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Neoliberal Attacks on Social Security Casino Capitalism Unemployment Inflation vs. Deflation Coming Bond Squeeze Notes on 401K plans Vanguard
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John Kenneth Galbraith The Roads We Take Economics Bookshelf Who Rules America Financial Quotes Financial Humor Etc

“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.”

John Maynard Keynes

As most 401K investors are "over bullish" and this page is strongly bearish in "perma-bear" fashion it is accessed mostly during last two financial crisis. And that's actually reflects its primary goal: to warn about excessive risk taking by 401K investors. It designed to serve as a warning sign and inject a skeptical note into MSM coverage. There are not many such sites so a warning about danger of taking excessive risk in 401K accounts has its value. A lot of 401K investors are 100% invested at stocks.

Mispricing of risk in 401K accounts can become so extreme for "overbullish" 401 investors, that a calamities like one which happened in 2001-2002 and again 2008-2009 can wipe 30 to 50% of value of their 401k account in a very short period of time (and if you think that S&P500 can't return to 1000, think again; its all depends on FED). At this point many freak out and sell their holdings making paper losses permanent.

Even for those who weathered the storm and hold to thier stock holdings, it is important to understand that paper losses were eliminated by Fed money printing. As such risks remains as at one point FED might find itself out of ammunition. The fact that S&P500 recovered very nicely it does not diminish the risk of such behavior. There is no guarantee that the third crisis will behave like previous two.

The key determinant of attitude toward the US government and Wall Street after 2008 is the lack of trust. That means that you need to hope for the best but prepare for the worst. Injection on so much money into financial system was a novel experiment which is not ended yet. So how it will end is anybody's guess. We are now in uncharted waters. I think when Putin called Bernanke a hooligan, he meant exactly this.

The complexity of modern financial system is tremendous and how it will behave under a new stress is unknown. At the same time in the Internet age we, the great unwashed masses can't be keep in complete obscurity like in good old time. They now know ( or at least suspect ) that now the neoliberal show "goes on" at their expense. And while open rebellion is impossible, that results in lack of trust which represents a problem for financial oligarchy which rules the country. The poor working slobs are told be grateful for Walmart's low (poverty-subsidized) prices. Middle class is told that their declining standard of living is a natural result of their lack of competitiveness in the market place. Classic "bread and circuses" policy still works but how long it is unclear.

But nothing is really new under the sub. To more and more people it is now clear that today the US is trying to stave off the inevitable decline by resorting to all kinds of financial manipulations like previous empires; yesterday, it was the British Empire and if you go further back, you get the USSR, Hapsburg empire, Imperial Russia, Spanish empire, Venetian empire, Byzantium and Roman empire.

The current "Secretary of Imperial Wars" (aka Secretary of Defense) Ashton Baldwin Carter is pretty open about this:
“We already see countries in the region trying to carve up these markets…forging many separate trade agreements in recent years, some based on pressure and special arrangements…. Agreements that…..leave us on the sidelines. That risks America’s access to these growing markets. We must all decide if we are going to let that happen. If we’re going to help boost our exports and our economy…and cement our influence and leadership in the fastest-growing region in the world; or if, instead, we’re going to take ourselves out of the game.”

For the US elite it might be a time to rethink its neocon stance due to which the US is exposing ourselves to the enmity of the rising economic powers, and blowing serious cash to maintain it hegemony via maintaining huge military budget, financing wars and color revolutions in distant countries. In a way the US foreign policy became a financial racket, and racket can't last forever because it incite strong opposition from other countries.

Neoliberalism (aka casino capitalism) entered the state of decline after 2008. Now it is in zombies state and it is unclear how long it will say in this state. Much depends on the availability of "cheap oil" on which neoliberalism and related globalization are based. But the fact the this social system is down slope and on its way to the cliff means that financial calamities should became more, not less frequent. Attempts to neo-colonize other states by the West became less and less successful and now become close to XIX century colonial conquests with a lot of bloodshed (over a million of Iraqis). As always this is mainly the blood of locals, which are cheap. Libya and Ukraine are two recent examples. Both countries are now destroyed (which might be the plan). In Ukraine population is thrown in object poverty with income of less that $5 a day for majority of population. And there is no other way to expand markets but to try to "neo-colonize" new countries by putting them into ominous level of debt while exporting goods to the population on credit. That is not a long term strategy as Greece, Bulgaria, and now Spain and Portugal had shown. . With shrinking markets stability of capitalism in general and neoliberalism in particular might decrease.

Several researchers points to increased the importance of maintaining of the stability of the banking system Central banks now play. That's already a reversal of neoliberal dogma. Which as far as the USA is concerned actually was from the very beginning mainly the product designed for export (aka Washington consensus).

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[Jul 29, 2015] Chevron cutting 1,500 jobs to help cut costs by $1B

"...The cuts, which will take place across 24 business groups ... about 270 are existing vacant positions that will not be filled; the company also plans to eliminate an additional 600 contracting positions as well. "
Jul 28, 2015 | cnbc.com

Energy giant Chevron will eliminate about 1,500 job positions in an effort to cut costs, the company said in a statement Tuesday.

The cuts, which will take place across 24 business groups in its corporate center, will result in cost reductions of about $1 billion.

"In light of the current market environment, Chevron is taking action to reduce internal costs in multiple operating units and the corporate center," Chevron said, in the statement. "These initiatives, which are currently underway, are focused on increasing efficiency, reducing costs and focusing on work that directly supports business priorities."

Of the announced cuts, about 270 are existing vacant positions that will not be filled; the company also plans to eliminate an additional 600 contracting positions as well.

Chevron shares were little-changed in after-hours trading. It and Exxon Mobil are both slated to report quarterly earnings Friday morning.

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How Its All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

— Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.

And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How It's All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

— Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.

And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 29, 2015] Fed staff error reveals "potential" output is mostly nonsense by Matthew C Klein

Jul 27. 2015 | ftalphaville.ft.com | 12 comments

On June 29, someone at the Fed inadvertently included the staff's June economic projections, which are supposed to be secret, into publicly available computer files. On July 24, the Fed decided to let the world know that it goofed, while also letting you download the charts and tables for yourself. Then it turns out that some of the information released was incorrect and had to be updated yet again.

For convenience, here's a link to the table, which is somewhat useful to compare to the published projections of FOMC members. You'll notice that the staff is much more pessimistic about real growth for 2015 than the entire range policymakers, and more pessimistic for 2016 growth than most policymakers polled for their projections. Otherwise there isn't much new there.

Read more

[Jul 29, 2015]World Natural Gas Shock Model

"...I mean, I know WTI is around $47.00 due to the temporary lull in world oil consumption (leading to a temporally local oversupply of 2 million or so barrels a day), but that won't last (after all, what's the solution for low prices? Low prices, which spurs consumption. Duh! Econ 101 right?). Still though, it does seem like some optimism is perhaps not out of place."
.
"...A sustainable industrial civilization IS at least technically possible."
.
"..."Looks like any oversupply won't be around much longer" depends on the time span, and the human factor: how many investors are willing to bet oil prices will recover to $80-90 per barrel by 2017? The key is to understand there's a large dose of unquantifiable human behavior in this game."
.
"...BREAKING: US #oil production fell 145 kb/d according to latest #EIA weekly data to 9413 kb/d http://ir.eia.gov/wpsr/overview.pdf #crude"
Jul 29, 2015 | Peak Oil Barrel
The Wet One: 07/28/2015 at 3:30 pm
I've been on holidays, taking a break from it all and flying all over the western hemisphere burning up precious fuel.

Now that I'm back to reality, is there any reason to believe that the world will not go to hell in handbasket before I die in about 40 or so years?

I mean, I know WTI is around $47.00 due to the temporary lull in world oil consumption (leading to a temporally local oversupply of 2 million or so barrels a day), but that won't last (after all, what's the solution for low prices? Low prices, which spurs consumption. Duh! Econ 101 right?). Still though, it does seem like some optimism is perhaps not out of place.

But then I read Albert Bartlett's comments about the exponential function and, yeah, I'm hoping against hope aren't I? World population growth, carbon continues to be added to the atmosphere, and bad things will still probably arrive before I die in about 40 years.

And my planned for, but presently non-existent children, will be going into that maelstrom along with my grandchildren.

Ok, I'm properly depressed again now.

I need to go back on holidays. Perhaps somewhere a little closer this time (seriously, no need for another 15,000 km round trip. That was a lot of travel).

Dennis Coyne: 07/28/2015 at 3:55 pm
Hi Wet one,

There is a good possibility (better than 50% chance) that within 5 to 10 years of the beginning of oil decline (more than 0.5% per year for 3 years or more so people recognize it) that there will be an economic depression. My guess is between 2028 and 2033 for the start of Great Depression 2.

How the world responds is key, will we also repeat WW2 or worse or will there be a focus on solving the energy problem and associated environmental problems with wise social investments? A build out of rail, light rail and High Voltage DC transmission would be a start. Tax credits for non fossil fuel energy production and development might also help along with a stiff tax on carbon emissions.

Much is possible, higher fossil fuel prices as they deplete will help move society towards alternative energy, but it probably won't be fast enough to avoid a crisis. The response to crisis will determine the ride.

old farmer mac: 07/28/2015 at 9:41 pm
Don't let people like Bartlett get you too far down.

Back when I was an agriculture undergrad in the fabled sixties I heard all the doom and gloom predictions made up until that time in the biology classes that made up well over a third of my studies. Those classes sometimes carried ag id such as Ag BioChem 201 as opposed to Intro BioChem 201 etc but they were taught in the same classrooms at the same hour by the same professors to the biology majors.I had a long conversation with Erlich himself, the guy who wrote The Population Bomb, when he came to Va Tech as a visiting scholar.

Back in those days I had a "hot young blossom" ( Twain) of my very own, who although she was a hot blooded Baptist farm girl with four sisters and a brother make it perfectly clear that SHE would never have more than two kids. Of course being young and intellectually arrogant and extremely well read (for a youngster) and all that sort of thing it never even occurred to me in my ignorance that women all over the world might be thinking the same way in a couple of generations.When I look back the width and depth of my ignorance in those amazes the hell out of me. Nowadays I am so far behind when it comes to really understanding the new technological realities the youngsters look at me with pity if not outright contempt. But I know ONE thing they have not yet learned – that thing being that they just might be WRONG about the future.

I looked at people like Erlich as demigods back in my youth and promptly forgot about them -believing that the shit would hit the fan SOMEDAY just as they predicted but also believing that someday was too far down the road to concern myself with it.

There is NOTHING wrong with Bartlett's actual science but as Yogi sez, predicting is HARD, especially the future. Bartlett and Erlich know (knew) their stuff but they failed to anticipate falling birth rates and they grossly underestimated or ignored the rate at which progress was being and is still being made in energy efficiency and conservation measures.

They did not foresee the computer and electronic communication revolution that is making it possible for poor people's kids in backward countries to get a basic education formerly totally out o their reach.

They did not foresee the coming of cheap photovoltaics or the sort of genetic engineering that allows modern farmers to grow more food on less land without the topsoil washing away due to plowing over and over.

There is as much critical knowledge to be gained from the study of history and literature as there is from the hard sciences themselves.

A sustainable industrial civilization IS at least technically possible. Anybody who tells you otherwise is basing his arguments on outdated assumptions such as the EROEI of renewables being too low to get the job done. Plenty of capable physicists will tell you the same. I have asked four personally. None of the four is willing to predict such a civilization WILL come to pass but all four believe it is within the realm of the possible.

Falling birth rates and changing life styles in combination with new technology mean we DO have a chance – some of us at least.

There is no reason to assume that the entire world is going to suffer a silmantaneous hard crash, although the cards might fall that way-especially if we fight a flat out WWIII which is a real possibility.There ARE plenty of good reason to believe large parts of the world WILL suffer such a crash at somewhat different times. This is what overshoot is all about.

Western European countries will sooner or later do whatever they must do to stop the flow of immigrants from Africa and other nearby places. If it takes machine guns at the borders, machine guns will eventually be deployed.

I anticipate our southern American border being closed up tight within ten years or so regardless of which party controls the country. As times get tougher the voters are not likely going to tolerate much immigration legal or otherwise.

Life IS a Darwinian affair and while we have a great capacity to show empathy and assist each other in times of trouble, we look after our nested "in" groups starting with the immediate family, the extended family, the local community… right on up to the nation state we call home.

With a little luck – more than a little – the USA, Canada, and a few other nations possessed of plenty of resources, defensible borders, large educated populations, very powerful armed forces or very powerful allies etc etc have a decent shot at pulling thru the coming crisis, although I expect some very hard times even here in the USA.

There really isn't ANYTHING at all that we MUST have to survive and live decent lives that we do not possess already within our borders.

Stay well away from places such as Egypt and Detroit and go ahead and have a couple of kids.

It times past they would have been at high risk of dieing from starvation, a dozen different contagious diseases, war, snake bite, exposure, food poisoning, a broken bone or an abscessed tooth or old age at thirty five due to working themselves to death.

Pick a good spot to raise them and teach them how to think for themselves and to work hard and smart and they will probably have about as good a shot at living to be old and providing you with grandchildren as any generation that has ever lived.

There is a LOT to be said for the Bible Belt mountains of the southeastern USA. In the event the shit hits the fan really hard, there is no better place to be. In the lottery of life I am a damned lucky individual, having been born to a family with the right color skin and a suitable name etc in the strongest and best situated nation on earth. I got lucky again coming from one of the best spots in the USA. Call my hand four of a kind. If my parents had been rich and connected, I would have drawn a royal flush. I am guessing that you are holding not less than a full house yourself but I don't know where you are from.

Safety is an illusion. The grave worms WILL have their way with us unless our carcasses are pumped full of nasty chemicals and in that case the anaerobic bacteria will get the carcass anyway. When we quit believing in God we did not just immediately start believing in NOTHING. Without something bigger and grander to look up to we have gotten to looking at our navels too often and want to live forever since death is so scary.

I don't have any qualms about life being dangerous. Life has always been dangerous until very recently indeed. Quite a few of the people buried in the church cemetery where I will rot away next to my parents met violent ends. Men who wear panties feel compelled to call the police when troubles come to them but men around here just make it clear that trouble is met with more and BIGGER trouble. Consequently we have very little trouble excepting domestic troubles and occasional burglaries etc. Home invasions and armed robbery are just about unheard of.

Something will get us all sooner or later but later might very well be a century or ten centuries down the road for YOUR bloodline. That something might be ten thousand years down the road.

Your kids and grandkids will not miss what they did not experience themselves. They might have to fight and they might have to work themselves to death but there is nothing new about such fates.

Fernando Leanme: 07/29/2015 at 4:55 am
"Looks like any oversupply won't be around much longer" depends on the time span, and the human factor: how many investors are willing to bet oil prices will recover to $80-90 per barrel by 2017? The key is to understand there's a large dose of unquantifiable human behavior in this game.
islandboy: 07/28/2015 at 10:31 pm
This presents a nice opportunity for me to present the results of this months EIA Electricity Supply Monthly or more accurately Tables 1.1 and 1.1A. The graph shows production as a percentage of total by source and it is worthy of note that while coal regained it's prominence over all other sources particularly Natural Gas, between April and May, all sources except renewables (both hydro and non hydro) are up in absolute terms. April seems to have been the low point so far for this year, as it has been for the two previous years.

old farmer mac: 07/28/2015 at 11:37 pm
From the same report:

lectric Utilities
Year-to-Date
Receipts Cost Receipts Cost
(Physical Units) (Dollars / Physical Unit) Number of Plants (Physical Units) (Dollars / Physical Unit)
Fuel May 2015 May 2014 May 2015 May 2014 May 2015 May 2014 May 2015 May 2014 May 2015 May 2014
Coal (1000 tons) 47,094 50,122 45.07 48.21 222 237 239,155 239,638 44.57 46.85
Petroleum Liquids (1000 barrels) 1,192 895 75.86 131.40 109 119 6,842 7,534 74.47 131.26

Petroleum Coke (1000 tons) 357 383 56.26 60.11 9 8 1,657 1,794 54.27 56.52
Natural Gas (1000 Mcf)

Unless my mental arithmetic is off this chart indicates that utilities spent about two billion bucks buying coal in May. Say for conversational purposes twenty four billion for the 2015 calendar year.

I have found that hard numbers are hard to come by but my best guess is that wind and solar power are saving us very close to what it would have cost to buy another four percent of either coal or gas.

And when you do things to reduce the sale of a commodity, you are doing things that reduces the price of that commodity. EVERYBODY all across the economy, excepting coal and gas producers and their employees gets just about everything a little cheaper.

The avoided expense of purchasing that much MORE coal and gas will be repeated month after month year after year for the entire life of EXISTING wind and solar farms. The price reduction resulting from utilities buying less coal and gas will spread out all thru the entire economy benefitting ALL of us for that same lifetime.

Excepting a mere handful of railroad employees the coal industry produces damned few jobs except in the coal fields and not very many even there.

Renewables on the other hand create a lot of jobs spread out over the entire country. A wind or solar farm built in Podunk pays taxes locally and provides employment locally.

Fernando Leanme: 07/29/2015 at 5:02 am
U.S. Gas producers pay taxes. Almost everything used to build wells and facilities is USA sourced. The labor is mostly natives, and a lot of that work is well paid.

The cheap gas price is caused by over drilling, not by renewables. On the other hand wind turbines and solar require subsidies and increase electricity bills. This reduces disposable income, which in turn cuts business for barbers, hairdressers, plastic surgeons, and dentists. This in turn increases the crime rate, which leads to higher prison costs on society.

old farmer mac: 07/29/2015 at 6:42 am
The very cheap price of gas is caused MOSTLY by excess supply at this time-you are right about this.Your entire comment is on the money- so far as it goes if you consider only the SHORT term.

But in your usual mule stubborn way you refuse to recognize any fact that does not reflect well on your own positions. Gas is not always going to be cheap and not everybody believes the good jobs should always go to people who live far away and that property taxes should always be paid to people in far away places.

You just flat out refuse to put any weight at all on the perfectly well understood and universally accepted (except by Watcher) relationship known as supply and demand-except when it suits YOUR argument.

CHEAP gas is the result of OVERSUPPLY. Oversupply is as a matter of fact mostly brought on by over drilling FOR NOW but part of the oversupply is due to renewable power cutting into the demand for gas and coal.

As time passes renewables will produce a larger and larger share of our energy and thus hold down gas prices to a substantial extent.

Overshoot is a VERY real problem and we are deep into overshoot already and the end result is going to be that barring miracles most of the seven billion people on this planet are going to continue to live very hard lives and meet untimely hard ends.

But you may be forgiven the typical engineers fault of near total ignorance of the life sciences since they were not taught in the engineering curriculum back in the dark ages and are seldom taught in that field even today.

People by the BILLION cannot afford coal and gas TODAY. The capital to extend grid system electricity to them does not exist and they would have nothing to export to pay for oil and gas in any case. There is a limit to the amount of throw away junk the rich countries can consume and the supply already overwhelms demand for it.

Renewables are the closest thing we have to a pressure relief valve on the boiler of overshoot. The valve is going to prove to be TOO SMALL to get the job done PROPERLY but it will nevertheless DELAY the violence of the eventual baked in explosion.

Karen Fremerman: 07/28/2015 at 7:07 pm
Thanks Dennis. I have a question. Won't oil declines really rule over natural gas in the short and long run? If/when oil starts it's real relentless decline, won't that limit how much natural gas (or any other resource/commodity for that matter) can be delivered because extraction and transportation all take oil to get to market? Isn't oil the limiting factor?
Thanks
Karen
old farmer mac: 07/29/2015 at 7:04 am
Oil is for very good reasons known as the lifeblood of the economy but it is NOT absolutely necessary for the economy to continue to thrive IF the supply declines slowly and the supply of gas increases fast enough to compensate for the decline of oil.

Gas can be substituted as a motor fuel in the gas and oil fields and most mining is already electrified anyway. Heavy industries such as the manufacture of steel and all the things made out of steel depend on only to the extent that they depend on highway trucks to deliver input materials and output product.Otherwise they run on electricity generated mostly with coal and gas.

Trains can be electrified and so can mining machinery used for surface mining – machinery such as bulldozers and excavators.Trucks can run on natural gas.

Shrinking oil supplies are going to hurt us and hurt us a LOT but if gas is as plentiful as some think it is then a lack of plentiful oil is not going to KILL us but the pain may well extend to the economy going into the longest and deepest depression of modern times.This would be the MOTHER of ALL DEPRESSIONS and the worst one EVER.

Eventually both oil and gas are going to come up very short indeed and then the fall back position will probably be coal to liquids.

The proof that we can get by with less oil is crystal clear. Take a look at the per capita consumption in places such as France and consider that the French will have a totally electrified rail system within the next few years.

It sounds very mean and harsh to say it but the billions of poor people in the world who use next to no oil at all are going to CONTINUE to use next to no oil at all and stay poor given that the oil they would like to consume does not exist for the most part.

The rest of us are going to learn to get by with electrified automobiles, mass transit,bicycles and shoe leather sooner or later.

UNLESS renewables get to be incredibly cheap. In that case we might MANUFACTURE motor fuels using renewable electricity but the odds of this coming to pass look to be exceedingly slim.

Dennis Coyne: 07/29/2015 at 8:30 am
Hi Karen,

I am glad I read Mac's response before ing. I agree with him that it is possible that oil decline will not affect natural gas output very much. Note that in the past, oil shocks have not affected natural gas output very much, this may or may not continue in the future, but the effect will be limited by substitution as Mac suggests IMO.

SAWDUST: 07/28/2015 at 9:46 pm
In a world with less oil. The use of other sources of energy will grow exponentially. Unless you believe people will stop doing things that require energy. Or believe there will soon be far fewer people using energy.

In all likelihood oil shock will bring the day of gas shock forward in time a good bit. As gas consumption will rise a good bit in the wake of oil shock.

shallow sand: 07/28/2015 at 9:58 pm
Off topic.

To Rune. Also to Doug, who I recall has a connection in the industry in Norway.

Read over Statoil earnings release. They beat estimates due to better than expected domestic results, but their international operations lost money for the third quarter in a row. The Wall Street Journal article said the company was the most disappointed in its North American operations, which I presume means shale and tar sands.

Would be interested in your take on this or any additional information you may have.

shallow sand: 07/28/2015 at 11:39 pm
Looked at SM Energy Q2 10Q. Production dropped from 186K BOE per to 181K BOE per day from Q1 to Q2. Full year guidance is 168-175K BOE per day. So will drop significantly in second half.

Majority of production in EFS. Next most in Bakken, Divide County, which is not sweet spot but wells cost much less also.

They sold $317 million of assets and used 100% of the proceeds to pay down debt.

They reduced rigs from 17 to 9 and will pull two more from the Bakken in the fall.

They did lower OPEX significantly from Q1 to Q2. They greatly benefitted from hedges, and have around 40-45% of production hedged through 2015. Caused realized oil price after hedges to be $65 per barrel and $4.30 for gas. 2016 hedged volumes much less than 2015.

Playing it smart in my opinion. Should be close to cash flow neutral in second half, due to greatly reduced CAPEX and hedges.

IMO a company that is playing the down turn smarter than others. Still have over $2 billion of debt, but are choosing reduced production over adding even more debt.

shallow sand: 07/29/2015 at 8:34 am
Looked at Hess Corporation second quarter 10Q/earnings release.

Company wide production up to 391,000 boepd from 361,000 boepd in first quarter.

Bakken production also up to 119,000 boepd from 108,000 boepd in first quarter.

Company burned over $1.5 billion in cash from 1/1/15 to 6/30/15

Report that cost to Drill and Complete a well in Bakken decreased to $5.6 million, which to me is a tremendous cost reduction. This to me is very noteworthy.

Sold interest in their Mid Stream assets for $3 billion dollars, which will (unfortunately) provide them with a lot more cash to keep increasing production.

For the second quarter of 2015, company posted a loss of ($1.99) per share v. earnings per share in second quarter of 2014 of $2.96 per share. For first six months, posted loss of ($3.37) per share v. earnings of $4.13 per share in first six months of 2014. The ($1.99) includes a large impairment due to much lower commodity prices, operating loss for Hess was ($.52) for the second quarter of 2015.

Hess did not add debt. That still stands at just about $6 billion. The asset sale gives them a ton of cash to either pay down debt, drill more wells, or both. It closed this month, will be reflected in Q3 numbers.

Given that they raised production in the Bakken by 11 thousand barrels per day from Q1 to Q2, I think it is doubtful we will see much of a decrease in June Bakken production. Whiting releases after the close, but they have already guided higher production in the Bakken as well, I believe. Will be interesting to see if they disclose similar lower costs per well as Hess. If we are going from $10 million dollar wells, to $5-6 million dollar wells, I assume US production will not decrease and there could be an even more prolonged period of low oil prices. The US companies will not make money, but I really don't think management like Hess cares about that as much as increasing production, given that they sold a major asset in order to fund more drilling at such low commodity prices.

coffeeguyzz: 07/29/2015 at 9:07 am
Shallow

To continue the meme of increasing output despite horrific financials, the July 27 piece on Seeking Alpha by Mike Filloon (Mega fracs increasing production …), discusses the 'halo effect' whereby operators are not only increasing production via new frac'ing designs, they are also boosting offset wells' output, sometimes to a startling degree.

One CLR well doubled output after a new nearby well was frac'd, and its decline rate practically ceased. Furthermore, the two wells were in different formations, one TF and one Middle Bakken.

Should these operators continue to successfully implement this, as new wells are frac'd one by one, offset wells will see ongoing elevated production causing all prior predictive decline curves to be inaccurate.

Could be a lot more hydrocarbons coming to market, shallow.

Dean: 07/29/2015 at 9:42 am
BREAKING: US #oil production fell 145 kb/d according to latest #EIA weekly data to 9413 kb/d http://ir.eia.gov/wpsr/overview.pdf #crude

Lower48 down 151 kb/d to 8953 kb/d.First big fall in US #oil production: is fracklog no more sufficient to compensate the fall in rigs?#crude

Why are these investors avoiding stocks in 401(k)s

One of the most important investment maxims consists of just one word: diversification. Almost any investment professional will urge you to hold a mix of stocks, bonds and other assets for protection from sudden market swings and the prospect of steadier returns.

But a stubborn subset of investors persists in ignoring that advice. Some 10.2 percent of the savers in a study by the Employee Benefit Research Institute, or EBRI, had no exposure to stocks in their 401(k) account as of 2013, and 11.8 percent had 90 percent or more of their money in equity funds.

A separate analysis for CNBC.com by Federal Reserve analysts, using data from the Survey of Consumer Finances, found that among households of all ages with a 401(k), IRA or both, 18 percent had less than 10 percent of their retirement assets in equities, and 20 percent of households had more than 90 percent in 2013.

... ... ...

Between Dec. 31, 1985, and Dec. 31, 2014, T. Rowe Price found that a diversified portfolio invested 60 percent in equities, 30 percent in bonds and 10 percent in cash would have delivered 91 percent of the returns generated by 100 percent stock exposure, with about 83 percent of the volatility.

... ... ...

[Jul 29, 2015]Is oil price set for rebound after losing streak

"...JP Morgan, for instance, expects Brent prices to hit $65 a barrel in the third quarter, and $67 dollars in the fourth quarter of this year."
.
"...Barclays analysts, meanwhile, expect Brent to trade around $61 a barrel in the third quarter and $66 in the last quarter of the year – although it did acknowledge the threats to its forecast."
Jul 20, 2015 | cnbc.com

JP Morgan, for instance, expects Brent prices to hit $65 a barrel in the third quarter, and $67 dollars in the fourth quarter of this year.

"We view July and August as the most likely time within 3Q 2015 when crude markets should be at their tightest, given peak summer demand for gasoline and the fact that refinery crude runs are forecast to peak in August," the bank said in a note on Friday.

... ... ...

Barclays analysts, meanwhile, expect Brent to trade around $61 a barrel in the third quarter and $66 in the last quarter of the year – although it did acknowledge the threats to its forecast.

... ... ...

Barclays analysts added that, from a fundamental perspective, 2016 looked undervalued.

[Jul 29, 2015] Oil groups have shelved $200B in new projects as low prices bite

"...The plunge in crude prices since last summer has resulted in the deferral of 46 big oil and gas projects with 20 billion barrels of oil equivalent in reserves "
.
"...Deepwater drilling rigs cost hundreds of thousands of dollars a day to hire and these projects could yet proceed if contractors' costs fall far enough. "
.
"...Canada is the biggest single region affected, with the development of some 5.6 billion barrels of reserves, almost all oil sands, having been deferred."
Jul 26, 2015 | cnbc.com

The plunge in crude prices since last summer has resulted in the deferral of 46 big oil and gas projects with 20 billion barrels of oil equivalent in reserves — more than Mexico's entire proven holdings — according to consultancy Wood Mackenzie.

... ... ...

More than half the reserves put on hold lie thousands of feet under the sea, including in the Gulf of Mexico and off west Africa, where the technical demands of extracting crude and earlier inflation have pushed up the cost of projects. Deepwater drilling rigs cost hundreds of thousands of dollars a day to hire and these projects could yet proceed if contractors' costs fall far enough.

Canada is the biggest single region affected, with the development of some 5.6 billion barrels of reserves, almost all oil sands, having been deferred.

[Jul 29, 2015]Are Chinas Problems Responsible For Recent Market Slides

"... I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from investing.com, but it did not work. So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics. One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported. He snarkily noted that China had just reported that the most recent quarterly growth report was at 7%, just what the government had forecast, but...|"
.
"...In May, oil imports were down 11% from a year before."
.
"...Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out. But, I think there is reason to be concerned."
Jul 29, 2015 | EconoSpeak

So, WTI oil has slid below$49 per barrel; gold has gone below $1100, although it jumped today. The US stock markets have been down in recent days for no obvious reasons, and some others are not looking so hot either. Is there a common thread? The big Greece crisis is over, although that could yet blow up, although I think most markets already know about that.

There have been lots of rumbling that problems in China might have something to do with all that. There is no way to know this for sure, especially given China's long record of manipulating data. Furthermore, serious observers are dismissing all this as a bunch of bad hype, most notably Dean Baker recently, accurately dumping on an incompetent story out of the NYTimes (who seem to be pretending that they were secretly bought by Rupert Murdoch lately). The Times had a story about the decline of the Chinese stock market, making a big deal about it. Dean accurately noted that it is still above where it was in February, so the NYT looks pretty silly making such a big deal about it, especially since the Chinese stock market seems to have stabilized, as have the housing markets in Shanghai and Beijing, even if it is still falling in a lot of lower tier cities.

I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from investing.com, but it did not work. So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics. One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported. He snarkily noted that China had just reported that the most recent quarterly growth report was at 7%, just what the government had forecast, but...

So, what he noted is that while these aggregate number can say one thing, looking at more micro data can tell very different stories. Here are some numbers, each taken from a different source:

1. In March, electrical power production (from all sources) was down 2% from a year before.
2. In May, oil imports were down 11% from a year before.
3. Truck sales have fallen by nearly a half between last year and now.
4. Capital flight numbers are accelerating, possibly more dramatically than the quadrupling figure reported by Wargent.

So, maybe these are consistent with an aggregate 7% growth rate, but does not look like it. Many outside observers are arguing that the Chinese GDP growth rate is more like 4%, with some saying that in the first quarter it hit zero or even lower, although picking up more recently.

A final point regards the stock market bubble story. While Dean Baker sneered at the story from the NYTimes, an aspect not reported by them or him, but in Wargent reports and some other sources says that the methods used by the Chinese government in its efforts to halt the stock market slide (so far successful) were very extreme, including simply forbidding many stocks from being sold, and also forcibly confining stock dealers in rooms until they engaged in purchasing some stocks, with portions of the market still shut down with no transactions allowed. So, the stock market is not at all really stabilized. We are seeing the ugly side of the old Chinese system, trying to keep a lot of problems under control that they have not had to deal with.

Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out. But, I think there is reason to be concerned.

Barkley Rosser

[Jul 27, 2015] 185 Billion Reasons Why The US Agreed To Nuclear Deal With Iran

"...Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin."
.
"...There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy."
.
"...It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margins of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a desperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present."
Jul 27, 2015 | Zero Hedge
Many have questioned just why President Obama was so keen to get the Iran nuclear deal done - apparently with almost no real concessions - in the face of allies home and abroad deriding the agreement. Well, if one were so inclined, OilPrice.com explains that Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...

Submitted by Dave Forest via OilPrice.com,

Important news last week -- from a place that's quickly becoming the world's focus for high-impact oil and gas projects.

That's Iran. Where government officials said they are on the verge of revolutionizing the country's petroleum sector. Which could provide big profit opportunities for foreign investors.

Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids. With the government pegging the value of these properties at $185 billion.

And officials are hoping to get these fields licensed out soon. With Zamaninia saying that the government plans to offer all of the blocks over the next five years.

Perhaps most importantly, Iranian officials say they have designed a new petroleum contract structure for international investors. Which they are calling the "integrated petroleum contract" or IPC.

Officials said that the IPCs will last for a term of 20 to 25 years. A substantial improvement over the older, shorter-term contracts -- which have been a major stumbling point for the world's oil and gas companies.

Few other details on the IPC structure have yet been provided. But the government noted that the new contracts will address "some of the deficiencies of the old buyback contract".

