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Global financial system implosion begins

Tverberg's analysis nails it. Worth reading all the way through. The themes that have been discussed on these forums over recent years are accelerating and converging.
But the issue at hand is really diminishing returns. Prior to diminishing returns becoming a problem, it was possible to extract and refine oil cheaply. With cheap oil, it was possible to create an economy with low-priced oil, inexpensive infrastructure built with that low-priced oil, and factories built with low-priced oil. Workers seemed to be very productive in such a setting, in part because low-priced oil allowed increased mechanization of production and allowed cheap transport of goods.

Once diminishing returns set in, oil became increasingly expensive to extract, because we needed to use more resources to obtain oil that was very deep, or in shale formations, or that required desalination plants to support the population. Once we needed to allocate resources for these endeavors, fewer resources were available for more general uses. With fewer resources for general activities, economic growth has become inhibited. This has tended to lead to fewer jobs, especially good-paying jobs. It also makes debt harder to repay. History shows that many economies have collapsed because of diminishing returns.
Oil Price Slide - No good way out (Our finite world, 5th November 2014)
 
I thought Paul Mason would be more resigned than surprised. Corruption in the city is endemic. It's how they make their money.

Can't link to the Financial Times as it's behind a paywall but the new forex fines mean this is the most fines in a year since 2007.

It's fucked up and the majority are paying the price. I can't work out why there aren't more riots. It's plain to see who is responsible
 
Tverberg's analysis nails it. Worth reading all the way through. The themes that have been discussed on these forums over recent years are accelerating and converging.

Oil Price Slide - No good way out (Our finite world, 5th November 2014)
That hinges on the assumption that the amount of resources we're spending on getting more energy out of the ground is materially sucking resources from other areas. How much energy/financial resource does the exploration sector use compared to a few decades ago?
 
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now it would be silly to make any assumptions of try to map historical events with any degree of certainty , but..you know that species facing stress/ extinction do go on a massive pork fest in their twilight days...
There are similarities. As you said though no guarantees of repetition.

Thing I keep thinking of is that with central banks being market makers, with bond yields at all time lows and equities at all time highs, is that the usual models that provide warning signals are failing.

Unstoppable $100 Trillion Bond Market Renders Models Useless Bloomberg 2014-06-02

Someone I think it was Idris2002 said that the USSR's resource allocation program failed near the end

My fear is that a big central bank is going to fall. Probably Japan but maybe South Korea or Brazil
 
Someone I think it was Idris2002 said that the USSR's resource allocation program failed near the end

If I'm thinking of the same point you're thinking of, then it was more of a 'slow puncture' in the USSR's case, that did eventually lead to the crash of the political order, but wasn't the same as it.
 
British report raises questions about ties between currency traders, brokers
Nov 13 (Reuters)
An independent report into the Bank of England's role in the global currency market has raised questions about the relationship between commercial bank dealers and brokers for the first time since regulators began investigating trading practices.

The report of an inquiry led by commercial lawyer Lord Anthony Grabiner shows how an unidentified trader raised a range of concerns with the British central bank three years ago, including over the role of brokers in deals struck at the "London fix".

Investigations by international regulators into the $5.3 trillion-a-day foreign exchange market have focused on the daily fix, the one-minute window at 4:00 pm when global benchmark currency rates are set.
Grabiner's report was published on Wednesday, the same day that British and U.S. authorities fined six of the world's biggest banks a total of $4.3 billion for failing to prevent their traders sharing clients' order information and attempting to manipulate the market.

Included in the 57-page report are transcripts of a telephone conversation in October 2011 when the bank trader expressed his worries to the Bank of England's then chief currency dealer Martin Mallett.
Mallett was fired on Tuesday for undisclosed "serious misconduct" relating to the Bank's "internal policies", the BoE said, although it added that this was unrelated to the global investigation. Mallett did not respond to a Reuters request for comment.

In the call, the trader spoke of his concern that banks were not only executing transactions at the fix for their clients but also a large number of speculative deals on their own behalf through brokers, suggesting that these may not be "genuine".
Bank Of England as rate setter and market maker. No conflict of interest there.
 
