 2015 09:49

          "Debt relief was "politically highly toxic for many eurozone member states"."

          Here you have the problem. The creditor state governments are responsible to their voters and many have said that their taxpayers will not finance the Greeks and money lent will be paid back in full.

          Syriza says they have a mandate from the Greek people to force other euro countries to continue financing them and take a haircut. In other words, lose most of the money lent to Greece.

          EU is a collection of nation states with pretensions of a federation. One of the pretensions about to be busted is a transfer union, meaning taxpayers in richer countries tranferring part of their wealth to poorer countries.


          APSAPS 4 Jul 2015 09:49

          A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market. Despite the bailout, July 1998 monthly interest payments on Russia's debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.

          Sounds very similar.

          Oh, wait, maybe some referendum could have helped?


          Insomnijazz hertsman 4 Jul 2015 09:48

          Nah - these are just lies for the gullible to swallow.

          Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.

          Instead they chose the worst option: bailing out the bank shareholders by assuming responsibility for their risky lending, but refusing to then pay the price for their political cowardice and shifting the blame onto a largely guiltless Greek population which has already suffered hugely from the economic devastation.


          Brent1023 4 Jul 2015 09:46

          Debt relief not on the table.
          It comes down to the Greek people or the banksters. Who needs a bailout more?
          The EU has sided with the banksters.
          Not just in Greece but in Ireland, Spain, Portugal.
          Only Iceland was able to force banksters to swallow their losses.
          Everywhere else bankster fraud was rewarded with a 100% bailout.
          Should be renamed the European Bankster Union.
          Surprising that the UK does not want it - it also bailed out its banksters.

          NWObserver sunnytimes 4 Jul 2015 09:39

          The creditors are not looking to get their money back. Debt is the leverage being used to destroy the social and public infrastructure in the country.

          So their worst nightmare is Greeks voting 'No', staying in default and surviving or prospering while remaining in the Eurozone. Then they will not be able to use the same fear tactics against another EZ country. They are psychopaths out to destroy, not creditors looking to get their money. So if Greeks vote 'No' , they will spare no effort to destroy Greece, beginning with the continuation of the liquidity freeze. However, there are some simple steps that Greece can take to end the liquidity freeze and I think they have already taken them.

          Gottaloveit 4 Jul 2015 09:28

          Read this article from 2010 by Michael Lewis and get a glimpse of what a mess Greece is
          http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010
          The people of Greece are not finished paying penance yet

          W61212 Fritz72 4 Jul 2015 09:28

          Albrecht Ritschl: During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a "haircut" in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990....but we were also extremely reckless -- and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.'

          Enough said now?

          W61212 hhnheim 4 Jul 2015 09:21

          http://www.spiegel.de/international/germany/economic-historian-germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html


          North2011 kizbot 4 Jul 2015 09:04

          Don't worry. The nappy business is doing well in Brussels...
          EU sources: possible extra Eurogroup on Monday and EU leaders Summit on Wednesday #Greferendum via GR media http://www.dimokratiki.gr/04-07-2015/pithano-ektakto-eurogroup-ti-deftera-ke-sinodos-korifis-tin-tetarti/ …
          They are pissing in their pants the lot of them...


          rafela Bogoas81 4 Jul 2015 09:00

          Austerity didnt work. In the last five years the economy shrinked by 19%. Unemployment rose to 27%. Tsipras wanted more debt relief. The IMF report sustain that an improvement is impossible without debt relief.


          sunnytimes 4 Jul 2015 08:58

          German people are industrious and inventive. They play by the rules. Unfortunately they are also rather naive and believe generally what the state tells them. In history the role of such people has always been to pay the bills.


          GuillotinesRUs 4 Jul 2015 08:45

          Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.

          I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.

          The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down.

          U77777 -> CassiusClay 4 Jul 2015 08:40

          Austerity isn't the answer - but when you have put yourself into the situation that the Greeks have, it is part of the solution. A small part and nothing like the media like to portray, but something has got to give.

          As for electing Tsipras and varoufakis......Seriously, stop drinking. They're a bunch of cowboys with some well intended principles and a load of rather deluded ideas. Worse still, neither of them have actually come up with anything like a constructive plan how to stimulate the economy and help Greece stand on its own 2 feet again


          Dimitris Chloupis -> sylvester 4 Jul 2015 08:39

          Any sensible Greek realizes without deep reforms no economy is going forward. This is not even debatable in my country. We already reduced public sector by 500.000 employes thats a juicy 50%. High pensions of the past are long gone. The result is that now it costs 6 billion to pay for wages in public sector and another 5 billion to pay for pension, total 10 billion. But we need another 10 billion for paying back loans each year. This year alone we paid back 25 billion !!!

          Tax evasion should be our next focus, its not reasonable for an economy that makes 200 billions per year to need loans . There is a will to fix all that, because the alternative is far worse.

          Of course the same can be said about Germany , why a country that make 3.1 trillion euros per year has a 80% debt ? Tax evasion of course ;) Time to open those swish bank accounts , but does Germany want that ? How many vested Greek interest are connected with German vested interest ?

          Denying corruption is to deny the foundation of modern economies.

          W61212 -> RussBrown 4 Jul 2015 08:39

          I made a point earlier about the birth of a new Brussels based dictatorship which controls all EZ 'national governments', which are national governments by name only, ergo Syriza has to go for straying from the script. Brussels has already proven it would rather deal with corrupt Greek politicians by doing so in the past

          Continent Renato -> Timotheus 4 Jul 2015 08:37

          Inequality of opportunity in the Eurozone is now so great -- young people in Greece have an unemployment level of 60% and the rate is 33% in the austerity "success story" of Portugal

          The systems are different. Northern countries have the dual education system, i.e. only about 10 p.c. of the youth go to college/university, and 90 p.c. go through a 3 or 4 year education "learning by doing".

          In addition, the "dirty work" in Greece (farming/harvest/construction) is done by temporary migrants from Macedonia, Albania, Romania, Bulgaria because the Greek parents wanted their children to have a better life and sent them to universities without an employment market for so many acdemics. Many of them land in a job with in the bloated govt.

          sunnytimes 4 Jul 2015 08:36

          The true parasites are the bond markets of London and New York. The create nothing. All they do is swap pieces of paper with ech other all day long, skimming every transaction. The UK and US have run trade deficits or decades, that is by definition they produce less than they consume. Time to tear down this edifice of debt and get back to a capital-based economy.

          LeftOrRightSameShite FOARP 4 Jul 2015 08:35

          Greece already has been bailed out

          No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks!

          Bit thick really innit!

          RussBrown 4 Jul 2015 08:35

          Myth 1 - Greece do nothing to solve the problem (they have had years of austerity)

          Myth 2 - Germany is bailing out the Greeks. The money that goes to Greece goes straight back into the German Banks. But by making it impossible for business to run in Greece the businesses move their resources to Germany and pay taxes their in a massive transfer of wealth from a poor EU country to the richest. This is a capitalist scam and all of lot on here shouting their propaganda should be ashamed of yourselves. The rich bankers are using you to justify the destruction of the poor!

          [Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?

          Notable quotes:
          "... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."
          "... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."
          "... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."
          "... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."
          "... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."
          "... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."
          "... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."
          "... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."
          Jun 12, 2015 | The Guardian

          Hristos Dagres 12 Jun 2015 11:50

          Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].

          These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ

          [http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]

          I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.

          Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.

          MachinePork 12 Jun 2015 11:30

          Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.

          At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.

          God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.

          The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.

          Maria Christoulaki 12 Jun 2015 10:43

          Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.

          mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08

          It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!

          mgtuzairodtiiasn Angkor 12 Jun 2015 08:55

          Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.

          Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.

          elenits -> Anton Brasschaat 12 Jun 2015 07:57

          "Loans" imposed by IMF against its mandate = Odious debt.

          Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt

          Loans to Greece that were not used by Greeks = Odious debt

          IMF breaking its own rules to loan without debt restructure = Odious debt

          This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.

          elenits -> asiancelt 12 Jun 2015 07:49

          If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.

          Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.

          There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.

          dawisner -> Constantine Alexander 12 Jun 2015 07:30

          Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.

          seaspan -> Anton Brasschaat 12 Jun 2015 05:50

          French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.

          And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.

          It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?

          And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.

          It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...

          Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43

          My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.

          If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).

          The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.

          PyrosT -> Enoch Arden 12 Jun 2015 05:32

          destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.

          IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.

          If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.

          Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.

          But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.

          But...

          Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.

          DANIELDS 12 Jun 2015 05:10

          Yesterday briefing by G.RICE of IMF

          ...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.

          http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015

          ......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.

          This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.

          Angkor Renato -> Timotheus 12 Jun 2015 04:53

          Renato on your checklist for Greece's solution to its current problems, a few questions:

          1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.

          2. Secure Russian and Chinese support for the new currency
          How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.

          3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?

          4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.

          5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.

          zchabj6 -> JimVxxxx 12 Jun 2015 04:37

          The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.

          This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.

