Wheels Falling Off …



In 2013 it is 2007 all over again, there is a sense of foreboding. Markets are breaking down except for the self-funded stock markets. When these markets begin to break … ?

A difference between now and the ‘good old days’ is that management has already deployed its reserves, its props to support key men. There is little left to deploy: policy rates around the world are near zero and cannot be effectively lowered. Torrents of cheap credit flow from central banks toward commercial finance. Bad loans have been shifted from the private sector to the public’s accounts. Trillions in all currencies have been borrowed and spent by governments … largely to benefit finance. Every one of these are rear-guard efforts, behind them there is nothing, only desperate flailing, arbitrary confiscation, stealing what remains to steal … capitulation to reality … and ruin.

 
HSNIF 041213
 

Figure 1: What a fuel price hedge looks like along with its collapse, the Incredible US Housing Recovery compared to the monumental surge in housing churn that took place from 1990 to 2007. The ‘recovery’ is the tendril on the far right. Realtors want Americans to believe what is underway right now is the start of another ramp-up in house building and selling. This is a lie: Americans are broke, suburbia is too expensive to duplicate. A palatable alternative to suburbia in 2013 does not exist.

What would make a ‘recovery’ sustainable? Fuel prices returning to sub-$20 per barrel of crude oil. Otherwise, most of what is seen on the chart is a stranded ‘investment’.

What would derail any hope of recovery and leave the world a sustainable ruin? Fuel prices returned to sub-$20 per barrel of crude oil. At that price there would be very little crude oil available, there would be insufficient buying power to lift the hard-to-reach petroleum that now remains.

Energy Commodity Futures

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 91.29 -2.22 -2.37% May 13
Crude Oil (Brent) USD/bbl. 103.11 -1.16 -1.11% May 13
RBOB Gasoline USd/gal. 280.18 -2.92 -1.03% May 13
NYMEX Natural Gas USD/MMBtu 4.22 +0.08 +2.01% May 13

 

Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,501.40 -63.50 -4.06% Jun 13
Gold Spot USD/t oz. 1,482.75 -78.75 -5.04% N/A
COMEX Silver USD/t oz. 26.33 -1.37 -4.93% May 13
COMEX Copper USd/lb. 335.00 -8.35 -2.43% May 13
Platinum Spot USD/t oz. 1,486.75 -45.55 -2.97% N/A

Bloomberg commodities: precious metals and US petroleum were hammered on Friday. Metals have been leading indicators, petroleum is declining to the price level where drilling becomes unprofitable. Without new drilling there is no replacement for rapidly depleting existing reserves.

As reserves are exhausted so is the ability pay for them. The fuel waste process is collateral for fuel extraction, not the fuel itself. The reason for this should be obvious: as soon as fuel is extracted it is destroyed, it is useless as collateral. Instead, the fuel wasting implements become collateral for the funds used to waste more. As credit expands, it first becomes more costly then unaffordable. Industrial output — which is nothing more than non-remunerative waste — becomes impossible to finance. Ultimately, credit contracts, the nominal prices decline … as the ability to meet prices declines faster … we are entering into the credit contraction phase now.

This is a dynamic that escapes conventional analysis, which assumes an economy running normally in the background and providing credit … even as its fuel supply is depleted. Meanwhile, the economy runs down in real time, credit is diminished and analysts are perplexed.

 
Triangle of Doom 041213
 

Figure 2: (Click for big), Brent crude @ $118 in February accompanied the robbery/crash of Cyprus, panic in Japan and deflation. Brent crude today is $103.11, nearing the marginal level where extraction becomes unprofitable. Chart by TFC Charts.

Since 2008 the world has been in the grip of deflation which reflects facts on the ground. With depleting resources, multiplying claims against these same resources or adding wasting implements does not create anything new but depletes what we have access to, faster. Deflation exposes claims as worthless, the fuel extraction process itself is stranded. We have so successfully cannibalized ourselves that it is becoming too late to do anything useful about it.

