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A Christmas Carol

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December 25th, 2014 at 5:01 am

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The Great Dictator

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Charlie Chaplin in The Great Dictator

 

 

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December 24th, 2014 at 3:35 pm

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Are Americans Prepared For A Soviet Style Collapse?

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by Dmitry Orlov
Tuesday, December 23, 2014

Last week I gave an interview to Barry at DR Escapes which is now up on Youtube. Please follow the link to listen to the interview. Barry’s notes on it are pasted in below:

 

Part Two: “Are Americans Prepared For A Soviet Style Collapse?”

If the social and financial structure around you collapsed tomorrow, as it did for many people during the fall of the Soviet Union, are you prepared to survive and even prosper? In my latest interview with best selling author Dmitry Orlov we discuss lifestyle and how your lifestyle decisions may dramatically impact how your family will fare if times get tough.

Dmitry left Russia with his family in 1976 and settled in the Boston area to pursue an education in computer science and linguistics. Along the way Dmitry realized he was trapped in the traditional American pursuit of a career. He was working day and night to make money to pay for the car and city condo and all the trappings of success. He needed the car and condo and all the trappings of business to keep making money. The same vicious cycle most Americans face every day. Well Dmitry gave it all up for a life on a sailboat full of travel and freedom.
In our interview, I passed along some of your questions as well as my own to get Dmitry’s perspectives. As you probably know if you follow Dmitry or the ClubOrlov blog, Dmitry brings an interesting perspective to the whole lifestyle and survival dialog. In this interview, Dmitry shares his thoughts on why he believes that Russian citizens were far better prepared for a collapse than the typical American citizen. His logic is sound and it definitely makes you question…. “what would my family do in a collapse, faced with”:

No lights
No running water
No flushing toilets
No trash removal
No gas at the gas pumps
No government services
No public transportation
Strangely enough, quite inadvertently, the Russian citizens may have been far better off to handle such a collapse, and here is why…..

In this first part of our two part interview with Dmitry, we learn more about his experience growing up in privilege in Russia and follow his journey out of Russia to Boston. Some of the topics Dmitry touches on in this part of the interview include:

Benefits of a travel perspective
Failures in Soviet central planning
Evolving to a barter economy
Role of small family farms
Advantage of generalists over specialists
Transition from a “job” to life on a boat

In the second part of this interview we pass along a few more of your questions in order to dig a little deeper into Dmitry’s opinions about the current status of America and why Dmitry is convinced that what Russia suffered in the Soviet collapse was a soft crash and what America is headed for can only be a catastrophic hard collapse.

In this part of the interview, Dmitry poses a realistic scenario and challenges us to think about how we would handle a collapse.

As I interviewed Dmitry, I couldn’t help but draw parallels with my lifestyle down here on the north coast of the Dominican Republic. Many of the things that Dmitry pointed out about the conditions that supported the bounce back by the Russian citizens seem to apply here.

On the north coast we enjoy:

Abundant food grown on small family farms or taken from the sea

Virtually unlimited fresh water not dependent on extensive government infrastructure

A resilient population unaccustomed and not dependent on many of life’s high-tech luxuries

An economy that can easily fall back on barter in the face of a currency collapse

 

DR Escapes Interview

Are Americans Prepared For A Soviet Style Collapse?

Dmitry Orlov

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December 23rd, 2014 at 4:43 pm

Yakking with John Michael Greer

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KunstlerCast no. 262

by James Howard Kunstler

John Michael Greer is a prolific author of novels and non-fiction books about the collapse of industrial civilization. He has a particularly long view of the human adventure and he is always fun to talk to. In this session, we delve into some questions of how technology behaves and where we are going with it in the years ahead.

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Yakking with John Michael Greer

James Howard Kunstler

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December 23rd, 2014 at 2:57 pm

If Wishes Were Loaves and Fishes

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by James Howard Kunstler

Janet Yellen and her Federal Reserve board of augurers might as well have spilled a bucket of goat entrails down the steps of the mysterious Eccles Building as they parsed, sliced, and diced the ramifications in altering their prior declaration of “a considerable period” (that is, before raising interest rates), vis-à-vis the simpler new imperative, “patience,” with its moral overburden of public censure aimed at those too eager for clarity — that is to say, the assurance that the Fed will not pull the plug on their life-support drip of funny money for the racketeering operation that banking has become.

The vapid pronouncement of “patience” provoked delirium in the markets, with record advances to new oxygen-thin heights. Behind all this ceremonial hugger-mugger lurks the dark suspicion that the Federal Reserve has no idea what’s actually going on, and no idea what it’s doing. And in the absence of any such ideas, Ms. Yellen and her collegial eminences have engineered a very elaborate rationale for doing nothing.