          As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.

          But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.

          And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.

          AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.

          REDLAN1 12 Jun 2015 04:29

          What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...

          We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?

          Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?

          REDLAN1 -> galava 12 Jun 2015 03:52

          You can do the math yourself for the UK...

          http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html

          I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.

          Scipio1 -> Angkor 12 Jun 2015 03:27

          In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.

          The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.

          The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.

          Hypatia415 -> Quaestio 12 Jun 2015 03:07

          Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
          http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
          http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisis

          PeregrineSlim 12 Jun 2015 02:47

          Leaving the negotiation table is negotiation.

          The IMF are not going anywhere. They are just negotiating.

          Greece can take heart. They'll do anything for a deal.

          ShiresofEngland 12 Jun 2015 02:35

          http://www.telegraph.co.uk/finance/economics/11654639/IMF-has-betrayed-its-mission-in-Greece-captive-to-EMU-creditors.html

          This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.

          For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.

          It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.

          JimVxxxx -> madrupert 12 Jun 2015 02:35

          The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!

          The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.

          JimVxxxx -> zchabj6 12 Jun 2015 02:28

          Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).

          The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.

          I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?

          hermanmitt -> piper909 12 Jun 2015 02:22

          This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.

          "Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

          This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.

          That process is now well under way in the form of TTIP.
          Q: Ever wondered how something this important could be discussed in secret?
          A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.

          Constantine Alexander 12 Jun 2015 02:16

          It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?

          That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.

          Renato Timotheus 12 Jun 2015 02:13

          I think the solution for Greece is becoming clearer by the day.
          1. Default.
          2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
          3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
          4. Massive drive to attract British and Russian tourists to a cheaper Greece.
          5. Threaten to join the SCO, if NATO starts conspiring for a military coup.

          eastofthesun -> Faith Puleston 12 Jun 2015 02:07

          it is a country that thinks the EU is a source of income to make up for them not doing their sums at home

          I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.

          If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)

          That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.

          AlexLeo 12 Jun 2015 01:33

          A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.


          Chris Hindle 12 Jun 2015 01:23

          IMF to Alexis Tsipras: 'Do you feel lucky, punk?'

          Good to see this 'economist' sitting astride the neutral position

          I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
          I wonder if this 'economist' was trained in the dreamworld of neo-classical economics

          To put it clearly - Bollox to the IMF -- People first!

          Notaterrorist 12 Jun 2015 01:00

          The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.

          If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.

          "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.

          What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)

          Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."

          Quaestio -> MikeBenn 11 Jun 2015 23:00

          Why? Because US investment banks were involved in the Greek debt.

          Wall St. Helped to Mask Debt Fueling Europe's Crisis

          By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
          Published: February 13, 2010
          The New York Times

          Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

          As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

          Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

          The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

          It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.

          Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.

          As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

          In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

          Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.

          Glen Killoran -> Pomario 11 Jun 2015 22:49

          Based upon what?

          Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.

          Shipping? Too late, that ship has already sailed.

          Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.

          Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.

          Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.

          And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?

          Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.

          Mark Richardson 11 Jun 2015 22:46

          It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.

          Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.

          Andrew Paul -> Wood Pomario 11 Jun 2015 22:16

          There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?

          fflambeau -> Glen Killoran 11 Jun 2015 22:01

          I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.

          You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.

          As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.

          fflambeau 11 Jun 2015 21:42

          Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.

          General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).

          What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.

          Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430

          Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.

          So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.

          AnhTay 11 Jun 2015 19:10

          One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.

          fceska -> Bowhill 11 Jun 2015 19:07

          That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:

          Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.

          could be rewritten as:

          Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.


          aretzios -> mariandavid 11 Jun 2015 18:37

          You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.

          The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.

          Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.

          At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody

          [Jun 12, 2015] Jamie Dimon Says He's Unsure If Elizabeth Warren Understands Global Banking System

          Jun 12, 2015 | Bloomberg Business

          In an April speech, Warren, a former professor, chided "finance guys" who assert she and others can't grasp their business.

          "The finance guys argue that if you're never in the club, you can't understand it, but I think they have it backward," she said. "Not being in the club means not drinking the Kool-Aid."

          'Finance Guys'

          Such bankers are smart, but no smarter than people in many other professions, she said. When their mistakes led to the financial crisis, they "took care of themselves and their bonuses while millions of people lost everything."

          Warren led the congressional oversight panel for the Treasury Department's 2008 bailout of the financial system. She also proposed the creation of what eventually became the Consumer Financial Protection Bureau to help shield Americans from predatory financial products after the crisis.

          "The problem was never that I didn't understand what the finance guys were doing," she said in April. "The problem was that I understood exactly what the finance guys were doing. I knew it, and they knew it."

          [Jun 04, 2015] The Case of the Missing Minsky

          "...Talk of inequality muffles the sharper edged conflict between the job class and their employer class in the corporate glass towers "
          Jun 01, 2015 | Economist's View

          Paine said in reply to Paine ...

          The Minsky mess is the whole endogenous pathology. No attack on that and we are sure to face crisis again. And knowing a policy path to fast and full recovery from a Minsky moment
          doesn't mean we will follow it

          Political economy not macro has failed us says Simon Templar. Call it class politics going unexposed and I agree. Talk of inequality muffles the sharper edged conflict between the job class and their employer class in the corporate glass towers

          [May 23, 2015] The Children of the Abyss

          May 20, 2015 | Jesse's Café Américain
          "He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

          J.H.Newman, The Times of Antichrist

          People do not wake up one day and suddenly decide to become monsters, giving birth to unspeakable horrors.

          And yet throughout history, different peoples have done truly monstrous things. The Americans were pioneers in forced sterilization and state propaganda. The British invented concentration camps, and were masters of predatory colonization. They even turned a large portion of the capital of their Empire into a festering ghetto through the Darwinian economics of neglect. None have clean hands. No one is exceptional.

          What do they have in common? They all take a walk down a long and twisted path, one cold-hearted and 'expedient' decision at a time, shifting responsibility by deflecting the choice for their actions on their leaders.

          There is always some crackpot theory. some law of nature, from scientists or economists to support it. What else could they do? It is always difficult, but necessary.

          They cope with their actions by making their victims the other, objectified, different, marginalized. And what they marginalize they cannot see. What they cannot see, by choice, is easily ignored.

          And so they destroy and they kill, first by neglect and then by more efficient and decisive actions.

          They walk slowly, but almost determinedly, into an abyss of their own creation.

          But they all seem to have one thing in common. First they come for the old, the weak, the disabled, and the different, in a widening circle of scapegoats for their plunder.

          "There is one beautiful sight in the East End, and only one, and it is the children dancing in the street when the organ-grinder goes his round. It is fascinating to watch them, the new-born, the next generation, swaying and stepping, with pretty little mimicries and graceful inventions all their own, with muscles that move swiftly and easily, and bodies that leap airily, weaving rhythms never taught in dancing school.

          I have talked with these children, here, there, and everywhere, and they struck me as being bright as other children, and in many ways even brighter. They have most active little imaginations. Their capacity for projecting themselves into the realm of romance and fantasy is remarkable. A joyous life is romping in their blood. They delight in music, and motion, and colour, and very often they betray a startling beauty of face and form under their filth and rags.

          But there is a Pied Piper of London Town who steals them all away. They disappear. One never sees them again, or anything that suggests them. You may look for them in vain amongst the generation of grown-ups. Here you will find stunted forms, ugly faces, and blunt and stolid minds. Grace, beauty, imagination, all the resiliency of mind and muscle, are gone. Sometimes, however, you may see a woman, not necessarily old, but twisted and deformed out of all womanhood, bloated and drunken, lift her draggled skirts and execute a few grotesque and lumbering steps upon the pavement. It is a hint that she was once one of those children who danced to the organ-grinder. Those grotesque and lumbering steps are all that is left of the promise of childhood. In the befogged recesses of her brain has arisen a fleeting memory that she was once a girl. The crowd closes in. Little girls are dancing beside her, about her, with all the pretty graces she dimly recollects, but can no more than parody with her body. Then she pants for breath, exhausted, and stumbles out through the circle. But the little girls dance on.

          The children of the Ghetto possess all the qualities which make for noble manhood and womanhood; but the Ghetto itself, like an infuriated tigress turning on its young, turns upon and destroys all these qualities, blots out the light and laughter, and moulds those it does not kill into sodden and forlorn creatures, uncouth, degraded, and wretched below the beasts of the field.

          As to the manner in which this is done, I have in previous chapters described it at length; here let Professor Huxley describe it in brief:-

          "Any one who is acquainted with the state of the population of all great industrial centres, whether in this or other countries, is aware that amidst a large and increasing body of that population there reigns supreme . . . that condition which the French call la misere, a word for which I do not think there is any exact English equivalent. It is a condition in which the food, warmth, and clothing which are necessary for the mere maintenance of the functions of the body in their normal state cannot be obtained; in which men, women, and children are forced to crowd into dens wherein decency is abolished, and the most ordinary conditions of healthful existence are impossible of attainment; in which the pleasures within reach are reduced to brutality and drunkenness; in which the pains accumulate at compound interest in the shape of starvation, disease, stunted development, and moral degradation; in which the prospect of even steady and honest industry is a life of unsuccessful battling with hunger, rounded by a pauper's grave."

