The young do not know enough to be prudent, and therefore
they attempt the impossible -- and achieve it, generation after generation.
Pearl S. Buck
Image of the Day
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| Via Joe Schaller on FB |
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| Via Dollar Vigilante |
Malinvestment? Shale Oil Producers In a Leverage Nightmare As Oil Prices Plunge
The biggest news in the stock market today, from my perspective, was the hit almost every energy company took today in the aftermath of OPEC's decision to stay the course on production--almost immediately the major oil benchmarks dropped a few dollars, and energy companies in my own following dropped anywhere from 3 to 25% on the day. Keep in mind that unconventional recovery like oil sands and shale oil are much more expensive; it varies by locations. Some companies can make a profit at $60/barrel, about 20% from the WTI benchmark; others struggle at $100/barrel. Here's an intriguing excerpt from Zero Hedge:
We should be glad the price of oil has fallen the way it has (losing another 6% today as we write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing...
It shows us the huge extent to which consumer spending is falling as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.
Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses. The American shale industry, meanwhile, is a driverless truck, with brakes missing and fueled by on cheap speculative capital. The main question underlying US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow.
Pointing to past oil bubbles risks missing the point that the kind of leverage and cheap credit heaped upon shale oil and gas, as Dizard also says, is unprecedented. As Wolf Richter wrote earlier this year, the industry has bled over $100 billion in losses for three years running.
Not because they weren’t selling, but because the costs were – and are – so formidable. There’s more debt going into the ground then there’s oil coming out. Shale was a losing proposition even at $100. But that remained hidden behind the wagers backed by 0.5% loans that fed the land speculation it was based on from the start. WTI fell below $70 today.The piece points out two banks (including Wells Fargo) trying to syndicate a nearly $1B loan made to 2 oil and gas companies, and rumors are that they may be able to get 60 cents on the dollar. There are others to other energy companies from other banks. In part, I've been hinting at this in recent posts, suggesting that some of the boom in North Dakota, West Texas and elsewhere that Mark Perry of Carpe Diem has been hyping may taper off. China's slowdown has hurt resource exporters is Australia, South America, and Africa. Europe and Japan look like they're sliding into recession. Energy correlates with the world economy. Consumers definitely like lower prices at the pumps, but this is a case of being really careful of what you wish for. I'm not suggesting at this time a global recession or depression, but Obama and the Dems could be in real trouble if we slide into a recession or worse during Obama's lame duck period. The GOP would also need to reconsider their approach since unconventional oil issues, including the Keystone pipeline, become less urgent in a slumping energy economy. If we start seeing those 200K jobs/month start dropping, there will be political implications.
Busting Liberal Myths: FEE Looks at FDR and the Depression
FEE has a great series on the theme, which it terms 'progressive cliches'.
- "FDR Was Elected in 1932 on a Progressive Platform to Plan the Economy". In several past posts, I've pointed out that FDR ran a bait-and-switch campaign:
The platform of the Democratic Party whose ticket Roosevelt headed declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered. Who called the administration of incumbent Herbert Hoover “the greatest spending administration in peace time in all our history” and assailed it for raising taxes and tariffs? Roosevelt did. FDR’s running mate, John Nance Garner, even declared that Hoover “was leading the country down the road to socialism.”
It was socialist Norman Thomas, not Franklin Roosevelt, who proposed massive increases in federal spending and deficits and sweeping interventions into the private economy—and he barely mustered 2 percent of the vote. When the dust settled, Warburg shows, we got what Thomas promised, more of what Hoover had been lambasted for, and almost nothing that FDR himself had pledged. FDR employed more “master minds” to plan the economy than perhaps all previous presidents combined.