The truth is, they have already done enough. They have succeeded via their dial-tweaking interventions in destroying the agency of markets so that nobody can tell the difference anymore between prices and wishes. Coincidentally, it is that most wishful time of the year, especially among the professional money managers polishing their clients’ portfolios as the carols are sung and the champagne corks pop. Ms. Yellen should have put on a Santa Claus suit when she ventured out to meet the media last week.

Not even very far in the background, there is wreckage everywhere as events spin out of the pretense of control. Surely something is up in the Mordor of derivatives, that unregulated shadowland of counterparty subterfuge where promises are made with no possibility or intention of ever being kept. You can’t have currencies crashing in more than a handful of significant countries, and interest rates ululating, without a lot of slippage among the swaps. My guess is that a lot of things have busted wide open there, and we just don’t know about it yet, like fissures working deep below the surface around a caldera.

This Federal Reserve is running on the final fumes of its credibility. Counsel “patience” as it might, other institutions and the people running them may run out of patience with it and start running for cover. When currencies catch fire, even a run on the bank becomes an exercise in futility. The rot is spreading from the margins to the center. In a world of oxidizing paper obligations, the paper dollar is hardly a fortress but more like a stack of empty foil-wrapped boxes displayed in the concourse of a shopping mall scheduled for closure as soon as the holiday is concluded. Maybe some wise-ass kid will just torch it. The security guard is still awaiting his previous paycheck and is out drinking by the dumpster.

It will be at least a couple of months before the Fed dares to start “printing” again and a lot can happen before it does. If and when it does resume QE — and it will be sorely tempted — all its credibility will finally be lost. What an opportunity for another country, say a country with an already foundering currency, to dare introduce money partially backed by gold. Could happen. That hypothetical nation may be one with, say, substantial oil reserves, something that even an economically depressed global industrial economy desperately needs. That hypothetical nation may be one that is very weary of being jerked around by the USA, with our augerers and vizeers, and haircuts-in-search-of-brains.

Merry Christmas everyone and, this dwindling year, be especially careful what you wish for.

 

 

The new World Made By Hand novel
!! Is now available !!

 

“Kunstler skewers everything from kitsch to greed, prejudice, bloodshed, and brainwashing in this wily, funny, rip-roaring, and profoundly provocative page-turner, leaving no doubt that the prescriptive yet devilishly satiric A World Made by Hand series will continue.”

— Booklist

 

If Wishes Were Loaves and Fishes

Jim Kunstler

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December 22nd, 2014 at 3:30 pm

Mr. Toad in Union Grove

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Kunstler is teaching us patience, an attribute that our digital world is trying hard to render obsolete.
It is an essential skill for the turn that our collective sense of passing time is poised to make.

 

A History of The Future

by James Howard Kunstler

Pulling a copy of Kenneth Grahame’s The Wind in The Willows off a bookshelf, Andrew Pendergast, without question James Howard Kunstler’s most autobiographical character in this series so far, sits at the bedside of his friend Jack Harron, who is recuperating from a deadly fight with an assailant bent on murdering them both.

“What’s it about?” Jack said when Andrew held up the cover.

“A rat and a mole and a badger and a toad who mess around in boats down by a little stream in the English countryside.”

“They all get along, all these different animals?” Jack said.

“They’re all friends,” Andrew said. “It’s a book about friendship.”

 

 

by Albert Bates

A History of The Future is a book about friendship. It describes another hard won Christmas season in the lives of the citizens of Union Grove, a Hudson Valley town that we have come to know and appreciate in previous installments of the World Made By Hand series. Back are many of the earlier characters, including some we have not seen for quite some time, and new and even more interesting refugees enter our circle of friends.

The novel is an exploration of the process of rebuilding a broken civilization, even as the old continues to decay and collapse in both expected and unexpected ways. Civil society cannot be rebuilt by solitary individuals, religious charismatics, wealthy aristocrats, or fascist dictators although all those find a place in this future world. It takes the whole lot — the rats, the moles, the badgers and the toads — struggling to cooperate as friends, to find common ground and stand a chance.

Kunstler is a moralist. His good guys win. The bad guys get what they deserve, or are just left to inhabit whatever Hell they’ve made for themselves. The tale, though, revolves around what a good guy has to do, just to survive.

The Yiddish word beshert refers to that which God has given. And, in Judaism — as in Islam, Hinduism, Christianity and probably every other religion — there has always been a heated debate about how much of fate is determined by higher authority — a monster in the sky, as Paul Erhlich says — and how much is the result of human choices — good and bad. To quote Maimonides, “Every human being can be righteous or wicked, merciful or cruel, avaricious or charitable. There is no compulsion exerted upon one. A person chooses one’s way with one’s own determination.”

