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Over three decades, the value of energy China extracts from its domestic oil, gas and coal supplies has plummeted by half

China’s economic slowdown could be a key trigger of the coming global financial crisis, but one of its core drivers — China’s dwindling supplies of cheap domestic energy — is little understood by mainstream economists.

All eyes are on China as the world braces itself for what a growing number of financial analysts warn could be another global economic recession.

In a BBC interview to mark the 10th anniversary of the global financial crisis, Bank of England Governor Mark Carney described China as “one of the bigger risks” to global financial stability.

The Chinese “financial sector has developed very rapidly, and it has many of the same assumptions that were made in the run-up to the last financial crisis,” he warned:

“Could something like this happen again?… Could there be a trigger for a crisis — if we’re complacent, of course it could.”

Since 2007, China’s debts have quadrupled. According to the IMF, its total debt is now about 234 percent of gross GDP, which could rise to 300 percent by 2022. British financial journalist Harvey Jones catalogues a range of observations from several economists essentially warning that official data might not reflect how bad China’s economy is actually decelerating.

The great hope is that all this is merely a temporary blip as China transitions from a focus on manufacturing and exports toward domestic consumption and services.

Meanwhile, China’s annual rate of growth continues to decline. The British Foreign Office (FCO) has been monitoring China’s economic woes closely, and in a recent spate of monthly briefings this year has charted what appears to be its inevitable decline.

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

The Next Financial Crisis Is Right on Schedule (2019)

September 13, 2018

The Next Financial Crisis Is Right on Schedule (2019)

Neither small business nor the bottom 90% of households can afford this “best economy ever.”

After 10 years of unprecedented goosing, some of the real economy is finally overheating: costs are heating up, unemployment is at historic lows, small business optimism is high, and so on–all classic indicators that the top of this cycle is in.

Financial assets have been goosed to record highs in the everything bubble.Buy the dip has worked in stocks, bonds and real estate–what’s not to like?

Beneath the surface, the frantic goosing has planted seeds of financial crisis which have sprouted and are about to blossom with devastating effect. There are two related systems-level concepts which illuminate the coming crisis: the S-Curve and non-linear effects.

The S-Curve (illustrated below) is visible in both natural and human systems.The boost phase of rapid growth/adoption is followed by a linear phase of maturity in which growth/adoption slows as the dynamic has reached into the far corners of the audience / market: everybody already caught the cold, bought Apple stock, etc.

The linear stage of maturity is followed by a decline phase that’s non-linear.Linear means 1 unit of input yields 1 unit of output. Non-linear means 1 unit of input yields 100 unit of output. In the first case, moving 1 unit of snow clears a modest path. In the second case, moving 1 unit of snow unleashes an avalanche.

The previous two bubbles that topped/popped in 2000-01 and 2008-09 both exhibited non-linear dynamics that scared the bejabbers out of the central bank/state authorities accustomed to linear systems.

In a panic, former Fed chair Alan Greenspan pushed interest rates to historic lows to inflate another bubble, thus insuring the next bubble would manifest even greater non-linear devastation.

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

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The 11th Hour: 8 Examples Of Mainstream Media Sources Warning Us Of Imminent Economic Disaster

September 8, 2018

The 11th Hour: 8 Examples Of Mainstream Media Sources Warning Us Of Imminent Economic Disaster

Are we on the verge of another great financial crisis, a devastating recession and a horrific implosion of the global debt bubble? On my website I have been relentlessly warning my readers about the inevitable consequences of our very foolish actions, but now the mainstream media is beginning to sound just like The Economic Collapse Blog. The coming crisis is so close now that a lot of them are starting to see it, and of course economic disaster is already a reality for much of the rest of the planet. For years, the mainstream media told us that things would get better, and in a lot of ways we did see some improvement. But now the tone of the mainstream media has become quite ominous, and that is definitely not a positive sign. The following are 8 examples of mainstream media sources warning us of imminent economic disaster…

#1 Forbes: “Disaster Is Inevitable When America’s Stock Market Bubble Bursts”…

As shown in this report, the U.S. stock market is currently trading at extremely precarious levels and it won’t take much to topple the whole house of cards. Once again, the Federal Reserve, which was responsible for creating the disastrous Dot-com bubble and housing bubble, has inflated yet another extremely dangerous bubble in its attempt to force the economy to grow after the Great Recession. History has proven time and time again that market meddling by central banks leads to massive market distortions and eventual crises. As a society, we have not learned the lessons that we were supposed to learn from 1999 and 2008, therefore we are doomed to repeat them.