          In such conditions, the outlook for children is hopeless. They die like flies, and those that survive, survive because they possess excessive vitality and a capacity of adaptation to the degradation with which they are surrounded. They have no home life. In the dens and lairs in which they live they are exposed to all that is obscene and indecent. And as their minds are made rotten, so are their bodies made rotten by bad sanitation, overcrowding, and underfeeding. When a father and mother live with three or four children in a room where the children take turn about in sitting up to drive the rats away from the sleepers, when those children never have enough to eat and are preyed upon and made miserable and weak by swarming vermin, the sort of men and women the survivors will make can readily be imagined."

          Jack London, The People of the Abyss

          [May 21, 2015]Consistent With

          May 21, 2015 | Economist's View
          Chris Dillow:
          "Consistent with": ...Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. ...
          This is a point which some defenders of inequality miss. Of course, you can devise theories which are "consistent with" inequality arising from reasonable differences in choices and marginal products. Such theories, though, beg the question: is that how inequality really emerged?... And the answer, to put it mildly, is: only partially. It also arose from luck, inefficient selection, rigged markets, rent-seeking and outright theft. ...
          Quite often, the facts are consistent with either theory. For example, the well-attested momentum anomaly - the tendency for assets that have risen in price recently to continue rising - is "consistent with" both a cognitive bias (under-reaction) and with rational behaviour; fund managers' desire to avoid benchmark risk.
          My point here should be well-known. The Duhem-Quine thesis warns us that facts under-determine theory: they are "consistent with" multiple theories. ...
          So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities...

          [May 09, 2015] Nomi Prins The Clintons & Their Banker Friends

          May 08, 2015 | Zero Hedge
          In the coming months, however many hours Clinton spends introducing herself to voters in small-town America, she will spend hundreds more raising money in four-star hotels and multimillion-dollar homes around the nation. The question is: "Can Clinton claim to stand for 'everyday Americans,' while hauling in huge sums of cash from the very wealthiest of us?" This much cannot be disputed: Clinton's connections to the financiers and bankers of this country - and this country's campaigns - run deep. As Nomi Prins questions, who counts more to such a candidate, the person you met over that chicken burrito bowl or the Citigroup partner you met over crudités and caviar?

          Via TomDispatch.com,

          The Clintons and Their Banker Friends
          The Wall Street Connection (1992 to 2016)

          [This piece has been adapted and updated by Nomi Prins from chapters 18 and 19 of her book All the Presidents' Bankers: The Hidden Alliances that Drive American Power, just out in paperback (Nation Books).]

          The past, especially the political past, doesn't just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward.

          When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a "champion" for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.

          To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband's years in office.

          In return, today's titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable.

          Whatever her populist pitch may be in the 2016 campaign -- and she will have one -- note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street's role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends. She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.

          The 1992 Election and the Rise of Bill Clinton

          Challenging President George H.W. Bush, who was seeking a second term, Arkansas Governor Bill Clinton announced he would seek the 1992 Democratic nomination for the presidency on October 2, 1991. The upcoming presidential election would not, however, turn out to alter the path of mergers or White House support for deregulation that was already in play one iota.

          First, though, Clinton needed money. A consummate fundraiser in his home state, he cleverly amassed backing and established early alliances with Wall Street. One of his key supporters would later change American banking forever. As Clinton put it, he received "invaluable early support" from Ken Brody, a Goldman Sachs executive seeking to delve into Democratic politics. Brody took Clinton "to a dinner with high-powered New York businesspeople, including Bob Rubin, whose tightly reasoned arguments for a new economic policy," Clinton later wrote, "made a lasting impression on me."

          The battle for the White House kicked into high gear the following fall. William Schreyer, chairman and CEO of Merrill Lynch, showed his support for Bush by giving the maximum personal contribution to his campaign committee permitted by law: $1,000. But he wanted to do more. So when one of Bush's fundraisers solicited him to contribute to the Republican National Committee's nonfederal, or "soft money," account, Schreyer made a $100,000 donation.

          The bankers' alliances remained divided among the candidates at first, as they considered which man would be best for their own power trajectories, but their donations were plentiful: mortgage and broker company contributions were $1.2 million; 46% to the GOP and 54% to the Democrats. Commercial banks poured in $14.8 million to the 1992 campaigns at a near 50-50 split.

          Clinton, like every good Democrat, campaigned publicly against the bankers: "It's time to end the greed that consumed Wall Street and ruined our S&Ls [Savings and Loans] in the last decade," he said. But equally, he had no qualms about taking money from the financial sector. In the early months of his campaign, BusinessWeek estimated that he received $2 million of his initial $8.5 million in contributions from New York, under the care of Ken Brody.

          "If I had a Ken Brody working for me in every state, I'd be like the Maytag man with nothing to do," said Rahm Emanuel, who ran Clinton's nationwide fundraising committee and later became Barack Obama's chief of staff. Wealthy donors and prospective fundraisers were invited to a select series of intimate meetings with Clinton at the plush Manhattan office of the prestigious private equity firm Blackstone.

          Robert Rubin Comes to Washington

          Clinton knew that embracing the bankers would help him get things done in Washington, and what he wanted to get done dovetailed nicely with their desires anyway. To facilitate his policies and maintain ties to Wall Street, he selected a man who had been instrumental to his campaign, Robert Rubin, as his economic adviser.

          In 1980, Rubin had landed on Goldman Sachs' management committee alongside fellow Democrat Jon Corzine. A decade later, Rubin and Stephen Friedman were appointed cochairmen of Goldman Sachs. Rubin's political aspirations met an appropriate opportunity when Clinton captured the White House.

          On January 25, 1993, Clinton appointed him as assistant to the president for economic policy. Shortly thereafter, the president created a unique role for his comrade, head of the newly created National Economic Council. "I asked Bob Rubin to take on a new job," Clinton later wrote, "coordinating economic policy in the White House as Chairman of the National Economic Council, which would operate in much the same way the National Security Council did, bringing all the relevant agencies together to formulate and implement policy... [I]f he could balance all of [Goldman Sachs'] egos and interests, he had a good chance to succeed with the job." (Ten years later, President George W. Bush gave the same position to Rubin's old partner, Friedman.)

          Back at Goldman, Jon Corzine, co-head of fixed income, and Henry Paulson, co-head of investment banking, were ascending through the ranks. They became co-CEOs when Friedman retired at the end of 1994.

          Those two men were the perfect bipartisan duo. Corzine was a staunch Democrat serving on the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York (from 1989 to 1999). He would co-chair a presidential commission for Clinton on capital budgeting between 1997 and 1999, while serving in a key role on the Borrowing Advisory Committee of the Treasury Department. Paulson was a well connected Republican and Harvard graduate who had served on the White House Domestic Council as staff assistant to the president in the Nixon administration.

          Bankers Forge Ahead

          By May 1995, Rubin was impatiently warning Congress that the Glass-Steagall Act could "conceivably impede safety and soundness by limiting revenue diversification." Banking deregulation was then inching through Congress. As they had during the previous Bush administration, both the House and Senate Banking Committees had approved separate versions of legislation to repeal Glass-Steagall, the 1933 Act passed by the administration of Franklin Delano Roosevelt that had separated deposit-taking and lending or "commercial" bank activities from speculative or "investment bank" activities, such as securities creation and trading. Conference negotiations had fallen apart, though, and the effort was stalled.

          By 1996, however, other industries, representing core clients of the banking sector, were already being deregulated. On February 8, 1996, Clinton signed the Telecom Act, which killed many independent and smaller broadcasting companies by opening a national market for "cross-ownership." The result was mass mergers in that sector advised by banks.

          Deregulation of companies that could transport energy across state lines came next. Before such deregulation, state commissions had regulated companies that owned power plants and transmission lines, which worked together to distribute power. Afterward, these could be divided and effectively traded without uniform regulation or responsibility to regional customers. This would lead to blackouts in California and a slew of energy derivatives, as well as trades at firms such as Enron that used the energy business as a front for fraudulent deals.

          The number of mergers and stock and debt issuances ballooned on the back of all the deregulation that eliminated barriers that had kept companies separated. As industries consolidated, they also ramped up their complex transactions and special purpose vehicles (off-balance-sheet, offshore constructions tailored by the banking community to hide the true nature of their debts and shield their profits from taxes). Bankers kicked into overdrive to generate fees and create related deals. Many of these blew up in the early 2000s in a spate of scandals and bankruptcies, causing an earlier millennium recession.

          Meanwhile, though, bankers plowed ahead with their advisory services, speculative enterprises, and deregulation pursuits. President Clinton and his team would soon provide them an epic gift, all in the name of U.S. global power and competitiveness. Robert Rubin would steer the White House ship to that goal.