Maimonides, who lived in Spain at the end of the 12th century, also did not think of progress in terms of technological or cultural advancement, as cumulative. Maimonides said it was cyclical. This is the aboriginal view, and for someone in his time and place, or even now, it’s quite a radical notion. For Kunstler, we can foretell our future by simply surveying the contemporary milieu — global Ponzi economics, gas gauge on ‘E’, weather getting weird — but history is circular. After the cataclysm comes another Christmas.

We have often disagreed with Kunstler’s provincial view of the American South as it occasionally pops up in his nonfiction essays and books. Kunstler is such a devout Yankee that he has often portrayed New England wisdom and ingenuity as the sole province of the old Union; that below the Mason-Dixon Line there be nothing but Skol-chewing bubbas, hearing-damaged NASCAR fanatics, racial bigots and fried food junkies imprisoned by air conditioning.

The War of Northern Aggression, in our humble opinion, was, like most wars, all about energy. The North was rich in coal and the factories run by that magnificent jewel of fossil sunlight. Then, mid-18th century, Col. Drake discovered bubbling “coal oil” in Pennsylvania, a real game changer.

In contrast to these überpowerful energy slaves, the Southern states operated on the old economy, you know, the human and animal-powered one. The one that built the pyramids of Egypt and Mesoamerica, and Machu Picchu and the Great Wall. The Southern plantation economy was based on imports of African slaves. The North had the luxury of enough fossil energy slaves to afford emancipation of its human ones. The moral rectitude to actually do so gradually arrived, in fits and starts. Then they had to lord it over everyone else.

Until Texas and Louisiana discovered oil half a century later, the South had no such leeway. In the epic 19th Century contest between machine power and humans, the machine won. A region of the United States that was militarily superior in the acumen of its Generals, the skill of its cavalry and the esprit of brotherly men in arms was occupied and enslaved, then punished for more than a century, reduced to the lowest echelons on every index of human welfare, and finally addicted to talk radio, NASCAR and air conditioning. But don’t count them out.

Surprisingly, Kunstler doesn’t. He takes a more generous tack in A History of the Future. The South, while enthralled by Christian bigots, has established itself as a rival government to what is left of the federal sovereignty, rumored to be somewhere up in the Great Lakes. The center of this rival government is at Franklin, Tennessee, a town with which we are personally very familiar — Old Highway 31S is a route we’ve bicycled.

Franklin today embodies much of what Kunstler-the-non-fiction-expert-on-urban-design lauds. It revitalized its pedestrian downtown by moving traffic out to encircling corridors; enshrined its landmark buildings; in-filled the broken teeth on Main Street with antebellum vernacular; and revived the local arts, theater and music scene. While it has become for now a tony bedroom community for wealthy Nashville commuters, it is a perfect setting for a national capitol in a more austere and decentralized future. In many ways, Franklin Tennessee is Union Grove, only hotter.

The World Made By Hand series gives only short glimpses of the changes in weather that lie in store for any future history. There may be a shortage of wheat or a ruined season for other crops, but Union Grove still gets snow in winter. Sacramento is still above water and apparently no one has died of insect swarms or clathrate flares. Changes in climate, which are almost certain to radically alter our lives in the next 50 years, are not really part of this story.

In any science fiction yarn that becomes a series a writer has to be alert to the danger of revealing too much backstory lest new narrative choices are straightjacketed in with the old, or worse, the details he describes are so ludicrous in light of actual events that his work later falls into ridicule.

In his first two novels, much of Kunstler’s imagined history remained cloaked in mystery and conjecture. As the dust jacket tells the casual browser, “The electricity has flickered out. The automobile age is over. The computers are all down for good. Two great cities have been destroyed. Epidemics have ravaged the population. The people of a little town named Union Grove, in upstate New York, know little about what is going on outside Washington County.”

The third novel gives a much larger sweep of the shocks that presaged the predicament in which the people of Union Grove find themselves. Our “messenger,” Robert Earle’s long lost son Daniel, arrives back on Christmas Eve, near dead from exhaustion and hunger, to tell the story of what he saw “out there.”

So gripping is his story that in the print edition, Grove Atlantic has set it apart with a change of font and format. It is a novel within a novel, and we would defy anyone to set it down for longer than it takes to refill a teacup. With Daniel’s story Kunstler has us in his grip, but he teases us with the intermittent resumption of the “real time” plots and subplots, leaving us hanging onto our curiosity as we wade through the needs of Union Groves’ badgers and moles for their part in the tale. Kunstler is teaching us patience, an attribute that our digital world is trying hard to render obsolete. It is an essential skill for the turn that our collective sense of passing time is poised to make.

