December 2nd, 2014
in Op Ed
by Reverse Engineer, Doomstead Diner
Discuss this article at the Economics Table inside the Diner
There are numerous morons out in the MSM rejoicing at the falling price of gas at the pump, comparing it to a "stimulus" package which will free up gobs of money for consumers to spend on other stuff. Still more imbeciles claim this is a Price War gimmick by the House of Saud to put frackers in the FSoA outta biz and spank Vlad the Impaler for being a bad guy.
None of this of course is true, as I covered in yesterday's Rant, Oil Price Crash!!! The folks who write this stuff are either complete imbeciles (true in many cases) or they are paid to spin the newz the way the oligarchs who own the media want it spun (true in all cases). There also is the problem of completely FALSE and wrong headed economic theories that Ph.D. Economistas pitch out, themselves also pawns of the oligarchy in charge.
You have two sides to this part of the action battling it out daily on the pages of Blogs like Zero Hedge, the ever reviled there, "Keynesians" who favor blowing money out of Bazookas and "Austrians" who favor stacking Gold Bars in the basement safe. Neither side has a clue here, because money isn't the problem, resource depletion is the problem.
In their constructs, "Capital" is Money. So if you need more Capital far as the Keynesians are concerned, you just issue more Money, which turns up as Debt on somebody's balance sheet, generally you the Taxpayer. Far as the Austrians are concerned, if you just back all your money with Gold, it will provide all the Capital you need to have a smooth running economy.
Neither of these viewpoints is correct, because Money of ANY sort is not Capital, resources and most specifically Energy resource in our energy intensive society is the Capital here. The money just serves as a proxy for this, a numerical accounting system through which people buy and sell things and distribute out the surplus of your society. When your society runs out of surplus, the money starts losing its value. Even Gold loses its value, as evidenced by the also now dropping like a stone price of Gold.
Which brings us to the fairly hilarious Repatriation schemes for Gold various countries are undertaking here, notably the Swiss who are holding a referendum this week, but numerous other countries are also trying to stack Gold Bars in the basement safe of their respective Central Banks.
In the case of the Swiss, they wanted to make it a law that the bank can't sell the gold, which of course makes it meaningless as an asset. A corollary to this would be nobody could redeem the money the bank issues for any of the Gold, because if they did that everyone would want to trade their notes for the Gold and then there would be no Gold left in the safe to back the currency with! In a rare display of wisdom, 75% of the Swiss voters nixed this crazy idea in voting Sunday.
The underlying problem here is that all the money that has been issued out since the beginning of the Age of Oil is debt notes on Oil. No coincidence here that the same folks like the Rockefellers and Rothschilds run the banking system AND own all the energy and mineral resources on earth. They are just a very big Company Store, they issue out the Scrip with which you can then buy the Oil. They don't give it away of course, they Loan it to somebody, Oligarchs in some cases, directly to your Goobermint in others but it still is a loan, and the way you get access to that money is by getting a job of some type working for the Oligarchy or working for Da Goobermint. Numerous self-employed people also glom onto this economy of course, your Dentist gets hold of the money by drilling your teeth, you got hold of the money from your job as a Teacher or working as an IT designer, but originally the money was borrowed into existence either by Da Goobermint or an Oligarch.
Anyhow you now have all this money in existence supposedly representing assets, but the assets aren't assets anymore or in the case of Oil simply is not there to extract up at a price most folks can afford to buy. So little by little at first the economy starts collapsing, and for a while it stays disguised and most of the problems occur in the peripheral nations to the credit system, so as an Amerikan or Brit you might not notice it, unless of course your job has already gone south too.
At a certain point however, all the accumulating problems add up, and finally something breaks, and what broke was the price of Oil. Much like the Tsunami at the top of the page here, the receding price of Oil is like the receeding Tide before the Tsunami rolls in. The Tsunami here will be a wave of Defaults and Bankruptcies that eventually will engulf even the largest Nation-States like Russia, but will of course start smaller than that with Independent Drillers heavily leveraged who will face margin calls.
How much further the price will drop before we start to see major shutins remains to be seen, however this is now not in the "Most Likely Case" that David Hughes projected in his report "Drilling Deeper", but rather a WORST CASE scenario. Tomorrow here on the Diner we will have an Interview with David we did back a few weeks ago when Oil was at $80, down then from $90. Now down to around $69/barrel and looking like it will drop into the $50s.
Now, these folks can continue issuing out Credit theoretically in perpetuity, but they can't make that credit redeemable in anything they still have left, namely enough Oil to power an industrial civilization with 7B people wandering around it. They also don't recognize that most all of the Assets that the loans were made on themselves are going worthless. The Gold Mine that Rio Tinto (a Rothschild owned company) owns is not an asset when it costs more in energy to extract the Gold than anyone will pay for the Gold. The Car Factory is not an Asset when people can't afford to buy the carz that come off the production line of that factory. Securitized bundles of McMansion Mortgages are not an asset when people can't afford to buy carz to zip back and forth from them every day. And so on here.
No monetary games, no change of money over to gold changes the already done deal fact of life that the investments made through the Age of Oil are all MALINVESTMENTS which cannot be sustained without gobs of cheap energy flowing out of the ground every day, and those days are gone FOREVER.
What takes time is the recognition of the losses, along with the Geopolitical and Economic shifting around of the pain, generally shifting the worst problems onto the weakest nations first here. However, it is not as many pundits believe a question of who will come out of this as a "Winner", with China and Russia Bulls rejoicing at the end of Anglo-Amerikan Empire and forseeeing a new Ascendancy in the East, but rather just a question of who will be the LAST LOSER in the game and circle down the toilet the last.
In a few decades at the most, the last planes will have stopped flying and the last cars will have stopped driving, and Industrial living will begin to fade out of the memories of whoever is left walking the earth at that time. For now though, we can only sit and wonder at the foolishness of it all and wait for the Tsunami to roll in.