          On February 12, 1999, Rubin found a fresh angle to argue on behalf of banking deregulation. He addressed the House Committee on Banking and Financial Services, claiming that, "the problem U.S. financial services firms face abroad is more one of access than lack of competitiveness."

          He was referring to the European banks' increasing control of distribution channels into the European institutional and retail client base. Unlike U.S. commercial banks, European banks had no restrictions keeping them from buying and teaming up with U.S. or other securities firms and investment banks to create or distribute their products. He did not appear concerned about the destruction caused by sizeable financial bets throughout Europe. The international competitiveness argument allowed him to focus the committee on what needed to be done domestically in the banking sector to remain competitive.

          Rubin stressed the necessity of HR 665, the Financial Services Modernization Act of 1999, or the Gramm-Leach-Bliley Act, that was officially introduced on February 10, 1999. He said it took "fundamental actions to modernize our financial system by repealing the Glass-Steagall Act prohibitions on banks affiliating with securities firms and repealing the Bank Holding Company Act prohibitions on insurance underwriting."

          The Gramm-Leach-Bliley Act Marches Forward

          On February 24, 1999, in more testimony before the Senate Banking Committee, Rubin pushed for fewer prohibitions on bank affiliates that wanted to perform the same functions as their larger bank holding company, once the different types of financial firms could legally merge. That minor distinction would enable subsidiaries to place all sorts of bets and house all sorts of junk under the false premise that they had the same capital beneath them as their parent. The idea that a subsidiary's problems can't taint or destroy the host, or bank holding company, or create "catastrophic" risk, is a myth perpetuated by bankers and political enablers that continues to this day.

          Rubin had no qualms with mega-consolidations across multiple service lines. His real problems were those of his banker friends, which lay with the financial modernization bill's "prohibition on the use of subsidiaries by larger banks." The bankers wanted the right to establish off-book subsidiaries where they could hide risks, and profits, as needed.

          Again, Rubin decided to use the notion of remaining competitive with foreign banks to make his point. This technicality was "unacceptable to the administration," he said, not least because "foreign banks underwrite and deal in securities through subsidiaries in the United States, and U.S. banks [already] conduct securities and merchant banking activities abroad through so-called Edge subsidiaries." Rubin got his way. These off-book, risky, and barely regulated subsidiaries would be at the forefront of the 2008 financial crisis.

          On March 1, 1999, Senator Phil Gramm released a final draft of the Financial Services Modernization Act of 1999 and scheduled committee consideration for March 4th. A bevy of excited financial titans who were close to Clinton, including Travelers CEO Sandy Weill, Bank of America CEO, Hugh McColl, and American Express CEO Harvey Golub, called for "swift congressional action."

          The Quintessential Revolving-Door Man

          The stock market continued its meteoric rise in anticipation of a banker-friendly conclusion to the legislation that would deregulate their industry. Rising consumer confidence reflected the nation's fondness for the markets and lack of empathy with the rest of the world's economic plight. On March 29, 1999, the Dow Jones Industrial Average closed above 10,000 for the first time. Six weeks later, on May 6th, the Financial Services Modernization Act passed the Senate. It legalized, after the fact, the merger that created the nation's biggest bank. Citigroup, the marriage of Citibank and Travelers, had been finalized the previous October.

          It was not until that point that one of Glass-Steagall's main assassins decided to leave Washington. Six days after the bill passed the Senate, on May 12, 1999, Robert Rubin abruptly announced his resignation. As Clinton wrote, "I believed he had been the best and most important treasury secretary since Alexander Hamilton... He had played a decisive role in our efforts to restore economic growth and spread its benefits to more Americans."

          Clinton named Larry Summers to succeed Rubin. Two weeks later, BusinessWeek reported signs of trouble in merger paradise -- in the form of a growing rift between John Reed, the former Chairman of Citibank, and Sandy Weill at the new Citigroup. As Reed said, "Co-CEOs are hard." Perhaps to patch their rift, or simply to take advantage of a political opportunity, the two men enlisted a third person to join their relationship -- none other than Robert Rubin.

          Rubin's resignation from Treasury became effective on July 2nd. At that time, he announced, "This almost six and a half years has been all-consuming, and I think it is time for me to go home to New York and to do whatever I'm going to do next." Rubin became chairman of Citigroup's executive committee and a member of the newly created "office of the chairman." His initial annual compensation package was worth around $40 million. It was more than worth the "hit" he took when he left Goldman for the Treasury post.

          Three days after the conference committee endorsed the Gramm-Leach-Bliley bill, Rubin assumed his Citigroup position, joining the institution destined to dominate the financial industry. That very same day, Reed and Weill issued a joint statement praising Washington for "liberating our financial companies from an antiquated regulatory structure," stating that "this legislation will unleash the creativity of our industry and ensure our global competitiveness."

          On November 4th, the Senate approved the Gramm-Leach-Bliley Act by a vote of 90 to 8. (The House voted 362–57 in favor.) Critics famously referred to it as the Citigroup Authorization Act.

          Mirth abounded in Clinton's White House. "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the twenty-first century," Summers said. "This historic legislation will better enable American companies to compete in the new economy."

          But the happiness was misguided. Deregulating the banking industry might have helped the titans of Wall Street but not people on Main Street. The Clinton era epitomized the vast difference between appearance and reality, spin and actuality. As the decade drew to a close, Clinton basked in the glow of a lofty stock market, a budget surplus, and the passage of this key banking "modernization." It would be revealed in the 2000s that many corporate profits of the 1990s were based on inflated evaluations, manipulation, and fraud. When Clinton left office, the gap between rich and poor was greater than it had been in 1992, and yet the Democrats heralded him as some sort of prosperity hero.

          When he resigned in 1997, Robert Reich, Clinton's labor secretary, said, "America is prospering, but the prosperity is not being widely shared, certainly not as widely shared as it once was... We have made progress in growing the economy. But growing together again must be our central goal in the future." Instead, the growth of wealth inequality in the United States accelerated, as the men yielding the most financial power wielded it with increasingly less culpability or restriction. By 2015, that wealth or prosperity gap would stand near historic highs.

          The power of the bankers increased dramatically in the wake of the repeal of Glass-Steagall. The Clinton administration had rendered twenty-first-century banking practices similar to those of the pre-1929 crash. But worse. "Modernizing" meant utilizing government-backed depositors' funds as collateral for the creation and distribution of all types of complex securities and derivatives whose proliferation would be increasingly quick and dangerous.

          Eviscerating Glass-Steagall allowed big banks to compete against Europe and also enabled them to go on a rampage: more acquisitions, greater speculation, and more risky products. The big banks used their bloated balance sheets to engage in more complex activity, while counting on customer deposits and loans as capital chips on the global betting table. Bankers used hefty trading profits and wealth to increase lobbying funds and campaign donations, creating an endless circle of influence and mutual reinforcement of boundary-less speculation, endorsed by the White House.

          Deposits could be used to garner larger windfalls, just as cheap labor and commodities in developing countries were used to formulate more expensive goods for profit in the upper echelons of the global financial hierarchy. Energy and telecoms proved especially fertile ground for the investment banking fee business (and later for fraud, extensive lawsuits, and bankruptcies). Deregulation greased the wheels of complex financial instruments such as collateralized debt obligations, junk bonds, toxic assets, and unregulated derivatives.

          The Glass-Steagall repeal led to unfettered derivatives growth and unstable balance sheets at commercial banks that merged with investment banks and at investment banks that preferred to remain solo but engaged in dodgier practices to remain "competitive." In conjunction with the tight political-financial alignment and associated collaboration that began with Bush and increased under Clinton, bankers channeled the 1920s, only with more power over an immense and growing pile of global financial assets and increasingly "open" markets. In the process, accountability would evaporate.

          Every bank accelerated its hunt for acquisitions and deposits to amass global influence while creating, trading, and distributing increasingly convoluted securities and derivatives. These practices would foster the kind of shaky, interconnected, and opaque financial environment that provided the backdrop and conditions leading up to the financial meltdown of 2008.

          The Realities of 2016

          Hillary Clinton is, of course, not her husband. But her access to his past banker alliances, amplified by the ones that she has formed herself, makes her more of a friend than an adversary to the banking industry. In her brief 2008 candidacy, all four of the New York-based Big Six banks ranked among her top 10 corporate donors. They have also contributed to the Clinton Foundation. She needs them to win, just as both Barack Obama and Bill Clinton did.

          No matter what spin is used for campaigning purposes, the idea that a critical distance can be maintained between the White House and Wall Street is naďve given the multiple channels of money and favors that flow between the two. It is even more improbable, given the history of connections that Hillary Clinton has established through her associations with key bank leaders in the early 1990s, during her time as a senator from New York, and given their contributions to the Clinton foundation while she was secretary of state. At some level, the situation couldn't be less complicated: her path aligns with that of the country's most powerful bankers. If she becomes president, that will remain the case.