When you walk from home to work, or to shop; when you sit out to watch the sunset instead of the television; when you spend a day teaching yourself bicycle mechanics, watercolor, or cheese making — you are once again present in the world. To the uninitiated, peering in at this scenario for the future, it all seems so very quaint. Hardly.

“I got forty-six highly motivated skilled men with good tools,” Brother Jobe tells Magistrate Stephen Bullock. “That’s my insurance. And, by the way, if you thought that was funny, it ain’t.”

This review originally appeared on Resilience.

 

Albert Bates is author of his own positive vision of the future, The Post-Petroleum Survival Guide and Cookbook (New Society Publishers 2006), and provided a practicable remedy for global carbon imbalance with The Biochar Solution (New Society Publishers 2010). When not giving workshops at Mother Earth News Fairs he teaches permaculture and natural building in an ecovillage in Tennessee, future capital of the New South.

 

Mr. Toad in Union Grovel

Peak Surfer

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December 22nd, 2014 at 3:02 pm

Déjà Vu All Over Again

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by John Michael Greer
Wednesday, December 17, 2014

Over the last few weeks, a number of regular readers of The Archdruid Report have asked me what I think about the recent plunge in the price of oil and the apparent end of the fracking bubble. That interest seems to be fairly widespread, and has attracted many of the usual narratives; the blogosphere is full of claims that the Saudis crashed the price of oil to break the US fracking industry, or that Obama got the Saudis to crash the price of oil to punish the Russians, or what have you.

I suspect, for my part, that what’s going on is considerably more important. To start with, oil isn’t the only thing that’s in steep decline. Many other major commodities—coal, iron ore, and copper among them—have registered comparable declines over the course of the last few months. I have no doubt that the Saudi government has its own reasons for keeping their own oil production at full tilt even though the price is crashing, but they don’t control the price of those other commodities, or the pace of commercial shipping—another thing that has dropped steeply in recent months.

What’s going on, rather, is something that a number of us in the peak oil scene have been warning about for a while now. Since most of the world’s economies run on petroleum products, the steep oil prices of the last few years have taken a hefty bite out of all economic activities. The consequences of that were papered over for a while by frantic central bank activities, but they’ve finally begun to come home to roost in what’s politely called “demand destruction”—in less opaque terms, the process by which those who can no longer afford goods or services stop buying them.

That, in turn, reminded me of the last time prolonged demand destruction collided with a boom in high-priced oil production, and sent me chasing after a book I read almost three decades ago. A few days ago, accordingly, the excellent interlibrary loan service we have here in Maryland brought me a hefty 1985 hardback by financial journalist Philip Zweig, with the engaging title Belly Up: The Collapse of the Penn Square Bank. Some of my readers may never have heard of the Penn Square Bank; others may be scratching their heads, trying to figure out why the name sounds vaguely familiar. Those of my readers who belong to either category may want to listen up, because the same story seems to be repeating itself right now on an even larger scale.

The tale begins in the middle years of the 1970s, when oil prices shot up to unprecedented levels, and reserves of oil and natural gas that hadn’t been profitable before suddenly looked like winning bets. The deep strata of Oklahoma’s Anadarko basin were ground zero for what many people thought was a new era in natural gas production, especially when a handful of deep wells started bringing in impressive volumes of gas. The only missing ingredient was cash, and plenty of it, to pay for the drilling and hardware. That’s where the Penn Square Bank came into the picture.

The Penn Square Bank was founded in 1960. At that time, as a consequence of hard-earned suspicions about big banks dating back to the Populist era, Oklahoma state banking laws prohibited banks from owning more than one branch, and so there were hundreds of little one-branch banks scattered across the state, making a modest return from home mortgages, auto loans, and the like. That’s what Penn Square was; it had been organized by the developer of the Penn Square shopping mall, in the northern suburbs of Oklahoma City, to provide an additional draw to retailers and customers. There it sat, in between a tobacconist and Shelley’s Tall Girl’s Shop, doing ordinary retail banking, until 1975.

In that year it was bought by a group of investors headed by B.P. “Beep” Jennings, an Oklahoma City banker who had been passed over for promotion at one of the big banks in town. Jennings pretty clearly wanted to prove that he could run with the big dogs; he was an excellent salesman, but not particularly talented at the number-crunching details that make for long-term success in banking, and he proceeded to demonstrate his strengths and weaknesses in an unforgettable manner. He took the little shopping mall bank and transformed it into a big player in the Oklahoma oil and gas market, which was poised—or so a chorus of industry voices insisted—on the brink of one of history’s great energy booms.