 
20y JGB yields 1
 

Figure 3: (ZeroHedge) Japan 20 year bond yields have become massively volatile: bonds are offered for sale driving up yields which retreat as the Bank of Japan steps up to buy. For Japan’s central bank to meet its targets it must flood the world’s markets with … more credit. This credit-for-credit exchange is a charade, it cannot alter the trajectory of Japan’s fuel- and resource reality, it cannot even change Japan’s finance reality … it is capitulation, the wheels finally coming off in Japan.

Bond-holders ‘sell’ their holdings for yen then swap these for dollars or euros in forex markets. Volatility is increased because of the enormity of the trades required to move the generally liquid bond markets. Large lenders to Japan such as banks and insurance companies appear to be dumping bonds, exiting their positions. These lenders become yen sellers as well: because there are more sellers than buyers, the currency is depreciated. There is no real increase in the overall supply of money. Sean Corrigan @ Diapason Commodities Management, (ZeroHedge):

 

Net new debt issues are currently being penciled in at around the Y42 trillion mark a year and, with the BOJ scheduled to buy Y70 trillion p.a., it might seem that JGBs offer a one-way bet even here, but with a current overhang of Y942 trillion as we write, the possibility is not to be overlooked that while the Bank may be comfortably able to mop up the new flow, it might have its work cut out if others decide to use its resting bid to get rid of some of their enormous existing stock of claims.

Prime candidates would be foreigners (with Y87tln to hand and steep currency losses to hazard), the banks (which, we have seen, hold Y425tln in government claims, of which Y360tln in JGBS per se), and insurance companies (with Y222 trillion in debt and Y184 trillion in JGBs & TBs combined). In its last concerted attempt at re-inflation, conducted in 2002-3, the BOJ briefly pushed up both the monetary base and overall M1 by around 30%. The response of prices was modest to say the least: CPI moved from -1.4% to +0.5% three years later. If the same thing were to happen again, all that would have been achieved would be to have introduced an unnecessary disturbance of the pricing structure between inland and foreign trade and, at the margin, between those living off current income and those reliant upon stored past income. Debt would, of course, have climbed inexorably skyward, as would the debt/nominal income ratio.

 

The reason for the gambit is Japan’s vanished trade surplus which had overseas customers subsidizing resource waste by the Japanese. Exports never provided any return for Japan’s customers: they are now broke, they cannot subsidize anyone. The depreciation is a futile attempt to retrieve the irretrievable.

 

Report to Congress on International Economic and Exchange Rate Policies

U.S. Department of the Treasury
Office of International Affairs

April 12, 2013
 

Bruce Krasting discusses the Treasury Department response to the Japanese:

 

There are two potentially market moving sections in the report. The Treasury Department planted a “dirty bomb” at the Bank of Japan, and tossed a grenade at the Swiss National Bank. I’m thinking of all the folks who are big long USDJPY. They are going to have to sweat the next 50 hours. They have to hold their cards and wait. I suspect that quite a few FX players will have their weekends ruined.

The key words on Japan (from US Treasury Secretary Jack Lew):

“We will continue to press Japan to adhere to the commitments agreed to in the G7 and G 20, to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes.”

“I think we just had the Jack Lew moment that I was anticipating. I believe that Jackie Boy has made a mistake. He picked a public fight with Japan that he can’t win. Having picked the fight, he can’t back off. When the BOJ and the markets make him look silly (USDJPY = 110+) there is going to be pressure on him. Jackie has set himself up for a fall.

In all my years of watching (and participating) in the FX markets I have never once seen a situation where “talk” accomplished a damn thing. In fact, idle talk often creates the opposite reaction to what was intended. So for those who are having sphincter problems this weekend over a long USDJPY book, and the 50 hours you have to wait to find out what happens, I say relax. By the opening in NY on Monday, you will be okay again. In a few weeks you’ll be buying hot cars and houses.”

