Financial Armageddon

[MarkP]

A good overview of our financial structure. If you want to blame a single party and ignore history, don't read this.

17 November 2008
The Dollar Trap: Michael Hudson's Incisive Characterization of Our Global Economic Dilemma
Jesse's Caf? Am?ricain

. . . The financial press has been negligent in reporting how last week’s two top financial stories are linked: first, the testimony by Treasury Secretary Henry Paulson and his evasive Interim Assistant Secretary Neel Kashkari defending why they followed a completely different giveaway plan to the banks (their own Wall Street constituency) than what Congress authorized; and second, the G-20 standoff among the world’s leading finance ministers this weekend. . . .​

 

[MarkP]

While Citigroup is on the verge of being bailed out (nationalized) . . .

Report: Government prepared to lend $7.4 trillion
Houston Chronicle ^ | 11/24/08

Saturday, November 22, 2008
Obama: "Act Swiftly and Boldly"
Calculated Risk

We need a fiscal stimulus package that offsets most of the retrenchment in private spending that remains after offsets from a smaller real trade deficit and lower oil prices. Our recommendation has been a $300-$500bn package, but we regard this as the minimum of what would be desirable. The 4% of GDP that we estimate for the retrenchment amounts to $600bn.​

Sunday, November 23, 2008
WSJ: Government to Guarantee $300 Billion in Citigroup Assets
Calculated Risk

The world lamented Bush as the $10T man. Obama will be the $20T man. Both, to include Clinton, have built administrations from the elite Harvard, Yale, Princton, etc academia. See a trend here?

 

[MarkP]

Reading the Houston Chronicle / Bloomberg article

Nov. 24 (Bloomberg) -- The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year

. . .

"Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary." . . .​

I'm sure glad our elite are willing to spend our money so freely.

 

[az_max]

Nov. 24 (Bloomberg) -- China is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year
​

fixed it for you.​

 

[p m]

I'm sure glad our elite are willing to spend our money so freely.

This morning I came across a political joke in Roundel magazine:
- When you're drowning 100 feet from the end of the pier, a Republican will throw you a 50-foot rope and urge you to swim up to it and build character.
A Democrat will come with a 300-foot coil of rope, throw the whole thing in the water, and run away to get somebody to help.

Can't possibly come closer....

 

[MarkP]

Speaking of 300-foot ropes . . . .

The Obama/Bush team now wants you to borrow even more money, go even deeper into debt . . . . with credit

Federal Reserve, Treasury Announce $800 Billion Plan to Support Consumer Lending
Naked Capitalism

Let's see, Bloomberg said yesterday that the Federal government had committed $7.4 trillion to lending facilities and guarantees. The total is now $8.2 trillion thanks to new programs announced today to aid borrowing by consumers, small businesses, and homeowners. . . .​

Before the end of the year it will be over $10T, on top of the existing $10T.

Feel like you want to take out more credit?

And in a vote of confidence for Obama's incoming administration, really just warmed over Bush and Clinton elites . .

“Geithner, in our view, deserves retirement, not promotion”
NYT via Hot Air
CHANGE!

 

[MarkP]

New prediction on oil . . . .




$25/barrel

 

[landrovered]

Doesn't that make you feel like we have been hosed for the last two years?

All the while that oil was over $100/bbl the fundamentals suggested a price of $70-80, as usual the pendulum has swung too far to the opposite with the potential for $25 oil.

Demand is already increasing, the effect of the two curves will pass each other and we will swing from $25 back up to $90.

 

[MarkP]

Doesn't that make you feel like we have been hosed for the last two years?

. . . .

That statement assumes a constant supply and demand relationship. It also assumes that the oil companies were artificially increasing prices independant of demand. Throughout the fluctuation in energy prices I believe the profit margins, as a % of cost, remained fairly constant and relatively low. Demand did not. In addition the US has been adverse to new exploration. Peak oil was much more a function of policy and politics than real oil reserve depletion.

Bubbles not only misallocate capital but they also create excessive demand. The primary source of new demand was China and India. Now that the world credit bubble has popped the demand has been destroyed. China is now worried about social unrest as their growth rate drops below . . . . 9%.

I don't think demand has started to increase yet. In fact I would expect more demand destruction as the world economy slows even more. The US, while it has issues, is better off than Europe. I've seen a few article mentioning the U.K. as on the brink of financial ruin.