Now of course this involved certain difficulties, which had to be overcome. A small shopping center bank doesn’t necessarily have the financial resources to become a big player in a major oil and gas market, for example. Fortunately for Beep Jennings, one of the grand innovations that has made modern banking what it is today had already occurred; by his time, loans were no longer seen as money that was collected from depositors and loaned out to qualified borrowers, in the expectation that it would be repaid with interest. Rather, loans were (and are) assets, which could (and can) be sold, for cash, to other banks. This is what Penn Square did, and since their loans charged a competitive interest rate and thus promised competitive profits, they were eagerly snapped up by Chase Manhattan, Continental Illinois, Seattle First, and a great many other large and allegedly sophisticated banks. So Penn Square Bank started issuing loans to Oklahoma oil and gas entrepreneurs, a flotilla of other banks around the country proceeded to fund those loans, and to all intents and purposes, the energy boom began.

At least that’s what it looked like. There was a great deal of drilling going on, certainly; the economists insisted that the price of oil and gas would just keep on rising; the local and national media promptly started featuring giddily enthusiastic stories about the stunning upside opportunities in the booming Oklahoma oil and gas business. What’s more, Oklahoma oil and gas entrepreneurs were spending money like nobody’s business, and not just on drilling leases, steel pipe, and the other hardware of the trade. Lear jets, vacation condos in fashionable resorts, and such lower-priced symbols of nouveau richesse as overpriced alligator-hide cowboy boots were much in evidence; so was the kind of high-rolling crassness that only the Sunbelt seems to inspire. Habitués of the Oklahoma oilie scene used to reminisce about one party where one of the attendees stood at the door with a stack of crisp $100 bills in his hand and asked every woman who entered how much she wanted for her clothes: every stitch, then and there, piled up in the entry. Prices varied, but apparently none of them turned down the offer.

It’s only fair to admit that there were a few small clouds marring the otherwise sunny vistas of the late 1970s Oklahoma oil scene. One of them was the difficulty the banks buying loans from Penn Square—the so-called “upstream” banks—had in getting Penn Square to forward all the necessary documents on those loans. Since their banks were making loads of money off the transactions, the people in charge at the upstream banks were unwilling to make a fuss about it, and so their processing staff just had to put up with such minor little paperwork problems as missing or contradictory statements concerning collateral, payments of interest and principal, and so on.

Mind you, some of the people in charge at those upstream banks seem to have had distinctly personal reasons for not wanting to make a fuss about those minor little paperwork problems. They were getting very large loans from Penn Square on very good terms, entering into partnerships with Penn Square’s favorite oilmen, and in at least some cases attending the clothing-optional parties just mentioned. No one else in the upstream banks seems to have been rude enough to ask too many questions about these activities; those who wondered aloud about them were told, hey, that’s just the way Oklahoma oilmen do business, and after all, the banks were making loads of money off the boom.

All in all, the future looked golden just then. In 1979, the Iranian revolution drove the price of oil up even further; in 1980, Jimmy Carter’s troubled presidency—with its indecisive but significant support for alternative energy and, God help us all, conservation—was steamrollered by Reagan’s massively funded and media-backed candidacy. As the new president took office in January of 1981, promising “morning in America,” the Penn Square bankers, their upstream counterparts, their clients in the Oklahoma oil and gas industry, and everyone else associated with the boom felt confident that happy days were there to stay. After all, the economists insisted that the price of oil and gas would just keep rising for decades to come, the most business-friendly and environment-hostile administration in living memory was comfortably ensconced in the White House; and investors were literally begging to be allowed to get a foot in the door in the Oklahoma boom. What could possibly go wrong?

Then, in 1981, without any fuss at all, the price of oil and natural gas peaked and began to decline.

In retrospect, it’s not difficult to see what happened, though a lot of people since then have put a lot of effort into leaving the lessons of those years unlearnt. Energy is so central to a modern economy that when the price of energy goes up, every other sector of the economy ends up taking a hit. The rising price of energy functions, in effect, as a hidden tax on all economic activity outside the energy sector, and sends imbalances cascading through every part of the economy. As a result, other economic sectors cut their expenditures on energy as far as they can, either by conservation measures or by such tried and true processes as shedding jobs, cutting production, or going out of business. All this had predictable effects on the price of oil and gas, even though very few people predicted them.

