Comments About The State Of The Global Economy And Dead Bodies Emerging At The Surface In Oil Rout

Update 3:30PM.  Trump is threatening to slap tariffs on or reject Saudi oil headed for the U.S.  Seems someone in the offices of U.S. empire need to remind The Donald that he has to bend the knee and kiss the ring of Saudi royalty for propping up the petrodollar.  (Obama could train Trump on this. He was an expert at it.)  And, buying U.S. Treasuries to prop up the U.S. corporate empire and recycling those Treasuries into U.S. military-industrial complex corporate bailouts.

Original post

Just a few quick comments as a follow up to my last post. As well as some more strategic comments about the global economy. Interactive Brokers just announced an $88 million loss with the collapse in oil.  It won’t be the last dead body floating to the surface. The U.S. financial sector is a shithole of rot. And, with the massive, clearly not well-understood (by credentialed economic and financial “experts”)  financial leverage in the U.S. system, there will be more carnage. Lots more. Not just in oil either. 

Oil wasn’t trading for negative $37 dollars for anything near that except the May contract.  Although future contracts may implode as they come closer to physical delivery dates.  Essentially, this is because no one wants to take delivery this month.  So, no one was trading that May contract as noted in the last post.  Literally no one.  No bidders means no price.  (This counterparty risk dynamic has been discussed time and again on here.  In fact, leading into the 2008 collapse, I noted exactly how the crisis would unfold with counterparty risk.  And, it happened exactly that way.  It’s everywhere in our massively corrupt economy.) 

The question becomes if no counterparties develop, will U.S. hedge funds and financial firms end up holding the bag on physical oil contracts they may be holding?  At a minimum, we will likely see them take massive losses in the future.  Thank you, Bill Clinton and Al Gore.  It appears the U.S. has plenty more petroleum storage capacity although it has been reported otherwise.  Why they are deciding not to fill them is something I cannot answer.  Maybe they were caught off guard. Maybe they plan on filling it up with U.S. oil production as a bailout for U.S. companies.  Donald Trump already directed the government to fill reserves at $30 a barrel.  So, he’s already lost billions of American taxpayer dollars.  Future month contracts are still trading for $14 and heading towards my long-time $10 target.  Who knows, maybe zero again as they come close to delivery. 

The U.S. energy industry is headed for a complete rout. And, I expect that will trickle over into natural gas as well given the comingling of those economic entities.  We could easily see rationed energy in this nation.  The U.S. is one of, if not the highest cost producers of oil.  Most of U.S. oil production is very capital intensive and requires a very high price to produce.  The trickle effects to banks, communities, tax receipts, capital goods equipment, petroleum services and the like are staggering.  The impact will have countless second and third order outcomes. 

Interestingly, while low prices will devastate the global economy in similar ways to mentioned above for the U.S., Russia, Iran and Saudi Arabia will experience massive shocks but will likely be fine.  Debt defaults?  Certainly possible.  Maybe even likely.  But, they are lower cost producers. (Interesting given none of these are capitalist-run energy complexes.)  And, there is another dynamic to consider here.  The U.S. and many of its vassal states (NATO, Japan, Korea, Canada, Australia) have isolated Iran and Russia for decades.  This had the unintended consequence of these societies becoming much more resilient and self-sufficient.  They have become stronger while the U.S. has become weaker.  This always happens in late stage empire; overreach.  I watched Putin give a speech on Russian TV some years ago and he talked about this very fact.  Isolation would make them more self-sufficient and stronger.  Putin plays chess while American politicians play color-by-numbers.  We really are ruled by megalomaniac fukcing idiots.  Ruled.  Not public service. Not democracy.

So, here’s a question. How does the U.S. petrodollar work when oil is $0?  Oil has economic value regardless of whether financial markets trading it are broken or not.  Do you know what will likely happen?  Direct barter.  And, what did I write on here long ago?  We would eventually see direct barter between nations unfold.  It has already started in recent years.  And, it’s likely to continue to expand across the globe.  You’ve got oil, which I need, and I’ve got industrial equipment that you need.  Let’s trade without U.S. dollars.  In fact, I noted on here some time after that original post that Iran and Russia were starting to barter.  Don’t need dollars for that.  Don’t need access to the U.S. controlled global trade settlement system for that. Late stage corporate capitalist empire………….

