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Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.

Middle East’s oil exporters rushed to raise taxes and cut spending earlier this year, but these measures were insufficient to contain the damage.

The major oil producers in the Gulf then rushed to raise debt via sovereign and corporate debt issuance. Bond issues in the region have already hit US$100 billion, exceeding the previous record amount of bonds issued in 2019.

Thanks to low-interest rates and high appetite from investors, the petrostates are binging on debt raising to try to fill the widening gaps in their balance sheets that oil prices well below their fiscal break-evens leave.

Saudi Aramco Taps International Debt Market Again

One of the latest issuers is none other than the biggest oil company in the world, Saudi Arabia’s oil giant Aramco, which raised this week as much as US$8 billion in multi-tranche bonds.

Aramco is tapping the international U.S.-denominated bond market for the second time in two years, after last year’s US$12 billion bond issue in its first international issuance, for which it had received more than US$100 billion in orders.

Saudi Aramco prefers to considerably increase its debt to cope with the oil price collapse than to touch its massive annual dividend of US$75 billion, the overwhelming majority of which goes to its largest shareholder with 98 percent, the Kingdom of Saudi Arabia.

Analysts warn that the dividend windfall from Aramco will not be enough to contain Saudi Arabia’s widening budget deficit if oil prices stay in the low $40s for a few more years.

…click on the above link to read the rest of the article…

Election Distraction Has Taken Eyes Off Our Economic Ills

November 15, 2020

Election Distraction Has Taken Eyes Off Our Economic Ills

See the source image

Lately it has been difficult to write about the economy because of all the noise flowing from the election and covid-19 hype. There is a growing reluctance to opine by many economic skeptics because it appears we have been wrong on recent predictions. Only time will tell if this is true due to the huge distortions now evident in the markets. Still, all this tends to diminish confidence in the ability to see what is ahead. This has forced not only me, but other economic watchers to go back and question all we hold true.

Unfortunately, other than moving a few pieces around the board, the recent actions by the Fed only continues to move back the day of reckoning. The “extend and pretend illusion” our economy remains on a sound footing is alive and well. One place this is evident is in the area corporate bond market where many bonds now hold an investment-grade BBB rating. If a company or bond is rated BB or lower it is known as junk grade, this means the probability the company will be able to repay its issued debt is seen as speculative.

In this troubling time of covid-19 where companies are being stressed and tested, we have watched the high yield option-adjusted spreads fall back towards pre-covid levels. The fact we have not seen yields rise as lending standers have tightened indicates the Fed has removed the liquidity problem. This has temporarily masked but has not solved the solvency problem. As the “lag time effect” kicks into gear expect a growing number of defaults and bankruptcies to take place.

…click on the above link to read the rest of the article…

World’s Negative-Yield Debt Pile Has Just Hit a New Record

November 9, 2020

World’s Negative-Yield Debt Pile Has Just Hit a New Record

$17 trillion of investment-grade debt now has sub-zero rates
U.K. and Australian central banks expand bond-buying programs

The market value of the Bloomberg Barclays Global Negative Yielding Debt Index rose to $17.05 trillion on Thursday, the highest level ever recorded and narrowly eclipsing the $17.04 trillion it reached in August 2019.

Almost $600 billion of bonds have seen their yields turn negative this week, meaning 26% of the world’s investment-grade debt is now sub-zero. Thanks to the slew of global issuance in 2020 as governments and companies wrestle with the impact of the coronavirus, that remains below 30% peak reached last year.

Global supply of bonds with negative yields hits record $17 trillion

The borrowing binge has been mostly met with trillions of dollars of quantitative easing that suppress yields. Just this week, the Bank of England and Reserve Bank of Australia announced plans to expand their bond-buying programs, while the Federal Reserve discussed a shift.

For investors watching yields vanish, it’s become a dilemma: make riskier bets in order to boost income or accept lower returns.

“There are still return hurdles that investors will try to reach but that is not something you can get in a large share of fixed income products at this point,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank. “This will drive a further push out the risk curve for investors, be that equities, credit, or long-end bonds.”