The purpose of this report is to warn society of the path that we are on and the risks that we are facing.

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

The 11th Hour: 8 Examples Of Mainstream Media Sources Warning Us Of Imminent Economic Disaster

September 7, 2018

The 11th Hour: 8 Examples Of Mainstream Media Sources Warning Us Of Imminent Economic Disaster

#1 Forbes: “Disaster Is Inevitable When America’s Stock Market Bubble Bursts”…

As shown in this report, the U.S. stock market is currently trading at extremely precarious levels and it won’t take much to topple the whole house of cards. Once again, the Federal Reserve, which was responsible for creating the disastrous Dot-com bubble and housing bubble, has inflated yet another extremely dangerous bubble in its attempt to force the economy to grow after the Great Recession. History has proven time and time again that market meddling by central banks leads to massive market distortions and eventual crises. As a society, we have not learned the lessons that we were supposed to learn from 1999 and 2008, therefore we are doomed to repeat them.

The purpose of this report is to warn society of the path that we are on and the risks that we are facing.

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

Shale Won’t Trigger The Next Financial Crisis

September 6, 2018

Shale Won’t Trigger The Next Financial Crisis

Many think that debt and negative cash flow by U.S. shale companies will crash the global financial system. I believe the opposite is more likely, that a developing financial crisis may crash oil prices and test the survival of shale plays.

In The Next Financial Crisis Lurks Underground, Bethany McLean argues that the U.S. energy boom is on shaky ground because of excessive debt and failure to show profits after a decade of drilling. This thoughtful op-ed raises concerns that many have expressed since the advent of tight oil production.

The problem with her thesis is that debt from the U.S. oil sector is just not big enough to crash the global financial system. Losses and bankruptcies in that sector in 2015-16 were substantial and yet, did not threaten the stability of world financial markets. In the improbable worst case scenario, the U.S. government would step in as it did for the auto industry in 2009.

Higher oil prices are inevitable at some time sooner than later because of under-investment over the last several years of low prices. This is compounded by lack of big discoveries and ever-present geopolitical supply interruptions and outages.

Ms. McClean correctly identifies the link between near-zero interest rates and the rise of tight oil financing. She fails, however, to acknowledge the 2004-2008 plateau of world production at the same time that demand from China greatly increased. This pushed oil prices to more than $100/barrel–the main factor that made tight oil development feasible. Because that price trend continued for 4 years, supply overshoot led to the oil-price collapse of late 2014.

The two price cycles since then are shown in Figure 1 as a cross plot of oil price vs comparative inventory (current oil + product stock levels minus the 5-year average of those stock levels).

(Click to enlarge)

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

No Fracking Way: Debt-Laden Shale Producers May Unleash The Next Financial Crisis

September 4, 2018

No Fracking Way: Debt-Laden Shale Producers May Unleash The Next Financial Crisis

After nearly two decades of horizontal drilling, fracking – as it is commonly known, has “turned the energy world upside down,” according to Journalist Bethany McLean, a former Goldman Sachs analyst-turned-journalist.

And according to a new op-ed in the New York Times, McLean has a warning for anyone betting the farm on the shale industry; beware.

In a nutshell, the fracking industry – which “could not have taken off so dramatically were it not for record low interest rates after the 2008 financial crisis,” is setting up for a spectacular fall without rising oil prices and global demand. Fracking companies have largely survived, according to McLean, because “plenty of people on Wall Street are willing to keep feeding them capital and taking their fees.”

From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales. –NYT

Columbia University Center on Global Energy Policy fellow, Amir Azar, calculates that the fracking industry’s net debt in 2015 was $200 billion, a 300% increase from a decade earlier, however interest expense increased at half the rate debt did due to falling interest rates.

Dr. Azar recently called the post-2008 era of super-low interest rates the “real catalyst of the shale revolution.” –NYT

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

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

September 4, 2018

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

Thanks to increasing demand and upcoming U.S. sanctions against Iran, oil prices have been rising and some analysts are forecasting that they will surge even higher in the months ahead. Unfortunately, that would be very bad news for the U.S. economy at a time when concerns about a major economic downturn have already been percolating. In recent years, extremely low gasoline prices have been one of the factors that have contributed to a period of relative economic stability in the United States. Because our country is so spread out, we import such a high percentage of our goods, and we are so dependent on foreign oil, our economy is particularly vulnerable to gasoline price shocks. Anyone that lived in the U.S. during the early 1970s can attest to that. If the average price of gasoline rises to $4 a gallon by the end of 2018 that will be really bad news, and if the average price of gasoline were to hit $5 a gallon that would be catastrophic for the economy.