 

[Paul Grant]

I'm sorry Mark but I usually stay clear of your comments but..

"Peak oil was much more a function of policy and politics than real oil reserve depletion."

is one of the dumbest things I have ever heard you utter on Dweb.

 

[MarkP]

I'm sorry Mark but I usually stay clear of your comments but..

"Peak oil was much more a function of policy and politics than real oil reserve depletion."

is one of the dumbest things I have ever heard you utter on Dweb.

Hello Paul. We still owe each other a beer!

I know there are many analysis that show peak oil but I continue to see press releases of new oil fields found. Who is actively exploring?

Brazil
Argentina
China
Russia


Who isn't? The U.S.

I wonder what the "Peak Oil" date is now that demand has significantly dropped? Keep in mind that all these dates ASSUME demand curves.


Edit add:

$140+ per barrel drove significant increases in exploration and new oil found.

Now drop that to $25 per barrel. Demand is dropping and exploration will will most likely come to a screeching halt.

 

[apg]

Holy cow!

Citigroup plans to cut about 50,000 jobs

Awww...it's not *that* bad. They're still spending $400 million for the naming rights to the Mets' new stadium. Ummm...I wonder where they found all that spare cash? Couldn't have been that bailout, now could it?

 

[MarkP]

. . .

$140+ per barrel drove significant increases in exploration and new oil found.

Now drop that to $25 per barrel. Demand is dropping and exploration will will most likely come to a screeching halt.

The chart below won't happen at $25/barrel



IEA forcast

 

[MUSKYMAN]

I'm sorry Mark but I usually stay clear of your comments but..

"Peak oil was much more a function of policy and politics than real oil reserve depletion."

is one of the dumbest things I have ever heard you utter on Dweb.

I have to side with Mark on this one...we just went through a "perfect storm" for oil prices with the election,speculation, demand, and drilling policy.

 

[landrovered]

The drop in demand will only extend the peak forward in time but peak oil is not just a political theory.

 

[noee]

Are you guys talking Infrastructure Peak or the amount that's in the ground (known reserves)? Two different animals, but people use the same term, "Peak Oil", to label both.

 

[MarkP]

The drop in demand will only extend the peak forward in time but peak oil is not just a political theory.

Peak oil may be a valid theory but the actual amount of oil or barrels per day is a function of exploration. Every time the price of oil "peaks" we suddenly discover new fields / resources. Expect new production enabled by $140/barrel oil to come on line in the next few years and, combined with demand destruction, drive price even lower. This will starve exploration and start the next "peak oil" policy and political cycle.

If we do finally develop a viable alternative energy source then peak oil will be hundreds if not thousands of years off. Yes, still a valid "theory" but reality is more than theory.

 

[MarkP]

Sorry Arnold, too late. Dweb beat you by two months . . .



Schwarzenegger warns of financial 'Armageddon'
Sacramento Bee ^ | 12/10/8 | Steve Wiegand

Saying California is "headed toward a financial Armageddon," Gov. Arnold Schwarzenegger blistered the Legislature today for failing to come to grips with the state's deteriorating budget situation. . . . .​

Hey Arnold, you could be 'Governor' of Greece :ack:

 

[noee]

Just wait until the public pension system collapses in all of these states. Torches and pitchforks, I tell ya....

Downward pressure on State Debt

"...
There is probably another dozen or two states waiting in the wings. Expect to see municipal bond yields rise. And states are going to have to cut services, raise taxes, or both. That means more job losses, more foreclosures, and more bankruptcies, all deflationary phenomena."​

**my emphasis

 

[MarkP]

I agree that public sector pensions are the next bailout, that is unless the State governments don't get there first. Our LSM tends to focus on the US only but the EU is experiencing its first real crisis as result of the credit market implosion. Will the EU survive?

Wednesday, December 10, 2008
It's the economy stoopid
EU Referendum

As the Greek riots pass their fourth night with no let-up, the situation – as reported – seems to be getting more grave, with a general strike adding to the nation's woes. . . .

It is, as you might expect, Ambrose Evans Pritchard who takes a broader perspective, looking at the economic issues. He remarks that these riots illustrate "the slow-burn effects of Europe's monetary union" as they "begin to corrode the democratic legitimacy of governments."

Greece's euro membership, he writes, has led to a warped economy. . . .​