Deputy Minister Zamaninia said that full details on the new contracts will be announced within the next two to three months. Along with specifics on the fields being offered by the government for bids.

Of course, all of this is predicated on the lifting of Western sanctions against Iran -- which is still not a certainty. But if and when the country does open for investment, it appears there will be substantial prizes to won. Watch for further announcements on projects and fiscal terms over the next few months.

* * *

Billions of dollars for the firms that lobbyists represent can be one hell of a motivation to do a deal with the devil it seems...

JustObserving

Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin.

JustObserving

Lot more energy becomes available as sanctions against Iran are lifted. So energy prices fall and it hurts Russia.
Russia and its oil are likely to be losers in Iran deal
http://www.cnbc.com/2015/07/16/russian-and-its-oil-are-likely-to-be-lose...


Billy the Poet

"Peace, commerce, and honest friendship with all nations-entangling alliances with none." -- Jefferson

Fahque Imuhnutjahb

There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy.

http://static.tvtropes.org/pmwiki/pub/images/backwardgImage1.jpg

Billy the Poet

we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks.

That's called American history, 1945-2015.

Fahque Imuhnutjahb

Agreed, but it seems we used to at least make the pretense of choosing sides, hell now it's a damn free for all, literally free arms for all. It's no damn wonder 2.3 trillion of tax dollars fell down the rabbit hole, and we,

the damn taxpayers didn't even get offered any rabbit stew.

insanelysane

It's easier to go to war with someone that you have a treaty with because breaking the treaty is a slam dunk justification. No one cared what was really in the treaty as long as Iran agreed to the treaty because they know Iran will break it.

roadhazard

uh, Russia was in on the deal. You mean they fucked themselves.

CrazyCooter

Or maybe in three to five years when that huge frack ramp has run its couse and the US mean reverts to its production trend line the additional global supply coming online around that time will be sorely needed.

Don't forget one of the largest oil fields in the world is in Iran ... and it was discovered in the 80s. Saudis big field was discovered in the 40s.

If the game is going to continue, it has to have oil - and they can't print that.

Regards,

Cooter

Winston Churchill

Iran could'nt become a full SCO member with sanctions on.

None of that money,which is theirs anyway, will be going to US companies.

You can bet the farm on that.


Colonel Klink

Just goes to further prove how our politican's sell out to corporations. That's called Fascism!

Billy the Poet

Isn't it better to trade for energy than to bomb for freedom? Each scenario can be seen as supporting corporations but assuming that the corporatist paradigm is presently inescapable which corporations would you rather see prevail?

greenskeeper carl

Say what you will about the deal, but aside from all the noise, anything that avoids another war that kills a few thousand more Americans, a few hundred thousands innocent civilians, and racks up another 2-4 trillion in debt is a good thing.

Who knows, maybe those lobbyists not wanting to get their investments nationalized by the Iranian govt(which would happen in the event of a conflict) will exert more influence on whatever stooge occupies the White House than the regular neocon cheerleaders constantly looking for a new war.

Probably not , but one can hope.

roadhazard

But it's an OBAMA deal so fuck all that saving lives crap. BushCo would have hung another banner and the repubicans would cheer.

FreeMoney

There was no need for deal to made at all. Iran's oil can sit in the ground un used and unsold, while the West continued to block trade with the Mullahs. I think the Mullahs were loosing power over the prople slowly drip by drip.

No we have eliminated barriers to Iran going NUC, are dropping import and export sanctions against a regeme that calls for our destruction daily, and next we are going to give them billions of dollars for their oil so they can buy or develope weapons to use against us.

Without question, this is the stupidest course of action we could take for America.

Billy the Poet -> FreeMoney

No we have eliminated barriers to Iran going NUC

Cite the specifics or shut the fuck up. Iran was already a signatory to the NNPT which barred them from developing nuclear weapons and this treaty sets the bar even higher.

DutchBoy2015 -> FreeMoney

Stop with your stupid goddam LIES.

Iran never threatened the USA , you fucking MORON. You believe bullshit.

A group of 30 paid agents screaming ''Death to America'' does NOT a revolution make.

I bet you have never been to Tehran. You just parrot the bullshit your lying ZioNazis feed you.

Pathetic.

DutchBoy2015 -> FreeMoney

Morons like you don't have a fucking clue about the real world. YOu support despotic regimes like Saudi where women can't drive, and they behead people daily , and have actually asked Pakistan for nukes.

monoloco

So many logical fallacies there I don't know where to start. For one, what would be the motive to "buy or develop weapons to use against us" ? If the sanctions are lifted and they are participating in the world's economy by selling oil on the open market, it would be completely counter-productive to attack a country that could totally destroy the economy that lifting the sanctions enabled. But don't let logic or facts get in the way of pushing the Zionist/corporate agenda.

Babaloo

There is so much wrong with this post it almost defies belief. Let's start with this quote: "...in the face of allies home and abroad deriding the agreement." How can the writer seriously expect sentient humans to believe this? Our "allies" England, France, Germany, as well as non-allies, China and Russia were signatories to the deal! If by "allies" we're saying Israel, well, that's a whole different set of "allies" isn't it?

ajkreider

This is brilliant stuff. Obama is such a darling of the oil services industry. Is Cheney still VP?

$185 billion is chump change, and the U.S. isn't getting that anyway.

Do the people who write this garbage have paying jobs?

DutchBoy2015

German and French company CEOs are already in Tehran making deals. Not oil companies but companies like Bosch,AEG, Stihl, Miele etc.

Iranians use washing machines, power tools etc etc also.

Everything in my home is German or Korean. NOT one USA product because they don't make anything but weapons and burgers anymore.

assistedliving

185 Billion Reasons
You got a problem with that?

I lived in Iran awhile back. Imo, best place in entire Near East except maybe Lebanon. Only Iran far richer, culturally and every other way except maybe cuisine.

Jack Burton

How do you say "American frackers are dead, and several hundred thousand jobs will die." already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...

It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margines of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a deperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present.

smacker

OK. Obola bends over for Big Oil and gets his kicks by stuffing the US workforce that will go to Iran full of CIA spies.


[Jul 27, 2015] Can You Hear the Fat Lady Singing - Part III

"...I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?"
Jul 27, 2015 | Zero Hedge
Renfield

Loved your description of the irrelevant cocktail party! Reminded me of Tom Wolfe's description: social x-rays and lemon tarts. I've been to way too many of those, and now avoid them like the plague. Even if it means pretending I've caught the plague. They're boring and irrelevant except for those who really can win by networking, fewer and fewer these days.

I've been fascinated by the currency markets this year. The US satellite currencies are also falling, along with EM. This is sending the USD up, but that just means it's dying last. Like when a body freezes, the limbs freeze first and all the blood moves in to protect the heart, so the heart dies last -- but you can't call it a healthy body, or a healthy heart, just because the blood is there rather than at the limbs.

I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?

Anyway, thanks for the focus on the currency wars waging out there. It isn't just emerging markets that are suffering; USD satellite economies are suffering too. It will take a real miracle to turn this around. Bond markets have been most volatile over the last few months, and second-most volatile have been currencies. Last May Wolf Richter posted this article with an Otterwood Capital Management chart, showing how "capital markets are completely backwards":

http://wolfstreet.com/2015/05/18/buyers-beware-capital-markets-completel...

with a chart showing the most volatility in bonds, second in currencies, third commodities, and last, equities. Christine Hughes wrote that "The important thing to take from this chart is that bonds and currencies (blue and red lines) are becoming more volatile than equities (black line).This is completely backwards to how capital markets typically behave. It is stock market volatility that is well known and feared, but we are seeing the reverse unfold". When equities get the memo, as they appear to be getting it now, then the central banks' pretence of control is over. As equities are now the last to get the memo, this 'contained, everything under control' leg of the Depression is about up as the facade starts to crack wide open.

[Jul 27, 2015]Watching Yields Rise Are Treasuries a Buy

"...It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries."
.
"...Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames."
Jul 22, 2015 | Safehaven.com

Setting aside the often-heard "certificates of confiscation" phrase, treasuries are a reasonable buy if one believes yields are going to stay steady or decline. They are to be avoided if the expectation is for yields to rise.

Part of the question is whether or not the Fed hikes, and by how much. But it's more complicated than the typical "yes-no when" analysis that we see in the media.

It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries.

I am still not convinced the Fed is going to hike this year. Much will depend on retail sales, housing, and jobs.

A good retail sales report will send yields soaring, likely across the board.

Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames.

That said, the recent decline in crude, commodities in general, does not lend much credence to the notion the CPI is going to take big leaps forward any time soon.

All things considered, the long end of the curve seems like a reasonable buy here provided one believes as I do, that economic data is unlikely to send the Fed on a huge hiking spree, and that if and when the Fed does react, yields on the long-end of the curve may not rise as everyone seems to expect.

Anonymouse

Agreed ... any Fed rate hike will slow the economy, but they won't (can't) raise rates.

We have entered the black-hole of zero-interest, squarely caused by the incestuous relationship between the Fed and the Treasury whereby check-kiting and theft have become our central bankers' legal and institutional 'right.'

Through debt monetization, bond speculation has been made risk-free .. an anomaly in nature yet over 34 years in its bull cycle.

Risk-free bond speculation creates and maintains a falling interest rate structure which destroys the capital of virtually every market player. This is the greater danger .... which can only result in broad-based serial bankruptcies unless the parasitic system is abandoned for one that embraces sound money.

[Jul 27, 2015]Which is more likely, $33 or $75 oil

http://finance.yahoo.com/news/more-likely-33-75-oil-130102167.html

The trouble with ETFs

Trading futures is not suitable for most investors. Fortunately, there are many ETFs such as United States Oil Fund LP (USO) ProShares Ultra Bloomberg Crude Oil (UCO), iPath Goldman Sachs Crude Oil Total Return Index ETN (OIL), VelocityShares 3x Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (UWTI) and United States 12 Month Oil Fund LP (USL).

There are also inverse ETFs that profit from oil going down. These include United States 12 Month Oil Fund LP (SCO), DB Crude Oil Double Short ETN (DTO), DB Crude Oil Short ETN (SZO) and VelocityShares 3x Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (DWTI).

Investors may choose to focus on USO and SCO, as they offer the most liquidity.

The trouble with these ETFs is that they exhibit significant tracking errors. An investor can easily be right on oil, but the ETF may not perform in line with the oil move.

The reason behind these tracking errors is that most of these ETFs invest in oil futures instead of buying or selling oil. Oil futures expire, and the funds have to go into the next contract. The price adjustment does not always work in the ETF holders' favor. Typically, an ETF is buying high and selling low as it rolls into new futures.

For the foregoing reasons, oil ETFs are not suitable for holding more than a few months.

... ... ...

Oil is the most volatile commodity, and our price forecast is revised weekly. We expect it to trade in a very wide range. Here are our forecast ranges at this time.

2015 — $33.00 to $62.00

2016 — $33.00 to $75.00

2017 — $55.00 to $85.00

[Jul 27, 2015]The Nuclear Deal is Mostly about Oil John Browne

Jul 27, 2015 | Safehaven.com

The recent nuclear non-proliferation agreement between Iran and the U.S. has created a firestorm debate in the Middle East and both sides of the Atlantic. While the deal is supposedly all about nuclear power and nuclear bombs, its practical implications are all about oil. But the conclusions we should make about its impact on the energy sector are far from clear. A ratification of the deal would allow Iran to make lucrative long term production and distribution contracts with foreign energy firms. However, freely flowing oil from Iran would add significant new oil supply into the world markets, disrupt U.S. plans to become an energy exporter, and could potentially put further downward pressure on prices.

The U.S. Energy Information Administration (EIA) reports Iran's proven oil reserves as the fourth largest in the world, at 158 billion barrels, or about 10% of the world's crude oil reserves. It also has the world's second largest reserves of natural gas (Oil & Gas Journal, January 2015). But as a result of the series of sanctions laid on Iran by the United States and the United Nations for Iran's failure to abide by nuclear inspections, which have essentially blockaded the nation, these reserves have done little good for the Iranian economy or the theocratic Muslim government that holds the country in its tight grip.

The IMF estimates that Iran's oil and natural gas export revenue had been $118 billion as recently as 2011/12. But by 2012/2013 revenues fell by 47 percent to $63 billion. Revenues declined another 10 percent in 2013/14 to $56 billion (Islamic Republic of Iran, Country Report, April 14, 2014). By May 2015, Iran's daily oil production had fallen from 4 million barrels in 2008 to just over 2.8 million barrels.

It goes without saying that the removal of the sanctions regime will allow Iran to resume exports at levels seen in the past. And if Iran is true to its word, and that its nuclear program is indeed focused on the development of nuclear power plants, then it is likely that its domestic demand for fossil fuels will fall, thereby allowing for even greater exports.

The first issue regarding Iran's new oil flow is how easily will it be able to reestablish its former customer links and sell its oil, regardless of increased production. Having destabilized the Middle East by killing Saddam Hussein, the U.S. may wish now to leave the areas' nations alone to sort out the resulting mess. Into this void we can be sure that the Chinese and Russians will stride forcefully and deliberately.

Even if Iran is successful in regaining former customers, and selling down its inventory, how quickly can its production be increased? The Iranian oil infrastructure has been neglected for years and Iran needs to rebuild it desperately. Fortunately, Western expertise in energy development is by far the most advanced, which will give Western interests a leg up on Chinese and Russian rivals. But Chinese cash and strategic support may prove decisive.

Reuters reports that, in the opinion of 25 economists and oil analysts, Iran could be able to increase its oil production by up to 500,000 barrels a day this year and reach 750,000 a day by mid-2016. This will add to a current global oversupply of some 2.6 million barrels a day.

Meanwhile, as the price of oil remains relatively depressed, production wells in the U.S. and other producing nations, planned and established when oil prices were much higher, are drifting off stream. Finally, there is increasing evidence that recession may be felt internationally, reducing at least the rate of growth of oil demand if not the absolute level of demand in some countries.

Today's oil market faces a global supply overhang and price weakness. Iran's new oil production and exportation is not likely to come on line for at least a year or two, provided the treaty is ratified. But when that oil does start to flow, the new supply could add to downward price pressures. However, the amounts are unlikely to greatly affect the totality of the global marketplace and by that time whatever inflationary effects there may be of continued monetary expansion in America and Europe should act as a stronger force pulling prices upward.

In total then, the return of Iran to the global energy market should have a beneficial effect on the global economy, both in pushing down prices and providing lucrative development work for oil companies around the world. However, the economic aspects of the deal are largely insignificant in comparison to the geopolitical ramifications.

President Obama's nuclear arms deal leaves open to debate whether Iran will become a nuclear power within the next decade, if not earlier. Unleashing a nuclear arms race in a highly unstable area of the world would render oil supplies sourced from there considerably less secure and unattractive, possibly even at lower prices, to consumer nations, including the 500 million strong EU.

The deal will also threaten the longstanding alliance between the United States and Saudi Arabia. The implicit arrangement between the two countries has always been that the Saudis would direct the lion's share of its oil exports to the United States in exchange for American support of regional Saudi security interests. Shiite dominated Iran has always been one of Sunni-led Saudi Arabia's top concerns. If the U.S. and Iran drift closer together, Saudi Arabia will surely seek other partners who are more supportive of its interests.

No one knows what such a Middle East will look like. But given the volatility of the region, change is unlikely to be pretty

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

Shanghai stock tumble hits global markets

Commodities slide as growth worries mount

[Jul 26, 2015] What Is Wrong with the West's Economies?

"...The jarring market forces? It was a political project with the desired results."
.
"..."We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.""
.
"...AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting."
.
"...Our financial leaders don't want a thriving economy. The want to crush the opposition and keep people under their thumb"
.
"...Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html"

This is from Edmund Phelps. It was kind of hard to highlight the main points in brief extracts, so you may want to take a look at the full article:

What Is Wrong with the West's Economies?: What is wrong with the economies of the West—and with economics? ...

Many of us in Western Europe and America feel that our economies are far from just...

With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades—mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia—have proceeded, unopposed, to drag down both employment and wage rates at the low end. The setback has cost the less advantaged not only a loss of income but also a loss of what economists call inclusion—access to jobs offering work and pay that provide self-respect. And inclusion was already lacking to begin with. ...

How might Western nations gain—or regain—widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing—it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new—economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. ... The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

I'm skeptical that this is the answer to our inequality/job satisfaction problems.

Posted by Mark Thoma on Friday, July 24, 2015 at 10:38 AM in Economics, Income Distribution, Productivity | Permalink Comments (14)

Peter K. said...

"With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades—mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia—have proceeded, unopposed, to drag down both employment and wage rates at the low end."

The jarring market forces? It was a political project with the desired results.

JohnH said in reply to Peter K....

Indeed! And there is currently no meaningful effort to fix the problem, only to worsen it through TPP and TAFTA.

Rune Lagman said...

"We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life."

Well, ain't gonna happen by "reforming" the education system.

Everybody (more or less) knows what it takes to "fix" the western economies; lots of infrastructure investment (preferable green) and higher wages. I'm getting fed up with all these "economists" that keep justifying the status quo (probably because their paycheck depends on it).

dan berg said...

Could it possibly be that your skepticism arises from the fact that -precisely because you are an academic economist - you haven't got an imaginative or creative bone in your body?

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

Dear AH,

Doc Thoma wrote "I'm skeptical that this is the answer to our inequality/job satisfaction problems."

Everybody has imagination and creative potential. Most people just lack the mean to express it in a way that will enter the economy. Even Edmund realized that people got to eat. The obstacles run from there. It was Edmund's answer that Doc Thoma was skeptical of. This was Phelps answer to the question:

"... Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects—science, technology, engineering, and mathematics—but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education..."

If you agree with Edmund Phelps on his answer then at least we must all admit that you have an astronomical imagination.

djb said...

Our financial leaders don't want a thriving economy

The want to crush the opposition and keep people under their thumb

Give people real hope and the economy will thrive

anne said...

By way of Branko Milanovic, referring to randomized trials in economics:

http://www.sccs.swarthmore.edu/users/08/bblonder/phys120/docs/borges.pdf

1658

On Exactitude in Science
Suarez Miranda

…In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast Map was Useless, and not without some Pitilessness was it, that they delivered it up to the Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there is no other Relic of the Disciplines of Geography.

(1946

Viajes de varones prudentes
Jorge Luis Borges)

cm said...

"The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy."

He left out the part who will pay for all these new things. Aggregate demand. I don't know where this idea comes from that young people don't imagine creating new things. They do it all the time, until the rubber hits the road and they have to get a corporate job because there is just not enough interest and funding for what they are interested in offering. No amount of education will help there.

Not to put words in his mouth, but its sounds like an impersonalized form victim blaming - schools suck and young people have no imagination.

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

Schools suck and young people have too much imagination. But Edmund Phelps has more imagination that anyone that I have ever known :<)

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

Not sure how this relates to my point. How will "better education" fix the fact that when you have a good idea, more likely than not there is no market for it? A lot of tech innovation "rests" in actual or metaphorical drawers because of no ROI or no concrete customer/market to sell it. And this is not a recent phenomenon.

RC AKA Darryl, Ron said...

AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting.

Lafayette said...

{... which has moved much low-wage manufacturing to Asia—have proceeded, unopposed, to drag down both employment and wage rates at the low end.}

Yes, unopposed. Just what should any nation do about it? Forbid it?

That's not the way economies work.

The Industrial Revolution took a lot of people off the farms, brought them into large cities, where accommodations were created for their families, and gave them jobs in factories with which to pay the rent.

Many then moved on to purchase those properties an become homeowners, which was a typical example of "economic progression".

Of course, the Industrial Revolution, which started in western developed nations, aided by a couple of wars, inevitably progressed from more developed to lesser developed societies.

We in the industrially developed West should not have permitted the Chinese, Vietnamese or Filipinos from bettering their lot by making exactly the same societal progression?

Where is the Social Justice in that, pray tell?

If there has been any failure in Social Justice, it is in the US. Piketty was very clear about that in this info-graphic: https://www.flickr.com/photos/68758107@N00/14266316974/

The income unfairness that has occurred since the US ratcheted down drastically upper-income taxation was not replicated in the EU. Is a third of all income going to only 10% of the population in Europe unfair? Perhaps.

But not quite as unfair as the nearly 50% in the United States. And as regards Wealth, the societal impact is even worse. As Domhoff's work shows, 80% of the American population obtain only 11% of America's wealth historically. See that tragic bit of unfairness here: http://www2.ucsc.edu/whorulesamerica/power/images/wealth/Net_worth_and_financial_wealth.gif

Lafayette said in reply to Lafayette...

Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html

Excerpt: {The argument over the structure and distribution of power in the United States has been going on within academia since the 1950s. It has generated a large number of empirical studies, many of which have been drawn upon here.

In the final analysis, however, scholars' conclusions about the American power structure depend upon their beliefs concerning power indicators, which are a product of their "philosophy of science". That sounds strange, I realize, but if "who benefits?" and "who sits?" are seen as valid power indicators, on the assumption that "power" is an underlying social trait that can be indexed by a variety of imperfect indicators, then the kind of evidence briefly outlined here will be seen as a very strong case for the dominant role of the power elite in the federal government.}

Thanks to RR in the 1980s.

No wonder "they" make statues of Reckless Ronnie. Can't believe that? See this from WikiPedia: "List of things named after Ronald Reagan", here: https://en.wikipedia.org/wiki/List_of_things_named_after_Ronald_Reagan

[Jul 26, 2015] Oil and gas crunch pushes Russia closer to fiscal crisis

Jul 23, 2015 | Telegraph

Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia's tax income comes from oil and gas.

Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. This time there is no recovery in sight as Western sanctions remain in place and US shale production limits any rebound in global oil prices.

"We've seen the full impact of the crisis in the second quarter. It is now hitting light industry and manufacturing," said Dmitri Petrov from Nomura.

"Russia is going to be in a very difficult fiscal situation by 2017," said Lubomir Mitov from Unicredit. "By the end of next year there won't be any money left in the oil reserve fund and there is a humongous deficit in the pension fund. They are running a budget deficit of 3.7pc of GDP but without developed capital markets Russia can't really afford to run a deficit at all."

A report by the Higher School of Economics in Moscow warned that a quarter of Russia's 83 regions are effectively in default as they struggle to cope with salary increases and welfare costs dumped on them by President Vladimir Putin before his election in 2012. "The regions in the far east are basically bankrupt," said Mr Mitov.

Russian companies have to refinance $86bn in foreign currency debt in the second half of this year. They cannot easily roll this over since the country is still cut off from global capital markets, so they must rely on swap funding from the central bank.

Dave Hanson

For once, Flimflambrose paints a fairly accurate picture. His formula is to take a few facts and stretch them to their illogical conclusion to create a story that sells subscriptions to the Telegraph. Sort of like the National Enquirer. He does that well. He only mentions the other side of the story in a sentence or two, usually at the end of his column. The scary headline at the top comes true perhaps one in a thousand times, just enough to keep readers from totally dismissing him as a fruitcake. Not yellow journalism. Clever journalism.

steph borne •

jezzam steph borne •a day ago

''Under Putin Russia has progressed from a respectable rank 60 on the transparency international corruption index to an appalling rank 140. It is now one of the most corrupt countries in the world, entirely due to Putin.'' http://www.theguardian.com/wor...
.
jezzam is using the Corruption Perceptions Index as fact?
but it is ''Perceptions''???
''The CPI measures perception of corruption due to the difficulty of measuring absolute levels of corruption.[8]'' Wiki
Just more nonsense from Jezzam

soton

my wife is russian, she speak's to her mother on the phone every day, from what she tell's me nothing has changed economically for the "average joe" no doubt some of the abramovich types have seen the value of their properties plunge

Rosbif2

So if Russia is financially sinking below the waves, how come AEP in other articles claimed that Russia could buy themselves into Greece and menace Europe?
It seems like Greece & Russia are two drowning men who would grab onto each other & drown even faster
AEP seems to lack "joined up thinking" in his articles

giltedged

This man "forecasted" Russia's demise last year. He has to show that that forecast is still liable to happen

What Colby said is palpably true. That is why we don't hear real news and instead we are bombarded with news about their "celebs"

Real news to show that a new world economy is being built totally outside the control of US Neocons and Globalists, that the world is now multi-polar, that for example this journalist's capital city, London, now has officially a majority of the population not merely non-British in origin, but non-European, that his own country survives because of London property sales

Richard N

And isn't AEP rubbing his hands with glee at this supposedly desperate situation of Russia!

Colby, the ex-boss of the CIA, said in retirement that there is no journalist of consequence or influence in the Western media that the CIA 'does not own'.

I often find myself remembering that, when I read Ambrose pumping out the US neocon / CIA propaganda standard lines about 'Russian aggression' in Ukraine, and so on - choosing to ignore the fact that Russia's action in Crimea was in direct response and reaction to the US Neocons' coup in Ukraine, which overthrew an elected government in a sovereign state, to replace it with the current US puppet regime in Kiev.

Of course, this collapse of oil and gas prices are no accident at all - but are part of America's full-scale economic war against Russia, aiming to get Putin overthrown, and replaced by someone controlled by the US Globalists, leaving then
China as the only major power centre in the world outside the Globalists' control.

Richard N > jezzam • a day ago

If you bothered to read what I wrote carefully, you would see that, with reference to journalists, I was simply repeating what ex-head of the CIA Mr. Colby said.

He should know. And certainly, Western media coverage of the Ukraine crisis demonstrated to many millions of people in the West that major Western media is almost all controlled by the US neocons. Anyone with half a brain can see that - but clearly not you.

steph borne

''Russian bear will roar once more, says World Bank''

01 Jun 2015

''Russia economy forecast to grow by 0.7pc next year, reversing negative growth
forecast''

http://www.telegraph.co.uk/fin...

steph borne > TheBoggart

Do you understand what a trade surplus is?

Russia recorded a trade surplus of 15309 USD Million in May of 2015 http://www.tradingeconomics.co...

Halou > steph borne

Carried on to the absurd extreme at which all the dollars are held outside of America, the US simply prints more money thus devaluing it's currency and favoring exports (which are then cheaper to produce and cheaper buy) people giving their currency to the US in return for goods and services and restoring economic balance.

I can understand that Russia doesn't have much experience with the 'boom and bust' cycles of market economies. They've had less than 20 years experience at it.

Did you know that in the 19th century China's trade surplus with Europe was so vast that Europe almost went bankrupt and ran out of precious metals buying Chinese goods, surely by your thinking it was truly a golden age of eastern supremacy, western failure. Ask any Chinese person what the 19th century means to them, you might be surprised.

steph borne > Halou

Shame you can't provide a link or two to back up your thoughts on trade surpluses.. altho I know amongst bankrupt countries they tell you that money/assets leaving the country is a good thing....

Strange that the Germans don't agree !

''Germany recorded a trade surplus of 19600 EUR Million in May of 2015. Balance ...reaching an all time high of 23468.80 EUR Million in July of 2014...'' http://www.tradingeconomics.co...

Obviously another country heading for financial self-destruction

steph borne

02 Oct 2014 http://www.telegraph.co.uk/new... 02 Oct 2014
Russias-economy-is-being-hit-hard-by-sanctions.html

01 Sept 2014 http://www.telegraph.co.uk/new... 01 Sept 2014 Cameron-we-will-permanently-damage-Russias-economy.html
cameron says.??? Aha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha

29 Dec 2014 http://www.telegraph.co.uk/fin... 29 Dec 2014 /Recession-looms-for-Russia-as-economy-shrinks-for-first-time-since-2009.html

24 Nov 2014 http://www.telegraph.co.uk/fin... 24 Nov 2014 Russia-faces-recession-as-oil-crash-and-sanctions-cost-economy-90bn.html

22 Dec 2014 http://www.telegraph.co.uk/fin... 22 Dec 2014 Russia-starts-bailing-out-banks-as-economy-faces-full-blown-economic-crisis.html

http://www.telegraph.co.uk/fin... 29 Apr 2015
Ukraines-conflict-with-Russia-leaves-economy-in-ruins.htm
.
Still going!!!

Graham Milne

Russia has physical assets (oil, minerals and so on); we don't. It is the UK which is toast, not Russia.

billsimpson > Graham Milne

Russia is way too big & resource rich to ever be total toast. And the people are educated, even if they do drink a lot. But they could get a bit hungry in another economic collapse. All the nukes they have is the real problem. Those need to be kept secure, should another revolution occur, or the country break apart after an economic collapse.
The US & Canada would never sit back and watch the UK melt down. Witness the Five Eyes communal global spying system.
Electrify all the rail system that you can, so people can still get around on less oil. Some oil is essential for growing and transporting food.

Sal20111

Russia can't just blame it on sanctions, or price wars in oil and gas. They have not reinvested the proceeds of their prodigous fossil fuel sales smartly and neither have they diversified quickly enough - the gas sales to China was an afterthought after Ukraine.

Putin cracked down on some of the oligarchs but not all - national wealth has clearly been sucked out by a few. Nepotism and favouritism seem to be rife. They should have learnt the lesson from their communist history not to concentrate power in state contriolled organisations. Not sure whether there is much of a small to medium business culture.

With the amount of natural resources it has, and a well educated public, particularly in math and technical skills, Russia should be doing much better.

rob22

Russia is not interested in invading anyone. The US has tried to force Russia to invade Ukraine in an iraq style trap but it didn't work. So they had to invent an invasion, the first in living memory without a single satellite, video or photo image of any air campaign, heavy armour, uniformed soldiers, testimony from friends & family of servicemen they could pay to get a statement, not even a mobile photo of a Russian sitting on a tank.

Russia is too busy building up an independent agriculture and import substitution, not to mention creating economic and trade links with its Eurasian neighbours like China & India via the silk road, BRICS, Eurasian Ecconomic Union and the Shanghai Cooperation Organisation.

A total nightmare for the US which once hoped to divide & dominate the region (see new American century doc)

Putin enjoys about 85% approval ratings (independent foreign stats) because it knows to surrender to the US means a return to the 90`s where the nations oil revenue went to wall st and everything else

If things get bad they`ll just devalue the ruble, get paid in dollars and spend in rubles.

This is why most Russians are willing to dig in and play the long game.

Londonmaxwell

Over the top with Ambrose, as usual. Words like "depression", "crisis", "plummet", and "shrivels"; and these only in the first two paragraphs! Moscow looks absolutely normal to me: traffic jams, packed malls and restaurants, crowded airports and train stations. Unemployment is low, inflation is tolerable.

Ambrose misses some key points.

  • First, if Gazprom's revenues fell from $146bn to $106bn, then this implies (drumroll) a revenue increase from RUB 5.1 trillion to RUB 5.8 trillion. Since Gazprom/Lukoil/Rosneft et al have USD revenues but RUB expenses, they are all doing quite nicely, as is the Russian treasury.
  • Second, while Russian companies do have foreign debt to pay back, I suspect much of this "debt" is owed to (drumroll) Russian-controlled companies in BVI, Cyprus, Luxie, Swissie, and the other usual suspects. Third, if the oil price declines more in 2015, the Kremlin will simply let the ruble slide, and the biggest losers will again be (drumroll) European exporters.

Russia's present situation is not glorious, but it is not as precarious as Ambrose portrays it to be. Be wary of writing off Russia. The great game is just beginning.

energman58 > Londonmaxwell

Except that the slack has to be taken up by inflation and declining living standards - Russia isn't unique; in Zimbabwe dollar terms almost every company there did splendidly but the place is still bust. The problem is that most of the debt is USD denominated and without the investment blocked by sanctions they are looking at a declining production, low oil prices and an increasing debt service burden. Presumably they could revert to the traditional model of starving the peasants that has served them so well in the past but I am not sure if the people with the real stroke will be quite so happy to see their assets wither away...

Londonmaxwell > energman58

Comparing Russia with Mugabeland is a stretch, but I see your point. If the sanctions stay and the oil price goes south permanently, then Moscow has problems. But I question both assumptions. Merkel/Hollande/Renzi already face huge pressure from their business leaders to resume normal relations with Russia; i.e., drop the sanctions. As for oil prices, the USA's shale sector is already in trouble. Russia's debt burden (both public and private) is manageable and can scarcely worsen since it is cut off from the credit markets. While the oil price slump certainly hurts Russia's economy, I don't see the wheels falling off anytime soon.

AEP writes well and is always thought-provoking, but his view that Russia is facing Armageddon because of oil prices and sanctions is way off the mark.

steph borne

Here come the Ukrainian Nazis.. You lot must be very happy
http://www.bbc.co.uk/iplayer/e... 18 minutes in..
Maidan number 3 on the way as I predicted a year ago.

midnightrambler

Amazing how the narrative for military action is being fostered by articles such as this one.

So many people eager for something they have no intention of getting involved in themselves

snotcricket

It is rather odd the posts on this thread accusing any & all who question the obvious US gov line in such articles.

Could it be that some have better memories ie the Ukrainian crisis was in fact created by the support of the US & EU for but a few thousand sat in Independence Sq just two years after the country had voted in the target with a majority the likes of Cameron, Obama could only dream of.

Only an idiot could not have seen the Russki response to a situation that could in but a very short timescale see NATO troops & kit but a literal footstep from Russki soil....while the ports used by the Russki fleets would be lost overnight usurped no doubt by a 'NATO' fleet of US proportions.....plainly the US knew the likely outcome to the deposing of the elected leader & replaced by the EU puppets....the Russki's had little option.....Putin or no Putin this would have been the outcome.