          [May 09, 2015] Ten questions that Ben Bernanke needs to learn how to not answer

          Medium

          When I heard that Ben Bernanke was taking a second advisory role, at PIMCO, as well as his first job out of the Fed, at Citadel, I kind of nearly dropped my morning latte in surprise. If I was PIMCO, I would not be wanting an advisor to Citadel to be coming within a hundred yards of my trading floor.

          Why not? Well, the way that PIMCO works, as Felix Salmon explained a few years ago, is very dependent on their ability to execute changes in their view in a very, very efficient manner - quickly, and without too much impact on the market price. Given that, if I was PIMCO, I would be super super paranoid about allowing anyone near me who was also going to be talking to one of the world's sharpest and most aggressive hedge funds.

          Obviously, Bernanke is a) a man of pretty unquestioned integrity, b) aware of the clear potential for conflict of interest and c) neither a spring chicken nor a pushover. He will be aware of the danger of having one of his two clients out-traded by the other. So, although I doubt that will stop the Citadel traders trying, he will already be pretty resistant to questions of the following kind:

          "So, what do they think up in Newport?"

          "What's Andrew Balls saying?"

          "Do your other guys like the ten year linked?"

          "What's PIMCO holding? Come on, tell me, what have they got? What are we f**king paying you for anyway? Come, you bearded f**k, tell me? No, f**k your Chinese Wall, I've got Ken on my ass here. What are they holding? What are they holding? What are they f**king …" (repeat ad infinitum, some of them can be very persistent and/or aggressive).

          In any case, it's unlikely that Bernanke, as an outside consultant, will be reviewing portfolios or directly advising on trades. It's more likely that he'll be a sounding board for general discussions, and/or a brand ambassador, meeting clients of PIMCO for pitch or review meetings. That sounds like less of a problem of conflict of interest, except …

          Except that if anything, information about client attitudes to PIMCO is more valuable to a competitor than information about PIMCO's attitude to the market. After all, PIMCO's positions are generally well-known - they're too big and too public for it to be otherwise. But if you ever got a hint that they had received a big redemption or gained a big mandate - well, that would be very useful information indeed because you would know them to be potentially forced buyers or sellers.

          At a lower level, traders are always sniffing for information about possible changes of view - whether the holders of a security are confident in their decision and happy to add more, or whether they're doubting themselves and thinking about changing their minds. A fly on the wall at a general sounding board for PIMCO PMs could learn all sorts of useful information simply by being aware of what they were thinking about.

          And furthermore, hedge fund traders are in the business of extracting "soft" information and understanding its implications. Being a human antenna for other people's sentiment toward the market is what they do. The best ones - and Citadel doesn't employ many lemons - can make a guess about your positioning and recent performance from the way you say "Good morning". That's why so many of them are poker players, and particularly why they often do well in the big face-to-face tournaments. So the questions that Bernanke really needs to look out for are things like:

          "How's California, my man? Still sunny?"

          "Jeez, another tour of Asia? Working you pretty hard aren't they?"

          "What do you mean you can't do the 15th? Frankfurt *again*?"

          "Lighten up, Ben! Looks like someone's been giving you a hard time?"

          "Tell me, if we wanted to shift a big block trade in[security] who do we call at PIMCO?"

          "Seen the Journal? Brutal. Rather have my performance numbers than PIMCO's huh?"

          Even with the best will (and the best poker face) in the world, this dual role looks to me like a possible conduit of information. Bernanke is experienced in keeping his mouth shut, but he's going into a whole new world now, and he's doing so without the benefit of a staff and a press office to protect him. If I was PIMCO, I wouldn't have taken this risk.

          Dan Davies is Senior Research Advisor at Frontline Analysts

          Profiles In Hypocrisy, In the Garden of Beasts

          08 April 2015 | Jesse's Café Américain

          "The only vice that cannot be forgiven is hypocrisy. The repentance of a hypocrite is itself hypocrisy."

          William Hazlitt

          "The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

          By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

          Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

          Janet Tavakoli, Decisions: Life and Death on Wall Street

          Gold and silver were pushed back to their assigned round numbers, with gold barely holding above 1200 and silver pushed well below the 17 handle.

          Ted Butler has a rather striking piece about the rigging in the silver market which you can read here.

          Speaking of silver it appears that Turkey had record imports of silver bullion in March. You can read about that here. I am not sure how significant that is. We can certainly keep an eye on it to see if this is a one time thing or a trend.

          Thoughts of silver drachmas and dirhams come to mind, but it is most likely improbably premature. Still, this is a currency war and things seem to be building to a reckoning of sorts. Who can say what desperate people might do to end repression?

          Nothing really happened at the Bucket Shop on the Hudson. A few contracts of silver were claimed, and inventory was shoved around the plate in the warehouses. The real action is taking place in the Mideast and Asia.

          We have become a coarse and careless people, smugly confident in our 'Exceptionalism.' We are no longer shocked about lies, but instead critique the style and performance of the liars, and try to emulate them in our own professions.

          How can we not cringe at some of the more shocking abuses that pass for generally acceptable behavior in public figures these days? And we encourage it, by both our silence and our acceptance.

          Oh yes, we recoil in horror at any kind of sex, at the human form, with great puritanical umbrage, but stealing and cheating, and abusing the poor and the defenseless in even the most petty and vicious ways is looked upon with admiration, because we are in love with power.

          Power is our new golden calf. Even some so-called 'reformers' are falling all over themselves at a chance to move near the circles of power, to have influence, to be seen as connected. All we seem to want is to get paid, to get ahead, to 'win.'

          Hypocrites!

          And the example of our cultural and societal icons are certainly leading to a general corrosion of all morals and civilities. And that is a shame, which eventually will have significant repercussions and consequences for us as a people and a society.

          Where will we finally draw the line and come to our senses? How far are we willing to go? How many crimes and abuses, how much theft and torture are we willing to overlook? Why do we allow our society to be defined by sociopaths?

          When will we finally look about, and see that we too, despite all our smug superiority, have created our own garden of beasts?

          [Apr 14, 2015] The Message from the 22 Year Old Suicide at the Nation's Capitol

          Apr 14, 2015 | Jesse's Café Américain

          Suicide is a prohibited form of violence in my own belief, as are all other forms of murder. Therefore I would not hold this type of protest up as an example to anyone.

          However, an even worse offense would be to completely ignore the message which this young man delivered, as most of the mainstream media has done in the US.

          I did not even know what really happened until I read this article below from Wall Street On Parade today. The police and media referred to it as a 'social protest.'

          Before he killed himself, the young man held up a sign that said "Tax the One Percent."

          Perhaps an even more pointed message might be 'shut down the loopholes for the Top .01%.' Those who make their money from wages and ordinary income pay fairly significant taxes.

          However, the uber-rich have so many loopholes and tax avoidance schemes that they often pay much lower percentage than even those in the lowest income levels. The top .01% use the upper middle class as shields for their antics.

          You may read the entire article about this here.

          Rather than one young light be extinguished and quickly overlooked by the powerful, perhaps it would be better if a million people were to march on the Capitol, and effective shut it down in protest this Summer. That might get their attention. Alas, the apathy in the people is pervasive, at least for now.

          Wall Street On Parade

          22-Year Old Commits Suicide at Capitol to Send Congress a Message

          By Pam Martens: April 14, 2015

          At approximately 1:07 p.m. on Saturday afternoon, April 11, during the annual Cherry Blossom Festival celebrating springtime in the Nation's Capitol, a 22-year old man took his own life with a gun on the Capitol grounds with a protest sign taped to his hand. According to the Washington Post, the sign read: "Tax the one percent."

          Yesterday, the Metropolitan Police Department released the young man's name. He was Leo P. Thornton of Lincolnwood, Illinois. Based on what is currently known, the young man had traveled to Washington, D.C. for the express purpose of making a political statement with his sign and then ending his young life.

          The Chicago Tribune reported that "Thornton's parents filed a missing persons report on the morning of April 11 after he never came home from work on April 10, Lincolnwood Deputy Police Chief John Walsh said."

          Those are the tragic facts of the incident itself. But there is a broader tragedy: the vacuous handling of this story by corporate media. The Washington Post headlined the story with this: "Rhythms of Washington Return after Illinois Man's Suicide Outside Capitol." The message he delivered to his Congress – tax the one percent – has yet to be explored by any major news outlet in America in connection with this tragedy.

          Was the message of Leo P. Thornton of Lincolnwood, Illinois a critical piece of information for this Congress to hear at this moment in American history. You're damn right it was. Outside of Wall Street's wealth transfer system, provisions in the U.S. tax code are the second biggest wealth transfer system to the one percent. Together, these two systems have created the greatest income and wealth inequality since the economic collapse in the Great Depression. They threaten a repeat of the 2008 financial collapse because the majority of Americans do not have the wages or savings to support the broader economy...

          [Apr 10, 2015] Rahm Emanuel and Rick Perry Hold Public in Bipartisan Contempt by Lambert Strether

          April 7, 2015 | nakedcapitalism.com

          Lambert here: This post is short and sweet. It's worth reminding ourselves that on some axes of evaluation, Republicans and Democrats are far more alike than different.