 

Keep in mind, the Treasury Secretary doesn’t act by himself, he has a fleet of ‘associates’ at the Big Banks pulling his strings. If he makes a mistake they lose and they don’t like to lose = they pull the strings as needed.

Meanwhile, the fundamentals are ignored: the effects of Japan’s maneuvering are likely to be negligible. Management has already deployed its reserves, its props to support key men. There is little left to deploy: policy rates around the world are near zero … torrents of cheap credit flow, etc. Things cannot be improved, only be made worse.

Japan — like all the other countries — has no independent monetary policy. This is because the price of money has nothing to do with interest rates or trades on forex markets. Rather, it’s priced at gasoline stations around the world by millions of motorists every single day. If gas prices are too high — because of currency depreciation or some other reason — drivers buy less and economies deflate. This undoes the efforts of the money-managers.

Enter the post-1998 peak oil paradigm shift: when gas prices fall drivers buy more fuel but there is quickly less available, prices either increase again or shortages occur. The real price of fuel — that relative to other goods and services — increases relentlessly. Eventually, this real price bankrupts countries like Japan!

Think of the old-fashioned ‘gold standard’ constraining the money supply as well as industry and commerce as it did during the 1930s. With the ‘gasoline standard’ there are the same constraints except it is impossible to go off petroleum and grow the economy as could be done by ‘going off gold’. The only way to escape the gas standard is to jettison cars and other fuel-guzzling gadgets, this also annihilates economic growth which is dependent upon more and more of these things being sold. Meanwhile, in the background where the analysts pretend not to notice, the gasoline standard strands cars and other fuel guzzling gadgets anyway: at the end of the modernity’s ever-shortening gangplank there is no room to maneuver.

Fiddling with nominal prices is pointless: any possible currency-driven export gains are offset exactly by currency-driven import costs. Because Japan is nothing more or less than a car factory with radioactive beaches it cannot gain anything by depreciating its currency. Its export prices are determined entirely by what it pays for imports … including fuel! The only effect of so-called monetary ‘policy’ is steal funds from workers and shift them to plutocrats. Everything else remains the same.

The blowup in Japan is part of the de-carring process which is underway right now everywhere in the World. Depreciating the yen does not bring one drop of petroleum fuel onto the market. The only question is how soon the ‘Abenomics’ experiment will fail and what form the failure will take. As holders of yen and yen-denominated bonds reduce their ‘exposure’ and dump their bonds there is less credit available rather than more. Prices for fuel decline … as they are doing so now! This does not help the Japanese exporters because their customers are still broke … regardless of the price of credit.

When the price of crude declines below the cost of extraction there will be physical shortages. These will reduce credit further which will in turn shut in more crude in a vicious cycle. There will be a return to recession with no way to end it: conservation by other means.

What sort of country does Japan become? A place to look is Egypt which has its own currency but depends upon foreign exchange same as Japan:

 

Short of Money, Egypt Sees Crisis on Fuel and Food

David D. Kirkbpatrick (NY Times)

A fuel shortage has helped send food prices soaring. Electricity is blacking out even before the summer. And gas-line gunfights have killed at least five people and wounded dozens over the past two weeks.

The root of the crisis, economists say, is that Egypt is running out of the hard currency it needs for fuel imports. The shortage is raising questions about Egypt’s ability to keep importing wheat that is essential to subsidized bread supplies, stirring fears of an economic catastrophe at a time when the government is already struggling to quell violent protests by its political rivals.

 

The establishment insists that the fuel shortage is the result of a money-credit shortage. Instead, the reverse is true: there is a shortage of fuel; there is no useful collateral for new credit, only (obsolete) waste enablers.

Japan can also become Portugal:

Portugal’s elder statesman calls for ‘Argentine-style’ default

Ambrose Evans-Pritchard (Telegraph UK)

Mario Soares, who steered the country to democracy after the Salazar dictatorship, said all political forces should unite to “bring down the government” and repudiate the austerity policies of the EU-IMF Troika.