With regard to the US led attack on the Russki economy with sanctions....well those sanctions hurt the UK too...but of course not the US (they have lobbyist for such matters) our farmers were hurting afore the sanctions....that became a damn sight worse after the imposition.

The US attempts to turn off the oil/gas taps of Putin has done damage to the Russkis, similarly its done damage to W. Europe thus ourselves as oil prices are now held at a level by the sanctions reducing world supplies (the US have lobbyists for such matters) thus the god of the US, the market is skewed & forecourt prices too sighed Osborne as the overall taxation gathers 67% of what goes through the retailers till.

This has been rumbling for over 3 years since the BRICS held their meeting to create a currency that would challenge the $ in terms of the general w.w economy but specifically oil. They did mistime the threat & should have kept their powder dry as the US economy like our own lives on borrowed time & money.....but they made the mistake the US was in such decline they couldn't respond....of course the US have the biggest of all responses to any threat....its armed forces & their technology that advances far more rapidly than any economy.

Incidentally I write this sat at my laptop in the North of England in between running my own business & contacting clients etc..........I suspect my politics would make Putin wince.....however the chronology, actions/outcomes & the general logic of the situation has now't to do with supporting one or t'other.......& do remember the US grudgingly acknowledge without the Russkis the er, er agreement with Iran & non-proliferation would still be a can yet to be kicked down the road.

Personally I'd be more worried that Putin has made fools of the US/EU leaders so many times thus wonder just what is the intent in assisting the brokering of any deal? With the West & Iran.

steph borne

If Russia was worried about the oil price they would not have been so helpful in getting the usa & Iran together on a deal which will put more downward pressure on the oil price! http://www.telegraph.co.uk/new... Barack Obama praises Putin for help clinching Iran deal

oleteo

Reading this article I saw only one message to be sent to the Russians:"Russians,surrender!" The rumours about the desease and the ongoing decease of the Russian economy are greatly exaggerated.

steph borne

June 17, 2015 at 1:44 pm Boeing said it struck a $7.4 billion deal to sell 20 of its 747-8 freighters to Russia's Volga-Dnepr Group, providing a much-needed boost to the jumbo-jet program amid flagging demand for four-engine aircraft. http://www.seattletimes.com/bu...
MOSCOW, Russia (May 26, 2015) – Bell Helicopter,
a Textron Inc. (NYSE: TXT) company, announced today an agreement with
JSC Ural Works of Civil Aviation (UWCA) for the development of final
assembly capabilities by UWCA for the Bell 407GXP in order to support
UWCA in obtaining Russian registry to facilitate their operations. http://www.bellhelicopter.com/...
.
Oh business as normal at Bell looks like sanctions only to be paid heed by the useful idiots in the EU

snotcricket > steph borne

Yes the sanctions do seem to TTIP more in the US favour than their Western, er, er partners

Sonduh

Just like Brown Osborne is reducing borrowing but encouraging consumer debt which is close to 120% GDP. By the end of next year household debt will be 172% of earnings.Once household debt reaches saturation point and they start defaulting on their debt as they did in 2008 -- Game over. I hear the Black Sea is nice this time of year.

steph borne

A report by Sberbank warned that Gazprom's
revenues are likely to drop by almost a third to $106bn this year from
$146bn in 2014, seriously eroding Russia's economic base.''
Last year $146 billion bought 4672 billion pybs this year $106 billion will buy 6148 Billion pybs
Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues. the Pyb devaluation vs. $ has led to a 31% increase in revenues..

Something Salmond should take notice of should the SNP want to go for independence again. Inflation at 16% may well be but its the price of imported stuff pushing up the prices.. mainly EU goods for sale .. that won't be bought!

As the merkins tell us a devalued dollar is your problem.. the devalued rouble is the EUs problem!

Nikki Santoro

What is happening is the Anglo-Muricuns are actively provoking the Chinese and Russkies into a war. However once it is all said and done, they are going to need a cover story. People are going to ask why the Russkies attacked. And then the Anglo-Muricuns are going to say that Putin put all his eggs in one basket. Yeah that is what happened but really if Putin does attack, it will be because of the endless Anglo-Muricun provocations. Just as they provoked Hilter to no end and Imperial Japan as well.

steph borne

Russian companies have to refinance $86bn....''

So what are you going to do if they default.. go in and repossess..You and who's army? They are struggling trying to get Greece to comply..

Russia's trade surplus is still in the Billions of Dollars while the usa's & UKs is mired in deficit.. Russia recorded a trade surplus of 17.142 USD Billion in May of 2015 http://www.tradingeconomics.co....

Debt public/ external debt ratios

U. K..................92%........317%
usa...................74%......... 98%
And
Russia...............8%..........40%

''And while UK growth could reach 3pc this year, our expansion is far too reliant on rising personal and government debt. ''
''The UK, with an external deficit now equal to 6pc of GDP, the second-largest in half a century,''
http://www.telegraph.co.uk/fin...
As ever the west points to Russia and says Look over there (for God's sake don't look here!)

Sonduh > steph borne

And don't forget all their gold reserves. And all their natural resources.

Skalla

Prosperous countries are usually benevolent (the US being the exception to the rule). Hungry countries get to be greedy and aggressive. The US with its economic and financial manipulations will turn a sleepy bear into a very awake and ravenous one, and after hibernation, the first thing bears do is FEED !

vandieman

A cynic could say that the US is driving the oil prices down to push Russia into a war.

Anth2305 > vandieman

Wait until Iranian oil comes fully on stream, which I heard some pundit on TV say could drive the cost down to < $30 a barrel, forcing the Saudis into having to eat massively into their foreign reserves.


gardiner

When the old USSR 'collapsed', what we call the 'Oligarchs' ( a collection of the most highly influential State officials who pocketed practically all the old State assets) corruption was at the very highest level, and society was at its weakest.
The economy became dependant on resource exports.
Because the country's capital was so concentrated, there was practically no 'middle class' of entrepreneurs who could invest capital in job creating, internationally competitive industry.
Although a lot further down this road than the UK - the warning is stark!


beatonthedonis > gardiner

Abramovich wasn't a state official, he was a rubber-duck salesman. Berezovsky wasn't a state official, he was an academic. Khodorkovsky wasn't a state official, he was a PC importer. Gusinsky wasn't a state official, he was an unlicensed cab driver. Smolensky wasn't a state official, he was a blackmarketeer. Fridman wasn't a state official, he was a ticket tout.

daddyseanicus

So the political sanctions are bankrupting Russia because they dared to challenge EU expansion. Result millions of poor Russians will start to flow West and the UK will have another flood of Eastern Europeans.

But at least we showed them our politicians are tough.

Busufi > Jonathan

In the East there is a saying: Why use poison when sugar delivers the same result. Or say as Deng said, It doesn't matter whether the Cat is black or white, so long it catches the mice.

Spelling it out for Russia (or Britain) that would mean giving up Byzantine based ambitions and prospering through alliances with the Muslim Nation or Countries, including Turkey. In the short term such a move would quell internal dissent of the 11m immigrants in Russia, reduce unsustainable security expenditure with its central Asian neighbours, open and expand market for Russian goods in the Middle East, Far East and North Africa, and eventually form and provide a military-commercial -political alliance (like NATO) for the Muslim nations with Russia (with partner strength based upon what is mostly commercial placed on the table (see the gist in the Vienna Agreement between P5+1 and Iran).

The formation of such an alliance would trump Russia's (or Britain's) opponents ambitions and bring prosperity.


Sonduh

" They are running a budget deficit of 3.7pc of GDP but without developed capital markets Russia can't really afford to run a deficit at all."
We are able to have a budget deficit of 4.8% and 90% national debt, 115% non financial corporate debt , 200% financial corporate debt and 120% household debt due to voodoo economics ie. countries can print money to buy your debt.

PS we also have unfunded liabilities like pensions which amounts to many hundred pc of GDP.
The results showed the extraordinary sums that Britain has committed to pay its future retirees. In total, the UK is committed to paying £7.1 trillion in pensions to people who are currently either already retired or still in the workforce.

This is equivalent to nearly five times the UK's total economic output. Such a figure may be hard to put into proportion, as a trillion – a thousand billion – is obviously a huge number.

And we think Russia is in a bad state.

georgesilver

Propaganda. Laughable coming from the UK hack when the UK has un-payable debt and Russia has little external debt plus we have no Gold and Russia has probably 20,000 tonnes. NATO surrounds Russia yet they are the aggressors.

Laughable but idiots still believe the propaganda.

tarentius > georgesilver

The entire world combined has 32,000 tonnes of gold reserves. Russia has 1,200 tonnes.

Russia has government debt of 18% to GDP, a contracting GDP. It is forced to pay interest of 15% on any newly issued bonds, and that's rising. And it has a refinancing crisis on existing debt on the horizon.

Russia's regions are heavily in debt and about 25% of them are already bankrupt. The number is rising.

And we haven't even gotten into the problem with Russian business loans.

Turn out the lights, the party's over for Russia.

Bendu Be Praised > mrsgkhan

The issue is the medias portrayal of Putin .. If the UK media was straight up with the people and just said .. "our friends in the US hate the Russians .. The Russians are growing too big and scary therefore we are going to join in destroying the Russian economy before they become uncatchable " the people would back them ..

Lets be honest .. The Russians don't do anything that we don't .. Apart from stand up to the US that is

Jim0341

Yesterday, AEP spread the gloom about China, today it is Russia. As ever, he uses quotes from leading figures in banks and finance houses, which are generally bemoaning low returns on investments, rather than the wellbeing, or otherwise, of the national economy..
Whose turn is it tomorrow, AEP? My bet is Taiwan.

Bendu Be Praised > FreddieTCapitalist

I think you will find that the UK are just pretending the sanctions and wars are not hurting us ..

Just look at the budget .. 40% cuts to public services .. America tried to destroy the Russian economy by flooding the market with cheap oil but it will come back to bite them ..

The UK should just back off .. lift sanctions against Russia and let the US squabble with them by themselves ..

I sick of paying taxes for the US governments "War on the terror and the rest of the world"

alec bell

This article makes no sense. First of all, there is no way that Gazprom is responsible for 1/10th of Russia's GDP. That is mathematically impossible. 1/20th is more like it. Second, if push comes to shove, Russians are perfectly capable of developing their own vitally-important technologies. Drilling holes in the ground cannot be more complicated than conquering space.

Whatever problems Russia has, engineering impotence is not one of them.

And third, if Russians' reliance on resourses' exports has led to "the atrophy of their industry" as AEP rightly points out, then it must logically follow that disappearance of that revenue will inevitably result in their industrial and agricultural renaissance.

In the end, Ambrose is too ideological to be credible on the issue. Sure, Russia has couple lean years ahead, but it will come out of this ordeal stronger, not weaker. There are already reports of mini boomlets gathering steam under the surface.

alec bell > vlad

vlad, JFYI: According to research conducted by the World Economic Forum (which excludes China and India due to lack of data), Russia leads the way, producing an annual total of 454,000 graduates in engineering, manufacturing and construction. The United States is in second position with 237,826 while Iran rounds off the top three with 233,695. Developing economies including Indonesia and Vietnam have also made it into the top 10, producing 140,000 and 100,000 engineering graduates each year respectively.

Nikki Santoro

Don't mess with the Anglo-Muricuns. They will jack you up bad. Unless you are thousands of miles away and posting anonymously. But even still they can lens you out and cleanse you out should you take it too far. However their dominance is not some much because of their brilliance. They don't have any despite their propaganda. But rather the depths they are willing to stoop to in order to secure victory. Like blowing up an airliner and then pinning it on you for instance. Or poisoning their own farmland.

steve_from_virginia

Futures' traders got burned earlier this year betting that oil prices would rise right back to where they were a year previously. Now they have 'gotten smart'. They know now the problem isn't Saudi Arabia but billions of bankrupt consumers the world around.

Customers are bankrupt b/c of QE and other easing which shifts purchasing power claims from customers to drillers -- and to the banks. As the customers go broke so do the banks: instead of gas lines there are ATM lines.

At the same time, ongoing 'success' at resource stripping is cannibalizing the purchasing power faster than ever before. Soon enough, the claims will be worthless! When the resource capital is inaccessible, so is the purchasing power -- which is the ability to obtain that resource capital.

Business has caught itself in the net of its own propaganda; that there is such a thing as material progress out of waste ... that a better future will arrive the day after tomorrow.

Turns out tomorrow arrives and things get worse. Who could have thunk it?

Brabantian

If AEP is as right about Russia as he was about the Yank shale gas 'boom' - now collapsing into a pile of toxic bad debt -

Then our Russian friends have nothing to worry about

midnightrambler > Guest

The largest military spend - the US - bigger than the next 20 countries combined
The most bases - the US with 800, including many in Germany
Nobody wants war - but the US needs it as their largest industry is defence - apart from manipulative banking.
We are heading for a point of rupture between those who are peaceful and those whose main aim is control and conflict.
Take your pick
A few leaders choose war - most people (who will fight those wars) choose peace.
And of course all wars are bankers' wars - it is only they who profit

Timothy D. Naegele

Both Putin and Russia are in a spiral, from which they will not recover.

See https://naegeleblog.wordpress.... ("Putin Meets Economic Collapse With Purges, Broken Promises")

Tony Cocks > Timothy D. Naegele

"Both Putin and Russia are in a spiral, from which they will not recover."

This from someone whose former President and gang of criminal henchmen lied to the world on a monumental scale about WMD in Iraq , and waged an illegal war on that country killing hundreds of thousands in the process . Following that it was Libyas turn , then Syrias . Now its Russia the US neo con warmongers are hounding, the difference being that Russia holds the worlds biggest nuclear arsenal.
The US forces had their kicked out of Vietnam and were thoroughly beaten despite throwing everything they had at the conflict save the nuclear option.
Imagine what will happen if it eventually comes to armed conflict with Russia.

midnightrambler > Timothy D. Naegele

A yank lawyer advocating killing.
From the land of citizen killers
What a surprise
Stay away

stephenmarchant

Instead of demonising Putin and banging on about the problems of the Russian economy the MSM should be worried about indebted Western economies including the UK and US. Russian Govt finances are not burdened with nearly £2trn of debt that has funded unsustainable nominal growth. Here in the UK the real GDP growth per capita is declining at over 3% per anum so as a nation the UK is continuing its decline:-

Govt deficit at 5% per anum
Govt debt at about 80% GDP
Private debt and corporate debt each of a similar order
Record current account deficit of about 5% per anum
A deteriorating NIIP (Net International Investment Position)
Uncontrolled immigration

Our whole debt based fiat system is on the brink but few can see it whilst they party with asset and property bubbles. A few of us foresaw the first crash of 2007/8 but we now face a systemic collapse of our fiat system because of the resulting 'extend and pretend' policy of Govts and central bankers.

In the final analysis the true prosperity of a nation will depend upon its natural resources, infrastructure, skills of its workforce and social cohesion.

Graham Milne > JabbaTheCat

The scale of Russian kleptocracy pales into vanishing insignificance beside the criminality of western banks (and the government who 'regulate' them). Europe and the USA are regimes run by criminals; worse than that, they are run by traitors. At least Putin isn't a traitor to his country.

Busufi

The best way for Russia to beat the downturn in it's oil and gas is to invest in down-stream strategic production of petroleum products that would give Russia a competitive advantage on a global scale.

Selling raw natural resources is the Third World way of exports. Not smart.

[Jul 24, 2015] The End Of The Supercycle Commodity Capitulation Arrives

Jul 24, 2015 | Zero Hedge
The fund flow details indicate a "Great Rotation" out of commodities, Emerging Markets and, curiously, the US, and into bonds and continued flows into Europe, which has now seen 10 straight weeks of inflows with the latest one of $6.0 billion also the largest in the past 4 months.

Inflows into fixed income have been across the board:

While in equities it has been a tale of two flow directions: out of the US and into Europe (and to a lesser extent Japan):

By sector, inflows to secular growth areas of healthcare ($1.3bn) & technology ($0.4bn)

To be sure, the best example of the paper flow capitulation is where else but gold, where in the past week algo, 1% of total gold/silver AUM has been wihdrawn!

[Jul 24, 2015] Fed inadvertently publishes staff forecast for 2015 rate hike

"...The staff views were less optimistic about the economy than several key policymaker forecasts."
"...The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.74 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent."

... ... ...

ONE HIKE IN 2015

In the projections prepared in June, the staff expected policymakers would raise their benchmark interest rate, known as the Fed funds rate, enough for it to average 0.35 percent in the fourth quarter of 2015.

That implies one quarter-point hike this year, as the Fed funds rate is currently hovering around 0.13 percent. (USONFFE=)

Analysts at JPMorgan and Barclays said this suggested the staff expected a rate hike before a scheduled December 15-16 policy meeting. The Fed also has policy meetings scheduled for July 28-29, September 16-17, and October 27-28.

All but two of the Fed's 17 policymakers said last month they think rates should rise in 2015. They were divided between whether it would be best to raise rates once or twice this year.

The staff views were less optimistic about the economy than several key policymaker forecasts.

In the projections, which stretched from 2015 to 2020, the staff did not expect inflation to ever reach the Fed's 2.0 percent target. By the fourth quarter of 2020, they saw the PCE (personal consumption expenditure) inflation index rising 1.94 percent from a year earlier.

The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.74 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent.

[Jul 24, 2015]Peak Oil Review - July 23

"...More than $22 billion of the $235 billion of the debt owed by 62 North American oil companies, however, is "distressed" and unlikely to be paid back."
Jul 23, 2015 | resilience.org

As prices continue to fall, concerns are increasing on Wall Street as to the quality of their loans to unprofitable oil and gas companies. Many banks are starting to set aside money to cover bad loans which eat into banking industry profits. In recent years Wall Street has been the biggest ally of the "shale revolution" by allowing companies to exceed their debt limits time after time in hopes that they would someday turn profitable. With US oil prices now below $50 a barrel and unlikely to climb significantly during the next year or so, bankers are demanding that drillers reduce their credit lines and increase equity. In response US oil producers have raised some $44 billion by selling bonds and shares in the first half of this year. More than $22 billion of the $235 billion of the debt owed by 62 North American oil companies, however, is "distressed" and unlikely to be paid back.

The recent drop in oil prices is giving Moscow second thoughts about the economic recovery in 2016 that President Putin has been talking about. Russia will face recession or stagnation if oil trades near $50 a barrel next year. If oil is trading near $40 a barrel, Moscow is facing a 7 percent decline in its GDP next year.

[Jul 24, 2015] guaranteed retirement accounts

"The government would invest the money and guarantee a rate of return" So this is duplicate of TIPS. That money is going to WALL STREET one way or other.

http://www.nakedcapitalism.com/2015/07/200pm-water-cooler-72415.html#comments

Clinton advisor Teresa "Ghilarducci's big idea is to create government-run, guaranteed retirement accounts ("GRAs," for short). Taxpayers would be required to put 5 percent of their annual income into savings, with the money managed by the Social Security Administration. They could only opt out if their employer offered a traditional pension, and they wouldn't be able to withdraw the money as readily and early as with a 401(k). The government would invest the money and guarantee a rate of return, adjusted to inflation" [National Journal]. Because fiat money is only for banksters.

Push to lift minimum wage now "serious business" [New York Times].

jrs, July 24, 2015 at 2:15 pm

Alright policy. At a certain point does one really even want to know what the new thing they have for us to bend over for is? So WHERE is the money going to be "invested" in these new retirement plans. Yes I know it's possible to have a retirement plan without investing, it would be something like social security. But if that's what they wanted they could just increase social security, not propose a new plan (yes even increase funding but not while it covers current outgo at least). A new plan rather than expanded social security is entirely unnecessary so by proposing one they are up to no good. That money is going to WALL STREET one way or other.

... ... ...

Brindle, July 24, 2015 at 3:07 pm

The optics of this look like part of Clinton's feint left—for the base of the Dem party:

—For the Clinton campaign, Ghilarducci offers significant benefits, too. As Clinton tries to move away from the centrist economic legacy of her husband's administration, with its welfare reform and deregulation of banks, Ghilarducci offers a fresh take—and a fresh face—on economic-policy debates long dominated by a small, sharp-elbowed cast of white men who have advised the Clinton or Obama administrations.

[Jul 24, 2015] Though the Heavens May Fall

"...As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet. "
Jul 24, 2015 | jessescrossroadscafe.blogspot.com

There was intraday commentary titled The Epicenter of the Next Financial Crisis and overnight commentary on the precious metals, Free Markets at Work.

I get the feeling sometimes that we have become a nation of conmen and their servants, who plague the great mass of people who are preoccupied with raising families and just getting by.

As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet.

How fitting that in the next election we can once again consider voting for a Bush or a Clinton. Some choice.

[Jul 23, 2015] Big Trouble In Not So Little China...

Looks like china decided to repeat the US dot com bubble "with chineses characteristics"....
Jul 23, 2015 | Zero Hedge

Why hasn't the panic of the recent decline followed by the government induced rally spilt over into other markets? While there was obvious concern that answer is simple enough… The Shanghai Stock Exchange Composite index rose 150% for the 12 months through June 12th. The rally, however, wasn't based on any material upswing in economic fundamentals. Instead, over much of this period, the economy slowed with both exports and domestic demand weakening as did corporate profits. Capital outflows increased and even with high trade surpluses, the balance of payments turned negative for two quarters. Importantly, the authorities continued to guide public expectations towards lower medium-term growth as they had done over the past two years.

But after a very lackluster performance at best for the preceding four and half years, sometime at the start of 2H14, market sentiments changed. It is likely that talks of market liberalization, including an opening of the capital account, and in particular the authorities' presumed intention to "rebalance" the economy's portfolio from the excessive and worrisome dependence on bank credit to more equity and bond financing is likely to have been the catalyst.

Starting last November, the PBOC also began cutting lending rates and bank reserve requirements. While the easing was intended to support growth and liquidity, which had dried up because of increased capital outflows, market participants took this as corroboration of the government's intended "support" for equity market expansion.

Talks of A-share's inclusion in the MSCI index that could potentially bring in significant foreign inflows added to the froth and the rally accelerated. China's onshore stock market has historically been thin on institutional participation with previous rallies largely driven by retail investors. Between 80% to 90% of the China's market is dominated by retail investors, many of which subscribe to domestic investor newsletters that have been bullish on China's push towards new tech IPOs. The all led to speculative excess in the ChiNext and Shenzhen exchanges primarily. Hundreds of new brokerage accounts were opened and amateur investors bought on margin. An estimated 4,000 new hedge funds were opened in China in one month, and China had over 200 companies list their shares for the first time, the most of any other country. Studies have shown that most of China's day traders are working class investors that do not have a college education. They tend to treat stock investing like a day at the horse track.

This time it wasn't different. For instance, during the past twelve months, the number of individual investor accounts rose from 93 million to 115 million in the Shanghai stock exchange, and rose from 113 million to 142 million in the Shenzhen stock exchange.

Initially this correction was driven by high valuations, accelerated pace of IPOs, market fears that the monetary easing would slow down, and a tightening of rules on margin financing. Subsequently, the correction intensified as policy measures were seen as inadequate or ill-targeted.

However this latest correction is not remarkable in the history of China's stock market. There have been at least two previous cycles since 2000 where the price volatility has been much larger. The previous stock market volatility during 2006-08 was much more dramatic (up 450% between June 2005 and October 2007, and down 70% between October 2007 and October 2008). The impact on the real economy in these cycles was limited, including through wealth effects and contagion to other financial assets.

The development of new market instruments (futures & options), in particular the extensive use of margin financing, hints at potentially more extensive wealth destruction among household and corporate retail investors. For example, margin financing provided by brokerage firms rose from 0.4 trillion yuan in June 2014 to 2.3 trillion yuan at the recent peak level on June 18th (coming back down to about 1.4 trillion yuan by July 9). Compared to previous episodes of stock market correction, this time round there is greater concern over the potential spillover to the real economy, especially as the economy doesn't have the buffer from strong export growth. China's export growth has fallen to 0.6%oya during the first five months of this year, after continuously slowing in the past five years from the heady days of high double-digit growth before 2008. In the absence of the buffer from export growth, the burden of keeping up the pace of activity and income has fallen squarely on domestic drivers that could be adversely affected.

The government's attempt to stem the free fall has involved a number of intrusive interventions in market operations .

• June 27th 2015: Interest rate and RRR cut (China Financials: Reinforcing the Policy Put vs Deleveraging)

• June 29th 2015: pathways for national pension funds to invest in the equities market;

• July 1st 2015: a) reduce transaction costs; b) CSRC abolished mandatory requirement on margin calls and liquidation for margin loans; c) broaden financing channels for brokers (China Securities: Policy makers roll out further "market-saving" measures)

• July 4th 2015: a) 21 brokers pledged to buy blue chips stocks; b) suspending 28 IPOs; (China Securities: A pledge to "national service")

• July 5th 2015: PBOC to provide liquidity support to CSFC to stabilize the market (More measures to support the A-share market: PBOC to provide liquidity support to CSFC)

These interventions, along with the voluntary suspension of trading by 43% of the listed companies, do not help promote the orderly development of the equity and corporate bond markets. While these measures are likely to be short-lived and one expects them to be removed once the market stabilizes, the interventions could discourage foreign institutional participation. While the government has recently changed investment norms to encourage local pension and other long-term funds to invest in the stock market, an orderly growth of the equity market typically also requires foreign institutional participation to add depth and maturity as evidenced in other emerging market economies. In the absence of the equity market providing a reliable source of funding, the burden of financing China's growth would again fall back on bank credit. The experience could also make the authorities more cautious in liberalizing the corporate bond market and outward capital account transactions.

The mainland Chinese stock market only recently opened to investors this year. A handful of qualified institutional investors have had access to that market for less than two years. It's never been opened to the world.

The market is still immature and although the Chinese have an interventionist mind set, over here we have hardly set the greatest example..we stopped the shorting of stocks during the financial crisis; we bailed out AIG and engaged in massive quantitative easing which at best has altered the price discovery process and put the stock market at major risk on the longer term and although on the face of it they are doing similar actions there are stories of people being arrested or disappearing for minor infractions, brokerage houses that can do nothing but recommend buys….this is not the type of thing to encourage institutional investment. The whole idea of socialism with Chinese characteristics, which is the government mantra, is paradoxical. Chinese communism in charge of a very capitalistic economy has always been a bit mysterious, and something that those from capitalist countries have been puzzled by.

At first glance, it might appear strange to argue that even after a roughly $3.5 trillion loss of market capitalization, the wealth effect on consumption will be limited, but this is likely to be the case While retail participation had increased substantially in the rally, this had not translated into a consumption boom. In fact, retail sales growth slowed when the stock market was rallying. While increases in wealth may not have been immediately translated into higher consumption, the slide could sour consumer sentiment. Moreover, there could be threshold effects if the stock prices continue to downward trend.

The effect on commodity markets, cart or horse?

Much of the global commodity markets have for sometime now been weighed down by the slowdown in China's growth. With commodities being used as collateral for borrowing, it is worth noting that the The risk comes when prices fall by a large magnitude within a short time, driving down the value of the collateral.

With Hong Kong and Singapore's ratio of bank credit to GDP close to multi-year highs, the risk is that a worsening of credit quality could further tighten credit conditions and dampen domestic demand. In the coming weeks While the Chinese stock market appears to have calmed down, this may not be the true reflection of market sentiments.

People have been drawing similarities between US 1929-1935 and the Japanese lost decades, but there are two things tip a country from recession into depression: too much debt, and the way dealing with that debt pushes down prices (i.e. deflation). In 1929 the US messed up by failing to counteract falling prices by freeing up money—in fact, it catastrophically raised interest rates in the immediate wake of the 1929 crash.

When deflation sets in, falling prices cause the relative cost of debt to rise. That sinks debtors in even deeper, and makes would-be borrowers unwilling to take out loans to build their businesses. As people desperately sell off assets to pay back what they owe, they drive prices down even further—exactly what happened in the Great Depression. Unemployment surged to a quarter. More than 5,000 banks failed, taking with them untold sums of household wealth. It wasn't until 1939 that the US truly emerged from the Great Depression. Although Bureaucrats and bankers believed that with enough time and loose money, they could grow out from under the debt burden.

... ... ...

gregga777

There are three kinds of people:

Type I: people who learn from the mistakes made by other people;
Type II: people who learn from their own mistakes;
Type III: people who learn nothing.

Collectively, Japan and China are Type III. The USA is tending overwhelmingly towards Type III.

Fahque Imuhnutjahb

One man's mistake is another man's windfall, ain't that right Lloyd ?

KnuckleDragger-X

You can either learn form past disasters or from your own disasters. China's problem is they tend to be inward facing and live in an ego-centric universe. Too bad reality is a bitch and really enjoys inflicting its lessons on the foolish and unprepared.....

[Jul 23, 2015] US Recession Imminent - World Trade Slumps By Most Since Financial Crisis

Remember this is ZeroHedge... It "predicts" that the US recession is coming for the last five years. But, please note, one day it will be right. Still I would subscribe under the following:
"...We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population."
Jul 23, 2015 | Zero Hedge
nope-1004

Everything from Wall Street is "since the financial crisis".

Wish some truth would be told at some point, that the "recovery" since 2008 has been a smoke & mirrors recovery with cooked books, fake employment stats, FASB accounting changes marking asset values to fantasy, and back door bailouts of the financial institutions because they are 100% insolvent.

We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population. The FED is sucking the life out of anyone not chasing bubbles, unicorns, and rain bows.

The financial system is a crooked lie and WE ARE IN A PROLONGED DEPRESSION.

Let's call a spade a spade.

[Jul 23, 2015]Bernard Baruch's 10 Rules of Investing

You want someone to emulate?

Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as "The Lone Wolf".

In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:

"Being so skeptical about the usefulness of advice, I have been reluctant to lay down any 'rules' or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:"

  1. Don't speculate unless you can make it a full-time job.
  2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of "inside" information or "tips."
  3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
  4. Don't try to buy at the bottom and sell at the top. This can't be done — except by liars.
  5. Learn how to take your losses quickly and cleanly.
  6. Don't expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
  7. Don't buy too many different securities. Better have only a few investments which can be watched.. Don't try to be a jack of all investments. Stick to the field you know best.
  8. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  9. Study your tax position to know when you can sell to greatest advantage.
  10. Always keep a good part of your capital in a cash reserve. Never invest all your funds.10

Baruch would later go on from Wall Street to Washington DC as an advisor to both Woodrow Wilson and to FDR during World War II.

Later, he became known as the Park Bench Statesman, owing to his fondness for discussing policy and politics with his acquaintances outdoors.

He lived til a few days shy of his 95th birthday in 1965. You could do worse than to invest and live based on these simple truths.

Financial*/ /secular_stagnation. /energy. Fighting_russo*/

[Jul 23, 2015] The Effect of New Production Methods on U.S Oil Output

The Effect of New Production Methods on U.S Oil Output

Tags: Bakken, fracking, oil production, oil shale, shale oil, WTI
Since 2005, the "total oil supply" for the United States as reported by the Energy Information Administration increased by 2.2 million barrels per day. Of this, 1.3 mb/d, or 60%, has come from natural gas liquids and biofuels, which really shouldn't be added to conventional crude production for purposes of calculating the available supply. Of the 800,000 b/d increase in actual field production of crude oil, almost all of the gain has come from shale and other tight formations that horizontal fracturing methods have only recently opened up. Here I offer some thoughts on how these new production methods change the overall outlook for U.S. oil production.

Let me begin by clarifying that "shale oil" and "oil shale" refer to two completely different resources. "Oil shale" is in fact not shale and does not contain oil, but is instead a rock that at great monetary and environmental cost can yield organic compounds that could eventually be made into oil. Although some people have long been optimistic about the potential amount of energy available in U.S. oil-shale deposits, I personally am pessimistic that oil shale will ever be a significant energy source.

By contrast, the expression "shale oil", or the more accurate term "tight oil", is often used to refer to rock formations that do contain oil and that sometimes might actually be shale. The defining characteristic is that the rock is not sufficiently porose or permeable to allow oil to flow out if all you do is drill a hole into the formation. However, enterprising drillers have discovered that if you create fissures in the rock by injecting water (along with sand and some chemicals to facilitate the process) at high pressure along horizontal pipes through the formation, oil can seep back through the cracks and be extracted.

As seen in the figure above, these horizontal fracturing methods have been the main factor behind recent increases in U.S. field production. The key question is how much more growth we should expect. Leonardo Maugeri, senior manager for the Italian oil company Eni, and Senior Fellow at Harvard University, has a new paper in which he predicts that the U.S. could get an additional 4.17 million barrels per day from shale/tight oil plays by 2020, though he notes that any such predictions are problematic:

the huge differences in permeability, porosity, and thickness of a shale/tight oil formation require many more exploration wells be drilled in different areas of the field before making it possible to have an idea of the effective recoverability rate from the whole formation…. it is impossible to make any reasonable evaluation of the future production from a shale/tight oil formation based on the analysis of a few wells data and such limited activity.