          By PEU Report. Originally posted on their blog, Private Equity Report.

          Holding the public in contempt is a bipartisan effort. Consider the following stories. The first involves Republican Governor Rick Perry of Texas:

          Information contained in a blistering state audit shows that at least five of the recipients… which got tens of millions of dollars from the fund - never actually submitted formal applications. At issue are at least five recipients of Texas Enterprise Fund money: Vought Aircraft…

          Texas Governor Rick Perry gave Vought, a Carlyle Group affiliate, $35 million for fifteen years. Ten years later it's unclear if Vought provided even one additional new job. Governor Perry's job number is fanciful and the recent audit gives no overall job number. In 2010 Carlyle sold Vought for $1.44 billion but not one penny was returned to Texas taxpayers.

          Chicago's Democratic Mayor Rahm Emanuel is as free with taxpayer money for his political benefactors and purposely evasive about those relationships:

          Emanuel's administration has for weeks blocked the release of correspondence between his administration and one of the Democratic mayor's top donors, Michael Sacks. The administration has also refused to release details about tens of millions of dollars in shadowy no-bid city payments to some of Emanuel's largest campaign contributors.

          Rahm's top donor is a private equity underwriter (PEU):

          The CEO of the Chicago private equity firm Grosvenor, Sacks has been described as Emanuel's closest ally in the private sector, and has been called Emanuel's "go-to guy" and his "top troubleshooter."

          PEU sponsored politicians are above the law:

          Illinois' open records law mandates that communications to and from public officials like Emanuel be made available for public inspection.

          Back to how Rahm rewards his donors:

          …firms that have received tens of millions of dollars' worth of shadowy "direct voucher payments" (DVPs) from the Emanuel administration have given more than $775,000 worth of campaign contributions to the mayor's political organizations.

          Chicago's DVP process is permitted thanks to loopholes in Illinois' procurement law that allow municipal officials to circumvent the traditional contracting process. Unlike standard government contracts, DVP payouts do not require any type of public documentation. Emanuel appointees retain substantial discretionary authority to approve DVPs. The payments are not required to go to the lowest bidder; vendors receiving the payments do not have to list their qualifications and never need to document the services they provide to the city in return for the money. The DVPs appear to have been used for everything from phone service to interest payments to financial firms, but unlike the George W. Bush administration's no-bid contracts, DVP payments do not even require a formal contract, so it is impossible to verify what the money purchased.

          No application, no contract and no accountability. It's our PEU world, where politicians Red and Blue love PEU.

          [Apr 10, 2015] The Government's Revolving-est Doors

          Apr 07, 2015 | Zero Hedge

          Former employees of federal agencies can often find good (and lucrative) jobs as lobbyists, capitalizing on the connections that they forged while in public service. As OpenSecrets exposes, the numbers of revolving-door-enthusiasts is reminiscent of the Ebola epidemic as this deadly-to-democracy disease spreads from department to department ripping away 'hope and change' wherever it appears. "Revolvers" include those as powerful - and well connected - as secretaries of state and as far from Washington as Peace Corps volunteers... but The Department of Commerce tops the list...

          The agencies shown here have employed the greatest number of former lobbyists - or sent the greatest number of former employees to lobbying firms and interest groups.

          Agency Number of revolving door people profiled
          Dept of Commerce 1736
          Dept of Defense 1688
          Dept of State 1452
          Dept of Health & Human Services 1225
          White House 1216
          Dept of Agriculture 1112
          Dept of Army 1080
          US House of Representatives 876
          Dept of Justice 864
          Dept of Energy 840
          Dept of Transportation 750
          Dept of Interior 700
          Dept of Labor 555
          Dept of Housing & Urban Development 530
          Dept of Homeland Security 520
          Dept of the Treasury 444
          Dept of Navy 428
          Dept of Education 412
          Dept of Air Force 312
          US Senate 256

          Source: OpenSecrets.org

          [Apr 09, 2015] Notes on the Currency War - 'Old as Babylon and Evil as Hell'

          Jan 01, 2013 | Jesse's Café Américain

          Below is an excerpt from a much longer article which you can read in its entirety here.

          It is an interpretation told from a certain perspective, but overall does a fairly decent job of laying out the general boundaries for the currency war that has been brewing in the background since 1971 with the collapse of Bretton Woods.

          It is more visible to us now because it started manifesting more overtly in the 1990's and since then has slowly been gaining momentum.

          If an analyst does not understand this, even if they do not agree with this particular interpretation, then they have a poor grasp of the major trends that are driving so much financial and political activity in the world today.

          And fortunately or unfortunately, gold and silver are deeply involved as the traditional supra-national world currencies.

          To put the entire thing in a nutshell, in 1971 the US arbitrarily ended the Bretton Woods Agreement by closing the 'gold window,' and placed the world on an entirely fiat reserve currency which the US controlled. Since the US is making monetary policy to suit its own domestic agenda, and increasingly so over the past twenty years, the stresses that this creates in the world have become unacceptable to many other countries, some of which are in a position to push back against this.

          This tension between the dollar and the rest of the world is either going to end in an acceptable and workable compromise, or will result in a split of the world into regions of power and financial influence, most likely three or four. This will be accompanied by conflict on all the usual levels: diplomatic, economic, and military. We are seeing this today.

          Compromise is being thwarted by a neo-conservative, militaristic and nationalistic group in the States, with clients in other countries, that view an American hegemony as the natural and highly desirable outcome of the end of the Cold War. However, this is a patriotic cover story for what is essentially a bid for more money and power for a privileged few who have no patriotism and little decency, who serve only themselves and their patrons. To quote Edward Abbey, their motives are 'old as Babylon and evil as hell.'

          Whether you agree with this or not does not matter so much, because it is very obvious to those in countries like the BRICs that this is the situation, and they are acting on this, and the US is reacting in response. But from reading the literature of the neoliberal economists and neoconservative politicians, it seems hard to come to any other conclusion based on facts and specific actions which have been taken by the US, the UK, Canada, Germany and Japan.

          I do not think it is too much to say that we are experiencing a type of 'world war.' This seems to be the type of settling of differences and adjustments that follow major economics shifts, as we had seen in the first half of the 20th century.

          "The Fed effectively acts as the world's central bank, but sets monetary policy only in its own interest. Under the pressure and the orders of financial oligopolies, it fixes interest rates and prints money to suit itself, sending economies across the globe into tailspins...

          These policies aren't enacted with the express goal of kicking the global South in the stomach, but this outcome is a necessary and predictable result of the domination of the global financial order by a sole country whose interest is to keep its hegemonic status. Other measures are taken precisely toward this end. This latest round of financial warfare has to be seen in the context of financial imperialism in general. Countries struggling for sovereignty are also being hit by sanctions, speculative currency attacks, commodity price manipulation, biased evaluations from US ratings agencies, massive fines on some banks for what the US has deemed inappropriate practices, and the prohibition of certain banks from participating in the international banking system...

          Not only does the dollar enable the US empire, but also protecting the dollar's status is a major reason for US imperial wars. American financial and military strength is based upon the fact that the dollar is the world's reserve and international trade currency, creating a global demand for dollars which allows the US to print as many greenbacks as it likes. It then pumps them into the overbloated finance capital system and uses them to fund its criminal wars...

          Without this international demand for dollars, the dollar would "correct," and US hegemony would eventually, inevitably, come to an end. Therefore the US pressures and attacks countries that attempt to free themselves from the dollar's yoke, not only because they're guilty of lese majesty, but in order to force the world to maintain the status of the dollar and thus preserve US domination...

          Although it has so far been unsuccessful, the idea of rebalancing the world monetary system is extremely threatening to the US, and goes a long way toward explaining recent US wars and warmongering, which may otherwise seem irrational...

          The dollar is rallying less because of any supposed US recovery than because of higher global demand for dollars due to investors' risk aversion, in the wake of the Fed pulling the plug on QE. Parenthetically, the US economy is definitely not recovering...

          While a stronger dollar will not hurt the consumption-based US economy, the rising dollar and US monetary tightening are about to give the developing world a severe blow..."

          Michčle Brand and Rémy Herrera, Dollar Imperialism 2015

          "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

          [Feb 06, 2015] The End of Our Financial Illusions - By Simon Johnson

          April 17, 2014 | NYTimes.com

          Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You."

          The global financial crisis that broke out following the collapse of Lehman Brothers in September 2008 was a big shock. This is literally true in terms of the impact on investors and market prices; a wide range of financial variables moved rapidly in unexpected and worrying directions. But what happened was also a shock to the realm of ideas about finance.

          Before September 2008 - or at least before 2007, when some of the underlying problems first became more clearly manifest - the prevailing consensus among officials and specialists was that financial innovation was a good thing. In isolated instances, a particular new product might not work out as planned, as happens, for example, with medical innovation. But over all, the consensus went, financial innovation led by the private sector was making the system safer and more efficient.