“Portugal will never be able to pay its debts, however much it impoverishes itself. If you can’t pay, the only solution is not to pay. When Argentina was in crisis it didn’t pay. Did anything happen? No, nothing happened,” he told Antena 1.

The former socialist premier and president said the Portuguese government has become a servant of German Chancellor Angela Merkel, meekly doing whatever it is told.

“In their eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal,” he said.

Raoul Ruparel from Open Europe said Portugal had reached the limits of austerity. “The previous political consensus in parliament has evaporated. As so often in this crisis, the eurozone is coming up against the full force of national democracy.”

The rallying cry by Mr. Soares comes a week after Portugal’s top court ruled that pay and pension cuts for public workers are illegal, forcing premier Pedro Passos Coelho to search for new cuts. The ruling calls into question the government’s whole policy “internal devaluation” aimed at lowering labour costs.

A leaked report from the Troika warned that the country is at risk of a debt spiral, with financing needs surging to €15bn by 2015, a third higher than the levels that precipitated the debt crisis in 2011. “There is substantial funding risk,” it said.

 

To operate its massive fleet of cars, Portugal must compete with China and America for fuel. These countries’ can generate their own credit, Portugal cannot, in fact none of the eurozone nations are able do so. Right now Portugal must borrow from Wall Street by way of EU banks, so as to repay Wall Street. Portugal has borrowed to buy fuel, it must borrow additional amounts to buy more fuel at the same time service and repay its dead-money debts.

The end result for all these countries is the same: there are debts that cannot be retired, industrial obligations that cannot possibly be met. As during the early years of the 20th century, the wheels are falling off all over the world … we shall not see them turn again in our lifetime …

54 thoughts on “Wheels Falling Off …

    1. The Dork of Cork.

      @Reverse
      In defence of Goldbugs……………………
      They did not imagine the Europeans would stop the flow in such a brutal fashion – destroying systems of both large and small scale.
      (in my view to bail out mother England which is the biggest black hole of them all – the true center.)

      Much of Europe – see below , can work very well without too many cars……….
      But I accept we are now in a cascade like decent with multiple (now all bad) outcomes.
      Its a hell of a circuit theory.

      http://www.youtube.com/watch?v=Qwk6J6NZzjE

      A pointless expenditure of energy but fun to watch from a distance.
      “your only young but you’re going to die……Hells Bells”

      1. Reverse Engineer

        “They did not imagine the Europeans would stop the flow in such a brutal fashion – destroying systems of both large and small scale.
        (in my view to bail out mother England which is the biggest black hole of them all – the true center.)”

        I think the old Hapsburg clan centered in Krautland is as big a part of the problem as the Windsors and the City of London. All goes back to those two Wizards of the Calculus, Isaac Newton in Jolly Old Limeyland and Wilhelm Gottfried Leibniz in Krautland. The math made the Thermodynamics and the Banking system possible, and the Limeys and Krauts got there first.

        RE

      2. enicar666

        Perhaps instead the Germans are using the Physics that power a Coler Coil along with the mathematics of Maxwells equations in their original quaterion geometry and the theories of E.T. Whittaker and Barus. Scaler physics where petroleum is obsolete and the transmutation of metals is possible.

        The Twin Towers didn’t collapse – they were vaporized – look at the pictures of the remains. That’s not kinetic energy at work.

  1. The Dork of Cork.

    The result of local rednecks leaving for distant beer drinking shores.

    http://www.youtube.com/watch?v=Msb8Ziiv5cA

    A shortage of skilled labour in primary industry.
    To be replaced by Egyptian crew who did not have a fucking clue.

    The ship sank in the mouth of the harbour……….
    A mistake beyond elementary.