While much of the sub-zero debt pile is denominated in euros and yen, dashed expectations for a massive fiscal spending package under a unified Democratic government are also whittling down Treasury yields.

…click on the above link to read the rest of the article…

State of the American Debt-Slaves, Q3 2020: The Stimulus & Forbearance Phenomenon

November 9, 2020

State of the American Debt-Slaves, Q3 2020: The Stimulus & Forbearance Phenomenon

Auto loans jump after historic price spikes. Credit cards still in stimulus wonderland. Student-loan borrowers count on debt forgiveness, mmmkay.

Consumers have undertaken an astounding project instead of consuming: Paying down their credit cards. In September, outstanding balances of credit cards and other revolving credit ticked down by a tad to $949 billion, not seasonally adjusted, the lowest since July 2017.

Credit card balances spike in December during the shopping season and then decline during credit-hangover season in January and February. In March, they start rising again. But not this year. In March, credit-card balances fell, and then in April, when the stimulus checks arrived and when people stopped going out and spending money, credit-card balances plunged the most ever. And they have continued to tick down every month since then (not seasonally adjusted). By the end of September, according to Federal Reserve data on Friday, they were down 9.2% from September last year:

And it’s not because consumers are defaulting on their credit cards, with banks writing off the defaulted balances. On the contrary. Credit card delinquency rates have also dropped. It’s because consumers are paying down their credit cards, and they’re spending less.

They had a lot of help in form of government money – the stimulus checks and the extra unemployment benefits of $600 a week, and then of $300 a week, both now expired, and the federal Pandemic Unemployment Assistance [PUA] program for gig workers that has been surrounded by allegations of massive fraud, and so on. Whether fraudulent or not, this money got into the hands of consumers.

…click on the above link to read the rest of the article…

Gold and Crypto: Is This How Charts Look Before A Monetary Collapse?

October 24, 2020

Gold and Crypto: Is This How Charts Look Before A Monetary Collapse?

It is the the massive debt. It cannot be serviced. It will collapse the whole system.

The gold, silver and cryptocurrencies charts are showing signs of going parabolic. The US dollar is close to confirming a massive breakdown.

Gold, silver and cryptocurrencies all provide “crisis value” by simply being an acceptable debt-based fiat alternative. It is only later in this crisis that we will see a divergence between cryptocurrency and precious metals.

For now, they are likely to move higher together.

Gold has recently made new all-time highs, and seems ready to go higher after a decent consolidation. The importance of the 2011 all-time high can be seen on these charts:

I have marked two fractals (ABC). Both fractals start from the Dow/Gold ratio peaks (1966 and 1999). For these to continue the similarity, the level ($1920) at A and C needs to be surpassed on the current fractal.

We’ve already seen the breakout, now price has just been consolidating around that level. It is very close to blasting higher.

From a cycle analysis point of view, we are right at a point where a sustained multi-year gold rally is possible:

The top chart is gold from about 1997 to 2020 (current fractal), and the bottom chart is gold from about 1965 to 1980 (70s fractals). If the current fractal continues to follow the 70s fractal, then we could see gold continue to multiples of its current all-time high.

Currently, we are just after, or close to, a major Dow peak in the economic cycle. Again, you can see that the 2011 peak is an important indicator to confirm these fractals as relevant. It could also be considered a marker after which the chart is likely to go parabolic.

…click on the above link to read the rest of the article…

Oil and the Changing World Order

October 19, 2020

OIL AND THE CHANGING WORLD ORDER

U.S. oil inventories have fallen every week for two months yet WTI has averaged less than $40 per barrel since the end of August. That is because oil has been re-priced and markets are unwilling to pay more for it.

Those who expect a return to 2019 price levels acknowledge that the oil-demand recovery has stalled. They believe that this is because of Covid-19 and that things will return to normal once there is a vaccine.

Perspective

“I don’t think the severity of this downturn has been well understood yet.”