          This view was wrong.

          In its day, this line of thinking justified the legal and regulatory changes that allowed some banks to become very large and to build up a much more complex range of activities in the 1990s and early 2000s, including through various kinds of opaque derivatives transactions.

          In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.

          Of course, some bankers knew exactly what they were doing as their companies increased their debt relative to their equity. On average, large complex global banks had about 2 percent equity and 98 percent debt on the liability side of the balance sheet before the crisis, meaning they were leveraged 50:1 (the ratio of total assets to equity).

          The good news is that the official consensus was shattered in 2008, and is not coming back. Systemic risk slapped everyone in the face with an undeniable wake-up call.

          However, the process of reforming the financial system is still at an early stage. The Dodd-Frank financial reforms of 2010 represent a useful start - including the Volcker Rule's restrictions on excessive risk-taking - and the recently adopted Basel III framework for capital regulation nudges equity requirements higher.

          But the world's largest banks will, by one informed estimate, end up - as things currently stand - with about 3 percent equity and 97 percent debt as the average structure of their balance sheet liabilities. In the United States, if the latest leverage rule is implemented and enforced properly, this will become 5 percent equity and 95 percent debt for the biggest eight banks by 2018. While 20:1 is better than 50:1, this is still not enough equity to assure a reasonable degree of financial stability in the foreseeable future.

          The argument about finance has now shifted and is much more about whether capital requirements for the largest banks should be increased further. Those opposed to such a move offer three reasons why big banks should not be required to fund themselves with much more equity.

          First, some people contend that the crisis of 2008 was a rare accident and Dodd-Frank fixed whatever problems existed. This is completely unconvincing - particularly because many of the same people have spent much of the last four years opposing and delaying financial reform.

          Most importantly, it ignores the ways in which incentives and rules have changed since the 1980s. As James Kwak and I asserted in "13 Bankers," the structure of the financial system is quite different now from what it was in 1980. In particular, the largest banks have become much bigger and more able to take on (and mismanage) much more risk.

          The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat. This is the view sometimes associated with former Treasury Secretary Timothy Geithner. (Mr. Geithner has a book coming out soon, and it will be interesting to see his current position on this point).

          But the impact of any financial crisis is not measured primarily in terms of whether the Treasury made or lost money on specific investments. The criteria instead should be what happened to output and jobs, as well as what the impact was on the country's fiscal accounts. How much more public debt do we have now relative to what we had before - and what kind of lasting negative effects will that have?

          Mr. Kwak and I took this on in "White House Burning," putting the recent surge in public debt in the longer-run context of American fiscal policy. No matter how you look at it, the financial crisis was a complete disaster for the real economy and, given the way fiscal politics work in the modern United States, for the budget and for investments in any kind of physical infrastructure and education.

          The third counterargument is that large complex financial institutions are needed because they provide some sort of magic for the broader economy. This still seems to be the view of some people at the Federal Reserve Bank of New York, which recently published a set of research papers on the topic.

          But the benefits they find are small relative to the potential costs. Anat Admati and Martin Hellwig's "The Bankers' New Clothes" makes the vulnerability of modern banking abundantly clear.

          A recent report from the International Monetary Fund finds that the United States and other governments are providing large implicit subsidies to these big banks: The prospect of potential government support lowers their funding costs by about 100 basis points (one percentage point).

          Many people are involved in the official sector's rethinking of finance. This is the lasting contribution from books such as Sheila Bair's "Bull by the Horns," Neil Barofsky's "Bailout" and Jeff Connaughton's "The Payoff." In government circles, key decision makers were swayed by officials including Thomas Hoenig and Jeremiah Norton (both of the Federal Deposit Insurance Corporation) and Sarah Bloom Raskin (then on the Board of Governors of the Federal Reserve System; now at the Treasury Department). As chairman of the Commodity Futures Trading Commission, Gary Gensler had an immensely positive impact, both directly on the regulation of derivatives and also more broadly.

          The Democratic senators Sherrod Brown of Ohio, Jeff Merkley of Oregon and Carl Levin of Michigan and Ted Kaufman of Delaware (who has since left the Senate), along with David Vitter, Republican of Louisiana, played key roles in shifting opinion. Elizabeth Warren's work, both before and after her election to the Senate from Massachusetts, has also had great influence.

          Of all the civil society organizations seeking to promote financial stability, Dennis Kelleher's Better Markets stands out for its major impact through a relentless surge of arguments, comment letters and research. Its report on the cost of the crisis made clear beyond any reasonable doubt that the crisis had profound negative consequences for millions of people.

          Many other officials have also shifted their views in important ways. We are not going back to the old ways of thinking about finance, and allowing for changes in these theories is an essential part of any modern economy. Finance needs to be regulated effectively, and large banks should fund themselves with much more equity than is currently the case.

          Selected Skeptical Comments

          toom, germany 19 June 2014

          The basic question is whether financial trickery and juggling can produce wealth? Certainly these tricks produce wealth for the bankers on Wall St. But how about the rest of us?

          The answer is "maybe, sometimes". The pension funds profited from 1980 to 2007 and then again after 2010, with help from the Fed. However the wealth increase from 1980 to 2000 was mainly from the export of manufacturing jobs from the US to China. That will never occur again.

          So we are stuck with 1% return on investment, unless trickery or some new invention (a new kind of cell phone, or more broadband or alternate energy?) occurs.

          jack waymire, sacramento, ca 22 April 2014

          Sure 20:1 leverage on balance sheets is better than 50:1 leverage, but the intellectuals are missing the point. Who wins when banks are excessively leveraged? Shareholders? Clients? The U.S. economy? I submit the primary beneficiaries are the executives who run the banks. They make decisions with impunity. Increased leverage increases profits which increase executive bonuses. Shareholders may benefit if company stocks rise in value. Highly leveraged balance sheets create a huge risk for all Americans - except the executives who made the decisions to leverage the balance sheets and get into businesses they barely understand.

          Justin, Ohio 18 April 2014

          You nail it perfectly. But we need to ask broader question: Is American Dream a myth?
          It seems to me American Dream is clearly a form of both myth and illusion and propaganda used by the upper classes to keep the lower classes or the 99% in their place.

          I'm shocked!, America 17 April 2014

          "The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat."

          Let's find the person who said that and feed him to the tens of millions of unemployed people.

          Jeff Atkinson, Gainesville, GA 17 April 2014

          It's pretty simple. TBTF bank managers want to be regulated and paid like hedge fund managers but with a huge edge in the form of implied government assurances for their suppliers of capital. Such assurance can be purchased cheaply with political contributions and post government jobs for regulators.

          Robert Baesemann, Los Angeles CA 17 April 2014

          Bravo. I was prepared to read a rehash of the Collected Scientific Papers of Jamie Dimon," but this piece is very informative and helpful. The most critical issue on my horizon is the stability of the financial system. What I ask is whether or not the system is as stable as it was in 1998, or is it still teetering the way it was in 2007. In 2008, we observed the failure of Lehman, the rescue of several others (Merrill merged into BofA), and the failure and rescue of two money market funds that failed to make the buck. This seems to have been a global run on the banks which was cut off, but narrowly cut off. If there is a next time, the 2008 experience will only cause the fingers on the triggers to be quicker than they were in 2008. This seems to mean that we are not far removed from the lethally dangerous circumstances of 2008.

          Thank you for pointing out the need for better financial regulation. As I recall, under Glass-Steagall commercial banking and investment banking were separate (no Merrill-BofA unions) and commercial bank reserve requirements were set by the FED at 20% to 25% or 4 to 1 or 5 to 1. In those days, commercial banks could not make profits like investment banks, but they could not drage the entire world into Depression. Investment banks were left to deal with people silly enough to gamble on Wall Street rather than Las Vegas. Oh for those halcyon days.

          Murray Kenney, Ross, CA 17 April 2014

          More equity = less lending. Less lending = less capital, particularly for small and medium sized businesses and for consumers with weak credit histories. Less capital for small and medium sized businesses and moderate income consumers = less economic growth.

          That's why European Governments have resisted higher capital levels. They'd rather backstop their banks and treat bank debt as an off balance sheet liability of their governments than acknowledge the problem created by slow economic growth, excess supply, weak demand and low interest rates.

          Michael F. Rhodes, Vancouver, Canada 17 April 2014

          That is bunk. Financial alchemy has been tried in history (4th century Rome, post-war Germany and Basel risk weights). They don't work. Value creation, not finance creation, drives durable economics. Stop the apologetics. Tell people to work harder.

          Manuel Morales, San Juan, Puerto Rico 17 April 2014

          Financial illusions may be stronger than they may have ever been.

          Professor Johnson writes that the financial crisis was a complete disaster to the real economy. Dennis Kelleher estimates a $12.8 trillion debacle in that same real economy with a negative impact that will be felt for years, if not decades, to come.

          The doyens and shamans of 'high finance' have only received timid penalties for the global destruction they triggered while companies in the tangible economy, causing much less damage, are oftentimes chastised much more strongly and receive relatively far stricter punishments.