As oil and gas prices slumped, investors started backing away from fossil fuel investments, including the Oklahoma boom. Upstream banks, in turn, started to have second thoughts about the spectacular sums of money they’d poured into Penn Square Bank loans. For the first time since the boom began, hard questions—the sort of questions that, in theory, investors and bankers are supposed to ask as a matter of course when people ask them for money—finally got asked. That’s when the problems began in earnest, because a great many of those questions didn’t have any good answers.

It took until July 5, 1982 for the boom to turn definitively into a bust. That’s the day that federal bank regulators, after several years of inconclusive fumbling and a month or so of increasing panic, finally shut down the Penn Square Bank. What they discovered, as they dug through the mass of fragmentary, inaccurate, and nonexistent paperwork, was that Penn Square had basically been lending money to anybody in the oil and gas industry who wanted some, without taking the trouble to find out if the borrowers would ever be able to repay it. When payments became a problem, Penn Square obligingly loaned out the money to make their payments, and dealt with loans that went bad by loaning deadbeat borrowers even more money, so they could clear their debts and maintain their lifestyles.

The oil and gas boom had in fact been nothing of the kind, as a good many of the firms that had been out there producing oil and gas had been losing money all along. Rather, it was a Ponzi scheme facilitated by delusional lending practices. All those Lear jets, vacation condos, alligator-skin cowboy boots, heaps of slightly used women’s clothing, and the rest of it? They were paid for by money from investors and upstream banks, some of it via the Penn Square Bank, the rest from other banks and investors. The vast majority of the money was long gone; the resulting crash brought half a dozen major banks to their knees, and plunged Oklahoma and the rest of the US oil belt into a savage recession that gripped the region for most of a decade.

That was the story chronicled in Zweig’s book, which I reread over a few quiet evenings last week. Do any of the details seem familiar to you? If not, dear reader, you need to get out more.

As far as I know, the fracking bubble that’s now well into its denouement didn’t have a single ineptly run bank at its center, as the Oklahoma oil and gas bubble did. Most of the other details of that earlier fiasco, though, were present and accounted for. Sky-high fuel prices, check; reserves unprofitable at earlier prices that suddenly looked like a winning deal, check; a media frenzy that oversold the upside and completely ignored the possibility of a downside, check; vast torrents of money and credit from banks and investors too dazzled by the thought of easy riches to ask the obvious questions, check; a flurry of drilling companies that lost money every single quarter but managed to stay in business by heaping up mountains of unpayable debt, check. Pretty much every square on the bingo card marked “ecoomic debacle” has been filled in with a pen dipped in fracking fluid.

Now of course a debacle of the Penn Square variety requires at least one other thing, which is a banking industry so fixated on this quarter’s profits that it can lose track of the minor little fact that lending money to people who can’t pay it back isn’t a business strategy with a long shelf life. I hope none of my readers are under the illusion that this is lacking just now. With interest rates stuck around zero and people and institutions that live off their investments frantically hunting for what used to count as a normal rate of return, the same culture of short-term thinking and financial idiocy that ran the global economy into the ground in the 2008 real estate crash remains firmly in place, glued there by the refusal of the Obama administration and its equivalents elsewhere to prosecute even the most egregious cases of fraud and malfeasance.

Now that the downturn in oil prices is under way, and panic selling of energy-related junk bonds and lower grades of unconventional crude oil has begun in earnest, it seems likely that we’ll learn just how profitable the fracking fad of the last few years actually was. My working guess, which is admittedly an outsider’s view based on limited data and historical parallels, is that it was a money-losing operation from the beginning, and looked prosperous—as the Oklahoma boom did—only because it attracted a flood of investment money from people and institutions who were swept up in the craze. If I’m right, the spike in domestic US oil production due to fracking was never more than an artifact of fiscal irresponsibility in the first place, and could not have been sustained no matter what. Still, we’ll see.

The more immediate question is just how much damage the turmoil now under way will do to a US and global economy that have never recovered from the body blow inflicted on them by the real estate bubble that burst in 2008. Much depends on exactly who sunk how much money into fracking-related investments, and just how catastrophically those investments come unraveled. It’s possible that the result could be just a common or garden variety recession; it’s possible that it could be quite a bit more. When the tide goes out, as Warren Buffet has commented, you find out who’s been swimming naked, and just how far the resulting lack of coverage will extend is a question of no small importance.

At least three economic sectors outside the fossil fuel industry, as I see it, stand to suffer even if all we get is an ordinary downturn. The first, of course, is the financial sector. A vast amount of money was loaned to the fracking industry; another vast amount—I don’t propose to guess how it compares to the first one—was accounted for by issuing junk bonds, and there was also plenty of ingenious financial architecture of the sort common in the housing boom. Those are going to lose most or all of their value in the months and years ahead. No doubt the US government will bail out its pals in the really big banks again, but there’s likely to be a great deal of turmoil anyway, and midsized and smaller players may crash and burn in a big way. One way or another, it promises to be entertaining.

