Ken Barrows
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Note to David Cameron: The machines don’t pay for themselves (must…keep…borrowing) and the profits are merely a redistribution of income.
Bakken oil statistics day:
https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
153 additional wells ($1B +) for a little over 10,000 additional barrels per day. Super!
gurusid,
$90/marginal barrel of oil seems pretty close to me. I just cannot wrap my head around $1B capital in new wells per month with about 1M more barrels produced. Seems that $90 figure is going to shoot up or future data will point in another direction.
Gurusid,
I only offer you a table:
https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
I may be underestimating the denominator a bit. However, the calculation of additional barrels/additional cost is multiples of what the oil price is today. We’ll see what future datapoints hold.
Bakken May 2013 statistics: 109 additional wells month over month, about 540,000 barrels more month over month. At least $8,000,000 per well. Indeed, the math does not suggest nothing but blue skies (872 million/540,000).
I have thought that a too high price of oil might end QE. But maybe that’s not it.
So, if QE keeps going and going (until the collateral runs out) and the price of oil specifically and rising prices generally don’t stop it, what will stop it? Would love to see a piece about that.
backwardsevolution,
I think we’re talking about the same thing here. I guess I differed with “siphoning off” because I think what the Fed does is a little different from government spending favoring certain groups. Deficit spending doesn’t create something from nothing: you got to sell the bonds to raise the cash. The Fed does create something from nothing.
But you’re right, it is not very different in the end. That’s why I mentioned QE as a “redistribution program,” as much money on the War on Poverty or for defense contractors. Indeed, we’ll eventually see what happens when QE ends. I suspect, though, that it is a “permanent” policy tool until society collapses.
That’s going out on a limb saying that the end of QE leads to disaster. I think big banks realize that the Fed may pull the plug when it feels right. They also realize, though, the QE can come back if needed. The backstop is there, always. It’s only not there if inflation rears its ugly head. And that’s not happening. Now if the price of oil gets out of hand, then things will get interesting.
QE is a huge redistribution program, but I don’t think it’s really siphoning funds from the 99%. It’s overpaying for the collateral and giving the 1% a greater proportion of claims to wealth, which neither the Fed nor most of us creates.
You got the last word. FWIW:
You’re certainly right in that 97% of climatologists could be wrong. I guess you could check out folks like James Hansen or Lonnie Thompson or Jennifer Francis and determine if they are rigorously scientific in their work.
I am, of course, no more than a peon but since solicited I’ll say a few words.
From what I have seen, there were predictions of a more rapid rise in temperatures over the past 15 years. Perhaps the climatologists will adjust their models.
Why only focus on the surface temperature? Most of the warming has taken place in the deep oceans. Much energy is needed to melt ice. With 13 of the last 15 years in the top 15 warmest years in the record (sorry, no cite, I can be corrected), I don’t know if I am ready to say the warming has halted.
I think it would be interesting to actually state the GW hypothesis. Is it something like this? Emission of greenhouse gases will lead to a warming earth. What does “warming earth” mean? Should the theory have some numbers behind it?
I admit uncertainty in the theory. No problem, you adjust the theory if observations allow. Perhaps this is unscientific, but one observation is that CO2 in the atmosphere is the highest in 4-5 million years (before humans anyway) and rising 2-3 ppm per year. I don’t know if I want to test the theory that uunlimited CO2 emissions will cause no damage.
As for megabanks and GW, I am not sold on a complex cap and trade scheme. As I should not appeal to authority (you make a good point), neither should you appeal to the big bad banks and where they put their cash.
Gravity,
Science may be politicized in the GW realm because if it’s a threat, humans have to adapt. We make our observations and decide what to do.
So you can say it’s not science. Am I to infer that policies should not be enacted because it’s not proven 100%? If the Earth is down to 100,000 humans, you may be right that the issue isn’t falsifiable. Small comfort it would be.
I admire your diligence in trying to convince “unscientific” people of the truth. You must be an optimist.
Gravity,
So, 97% of climatologists are unscientific? Anyway, we’ll know how the anthropogenic global warming hypothesis stands up soon enough. You do realize that you’re just looking at surface temperatures and not mentioning that CO2 and other greenhouse gases are rapidly warming the oceans and rapidly melting the ice, right?