To put the 4.17 mb/d number in perspective, total U.S. field production of crude oil in 2011 was 5.68 mb/d. If 4.17 mb/d could be added to that, it would almost put us back to where we were in 1970. Alternatively, 4.17 mb/d represents 22% of the 18.8 mb/d currently consumed by the U.S. and 4.7% of total world consumption.

Crude oil production (in millions of barrels per day) from entire United States, 1859-2011, with contributions from individual regions as indicated. Updated from Hamilton (2011)

Maugeri describes the assumptions under which he arrived at his estimate for the Bakken tight formation in North Dakota and Montana as follows:

  • A price of oil (WTI) equal to or greater than $70 per barrel through 2020;
  • A constant 200 drilling rigs per week;
  • An estimated ultimate recovery rate of 10 percent per individual producing well (which in most cases has already been exceeded) and for the overall formation;
  • [original oil in place comes to 300 billion barrels];
  • A combined average depletion rate for each producing well of 15 percent over the first five years, followed by a 7 percent depletion rate;
  • A level of porosity and permeability of the Bakken/Three Forks formation derived from those experienced so far by oil companies engaged in the area.

The above assumptions detail the total quantities that Maugeri estimates can eventually be extracted (a stock variable), but they clearly are not enough to calculate an annual production rate for the year 2020 (a flow variable) which is the key number Maugeri is reporting. His analysis also makes use of a proprietary database of results for existing wells. What he evidently did was to calculate average well completion rates and flow rates per well from that database and extrapolate those forward, though he does not tell the reader what were the actual summary averages that he used for this calculation nor indicate in what way the $70 assumed price enters the calculations. His paper really just seems to provide his own summary judgment as to what his private database implies rather than specifics that other analysts could use to evaluate or reproduce his claims.

I recently attended an excellent conference on oil market fundamentals, whose proceedings can be viewed online if your budget allows for a hefty registration fee. One of the presentations was by Morningstar analyst Jason Stevens, who estimated the 2015 potential U.S. tight crude oil production using two different approaches. The first approach, which Stevens called a "top-down" approach, was to "use best-in play curves and assume repeatability and similar results in emerging plays," which sounds identical to Maugeri's methodology, and indeed, Stevens' calculations used the identical 200 rigs per week assumption for Bakken as did Maugeri. But whereas Maugeri predicted we'd see 1.5 mb/d additional Bakken production by 2010, Stevens calculated that the area might only add 150,000 b/d or so by 2015. On the other hand, Stevens' calculations suggested about a 900,000 b/d gain for the Eagle Ford in Texas by 2015, compared with 1.47 mb/d anticipated by Maugeri for 2020.

Source: Jason Stevens, 2012 Symposium on Oil Supply and Demand.

Stevens also calculated a forecast using a second method that he described as "bottom up", which used specific production forecasts for 16 of the individual firms involved in these plays, and assumed that the fraction of each area's total production represented by these particular firms would stay constant. This bottom-up calculation leads to an expected additional flow by the particular firms studied of almost 1 mb/d by 2015, implying perhaps 3 mb/d combined production from all drillers in the plays. Thus Stevens' bottom line was similar to that of Maugeri's, although the specifics differ.

Source: Jason Stevens, 2012 Symposium on Oil Supply and Demand.

In addition to the uncertainties noted above about extrapolating historical production rates, the rate at which production declines from a given well over time is another big unknown. Another key point to recognize is the added cost of extracting oil from tight formations. West Texas Intermediate is currently around $85/barrel. With the huge discount for Canadian and north-central U.S. producers, that means that producers of North Dakota sweet are only offered $61 a barrel. Tight oil is not going to be the reason that we return to an era of cheap oil, for the simple reason that if oil again fell below $50/barrel, it wouldn't be profitable to produce with these methods. Nor is tight oil likely to get the U.S. back to the levels of field production that we saw in 1970. But tight oil will likely provide a source of significant new production over the next decade as long as the price does not fall too much.

It is a separate critical question how much additional production may come worldwide from other sources, and how far this new production will go toward offsetting declining production from existing mature fields. Maugeri is also quite optimistic about these issues as well. I hope to take up a discussion of these separate questions in a subsequent post.

This article originally appeared on Econbrowser.

[Jul 23, 2015] Bernard Baruch's 10 Rules of Investing

You want someone to emulate?

Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as "The Lone Wolf".

In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:

"Being so skeptical about the usefulness of advice, I have been reluctant to lay down any 'rules' or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:"

  1. Don't speculate unless you can make it a full-time job.
  2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of "inside" information or "tips."
  3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
  4. Don't try to buy at the bottom and sell at the top. This can't be done — except by liars.
  5. Learn how to take your losses quickly and cleanly.
  6. Don't expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
  7. Don't buy too many different securities. Better have only a few investments which can be watched.. Don't try to be a jack of all investments. Stick to the field you know best.
  8. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  9. Study your tax position to know when you can sell to greatest advantage.
  10. Always keep a good part of your capital in a cash reserve. Never invest all your funds.10

Baruch would later go on from Wall Street to Washington DC as an advisor to both Woodrow Wilson and to FDR during World War II.

Later, he became known as the Park Bench Statesman, owing to his fondness for discussing policy and politics with his acquaintances outdoors.

He lived til a few days shy of his 95th birthday in 1965. You could do worse than to invest and live based on these simple truths.

[Jul 23, 2015] The Cost of Free [Trades]

The CIO that Eric Peters is quoting above is fortunate that markets aren't a 24/7 affair with wide open access. I believe that most investors are as well.

Silicon Valley is enamored with a slew of new tech startups that offer free and instantaneous trading. The technology is cool and the price is, well, as good as it gets, but the larger question to me is "Why?" If an investment isn't promising enough to justify paying seven dollars to execute the trade, maybe it's not an investment worth making. Maybe there's an unexpected benefit to there being some layer of friction between people and their ability to make moves.

Perhaps the relatively minor gateway of a trade confirmation screen – "Are you sure you'd like to place this order?" – or a small trading commission ends up being the thing that stands between the kind of frivolous transacting that undoubtedly destroys more value than it creates.


Warren Buffett and Charlie Munger say it is very unlikely that they can make hundreds of smart decisions each year. They can get the relatively few big decisions mostly right, which is why their investment process is oriented away from having to make a lot of good calls all the time. Can a guy trading out of boredom from his phone say otherwise with a straight face?

I'm all for efficiency and the trend toward lower investment costs. It's a huge win for investors in the long run. But at what point do lower short-run costs create larger long-run costs by encouraging self-defeating behavior? Investors who are free and unfettered to act on their every impulse and whim are not necessarily being empowered – in many cases they are being endangered. Jack Bogle has made this case in terms of the ETFs that have gradually sucked assets away from traditional '40 act mutual funds. He views them as carrying a built-in incentive to trade rather than invest because they're moving up and down all day. He's partially right – but a tool is only as good or as bad as the end user.

Free is never free; there's always a price. This includes market access.

DOT Vehicle Miles Driven increased 2.7% year-over-year in May, Rolling 12 Months at All Time High

http://www.calculatedriskblog.com/2015/07/dot-vehicle-miles-driven-increased-27.html

aleister perdurabo wrote on Tue, 7/21/2015 - 9:02 am

Urban Institute Predicts Rental Surge Among Millennials, Minorities, Seniors | Multifamily content from National Real Estate Investor

Many apartment experts think the number of vacant apartments will rise this year, despite strong rent growth this spring. But in the long term, an increasing number of researchers expect the demand for rental apartments to keeping growing for more than a decade.

"A rental surge is coming," according to "Headship and Homeownership: What Does the Future Hold?" a new report from the Urban Institute. "Over the next 15 years, new renters will outnumber new homeowners—causing a sustained surge of rental housing demand that will significantly affect Millennials, seniors and minorities, and expose important gaps in our current housing policies."

Millions of new renters and fewer new homeowners will push the percentage of households that own their own home down to 61.3 percent by 2030, according to the Urban Institute. That's a steep fall from 63.6 percent in 2013. The homeownership rate has already fallen from 66.2 percent in 2000—before the distortions of the housing boom push the homeownership rate upwards.

Rob Dawg wrote on Tue, 7/21/2015 - 9:49 am

Sticker shock sales taxes in Chicago

The city of Chicago alone has a $20 billion unfunded liability and when Moody's Investors Service dropped the city's debt rating to junk, it forced $2.2 billion in accelerated debt payments. So Cook County has to borrow more money now at higher interest rates to pay those newly due bills AND it has to increase sales taxes to that whopping 10.25% rate effective in January to help pay the interest on it all. It's an endless cycle.

merchants of fear wrote on Tue, 7/21/2015 - 10:13 am

People outside that interest group see what's happened with Libya, what almost happened in Egypt. The total shit show that is now Iraq and Syria. The continuing mess that is the West Bank and Gaza, and the terrifying situation in the Ukraine. They think interests that front McCain are a liability that needs to be squelched.. - Comrade Gibbon

You may be on to something.

KarmaPolice wrote on Tue, 7/21/2015 - 10:25 am

Auto-loan defaults lowest in at least 11 years - MarketWatch

I believe that this was another Doomer theme.

Subprime car loans.

[Jul 22, 2015] Far Worse Than 1986 The Oil Downturn Has No Parallel In Recorded History, Morgan Stanley Says

"...[There are] strong similarities between the current oil price downturn and the one that occurred in 1985/86. The trajectory of oil prices is similar on both occasions. There were also common reasons for the collapse. "
.
"...Folks, we are in the throes of economic war and most of us haven't a clue as to the enemy. It isn't really OPEC, but they may be an ally of the enemy. The true enemy is the financial system itself - the big banks. To the extent the Fed enables this behavior, it is part of the problem, not the solution. Easy credit is creating dilemas that constrain policy choices. By issuing too much high risk credit the banksters have made it tough for the Fed to raise rates. Welcome to Japan."
.
"...Summary: Morgan Stanley is trying to talk down the price of oil even more, so they can buy oils stock at ridiculoulsy low values. I'll be buying too, when the time comes."
Jul 22, 2015 | Zero Hedge

In a ZIRP world, there's plenty of demand for new HY issuance and ill-fated secondaries, which means the digging, drilling, and pumping gets to continue indefinitely in what may end up being one of the most dramatic instances of malinvestment the market has ever seen.

Those who contend that the downturn simply cannot last much longer - that the supply/demand imbalance will soon even out, that the market will clear sooner rather than later, and that even if the weaker hands are shaken out, the pain for the majors will be relatively short-lived - are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does. At heart, this is a struggle between the Fed's ZIRP and the Saudis, who appear set to outlast the easy money that's kept US producers alive.

Against that backdrop, and amid Wednesday's crude carnage, we turn to Morgan Stanley for more on why the current downturn will be "worse than 1986."

From Morgan Stanley

Worse than 1986? Really?

We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that. Still, if oil prices follow the path suggested by the forward curve, our thesis may yet prove too optimistic.

Our constructive stance on the majors is based on four factors: 1) supply – we expected production growth to moderate following large capex cuts and the sharp decline in the rig count; 2) demand – we anticipated that the fall in price would boost oil products demand; 3) cost and capex – we foresaw both falling sharply, similar to the industry's response in 1986; and 4) valuation – relative DY and P/BV indicated 35-year lows.

So far this year, we can put a tick against three of them [but] our expectation on supply has not materialised: US tight oil production growth has started to roll over, but this has been more than offset by OPEC, which has added ~1.5 mb/d since February.

On current trajectory, this downturn could become worse than 1986: An additional +1.5 mb/d is roughly one year of oil demand growth. If sustained, this could delay the rebalancing of oil markets by a year as well. The forward curve has started to price this in: as the chart shows, the forward curve currently points towards a recovery in prices that is far worse than in 1986. This means the industrial downturn could also be worse. In that case, there would be little in analysable history that could be a guide to this cycle.

[There are] strong similarities between the current oil price downturn and the one that occurred in 1985/86. The trajectory of oil prices is similar on both occasions. There were also common reasons for the collapse.

A high and stable oil price in the preceding four years stimulated technological innovation and led to a high level of investment. This resulted in strong production growth outside OPEC, exceeding the rate of global demand growth. When it became clear that OPEC would no longer rein in production to balance the market (as it did during both the Nov 1985 and Nov 2014 OPEC meetings) the price collapsed.

And although MS notes that similar to 1986, costs and capex are likely to come in sharply while demand growth should materialize, the supply side of the equation is not cooperating thanks to increased output from OPEC.

Due to the sharp slowdown in drilling activity and the high decline rate of tight oil wells, we expected production in the US to flatline and start declining in 2H. This seems to be happening: according to the US Department of Energy, tight oil production in June was 94 kb/d below the April level, and it forecasts further falls of 90 kb/d in both July and August.

Now that capex is falling, we anticipated non-US production to be flat at best. Still, this has not yet been the case. At the time of our 'Looking Beyond the Nadir' report in February, OPEC production stood at ~30.2 mb/d. This increased substantially to 31.3 mb/d in May and 31.7 mb/d in June, i.e. OPEC has added 1.5 mb/d to global supply in the last four months alone.

Our commodity analyst Adam Longson argues that the oil market is currently ~800,000 b/d oversupplied. This suggests that the current oversupply in the oil market is fully due to OPEC's production increase since February alone.

We anticipated that OPEC would not cut, but we didn't foresee such a sharp increase. In our view, this is the main reason why the rebalancing of oil markets had not yet gained momentum.

If oil prices follow the path suggested by the forward curve, and essentially remain rangebound around levels seen in the last 2-3 months, this downturn would be more severe than that in 1986. As there was no sharp downturn in the ~15 years before that, the current downturn could be the worst of the last 45+ years.

If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term. In fact, there may be nothing in analyzable history.

Needless to say, this does not bode well for everyone who has unwittingly thrown good money after bad on the assumption that the Saudis will cut production and trigger a rebound in crude.

In addition to the immense pressure from persistently low prices, US producers also face a Fed rate hike cycle and thus the beginning of the end for easy money.

Of course, the more expensive it is to fund money-losing producers, the less willing investors will be to perpetuate this delay-and-pray scheme, which brings us right back to what we've been saying for months: the expiration date for heavily indebted US drillers is fast approaching, and if Morgan Stanley thinks the oil downturn has no parallel in "analysable history," wait until they see the carnage that will unfold in HY credit when a few high profile defaults in the oil patch send the retail crowd running for the junk bond ETF exits.

aVileRat

Yes it is worse than 87, and 83. In fact you have to reach all the way back to 1860 and the brief 1931-33 period to figure this one out. And given that most of the majors will require fresh credit roll over and drilling capital for the 2016 drill programs, this could get nasty. Most bonds are pricing that debt will be rolled over at the same terms, with at best 500 basis point moves for some of the most horrible offenders of debt binge drilling. Those were financed at 80/bbl projections on Par. Most corporates have locked in their hedges down at the low 60's. (all USD). For some corporates the capital programs needed to keep production flat, plus roll their bonds over at the 80/bbl interest rate are nearly 4x their current cash flows. Yet most HYG still trades at 80/100 or better.

This salient fact is what is keeping the 51 billion in special situations PE money on the sidelines. Who wants to buy into the next GDP or PVA ? and then see a 50% haircut in 6 months. Very few on a standard 5% WACC (going to 8). That is also what keeps most of the major Pensions, Endowments and bond managers awake at night. What happens when a BBB+ rolls the yield at 300 bps. What happened to the money markets when nobody knew what was economical.

MonetaryApostate

I believe that banking institution are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. - Thomas Jefferson

There are two ways to conquer a nation. One is by the sword. The other is by debt. - John Adams

http://galeinnes.blogspot.com/2015/07/the-invisible-enslavement.html

steelhead23

I would assume that MS sent a forward copy of this to the FOMC because this information is likely to encourage the Fed to continue ZIRP. Those with rose colored glasses should stop reading this comment now.

The U.S. economy is a virtual zombie, kept alive by easy credit. Even those seemingly good numbers coming out of the car biz is simpy another credit bubble, including a huge amount of high risk credit. Let's use autos as a metaphor here. If interest rates increase, tight oil producers would not be able to roll their debt and would go bankrupt. U.S. oil production would decline. If OPEC did not fill the supply gap, prices would rise. If they did fill the gap, the U.S. trade balance would get worse, but let's assume OPEC sits tight (not a great assumption, but I want to make a point). The effect of increasing interest rates would be to reduce production. Prices would then rise. Now, let's look at our new car owner. The increased cost of gas would consume more of his/her cash flow. They could either buy less, causing an economic downturn, or default. If either the economy goes down or defaults increase the Fed would be looking to juice the economy and would reduce rates, reinitiating ZIRP. The Fed is a reactionary organization, not a leader.

Folks, we are in the throes of economic war and most of us haven't a clue as to the enemy. It isn't really OPEC, but they may be an ally of the enemy. The true enemy is the financial system itself - the big banks. To the extent the Fed enables this behavior, it is part of the problem, not the solution. Easy credit is creating dilemas that constrain policy choices. By issuing too much high risk credit the banksters have made it tough for the Fed to raise rates. Welcome to Japan.

From where I sit the best answer is a painful one. The Fed should do a Volcker; raise rates and keep raising rates until credit is being created at a rate equal to or lower than economic growth. Yes, there would be an absolute hemorroage in the markets. Lots of folks would lose lots of money. As long as this global Ponzi scheme continues we will be seeing rampant insider looting and other criminality because prosecution could cause the systemic collapse the entire regulatory apparatus fears most. End ZIRP now!

Dr. Engali

Cracks me up every time I read that we are facing a fed rate hike cycle. Fucking hilarious. Here's some food for thought; we have an over supply of oil because we have no demand thanks to the global depression we are currently in.

Carpenter1

You falsely assume our rulers are benevolent and actually want to hold the financial system together.

In that assumption, you are incorrect.


Carpenter1

Here's some food for thought; we have an over supply of oil because we have no demand thanks to the global depression we are currently in.

Your own words, no assumptions necessary. Or is this statement supposed to be the lead in to why there WILL be a rate hike? Because we're in a depression right?

Doubt that very much, obviously you're saying there'll be no hike cause the economy sucks.

So I repeat, you falsely assume our leaders are benevolent and want to keep the system up. In that you are incorrect.

Dr. Engali

What the fuck does that statement you highlighted have to do with the powers that be wanting to hold the system together? You make no fucking sense. I will repeat what I have said in the past. We will never see a fed funds rate above 1% again. We may get a little hike to prolong the illusion that all is well, but we will never see "normal" rates again. When TPTB do collapse the system, and they will, there will be a false flag to give them cover.

Meremortal

Well yes, governments are in the oil biz. The feds collect 22.3 cents a gallon and the states average around 18 cents a gallon. They make that by sticking their hands out.

So, subtract out the 40 cents a gallon the various levels of govt make and the cost of boutique fuels and prices would be a good bit lower.

Of course there's also the big bad oil companies' profits, which average 9 cents a gallon. Horrors. To get that profit, they have to permit, explore, produce, refine, ship and retail the product.

There's also the fact the almost 30% of all oil use is non-fuel in nature.

Oil has been a boom-bust biz for a century and some people are just noticing.

Carpenter1

No, that's not why.

Super major producers have been reducing their reserves for decades, some thought this was a sign they were losing ground. To the contrary, they, being insider elites, knew this day was coming and would be far more than a typical cyclical downturn in oil prices.

We are witnessing the destruction of every non-super major producer worldwide.

In the meantime, super majors are making their money refining and manufacturing instead of producing. Thus, they've kept prices high to offset whatever losses they take from their leftover production business. So, they'll survive this thing just fine, and notice they aren't raising bloody hell in government with their extremely powerful lobbyists.

Seem odd? It should, cause big oil gets what big oil wants. Apparently big oil doesn't want higher prices, cause big oil has planned for this event long ago.

Meremortal

Lots of "ifs" in that article.

WTI prices in this downturn so far:

116.75 - 49.92

WTI prices in last downturn, 2008:

146.12 - 46.56.

http://www.macrotrends.net/1369/crude-oil-price-history-chart

Take a look of what has happened after each crash in oil prices, adjusted for inflation.

Jus7tme

Summary: Morgan Stanley is trying to talk down the price of oil even more, so they can buy oils stock at ridiculoulsy low values. I'll be buying too, when the time comes.

piratepiet2

Can this not be explained by the following :

1. renewable energy revolution->downward pressure on demand

2.fracking in US->downward pressure on demand on world market (as still ban on exports)

3.nuclear deal with Iran in return for sanctions relief-> increase in supply

4.Global warming narrative with potential deal in Paris in december 2015->downward pressure on demand

5.economic depression ?

6.I have the impression that peak oil hysteria was possibly a scare tactic to justify high prices. Are people waking up to that ?

7.Young generation is too hooked to their internet connected devices to want a car to drive anywhere ? Or the sharing economy makes having your own car less of a must ? Think Uber,...

Your thoughts ?

Radical Marijuana

piratepiet2,

my answers:

Primarily, it is the counter-intuitive results of systems which were based upon presuming endless exponential growth running into real limits of diminishing returns making that no longer possible. Civilization was based upon being able to make "money" out of nothing as debts, in order to "pay" for strip-mining the natural resources of the planet. Running into the real limits of diminishing returns, after we have high-graded ourselves to hell, show up first and foremost through the fundamentally fraudulent financial accounting systems. However, since those systems ARE ENFORCED FRAUDS, the intrusions of physical realities into those integrated systems of legalized lies backed by legalized violence results in various sorts of psychotic breakdowns, which manifest through a wide variety of counter-intuitive ways, because none of the mental models that people are using to perceive the real world were remotely close to being realistic, since those were based on being able to operate as professional liars and immaculate hypocrites.

As was recently concluded in another article that I also commented upon $900 Million Payday Is Billionaires' Reward For Crushing Twinkie-Maker's Labor Unions

"... an entire world filled with lunatic central bankers who have clearly taken over the asylum."

In every way possible, on every possible level, it is a gross understatement to assert that: "In fact, there may be nothing in analysable history."

As I also explained in my reply under:

So You Say You "Don't" Want A Revolution?

There is nothing in human history to compare to the development of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic bombs. The only thing that compares to the progress in physical science is the development of photosynthesis, which had profoundly revolutionary effects upon the evolution of life on planet Earth.

Morgan Stanley thinks the oil downturn has no parallel in "analysable history."

Nothing during "analysable HUMAN history" can be compared to advances in physical science enabling technologies to be developed that are trillions of times more powerful and capable, which then were primarily applied through social pyramid systems based upon ENFORCING FRAUDS.

The wild swings in the price of oil are due to hyper-complicated interactions within systems that were always based upon being able to back up lies with violence, so that everything that happens occurs through those infinite tunnels of deceits.

The renewable revolution is not yet sufficiently significant to explain the wide price swings in oil. Being able to make "money" out of nothing to speculate with is much more related to the wild price swings in oil. DEMAND DESTRUCTION is the single best explanation for the collapse of the price of oil, which in turn is related to those who are able and willing to make more "money" out of nothing to speculate with continuing to do that.

Nothing regarding the objective supply of oil explains the wild oscillations in the price of oil. Rather, the background steady deterioration due to diminishing returns from investments to extract oil ends up being leveraged up and down by many orders of magnitude, through fundamentally fraudulent financial accounting systems, such that those have intensely counter-intuitive manifestations, because there is nothing like that which was ever globally faced before, by the Neolithic styles of social pyramid systems, based upon being able to back up lies with violence.

The global warming narrative exists inside of that overall context that civilization is controlled by backing up lies with violence. Therefore, nothing can be trusted. Even although the greenhouse gas mechanisms exist, the overall climate includes more cosmic factors, such as the Sun and Earth magnetic fields, which are changing significantly in ways that nobody understands, and which factors were deliberately ignored by the mainstream climate models. In any case, there are not yet any sufficiently significant impacts from laws that are supposed to limit carbon emissions, but rather, only more scam "solutions" designed to deceptively be able to make more privatized profits, in ways which do not really resolve the bigger problems.

Economic depression is what I believe in the currently most significant reason for the DEMAND DESTRUCTION, that hit the price of oil. However, that cannot be comprehended outside of the extremely counter-intuitive aspects of how everything is priced through fundamentally fraudulent financial accounting systems.

Peak oil was not "hysteria," although the statistics can not be trusted regarding that, due to all of the vested interests that are behind misrepresenting that data. However, the basics appear to me to be irrefutable, without some series of technological miracles, none of which have been sufficiently proven to be possible, as far as I now know, our current kind of industrial civilization has sailed itself way up its shit creek without enough of a paddle, by presuming that there surely would be some technological miracles to save us from ourselves.

However, the basic problems are that money is measurement backed by murder, or that the debt controls depended upon the death controls. The history of oil can not be separated from the history of warfare, nor separated from the basic ways that civilization actually operates according to the principles and methods of organized crime. Again, there "nothing in analysable history" to be able to compare to what happens to petroleum resources, after the human murder systems have to adapt to the existence of weapons of mass destruction.

At the present time, we are cruising on the autopilot of human habits, to have developed globalized electronic frauds, backed by atomic bombs, in the forms of MAD Money As Debt, backed by MAD Mutual Assured Destruction. We have NOT adapted to that, other than mostly by continuing to follow our morbid psychological and political habits, which were based upon thousands of years of social successfulness through backing up deceits with destruction, and then through enforcing frauds.

The ways that the industrial revolution developed were never done with any overall rationality, but rather, were done in the expedient ways directed by the continued triumphs of organized crime. Therefore, the petroleum resources' real past was wrapped up in the paradoxical triumphs due to enforcing frauds, and so, the future of those must also continue to be wrapped upon in their continuing enforced frauds, which has wildly counter-intuitive consequences, related to the wild oscillations in the price of oil, that have no direct relationship to the relatively overall steady supply of oil, which has perhaps overall been plateauing.

The oil markets, like all other markets, are being rigged to the maximum possible degree by the people who most control the SOURCES of the public "money" supply as ENFORCED FRAUDS, which therefore, are able to create as much of that "money" out of nothing as they want to, in order to speculate with that, which are the primary reasons how and why the price of oil can be MADLY manipulated, in counter-intuitive ways, which will increasingly have even more MAD counter-intuitive consequences, because, overall, those ENFORCED FRAUDS are reaching their turning or tipping points, towards reaching the cusps of various psychotic breakdowns.

We are NOT analyzing a "rational" market, we are actually analyzing runaway criminally insane markets. It is only from that perspective that one can comprehend the otherwise astonishingly counter-intuitive ways that the oil markets have been behaving. Personally, I believe that Peak Oil is real, however, I therefore think that that will provoke Peak Insanity.

The younger you are, the more you are being lied to, cheated and robbed by the political system that you were born into. Some young people may have an intuitive bullshit detector. However, the circuits of that have probably burned out due to the overload placed upon those detectors. The entire system was based on maximizing the short-term benefits, while that also simultaneously maximized the longer term costs, which was facilitated through fundamentally fraudulent financial accounting systems. Overall, therefore, the debts have been deferred onto future generations, and even more so, the deaths have been deferred onto future generations, in order that past and present generations could indulge in strip-mining the planet's natural resources as fast as possible, regardless of the overall eventual consequences from having done that ...

The more one learns about that, the worse it gets. Furthermore, the younger you are, the worse that will probably become. For generation after generation, people have been the victims of the best scientific brainwashing that money could buy. That continues to be the case now more than ever before. All in all, I can quite sympathize with young people who have turned their intuitive bullshit detectors off, because otherwise those would have their sirens blaring louder and louder, while their warning lights blinked brighter.

In order to become more realistic about human energy systems, one has to go through series of intellectual revolutions, in order to encompass how and why we have ended up operating our civilization through fundamentally fraudulent financial accounting systems, whereby those frauds by privately controlled banks were enforced by governments to achieve leverage levels which appear to have become so extremely unbalanced as to be criminally insane (as I just recited in my other comment I posted today under $900 Million Payday Is Billionaires' Reward For Crushing Twinkie-Maker's Labor Unions

"... an entire world filled with lunatic central bankers who have clearly taken over the asylum."

In my view, it is impossible to exaggerate the degree to which that is literally the case, and since petroleum resources are the single most important component in our current kind of industrialization, those are also subject to being the most criminally insane, and therefore, the oil markets manifest the maximum counter-intuitive events.

PrimalScream

OIL has tanked

COAL has tanked

COPPER has tanked

The Baltic Dry Index is at generational lows.

But no worries - the Dow continues to have record values !!!!!

HAS IT OCCURRED to anyone ... how stupid and corrupt our Financial System looks, when this kind of stuff goes on? I know Banana Republics that that have better "price discovery" mechanisms than this. And they only deal in bullets and bananas!

Youri Carma

Halliburton secures $500 million to fund drilling in old wells
20 July 2015, by Amrutha Gayathri (Reuters)
http://www.reuters.com/article/2015/07/20/us-halliburton-results-idUSKCN0PU11H20150720

Halliburton said it had tapped BlackRock for $500 million to help fund drilling in existing shale wells, the first such move by a major oilfield services provider at a time when oil producers are shying away from drilling new wells.

HardlyZero

bullish. They have to keep up appearances to keep the entire show on the road. It's going to take years to wipe out all this fiat financed capex and stop the madness.

adr

In the late '90s there was a lot of talk at very high levels about the discovery that oil is abiotic and the supply is just about limitless. New oil massive oil fields were being discovered and ones that should have run dry kept on producing. Oil looked to go below $10 a barrel. Cheap energy and low cost raw materials are the lifeblood of small business and the true economy.

This, like Tesla's discovery of free limitless electricity generated from the Earth itself didn't work for the powers that be. It sounds like a wacky conspiracy theory but there is plenty of evidence that true world changing innovation has been stifled.

The Saudis could still rake in billions with oil selling for $10. US oil companies were making billions with oil selling for less than $20 and still exploring and expanding deep sea rigs. I remember talking with some of my college friends who went on to work at Exxon that a price of $50 for a barrel of oil was seen as impossible. When prices first started creeping up I was told that at $50 it would be profitable to drill anywhere on Earth, even the bottom of the deep sea. If $20 oil still allowed for massive exploration, why is $50 oil seen as the end of the world now? Either oil really is that expensive, or we have been lied to by investment banks and traders who can't make a profit if a commodity falls below the price they paid for it.

The world functioned quite well with commodities at a fraction of their current prices. It is pretty clear that the global economy can't function the way things are right now. We have had fifteen years of absolute economic hell since the Commodity Futures Modernization Act was passed. I don't think anyone even knows what commodities should be selling for since we haven't had anything close to real price discovery for coming up on two decades. Just look at the inflation caused by the massive increase in contract volume. Did growing corn, cutting trees, mining ore, or drilling for oil really get that expensive? Or did everything skyrocket in price because contracts became the next great speculative investment.

The global depression started when total economic control was handed over to investment bankers. The passage of that piece of legislation along with the repeal of Glass Steagall has caused more damage than every war in history combined.

Wed, 07/22/2015 - 18:12 | 6342998 piratepiet2

two words for you : petro and dollar.

Wed, 07/22/2015 - 19:30 | 6343312 Pareto

Inflation. Eventually, $50 oil will be viable when the prices of labor, equipment, services, housing, food, etc., all come down. And the longer the commodity rout continues, the more likely these adjustments will occur. Talking to a kid the other day - figured his time is worth $30/hr. Hasn't worked a fucking day in his life - but - thats just what he figures he's worth........ When the reset occurs I think most (conscious) people will do just fine. Others, like this kid will have an incredibly rude awakening. The way commodities are headed and their duration, nominal wages need to come down at least 40%. Which means the nominal prices of all other things have to come down commensurately as well. And they will.

It just takes time for the shock effect to etch permanently in the minds of people, that things are never going to be the same. We are still in the denial stage. That will change and give way to a more realistic expectation once the greatest monetary experiment completes its cycle.

Wahooo's picture

How do you get a 40% drop?

Winston Churchill

None of the historic ratios mean anything.

We are truly in uncharted waters, without a paddle.

It is different this time, but not in the way CNBC says.

KJWqonfo7

OK, I know im going to regret saying this but... could the Obama policy for Iran be right?

Ignore the nukes and the fact that they hate our guts..

Strategically are we better off if the Saudis have an enemy that is well funded, strong and close by? It will force them to build capacity, spend political capitol and treasure to face off against an Iran that has a VERY young population and has been living like the red headed stepchild of the middle east? Hell their lives are already shit what can the Saudis do to them.

Will it focus their anger more on each other and less on the Tribe (in the short term)? Is a locked and loaded ME with a weak Amerika a strategy to turn them on each other and weaken the region over the long term?

Has Obama been playing chess while the rest of us were playing checkers?

Are dogs and cats living together? Is there mass histeria (or just localized to me)?

Fuck I can feel the downvotes like a chill running down my spine....

rsnoble

Who knows. Possible. Neo-cons are capable of anything, including killing off their own, if they think they can come out ahead.

RaceToTheBottom

Compare the response of the FED to the 2007 Bankster crisis and the Oil Crisis (especially shale) now.

  • Banksters get bailed out so much that they have their largest bonuses ever.
  • Shale companies go down the toilet.

This country really needs a come to Jesus moment, and it isn't a stupid "Black lives matter" or "save unborn lives" or "Gays marrying is the most important thing in the world".

We are sliding into some Sci Fi crazy world reminiscent of some Star Trek show, only this one won't get solved in an hour.