The second sector I expect to take a hit is the renewable energy sector. In the 1980s, as prices of oil and natural gas plunged, they took most of the then-burgeoning solar and wind industries with them. There were major cultural shifts at the same time that helped feed the abandonment of renewable energy, but the sheer impact of cheap oil and natural gas needs to be taken into account. If, as seems likely, we can expect several years of lowerr energy prices, and several years of the kind of economic downdraft that makes access to credit for renewable-energy projects a real challenge, a great many firms in the green sector will struggle for survival, and some won’t make it.

Those renewable-energy firms that pull through will find a substantial demand for their services further down the road, once the recent talk about Saudi America finds its proper home in the museum of popular delusions next to perpetual motion machines and Piltdown Man, and the US has to face a future without the imaginary hundred-year reserve of fracked natural gas politicians were gabbling about not that long ago. Still, it’s going to take some nimble footwork to get there; my guess is that those firms that get ready to do without government subsidies and tax credits, and look for ways to sell low-cost homescale systems in an era of disintegrating energy infrastructure, will do much better than those that cling to the hope of government subsidies and big corporate contracts.

The third sector I expect to land hard this time around is the academic sector. Yes, I know, it’s not fashionable to talk of the nation’s colleges and universities as an economic sector, but let’s please be real; in today’s economy, the academic industry functions mostly as a sales office for predatory loans, which are pushed on unwary consumers using deceptive marketing practices. The vast majority of people who are attending US universities these days, after all, will not prosper as a result; in fact, they will never recover financially from the burden of their student loans, since the modest average increase in income that will come to those graduates who actually manage to find jobs will be dwarfed by the monthly debt service they’ll have to pay for decades after graduation.

One of the core reasons why the academic industry has become so vulnerable to a crash is that most colleges and universities rely on income from their investments to pay their operating expenses, and income from investments has taken a double hit in the last decade. First, the collapse of interest rates to near-zero (and in some cases, below-zero) levels has hammered returns across the spectrum of investment vehicles. As a result, colleges and universities have increasingly put their money into risky investments that promise what used to be ordinary returns, and this drove the second half of the equation; in the wake of the 2008 real estate crash, many colleges and universities suffered massive losses of endowment funds, and most of these losses have never been made good.

Did the nation’s colleges and universities stay clear of the fracking bubble? That would have required, I think, far more prudence and independent thinking than the academic industry has shown of late. Those institutions that had the common sense to get out of fossil fuels for ecological reasons may end up reaping a surprising benefit; the rest, well, here again we’ll have to wait and see. My working guess, which is once again an outsider’s guess based on limited data and historical parallels, is that a great many institutions tried to bail themselves out from the impact of the real estate bust by doubling down on fracking. If that’s what happened, the looming crisis in American higher education—a crisis driven partly by the predatory loan practices mentioned earlier, partly by the jawdropping inflation in the price of a college education in recent decades, and partly by rampant overbuilding of academic programs—will be hitting shortly, and some very big names in the academic industry may not survive the impact.

As Yogi Berra liked to point out, it’s hard to make predictions, especially about the future. Still, it looks as though we may be in the opening stages of a really ugly fiscal crisis, and I’d encourage my readers to take that possibility seriously and act accordingly.

 

The Archdruid Report

Déjà Vu All Over Again

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December 20th, 2014 at 4:26 pm

Ellen Brown: Big Banks Will Take Depositors Money In Next Crash

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by Greg Hunter
December 10, 2014

When a financial crash does happen, you can forget about getting immediate access to your money. Ellen Brown of The Web of Debt Blog says, “The banks will say, well, we don’t have it. All the money goes into one big pool since Glass Steagall was repealed. They are allowed to gamble with that money and that’s what they do. I think maybe Bank of America is the most vulnerable because of Merrill Lynch. Everybody is concerned, and they do very risky deals and they are on the edge. I think they have over $50 trillion in derivatives and over $1 trillion in deposits. . . The Dodd-Frank Act says we, the people, are no longer going to be responsible for the big banks when they collapse. It is not clear the FDIC will even be able to borrow from the Treasury, but even if they could, who is going to pay that money back? Let’s say they borrowed $1 trillion. Who is going to pay that $1 trillion dollars back? It will bankrupt all the small banks that had to contribute to this premium. They will say we’re raising your premium to everything you got, basically. Little banks will go out of business, and who is going to survive–the big banks. . . . What we’re going to have left is five big banks, and everybody else is going to be bankrupt.”