Take a look at statistics put out by the State of North Dakota and you’ll find that the average output of all wells in the Bakken is about 130 barrels/day. 130 barrels! I need a religion major to tell me how that’s going to work out.
It will blow up when the marginal cost of extracting a barrel of oil exceeds what the marginal consumer can pay. If it’s quite a number of years away, then let the redistribution upward continue (/sarc). If it is not, hold onto your hats.
If everyone sacrificed and saved, compound interest would be useless. Compound interest requires many debtors, especially today. It is a concept of an “exponential civilization (h/t gurusid)” that is going the way of the dodo.
Compound interest was super when the machines could pay for themselves. That point, however, passed a long time ago.
I would like to ask Walter if debt can perpetually increase faster than growth. I think he’d look dumbstruck and then say “yes.” Why? Well, because compound interest is the greatest thing ever.
If all you need was compound interest, everyone could have set aside $1.00 (the equivalent of) in 1 C.E. and become rich.
A cornucopian mindset needs two things: compound interest and an inexhaustible (automatic?) earth.
After reading the SOCGEN headline, I think the 10 year UST will be at 1.80% in a month or sooner. Deflation wins the battle.
I don’t see interest rates going up in Japan, the USA, or the EU. Economies would suffer greatly.
But it means The Automatic Earth is spot on. The central banks will keep the stimulative policies in place until some exogenous factor (oil) forces their hand. Then, the interest rates stay low because the demand of money plummets along with the supply. Deflation really takes hold; cash is king; interest rates remain at the floor; and any healthy banks scoop up assets at pennies on the dollar.
in the end, no amount of liquidity can cover up for an underlying problem with solvency”.
TPTB would disagree. Wouldn’t an elite politician or bureaucrat say that liquidity will lead to growth to pay off the debts? Of course, that’s nonsense if one looks at debt productivity (GDP/total credit market debt). I call it the Bernanke Rationale.
As theories go, aren’t they, in the strictest sense, either disproven or uncertain?
I’ll admit that if CO2 ppm in the atmosphere continues to rise for 50 years and surface temperatures don’t, that would seem to disprove the anthropogenic theory of warming.
If CO2 ppm rises and the temperature catches up, sure you can say that it’s not anthropogenic. The debate won’t matter much at that point, though.
I think it’s whether humans have to adapt to observations in changes in many factors besides surface temperature: acidifying oceans, warming of deep oceans, loss of Arctic ice volume, thawing of permafrost.
If it’s not science, it’s not science. We can ignore observations of the natural world and deal with possible consequences later. Society, on the whole, is deciding to take that risk right now.
Notwithstanding Gravity’s admonition a few days ago that climate science is, well, not science, it seems that feedbacks may already do most of us in.
Although the surface temperatures in the 2000s were warmer than in the 1990s, they have slowed a bit the last few years. In addition, according to NCDC, the Earth is at 337 consecutive months above the 20th century average. And, of course the Arctic is melting, the oceans are acidifying, and without question CO2 is the atmosphere is rising about 3 ppm per year.
If we want to retain some remnant of industrialized, urbanized society, our future carbon budget is so limited that we should start (or accelerate) the depaving of roads.
Could this scenario be completely wrong? Sure. Life is all about probability.
Your explanation is much better than mine. I look at the process of a whole lot of double entry bookkeeping, but it doesn’t create tangible wealth. What it creates is even more excess claims on real wealth.
Now TPTB declare that this policy will create more wealth (or imply it in a cloudy way). I don’t get it, though. You’d have to believe that the primary dealers are wealth creating institutions.
If the primary dealers had the skill to make loans to wealth creators, then one could make that argument. But they don’t, do they? If they lend at all, they lend to a business that is trying to get the tapped out consumer to spend a little more money. And so the Ponzi continues.
ted,
My answer was awful. The truth, I think, is that the FED holds the asset, the MBS or UST. I read that the FED remits interest payments to the Treasury. If it gets interest from the MBS it holds, I don’t know what happens. So now I think the FED can hold to maturity and do nothing. I mean that FED doesn’t hire a collection agency, does it?