Very early on Tuesday, the price of U.S. oil surged past $70 a barrel in anticipation of the approaching hurricane along the Gulf Coast. The following comes from Fox Business…

U.S. oil prices rose on Tuesday, breaking past $70 per barrel, after two Gulf of Mexico oil platforms were evacuated in preparation for a hurricane.

U.S. West Texas Intermediate (WTI) crude futures were at $70.05 per barrel at 0353 GMT, up 25 cents, or 0.4 percent from their last settlement.

If we stay at about $70 a gallon, that isn’t going to be much of a problem.

But some analysts are now speaking of “an impending supply crunch”, and that is a very troubling sign. For example, just check out what Stephen Brennock is saying…

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

Where Will The Next Crisis Come From?

September 1, 2018

Where Will The Next Crisis Come From?

Key Points

It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system.
A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected.
The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future. But there are other increased vulnerabilities including: high debt levels, political fragmentation, dependence on international sales, little fiscal or monetary policy ammunition, and the rise of passive investments.

It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system. On September 15, 2008, Lehman Brothers filed for bankruptcy as the shock waves from subprime mortgages rocked the entire financial system, shattering confidence and leading to an economic downfall.

Regularly paying attention to financial news reveals one thing for certain: shocks to the global system happen all the time. Many of these shocks are absorbed by the system without much disruption. Recent examples of shocks might include last year’s escalating geopolitical tensions between the U.S. and North Korea, the U.S. Fed beginning to reverse QE (quantitative easing), or the rapid unwinding of the short-volatility trade that took place earlier this year.

A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected. Since we have likely reached the later stages of the cycle, it is now a good time to assess how well the system is prepared for the shocks that lie ahead and where the biggest vulnerabilities may lie.

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

Financial Cold War

August 25, 2018

Financial Cold War

As we crossed the finish line last week into the longest bull market in human history, a question that has been on my mind for years came bubbling to the surface again: if this is so easy, why didn’t the governments of the world do it before? In other words, since it’s been proved quite clearly that central bankers can prop up equity markets around the world, as well as public sentiment, why did it take them so long to figure it out?

Were they really that dim? Why would the governments, and all the self-interested individuals which comprise them, put themselves through the financial horrors of 2007/2008, the crash of 1987, the Internet bubble collapse of 2000, or the grinding equities-are-dead market that lasted the entire 1970s? It doesn’t make any sense.

However, I’ve been fleshing out something that I think might provide an answer to the question by way of a surprisingly strong analogy. During this “Everything Bubble”, conjured up by Mario Draghi, Ben Bernanke, Haruhiko Kuroda, and Zhou Xiaochuan, the idea of “mutually assured destruction” keeps springing to mind. M.A.D. is defined as “a form of Nash equilibrium in which, once armed, neither side has any incentive to initiate a conflict or to disarm.” As a child of the cold war myself, I probably have this M.A.D. analog deeply planted, but as I thought about it more deeply, I was astonished how cleanly it explains our new financial world.

To explain this analogy, I’ll lay out the players involved:

The Pre-Atomic World: In the case of military conflict, there were obviously countless wars throughout the centuries. In the financial world, there were likewise countless periods of booms and busts. The mass of humanity in both the military and financial worlds tended to engage locally, and there certainly was no overarching global “hand” over either of these worlds.

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

America Is Overdue for Another Economic Disaster

August 21, 2018

America Is Overdue for Another Economic Disaster

A trader monitors screens on the New York Stock Exchange. (Lucas Jackson/Reuters)

Underneath the current economic boom, there are some truly worrying signs.Eric Sevareid (1912–1992), the author and broadcaster, said he was a pessimist about tomorrow but an optimist about the day after tomorrow. Regarding America’s economy, prudent people should reverse that.

This Wednesday, according to the Financial Times‘ Robin Wigglesworth and Nicole Bullock, “the U.S. stock market will officially have enjoyed its longest-ever bull run” — one that rises 20 percent from its low, until it drops 20 percent from its peak. And September 15 will be the tenth anniversary of the collapse of Lehman Bros., the fourth-largest U.S. investment bank. History’s largest bankruptcy filing presaged the October 2008 evaporation of almost $10 trillion in global market capitalization.