[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: The Great Deformation by David Stockman

[Jul 22, 2015]Oil falls, U.S. crude settles below $50 as inventories rise

"... Oil is trading at inflation adjusted price equal to 1974 pricing. "

U.S. September crude (CLc1) fell $1.67 to settle at $49.19 a barrel, first settlement below $50 since April. The $49.06 intraday low was a September contract low.

U.S. crude dropped below $50 on Monday for the first time since April and its 14-day Relative Strength Index is below 28. A reading below 30 is considered an indication of an oversold condition by technical traders.

DSR

The reason inventories are not going down is mostly due to imports of heavy sour grade, which the US does not produce in substantial quantities. Over the years, most US refiners have upgraded to run lower priced heavy crude versus WTI sweet. Thus, refiner demand for WTI has been tempered. Thus our inventory problem at Cushing, etc. BUT, the WTI supply is going to come down and probably faster than most think.

Chris

The API is usually off by about double whatever they report, so we'll see a little bit later how much of build there really is in the USA.

doubtingthomas1 6 hours ago

  4/26/09 9/23/10 7/21/15 
      50      75     50 cost of barrel oil
    1.43     1.91  1.91 RBOB wholesale 
    1.86     2.44  2.45 price seen at the pump
Data from the commodity Exchange and my local pump prices.

p2i

Saudis step up diesel export? Their refineries were only using 2.4M barrels a day in the last report for June. They can't export a lot of product when it's been reported by Wikipedia that they consume 3M barrels a day themselves.

Joseph

Somebody is really trying to keep oil above $50/bbl. It's going to be interesting if Oil dips below 50 and possibly triggers some automatic selling. It seems like $50 is a technical indicator.

IC

In CA we're getting reamed as usual. We're paying at the $100/bbl level, $4.25/gal. Hell, at the rate these thieves are going, the gas taxes alone will end up being the national avg of the price of gasoline.

David

When will the media stop reporting fudged numbers. Media that broadcasts numbers that are obvious estimated aka fudged are just as guilty as the perpetrators. The reality is that fracked oil is not the same quality, estimates of production include distillates that cannot be used as Oil or Gas production. World oil demand is estimated at about 95 million barrels per day, while Saudi's supply is about 31 million per day. The demand is going to quickly outpace the so called 2.5 million bpd surplus. Oil is trading at inflation adjusted price equal to 1974 pricing.


jim

This is good news for Americans.
Bad news for speculators, banksters, Putin, and Texans!

Jay 5 hours ago

Low oil prices?

It's not just overproduction, the world economy is in bad shape and demand is falling.

Lars Mors

It is interesting that Saudi Arabia came up short $4 billion in just the last month, and has run short of capacity. Something is gonna break ... either prices shoot up or economies collapse.


[Jul 22, 2015] Metals are getting crushed

And following gold's plunge, analysts are getting increasingly bearish on the commodity.

Goldman Sachs now sees the price of the metal dropping below $1,000 an ounce, according to Bloomberg's Debarati Roy. .

Goldman's head of commodities research Jeff Currie told Bloomberg: "With the more positive outlook on the dollar, and with debasement risk starting to fade, the demand to use gold as a diversifying asset against the U.S. dollar becomes less and less important."

Currie also said the firm prefers to approach gold "on the short side" for the longer term.

Math-Chem-Physics

U.S. Treasury Yields are falling today July 22 due to Safe-Haven flight of Investment Money due to the impending military actions in the China Sea between the U.S. & China ; other areas such as Ukraine are also likely now to explode in conflict. This will soon attract Safe-Haven Investment into Gold and Silver also and the Gold & Silver Mining Stock Equities in XAU and HUI. My previous blog on July 20, 2015 below explains this in detail , and also explains why the FRB won't raise its Fed Funds Rate until 2017 :

China is a very shrewd Investor, and so some of its Gold was obviously sold near the top of 2011 and 2012 when Gold was approximately $1,900 per ounce. Of course, China is today buying hundreds of tons of Gold so that when the October 2015 IMF Adjustment is made to Voting Rights giving China equal weight to the U.S.A., China's Gold holdings will be at least 4,000 tons instead of the 1645 tons reported last week. The P8 Reconisance Flight over China's Manmade Military Islands in the China Sea by U.S. Admiral Swift today was vehemently protested by China, and likely will lead to shoot-down of a P8 by China soon, thus sparking powerful Gold and Silver gains for coming weeks throughout 2015 !

The sell-off that drove gold down to $1080.50 today within a few minutes of the Shanghai Stock market opening is yet another case of Manipulation of Gold price lower by some large Banks using "Naked Gold Shorts". The authorities will soon fine those responsible and thereby halt that, just as they have recently in 2015 in the cases of Currency Manipulation, and also Manipulation of the Libor Rate.

Gold is now rallying sharply off its bottom of $1080.50 hit within a few minutes of the Shanghai Market opening; Gold price has now recovered more than one-half of its loss, which loss is in spite of the strong Fundamentals of Gold; those strong Gold Fundamentals are related to the impending 86 Billion Euros Bailout for Greece that will strongly bolster the Euro and Gold as the U.S. Dollar sinks sharply, thus allowing the all-important Large Speculators today to sweep up thousands of Gold Contracts based on those strong Gold Fundamentals ! The weekly Commodity Report on Wednesdays will illustrate this on July 22; of course , today's panicked small speculators won't know this until it is too late on July 22. At 3:05 a.m. EDT, Bloomberg News reported that Greece will pay all 7.05 Billion Euros Debt Repayment on time that is due near-term. Gold has so far rallied up to $1119, and Silver has also rallied sharply to be down only a few cents, and the Euro is up 0.2%. Additionally, the FRB cannot raise its Fed Funds Rate according to FRB Vice Chair Fisher on July 17 because the Annual 1.2% PCE Core Inflation Rate fell from 1.3% of the previous month, which is far below the 2% Mandate; FRB Member Mester's notion to use a Interest Rate increase to improve "financial stability" was totally rejected by FRB Member Williams !

The German Parliament on July 18 voted overwhelmingly to immediately start the Bailout Negotiations with Greece, and German Chancellor Merkel then stated that the Greece Bailout must be agreed to quickly so that lengthening of the maturity of those loans by decades with lower Interest Rates will quickly make the Greece Debt "sustainable", thus allowing the IMF to quickly loan their fair share of the 86 Billion Euros ! July 20, 2015 at 7:30 a.m. PDT

[Jul 22, 2015] The current "gangbusters" wealth effect on consumption

"...Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation ata level never seen before in history."
.
"...In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect."
July 20, 2015 | angrybearblog.com

Pulled back from comments. (bolding mine)

Marko, July 20, 2015 7:01 am
These days , more people may own stocks , but the vast majority own trivial amounts. Look up Edward Wolffs stuff on wealth distribution and try to estimate how much stocks would have to go up to tease out any meaningful consumption out of the bottom 90% of the wealth distribution.

The dotcom bubble was unusual in that from the mid-90s to just after the crash decent income gains were achieved across the distribution , something that hadn't been seen for a couple of decades. That may have contributed to any apparent consumption anomaly , as more-than-usual income flowed to high MPC households.

You can find people who can econometrically manufacture stock market wealth effects of 5-10 cents on the dollar , but they're almost always those of a certain "persuasion" , politically speaking , i.e. mouthpieces for the 1%. Greenspan was a famous example.

Other asset prices certainly respond to a stock market bubble , like art and other collectibles , but that doesn't do much for the economy either.

Shiller has never believed much in the stock market wealth effect , and I tend to think he's on the right track. A couple pennies on the dollar in the US , maybe :

http://www.pragcap.com/robert-shiller-debunks-stock-market-wealth-effect

Housing wealth is more potent , I'm sure , but when you back out the collateral-enhanced borrowing increase , I doubt that it amounts to more than a penny or two attributable to wealth "animal spirits".

Finally , 'splain this :

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

If there's any kind of generalized wealth effect , it should be going gangbusters right now , bigger even than the dotcom or subprime booms. That's hard to square with this economy's performance , which has limped along right through the wealth boom. Maybe some would argue that without the wealth boom we'd be entirely dead , but my feeling is we've designed the economy to generate wealth instead of gdp. In that sense , we're doing great !

My reply

Indeed the ratio of personal consumption expenditures to personal disposable income is the highest its been since 1950 except for 2005 2006 and 2007 (the height of the housing bubble).

Note in the discussion that Brad DeLong, Dean Baker and I all agree that housing wealth has more effect on aggregate demand than stock market wealth. I argued as you do that the wealth of the rich has little effect on their consumption (which is I think limited by 24 hours in a day not a budget).

I have no idea why it is that people who assert there is a stock price effect on consumption tend to be right wing. They often argue that promoting saving is very important (hence capital income shouldn't be taxed). In general they argue that consumption is too high not too low (and that it crowds out investment). Thus they should argue that causing low consumption is a good thing about low stock prices.

In fact, I think that usually (when the economy is not in a liquidity trap) lower consumption would be better. This is one of many reasons why I would like to effectively confiscate part of the value of stock by taxing dividends. It is exactly the wealth effect that makes the optimal tax on capital income (as correctly calculated using the standard model used by critics of capital income taxation) very high.

In any case, I don't think one should decide what is true by group affinity for people who say one thing or another. Rather I think it is better to look at data (as I did following your absolutely correct albeit rhetorical gangbusters prediction).

GDP is way below trend because of low residential investment and low government consumption and investment. Consumption is high — much higher than one would guess with the most empirically successful model with no wealth effect (which is the paleo Keynesian consumption function).

Warren, July 20, 2015 11:12 am

I agree 100% with your assessment of the (lack of) "wealth effect" of a stock market bubble.

You get a stock market bubble by having more people wanting to buy than to sell, so the prices get bid up. "Investment" in stock (except for IPO's), does nothing for the economy — except to raise stock prices. In general, it is still a good idea for people themselves to invest in the stock market, but a stock market bubble does not help the economy at all, because to get money out to buy something else (which would help the economy), someone else has to take their money, which he might have used to buy something else, to pay you for that stock.

Stock market purchases (again excepting IPO's), are a wash — whatever price is paid by the purchaser just goes to the seller and the broker. There is no net gain anywhere.

Indeed, the wealth of the rich does not affect their consumption, not because there are only twenty-four hours in a day, but because their goal is the accumulation not consumption. That's how they got wealthy in the first place.

Housing prices, however, are a different matter, because some people will take out equity loans on their houses and spend it on something — usually consumption, not accumulation. This takes money that people want to save (the lenders), and puts it back into the economy to buy goods and services. It is the flow of money that is important in an economy, not the amount of money. (Yes, one can take loans against stock holdings, but it is riskier, and most people just do that so they can buy more stock — again doing nothing for the economy.)

Now, I do believe that promoting saving is very important, not for the economy, but for the individuals themselves. I agree with the idea that "consumption crowds out investment," but only at the individual level, not economy-wide. For one person to consume, someone else must produce. To produce, he must invest in the means of production. The only way for consumption to be higher is for production to also be higher.

While it seems we agree on all that, I don't understand where you are going with the dividend tax. Dividends are already taxed. A company earns some income, that income is taxed, and from the remainder dividends are paid. Then the recipients of those dividends are taxed on them. Dividend payments are not tax deductible, so they are taxed at both the corporate and individual levels. (True, those in the 10% and 15% brackets pay no dividend tax, but they hold a negligible amount of the dividend-paying stocks.)

Assuming a marginal corporate tax rate of 35%, and a dividend tax of 15% (for most people — some will be taxed at 20%), that's already a 50% tax on that income. How much do you think the government should take?

Lastly, I can understand how low residential investment reduces GDP — it is less production. But I do not see how lack of government consumption reduced GDP. The government, generally, produces little of value. (Yes, the F35 is very expensive, but I think you will agree that its value is much lower.) Government consumption must be paid for by taxes, which means that those paying the taxes will not be spending that money on something else (like residential improvements). Or it can be paid for by borrowing money, in which case the people lending the money to the government won't be spending it on something else or lending it to someone else.

The primary way for federal government spending (investment) to really increase GDP is in infrastructure. Roads, bridges, trains, and public transportation in general have a beneficial effect on the economy in general ("the General Welfare… of the United States").

Now, to contradict myself, maybe I need to go back to the FLOW issue. If those paying the taxes or buying the bonds would otherwise just sit on that money, then perhaps it is better to take or borrow it, even to seemingly waste it on those who don't (won't) work, the government contractors who charge $800 for a MILSPEC hammer, failed health insurance exchanges, etc. Generally, the people who "earn" that money are going to go out and spend it. So perhaps keeping the FLOW moving, even if the reason for the flow is itself worthless, is itself a net positive.

Even so, our debt levels scare the $H!T out of me.

Sorry I've gone on so long. It's a fascinating topic. Thanks for letting me ramble.

bkrasting, July 20, 2015 12:17 pm

Marko dismisses the consequences of the wealth effect with this:

but they're almost always those of a certain "persuasion" ,
politically speaking , i.e. mouthpieces for the 1%.
Greenspan was a famous example.

Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation at a level never seen before in history.

Both Ben an Janet have repeated the mantra that aggressive policy and strong Dow Jones are good for the economy. They have pushed this policy to a much greater extent that Greenspan ever did.

Yellen and Ben do not fit Marko's mold.

In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect.

In the past month China's market fell a jaw dropping 30%! The government stepped in to prop up the market. Hundreds of billions of printed money was needed to avoid an even deeper sell off. There was concern of social pressures if the sell off got out of control. The Chinese clearly believe in (and fear) the wealth effect.

Again, It's a mistake to paint stripes on those who gear economic policy around equity markets. It's also a mistake to underestimate the consequences of the markets on overall economic performance. After all, we have 1929 and 2009 to point to.

    Daniel Becker, July 20, 2015 1:29 pm

    In the end, the vast majority of citizens of a given economy still need to be able to make the payments. Wealth means nothing to them if they don't have the income to cover the monthly bill.

    The liquidity trap was the results of banks having nothing but air under their loan portfolios because the people who were making the payments could not.

    That "could not" make the payments part as I've noted and then Kreger noted in is Gatsby Effect that $1.1 trillion in income had shifted to the 1% from the 99% and in his calculations represented $450 billion in consumption.

    How stupid was this economic design? Build a money machine that depends on people being able to make payments while the machine works also reduces the money used to make payments by those who need to make payments.

    The money boys and girls played both ends against the middle and the ends smacked into each other causing the big crash.

    Bruce Webb, July 20, 2015 2:54 pm

    Warren let me disagree on a few points. In two comments.

    One it is too reductionist to say that the rich are motivated by accumulation rather than consumption, in part because there are only 24 hours in the day. First of all people like Larry Ellison have proven there ARE ways to consume conspicuously no matter how much money you have. For example you can essentially buy the America Cup competition AND buy 99% of one of the major Hawaiian Islands. But more generally you have omitted the third possibility: which is display. As a medievalist by training I have seen abundant evidence that what motivated chieftains and then kings and emperors was not personal consumption as much as the chance to display wealth and hospitality. Meaning that you could become famed by being KNOWN to be so rich that you could spend without care, and not just on yourself but on your supporters or simply via charity. In this way display has a function in between accumulation and consumption and where a thousand years ago that might manifest itself in palaces and cathedrals today it can happen with the pages of the Forbes 400 issue.

    coberly, July 20, 2015 3:24 pm

    Well, I agree about the Big LIe, or the Big Befuddlement. You have to reember that these people have been lying to themselves since they were freshmen at Harvard and were let in on the Big Secrets by Famous Men.

    On the other hand, you could just as well, or better, tax ONLY corporations. Since the corps would adjust the wages they pay and the prices they charge, the effect on "the economy" would be zero. and since the people would not be paying any tax, they would vote for larger taxes and we could get some work done.

    Or, as long as you are not running a system where the rich pay no taxes and the poor pay what the traffic will bear, you could leave things as they are and let the market sort them out.

    I don't know anyone who is paying the "double tax" who is going without supper.

    [Jul 22, 2015] The Cost of Free [Trades]

    The CIO that Eric Peters is quoting above is fortunate that markets aren't a 24/7 affair with wide open access. I believe that most investors are as well.

    Silicon Valley is enamored with a slew of new tech startups that offer free and instantaneous trading. The technology is cool and the price is, well, as good as it gets, but the larger question to me is "Why?" If an investment isn't promising enough to justify paying seven dollars to execute the trade, maybe it's not an investment worth making. Maybe there's an unexpected benefit to there being some layer of friction between people and their ability to make moves.

    Perhaps the relatively minor gateway of a trade confirmation screen – "Are you sure you'd like to place this order?" – or a small trading commission ends up being the thing that stands between the kind of frivolous transacting that undoubtedly destroys more value than it creates.

    Warren Buffett and Charlie Munger say it is very unlikely that they can make hundreds of smart decisions each year. They can get the relatively few big decisions mostly right, which is why their investment process is oriented away from having to make a lot of good calls all the time. Can a guy trading out of boredom from his phone say otherwise with a straight face?

    I'm all for efficiency and the trend toward lower investment costs. It's a huge win for investors in the long run. But at what point do lower short-run costs create larger long-run costs by encouraging self-defeating behavior? Investors who are free and unfettered to act on their every impulse and whim are not necessarily being empowered – in many cases they are being endangered. Jack Bogle has made this case in terms of the ETFs that have gradually sucked assets away from traditional '40 act mutual funds. He views them as carrying a built-in incentive to trade rather than invest because they're moving up and down all day. He's partially right – but a tool is only as good or as bad as the end user.

    Free is never free; there's always a price. This includes market access.

    [Jul 21, 2015] Fat Tails & The Invisible Vulnerability Of Markets

    Jul 21, 2015 | Zero Hedge
    Authored by Michael Mauboussin, via ValueWalk.com

    Fat Tails & Nonlinearity, Dec 2007

    Diversity Breakdowns and Invisible Vulnerability

    For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more accurately to describe her paths.

    Francis Bacon
    Novum Organum 1

    The Memo Went Out

    If you are involved in financial markets, you have gotten the memo about fat tails by now.

    But awareness of extreme events is not enough. Thoughtful investors must understand two interrelated aspects of the market. The first is the statistical properties of price movements, including important deviations from the bell-shaped distribution. Academics, risk managers, and quantitative investors have explored this aspect extensively. Researchers recognized decades ago that the distribution of price changes includes fat tails.

    The second aspect, and one often overlooked or misunderstood, is the mechanism that leads to the statistical imprint. Much of the work on the market's statistical properties is divorced from the propagating mechanism, while traditional theories of market efficiency assume the mechanisms. Crucially, understanding the mechanism provides insight into how and why markets fail.

    Our focus here is on nonlinearity. Many complex systems, including markets, have critical points where small incremental condition changes lead to large-scale effects. Researchers in both the physical and social sciences have known about these critical points for a long time; so much so that terms like phase transition and tipping point have slipped into our day-to-day language. Still, critical points throw a monkey wrench into our mostly linear cause-and-effect thinking.

    Critical points help explain our perpetual surprise at fat-tail events: We don't see them coming because the state change is much greater than the perturbation suggests. Water does not undergo a dramatic change as it drops from 35 to 33 degrees Fahrenheit, but two degrees of additional cooling changes its state from liquid to solid. Likewise, large changes can occur in markets without visible manifestation in asset price change, while small additional changes can flip the price switch.

    Critical points are also important for proper counterfactual thinking. For every critical point we do see, how many were lurking but never triggered? Like water temperature dropping to 33 degrees and again rising, there are likely many nearmisses in the markets that elude our detection.

    We survey three ideas: black swans and why patterns set us up for surprise; the conditions for crowds to be wise and the role of nonlinearity; and, finally, three examples of nonlinearity, including a physical system, an agent-based model, and a recent market dislocation.

    Michael Mauboussin - Fat Tails And Nonlinearity

    Don't Feed the Turkey

    Nassim Taleb uses the black swan metaphor to help popularize the fat-tail idea. He defines a black swan as an outlier event that has an extreme impact and that humans seek to explain after the fact. Recent market turmoil fits the definition well.

    The black swan reference reflects Karl Popper's criticism of induction. Popper's point is that to understand a phenomenon, we're better off focusing on falsification than on verification. Seeing lots of white swans doesn't prove the theory that all swans are white, but seeing one black swan does disprove it.

    Taleb relates the story of a turkey that is fed 1,000 days in a row. The feedings reinforce the turkey's sense of security and well-being, until one day before Thanksgiving an unexpected and uninvited bad event occurs. All of the turkey's experience and feedback is positive until fortune takes a turn for the worse. Recent comments by a senior executive at one of the world's largest banks evoke the turkey story: "Our losses [from instruments based on U.S. subprime mortgages] greatly exceeded the profits we made in this field over several years."

    Michael Mauboussin - Fat Tails And Nonlinearity

    Here's the point: rising asset prices provide investors confirming evidence that their strategy is good and everything is fine. This induction problem lulls investors into a sense of confidence, and sets the stage for the shock when events turn down. That nonlinearity causes sudden change only adds to the confusion.

    Michael Mauboussin - Fat Tails And Nonlinearity

    See full PDF here

    [Jul 21, 2015] Take Cover - Wall Street Is Breaking Out The Bubblies

    "... After all, what's a 61X trailing PE among today's leading tech growth companies?"
    Zerohedge

    This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Yelp, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled.

    After all, what's a 61X trailing PE among today's leading tech growth companies?

    [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*/ /secular_stagnation.

    [Jul 20, 2015] The Complete Guide To ETF Phantom Liquidity

    Jul 20, 2015 | Zero Hedge
    Two months ago, in "ETF Issuers Quietly Prepare For Meltdown With Billions In Emergency Liquidity," we outlined the rather disconcerting circumstances that have led some large fund managers to quietly line up emergency liquidity facilities that can be tapped in the event of a sudden retail exodus from bond funds.

    "The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown. Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show," Reuters reported at the time, in a story we suspect did not get the attention it deserved.

    At a base level, these precautionary measures are the result of the interplay between central bank policy and the unintended consequences of the post-crisis regulatory regime. ZIRP creates a hunt a for yield and simultaneously incentivizes companies (especially cash strapped companies) to tap the bond market while borrowing costs remain artificially suppressed. Clearly, this is a self-fulfilling prophecy. The longer rates on risk free assets remain near, at, or even below zero, the more demand there is for new corporate issuance (the rationale being that at least corporate credit offers some semblance of yield). More demand means rates on corporate credit are driven still lower, and once yields on high grade issues get close to the lower limit, yield-starved investors are then herded into HY.

    All of this supply in the primary market comes at a time when liquidity in the secondary market for corporate credit is non-existent thanks to the shrinking dealer books that resulted from the government's (maybe) well-meaning attempt to crack down on prop trading. The result: a crowded theatre with a tiny exit.

    This situation has been exacerbated by the proliferation of bond ETFs which have allowed retail investors to pile into corners of the fixed income world where they might not belong.

    All of the above can be summarized as follows.

    "MF assets too large versus dealer inventories" (via Citi)...

    ... clear evidence of "structural damage in corporate bond trading liquidity" (via JP Morgan)...

    ... and the rapid growth of bond funds in the post-crisis world (via BIS)...

    So given the above, the question is this: if something were to spook the market - a rate hike cycle for instance, or an October revolver raid on HY energy names, or an exogenous geopolitical shock - causing an exodus from these funds, what would happen to prices if fund managers were suddenly forced to transact in size in an illiquid secondary market in order to meet redemptions?

    "Nothing good", is the answer.

    The solution is to avoid selling the underlying bonds - even when investors are selling their shares in the funds.

    But how is this possible?

    To a certain extent, outflows in one fund can be offset by inflows to another. These "diversifiable flows" are one happy byproduct of the great ETF proliferation. Here's a refresher on how this works courtesy of Barclays.

    * * *

    Portfolio Products Replace Dealer Inventory

    While diversifiable flows limit the risks to portfolio managers in principle, the reality of the high yield market is more complicated. Managers have specific views on tenor, callability, sectors, covenants, and, most importantly, individual credits, such that actually finding buyers for specific bonds can be quite difficult. In the pre-crisis period, dealers ran large inventories that effectively facilitated the netting of flows across funds (Figure 1). A fund with an outflow would sell bonds into the dealer community, and funds with outflows would buy bonds out of the dealer inventory. When inventory is large, the fact that the specific bonds bought and sold did not match was largely irrelevant. Funds with outflows could sell the bonds of their choice, and the funds with inflows could pick investments from the large variety of inventory held by dealers.

    The matching problem has become more acute as dealer inventories have declined. Even funds can net flows in principle, dealers are much less willing to warehouse bonds, and are much more likely to buy only when they believe they can quickly offload the risk. Under this scenario, the fact that flows can theoretically be netted is of little practical use to fund managers – actually netting individual bonds is extremely difficult, particularly in the short time frame required by funds offering daily liquidity to end investors.

    This is where portfolio products come in. Investors can use portfolio products to fund outflows/invest inflows immediately and execute the necessary single-name bond trades over time as liquidity in the underlying bond market allows (Figure 2). In this scenario, funds with inflows and outflows simply exchange portfolio products, sidestepping the immediate need to trade single-name corporate bonds.

    * * *

    Ok great, so ETFs provide a kind of "phantom" liquidity if you will. There are two problems with this:

    • It only works when flows are diversifiable. Once flows become unidirectional, it all goes out the window.
    • It makes the underlying markets even more illiquid.

    Here's how we put it last month in "How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown":

    In other words, if I'm a fund manager, the idea that ETFs provide liquidity rests on the assumption that when I experience outflows, someone else will be experiencing inflows and thus I can sell ETFs and avoid offloading my bonds into an illiquid corporate credit market. Put another way: I am depending on new money coming into the market to fund redemptions from previous investors who are exiting the market, all so that I can avoid liquidating assets that are declining in value and that I believe will be difficult to sell. There's a term for that kind of business. It's called a ponzi scheme and just like all other ponzi schemes, when the new money dries up (so, for example, when HY bond ETF flows are all headed in the wrong direction), the only way to meet redemptions is to get what I can for the assets I have and when the market for those assets is thin (as the secondary market for corporate credit most certainly is), I may incur substantial losses.

    Note also that the more often ETFs are used as a way of avoiding the underlying bond market, the more illiquid that market becomes, making the situation still more precarious in the event of a panic.

    So what is a fund manager to do?

    This is where we come full circle to the emergency liquidity lines mentioned at the outset. In order to avoid tapping the underlying illiquid bond market in a situation where flows are unidirectional, fund managers may instead pay out redemptions in borrowed cash.

    This is, to quote Citi's Matt King, "creative destruction destroyed."

    Only worse.

    That is, this represents the willful delay of a long overdue episode of creative destruction layered atop another delay of the much needed Schumpeterian endgame. Stripping out the metaphysics and philosophy references, that can be translated as follows: this strategy is yet another example of delaying the inevitable. If fund managers are forced to tap these liquidity lines it likely means investors have found a reason to sell en masse and if that reason turns out to be something that permanently impairs the value of the underlying bonds (as opposed to a transitory, irrational panic) then all the funds are doing by borrowing to meet redemptions is employing leverage to stave off the recognition of losses, which is ironically the same thing (in principle anyway) that the companies whose bonds they're holding have done to stay in business. It's a delay-and-pray scheme designed to avoid selling the debt of companies whose similar delay-and-pray schemes have run their course.

    In closing, it's important to note that no fund manager in the world will be able to line up enough emergency liquidity protection to avoid tapping the corporate credit market in the event of panic selling in the increasingly crowded market for bond funds.

    In other words, when the exodus comes, the illiquidity that's been chasing markets for the better part of seven years will finally catch up, and at that point, all bets are officially off.

    [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 19, 2015] Shell Warns, Oil Price Recovery To Take 5 Years

    "...The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel."
    "...It will take several years [for oil prices to recover fully], but we do believe fundamentals will return"
    Jul 19, 2015 | Zero Hedge
    Submitted by Andy Tully via OilPrice.com,

    Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn't rebound.

    In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it.

    "Low prices have big implications for exporting countries like Iran, Russia and Venezuela," he said.

    "But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand."

    For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. "Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015]," he said. "So global oil demand is expected to grow as well."

    But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, "Supply … may even decline." As for Shell itself, though, he said, "We're determined to avoid a start-stop approach to investment."

    As for the global market, Van Beurden said that at best, "a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario."

    But he pointed to one major snag in that view: U.S. shale oil. A boom in North American production over the past few years helped to create the glut that led to the steep decline in oil prices that began a year ago. OPEC, under the leadership of Saudi Arabia, decided to fight shale producers with a price war, hoping that keeping prices low would make shale extraction, already costly, unprofitable.

    But if shale producers cut costs and take other steps to keep producing, van Beurden said, "With moderate economic growth, prices could stay low for longer."

    Van Beurden qualified his outlook by stressing that "I can't predict the future," but his director of oil and gas production outside America gave a more specific view of Shell's expectations in a separate interview with Reuters, published July 16.

    Andy Brown, a top Shell official, said the Anglo-Dutch oil giant forecasts no quick rebound in the average global price of oil, but only a gradual recovery lasting five years. He attributed this sluggishness to a slowdown in China's economy, leading a drop in demand for fuel, and the continuing oversupply of oil.

    The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel.

    In fact, he said, that was a key driver for Shell to offer of $70 billion to buy rival BG Group more than three months ago. This not only supports van Beurden's insistence that low oil prices won't cause Shell to trim investments, but also expands Shell's capabilities in deepwater oil production and gives it immediate entree to markets for liquid natural gas (LNG).

    "It will take several years [for oil prices to recover fully], but we do believe fundamentals will return," Brown said. "Until such time, we, like other companies, will have to make sure we stay robust."

    [Jul 16, 2015] It looks like Morgan Stanley absolutely nailed the end of the oil rig plunge

    Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (relative in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

    JamesB

    there is another data set that matters more and that is the rig productivity data. Almost all of he older and smaller rigs have been take off line. One of the aspects of shale work is the huge leap in technology, perhaps the single largest advance ever in the industry. Traditional vertical drilling produced on average only 1 producing well out of every three drilled. The shale producers have almost completely eliminated dry holes with the newer wells which can steer the drill bits to hit tiny pockets. It is a huge change. The second thing is the first shale wells were drilled only 3/4 of a mile and one rig could cover about 2-3 square miles. They are now drilling 15 miles in shallow wells and one rig drilling site covers 150-180 square miles. What is also interesting is it takes only a couple days longer to drill the 15 miles than the 1 mile. The drilling rig count dropped in half, but the feet drilled actually dropped only about 10%. Deep well drillers are also seeing similar leaps forward. A well in the Gulf of Mexico recently hit a record 25 miles of horizontal reach. Morgan Stanley probably nailed it because they were watching the types of rigs.

    Dave

    These guys can drill all they want but it will just help keep prices down. The demand is simply not going to be there. Oil will remain oversupplied for a long time as long as they keep pumping and squeezing it out of the ground. And OPEC nations are sure not going to slow down. They have social programs to fund to keep their citizens happy. Now, lets get the price for gas in the US down to $2 a gallon where it should be.

    LOREN

    The rig count is all off, as far as judging how much oil is being discovered. Don't put much stock in rig counts based on past history. New drill bits have been developed and are now in wide us. They can now drill a well in half the time. So the rig count could be half of what it was years ago, but they can drill twice as many wells. This is what happens when you take your advice from bankers who sit in offices in NY. And the effect is clear, even with drastically reduced rig counts, US oil production continues to increase.

    southerncomfort

    I work in the oil field in Texas and was making over a $100,000 a year will barely make $60,000 this year. I have already secured a job in the healthcare field and will finish my last year to get my BA in Healthcare Administration. Oil field sucks

    dan

    The real data is the cost of production... We can't compete until the American Oil Companies decide to reduce profits and share revenue...
    Period.

    I work in the Middle East and I know.

    How much money do you need ExxonMobil?...Texaco?

    All of the people that you contract to drill your wells by running, non-stop, for 24 hours don't realize that they will be out of work in a few years...

    I do... I am 3rd generation of an Oilfield Drilling Contracting family and I know who profits during the "bust" cycles.... You do!!!

    ed

    The time for claiming something actually happened is maybe a half year to a year after it happened. This is the problem today with everyone thinking that they MUST KNOW everything immediately, and even then, still make foolish mistakes.

    Please, someone tell me why we "must know" which idiot won an election, one minute after the polls closed. Thank you in advance.

    Steve

    The IB's also were calling for oil to sink to $30 or below, which was ludicrous. Their call on rig count vs. actual data was coincidental at best. You can't make legitimate calls when your butt is sitting in a chair in a cubicle in NYC. My experience is most of these guys, while certainly intelligent and well educated, are arrogant and clueless of day-to-day decisions at the field level.

    JamesB

    The are nothing more than desk jockeys.

    Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (realtive in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

    [Jul 15, 2015] The Stock Market Is Too Important To Leave To The Vagaries Of An Actual Market by Babar Rafique of Setter Capital

    "..."The primacy of politics over markets must be enforced." —Angela Merkel "
    "...The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."
    "...Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think."
    "...Because criticizing a nation's economic ideology is just like declaring its people subhuman."
    Jul 15, 2015 | Zero Hedge

    The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

    G.O.O.D

    The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

    Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think.

    JustObserving

    The stock market is just too important to leave to the vagaries of an actual market now. Levitating the stock market has been happening in the land of the free since at least 2009. Fraud and manipulation is the fastest way to wealth.