I think the only thing that can prevent the FED by stopping this is an exogenous factor. I think it’s clear the FED causes or tries to cause “inflation.” (I know the Automatic Earth definition, more or less.) If QE causes a high oil price to hit corporate profits, then it might stop.
What’s really funny, though, is that QE is the greatest upward redistribution of income in US History and Obama is presiding over it! Margaret Thatcher would be proud.
ted,
That’s a good question. Is the FED paying interest to holders of the mortgage backed securities (MBS)?
I don’t see why the FED has to sell, but what happens if the security matures? Most of the Treasuries the FED acquires won’t mature for a long time.
If the MBS matures, though, the holders deserve a payment according to its terms. Up until now, the FED has created something out of nothing (but close to cash) in exchange for some collateral, however bad. I have no idea, but maybe the FED can sell some U.S. Treasuries (UST) to pay the MBS holders. After all, the FED was (and still may be) selling UST last year during “Operation Twist.”
The FED doesn’t just drop money out of helicopters (i.e. put cash in everyone’s bank account) because that would be much too equitable. And not as good for “special” banks.
Gurusid,
Perhaps you are right. But let me clarify one things: when I say total credit market debt I mean public + PRIVATE. So your graph really doesn’t address my point although I think it is meant to do so.
Gurusid,
I don’t want Mrs. Thatcher to rest in peace. The UK is now the most indebted country in the world (total market credit debt to GDP). Her contempt for people below the median income is obvious; the article mentions her disdain for those using public transport. (I remember that and it gets my blood boiling.)
If we think the world has gone wrong, some are more responsible than others. Mrs. Thatcher is one of the most responsible.
Maybe Southern Europe should leave the Euro, but those countries won’t anytime soon. They perceive that having their own currency would lead to unaffordable energy imports and economic collapse. Staying on the Euro road will get collapse eventually, too, but the politicians in these countries have probably not spend any time thinking what a viable alternative would look like because they are too enthralled with the promises of corporate globalization.
But isn’t Southern Europe just scared s***less that, if they go back to national currencies, they won’t be able to afford any oil? Are they going with the misery they know instead of a perceived unknown that is much worse?
Why has Lindsey Williams’s profile been ruined on Wikipedia? Who knows?
Ted,
As to what the FED will do…I guess they’ll slow the buying but have no idea on they’ll unwind. When the targeted federal funds rate went to virtually 0% in December 2008, the cognoscenti weren’t thinking it would still be around 4+ years later. Electrician is a good skill, though. May I be your apprentice?Ted,
It’s 45B per month of Treasuries AND 40B of mortgage backed securities. Everyone (if you’re a big bank) is a winner!
Mr. Roach doesn’t understand it, either. He talks of a 1970-99 average and ignores the trend within. GDP/total credit market debt certainly began to decrease around 1970 but went hyper exponential around 1980. The Federal Reserve is the misinformed clean up crew forty years into the problem.
Net energy does the work that leads to the growth. Oh, Messrs. Roach & Roubini, show me how that’s going to happen.
The last chance for Obama sure disappeared quickly. What did it? The Lew nomination? I’m curious, though: what exactly will bring the stock market down? Until oil climbs substantially, I don’t see anything on the near term horizon.
We know that financial institutions have to go, but here’s the big question: should industrial society be thrown into the waste bin? Stoneleigh? Ilargi?
The hope for President Obama will end when he nominates Jamie Dimon to be the Secretary of the Treasury. But who would be a hopeful pick? Elizabeth Warren? Too bad she’s in the Senate.
Steve from Virginia has it right: industrial society cannot pay for itself, at least until the thorium reactors or nuclear fusion give us the net energy to grow out of this massive debt :). Seems to be that Bill McBride is just another unquestioning believer in perpetual growth. Haven’t read much from him on energy issues.
Question: If QE is just an asset swap and the USA can borrow at super low rates on international bond markets, why does the Fed do what it does?
Ok, so net worth is decreasing. Is the view of the followers here that net worth will skyrocket if appropriate policies are in place? Or is it that contraction is going to come and Goldman Sachs raking in its loot will leave most of us impoverished? If so, policies should address the fairness of the system.