The new normal.

Keynes, monetarism, supply side and new classical are all busted flushes.
None of them solve a problem of a more than doubling of the global economies labour poor and its depression on wages. Since China entered the global economy in a big way. Wage deflation seriously risks widespread consumption deflation and they do not have a theory for that.

The US's monetarist and fiscal stimulus has worked much better then the UKs monetarist only (quantitative easing). Their half baked supply side "bonfire of the quangos" type stuff is not really encouraging people to go out and spend when their lives become less secure. The UK economy only sparked into some life when there was a reduction in the rate of cuts. In Europe austerity has suffocated any growth.

Now an oil shock storm is building up. The price of WTI is below the very likely profitable levels for US frackers outside the so called "sweet zone" plays in Texas and North Dakota. It will take many months for the drilling activity to tail off then about a year and a half or two years for the production to start falling but when it does it will fall fast and hit global oil prices up in a big way.

You can feel the deflationary beast gathering strength.
 
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interesting you brought up "New Normal"

"China's economy grew in the third quarter at its slowest pace since the global financial crisis, sparking concern that the world's second largest economy is faltering as the government tries to make it more driven by domestic consumption and less by exports and investment."

http://www.reuters.com/article/2014/11/15/us-china-economy-idUSKCN0IZ0LR20141115

Lots of face saving going on here- China are spooked no doubt
 
Yeah, all quite credible...but Cameron's 'warning' looks like a piece of domestic expectation management as much as any attempt to offer an analysis of the global economy.
Clearly Gideon's Autumn statement is not going to be the 'bowl of cherries' they might have wished for 6 months prior to the GE, and all the signs indicate that they're going to miss their central target of PS debt by a country mile. It's useful for Dave to have clearly laid down the marker that the problems besetting the tory grand plan are 'exogenetic'; unlike the last crash which was caused solely by Labour's spending on union demands, this one is international. Geddit?

As I met world leaders at the G20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down.
 
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Yeah, all quite credible...but Cameron's 'warning' looks like a piece of domestic expectation management as much as any attempt to offer an analysis of the global economy.
Clearly Gideon's Autumn statement is not going to be the 'bowl of cherries' they might have wished for 6 months prior to the GE, and all the signs indicate that they're going to miss their central target of PS debt by a country mile. It's useful for Dave to have clearly laid down the marker that the problems besetting the tory grand plan are 'exogenetic'; unlike the last crash which was caused solely by Labour's spending on union demands, this one is international. Geddit?

I don't think i heard the tories blame 2008 on spending on union demands. Labour did set up the financial regulatory environment, did remove house prices from inflation concerns while trying to bring UK interest rates down to EUropean leavels ahead of joining the EUro and banged on that 'it started in America' when AIG's London operation was a major catalist. There was more than enough blame to go round, Labour shoulder sloped all of it.
 
I don't think i heard the tories blame 2008 on spending on union demands. Labour did set up the financial regulatory environment, did remove house prices from inflation concerns and banged on that 'it started in America' when AIG's London operation was a major catalist. There was more than enough blame to go round, Labour shoulder sloped all of it.
OK, maybe I exaggerate a tad....but the tory line, since 2008 has been that the public 'debt crisis' resulted from NuLab's excessive public spending...not the global crash.
 
Stocks, oil decline as Japan slips into recession
Reuters Nov 17, 2014
Japan's economy shrank an annualized 1.6 percent, after a 7.3 percent drop in the second quarter, when a sales tax hike hit consumer spending. Analysts polled by Reuters had expected 2.1 percent growth in the third quarter, but consumption and exports remained weak, saddling companies with big inventories.

Brent oil initially fell more than $1 toward $78 a barrel, as Japan is the world's No. 4 crude importer.
-1.6% now and -7.3% last quarter.
 
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BIS raises 'hot money' concerns about emerging market company debt
Reuters Sun Dec 7, 2014
Cross-border debt issued by emerging market companies may be less stable than it initially appears due to the increasing role of overseas subsidiaries, a central banking report shows.