    KnuckleDragger-X

    It's getter harder for the propaganda to work when more and more people are going under and the systems like utilities are becoming less stable. The thing that'll likely start the collapse are things like race baiting the free shit army and destroying the working and middle class lifestyle. There are a lot of people who are giving up, but there are also a lot of people starting to get really pissed and it won't be a big thing but a little thing that starts the avalanche....

    DOGGONE

    http://showrealhist.com

    Q: What is going on?
    A: F__k the people!

    alphamentalist

    yes to 2009. and longer if you consider the discounting effect of ever lower rates that has been happening for decades. but the real damage to the micro structures of the market has happened since 2011/2012. single name stocks stopped effectively discounting information in 2012 (except for discounting that there was a lot of QE happening, with the hope of more to come, that all got discounted properly, of course). nowadays, very, very rarely do you see a stock actually trade off when it becomes obvious its management/model is flawed (maybe you get a -5% move for a situation that should have been a -25% move). aside from the obvious misallocation issues, this is a generation crime: it is forcing younger investors to bailout the boomers by paying 2-3x the fair price for their own retirement assets.

    Falling Down

    OT:

    Poor Kruggers:

    http://krugman.blogs.nytimes.com/2015/07/15/angry-germans/?module=BlogPo...

    Renfield

    hehe - first time I've voluntarily read anything on the NY Times site since - oh, I don't even know how many years.

    But I must admit that article was kinda fun, short & sweet.

    From the article:

    <<Because criticizing a nation's economic ideology is just like declaring its people subhuman.>>

    I wonder if he realises what he just said, there?

    Thanks for that little snack. I guess you're one of those who reads the NY Times so I don't have to. One of the almost-never times I have any sympathy for a Krugman whine. Krugman's hit his stopped-clock correctness quota with this one.

    ETA: First the IMF, now the NY Times. Looks to me like Someone Up There is seizing this opportunity to put Germany firmly in its place. Hmmm... wonder what else is happening behind the scenes, to cause this sudden anti-German sentiment from TPTB? I suspect that whatever it is, it has very little to do with Greece.

    Fun Facts

    Until the current "financial system" fails, we will have a managed stock market. Just like the Chinese and everyone else.

    Why ? If they stopped it would lose 50% or more until it found fair value. Interestingly, more and more inside the establishment see central bank stock market management as the proper course.

    "And you may ask yourself, how did I get here ?"

    Dr. Engali

    It's not that hard to understand. The stawk "market" is a policy tool. The illusion of prosperity must be maintained even if the whole country is slowly going to shit right before our own eyes.

    MASTER OF UNIVERSE

    The NeoLiberals/NeoConservatives have lost control over the markets since March 10th 2008 @ 11:00am Bear Stearns NYC time. What controls the markets, and the future of all economies throughout the World is a Mandelbrot Set, or fractal, of actual economic destruction that continues to replicate itself each and every successive business quarter. The old 'growth models' that the Wall Street 'Quants' based their projections on was seriously flawed, and now the sand they built the American Economy on has shifted much like the World Trade Centers shifted on their foundations when the USA Military Grade Nano-Thermite cut into the support steel beams to control the demolition of WTC 1 & 2, plus Building #7.

    NOTE: The appropriate algorithm to control the Mandelbrot Set that was triggered in 2008 when Bear Stearns was subject to a bear run has not been utilized yet because the 'Quants' do not understand what they did on a Quantum Mechanical level. Nor do they understand how the same fractal has been replicated each successive business quarter. Until they understand what is controlling the markets they will not be able to increase the growth model whatsoever. Each business quarter will be a repeat of the last with an increase in contraction until all the superstructure that was built by the 'Quants' is deconstructed and destroyed outright. In brief, the fractal replication is very aggressive, much like a runaway freight train on a Hegelian Spiral downwards.

    moneybots

    "The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."

    A manipulated market always returns the favor in the opposite direction.

    farmboy

    "The primacy of politics over markets must be enforced." —Angela Merkel

    Clowns on Acid

    Fed policy = Stock and Awe !

    BoPeople

    So, WE are saddled with massively inefficient markets that allocate money to the least deserving and least productive and THEY are saddled with the knowledge that vast numbers of people, not on the inside, now know that the they and those they serve control things ... and when there is the next crisis (and there will be some day) that EVERYONE will quickly know who is responsible (just as the Chinese knew who to blame... and the Greek people know who to blame).

    They cannot escape this responsibility and the consequences of that responsibility.

    [Jul 13, 2015] OPEC expects a more balanced oil market in 2016

    This is Reuter interpretation which is by definition slanted toward energy consumers, who are interesting in low prices bonanza to continue. Should be taken with a grain of salt.
    "...In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year."
    "...Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014."
    "...OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.
    U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016."
    "...The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come."
    Jul 13, 2015 | Reuters
    • Group expects world oil demand growth to increase in 2016
    • U.S. oil output growth to fall sharply next year
    • Saudi Arabia says it pumped at record high in June (Updates throughout)
    The oil market should be more balanced next year as China and the developing world use more oil while supply of fuel from North American shale grows more slowly, OPEC said on Monday.

    In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.

    World oil demand growth should outpace any increase in oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing consumption of OPEC crude, it said.

    "This would imply an improvement towards a more balanced market," OPEC's in-house economists said in the report.

    OPEC has increased production sharply over the last year as its most powerful member, Saudi Arabia, and other core producers in the Middle East Gulf attempt to build market share, leading to higher inventories worldwide.

    OPEC said Saudi Arabia reported that it pumped 10.56 million bpd last month, up 231,000 bpd from May. According to industry data, that would be a record high.

    Higher OPEC production has been a major factor behind a collapse in oil prices, which are now around half their levels of a year ago.

    Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014.

    Lower prices have squeezed high-cost oil producers and brought a sharp fall in the number of oil exploration rigs in operation, particularly across North America.

    OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

    U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016.

    "Total U.S. liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year," it said.

    That should mean more demand for OPEC oil next year.

    OPEC said it expected demand for its own crude to rise by 860,000 bpd in 2016 to 30.07 million bpd. But it cut its estimate of demand for its crude this year by 100,000 bpd to 29.21 million bpd.

    The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come.

    (Editing by Dale Hudson and Jason Neely)

    Paul Krugman: Liberals and Wages

    We can do more to encourage firms to raise wages:

    Liberals and Wages, by Paul Krugman, Commentary, NY Times: Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton's core message was that the federal government can and should use its influence to push for higher wages. ...
    Mrs. Clinton's speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.
    Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.
    In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend... But the case for "skill-biased technological change" as the main driver of wage stagnation has largely fallen apart. ...
    Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution...
    The ... market for labor isn't like the market for, say, wheat, because workers are people. And because they're people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn't cost jobs after all.
    The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we've learned from minimum-wage studies seriously, you realize that they're not relevant just to the lowest-paid workers.
    For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there's every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
    So there was a lot more behind Hillary's speech than I suspect most commentators realized. ...

    Posted by on Friday, July 17, 2015 at 01:08 AM in Economics, Income Distribution, Technology, Unemployment | Permalink Comments (103)

    Janet Yellen's Unusual Optimism

    Teresa Tritch of the NY Times editorial board:
    Janet Yellen's Unusual Optimism: ...To my ears, most of Ms. Yellen's speech expertly laid out why the economy is not ready for interest rate increases anytime soon. Then, toward the end, she said that based on her views, she expected to begin raising rates "at some point later this year." ...
    Granted, it takes time for the effects of an interest-rate move to be felt in the economy. So if the Fed thinks the economy is going to start overheating, say, next year, it would choose to raise rates before that. But I didn't hear any good reason in the speech to believe that a full-steam-ahead economy lies ahead. ...
    And yet, Ms. Yellen's take is that a gradual process of steady improvement is underway that, if continued, could justify the start of rate hikes this year.
    That is guarded optimism. But six years into an economic recovery that has been consistently disappointing, I find it hard to share even guarded optimism. ...
    Ms. Yellen stressed, as she always does, that actual economic developments in coming months would determine when to begin raising rates. The question is whether more of the same fitful, inconclusive growth will count as reason to act or reason to wait.

    Posted by Mark Thoma on Monday, July 13, 2015 at 10:32 AM in Economics, Monetary Policy | Permalink Comments (25)

    [Jul 12, 2015] The Best Way to End Homelessness Alana Semuels

    The first-ever large-scale study on the topic finds that permanent, stable housing can be more cost-effective than shelters.

    America has the largest number of homeless women and children in the industrialized world. It's a depressing statistic exacerbated by a housing crisis that forced thousands of families out onto the street. The stories of the 1.6 million children who experience homelessness every year—like that of Dasani, an 11-year-old homeless child profiled by The New York Times last year—are reminiscent of tales from developing countries or disaster zones.

    [Jul 12, 2015] Why Investing Is So Complicated, and How to Make It Simpler By SENDHIL MULLAINATHAN

    "...Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules."
    "...For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win."
    "...Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio."
    "... The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. "
    "...Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite."
    "...The take away from my experience is that you simply cannot trust financial advisers. "
    "...The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location. "
    Jul 11, 2015 | The New York Times

    As with the simple advice "buy index funds," this is also imperfect. If everyone starts buying target date funds, or life-cycle funds, how long before these terms attract companies that create expensive and not-so-effective products? In fact, it may have happened already. As Pierluigi Balduzzi and Jonathan Reuter found and reported in a recent paper, some target date funds may already be taking an expansive view of what it means to invest in equities: They seem to produce a wide range of returns and risks across the year. As a result, I was careful to verify a few things about the fund I chose. First, I made sure that the stocks held by the fund were contained in a simple, broad-based index such as the Standard & Poor's 500-stock index or the Russell 2000. Second, I verified that the costs were very low: The annual fees came to less than 0.2 percent. If the fees aren't obvious, or if they are much higher than this, watch out.

    Even armed with this knowledge, there were hiccups. First, choosing the retirement date raised existential quandaries. Since these funds come in increments of five years (2025, 2030 and so on) I ended up choosing two dates to leave me with mental wiggle room. ("I'm not that close to retirement," I told myself, choosing one fund. "I might want to retire earlier," I said, choosing another.)

    Then I developed a second problem: I was afraid that picking only one kind of fund was imprudent. The economists Shlomo Benartzi at U.C.L.A. and Richard Thaler at the University of Chicago refer to the urge to buy many kinds of funds as "naïve diversification." One fund can be enough if it's diversified: What feels like one basket is really a great many baskets.

    The biggest lesson, I realized, was one that faces me all of the time: The biggest cost of fear is paralysis.

    It is easy to make a mistake in choosing investments. But in an effort to avoid an error, I had been making an even bigger error. As I procrastinated, my money was uninvested and earning zero returns.

    That, surely, is not the path to a happy retirement.

    SENDHIL MULLAINATHAN is a professor of economics at Harvard.

    David, Nevada Desert 7 minutes ago

    Dumb luck, I guess.

    I let the folks at New York City Teachers Retirement System lay out the choices for me. You know: you can save more or you can save less. TRS does a good job of keeping costs down.

    In retirement, I have moved all my bank and brokerage IRAs to Vanguard because their management fee is about 0.17%. Since I must take RMD each year (to be taxed) and have no need for the extra cash, I have put the money in to Vanguard's 529 college fund for my grandchildren...which should pay for tuition in just about any public or private college in future years.

    Some poor investing choice in my lifetime:
    1. Buying an ocean front condo in Atlantic City.
    2. Thinking the Nikkei was cheap at 20,000 and believing it would quickly go back to 40,000.

    A good decision based on rumor:
    I overheard from a colleague at work that she was moving out of equities into fixed income investments because Hong Kong investors were jumping out the window in the late 1990's.

    Suggestion: Read comments on Bogleheads.com from Vanguard fans.

    Yeti, NYC 12 minutes ago

    The fact that a professor of economics at Harvard has problems investing his money shows that we should stay away from investing in other businesses at all costs. Investing in businesses we know very little about is not different from playing the slot machine. It's probably best to invest in your own business, assuming it still has a future. You know where the money goes, the fee is 0% and your motivation to succeed is guaranteed.

    VSB, San Francisco 27 minutes ago

    Good Morning: While I agree that the author has made a few mistakes, commentators should realize that this only confirms (accidentally!) the truth of what this economist has written. Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio.

    However, aren't index funds and target date *not* the same thing? The paragraph beginning "As with the simple advice..." seems to indicate some confusion about the nature of these products.

    None of my index funds cost more than 25 basis points, and my S&P 500 index fund only costs 4. I suspect that any "index fund" that costs 1% (as written in a different paragraph) is not an index fund at all.

    Doug Piranha, Washington, DC 49 minutes ago

    I agree with other commenters, who have pointed out how awful this piece is, because of the discussion of index funds. What if there were standards in presentation? Can the professor really be great unaware that these standards exist already?

    There is something called an expense ratio for a mutual fund! The SEC requires every fund to publish it in a standard format. It isn't complicated, or difficult to find.

    Do domestic index funds really charge 1 percent? Hmmm . . I don know. But you can easily see this, and as others have pointed out, run straight to Vanguard. And thereare other index funds now competitive on fees with Vanguard.

    When it comes to index funds, it really isn't that hard. Don't be scared away by this misleading article.

    Madeline Conant, Midwest 54 minutes ago

    I read through all the comments and Bob Garcia was the only person to get the point. The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. Then the comment column is full of scornful responses about how easy it is to invest if you just try.

    No. No, it isn't. This is one more area where our leaders are FAILING in their responsibility to serve the interests of the citizens of our country.

    The voracious money-vampires have succeeded in eliminating private pensions, and now the common working man has no other choice than to invest (read: gamble away) his life savings in investment vehicles he cannot comprehend. As Mr. Garcia noted, responsible leaders would develop a government-backed savings option that working people could safely put their money into, that guaranteed a modest return. Instead, our elected leaders collude with Wall Street to let the blood-suckers "feast on investors." Indeed, they want to privatize Social Security so they can rook old people out of their SS checks.

    Do we hear our candidates addressing this??

    Larry R. , Bay Shore, NY 54 minutes ago

    The professor's article really offers no solution about how to make investing simpler, and yet the advice from others on this thread remains sound: choose index funds from a low-cost provider like Vanguard or Fidelity Spartan, diversify among US and international equities as well as bonds, set a target allocation for your age (more aggressive in equities when young, less when older so as to preserve capital), rebalance every year or two to preserve your allocation, and that's that.

    On the contrary, stay away from actively managed funds where fees eat into your returns, stay away from individual stocks, and stay away from sectors except possibly real estate. As for target funds, they may be OK so long as you don't pay high fees. All my retirement income is in 6 Vanguard index funds (Total Stock, Total International, Total Bond, REIT, Short-Term Bonds, and TIPS). I once compared my results to what I would have earned from a Vanguard Target fund; I came out ahead with my own allocation, but only slightly.

    Neal, NJ 1 hour ago

    My second thought was that the essay is a misplaced April Fool's joke.

    My first thought was to wonder how a distinguished economist with a specialization in behavioral economics could be so naive about his own behavior.

    My third thought was that here we have another example of why economics is known as the dismal science.

    Ed Perkins, University of Southern California 1 hour ago

    The best answer for persons seeking advice is to select the retirement target date mutual funds offered by Fidelity and Vanguard. In discussing the issue with my history department colleagues at the Univ. of So. California, I usually recommend choosing three target dates. The expected target date fund plus one fund five years earlier and one fund five years later.

    njglea, is a trusted commenter Seattle 1 hour ago

    Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite.

    Bill F., Paducah, KY 1 hour ago

    I was fortunate to have a father who was in the retail investment business, first as a stock broker and then working as a bank trust officer. That did not make him rich. He was much too concerned about his fiduciary responsibility to his customers to platy the games that make some advisers rich. But growing up with him meant I learned a lot about the pitfalls of investing when the lessons were cheap. I saw my college fund go from $1700 to $500 during the 73-74 bear market (I was 13). Living through that made it easy not to panic during 2008-9. I read Reminiscences of a Stock Operator and The Money Game (by Adam Smith, aka George Goodman) in high school. Those two books will inoculate you against the latest fads on Wall Street.

    Dad could pick stocks, because it was his career. I know I don't have the time to do it successfully, so I don't. The bulk of my money is in very low fee index funds. I re-balance about once a year. Fewer bonds than anyone would recommend (<5%), but dad always said, "Bonds are Boring." It doesn't have to be complicated. Don't pay someone to make it more complicated than it has to be.

    bernard, washington, dc 1 hour ago

    I agree with lots of other commentators: the only retirement investment problem is to ignore the investment advice noise, buy cheap index funds, and wait. I guess it sounds like advertising to tell people to go to Vanguard and forget the rest. That is what I have done. It has been very easy and the results are good.

    The big problem among investors is to resist the urge to try to beat the market by being cute. The key insight is that markets are efficient enough to make up-to-date "investment advice" worth nothing extra.

    blgreenie, New Jersey 1 hour ago

    This piece is rather wordy, not very helpful, about a subject that is covered more concisely and exhaustively elsewhere. Morningstar is a valuable information source for mutual funds with endless measurements, comparisons and responsible commentary. Read Bogle too. I find him very common sense and easy to understand. Avoid reading the daily internet financial sites which gain clicks by frightening their readers with too much doomsday. When considering both general index and target date funds, I find that Vanguard is the most often mentioned as having an advantage. No matter your source or steps taken, it nonetheless comes down to what you decide to do.

    Robert Bradley, USA 1 hour ago

    Investing is mysterious only for those who refuse to spend a few hours reading a book on the subject and mastering the modest body of knowledge required (stocks, fixed income, market efficiency, diversification and mutual funds, fees and taxes being the core topics).

    For these slackers, a target retirement fund, as the author concludes, is the way to go. Prefer Vanguard funds over for-profit competitors, and avoid financial advisors.

    Robert Bradley
    Author, Investing in Four Hours

    Raj S, Westborough, MA 1 hour ago

    The basis for this article is wrong is out of sync with the current scenario. Investing is really simple and the proven method is to invest in Index Equity, Bond funds provided by large entities like Fidelity, Vanguard e.t.c.. We should not indulge in excessive trading and be patient with a long term horizon. The author confuses readers and does a great disservice by providing references that are at-least a decade old. I recommend reading John Bogle's investing theories for all young people in this country and around prior to determining their investing plans.

    whatever, nh 1 hour ago

    Wow. Talk about a verbose article that creates strawmen, complicates what is rather straightforward topic, and distorts or exaggerates some simple facts.

    I could provide many examples, but let me provide just one. The author states, "Consumers have been buying index funds, and the market has responded by providing hundreds of them. Nearly all E.T.F.s are index funds. But the market has also responded by charging high fees for this standardized product" and then he quotes a 2004 study from the University of Chicago supporting this claim.

    Leave aside the fact that it's silly to quote a 2004 study in 2015 on a topic like this. The fact is, there are dozens of index funds, offered by such large, well-known, stable, well-managed organizations like Fidelity, Vanguard, etc., whose fees today are in the region of 0.1%, i.e., one-tenth of one percent!

    Why doesn't he point this out, instead of scaring a potential investor away from a good index fund!?

    (I don't work in anything resembling the investment industry).

    james doohan, montana 2 hours ago

    The take away from my experience is that you simply cannot trust financial advisers. I was referred by friends to someone affiliated with a major company with a warm and fuzzy advertising campaign featuring Tommy Lee Jones. She recommended transferring our diversified mutual funds into what turned out to be a catastrophic, illiquid mess of REITs involved in resort properties. Then she sent periodic newsletters detailing her vacation travels. When I tried to complain to Ameriprise, and asked them if she was essentially receiving kickbacks, they explained that she was not an employee, but paid Ameriprise to use their name. I have taken over my finances, not because I am confident I know what I'm doing, but because those people who want to make money off us simply cannot be trusted to work in our interests.

    Susan Josephs, Boulder, Colorado 2 hours ago

    For years and years, and through a series of investment advisors, I thought investing was too complicated and difficult for me to understand. The advisors didn't make it any easier, convincing me that this was best left in their hands. I woke up about ten years ago, thanks to a class I took with a retired engineer whose avocation is investing. He never told us what to buy, just taught the basics of what good investing is and why the buy and hold strategy, that convinced me to do nothing during the 2008 crisis, is a good one. Gradually, the world of investing became less and less complicated to me and I took over our investments myself.

    I went to Vanguard because this company seems the most transparent and the fees are the lowest. I find that most people, especially women, are completely intimidated about investing. It's not that complicated, and with a little time spent understanding it, as the author illustrates, one can easily learn enough to make good decisions. The target funds are made up of four indexes, total international stock, total international, bond, total US stock market, and total US bond market. Every five years the managers adjust the ratios among these four holdings. The Target Funds are a no-brainer way to invest, at low cost, and with good returns. If one doesn't want to go any deeper, this is a good solution. Vanguard offers them and the management fees are low.

    Martha Pattillo, Illinois 2 hours ago

    The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location.

    The Prudential website requires me to scroll through multiple pages to get the relevant information and I cannot readily see choices side-by-side.

    Fidelity is far superior showing the performance of my portfolio. It shows the sources of change in portfolio value: market value, dividends, deposits or withdrawals. It offers graphs and dynamic analysis. Prudential shows only changes, so it looks as if it's doing well, because I contribute to it every month. I have to download PDF files of each individual fund, so comparison is tedious and incomplete.

    Good, clear information can lead to better choices.

    skeptonomist, is a trusted commenter Tennessee 2 hours ago

    How can small investors hope to beat the market picking stocks? They don't have the knowledge themselves. An advisor who makes a living from small investors is probably not a real expert - if there are real experts, they probably work for real big money, and they may have access to inside information. So, advisors may be better than the many fools who play the market with no expertise at all, but probably no competition for big operators and manipulators. For most people index funds are the answer. Of course you can still try to time the market overall.

    **ABC123**, is a trusted commenter USA 2 hours ago

    I read this article thinking it was written by a twenty-something fresh out of college. Then at the end, I saw this guy is a professor of economics at Harvard. Dude... purchase "Personal Finance for Dummies" written by Eric Tyson. That will start you off where you need to be- it's well written and even funny/entertaining. And for index investing... VANGUARD! And not sure why you think indexing is so expensive (???). Vanguard charges a fraction of a fraction of a percentage.

    SteveD, Marlborough CT 3 hours ago

    After all is said and done above average returns depend on finding people with that special and relatively rare skill to beat the market. What is needed is more transparency to check out investment decision records of individuals, not just funds. Maybe trackers like myinvestmentrecord.com will help eventually.

    Dan Green, Palm Beach 3 hours ago

    For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win. Human nature when you sit across the deak from your advisor, he or she is calculating their cut. If like my spouse and I do , manage our own affairs, she has a MBA in economics, you have to be with it all the time. So so many non related forces, affect many investments, much less all the manipulation that goes on. I have a family member who is a classic Gold Bug, those theories are fascinating. Learned the hard way an segement I stay away from.

    Glassyeyed, Indiana 3 hours ago

    Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules.

    [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 10, 2015]200PM Water Cooler 7-9-15

    Jul 09, 2015 | naked capitalism
    Anon

    Maybe there's some formatting goodness still going on behind the scenes, but shouldn't that be New Hampshire? Reading the tweets from the bettermarkets account, brought me to this article by Taibbi:

    Eric Holder: Double Agent.

    What I especially love about this is that it really makes you realize how milquetoast Holder was during his stint as AG, with moments like this:

    One is that he failed to win a single conviction in court for any crimes related to the financial crisis. The only trial of any consequence brought by his Justice Department for crimes related to the crisis involved a pair of Bear Stearns nimrods named Ralph Cioffi and Matthew Tannin, who confided in each other via email that the subprime markets were "toast" but told their clients something very different to keep them invested.

    After a jury acquitted both in early 2009, the Holder Justice Department turtled. Sources inside the DOJ told me over the years that both Holder and his deputy, fellow Covington & Burling alum Lanny Breuer, were obsessed with winning and refused to chance any case where they felt a jury might go sideways on them. Thus the Cioffi-Tannin case was the last financial crisis case they dared to bring into to a criminal courtroom – virtually every other case ended in settlements.

    It sure must be nice to be rich – I can utterly fail at the main responsibility of my job AND land a cushy job with no real effort on my part! Going on that tangent reminds me of that PBS parody video with Lanny Bruce.

    [Jul 09, 2015] More Work Hours Jeb Bush, Try Talking to the Employers

    It's not Jeb Bush. It's Jeb Romney
    .
    "...Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs."
    .
    "...this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out…."
    Jul 09, 2015 | Forbes

    The economic world is obsessed with growth — bigger revenues, more profits, broader markets (and just not regulation). The bias came across today via Jeb Bush who, in answer to a question from the Manchester, New Hampshire Union Leader, said the following:

    My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours" and, through their productivity, gain more income for their families. That's the only way we're going to get out of this rut that we're in.

    https://www.youtube.com/watch?feature=player_embedded&v=P5RERORKXNU

    Erik Sherman,

    I remember once getting into a discussion with a number of corporate executives from public companies. I was giving a talk on some plain-English filing requirements. The executives were complaining roundly about more regulations. "It's killing us — KILLING US!" one literally said. I turned to him and asked, "Did you have higher revenues this year than last?" He said, "Yes." I asked, "Did you have higher profits?" "Yes," he answered. "Then you're not getting killed," I said. Yes, there are costs of regulations and there are times legislators can overdo things because they're either justifying their own existence or trying to position themselves for reelection.

    However, costs *have* been reduced. Companies are generally far more profitable now than in the past. Regulations are necessary as companies have proven that without being compelled, they will often do things that are bad for the environment, bad for communities, and bad for the economy. That's why we have environmental legislation, anti-bribery laws, labor laws like overtime requirements, and a host of other things. If companies are finding it too tough, they can raise their prices (and they do that anyway on a regular basis) or make their operations more efficient. If they can't, maybe they shouldn't be in business. If you want to take a market view, then take a full one.

    Elarie Rose

    Amazing. I never thought to see a business oriented publication like Forbes tell the truth about employers. A few weeks ago I had a casual conversation with a young women that I met casually at a lecture. She was really lovely, well-spoken and intelligent. She works for minimum wage at a supermarket, is trying to afford a few classes at a time at a community college, never expects to own a house and assumes that she will never have children. The most chilling thing about the whole conversation was her calm acceptance that this is just the way the world is, with no expectations that life in America should be any different. She wasn't angry because everyone else in her age group was in the same situation and thought it was normal.

    Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs.

    wigglwagon

    The only reason America ever had the MOST PROSPEROUS economy was because America had the BEST PAID employees and consequently, American businesses had the customers with the most money to spend. American business owners are SO GREEDY that they are using free trade agreements, immigration, and deregulation to drive down wages and destroy benefits. In their quest for short term profits, employers are destroying their own customer base.

    Gregory A. Peterson

    most of the hourly laborers that I know are more than happy to work a "few" hours of overtime for a few extra bucks….here's the problem….a fair number of employers absolutely refuse to pay overtime and IF an employee happens to get some overtime they are promptly reprimanded or written up (I have actually worked for a couple of those companies)…..

    companies want all their income to go into their pockets they seem to have forgotten the old saying that one has to spend money to make money…..

    this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out….

    apparently it's a genetic issue within the Bush family…..

    [Jul 09, 2015] A Case for Grexit

    Jul 09, 2015 | Angry Bear
    beene , July 9, 2015 5:19 am

    It is a shame that our educators fail to teach during early education period the falsehood of the need for private banks.

    "I believe that banking institutions are more dangerous to our liberties than standing armies.

    If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson said in 1802

    Matt McOsker , July 9, 2015 12:05 pm

    Robert Writes:
    3) Greece will have to be austere — deficits will be impossible if no one wants their bonds.

    This requires the typical refusal to believe that the balanced budget multiplier is positive. If Greece can tax the rich (and it certainly can tax wealth) it can stimulate without borrowing.

    Long term this might only work in a closed economy with no trade, or with a trade surplus. By accounting identity they must run a government deficit with a trade surplus if they want growth unless the private sector can run up private debt (i doubt they can right now) to offset the negative balance of trade. If the new spending flows externally you will not have declining growth, and you will drain bank reserves.

    (I-S) + (G-T) + (X-M) = Change NGDP

    Also, they don't need to issue bonds at all. How will they distribute the new currency? Most likely they will spend it into existence with all future government expenditures in the new currency only, they will literally print it up and spend it out there. They functionally don't need borrowing to print (they could implement some combination of TANs tax anticipation notes). This goes to basic chartalism or MMT on why will Greeks demand the new currency? The greek government will demand all tax payments be made in the new currency. A VAT and property tax should accomplish this, and be hard to evade. Plus tourism will automatically cause the selling of other currencies to buy the new one to pay the VAT taxes. Of course, they would need to default on their debts to a large extent under this scenario – or just say they will defer dealing with payments until their economy stabilizes.

    Spending without issuing bonds will drive the short term rate to zero as banks get flooded with reserves. Their new central bank can manage short rates with IOR, rather than bond sales to drain reserves. But in reality they should leave rates at near zero. Yes there will be inflation, but employment would be more important initially.

    Matt McOsker, July 9, 2015 12:19 pm

    Correction to my post above:

    By accounting identity they must run a government deficit with a trade DEFICIT (not surplus)

    Also here is a good article comparing Argentina to Greece – http://bilbo.economicoutlook.net/blog/?p=24010

    [Jul 09, 2015] Fed Watch: Mediocre Tranquility

    "...A huge scam run by Angela the Hun."
    "...On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]"
    Jul 09, 2015 | economistsview.typepad.com

    Tim Duy:

    Mediocre Tranquility, by Tim Duy: The US economy is an island of mediocre tranquility in the midst of the stormy sea of the global economy. Tranquil enough to keep the Fed eyeing its first rate hike despite the surrounding storm, but sufficiently mediocre that they feel no reason to rush into that hike. As such, the Fed will remain on the sidelines until the forecast points toward sunnier skies. Uncertainty from Greece and China are likely raising the bar on the domestic conditions that would justify a rate hike

    ilsm said in reply to pgl...

    A huge scam run by Angela the Hun.

    The troika is demanding Greeks take the international version of payday loans, to tighten their belt and need to borrow more at the next payday.

    Unlike what US thugs these paydays are paydays to the banksters, the Greek has to go hungry.

    New Deal democrat said in reply to pgl...

    I agree with this comment. The Troika should allow Greece to meet its target by raising taxes rather than cutting benefits.

    But ... here is an argument I don't have a good answer to: Slovakia asks why it should agree to a debt cramdown, and also extend a further bailout, to Greece, when Greece has more generous benefits than Slovakia? I haven't heard any good answer to that at all.

    The Eurozone is sometimes contrasted to the USA, in that part of the fiscal union is that prosperous states like NY (analogous to Germany) see their taxes go to help poor states like Alabama (analogous to Greece). But isn't Alabama's state motto "Thank God for Mississippi!" because Mississippi is even poorer? But in the case of the Euro, Mississippi is also being asked for debt forgiveness and a bailout to aid Alabama.

    Now I am fully on board with the idea that Germany is failing miserably (to put it politely) in the role of benevolent hegemon. But I just don't see how that can be extended to poorer European states.

    pgl said...

    Jeb! tells those earning low wages that they need to work more hours. Like this is a full employment economy. Jeb! is an idiot.

    ilsm said in reply to pgl...

    jeb1 thinks we are.......

    As do the rest of the GOPster choir and Hil.

    The candidate that insists on thought is Bernie.

    pgl said...

    The letter to Merkel that Simon Wren Lewis notes:

    http://www.thenation.com/article/austerity-has-failed-an-open-letter-from-thomas-piketty-to-angela-merkel/

    Message - no more austerity. Nice and the lead signature is Piketty.

    Huh - JohnH keeps citing Piketty in his usual cherry picked way to support JohnH's gold bug insanity. But it seems Piketty does not support this gold bug insanity. I wonder if JohnH will finally take note or just find some way to misrepresent what Piketty has written again.

    reason said...

    Glad to see Robert Waldmann's excellent piece http://rjwaldmann.blogspot.de/2015/07/the-structural-problems-ideology-is-not.html linked to here.

    I think Robert Waldmann is massively underappreciated.

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

    "Yeah, I read his piece..."

    [Really? Assumes facts not in evidence.]

    "...he cited the stock market crash of 87 as the cause of structural employment..."

    [Waldman states "the stock market crashed in 1987 and the lady who was not for turning turned to monetary stimulus" which means the reaction was to treat the crash as cyclical unemployment rather than structural. Then Waldman states "This caused increased inflation and an actual shortage of skilled labour" which one can safely assume indicated the counter-cyclical monetary policy was effective and ended the recession.]

    "Do Europeans even understand the idea of structural employment?"

    [Waldman states "The focus on the structural is free floating ideology" and that after the 1987 recession and recovery "Then the border of the stagnating swamp of structural stupidity shifted from the Atlantic to the English channel. The good tough rigorous market based structure became anglophone not American. The case of an inadvertant shift to excess aggregate demand and the long lasting consequences had no effect on the conviction that Europes problems were structural.

    French and German technocrats can ignore aggregate demand, because they have learned to ignore double digit unemployment..."

    Do you even understand Waldman? Apparently not.]

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

    "...I think Robert Waldmann is massively underappreciated."