 

 

Ellen Brown is an expert on public banking. In 2013 she wrote “The Public Bank Solution: From Austerity to Prosperity.” For a copy of this book, click here. Brown is working on a new book which will be about bail-ins and big global banks. She has not set a release date. If you would like to keep up with articles Brown writes, you can follow her work on the Web of Debt Blog which can be found on EllenBrown.com.

Ellen Brown: Big Banks Will Take Depositors Money In Next Crash

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December 20th, 2014 at 3:39 pm

Commodity Trading Giant Exits Physical Gold Due To “Lack of Physical With A Documented Origin”

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by Joseph P. Farrell –  News and Views From The Nefarium | Dec 18 2014

Joseph analyzes the possible “high octane implications” of a recent article from Zero Hedge.

Now THIS was one of the most interesting articles to come out of any financial analysis websites in recent memory, and Joseph comments on an unusual Medieval context in which it might be viewed in his High Octane Way-Out-There whackadoodle speculation of the day…

Here’s the article:

Commodity Trading Giant Exits Physical Gold Due To “Lack Of Physical With A Documented Origin”

 

News and Views From The Nefarium | Dec 18 2014

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December 19th, 2014 at 4:56 pm

This Is What Gold Does In A Currency Crisis

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by John Rubino | Dollar Collapse

To say that gold is in a bear market is to misunderstand both gold and markets. Gold isn’t an investment that goes up and down. It is money in the most basic store-of-value sense. Most of the time it just sits there, and when its price changes in local currency terms that says more about the local currency than about gold.

But when currencies collapse, gold shines.

Consider the above from the point of view of a typical Russian. The ruble is tanking (no need to understand why — all fiat currencies go this way eventually and the proximate cause is almost irrelevant). Russians who trusted their government and kept their savings in, say, a bank account, are losing their shirts. But those who own boring, doesn’t-pay-interest, in-a-bear-market gold have seen their capital appreciate in local currency terms by about 60 percent in just the past month. They’re not “making money,” but they are preserving wealth.

This is how it has gone always and everywhere when governments have destroyed their currencies. In the Roman Empire, revolutionary France, revolutionary America, most of Latin America in the 20th century, and now big parts of the developing world, local currencies evaporate but gold just sits there, buying the same amount of stuff as ever, impervious to the games governments play.

It won’t be long before this chart is replicated in a whole lot of other places. But by then it will be too late to prepare. The gold will be gone and those who trusted their governments will have to make do with promises.

Russian Trading System

Moscow Exchange (Russian: ОАО Московская Биржа) is the largest stock exchange in Russia, is also the No.9 largest exchange globally by derivatives trading, located in Moscow. In December 2011, it is established by the merger of the two largest stock exchanges, the Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS). After the merger of Exchange, it became an open joint stock company (OJSC), named Moscow Exchange.

The Moscow Exchange Group operates the country’s largest clearing service provider, Russia’s Central Securities Depository (CSD) and National Clearing Centre. The Moscow Exchange offers professional institutions and the state-of-the-art infrastructure for investors to trade bonds, currencies, equities, mutual funds, commodities and derivatives on all asset classes. The gold products include Gold Futures and Gold Options.

Trading hours: 10:00 a.m. – 23:50 p.m. (MSK)

Source

 

Gold Price Observations from Springtime

Dr. Jim Willie: Quantum Leap in the Gold Price, Ukraine-Russia Crisis and More

 

 

Dr. Jim Willie, Editor of The Hat Trick Letter, says big news on the progress of convertibility of the Chinese yuan is being ignored by the mainstream media. Dr. Willie says:

“Fully convertible capital account for the Shanghai Free Trade Zone is an enormous story, and it is not in the U.S. news. Why, because it signals that the yuan is about to become an extreme competitor to the dollar in trade settlement and, therefore, rival it as a global reserve currency. By that, I mean used in banks as a reserve item. . . . They are making steps; they are more like big strides toward making the yuan a fully convertible internationalized currency. You’ve got lots of countries with yuan swap facilities. You have Brazil, Australia, New Zealand, Japan, Germany and UK. These are big countries. These are Western countries, and they all have yuan swap facilities, which mean they are not going to conduct trade settlement in dollars. So, it’s already in our Western camp. With all these developments toward a gold backed currency, you are going to see quantum leaps in the gold price. You are going to see the big move in gold when China is no longer going to be able to get London and New York gold.”

 

This Is What Gold Does In a Currency Crisis

Redpill

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December 19th, 2014 at 3:00 pm