Emerging economy firms excluding banks issued nearly half of their international debt between 2009 and 2013, or some $252 billion, through offshore affiliates, according to a quarterly report from the Bank for International Settlements on Sunday.

When the overseas subsidiary transfers the bond proceeds to a parent company in the form of an inter-company loan, this is treated as foreign direct investment (FDI) on the balance sheet of the main company, the BIS said, which could give a false impression of stability.
There's a "false impression of stability" in the west too.
 
Memories of financial crisis fading as risks rise
AP. Monday, 15 Dec 2014
Six years after the collapse of Lehman Brothers, the lessons of the financial crisis may already be fading from collective memory.
Just last week:

— Congress acted to loosen the regulation of the high-risk investments that ignited the 2008 crisis.

— Housing regulators cut minimum down payments on home loans.

— The Institute of International Finance declared it "worrisome" that global indebtedness, as a share of world economic output, has reached record levels.
All this comes as subprime auto loans for financially stretched buyers are surging. And the so-called too-big-to-fail banks that needed a taxpayer bailout in 2008 now loom even larger than before the crisis: America's five biggest banks account for 44 percent of bank assets, up from 38 percent in 2007, according to SNL Financial.

The trend toward pre-crisis lending practices worries analysts who favored far-reaching reforms to safeguard the system.
"We're on a very dangerous trajectory," said Simon Johnson, professor of global economics at the Massachusetts Institute of Technology.

Johnson said he fears that last week's congressional vote shows that bank lobbyists still carry the political clout to dilute financial regulations.
Why am I not surprised.

Reversal of Dodd-Frank swaps rule ignores lessons from financial crisis, ‘London whale’
Reuters blog. December 18, 2014
 
Oil price dips below $53 as fears of global economic slowdown intensify

Economists believe cheaper crude will lead to stronger global growth, and there was an immediate boost to consumer spending in the UK when the supermarkets intensified their fuel price war.

Stock market reaction was negative, however, with London’s FTSE 100 index - which includes a number of big energy companies such as Shell and BP - closing down 130.64 points at 6417.16. Wall Street’s Dow Jones industrial average fell by almost 250 points by lunchtime.

Lower oil prices will lead to higher disposable incomes and cut business costs, but stock markets believe the slide from a recent peak of $115 a barrel last summer reflects the slowdown in China, recession in Japan and looming deflation in the eurozone. As Brent crude lost more than $3 a barrel in London, falling through $53 before recovering to $53.24, New York light crude briefly dipped below $50 a barrel.

Oil analysts said soft global demand and increased production from countries such as Russia and Iraq were behind the price falls. “The easiest path for oil is down,” said Carsten Fritsch, a senior oil and commodities analyst at Commerzbank in Frankfurt. “Almost all market news and the fundamental backdrop are negative and it is difficult to see much upside at the moment.”

Lacklustre US economic data on Friday increased concerns about the state of the global economy and the strength of oil demand. “Oil demand is unlikely to be robust this year when we look at the state of economies in China, Japan and Europe,” said Yusuke Seta, a commodity sales manager at Newedge Japan.

From boom to bust in Australia's mining towns

After 23 years of growth, including one of the biggest mining booms in the nation's history, tumbling iron ore and coal prices have put a brake on Australia's economy - and mining towns are paying the price.

Peter Windle is a casualty of the mining slowdown. The New South Wales mining employee has lost a well-paid job, a company car and an annual bonus that in some years was as high as A$60,000 ($48,800; £31,300).

A termination package from the mining company he used to work for has helped soften the blow. But Mr Windle still had to sell his investment property to keep his head above water.

Once part of a vast army of workers in what was Australia's booming resources sector, Mr Windle now gets up at 5.30 am five days a week to clean and drive school buses in the small town of Muswellbrook. For decades, the town had ridden the waves of Australia's coal boom.