    These guys are not paid enough to keep Unionhall village domestic demand above water.
    Even if they were not Muslims I imagine you would not see them much in the local pub.
    Whatever tiny surplus they may have goes back as remittances

  2. The Dork of Cork.

    They need to spend money on relaying the rails however which are probably 50 ~ years old.

    http://languedoc-roussillon.france3.fr/2013/04/11/manifestation-d-usagers-pour-la-renovation-de-la-ligne-ter-carcassonne-quillan-233075.html

    Why did not economists see that this was a huge stock and flow crisis back in 2007 ?
    Why did they attempt to save the car & burb industry ? via NAMA like structures.
    Why did they not do more to create new systems to capture any new (albeit meager ) flow ?
    This is the great mystery of our time.

    This anti flow crisis will first be seen in dramatic fashion in Ireland.
    The super boom cars bought between 1995 & 2000 will all soon retire.

  3. The Dork of Cork.

    However agriculture is really no more in this area…….the place has rewooded when the sheep were no more.
    Tourism is key.
    A person from London or Paris can leave the car at home.
    Just bring a backpack……no frills
    Terminate your mechanical journey at the station and walk into the hills.

    Nothing beats a station to station backpack.
    http://www.youtube.com/watch?v=hc27QCXqyt8&feature=endscreen

  4. dolph

    I have read “whither gold.” Yes short term gold may not do so well but for longer periods it’s a no brainer, as the past 12-13 years have proven.

    Fiat currencies have no intrinsic value, whether they can buy fuel or not. This is not a difficult concept to appreciate. This is why deflation is impossible under a fiat currency (which we have worldwide) and, to the best of my knowledge, has never occurred.

    Any temporary liquidation of assets to meet margin calls is quickly met by the instantaneous creation of more digital money. As such, there is no “oil standard” anymore, no petrodollar, we are off oil already. High oil prices can no longer cause what they did in 2008. Even as you are stranded in your house with no gas, the digital money will be printed to monetize all debts.

    I do understand why this is hard to believe. It seems unfair. Surely the fiat is given value by something! Gold! Oil! No, it isn’t. This is why the hyperinflation of fiat is inevitable. On the other end, only convertibility of fiat to precious metals at a floating exchange rate will provide stability to the system.

    Once this happens you will once again be able to buy fuel, but of course it will be very expensive. Now admittedly this will be a very different world. But that’s ok, right? Nature must win in the end. Things must slow down and humanity must learn to live within its means.

      1. Ross

        “This is why the hyperinflation of fiat is inevitable.”

        After TRILLIONS and MORE of printed money pumped down the systems throat like a pate duck, the onus is on you to explain why hyperinflation hasn’t happened yet.

      2. Reverse Engineer

        “More on gold … here … later in the week”-Steve

        I’ll wait for futher pontification off your keyboard to comment here.

        Meanwhile, we got a lively chat on this one going inside the Diner if you wanna chip in your 2 cents. 🙂

        http://www.doomsteaddiner.org/forum/index.php?topic=133.msg20700;topicseen#msg20700

        Also, saw your post on ZH, came up with a similar number around $1350/oz for Gold on this downleg. My handle there is Rogue Economist. Hardly ever bother commenting there anymore though, its a waste of time. Idiots on Parade.

        RE

      3. The Dork of Cork.

        @Steve
        How about this.

        Gold price movements explained…..
        Before euro , before 1980 /86.

        Before EMU :Euro countries internal goods cheap / external (China ?) goods expensive.

        During euro bliss years : Internal goods expensive / external goods cheap…..

        Euro 9th circle years : both internal and external goods too expensive for now limited level of cash flow….

        Italian or Spanish family can no longer buy day to day goods with present cashflow.
        They sell their assets…..

        Gold moves back to London.
        Price falls…..

        Its a failure of globalization.

  5. steve from virginia Post author


    NOTICE: ANYONE ADDING BOOKLIST ENTRIES, PLEASE LEAVE A COMMENT WITH PERTINENT INFORMATION AND I WILL ADD IT TO THE SIDEBAR TO THE RIGHT.