—Sophia Koropeckyj, Moody’s Analytics

What is happening to oil markets and to the global economy is not because of a virus. The virus greatly accelerated what was already happening. Things won’t go back to normal when the virus ends. I wrote that a month ago and nothing has happened since then to change my mind.

The world is in a debt cycle that began fifty years ago. World orders change when debt cycles approach their end. Ray Dalio has studied how and why world orders have changed over the last 1500 years. These are the requisites that changing world orders have in common:

High levels of indebtedness.
Low interest rates that limit the ability of central banks to stimulate the economy.
Large wealth gaps and political divisions that lead to social an political conflicts.
A rising world power that challenges the over-extended leading power.

These criteria have clear relevance to the present world order as China challenges U.S. hegemony. Discord created by debt, interest rates and income inequality have been aggravated by the Covid-19 pandemic but will not be resolved when the virus is controlled.

…click on the above link to read the rest of the article…

The Coming Financial Crisis of 2021

October 19, 2020

The Coming Financial Crisis of 2021

Economist Steve Keen issues new warning

Economist Steve Keen predicts that even if the covid-19 health crisis subsides next year, a brewing financial crisis on par with the 2008 Great Recession is in the making.

He sees the pandemic as having delivered an “unprecedented shock” to the global economy, and the response from authorities as nothing less than a “catastrophe”.

With tens of millions of households having lost their income this year, personal savings becoming exhausted, government support programs on their way to drying up, and lots more company layoffs/bankruptcies/closures ahead — Steve expects a punishing recession to arrive in full force in 2021.

And on a larger scale, he sees modern neoclassical economics — which ignores the importance of natural resources and the health of our ecosystems — as completely unsuited for the reality in which we live today. He warns that if we don’t adapt a more informed approach to managing the global economy, we will only continue to make the mess we’re in worse:

The Great American Oil & Gas Massacre: Bankruptcies Hit New Milestone as Bigger Companies Let Go

October 17, 2020

The Great American Oil & Gas Massacre: Bankruptcies Hit New Milestone as Bigger Companies Let Go

The American Oil Boom Was Where Money Went to Die.

The amount of secured and unsecured debts, such as loans and bonds, listed in bankruptcy filings in the third quarter by US oil and gas companies, at $34 billion, pushed the total oil-and-gas bankruptcy debt for 2020 to $89 billion, according to data compiled by law firm Haynes and Boone. And this nine-month total already surpassed the full-year total of oil-bust year 2016.

These are predominately exploration and production companies (E&P) and oilfield services companies (OFS) but also include some “midstream” companies (they gather, transport, process, and store oil and natural gas).

In mid-2014, the price of crude-oil benchmark WTI, which had been over $100 a barrel, started plunging. The companies involved in fracking couldn’t even generate positive cash flows at $100 a barrel. And as prices plunged, all heck broke loose. Creditors and equity investors, after drinking the Kool-Aid for years, suddenly got scared, and new money dried up to service the old money. A slew of bankruptcies ensued among the smaller players, reaching a high in 2016. And people thought that was it, the oil bust was over, and new money started pouring back into the sector.

But then came Phase 2 of the Great American Oil-and-Gas Bust in late-2018, with the price of WTI in the futures market eventually collapsing briefly to minus $37 a barrel in April 2020. In recent weeks, WTI has been hovering around $40 a barrel, at which the US oil industry is still burning millions of barrels of cash per day, so to speak:

The total number of oil-and-gas bankruptcies so far this year, at 88 filings, remains a lot lower than the 141 filings in 2016. Back then, scores of small companies were shaken out. Now the bigger ones with multi-billion-dollar debts are letting go as the crisis is working up the ladder.

…click on the above link to read the rest of the article…

Japan Embraced Debt As a Way Out of Its Budget Crisis. It’s Not Working.

October 16, 2020

JAPAN EMBRACED DEBT AS A WAY OUT OF ITS BUDGET CRISIS. IT’S NOT WORKING.