          Regrettably the all-inclusive list of wizards of Wall Street are doing fine, are much alive and vigorously kicking while working compulsively to find 'innovative' and ingenious maneuvers to outfox regulations while moving higher on the 1% list.

          The distressed state of affairs caused by the Great Recession may prove not to be the Main Event. Only time will tell.

          Bob Feinberg, DC area 18 April 2014

          At a recent event in Washington, Mr. Kelleher drastically raised his estimate of the embedded cost of the ongoing crisis due to overvaluation of swap positions of the TBTF banks. No one seems to know what this exposure is, and the prevailing view is that this is minimal because the positions net out.

          The people who say this are the same ones who minimized the practices that gave rise to the 2008 episode of the ongoing, permanent crisis. The positions don't necessarily net out unless they are opposing sides of the same trade.

          To estimate this exposure at several times the GDP of the US is probably conservative, but no one seems to know. Meanwhile the efforts of the so-called regulators are directed at preventing a so-called "default event" that would require these losses to be recognized.

          BB, Orlando 17 April 2014

          An excellent article. I completely agree that "Finance needs to regulated effectively and large banks should fund themselves with more equity." However, this is not going to happen until there are major political changes in the United States. The country is not a democracy, but a plutocracy. Wealthy people have benefited immensely by the status quo whereas the middle and lower classes have been devastated. This is because the government and the supreme court are controlled by big business. All elected government officials get in office with big business funding and they will act accordingly. The supreme court has exacerbated this situation by ruling that there should be no limits on campaign contributions. Campaign contributions need to be severely limited so educated, capable people from the middle and lower classes have an equal chance to play a significant role in government. How about a physicist as president(eg Ms Merkel)!.

          Only a wealthy person such as Timothy Geithner would have the opinion that the costs of the financial crisis were not huge. He would feel differently if he was standing in the unemployment lines. The current plutocracy wants big profits which mean shipping jobs overseas, lower wages and more unemployment.

          Dryly 41, 17 April 2014

          Every thing that Professor Johnson says is spot on. Indeed, he is the only major economics professor that has identifies the source of the September 15, 2008 collapse of our financial system for the first time since October of 1929.

          He is also the only one who has pointed out that Dodd-Frank didn't fix the problems created by the reversion to the Laissez Faire of Harding, Coolidge, Hoover and Mellon from the "strict supervision" of FDR.

          We will once again return to "strict supervision" of finance. The only question is whether we do it before or after the next financial collapse. A wise and prudent nation would do it before but there is insufficient wisdom and prudence at this unfortunate time in American history.

          Bob Feinberg, DC area 18 April 2014

          Prof. Admati is another relentless leader of this debate. While the calls for stricter regulation of banks have grown louder, the opposition by the industry has hardened, and industry executives and lawyers are still running policy. This industry is, in effect, regulated by its own lawyers. To have meaningful regulation of this dangerous industry would required Transparency, Independence, and Accountability, all of which have been lacking throughout the decades of the ongoing, permanent crisis, and they still are.

          Ms B, Buffalo 17 April 2014

          Back in the 80's a local savings bank went "big time" around here with fancy deals in Florida and Texas. The deals were put together with the bank as lender with a piece of the ownership/equity as well. They bankers thought it was the cats meow, the cutting edge of sophisticated banking. The deals all tanked and the bank went down. Same nonsense now with different players and an even better means of obfuscation and rent seeking. Today, unfortunately the banksters are above the law and burning town the country has no consequences.

          Larry L. Dallas, TX 18 April 2014

          Here's a fact about the Oil Boom and the S&L Mess that happened in its midst that few people know:

          EVERY SINGLE STATE BANK IN THE STATE OF TEXAS WENT UNDER IN THE AFTERMATH.

          The 2008 Crisis was that smaller crisis writ large on the national and global scale. The fact that two idiots from Texas (Armey and Gramm) had a hand in the elimination of the Depression-era financial regulations that eventually led to 2008 just show that idiots are not capable of learning from prior experience.

          Mark T, is a trusted commenter New York NY 17 April 2014

          This sounds like a valedictory and indeed I hope it is the last post on this topic on which so much has been said (and repeated, and repeated).

          One official unwisely unmentioned is Daniel Tarullo who is at the forefront of the push for greater macroprudential regulation. Among authors who should have been mentioned are Viral Acharya who has published a lot on systemic risk, Raghuram Rajan's Fault Lines is essential to understand the role of debt in the political economy of the post-gold-standard Western economies; and no analysis of the crisis is worthy of mention unless it faces up to the role that bank capital regulations played in shaping the portfolios of banks, which one can explore in Friedman's Engineering the Financial Crisis.

          The post manages to discuss the financial crisis without once even alluding to the role of the GSE's and their politically driven acquisition of credit risk despite being overleveraged, through use of the implied government guarantee. Nor does it touch on the foreign role in the chase for yield, the connection between the trade deficit and the issuance of debt securities to countries with trade surpluses, or the mismatch between pension promises and pension funding that is one of the major sources of the growth of financial risk over the past two generations. Everything gets laid at the feet of 13 bankers. Unbelievable, yet so convenient, since it allows a whole sector of the elite to ignore the consequences of their policy preferences.

          Larry L, Dallas, TX 17 April 2014

          The problem with your argument is that same people who wanted to eliminate the Depression-era regulations were also the same people who wanted free trade which offshored a significant of the country's job base (and therefore its tax base and consumer spending capacity).

          The result was higher federal deficits (which led to 5-fold increase in the national debt within a generation), higher gov't spending on transfer payments to make up for that lost personal income, a higher trade deficit from all of the imports and the reduced domestic expenditures on everything from education, R&D and infrastructure as a % of GDP.

          The very same people who gave us the Financial Crisis were also responsible for the vicious cycle in the real economy.

          E.T. Bass, SLC 18 April 2014

          More to the point:

          A bubble burst. "Bi-partisan" efforts at "home ownership" blew up, due to very highly questionable home mortgages. Which caused Lehman and Govt. Motors to blow up.

          Outcome: second worst economic disaster in 100 years.

          Today -- the most anti-small business president in history (per N.F.I.B.) who publicly snarls at the U.S. House and the slowest economic recovery in 100 years.

          Res ipsa. Entirely predictable.

          Steve, Raznick 17 April 2014

          To be very clear, very precise, the banks were completely incapable of anything approaching accuracy when it came to the risks they took. Enough with this myth that these are unbelievably intelligent people who having attended a school with name people recognize inculcates them with special powers of divination.

          We have 5 financial lobbyists for every congressmen. Just one illustration of how the game is tilted. Those lobbyists do not care about the financial security and welfare of the people. They care only about themselves and thwarting passage of any legislation which creates a sustainable, viable finance industry.

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          [May 14, 2019] Trump desperately needs a trade deal with China as he gears up for his re-election bid in 2020.

          [May 11, 2019] Has Privatization Benefitted the Public? by Jomo Kwame Sundaram

          [Mar 31, 2019] Because of the immediate arrival of the Russia collusion theory, neither MSM honchos nor any US politician ever had to look into the camera and say, I guess people hated us so much they were even willing to vote for Donald Trump

          [Mar 29, 2019] Trumps billionaire coup détat: Donald Trump is about to break the record of withdrawing his promises faster than any other US president in history

          [Feb 26, 2019] THE CRISIS OF NEOLIBERALISM by Julie A. Wilson

          [Feb 05, 2019] The bottom line is that this preoccupation with the 'headline number' for the current month as a single datapoint that is promoted by Wall Street and the Government for official economic data is a nasty neoliberal propaganda trick. You need to analise the whole time serioes to get an objective picture

          [Feb 03, 2019] Neoliberalism and Christianity

          [Jan 29, 2019] The Religious Fanaticism of Silicon Valley Elites by Paul Ingrassia

          [Jan 24, 2019] No One Said Rich People Were Very Sharp Davos Tries to Combat Populism by Dean Baker

          [Jan 13, 2019] There is no free market! It's all crooked by financial oligarchy!

          [Jan 12, 2019] Tucker Carlson Mitt Romney supports the status quo. But for everyone else, it's infuriating Fox News

          [Jan 12, 2019] Tucker Carlson has sparked the most interesting debate in conservative politics by Jane Coaston

          [Jan 11, 2019] How Shocking Was Shock Therapy

          [Jan 08, 2019] The smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors

          [Jan 08, 2019] Rewriting Economic Thought - Michael Hudson

          [Jan 08, 2019] The Financial Sector Is the Greatest Parasite in Human History by Ben Strubel

          [Jan 08, 2019] No, wealth isn t created at the top. It is merely devoured there by Rutger Bregman

          [Jan 07, 2019] The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. Now we have exactly the same trends

          [Dec 29, 2019] The Collapse of Neoliberalism by Ganesh Sitaraman

          Sites



          Etc

          Society

          Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy

          Quotes

          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, 29, 2020