Tuesday, October 14, 2014

Marshall Auerback — Oil Wars?


Analyzing the global situation relative to oil price and markets.

Macrobits by Marshall Auerback
Oil Wars?
Marshall Auerback

4 comments:

Ignacio said...

"To say nothing about what it says of the power of the central banks that after balance sheet expansions worldwide that have never been dreamed of before, we’re still sitting on the cusp of global deflation"

LOL, yep, deflation can't be stopped. And the instability in commodity export nations will keep rising as a side effect.


US citizens are sitting ona pile of private debt which is even a bit higher that 2008 top, pretty much the same for all the West and developed nations. CB's are desperately building assets bubbles in EM, but it's just not gonna happen, not enough demand to boost economic growth.

Fiscal and monetary sovereignty is off the table as cronies will just favour MMT-for-the-rich, nothing that empowers the majority. Trying to build more space to sell an other QE to keep transfers to the 0.1% through oil wars is going to be hard, but they may create an environment for military keynesianism to thrive through instability.

What a bunch of loonies in charge.

Matt Franko said...

Ignacio,

I have the H.8 Loans and leases bank debt back to the pre-crash highs...it is at 7.8T it was 7.3T in 2008...

Meanwhile govt net spending in 2008 was 3.4T and right now we are running at about 4.2T so up 800B annual... this is better imo...

So at least the macro ratio of net system income to bank debt is a lot more favorable now than it was in 2008...

Back then you had 7.3 to 3.4 or 2.14

Now you have 7.8 to 4.2 or 1.85

So the ratio (at top level) of bank debt to system income is much lower today...

the oil patch debt structures worry me though for sure at this time looks like oil is headed lower there is a building glut over here.... in both crude and refined product...

All the new mortgage and student loan stuff is with the govt now (banks are out of it) so no systemic risk if defaults occur there this time...

May just be contained to oil patch for now... but that could be substantial....

rsp,



Ignacio said...

But the point is we got big deflationary pressures along the West right now.

Most 'payment of debt' comes from private sector itself, by rolling over debt + inflation + rehypothecation of assets to generate more assets/liabilities. It's the "eternal wealth wheel", until it isn't eternal and crashes, that's how it has been going with modern capitalism since XVI century until now, with each expansion building more 'space' throught changing policies and automatic stabilizers within the system. But also building bigger imbalances over time and catastrophic fall outs (the last one gave us a period of two world wars). When we abandoned gold standard we built even more space for build up, we could have use that for the good (and in some ways, we did), but we are building stronger intra-national imbalances now (that worries me even more than international imbalances), which are not sustainable, unless there are some serious changes regarding recycling of financial assets and flows (like an huge expansion of the state in this distribution of financial assets, which is off the table right now).

It's good if the deficits (in USA only though, here in Europe we are being destroyed by bureaucrats and politicians) are giving some more oxygen to the system, but at some point you cannot load more debt (not a matter of if, but when) as long as the ratio still is positive (debt:net income), it will keep building up, how many subprimes, .com IPO's and real estate bubbles can you invent before you run out of ideas and capacity on how to build more leverage on the system.

And what you point out about oil, that's the thing: everything is sustained on temporary mark-to-market (mark-to-fantasy) valuations, if prices drop, the whole edifice goes down (hence all the CB's rhetorical and monetary firepower to sustain prices) as suddenly everyone is underwater and trying to liquidate, and in such circumstances demand is reversed. So the whole "wheel of wealth" effect is reversed, and that's what CB's fear the most, but they are helpless and the system is so rooten that the majority does not want more can kicking.

That's what happens here in Europe at least or I perceive, is in that context that we must understand the politics of the situation. From what i read, is similar in USA, in a different way, but the substance is similar. People is feed up, even if they don't want the whole thing to implode, it may.

Matt Franko said...

Over here I would say that the $100 oil price has finally worked its way into the pricing structure of the whole chain... its taken years...

What I have witnessed over these past years is that people are reluctant to raise prices the further you get from direct contact with the fuel costs...

iow when oil first went up, the airlines and UPS/Fedex and other logistics firms did "fuel surcharges" and now you dont even hear about them anymore the prices are just higher...

food prices are fully higher both at grocers and restaurants...

So now looks like we are headed back down the other way... it will be interesting to see if it takes as long to go down as it did to go up...

I look forward to lower fuel prices as I spend about $250/month I'd like to see that cut in half or more...

But if you are in the crude business (MENA) this is not good news....

rsp,