Two UCLA economists—Harold L. Cole and Lee E. Ohanian—in the important mainstream Journal of Political Economy observed that Franklin Roosevelt extended the Great Depression by seven long years. “The economy was poised for a beautiful recovery,” the authors show, “but that recovery was stalled by these misguided policies.” In a commentary on Cole and Ohanian’s research, Loyola University economist Thomas DiLorenzo pointed out that six years after FDR took office, unemployment was almost six times the pre-Depression level. Per capita GDP, personal consumption expenditures, and net private investment were all lower in 1939 than they were in 1929.
Using a broad measure that includes currency, demand and time deposits, and other ingredients, Rothbard estimated that the Federal Reserve expanded the money supply by more than 60 percent from mid-1921 to mid-1929.By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30 percent. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust.
Unemployment in 1930 averaged a mildly recessionary 8.9 percent, up from 3.2 percent in 1929. It shot up rapidly until peaking out at more than 25 percent in 1933. Until March 1933, these were the years of President Herbert Hoover—the man that anti-capitalists depict as a champion of noninterventionist, laissez-faire economics.
Did Hoover really subscribe to a “hands off the economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions of people on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism.” Contrary to the modern myth about Hoover, Roosevelt and Garner were absolutely right.
The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930.
Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
The familiar reader knows that I've been beating the drum on fixing out-of-control state pensions which are already squeezing the operating budgets of municpalities in Detroit, California and especially Illinois (let me point out if Chris Christie does launch a battle for the White House, the NJ pension system isn't looking so hot)--cf. the Pension Tsunami website. But if you remember how pathetic it was for Romney to talk about Big Bird in dealing with DC's chronic deficits and national debt, the federal government is facing its own big squeeze causing by mandatory entitlement spending. From mygovcost:
The National Interest‘s Milton Ezrati has the numbers:
These constraints are crystal clear in existing budget data. Entitlements have grown relentlessly over the decades, from 30 percent of all government spending in 1950 to fully 70 percent today. They amount to 15 percent of the gross domestic product (GDP). More than one dollar in seven, then, of everything this country produces now gets paid out in one or the other of these programs. Since the full implementation of the Affordable Care Act promises only to increase those proportions, and voters clearly show no desire to fork over still more economic resources to Washington, the rest of the budget, everything else that Washington does, faces a relentless financial squeeze.
Ezrati describes where this is all going:
The arithmetic is irrefutable, whatever some people would like to believe. There simply is no room in the budget for much else but entitlements. Washington will either reverse sixty-plus years of practice and turn to serious entitlements reform, or it will have to give up on most of its other priorities. The only remaining question is this: can the White House, the Senate and the House do the math?Facebook Corner
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| Courtesy of Henry Payne via Reason |
(IPI). Some states have revenues larger than their pension debt, while others have pension debt that far exceeds their revenue.
Illinois fits into the latter category.
In fact, Illinois ranks worst in the nation on ability to pay for its pension debt.
The problem is what you need to do with Illinois' corrupt judges looking out for their own unsustainable pensions. I think Illinois taxpayers may need to amend the state's constitution to repeal and replace the pension protection clause, to empower conversion of accrued pension benefits into vested self-directed 401K benefits; no state employee has "earned" a multi-million dollar retirement that is mostly funded/bailed out at future taxpayer expense.
(IPI). The state has mandated that thousands of home-based caregivers who receive a Medicaid benefit from the state must attend “training” sessions hosted by one of the state’s most powerful unions, SEIU.
But the truth is, these “trainings” aren’t trainings at all – they are little more than union membership drives.
This is a blatantly corrupt conflict of interest; assuming training is required, there must be explicit disclosure that any union membership is optional.
(Adam Smith Institute). Restricting access to the welfare state may be wise – restricting access to our labour markets is not.
For a start, this isn't a question of culture or whatever from my point of view. It's a simple fact of increasing demand for jobs relative to a supply which is essentially limited. That just makes life tougher for everyone and makes society a more shitty place to live.
This is economically incoherent. It falsely assumes immigrants don't help grow the economy and employers are able to find the right background worker locally available.
Political Cartoon
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| Courtesy of Henry Payne via Townhall |
Classical Christmas Medley