    [I think Robert Waldmann is massively under-understood. TO say Waldmann is often misunderstood would be under-statement. He is not for the lazy casual reader. Now, I like that just fine, but he is really too clever by half for the average reader. I have had that same problem myself at times, but no one pays me anything for my idiosyncratic self-indulgence. Waldmann is less sophisticated than Sandwichman. Paine does not get a pay check for his idiosyncrasies either.

    On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]


    reason said...

    This piece from Robert Waldmann is also excellent: http://angrybearblog.com/2015/07/a-case-for-grexit.html

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

    Agreed. This Waldmann article was excellent. When he writes for his own blog then it may not be paid, but maybe at Angry Bear he is paid in some way. In any case, it was well written and thorough. Even Mitch should be able to comprehend this Waldmann article.

    THANKS!

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

    I use to write for Angrybear. I never got paid. But I did enjoy a lot of back and forth discussions including some from the host here.

    ilsm said...

    From Krugman on Deflation:

    Deflation had nothing to do with it, it was "German morals".

    In 1932 no one was lending except payday loans like imposed by the ECB on Greece.

    The link between Weimar inflation, and Hitler is imagery used to sell pillorying the economic victims, aka austerity.

    In 1932 Germany and the rest of the world suffered the "disastrous attempt to stay on gold."

    The UE was one of many factors that made "moral Germans" love Hitler.

    There was a vast sea of issues beyond the economy: "German morals" favored politicians with brutal para-militaries (the SS was organized in 1933 from standing Nazi thug units) with propaganda organs to spew hatred and illogical blither like we see from Fox News and much more.

    [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 £700bn 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 £9 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?

    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!

    [Jul 03, 2015] Fed Watch Ahead of the Employment Report

    Jul 03, 2015 | Economist's View

    This is in-line with Fischer's assessment of the economy:

    The U.S. economy slowed sharply in the first quarter of this year, with the most recent estimate being that real GDP declined 0.2 percent at an annual rate. Household spending slowed, while both business investment and net exports declined. Much of this slowdown seemed to reflect transitory factors, including harsh winter weather, labor disputes at West Coast ports, and probably statistical noise. Confirming that view, the latest monthly data on real consumption provide welcome evidence that consumer demand is rebounding, and that economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.

    What about Greece? St. Louis Federal Reserve President James Bullard dismissed Greece as a reason for concern. Michael Derby at the Wall Street Journal reports:

    What's happening in Europe "would not change the timing of any rate hike. I would say September is still very much in play" for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said "every meeting is in play depending on the data," which he said had been "stronger" recently. He also described recent inflation data as being "more lively" and set to rise further over time.

    I doubt other Federal Reserve officials are quite as confident, but they have plenty of time between now and September to assess the situation. As I said Monday, they will be looking for evidence of credit market spillovers. If they don't see it, the economic data will rule the day. Bullard also argued the case of a faster pace of rate hikes:

    "The Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise" would be the case based on historical norms, Mr. Bullard said. "The benefit would be a longer, more stable economic expansion."

    Mr. Bullard warned "my view is that low interest rates tend to feed the bubble process." He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets.

    Derby correctly notes, however, that this places Bullard out of the Fed consensus:

    Mr. Bullard's suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.

    Fischer, for example, still argues for a gradual pace of normalization and is much more sanguine on the financial market excess:

    Once we begin to remove policy accommodation, the Committee's assessment is that economic conditions will likely warrant raising the federal funds rate only gradually. Thus, we expect that the target federal funds rate will remain for some time below levels viewed as normal in the longer run. But that is only a forecast, and monetary policy will, in practice, be determined by the data--primarily data on inflation and unemployment.

    What about financial stability? We are aware of the possibility that low interest rates maintained for a prolonged period could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. At this point, the evidence does not indicate that such vulnerabilities pose a significant threat, but we are carefully monitoring developments in this area.

    Fischer is closer to the FOMC consensus than Bullard on these points.

    Bottom Line: Incoming data continues to support the case that the underlying pace of activity is holding, alleviating concerns that kept the Fed on the sidelines in the first half of this year. I anticipate the employment report, or, more accurately, the sum of the next three reports, to say the same. Accelerating wage growth could very well be the trigger for a September rate hike, while Greece could push any rate hike beyond 2015. I myself, however, tend to be optimistic the Greece situation will not spiral out of control.

    The EIA's Questionable Numbers - Peak Oil BarrelPeak Oil Barrel

    "...For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries."
    "...Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world. "
    "...I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching. "

     

    Jeffrey J. Brown, 07/02/2015 at 6:47 am
    The WSJ has discovered "Net Export Math."

    WSJ: As Saudis Keep Pumping, Thirst for Domestic Oil Swells
    Kingdom is poised to break records for crude output, but its ravenous energy needs threaten its ability to ramp up exports

    http://www.wsj.com/articles/as-saudis-keep-pumping-thirst-for-domestic-oil-swells-1435786552

    RIYADH—Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports.

    Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported.

    For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries.

    At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. has predicted, a once unthinkable prospect for the linchpin of the world's oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom's state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.

    Link to my comment on BP + EIA data on Saudi Arabia's net exports:

    http://peakoilbarrel.com/bakken-april-production-data/comment-page-1/#comment-521843

    Marcus, 07/02/2015 at 7:21 am
    Whilst the Saudi population in common with the rest of the middle east has grown substantially and its consumption with it in recent years I sometimes wonder if we are dealing with a case of Muhammad Saeed al-Sahhaf aka Baghdad Bob or Comical Ali.
    What I mean by that is that hyping their production level is such an important part of their bragging rights that they are willing to do so even when it is clearly not in their interest. Well before the US shale boom they were apt to do this even when logic would dictate that they talk down their production (obviously the quota system also plays a significant role). When their production finally nose dives I think they will claim the same or higher production while increasing their consumption estimates more and more in fact this will likely be the message that all the last great net oil exporters will give us towards the end.
    Jeffrey J. Brown, 07/02/2015 at 7:28 am
    Interesting admission by Khalid al-Falih:

    Reuters (January, 2015): Saudi Aramco to renegotiate some contracts on low oil price -CEO

    http://www.reuters.com/article/2015/01/27/saudi-oil-aramco-idUSL6N0V60Z320150127

    Jan 27 (Reuters) – Saudi Aramco will renegotiate some contracts and postpone some projects due to falling oil prices, the head of Saudi Arabia's state oil company said on Tuesday, stressing the top crude exporter will not single handedly balance the global oil market. . . .

    Saudi Aramco Chief Executive Khalid al-Falih, speaking at a conference in Riyadh, did not specify which projects or contracts would be affected by low prices. . . .

    Falih said the imbalance in the oil market had nothing to do with Saudi Arabia, and a fair price is what would ultimately balance supply and demand, a sign Riyadh is sticking to its strategy of allowing the market to stabilise itself.

    "Saudi Arabia has a policy, the policy is set by the government through the Ministry of Petroleum, and they have said that Saudi Arabia will not single handedly balance the market," he said.

    "The math will tell you that our exports are gradually declining. So the reason for the imbalance in the market absolutely has nothing to do with Saudi Arabia."

    old farmer mac, 07/02/2015 at 7:48 am
    The politics of oil prices are complicated indeed.

    While the Saudis have plenty of reasons to want to put the screws to the Russians they can't trust the rest of OPEC to honor the cartel's production sharing decisions.

    But it appears they are willing to cut a deal with the Russians who do have at least ONE thing in common with them. They both want a higher price for their oil.

    http://finance.yahoo.com/news/saudi-arabia-leaving-u-behind-215428719.html;_ylt=AwrC0F9wMJVVCHUA4SyTmYlQ;_ylu=X3oDMTByMDgyYjJiBGNvbG8DYmYxBHBvcwMyBHZ0aWQDBHNlYwNzYw–

    By the way " our" Jeff Brown and host Ron ought to be on the talking head shows. The fact that they aren't proves that the MSM is not really competent, perhaps by choice, when it comes to energy.

    I am an hopeless amateur when it comes to oil compared to the pros who hang out here but to the best of my knowledge the Russians have until recently always done what they promised in terms of delivering oil and gas.

    I predict that if they cut a deal with the Saudis to cut production they will honor it.

    shallow sand, 07/02/2015 at 9:05 am
    Jeffrey, are the other Gulf OPEC states similar to KSA, in that their exported oil is also falling due to rising internal consumption?
    Jeffrey J. Brown, 07/02/2015 at 10:00 am
    I can shoot you the data base for the (2005) Top 33 net exporters. It's only updated through 2013 (still waiting on EIA consumption data), and there have been some revisions since we compiled the data base.

    My email: westexas AT aol Dot com.

    As I have repeatedly pointed out, what almost everyone is missing is the enormous difference between rates of change in production and CNE (Cumulative Net Exports) depletion*. I estimate that we may have already burned through around 30% of post-2005 Global CNE.

    *As combined production from the Six County Case History increased by 2% from 1995 to 1999, they had already shipped 54% of post-1995 CNE (major net exporters, excluding China, that hit or approached zero net exports from 1980 to 2010).

    AlexS , 07/02/2015 at 10:24 am
    the decline in net exports was largely offset by the drop in US net imports
    Jeffrey J. Brown, , 07/02/2015 at 10:42 am
    The decline in US net imports certainly affected the demand for Global Net Exports of oil (GNE*). But within OECD countries, we also had some countries with increasing net imports, e.g., the UK.

    Of course, on the demand side, the key factor has been the ongoing decline in what I define as Available Net Exports (GNE less Chindia's Net Imports, CNI). ANE fell from 41 MMBPD in 2005 to 34 MMBPD in 2013, and BP/EIA data indicate that the ANE decline probably continued in 2014.

    Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world.

    Based on current trends (rate of decline in GNE/CNI Ratio), in about 16 years China & India alone would theoretically consume 100% of GNE, leaving no net exports available to about 155 net oil importing countries.

    *Combined net exports from top 33 net exporters in 2005 (EIA)

    Javier, 07/02/2015 at 6:24 pm
    So we have current trends saying that:
    – Saudi Arabia will become a net importer in 15 years.
    – China & India are to consume 100% of net exports in 16 years.

    As those trends become unsustainable, we are going to have lots of interesting things happening during the next decade.

    I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching.

    Paulo, 07/02/2015 at 8:35 am
    Terrific confirmation, Jeffrey. I have sent your comments on to others many times these past few years. Unfortunately, the confirmation by a major MSM publication is what John Q Public needs to see in order to accept reality. I have already sent it on!!

    [Jul 03, 2015] Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

    Jun 30, 2015 | theguardian.com

    AGuenther -> sztubacki

    "...Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE. "
    30 Jun 2015 09:30

    Utter nonsense fed to the masses by the current corrupt government.

    Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

    October 10 2008: http://www.ctvnews.ca/banks-trim-prime-rate-as-ottawa-offers-mortgage-relief-1.332371

    September 24 2009: http://www.ctvnews.ca/feds-to-reap-billions-from-mortgage-help-to-banks-1.437280

    A couple of years ago this scheme was still going strong at almost $200 billion.. the max for CMHC is $600 billion and was then at something like $565 billion. And yes, this scheme was losing money.

    No wonder Flaherty found it necessary to tighten up mortgage rules for ordinary Canadians, making it even more impossible for them to buy a home.

    [Jul 02, 2015] Shale Drillers About To Be Zero Hedged As Loss Protection Expires

    "...access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up. "
    "...Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are. "
    "...The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014."
    "...The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies."
    "...In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it. "
    Jul 02, 2015 | Zero Hedge
    In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous.

    As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up.

    This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop.

    Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are.

    Furthermore, the next round of revolver raids for the industry isn't due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does. As a reminder:

    As if all of the above weren't enough, there's yet another reason why the shale default cascade has thus far been forestalled, giving many the impression that perhaps a "crude" awakening (pardon the terrible pun) has been averted: hedges.

    Here's Bloomberg with more on why some US shale drillers may soon be zero hedged (ahem):

    The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

    Now the safety net is going away.

    The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

    "A year ago, you could hedge at $85 to $90, and now it's in the low $60s," said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. "Next year it's really going to come to a head."

    The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies.

    Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

    For SandRidge and other drillers, the hedges, required by some lenders, gave them enough time to cut spending. Costs in shale fields have fallen by 20 to 30 percent and productivity has increased as producers moved rigs to the most prolific regions. Producers were able to raise about $44 billion in equity and debt in the first quarter, according to UBS AG.

    "That postponed the day of reckoning," said Carl Tricoli, co-founder of private-equity firm Denham Capital Management.

    At Goodrich Petroleum Corp., hedges accounted for 35 percent of revenue in the first three months of 2015. Most of its insurance runs out at the end of the year, company records show.

    In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it.

    This means October is the expiration date for heavily indebted US drillers and perhaps for HY credit as well, because once the defaults begin in earnest and HY spreads start to blow out, the BTFD-ing retail crowd will head for the exits, triggering a very non-diversifiable, unidirectional flow for bond fund managers who will then be forced to hold their noses and dive into the ever-thinner secondary corporate credit market.

    It is precisely at that point when everyone's worst nightmares about shrinking dealer inventories and illiquid credit markets will suddenly be realized.

    The Shape

    Someone's getting what they want.

    http://peakoilbarrel.com/the-eias-questionable-numbers/

    [Jul 02, 2015]Current Oil Price Slump Far From Over

    I think the author is wrong. Neither production nor demand drastically changed to justify 50% oil price drop. Cost of production is the most interesting question here; my hypothesis is that it is close to $90 for large part of shale wells as most shale companies issued junk bonds and are heavily in debt even while prices were around $100. In any case it is clearly above $60 for most. So the current prices in three-five years will drastically diminish the role of shale in the USA oil production, if (big if) they can be sustained. They also alreasy started the wave of to bankruptcies and acquisition on minor players by major oil players (aka consolidation of industry). In other word this is destruction of shale industry as a sacrificial pawn in a larger geopolitical game. Destruction, in which, paradoxically, Saudi Arabia is the major player, but not for the reasons published in MSM as it is essentially the kingdom is a Washington vassal on Middle East.
    .
    The key factor in increasing shale oil production in the USA was the ability of producers to sell junk bonds. This channel is destroyed and might not recover in a decade. Junk bonds from those guys now have a distinct smell of subprime mortgages. That means that as soon as existing and under construction wells production decline (in three years or so let's talk about 2018) many of those companies will be acquired by stronger competitors and losses will be written off.
    .
    "...$90 per barrel appears to be the empirical threshold price above which demand destruction begins."
    Jun 29, 2015 | OilPrice.com
    The availability of capital to fund unconventional production is the key to how long low oil prices will last going forward. If the flow of capital continues, then the production surplus and lower oil prices will also continue, assuming that OPEC is able to maintain higher production levels and that demand growth remains relatively low.

    Eventually, price will win and unconventional production will fall. The market will rebalance and prices will rise. If oil prices stay low for long enough, demand will increase to support a return to higher prices. I doubt that prices will increase to levels before mid-2014 barring politically driven shock events. $90 per barrel appears to be the empirical threshold price above which demand destruction begins.

    It is more difficult to predict how the second- and third-order effects of economic uncertainty and geopolitical risk may affect supply and demand fundamentals and, therefore, price. These are the wild cards that could change the outcome that I describe.

    The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

    We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.
    We have crossed a boundary and things are different now.

    *I am indebted to James K. Galbraith for introducing me to the idea of boundaries and phase changes as they may apply to economics and oil prices in The End of Normal: The Great Crisis and The Future of Growth (2014).

    Rick on June 30 2015 said:

    Art,

    You completely ignore data from the states. You appear to have a blind faith in the infallibility of the EIA and IEA. For a guy with the background you claim to possess to believe the Saudis and OPEC can increase maxed out production, or that a decimated economy with badly neglected facilities and fields can so dramatically increase production, is simply astounding. Are you serious?

    Jim on June 30 2015 said:

    "Low" is a relative term. WTI averaged about $30 in current dollars between 1985-2005. If we see a new normal around $50 over the next decade or two, then it has become much more expensive in real terms. It is important to remind readers that cheap natural gas has allowed US industry to remain competitive and to keep consumers warm in the winter and cool in the summer. Internet technologies and computer-aided logistics also are helping the US economy control demand for driving. Since the 1970's though, oil has become an increasingly expensive building block in our civilization.

    [Jul 02, 2015] When People Jump In Even Though It's Overpriced, That's A Bubble Shiller Warns

    "...Shiller also slams the bull$hit adage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly..."
    Jul 02, 2015 | Zero Hedge
    Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is "when people jump into stocks even though they know valuations are high... that's a bubble," slamming CNBC's rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically "The US equity market is one of the highest in the world," and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market... warning that mean-reversion is likely with risk for further decline.

    Shiller also slams the bull$hit addage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly...

    As Shiller explains...

    https://youtu.be/Q3MgxKeUoSc

    Temerity Trader

    Well duh! Another pedestrian article telling us all how the Fed's loose money blows bubbles, and likely benefits the wealthy the most. Yes there is a huge property bubble in N.Y. but it pales in comparison to the Silicon Valley bubble; the largest the world has ever seen. Propelled by 40-years of tech innovation and high pay; culminating in the useless I-watch. They bring in more cheap Indian labor and export the rest. It will be interesting to see how these people will make those $10k/mo mortgage payments working at Wal-Mart. Living in a small house and upside-down $1mil or more. They will walk away in droves! The repo man will snatch the Lexus and the Tesla. The debt-ridden fools will have nothing! Then the banks will fail and demand bailouts…Greece times 1,000. Delay and pray…more debt will fix it all. Just try to take away all the entitlements and watch the riots start. Bankrupt Medicare, Medicaid, Obamacare, 40 million using EBT cards, broke pensions, thousands of veterans claiming every disability known, but never left the U.S. Everyone wants to sit on their asses and collect government handouts. Why work? Sit around and play with a new I-Toy, watch 'Dancing With The Stars. Yes, just try to take it all away…

    scatha

    Bubbles are credit expansion/contraction, government policy driven monetary intervention cycles well described in "Money Masters" which now are completely divorced from economic cycle, which is stuck in US in depression levels over thirty years now.

    In other words boom and bust cycles are only fueled now through credit policy into specific market tradable assets selected and ordered by policy makers.

    The world central banking system is trying to moderate bubbles' deflations or collapses through creation bubbles in another asset class just to maintain values of collateral from the initial bubbles.

    For example if you overpaid for your house and prices are falling and you cannot sell without massive loss, windfall from another bubble is able to cover your mortgage, losses and/or margin requirements, so you hope and wait for better times. And so you go from one bubble to another and this relates all abstract paper assets and derivatives including, debt, oil and gold etc.

    Hence, crash may occur only when CBs run out of bubbly and no more bubbles could be created otherwise party will go on while more and more weaker rats in this rat race are being eliminated via attrition and slide into socio-economic margins like most of us even if we do not know it yet, we are next.

    Such practice, in essence denying basic tenet of capitalism namely capital re-production and recycling into productive assets, which is in the first place is labor, was and is widely implemented over last 30 years by world ruling elites and now even in China rendering population obsolete in grand scheme of illustrious progress of civilization.

    The real economy is dead so its real economic cycle that included revolving commodity and labor investment assets, recycled in and out economy a classical capitalistic re-production cycle. This type of process is dead and buried.

    There is no revitalization of labor power as well as commodity demand due to collapse of labor income and collapse of asset or commodities prices controlled by vast majority of population subjected to deadly deflation spiral due to removal of money from circulation among ordinary people a devastating process, getting stronger and more intense as bubbles become bigger and more numerous.

    The only thing that keeps us from massive unrest, hunger and ultimately extinction now is money supply from government social programs such pensions, SS, social welfare, technical/scientific funding, military or security/police non-productive funding which ironically fuel spiral of debt needed to keep it blowing.

    It's like on Titanic, party was going on as usual while in lower decks people were slowly drowning. I hope that there would be not enough boats for all those murderous and gluttonous oligarchs when water reaches their noses.

    [Jul 01, 2015] http://uk.reuters.com/article/2015/06/30/uk-oil-supply-analysis-idUKKCN0PA1ZM20150630

    Massive downward revisions to oil output in Brazil and Iraq have increased the risks for oil markets of going from the current feast to famine within just a few years, leading to a price spike that would give a new boost to the U.S. shale industry…

    …"All these project cancellations and deferral and cut backs are setting the world up for tighter oil markets in the medium term (2017-19) unless the record Middle East oil rig count successfully translates into significantly higher production," said Seth Kleinman from Citi.

    "Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today," Deutsche Bank said in a note on Tuesday….

    …Several oil industry heavyweights, including former BP (BP.L) boss Tony Hayward, have predicted a new bull market could arrive sooner than expected given the scale of capital and workforce withdrawal from the U.S. oil industry.

    U.S. oil output growth has indeed stalled in recent months as companies drastically cut the number of drilling rigs following a steep fall in oil prices after OPEC decided against cutting output last November….

    [Jul 01, 2015]Syriza can't just cave in. Europe's elites want regime change in Greece

    "...But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms."
    .
    "...No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union."
    .
    "...I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong. "
    .
    "...Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon."
    .
    "...After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years. "
    .
    "...we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

    But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.
    "

    .
    "...I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order. I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites."
    .
    "...This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe "
    .
    "...My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves."
    .
    "...Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010."
    .
    "...Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you."
    .
    "...The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands. "
    .
    "...This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should."
    .
    "..."Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project."
    .
    "...The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt."
    .
    "...I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??"

    Jul 01, 2015 | The Guardian

    It's now clear that Germany and Europe's powers that be don't just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

    But that the German chancellor Angela Merkel and the troika of Greece's European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. . Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras's government.

    They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

    There's no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week's "final proposals" and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

    That's because, just as the bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

    Hence the European Central Bank's decision to switch off emergency funding of Greece's banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece's crisis to a new level this week as it became the first developed country to default on an IMF loan.

    The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.

    One European leader after another warned Greeks to ignore their government and vote yes – or be forced out of the eurozone, with dire consequences. Already the class nature of the divide between the the wealthier yes and more working-class no camps is stark. The troika's hope seems to be that if Tsipras is defeated by fear of chaos, Syriza will split or be forced from office in short order. The euro elite insists it is representing the interests of Portuguese or Irish taxpayers who have to pick up the bill for bailing out the feckless Greeks – or will be enraged by any debt forgiveness when they have been forced to swallow similar medicine. The reality is the other way round.

    ... ... ...

    Tsipras and Syriza's determination to stay in the eurozone come what may has seriously weakened Greece's hand. The economic dislocation of jumping off the euro train would doubtless be severe in the short term, though the costs of permanent austerity would almost certainly be greater thereafter.

    But Syriza insiders say there is little preparation for what anyway may be forced on them. The relentless pressure of the EU bureaucracy demands a strong and clear-headed response. Right now, for example, that means the Athens government immediately taking control of its banks, currently shutting down all transactions.

    The worst outcome of this crisis would be for Syriza to implement the austerity it was elected to end. A yes vote in next weekend's referendum, , if it goes ahead, would probably lead to the government's fall, and almost certainly new elections.

    Papistpal rredge 1 Jul 2015 21:21

    "Implicit in your argument"

    Always a ploy of course, when you find implicit, tacit, implied arguments in someone else's thought, and then argue with it. No, I am not saying anything about the money.
    No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union. There is NO excuse for your behavior

    Ritoras Tijger 1 Jul 2015 20:57

    I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong.

    As said, because none answers your question that doesn't mean no is the answer.

    Be open minded and less emotional. Few of the questions you ask you can google them and share the findings with us. That will be more convincing!

    peekaboo -> summicron 1 Jul 2015 20:54

    The public in the 18 countries have not been consulted. Critical decisions affecting all other members need direct approval. In fact referendums have almost never been held for EU membership in candidate countries.

    ineluctable2u -> tsimshatsui 1 Jul 2015 20:50

    That's naive. Merkel is only making the Greek people suffer now in the hope that they will lose their will and vote yes. This is ruthless politics by the troika and Merkel in particular.

    martyc73 -> Gearóid Ó Loingsigh 1 Jul 2015 20:49

    The North is a diversion - it cant raise taxes and relies on subvention from the British State etc and you know this so don't be using that as an argument. The bank guarantee was also sold in a totally different way to what was rolled out subsequently. And you know this too. Hums and Haws???

    Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon.

    Ritoras Tijger 1 Jul 2015 20:46

    Bud, first of all you repeat you you you, it is very instructional, chill. Bravo to you as well for making so focussed comments. I mean it even though you put all the fault on the Greek gov.. Don't see you challenging yourself enough? Are the rest of stakeholders here perfect?

    But, how do you know what Greece has done and what not?

    Why the Troika have not reacted the same and with the same persistence as it does now during the last 5 years to correct the direction of travel? You're 100% right about the Lagarde list. The ministers who did not do nothing are in trials now.. However, I was in fact hoping that the Troika could play a more active role in this and exercise influence to clear corruption. After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years.

    About the military expenses. I like defense and the military in fact. But! In a recession, the Troika should have first said, save money there to invest in sectors like healthcare, education etc. After all, Greece is very well equipped and supposedly is backed up by NATO allies.

    calsation miceonparade 1 Jul 2015 20:43

    I must say I enjoyed your takedown of oldships immensely. It seems he doesn't realise we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

    But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.

    Papistpal 1 Jul 2015 20:40

    Never thought I'd agree with you, but I have to say, from this American capitalist perspective, Berlin and Brussels have no sense of fair play and no respect for democracy. How can the EU call itself a democracy if Germany has a veto because it has the big bucks. The US, I admit, would like to do something similar, but we are constrained by maintaining at least some vestige of democratic practice and sensibility. What is with the moralism, anyway. "Greece is wrong, so we get to do whatever we want to them." Moralistic platitudes are not policy statements. Damn Merkel to hell


    TheNerveInstitute 1 Jul 2015 20:36

    Greeks must not cave in. This is interesting !

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=14132

    lawrenceab 1 Jul 2015 20:29

    I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order.

    I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites. Why for instance did they not impose capital controls the very first weekend after coming to power?? The the country could have put up its defenses at a time of its own choosing, husbanded its resources while negotiating - paid the IMF, keep banks open during this crucial referendum week. You don't negotiate with 17 adversaries who all want to crush you, with one hand tied behind your back and € billions flowing out weekly. In three months you are on the floor.


    castalla 1 Jul 2015 20:17

    This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe ... let's hope the OXI vote wins the day and Syriza gets a mandate to argue for a restructure of the debt programme.

    someoneionceknew -> FactPatrol 1 Jul 2015 20:10

    The – European Social Model – is built on the fundamental principles built into Treaty establishing the European Community (TEC):

    … promotion of employment, improved living and working conditions … proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion.

    It combines with the EU Charter of Fundamental Rights to define an "underlying principle is one of solidarity and cohesion: that economic growth must serve to boost overall social wellbeing, and not take place at the expense of any section of society".

    The ILO book says that while "there is no official definition of the European Social Model" there is a long history of practice and dialogue that allows one to map out the main characteristics.

    The ILO define "six main pillars":

    1. "Increased Minimum Rights on Working Conditions".

    2. "Universal and Sustainable Social Protection Systems".

    3. "Inclusive Labour Markets".

    4. "Strong and Well-Functioning Social Dialogue".

    5. "Public Services and Services of General Interest".

    6. "Social Inclusion and Social Cohesion".

    miceonparade -> Exodus20 1 Jul 2015 20:08

    Remember what Greece were like before joining the euro, in the 1990's?

    Greece in the 1990s did not have 30% unemployment or 60% youth unemployment or a depression. Things can only begin to get better after exiting the euro and reclaiming fiscal sovereignty which can be used to put Greek people back to work.

    someoneionceknew FactPatrol 1 Jul 2015 20:07

    The European Social Model in Crisis: Is Europe losing its soul?

    PDF 52 page precis.

    while the European Social Model may have been called into question here and there before the crisis, the list of changes in most elements and pillars of the European Social Model since the crisis is formidable. While there are a few exceptions … all other trends show a general withdrawal of the state from social policy, first through massive cuts in social expenditure and reduced funding of education, health care and other public services, and second through radical reforms in a number of areas, such as social dialogue, social protection, pensions, labour market and social cohesion in general …

    the changes are particularly severe in those countries that implemented an austerity package under the direct influence of the Troika …


    Hill0fBeans sjorsnotmine 1 Jul 2015 20:05

    There are no poor Greeks in Greece any more...

    You're a disgrace. Instead of trolling, read some facts every now and then.

    - like the 4 out of 10 Greek children living beneath the poverty line

    - or 44.8% of pensioners living on less than 665 euros/month

    - or the 27% unemployed

    Go crawl back underneath your bridge. This is not a place for trolls.

    camerashy 1 Jul 2015 19:56

    The closet fascists are all out in force to get rid of a democratically elected government! Rule by corporations and banks is what you deserve and is what you are going to get in next 5 years ... so enjoy it.

    deskandchair -> Danny Sheahan 1 Jul 2015 19:56

    It can't go any other way, fiscal control means political control. The tragedy is that the EZ was formed in the first place.

    Lafcadio1944 1 Jul 2015 19:52

    My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves.


    xsyfer John Smith 1 Jul 2015 19:51

    It has that already. Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010. There will be friends. I reckon UK, us and Sweden might do something bilateral after the mess to keep Greece away from Russia.

    Might be too late then though


    deskandchair Markdoug1 1 Jul 2015 19:51

    You don't live in EZ or EU (although superficial thinking isn't exclusive to those outside EZ) however you're correct, Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you.


    Eleutheros 1 Jul 2015 19:46

    But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

    And that's the essence of the current situation, not just in the EU, but most "western" societies, including Australia, where I live; our present government follows the policies of Thatcher and Reagan and is trying to bring austerity to a rich and prosperous country.

    Excellent article Seumas Milne, thank you.


    Oscarinho 1 Jul 2015 19:43

    Yes, there is a potential danger of a right-wing, if not neo-nazi, turn in Greece (and maybe, only maybe in other places, too). But just tell me why does the author doesn't mention that without the support of the right-wingers and neo-nazis called Anel and Golden Dawn Syriza would not have a majority in their own country??? Syriza does not represent a European leftist alternative (ask Renzi) but mere 2 million Greek voters supported by the far right that are taking their own society hostage playing the nationalistic card.

    Yes, we need another haircut and, yes, this radical austerity policies needs to be changed. It's just not sustainable as we learned the hard way- But Syriza is looking for a system change by any means with any partners (Golden Dawn, Putin's Russia, and even Erdogan). No thanks.


    Forthestate ID5590609 1 Jul 2015 19:40

    you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living...

    Just more bollocks! How do you square "this new and vastly improved standard of living" with the reality since the crisis hit? Most analysts agree that the decline has seen Greece lose everything that it acquired during the years you refer to, and more, and I repeat, it is a decline probably unparalleled in peacetime. Where is the recognition of the catastrophe that has hit the Greek people in your ridiculous assertion that they are enjoying a new and vastly improved standard of living?


    John Smith 1 Jul 2015 19:32

    Looking at the headline photo of Merkel, the caption: Who will rid me of this troublesome Greek
    popped into my head.

    Then I read the article above.

    Nothing would please the Euromeddlers more than a military coup, or a revolt by the coalition partners.

    Because what this crisis is exposing is how after five fruitless years, the geniuses at the heart of the EU, couldn't grasp that among their many errors of judgement, it's no good loaning a bankrupt money to pay off debt, the Euro has actually worked against the economic expansion of the Eurozone both before and after the crash, and by failing to spot the dishonesty of previous Greek administrations or act, it has shown the world that their system is weak, cannot tackle a crisis, and despite years of rhetoric will have to do the one thing it said would never ever happen, expel a member state and write off tens of billions of wasted euros.

    In my earlier analysis I have already explained why the Euro was a currency launched half cocked, and that without taking into account the needs of individual nations, it is doomed in the long term, to fall to pieces.

    I fear that whatever happens now, Greece is going to find itself with few friends, and at least five years of pain and emigration of its youth.

    ID5590609 Forthestate 1 Jul 2015 19:26

    The level of Greek tax collection from all sectors and classes in Greek society is abysmal. Tspiras and Varoufakis do not deny this is a problem, and other than pride or foolishness, I question why you do. Some economists suggests that as much as 39% of the Greek economy is effectively underground. The other purported statistics are simply red herrings to confuse this simple fact (and also avoid dealing with the rampant other corruption and incompetence inherent in the Greek economy).

    The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands.

    The fact that Greece's economy has contracted over 25% is also not particularly relevant. The larger GDP since joining the Euro represented a tremendously bloated bubble based on irresponsible public and private debt. The current GPD still has ample room to decrease before it accurately reflects the true size, scope and productivity of the Greek economy (and even reflects Greece's pre-Euro GDP). Also noteworthy is the fact that Greek incomes nearly tripled since it joined the Euro Apparently, you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living (more impressive than some other Eurozone members who are poorer and helped fund Greece's bailout) despite the fact that it was entirely unearned and based on fraud and the largesse of the taxpayers of other nations.


    Exodus20 Tijger 1 Jul 2015 19:26

    This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should.


    JordiLlull neilmack 1 Jul 2015 19:24

    Who are "Most people"? I dont think there are polls, but few people in Europe believe that the fault lies exclusively on a government who has been there for 6 months, and is trying to prevent the policies that have led to a 25% loss of GDP. Particularly since the troika has made it damn clear that it does not plan to accept ANY plan. Sure, some have bought Daily Mirror arguments that the Greeks spent the bailouts on Ouzo, but informed people know that the vast majority was used to pay back interests, and that Greek retirement pensions are around 300 euro/month. I would rather argue that "most people" in Europe who have traditionally supported EU are starting to raise questions about what EU's role in this crisis.