The sudden resignation of Japans Prime Minister Shinzo Abe has led to evaluations of his so-called Abenomics. Many have praised Abe’s aggressive monetary policy because the long shopping list of the Bank of Japan (government bonds, corporate bonds, ETFs and real estate investment trusts) has inflated stock and real estate prices (Shirai 2020; Financial Times 2020). Concerns remain on the fiscal side since Abe’s consumption tax hikes from 5 percent to 8 percent in 2014 and to 10 percent in 2019 are widely seen as a failure (The Economist 2020). Indeed, Abe resolved Japan’s deep-seated fiscal problems only superficially.

Figure 1: Tax Revenues of Japan’s Central Government

Source: Ministry of Finance, Japan.

The core of the problem is cheap money issued by the Bank of Japan, which had caused a stock and real estate bubble in the second half of the 1980s. While the bubble had inflated tax revenues, its bursting was followed by an unprecedented economic slump during which the corporate and income tax revenues collapsed from 43 trillion yen (approx. 390 billion dollars) in 1990 to 23 trillion yen (approx. 185 billion dollars) in 2012 (Figure 1), when Abe took office.

Figure 2: Social Security Expenditure and Local Allocation Tax as Share of Total Tax Revenues

Source: Ministry of Finance, Japan. Central Government.

At the same time Japan’s aging population ballooned the government contributions to the public pension and health insurance system, from 12 trillion yen (approx. 110 billion dollars) in 1990 to 36 trillion yen (approx. 327 billion dollars) in 2019. In addition, the so-called local allocation tax grants of around 16 trillion yen per year (approx. 145 billion dollars) to the economically exhausted Japanese periphery continued to constitute a heavy burden for the central government. In the wake of the global financial crisis, both together had increased far beyond the central governments’ tax revenues (Figure 2).

…click on the above link to read the rest of the article…

Has Our Luck Finally Run Out?

October 10, 2020

Has Our Luck Finally Run Out?

We are woefully unprepared for a long run of bad luck.

Long-term cycles escape our notice because they play out over many years or even decades; few noticed the decreasing rainfall in the Mediterranean region in 150 A.D. but this gradual decline in rainfall slowly but surely reduced the grain harvests of the Roman Empire, which coupled with rising populations resulted in a reduced caloric intake for many people.

This weakened their immune systems in subtle ways, leaving them more vulnerable to the Antonine Plague of 165 AD.

The decline of temperatures in Northern Europe in the early 1300s led to “years without summer” and failed grain harvests which reduced the caloric intake of most people, leaving them weakened and more vulnerable to the Black Plague which swept Europe in 1347.

I’ve mentioned the book The Fate of Rome: Climate, Disease, and the End of an Empire a number of times as a source for understanding the impact of natural cycles on human civilization.

It’s important to note that the natural cycles and pandemics of 200 AD didn’t just cripple the Roman Empire; this same era saw the collapse of the mighty Parthian Empire of Persia, the kingdoms of India and the Han Dynasty in China.

In addition to natural cycles, there are human socio-economic cycles of debt and decay of civic values and the social contract: a proliferation of parasitic elites, a weakening of state finances and a decline in the purchasing power of wages/labor.

The rising dependence on debt and its eventual collapse is a cycle noted by Kondratieff and others, and Peter Turchin listed these three dynamics as the key drivers of decisive discord of the kind that brings down empires and nations.

…click on the above link to read the rest of the article…

Collapse Is A Process, Not An Event

September 20, 2020

Collapse Is A Process, Not An Event

How does one ‘get ahead’ during hard times?

Look, I’m a systems guy. I think in systems terms. You should as well.

Why?

Because we’re entering a period of time when the major systems that have supported humanity are going to fail.

Or, put more accurately: they are already failing.

As just one example, our monetary system delivers outsized gains to the already stupendously-wealthy while piling up massive debts on the backs of we citizens, both born and yet-to-be-born. The US Federal Reserve is the unelected and unaccountable body that is most responsible for have made America’s billionaires nearly $1 trillion ‘richer’ since the pandemic hit.