    THANKS!

    1. Jb

      I’d like to recommend another book, one that many of us probably already have, and that’s a good cook book. We have several but if I had to choose one, it is ‘Joy of Cooking’ by Rombauer, Becker, and Becker, published by Scribner. I happen to have the 75th anniversary edition.

      If you want to know about general nutrition, how to season your old cast iron or sharpen knives, cuts of beef, or canning and salting, as well as time tested recipes, this is a great book. I realize it’s not sexy like the US Army Survival Manual FM 21-76 and may not deserve a spot on the sidebar but knowing how to prepare a nutritious meal out of whatever you can come by in a Depression will certainly help you maintain your family’s health and morale.

      One of the few stories we have about my great grandmother during the Depression was that she was an excellent cook and pastry chef.

      1. steve from virginia Post author

        “One of the few stories we have about my great grandmother during the Depression was that she was an excellent cook and pastry chef.”

        I know. Both of my grandmothers were excellent cooks, particularly in the pie department. They made everything from scratch. My mother’s mother also canned w/ the Ball jars and wax on top.

    1. RobM

      I would love to associate a voice with the ethereal writings.
      Steve, please do the podcast. We want to get to know you better.

    2. christiangustafson

      JHK just had the Dmitri Orlov on, the first of at least a two-part series. I’m so glad to have the KunstlerCast back. We need to make Steve from the Virginia a household word.

  6. The Dork of Cork.

    The FT is getting funny.

    Its a pure Brit propaganda outfit.

    Italy is becoming a third world jurisdiction.

    Naples cannot afford to subsidize US and UK trade deficits despite its extreme energy efficiency …….which means it worth more dead then alive.

    A city which survived the wrath of Vesuvius is about to get crushed and burnt by a global banking Pyroclastic_flow.

    http://www.youtube.com/watch?v=er2luQJtefw

  7. Patrick

    Hello,

    Just wanted to express my gratitude for this very informative blog. Along with Gail Tverbergs website, it is my favourite got-to place for the finance and peak EROI conflagration related information.

    And, best of all, there are few cornucopians around.

  8. Usman

    http://finance.yahoo.com/news/stock-futures-signal-dip-chinese-data-094750685–sector.html

    “Weaker-than-expected data from China sparked the initial decline, but selling accelerated late in the session as reports of two explosions in Boston near the finish line of the Boston Marathon unnerved investors.”

    “I don’t think the market has much tolerance for bad news,” said Uri Landesman, president of Platinum Partners in New York.”

    “There was a bad Chinese GDP number, which I think spooked people to start, and technical factors. Profit-taking started taking over. Late in the day, we were getting hit by reports that there were explosions in Boston. That gets people nervous.”

  9. Pingback: Wheels Falling Off… | Doomstead Diner

    1. enicar666

      Yes. The article was heavy on generalities and lacked any specifics. So I started checking on-line. Didn’t find anything that would tell me that something significant would happen.

      The Milwaukee Journal just started a series – A Time to Build Unlike during its industrial glory days, Milwaukee trails many areas on business start-ups. If the region wants something transformative like a Microsoft, it needs optimistic, risk-taking entrepreneurs.

      Racine contracted with RCEDC (Racine County Economic Development Corp) and rented them a Space in Empty Downtown Racine where they will dispense government grants and advice on how to get your very own business started. Venture capital will be government provided, but PAYING customers are not included, and all too often they are the MISSING ingredient that guarantees failure! In fact, there is an industry that makes big $$$ off of this yearly churn and burn.

      I note that the Milwaukee paper brags housing sales and prices are up! I can tell you for a fact that Racine has had 116 foreclosures for the first 3 months of 2013 alone – 11.9% unemployment with thousands having left town, lots of run down infrastructure, and the city is laying off employees.