"It's the worst I've seen it in 28 years in the mining industry," says Mr Windle. "Everyone is getting out. Three hundred houses are for sale in my town, three in my street, and rental prices have collapsed on older weatherboard houses from A$1,000 a week to A$200," he says.

Copper Sees Red on Surplus Metal Fears


Among the casualties was copper, the ubiquitous base metal that could be found inside electric wires and on circuit boards. As the Wall Street Journal Dollar Index gauged the greenback at its strongest level since 2003 against a basket of 16 other currencies, spot copper prices retreated to $6,309 a tonne, just $3 shy of an almost five year low struck last month. Because copper is denominated in U.S. dollars, a stronger greenback weighs on demand as the commodity becomes more expensive for buyers using other currencies.

However, the appreciating dollar hasn’t been the only antagonist for the red metal. With China accounting for almost half of global copper consumption, investors are very focused on economic growth, as well as car and electric tool production, in the world’s most populous nation. So news of China’s manufacturing activity having plumbed 18 month lows, and just skirting outright contraction, in December only served to further dampen downbeat sentiment towards the metal.

"Headwinds". "Macroscopic imbalances". "Internal contradictions". Different words but its the same. The UK is badly missing its deficit targets because austerity has slowed growth and labour has not been partaking in the GDP growth with earnings growth hence is not paying enough tax. Globally tax disappears into black holes and newly industrialised economies do not pay their workers enough to cover for the shrinking living standards in the old industrialised economies, etc etc etc.

Maybe there are some more rabbits in hats. ECB QE being one. A return to US QE being another. China borrowing yet more may be yet another.

Maybe not? Still another rough patch is brewing.


Edited to add some mathemagic if you want to believe it.
http://www.marketwatch.com/story/qu...et-crash-is-looming-2015-01-02?dist=afterbell
 
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this is a couple of years out, but Izabella Kaminska posts some interesting stuff on china & metals( I have touched on this before) and shows that Chinas problems are not that new

http://ftalphaville.ft.com/2012/04/26/975511/china-is-being-buried-alive-in-copper/

China has a millenia old tradition in copper trading , mostly off market and not on the radar - the result of this on market & subsequent splitting & grey market lending and hoarding at current prices means alot of middlemen are fucked for formal refinancing and the grey market onward lending they depend upon for their returns is moribund.No one in the industry wants to lend against copper stock

again, as mentioned soemehere earlier , there are millions of tonnes of Iron ore lying in chinese ports , with no takers- mostly bought near the $100 benchmark - often unhedged

On the australia issue, there in an interesting article soemwhere ( imay look for it ) about the use of the harley Davidson sales in australia as a benchmark of how well thingsa are doing ( basically miners spunk their big earnings on harleys) - seems that everyone is selling / no one is buying in WA.
 
So you thought quantitative easing was over? Think again
PBS November 24, 2014
“Stealth QE” continues. Stealth QE is the purchase of more bonds with the interest the Fed earns on the bonds it has already purchased.

The Fed earns about $100 billion a year in interest on its holdings. But in its recent statements, the Fed is silent about these interest payments. For example, the Oct. 29, 2014 FOMC statement — the one announcing an end to the asset purchases program — includes, “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.” The word “interest” is nowhere in the statement.

Bank of America warns of 'lethal' damage to China's financial system as deflation deepens
Telegraph 08 Jan 2015
China is at mounting risk of a financial crisis this year as growth sputters and deflationary pressures trigger a wave of defaults, Bank of America has warned.

The US lender told clients that a confluence of forces are coming together that threaten to chill the speculative mania on the Shanghai stock exchange and to expose the underlying fragility of China’s $26 trillion edifice of debt.
Or "Atlanticist uses report from American bank to show China's in the shit" depending on your point of view.
 
The Swiss National Bank have this morning effectively 'left' the Eurozone, to which they had pegged the ChF for the last three years, and floated with a consequent surge. Some commentators are seeing this as a reaction to being tipped off by the ECB that the expected Euro QE is going to be bigger than the markets forecast...and hence the SNB would not have had the resources to match.

Quite big stuff...apparently.
 
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