    "Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project.

    deskandchair truecomrade 1 Jul 2015 19:22

    Fiscal control = political control, it can be no other way.


    FourtyTwo sjorsnotmine 1 Jul 2015 19:21

    More than 30% of the population are officially below the poverty line.

    http://www.enetenglish.gr/?i=news.en.article&id=2040


    FourtyTwo Exodus20 1 Jul 2015 19:17

    The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt.

    MTSK87 privateindustry44 1 Jul 2015 19:13

    You are an ignorant piece of work aren't you Sir? Look at the facts before spreading lies. The Greeks work (the ones still in employment that is) work more hours than any other EU citizen ( http://www.bbc.co.uk/news/magazine-17155304 ), the rich and powerful did not pay taxes no, but your average 20-30 something year old with a wage of 400 euros a month that has to go back to living with his/her parents can barely afford coffee never mind pay taxes. And free money? Please the "creditors" have NEVER given anyone "free" money. Germany never gave away anything for free (see treaties imposed on Greece to buy old German weapons). Greece was manipulated and suffered for that "free money".

    emordnilap Mark Riggle 1 Jul 2015 19:10

    I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??

    [Jul 01, 2015] Path to Grexit Tragedy Paved by Political Incompetence

    "...I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal."
    Jul 01, 2015 | Economist's View

    Ellis said...

    How many austerity plans do the Greek people have to suffer through? How much unemployment? Half the young population? Is the plan to to cut living standards in half?

    And for what? To repay a debt that the Greek people had nothing do with! To reimburse usurious interest rates that cut the economy in a trap by the banks!

    What a bunch of predators!

    djb said in reply to Ellis...

    i like how the advocates of austerity get all pissed off at the greek people as if they are just being obstinate

    its like someone is trying to punch someone else in the face and they are getting all pissed off at the other guy because he keeps lifting his hands to block the punches

    "come cut it out, just let me get good shots in at you , whats a matter with you"

    And Greece will not go to the drachma - Greeks are now demanding paper Euro notes, and everyone outside Greece shipping into Greece is demanding paper Euro notes up front. Greeks are now not able to get food and medicine and fuel if they don't have Euro currency.

    But let's be clear - the Greeks are to blame because they refuse to pay Greeks to work by buying only Greek production, or by trading Greek produced goods for imported goods.

    Charles Carlstrom said...

    Strikes at first glance don't seem rational. But they occur. Somestimes you swerve too late to avoid ruin.
    But even now it appears Greece is starting to swerve.

    DrDick said in reply to Charles Carlstrom...

    Only if you are a member of management. For the workers they are the only logical recourse. When management will not provide safe/decent working conditions or pay you what you are worth, your best recourse is to withhold your labor.

    anne said...

    http://www.nakedcapitalism.com/2015/07/tsipras-accepts-most-terms-as-merkel-insists-on-referendum.html

    July 1, 2015

    Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum
    By Yves Smith

    Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn't just that the bailout funds of €7.2 billion are gone; it's that Greece has gone over an event horizon with stringent capital controls on and the European Central Bank ready and able to push the Greek banking system over the brink.

    Greece's weak negotiating position is even weaker now. Even with a boost via a "no" vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.

    This is a ruthless, brutal power play in progress. Too many key actors are driven by their own narrow imperatives, most important of all, their domestic politics, as well as institutional rigidities. Those constraints work against taking a broader view and recognizing that the immolation of Greece will blow back and damage the European project and their own economies. But that would require much bolder, visionary thinking and action. The current crop of leaders has instead become habituated to incremental patches even though it is widely recognized that the architecture of the Eurozone is incomplete and wobbly. But no one is willing to move to a higher level of integration, in large measure because, particularly for Germany, that entails the loss of power and privilege at the national level.

    Tsipras has recognized the weakness of his position too late. Yesterday, he tried making a desperate, last-minute deal to ward off an IMF default and secure the bailout funds before the program expired. But that clearly could never happen. It would require approval from all of the other 18 states in the Eurozone, including parliamentary approval in Germany. There was no way that would occur without German legislators having had Greece pass legislation before they voted on the release of funds; the Greek government had been told that that was a requirement and that needed to be done by the end of last weekend, June 28. *

    Moreover, Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt. Given that it was obviously impossible at that late juncture for the other Eurogroup members to release the bailout funds before they went poof (at a bare minimum, there was no way the Germany MPs would approve it), the Tsipras appeal was a sign of utter desperation or delusion. And that in turn was an admission of tremendous weakness. Less than two days of capital controls and a bank holiday, and the ruling coalition was folding....

    * Some pundits have depicted these deadlines as artificial. They weren't. There are many areas where the lenders' conduct can correctly be called unreasonable, but the hard deadlines were the result of past agreements and Eurozone procedures make them extremely difficult to change. This is one reason for the current creditor hostility. Greece consumed an enormous amount of time, running up against deadlines in what the other side saw as brinksmanship, which was a bizarre strategy given that Greece had a weak bargaining position. But the lenders felt compelled to accommodate Greece on that front as much as possible because the optics would be terrible if they didn't, particularly if the situation were to devolve into a Grexit. Compounding that problem, an lawyer with considerable knowledge of European practice pointed out by e-mail: "Europeans have a very hidebound and literal view about their EU rules and documents. Americans see a contract as a basis for negotiation."

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

    'Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt.'

    Every country in the EU is angry with Greece.

    In Greece's bailout talks, why it's 18 eurozone countries versus one http://on.wsj.com/1B7hOIy via @WSJ

    ... Some eurozone governments—Ireland, Portugal, Spain and the Baltic states—see themselves as having swallowed tough, politically costly but ultimately successful medicine and see no reason why Greece should be spared such rigor. Some, like Slovakia and the Baltic states, are poorer than Greece and pay their workers a lower minimum wage.

    Another element is that further debt relief for Greece in whatever form means losses for governments—Athens owes other eurozone governments €195 billion ($212 billion)—and therefore for eurozone taxpayers. Germany is owed the largest sum—more than €60 billion—followed by France and Italy. But, as a percentage of their gross domestic product, other countries have more on the line than Germany. According to a Bloomberg Brief analysis, Greece's debts to Slovenia exceed 3% of Slovenian GDP, compared with 2.4% for Germany. ...

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

    "see no reason why Greece should be spared such rigor"

    Yes their rulers have convinced them that the depression they threw Greece into is no big deal compared to what they themselves have suffered. As long as your corporate media hide the facts from people, you can convince them of all kinds of stuff.

    "debt relief for Greece in whatever form means losses for governments"

    Yes - and the real story there is that almost all the debt that was held by private banks and plutocrats back when this problem surfaced (and the debt should have been written down) is now owned by governments. But that is not the debate in the corporate media - instead it is about how terribly irresponsible the Greek government is (I guess you can fool the fools every time).

    Nathanael said in reply to anne...

    Yves has been mis-analyzing the Greek crisis from beginning to end. It's seriously lowered my opinion of her, and I think she's a complete idiot at this point.

    Syriza has played this out exactly right, whether intentionally or not.

    Given that the Troika will never, ever make a functional offer of major fiscal stransfers to Greece, and has as much as said so, default was inevitable.

    Greece doesn't have to leave the euro, of course; Greece could unilaterally print euros (in violation of the Troika's insane deflationary policies) and wait for Germany to leave the euro. But it has the same effect.

    GIVEN that default is inevitable, Syriza needs to be seen as:
    (1) Trying as hard as it can to offer a deal
    (2) Not knuckling under to the foreign powers

    They've done this.

    The referendum will either go "yes" or "no".

    If it's "yes", then Syriza will resign. The new government of Greece will implement stupid policies forced by the Troika which will make their situation even WORSE; they will be blamed for it and will be thrown out. Syriza survives.

    If it's "no", Syriza can exit and allow the economy to recover through devaluation.

    The worst case scenario for Syriza was that the Troika accepted one of Syriza's overly generous offers of surrender; the economy continued to get worse; Syriza was blamed for this and thrown out of office; and Golden Dawn was elected.

    Golden Dawn would, of course, immediately leave the euro and revive the economy. By pressganging, if necessary. :-P Having a glowing example of successful fascist economic management in Europe is the LAST thing the world needs. Thank goodness we seem to be avoiding that.

    anne said in reply to anne...

    Yves Smith has from my perspective been remarkably sensitive to the needs of the Greek people, thorough in reporting and analysis, and evidently, however sadly, all too correct in analysis compared with other Greek-sympathetic economists.

    I am aware that the analysis of Smith has been criticized, but I am also aware and impressed that even leaders of liberal Podemos in Spain have shared in criticisms of Syriza.

    paine said in reply to anne...

    Just a side comment

    The private greek banks can go to hell in a chariot for all I care

    The greek government should worry about small dipositors only

    paine said in reply to paine...

    Eichenberry seems poorly briefed
    On the negotiations here

    Syriza has not acted incompetently

    The troika is out for regime change

    Reply Wednesday, July 01, 2015 at 02:24 PM

    anne said in reply to paine...

    Eichengreen seems poorly briefed
    On the negotiations here

    Syriza has not acted incompetently

    The troika is out for regime change

    [ Understood as to what the European leadership is after, but Syriza has puzzled me. ]

    ilsm said in reply to paine...

    ecb the usa of the europa.

    troika deals like nukes.

    widespread drone strikes without deflation.....

    Chris Herbert said...

    I have a problem with the exit=disaster scenario. As a monetary sovereign and with a central bank, both recapitalization and devaluation can be accomplished without the armageddon stuff. China's currency, for example, is not traded on Forex. China's central bank pegs its value by fixing what it will pay in its currency for another currency--and its currency is the only one that can be used in China. Once Greece goes back to the drachma and once they've got a central banker and a currency that is exclusive to domestic commerce (no Forex speculative trading) I think a good central banker can do a lot to help Greece maintain its balance. Even better, said recapitalization can be debt free. I'm not saying it won't cost anything, I'm just saying a monetary sovereign need not issue debt. Greece could put people to work doing infrastructure improvements, which build assets not liabilities. Without issuing debt. Greece has to learn how to collect taxes, obviously. And some reforms to government size is probably in order. But the 'end of days' scare is just that, a scare.

    pgl said in reply to Chris Herbert...

    I have a similar problem with the criticism is Grexit. Let's roll the tape back to 1967 when Prime Minister Harold Wilson decided to devalue the UK pound:

    http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

    The UK did not suffer a financial crisis. It did manage to raise its net exports. So why can't the Greeks do the same?

    am said in reply to pgl...

    Fine, so why do the Greek people want to keep the euro as the official currency. Professor Krugman mentioned as a reason that people like to have a strong currency. They have had the drachma before and it was never very good and neither was the economy. I suggest the reason they want to keep the euro is it is strong in the sense of a stable currency and inflation is kept low in Greece as most of their imports are in euros. With a weak drachma they just get inflation on imports. With the euro they get steady prices. Add in to that payment of salaries and pensions in euros and then you have the advantage of earning in the currency of import purchases. Hohum, I'm probably wrong.

    Chris Herbert said in reply to mulp...

    Leaving the euro is not cost free. The dollar/drachma after Grexit is set by the central bank. Maybe Greece needs to become more efficient in their use of energy. Maybe Russia will sell oil to them at advantageous prices. A central bank can price the drachma advantageously between different suppliers. And don't forget the Greeks have a primary surplus right now and Grexit will eject its creditors, which is what I think Greece needs to to. The collapse scenarios are scare stories aimed at the Greeks. They should reject them and become independent. Only by being a monetary sovereign can Greece regain control of its economy. Right now they are in debtors prison.

    Peter K. said in reply to am...

    with the Euro they get humanitarian disaster. You know the economic stats, don't you?

    am said in reply to Peter K....

    Yes but why do they want to keep the euro, as is reported. They may suddenly change that in the referendum vote but it is reported that the euro is what they want.

    foofootos said in reply to am...

    easy, the depositors want to keep the euro because they don't have a lender of last resort. They will loose their deposits. That's all, that and scare tactics.

    Paine said in reply to foofootos...

    Yes that's a good part of it

    But I'd like to know the value of euros held on deposit now
    by the bottom three quarters of the population

    Dan Kervick said in reply to am...

    I don't think it's really entirely economic. They view the euro symbolically as a special European club membership, and don't want to be excluded from that club.

    anne said in reply to Chris Herbert...

    http://www.cepr.net/blogs/beat-the-press/who-uses-the-euro

    July 1, 2015

    Who Uses the Euro

    The Washington Post ran a map * showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they are not have been accepted into the euro zone.

    This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.

    * https://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/30/7-questions-about-greeces-huge-crisis-you-were-too-embarrassed-to-ask/

    -- Dean Baker

    John Cummings said in reply to Anonymous...

    I never saw the "big" Greece problem before the Euro. The problem is the credit bubble starting in 73 creating a redic surge in consumer products that really took hold in the 80's/90's for the US and spread after that. It created the "look" of growing personal wealth via personal assets, but it was a bubble. Without this borrowing, the US economy probably would have struggled to grow much in the 80's as inflation fighters went on a rampage(which is what partially triggered the bubble to grow faster). They still maintain much of the growth from the bubble, only thanks to the market being scared to live without it. About the only thing it did, was force Russia away from the Stalin era Soviet fast, but now, they are stepping back while no one is watching. This is late capitalism.

    The 80's and 90's would have been a lot more Escape from New York rather than Morning in America.

    Nathanael said in reply to Anonymous...

    Argentina's main problems were US-backed military coups and fascism. Argentina has quite impressively managed to get itself out from under both of those problems -- seemingly permanently.

    foofootos said in reply to Anonymous...

    Greece only got to comparable trouble after the Balkan wars (they defaulted), during the second world war, and then during civil war. Hardly a counter-example of "drachma troubles". Many a time I see Greece described as a serial defaulter. And then I read the History of the Greek state after it's independence from the Ottoman empire, and I see a war happening every 15-20 years or so. It seems this way of looking the Greek economy just goes with the Greek stereotype.

    ilsm said in reply to foofootos...

    Greece seems to spend about 150% of the NATO standard war spending for GDP. While the rest of the EU spends <75% of NATO standard.

    Still only 3% compared to US' 5 to 7% according to how you count.

    US spends more in VA than total of Russia, China and UK for their military.

    Darrell in Phoenix said in reply to anne...

    Pegging to the Euro will not counter trade imbalances, which is the real source of Greece's troubles.

    They need a currency that floats. They need to decrease imports and increase exports (or more likely tourism) to eliminate their trade imbalance, which is the root cause of their debt.

    pgl said in reply to Darrell in Phoenix...

    Exactly!

    foofootos said in reply to Darrell in Phoenix...

    Greece currently has a balanced current account.

    pgl said in reply to foofootos...

    Link? Evidence? Even if this is true, it is mainly because of the imposed austerity and weak economy.

    pgl said in reply to foofootos...

    Darrell in Phoenix notes:

    "Check the CIA world factbook for Greece.

    Exports $35B. Imports $62B.

    Trade imbalance of $27B compared to GDP of $290B = 9.5%!"

    Your source?

    am said in reply to anne...

    In Simbabwe which has no currency of its own apart from small coins for change shop goods are priced in US dollars. So consumers can buy a basket of goods and then pay the value of the us dollars in us dollars, south African rand, Botswanan pula, euro or pound. These are all calculated up by a routine in the software system operating at the checkout. The tax which is vat is then sent up to the government. The government staff are paid in us dollars. But the government can't do stimulus because they can't print any of these currencies and they don't have one of their own. But for an interim solution it is workable.

    Darrell in Phoenix said in reply to am...

    And the dollars flow out of the country, and them when there are no dollars left, the economy collapses.

    What you need is exactly what Ben Franklin argued for nearly 300 years ago. A government issued script currency that can be used to pay your taxes, and taxes high enough to create sufficient demand for the script to give it value. You then let the value of that government issued script currency to float on the international exchange markets to balance trade.

    OH, and NEVER take on debt denominated in a foreign currency.

    Nathanael said in reply to Darrell in Phoenix...

    That's even a good rule for households, frankly. I never take debt denominated in a currency I can't print. :-)

    Peter K. said in reply to Chris Herbert...

    What the critics of the Greek fail to mention is that before the Troika began bringing the hammer down on Syriza and refused to negotiate with them, the Greeks were running a primary surplus.

    Krugman pointed to this. That is, they were in the black without interest payments. With default and saying no to the bailout packages they are free of the interest payments and free of the onerous austerity measures which killed their economy.

    What the critics of defaults say is that the defaulters will never be able to borrow again, but in the real world that hasn't been the case. They're just blowing smoke to bully the Greeks into more, fruitless austerity measures.

    Dan Kervick said in reply to Peter K....

    Agreed. There will always be attractive economic opportunities in Greece. Even if Greece defaults, there will be new investors willing to gamble that they wont default again.

    pgl said...

    "Instead, the creditors first calculated the size of the primary budget surpluses that Greece would have to run in order to hypothetically repay its debt. They then required the government to raise taxes and cut spending sufficiently to produce those surpluses.They ignored the fact that, in so doing, they consigned the country to an even deeper depression. By privileging their own balance sheets, they got the Greek government and the outcome they deserved."

    This is precisely the problem Keynes warned about after WWI when the French demanded too much from the Germans. Of course the Germans never really did pay all of those cursed repatriations. Modern day European leaders have forgotten everything Keynes tried to teach us.

    Darrell in Phoenix said in reply to pgl...

    The austerity proponents are following the typical NeoCon mind-set of ignoring macroeconomic principles. "Keynesian hokum" is their preferred name for macroeconomics I believe.

    DrDick said in reply to pgl...

    This is exactly why Eichengreen's piece is pure garbage. Greece made lots of compromises, too many in fact. It was the creditors who refused to compromise. Every bank that had made irresponsible loans (and their were huge numbers of these) in Greece should have been forced to eat all their losses. After all, they had charged a risk premium to cover this already. Instead the Troika has decided that they should be fully indemnified and only the Greeks should suffer.

    Peter K. said in reply to DrDick...

    Yeah it's almost as if he criticizes the Greeks so he can criticize the Troika even more.

    "Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF."

    Nonetheless I agree with you and disagree with Yves Smith and the like. Syriza and the Greeks did the best they could under impossible circumstances.

    The Troika's plan didn't work and they refused to negotiate. The problem is Greeks want to stay in the Eurozone nonetheless. Sunday we'll find out if they still do no matter what.

    pgl said in reply to DrDick...

    This is why I prefer what Krugman wrote.

    DrDick said in reply to pgl...

    Likewise, and the same for Stiglitz, who is quite good on this.

    Paine said in reply to pgl...

    Running these nakedly in humane pub sec pruning exercises was the entire project

    The debt
    A pretext

    Let that be a lesson to you long run fiscal space fuss budgets

    Paine said in reply to Paine ...

    A yes on Sunday simply means

    Go back and get the best deal you can

    Darrell in Phoenix said...

    Exchange rates fluctuate to counter trade imbalances. The concept of a common currency, without controls to ensure no trade imbalances exist, is fundamentally flawed.

    Money flows out of Greece. THE ONLY way money can get back into Greece is debt.

    Trade imbalances cannot be persisted indefinitely. They result in the buildup of debt on the side with the deficit, and interest on the debt just widens the trade imbalance until the debt collapses.

    Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt.

    RGC said in reply to Darrell in Phoenix...

    "Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt."

    Yep. Varoufakis had a "Modest Proposal" to fix this:


    4. THE MODEST PROPOSAL – Four crises, four policies

    The Modest Proposal introduces no new EU institutions and violates no existing treaty. Instead, we propose that existing institutions be used in ways that remain within the letter of European legislation but allow for new functions and policies.

    These institutions are:

    · The European Central Bank – ECB

    · The European Investment Bank – EIB

    · The European Investment Fund – EIF

    · The European Stability Mechanism – ESM

    Here are the four policies that will re-deploy the above institutions in a manner that deals a decisive blow at, respectively, (1) the banking crisis, (2) the public debt crisis, (3) the under-investment and internal imbalances crisis, and (4) the social emergency crisis afflicting countries were absolute poverty is becoming a major issue...

    http://yanisvaroufakis.eu/euro-crisis/modest-proposal/4-the-modest-proposal-four-crises-four-policies/

    Chris Herbert said in reply to Darrell in Phoenix...

    Darell writes "Money flows out of Greece. THE ONLY way money can get back into Greece is debt." Not so with a monetary sovereign. Euros are worth what the Greek central banks says they are worth, in drachmas. And only drachmas can be used in domestic commerce. You have squirreled away euros in Swiss bank accounts? Fine. Spend them anywhere but in Greece. If you have cheated on taxes, and for sure you have if you are Greek and rich, then face extradition for crimes in Greece. A monetary sovereign does not have to issue debt. It can recapitalize without debt. Look at China, which has used this banking system successfully for more than two decades! China understand the difference between liabilities and assets. It's not the debt that matters it's what you build that matters.

    Darrell in Phoenix said in reply to Chris Herbert...

    Chris, I was saying now... With Greece on the Euro and unable to print their own currency.

    Yes, if they return to drachma, they can issue money. Until then, the only way they have been able to make their economy liquid in the face of large trade deficit is with debt.

    Darrell in Phoenix said...

    Check the CIA world factbook for Greece.

    Exports $35B. Imports $62B.

    Trade imbalance of $27B compared to GDP of $290B = 9.5%!


    Of, Germany LOVED loaning Greece money so they could buy German products.... but the problem is that the debt can't possibly be repaid unless the trade imbalance is reversed. Germans have the money that Greece needs to repay the debt!


    This echos the problems in the USA. The poor go into debt, creating money that they spend, which then flows through into the economy into the hands of billionaires. It is mathematically impossible for the poor to repay the debt unless the rich first spend the money! Oh, we say it is a legal, moral and social obligation to repay the debt, but suggest it is a moral and social obligation (and should be a legal obligation through a steeply progressive income tax code with deductions for most spending and capital investments) and OH HOW THE RICH SCREAM!

    pgl said in reply to Darrell in Phoenix...

    Good research - and analysis.

    RueTheDay said...

    I struggle to understand the path forward from the referendum. Putting aside the obvious question of "what exactly are they voting on", there are some serious logistical challenges.

    It will likely take a day or two (or three) for the votes to be counted and the result certified. Assuming a best case scenario of a YES vote, Tsipras will likely resign, a snap election will be called, and a new government will have to form. How long will this take? What if Syriza is re-elected? What if there is no clear winner and we're back to having to form a coalition government, which may or may not happen?

    Time is one thing this situation does not have. There are significant upcoming dates:
    -July 10 €2B Rollover of treasury bills
    -July 13 €452M IMF
    -July 14 €73M in Japanese Samurai bonds due
    -July 17 €1B Rollover of treasury bills
    -July 20 €2.1B ECB
    -July 20 €1.4B National central banks
    -July 20 €25M European Investment Bank

    I can't imagine any scenario under which the ECB can avoid having to yank the ELA if the July 20 payments are missed. But there are plenty of opportunities for an accident before then. It is assumed that the treasury bill rollovers will not be an issue since they are almost entirely held by Greek banks. Is it really safe to assume that? I might be thinking about a switch into safer, more liquid assets if I were a Greek banker. Or are they just going to avoid an auction altogether and deem the bills rolled over by fiat? The Samurai bonds are tiny, but they are still a commercial obligation, will require money the Greek government likely will not have, and a default will not be able to be brushed aside as easily as the missed IMF payment. Speaking of which, the IMF will be unable to assist in any way throughout this period, unless the arrears are cleared.

    But wait, there's more. With the previous programme having expired, there will need to be a new MoU, a vote by the Greek Parliament, a vote by other European parliaments, including Germany. This is no longer something Finance Ministers can decide at a late night meeting.

    Yet, the official position is no more talks until after the referendum.

    Darrell in Phoenix said in reply to RueTheDay...

    I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal.

    A vote of NO to the "Should we accept these terms?" means the Greek people support Tsipras's hardline demand for write downs. This puts the Germans in the position of having to accept his terms or face Greece leaving.

    In short, the referendum may take the "well just wait until the Greeks replace you, then deal with the new guy" threat off the table.

    Reply Wednesday, July 01, 2015 at 11:53 AM

    RueTheDay said in reply to Darrell in Phoenix...

    My point is that regardless of which way the vote goes on Sunday, by the time the results are in there simply may not be enough time left to avoid a default. Note well that default does not automatically imply Grexit, but it certainly ratchets things up a notch.

    Reply Wednesday, July 01, 2015 at 11:59 AM

    Peter K. said in reply to RueTheDay...

    It's all up to the ECB and Troika. The money involved is small to them. It's all political. Looks like they want a regime change in Greece. Either that will happen or there will be Grexit.

    Syriza caved on austerity but wanted more taxes and less spending cuts. The Troika said no. And the Troika spins it like the Greeks left the negotiation table. The Troika said no and then the ECB refused to back Greek banks as the "deadline" passed causing the bank holiday.

    Darrell in Phoenix said in reply to RueTheDay...

    Oh, I think default is inevitable. All the referendum does is clarify the options AFTER that.

    If it fails, and the Greeks vote that they want to accept the Eurozone offer, then there will be a change in Greek government, a new round of austerity, and a delay of another year before the crisis explodes again.

    If it passes with a resounding vote of "NO, we're not paying" then Eurozone will have to take major cuts in the debt or accept Greece leaving the Eurozone.

    Nathanael said in reply to Darrell in Phoenix...

    Darrell has the analysis correct.

    The political key here is that SOME party is going to either leave the euro. (Or massively and permanently default and start printing euros. If they simply ignore all the ECB rules entirely, they may be able to stay in the euro. Same thing; in this case, Germany is the one who leaves the euro.)

    • If it's Syriza and they do it with public support, there are good things in the future.
    • If it's Golden Dawn and they do it with public support, there are bad things in the future.
    • If Syriza does it without public support, Golden Dawn benefits, and there are bad things in the future.
    • If Golden Dawn does it without public support, they'll just cancel elections to avoid losing power, so they'll again benefit and there will be bad things in the future.

    In a sense, the democratic parties are handcuffed in their options relative to the fascist parties, so it's harder for Syriza to succeed than for Golden Dawn.

    And it's really REALLY bad if Golden Dawn becomes a big economic success by defaulting or leaving the euro!!!

    Paine said in reply to RueTheDay...

    Default is a label easily applied and un applied
    In arrears delinquent these are objective terms
    Use em instead of the Halloween word default

    [Jul 01, 2015] Continued

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    [Jun 30, 2015]Russian culture minister calls for tax on Hollywood films

    Jun 30, 2015 | The Guardian

    DavidEG 30 Jun 2015 00:26

    They (Hollywood staple) should be taxed the same way as tobacco or controlled substances. Full of violence, harmful to mental well-being of children an adults alike.

    HollyOldDog wereallfuckedboy 29 Jun 2015 18:54

    The UK government should have given the Hollywood WWW2 films the the J rating for JUNK.

    Doors2distant 29 Jun 2015 18:29

    What an excellent idea, the quality can only improve. No car chases, cop porn, war porn or saccharin sentimentality.

    Ieuan 29 Jun 2015 17:15

    " he wants to introduce a sales tax that will be used to increase funds for local productions."

    In just about every market Hollywood films gross the most. But in many markets (fewer and fewer as US companies take over their own local distribution) they are distributed by local distributors, who then invest some of their profits into local productions - hence some of the Hollywood blockbusters' moneymaking gets routed into supporting the local industry.

    If (as I suspect) the Russian distributors of Hollywood product are owned by Hollywood studios, and do not produce anything locally, then I think it's fair enough that the government steps in and routes some of the money made into local industry.

    olliemaple 29 Jun 2015 16:52

    Exceptionally right decision indeed. It's only fair that whoever watches that Hollywood crap should be extra taxed in favor of positive domestic productions. Not unlike cigarette sales.

    Alderbaran 29 Jun 2015 10:36

    Many Russian films could be considered to be great and to me trump much of what comes out of Hollywood. However, it was a shame that Medinsky saw no merit in Leviathan and I'm probably one of many who see Medinsky's actions as political in nature, especially given the criterea for state funding of films in Russia.

    It is a shame to see the state increasingly policing the film industry in Russia but I'm certain that creative directors will still be able to work within the constraints.

    Tilipon -> dropthemchammer 29 Jun 2015 08:24

    countries who passed through state coup. Look in root but not in a peak...

    [Jun 19, 2015] Debt: War and Empire By Other Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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    Irrational Exuberance

    • Definition of Irrational Exuberance

      The term "irrational exuberance" derives from some words that Alan Greenspan, chairman of the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled "The Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute at the Washington Hilton Hotel December 5, 1996. Fourteen pages into this long speech, which was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."

      Immediately after he said this, the stock market in Tokyo, which was open as he gave this speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then m in Frankfurt and London fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the m to Greenspan's seemingly harmless question was widely noted, and made the term irrational exuberance famous. It would seem to make no sense for m to react all over the world to a question casually thrown out in the middle of a dinner speech. Greenspan probably learned once more from this experience how carefully someone in his position has to choose words. As far as I can determine, Greenspan never used the "irrational exuberance" again in any public venue. The stock market drops around the world that occurred after his speech on December 6, 1996 have all been forgotten, eclipsed by bigger subsequent events, but it was those stock market drops that focussed public attention on the phrase irrational exuberance and which caused it to enter our language.

      The term irrational exuberance became Greenspan's most famous quote, out of all the millions of words he has uttered publicly. The term "irrational exuberance" is often used to describe a heightened state of speculative fervor. It is less strong than other colorful terms such as "speculative mania" or "speculative orgy" which discredit themselves as overstating the case. I chose this phrase as the title for my book because many people know instantly from this title what this book is about.

      Often people ask me whether I coined the term irrational exuberance, since I (along with my colleague John Campbell and a number of others) testified before Greenspan and the Federal Reserve Board only two days earlier, on December 3, 1996, and I had lunch with Greenspan on that day. I did testify that m were irrational. But, I very much doubt that I am the origin of the words irrational exuberance. Actually, Greenspan is quoted in a Fortune Magazine article in March 1959, long before he became Federal Reserve chairman, about "over-exuberance" of the financial community. Probably, "irrational exuberance" are Greenspan's own words, and not a speech writer's, and probably Alan Greenspan had written a draft of his 1996 speech even before I testified.

      Robert J. Shiller
      Cowles Foundation for Research in Economics
      and International Center for Finance
      Yale University
      30 Hillhouse Avenue
      New Haven, CT 06511
      robert.shiller@yale.edu

    • Irrational Exuberance
    • Stock market crash - Wikipedia, the free encyclopedia
    • Stock Market Crash! Blog
    • Can Crashes be Forecasted
    • The Effect of Market Cycles
    • Amazon.com Unexpected Returns Understanding Secular Stock Market Cycles Books Ed Easterling One of the strongest points emphasized by the book is that interest rates and inflation have never been stable for long, and the recent condition of low inflation price stability is a historical anomaly. The author uses a plethora of graphs and charts to prove that "buy and hold" doesn't always provide the best returns. Obviously, then, it's better to pull out during the bear m , but that's easier said than done

    Rising inequality

    Structural problems in mutual funds industry

    Random Findings

    FSO Editorials Tainted Research Lysenkoism - American Style by Antal E. Fekete,

    Antal E. Fekete, Professor Emeritus, Memorial University of Newfoundland
    June 10, 2003

    Hobson's Choice

    Unfortunately, the use of "Lysenkoism" as an epithet has been degraded by overuse, especially in absurd situations. I propose to restrict "Lysenkoism" to circumstances where a clear case can be made for coercive enforcement of the belief system from outside the system (e.g., by state patronage). For example, if a concept spreads concurrently among the scientific communities of several countries, it is almost certainly not Lysenkoism. One might feel like calling it that, but the analogy with Lysenko would fail to apply.

    Calculators

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    Retirement planners
    (usually junk, use you own Excel spreadsheet instead)

    Retirement Planner - MSN Money

    Contain also life expectancy calculator

    Socking away money for retirement is a great idea, but how much do you really need to save? How long do you need to work to set yourself up comfortably in your golden years? Enter your information below, the charts and numbers on the right will change as you go along, so try a few different numbers and see how different scenarios might play out for you.

    All amounts are calculated using today's dollar values. The rate of return on investments is adjusted for a 3% inflation rate.

    Retirement Calculator How should I allocate my assets Yahoo! Personal Finance

    Below are sample for simulation "reasonably conservative investor" responses. The sample was done of Sep 4, 2007 so the allocation looks a little bit strange for the market conditions but we have what we have... What idiots programmed this junk ?

    Here are the results of your profile questionnaire. The possible allocation models are Very Defensive, Defensive, Conservative, Moderate, Moderately Aggressive, Aggressive, and Very Aggressive. Your risk propensity suggests a Conservative portfolio allocated with the following mix:

    Cash Fixed Income Equity
    5% 45% 50%
    5% Money Market 20% Domestic Fixed Income

    15% International Fixed Income

    10% Mortgage Backed
    10% Large Cap Growth

    15% Large Cap Value

    10% Small/Mid Cap

    15% International Equity

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