These next three Fed-related data points are, in a word, obscene.

The first shows that the US Federal Reserve now “owns” more US federal debt than all foreign central banks. The second shows how billionaires are getting grotesquely wealthier from the Fed’s “rescue’” efforts. And the last shows how the Fed’s record-low interest policy has resulted in an explosion in federal debt:

(Source)

This is obscene (and infuriating!) to anyone who cares about the future. Leaving aside the morality issues for a moment, we can at least conclude that the behaviors and values on display are thoroughly unsustainable.

Eventually spending more money than you have ends in ruin.

Speaking of spending what you don’t have, a similar story can be told about ecological overshoot and humanity’s extractive practices — it’s akin to spending both the entirety of the interest income as well as some principal each year from our environmental trust fund.

There aren’t many resources that one can point to which aren’t in some serious form of either concerning decline or depletion, or both. Already thousands, if not millions, of people in the American West are considering relocating because of the ever-present danger of disruptive if not life-threatening fires:

…click on the above link to read the rest of the article…

America’s Fiscal Follies Are Dangerously in the Red

September 20, 2020

AMERICA’S FISCAL FOLLIES ARE DANGEROUSLY IN THE RED

The Congressional Budget Office has recently issued a federal “Budget Outlook Update” for the next ten years in the context of the government’s fiscal condition in the face of the coronavirus and Washington’s spending spree. The message: the deficit for fiscal year 2020 is huge, and the national debt is getting bigger, faster than had been projected before America’s lockdowns that brought much of the economy to a halt.

Normally, serious recessionary downturns are the result of central bank monetary mismanagement that generates unsustainable investment and housing booms and bubbles through money, credit and interest rate manipulation. Eventually, the credit expansion house of cards comes tumbling down as various sectors of the economy discover the need for a rebalancing of resource, labor, and capital uses in the face of numerous mismatches between supplies and demands.

The Government Directly Caused the Downturn of 2020

There were many signs that ten years of nearly zero interest rates and a large expansion of bank credit were setting the stage for an eventual “correction” in the economy. However “inevitable” this might have been at some point, there was no indication at the beginning of 2020 that a serious recession was on the immediate horizon. No, what happened in the first half of 2020 had one source and cause only – the coercive commands of the federal and the state governments ordering people to stay at home, limit their shopping trips to politically-approved “essentials,” and not to go to work, as all part of a counterproductive and damaging attempt to stop the spread of the coronavirus.

Instead, its most important outcome was to wreak havoc on not just the U.S. economy, but much of the world’s economy, as well, as most other governments imposed similar compulsory clampdowns on the citizens of their countries.

…click on the above link to read the rest of the article…

The Four D’s That Define the Future

September 15, 2020

The Four D’s That Define the Future

When the money runs out or loses its purchasing power, all sorts of complexity that were previously viewed as essential crumble to dust.

Four D’s will define 2020-2025: derealization, denormalization, decomplexification and decoherence. That’s a lot of D’s. Let’s take them one at a time.

I use the word derealization to describe the inner disconnect between what we experience and what the propaganda / marketing complex we live in tells us we should be experiencing.

Put another way: our lived experience is derealized (dismissed as not real) by official spin and propaganda.

The current state of the economy is a good example. We see the real-world economy declining yet the officially approved narrative is that there’s a V-shaped recovery underway because Big Tech stocks are hitting new highs. In other words, we don’t need a real-world economy, all we need is a digital economy provided by Big Tech platforms.

This is derealization at its finest: the everyday world you experience directly no longer matters; what matters is stock prices and various statistics that all paint a rosy picture.

Meanwhile, the wealthiest class is fleeing soon-to-be-bankrupt cities. The wealthiest class has the means to buy the best advice and also has the most to lose, so I give their actions far more credence than official propaganda.