The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.

Economists debate, inconclusively, this question: Do economic expansions die of old age (the current one began in June 2009) or are they slain by big events or bad policies? What is known is that all expansions end. God, a wit has warned, is going to come down and pull civilization over for speeding. When He, or something, decides that today’s expansion, currently in its 111th month (approaching twice the 58-month average length of post-1945 expansions), has gone on long enough, the contraction probably will begin with the annual budget deficit exceeding $1 trillion.

The president’s Office of Management and Budget — not that there really is a meaningful budget getting actual management — projects that the deficit for fiscal year 2019, which begins in six weeks, will be $1.085 trillion. This is while the economy is, according to the economic historian in the Oval Office, “as good as it’s ever been, ever.

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

You Should Fear the Emerging Market Debt Bubble

August 18, 2018

You Should Fear the Emerging Market Debt Bubble

Global debt has ballooned since the financial crisis as central banks have distorted markets and fueled debt bubbles in particular.

A lot of the increase in global debt has come from emerging market (EM) economies, especially China. In fact, a record amount of EM debt has accumulated during the past decade, mostly in dollars. A large portion of that debt is therefore denominated in U.S. dollars.

That’s why I’ve long argued that the first shoe to drop in the next crisis would likely be EM debt.

Borrowing is not a problem when dollars are cheap. Low interest rates mean the cost of servicing that debt is low.

The problem starts when the Fed raises rates or the dollar strengthens, even temporarily. The more the dollar rises, the more EM currencies and related markets fall. Dollar-denominated debt then becomes too expensive to repay or service as the dollar rises relative to EM currencies. Before long default becomes the only viable option.

This situation becomes more dangerous than even asset bubbles because debt is required to be repaid on a set schedule. If a country misses a debt payment, it could set off a chain reaction of defaults.

That’s why an EM crisis could quickly become a global crisis. In today’s world of financial globalization, any remote crisis can become an international problem in seconds. That’s the reality of today’s markets. Obviously, it could also have major ramifications for your own finances and investments.

How did we get here?

Because of the Fed’s rate hike cycle and quantitative tightening (QT) stance, the dollar has become much stronger. The dollar has risen 6.8% since late January alone. And that’s put emerging markets under considerable pressure.

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

Peter Schiff: ‘We Are Seeing A Lot Of Warning Signs’ Of A Financial Crisis

August 16, 2018

Peter Schiff: ‘We Are Seeing A Lot Of Warning Signs’ Of A Financial Crisis

Just like the financial crisis of 2008 which investor Peter Schiff accurately predicted, there are warning signs again that are being ignored. “We are seeing a lot of warning signs people should be worried about, but again they’re dismissing them, much the way they did 10 years ago,” Shiff said.

Schiff is known for his “doom and gloom” market predictions, yet he’s been spot on in the past. And our current debt-based system is unsustainable to the point that asevere global economic crisis is imminent – we just don’t know when the global bubble will burst. Once again, Schiff is trying to warn people, because the signs are there, but who’s listening?

“We’re seeing a lot of warning signs people should be worried about, but again they’re dismissing them, much the way they did 10 years ago. You know, we’re getting close to the 10-year anniversary of the 2008 financial crisis. Remember, the whole thing started in August of 2008. Here we are August 2018, 10 years later. I think we’re heading for an even bigger crisis and the same people are even more clueless.” –Peter Schiff

A big problem that could compound the next financial crisis is one Schiff continues to point out: Americans are flat broke. Wages have been stagnant especially in the face of inflation. Rising interest rates will also harm those already living paycheck to paycheck. There are a lot of people buying stuff on credit. In fact, the entire economy is built on working-class debt and a system which transfers wealth to the elites from the workers.

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

Will Turkey be the first domino to fall?

August 14, 2018

Will Turkey be the first domino to fall?

There has been many financial crises over the past century, yet few of those provided much of a warning that they were about to hit. It only becomes clear after the fact. We then begin to hear speeches on what there was to learn and how to avert any future crisis, until the next crisis arrives in a slightly different form. Philosopher George Santayana, once wrote, “Those who cannot remember the past are condemned to repeat it.” History has proven this to be true.