I saw the other day where someone asked the question of what the long term damage to petroleum demand might be.  If I were to estimate, and it is just that, and if we are in the very early stages of U.S. global corporate empire being shattered, I would estimate a permanent 80% drop in global oil demand.  Forever.  U.S. retail space per capita is a good proxy for global production growth to serve empire’s consumption.  And, as noted many times in the past, this metric has risen 600% in the last 40 years.  A return to trend would result in an 80%-ish drop in global production capacity as the world is ordered today.  And, taking a linear view of very intensive capital and logistics-driven production, we can swag at 80%.

I want to put up a reminder of something noted on here long ago. When the Roman Empire fell, global wealth peaked for 1,000 years. Don’t kid yourself that can’t happen again. You could go to any city in the empire where the lowest pleb could read and write.  Hundreds of years later, people in those same areas were completely illiterate.  Could something that dystopian happen again?  Capitalism’s massive overcapacity today is staggering.  We could easily see a very dystopian outcome.  The most visible outcome of this is the massive global debt bomb that has been used to build out that overcapacity to serve empire. Again, as written ad nauseam, debt is not the danger.  It’s what debt represents.  Experts can’t seem to wrap their heads around this but debt is a myth.  It’s an illusory control system capturing the mind into servitude.  You can’t show me a debt.  What does it look like?  The real issue is unemployment when overcapacity of goods and services are destroyed due to lack of sustainability. 

Pulling other comments from prior years forward.  People don’t really understand how large the U.S. economy is.  And, how powerful U.S. empire really is.  It’s mind-boggling.  GDP is not the economy.  It is just one of countless economic measurements within the U.S.  Or, any country, for that matter.  As noted on here in posts long ago, the U.S. is responsible for upwards of $100 trillion in global trade.  Globalization is a zero sum game of U.S. corporate empire.  China never would have had any type of boom without becoming a U.S. corporate empire vassal state.  China wouldn’t have a zombie economy today or a zombie banking system if it weren’t for the U.S. deregulation of the borders of capital that ravaged China and unleashed the systemic incompetence and massive corruption of its communist government. 

I’ve noted that the U.S. has lost upwards of 100 million jobs over the last 50-60 years.  That’s easily explainable.  No one seems to understand the multiplicative effect of capital-producing job loss to global labor arbitrage.  It’s enormous.  It’s just like few seem to understand the multiplicative effect of an easily transmitted virus.  So, they ignorantly laugh at how we have been duped by doctors and pandemic experts. 

Within the U.S. borders, we effectively don’t have a functioning economy.  We have a massive consumption engine of corporate empire.  All roads lead to Rome……..   The world is the U.S. economy. Any commodity or country or traded good that requires dollars to sell on the international market is a part of the U.S. economy.  Think about that.  You won’t read that anywhere else because economists don’t think in terms of complex systems.  They don’t really understand science nor are they trained it in.  But it is as true as the sun rising tomorrow. 

These very facts are why so many people who think in terms of complex systems or systemic competencies are always predicting future outcomes while economists, business leaders, Wall Street and politicians never see them nor are ever prepared.  It’s no different with this pandemic crisis exposing the lack of resiliency or sustainability of the U.S. economy.  Something that has been discussed ad nauseam on here but has been completely missed by economists, the Federal Reserve, politicians, corporate CEOs and other supposed economics experts and supposed business leaders.  Missed not just with this crisis but with crisis after crisis and outcome after outcome.  We hear “Who could have predicted this?”.  Because they aren’t experts nor are they leaders.  They are credentialed idiots.  This goes back to my post ages ago about credentialism versus competence.  The corporate state loves credentials and titles.  The real world that the bottom 50% of Americans and the front line workers –blue and white collar - in this country live in requires competence.  The world functions in spite of the people at the top of hierarchies.  Not because of them. 

These are the end times of corporate capitalism and U.S. corporate empire.