I’ve sketched out my thesis on denormalization in The “New Normal” Is De-Normalization and Here’s Why the “Impossible” Economic Collapse Is Unavoidable:

This is why denormalization is an extinction event for much of our high-cost, high-complexity, heavily regulated economy. Subsidizing high costs doesn’t stop the dominoes from falling, as subsidies are not a substitute for the virtuous cycle of re-investment.

The Fed’s project of lowering the cost of capital to zero doesn’t generate this virtuous cycle; all it does is encourage socially useless speculative predation. Collapse isn’t “impossible,” it’s unavoidable.

…click on the above link to read the rest of the article…

Massive Lines Form Outside Virginia Food Bank As Demand Hits One Million Meals Per Month

September 15, 2020

Massive Lines Form Outside Virginia Food Bank As Demand Hits One Million Meals Per Month

The economic recovery has stalled, and in some cases, reversed. The $600 unemployment benefits that Americans received following the virus pandemic that crashed the economy in March-April expired on July 31, which means a fiscal cliff has been underway for 44 days (as of Sept. 14).

Millions of people are still out of work, their emergency savings wiped out, and insurmountable debts are increasing. As former Federal Reserve Chair Janet Yellen warned in August, Congress’ inability to pass another round of stimulus checks could weigh on the economic recovery.

Readers may recall about a quarter of all personal income is derived from the government – so when a lapse in stimulus checks extends for well over one month – that could lead to new consumer stress.

In Richmond, Virginia, about 125 miles south of Washington, D.C., a food bank has been shelling out more than one million meals per month as the metro area battles deep economic scarring sustained by the virus-induced recession.

Kim Hill, the Chesterfield Food Bank CEO, told ABC 8News, “a lot of Chesterfield residents are showing up to get food would be an understatement — they’ve been averaging over a million meals a month.”

“You roll down that window, and you see the tears in that person’s eyes who never thought they would need the help of a food bank,” Hill said. “It breaks your heart.”

She said the volume of people her food bank is feeding is more than triple the levels versus last year. With increased demand, Hill said more volunteers are needed to handle the greater volumes.

“The life at the food bank here, we think it has changed forever,” Hill said. “Hunger should not exist in our country. We are one of the richest countries in the world, we need to be able to take care of our own people.”

…click on the above link to read the rest of the article…

Frederick Soddy’s Debt Dynamics

September 13, 2020

Frederick Soddy’s Debt Dynamics

In the field of ecological economics, Frederick Soddy looms large. Born in 1877, Soddy became a chemist and eventually won a Nobel prize for work on radioactive decay. Then he turned his attention to economics.

Between 1921 and 1934, Soddy wrote four books that looked at how money relates to the physical economy. For his ground-breaking work, Soddy was rewarded with deafening silence. Here’s how ecological economist Eric Zencey puts it:

… Soddy carried on a quixotic campaign for a radical restructuring of global monetary relationships. He was roundly dismissed as a crank.

(Eric Zencey in Mr. Soddy’s Ecological Economy)

Although ignored during his life, Soddy’s work would become a central part of ecological economics. Let’s have a look at Soddy’s thinking.

Wealth vs. virtual wealth

Like a good natural scientist, Soddy insisted that human society is constrained by the laws of physics. Humans survive, he noted, by consuming natural resources. Exhaust these resources and we’re done for.

Think of humans (and our economy), says Soddy, like a machine. We transform energy into physical work. Like all machines, we’re bound by the laws of thermodynamics, which say that you can’t get something for nothing. Energy output requires energy input. That means humans are forever dependent on natural resources.

Now comes the problem. Our biophysical stock of resources — what Soddy called ‘wealth’ — is bound by the laws of thermodynamics. But money — which Soddy called ‘virtual wealth’ — is bound only by the laws of mathematics. Money can grow forever. Natural resource extraction cannot. This mismatch, Soddy claimed, is the root of most economic problems.

Cows and virtual cows

Here’s an example of Soddy’s thinking. Suppose that Alice is a would-be cattle farmer. She inherited some land and wants to use it to farm cattle. The problem is she has no money.

…click on the above link to read the rest of the article…

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