We now have a situation brewing in Turkey, yet there are many in the financial media who are already quick to write off the current collapse in the Turkish Lira as contained to Turkey and that the size of Turkey’s GDP makes it less of a threat. Yet, Turkey’s GDP is double the size of what Thailand’s was during the Asian crisis. Therefore, in order to understand the current crisis in Turkey, it is worth looking back at the Asian crisis of 1997.

In 1997, just before the crisis hit, Thailand’s economy was booming. Banks were lending freely. The resulting large quantities of credit that became available generated a highly leveraged economic climate, which led to excessive real estate speculation, and pushed up asset prices to an unsustainable level. An economic expansion, that nobody wanted to end, was in full force. In fact, the Thai central bank kept the currency artificially high, fuelling the speculative bubble.

I guess you could say that there were signs of a brewing crisis if you choose to focus on them. Banks began lending against the security of the buildings that didn’t have too much of a chance at being filled. Muang Thong Thani was a housing estate built for 700,000 people and became a victim of the coming crash.

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

Schiff: “The Next Crisis Is Not Going To Look At All Like 2008

August 5, 2018

Schiff: “The Next Crisis Is Not Going To Look At All Like 2008

Peter Schiff is an economist who served as an advisor to Ron Paul in 2008 and even made a run for Senate on his own at one point. He’s well-known in the “Austrian” as well as the libertarian economic community, but is perhaps best known for his belief that our next coming crisis is going to be “an order of magnitude larger than the crisis in 2008”, only this one, the Federal Reserve is not going to be able to print their way out of, Schiff predicts in his most recent interview.

“What the Fed is worried about is a repeat of the 2008 financial crisis. What they don’t realize is the next crisis is not going to look like the 2008 crisis,” Schiff said.

He makes the why the dollar going up in 2008 helped the Fed bail everyone out, and why it’s going to be impossible for the Fed to do the same thing when the dollar collapses during the next recession. Schiff also explains that a loss of confidence in the dollar as the world’s reserve currency could see interest rates move much higher, resulting in the U.S. defaulting on its debt.

Despite getting the 2008 housing crisis right, Schiff’s appearances in the mainstream financial media have declined precipitously due to his bearish outlook. As an alternative, he has created a substantial voice for himself on his YouTube channel, which boasts hundreds of thousands of subscribers.

On Saturday, August 4, Peter Schiff appeared on the Quoth the Raven podcast to talk about a multitude of topics, including:

Why the mainstream media doesn’t have him on anymore, despite predicting the 2008 financial crisis production dead-on
Why the government should have let more banks fail in 2008
Why he believes that a socialist will be elected in 2020 and why a libertarian may actually have a chance in 2024

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

The “Next” Financial Crisis

August 4, 2018

The “Next” Financial Crisis

Photo source Financial Crisis | CC BY 2.0

In this episode of The Hudson Report, we speak with Michael Hudson about the implications of the flattening yield curve, the possibility of another global financial crisis, and public banking as an alternative to the current system.

‘The Hudson Report’ is a Left Out weekly series with the legendary economist Michael Hudson. Every week, we look at an economic issue that is either being ignored—or hotly debated—in the press that week.

Paul Sliker: Michael Hudson welcome back to another episode of The Hudson Report.

Michael Hudson:It’s good to be here again.

Paul Sliker: So, Michael, over the past few months the IMF has been sending warning signals about the state of the global economy. There are a bunch of different macroeconomic developments that signal we could be entering into another crisis or recession in the near future. One of those elements is the yield curve, which shows the difference between short-term and long-term borrowing rates. Investors and financial pundits of all sorts are concerned about this, because since 1950 every time the yield curve has flattened, the economy has tanked shortly thereafter.

Can you explain what the yield curve signifies, and if all these signals I just mentioned are forecasting another economic crisis?

Michael Hudson: Normally, borrowers have to pay only a low rate of interest for a short-term loan. If you take a longer-term loan, you have to pay a higher rate. The longest term loans are for mortgages, which have the highest rate. Even for large corporations, the longer you borrow – that is, the later you repay – the pretense is that the risk is much higher. Therefore, you have to pay a higher rate on the pretense that the interest-rate premium is compensation for risk. Banks and the wealthy get to borrow at lower rates.

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

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China’s economic slowdown could be a key trigger of the coming global financial crisis, but one of its core drivers — China’s dwindling supplies of cheap domestic energy — is little understood by mainstream economists.

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