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charles hugh smith-The Financialized-Oil Dominoes Are Toppling

December 12, 2014

charles hugh smith-The Financialized-Oil Dominoes Are Toppling.

The drop in oil revenues has triggered a self-reinforcing feedback dynamic.

Oil is not just something that is refined into fuel–it is capital, collateral, debt and risk. In other words, it is intrinsically financial. As I noted in The Oil-Drenched Black Swan, Part 2: The Financialization of Oil, oil has been financialized to the point that few outside the industry understand the dominoes that are currently toppling.

Let’s start with the obvious fact that the impact of lower oil is financial, political and geopolitical. Lower oil revenues are negatively impacting:

1. Oil-exporters’ revenues

2. Monetary policy of central banks

3. Trade flows

4. Global financial markets

Lower revenues are pressuring oil-dependent governments such as Russia, Venezuela and Iran, and destabilizing the geopolitical order as weakened oil exporters sink into recession and political turmoil.

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

oftwominds-Charles Hugh Smith: The Oil-Drenched Black Swan, Part 2: The Financialization of Oil

December 2, 2014

oftwominds-Charles Hugh Smith: The Oil-Drenched Black Swan, Part 2: The Financialization of Oil.

All the analysts chortling over the “equivalent of a tax break” for consumers are about to be buried by an avalanche of defaults and crushing losses as the chickens of financializing oil come home to roost.


The pundits crowing about the stimulus effect of lower oil prices on consumers are missing the real story, which is the financialization of oil. Financialization is another word that is often bandied about without the benefit of a definition.
Here is my definition:
Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

That is a mouthful, so let’s break it into bite-sized chunks.

Home mortgages are a good example of how financialization increases financial profits by jacking up risk and distributing it to suckers who don’t recognize the potential for collapse and staggering losses.
…click on the above link to read the rest of the article…

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