      Meanwhile, according to Detroit Startups , there are numerous new start-ups in Detroit like:

      20Questions – Classic Guessing Game made Social

      AlpineReplay – Personal metrics for skiers and snowboarders

      EVitamins – eVitamins is a leading retailer of lifestyle management products

      Message Blocks – Event Management made simple

      Etc. Etc. What happens when the SBA grants and loans run out? There is a normal yearly churn and burn in Racine of start-ups that exist until the loans/grants run out and then in the Winter the business is closed and only the debt remains. Often forgotten is that the taxes are too high and the regulations too restrictive to allow any chance a start-up will succeed. Racine is littered with the ruins of these businesses and the delinquent taxpayer list at Wisconsin DOR grows longer every day.

    2. steve from virginia Post author

      – Detroit is the way Detroit is … because New York City is the way New York City is.

      1. enicar666

        Who controls who? The SS Brotherhood of the Bell by Joseph P. Farrell is a real mindbender.

        Here is a likely earlier operation –

        The Bunge Corporation, Argentina & Germany

        The stock market dropped 24 points in 27 minutes when news of President Kennedy’s assassination was announced. 2.6 million shares were sold off. It was the greatest panic since 1929.
        Somebody made a huge profit selling short in many markets.
        Somebody made half a billion dollars in one day. Coincidentally, the Allied Crude Vegetable Oil Refining Corporation, headed by New Jersey commodities dealer Anthony De Angeles, crashed the same day, driving the market down.
        Allied Crude was controlled by U.S. American Bunge Corporation and financially controlled by a group of share-holders headquartered in Argentina, known as “Bunge and Born, LDA.”
        Business Week of October 19, 1963, one month before the Kennedy assassination, described the Born family in Argentina, the biggest shareholders for Bunge, as being from Europe, specifically Germany.
        Everything about Bunge has German influence. They have a $2 billion annual business in 80 countries. There are over 110 offices, all linked by Telex and under-the-ocean telegraph channels. The Bunge Corporation is referred to as “the Octopus.”

        And just by coincidence there is an attack at the Boston Marathon – as markets drop – then start to recover the next day. Same old playbook – repeated again and again.

        from: Mae Brussell

      2. Chartist Friend

        SS Brotherhood is one of the greatest non-fiction books of all time – i listen to Dr. Farrell’s project camelot interview at least once a month, and consistently feature him on my blog. i think i can even claim turning steve on to his ideas about germany and merkel

        speaking of my blog, if you like monster chart presentations you’re gonna love this one

        The Stock Market Is The Economy So When The Stock Market Goes The Economy Goes With It http://chartistfriendfrompittsburgh.blogspot.com/2013/04/the-stock-market-is-economy-so-when.html

      3. steve from virginia Post author

        Everyone should understand that Business Insider is lame … period.

        Motley Fool is more informative …

      4. Chartist Friend

        LMFAO at your Greeks = morons comment on ZH – i really appreciate the way you have deconstructed the auto-erotic asphyxiation we’re experiencing

        the first Godfather movie is a critique of how cars have ruined our lives (Sonny being gunned down at the toll booth, Don Corleone shot up near the car, etc.) – ever think about that?

  10. The Dork of Cork.

    The German car market is now down and out with the rest of us (except the UK of course)
    http://www.acea.be/images/uploads/files/20130417_PRPC-FINAL-1303.pdf

    Of the large car markets in March its the worst hit at -17.1 % and -12.9 % January to March.
    Already thats a decline of 100,000 vehicles from the same period last year.

    Also of the medium to small markets the former strongmen of the North in Finland & Holland seem to be the worst hit.
    March reg
    Finland : – 58.6 %
    Holland : – 31.4%

    The sacrifice of Cyprus is not enough to bail these little monsters out with Cypriot car reg down – 58.9% in March with just 405 cars…………
    More cars were sold in Iceland….

  11. Ken Barrows

    I don’t know about that “stock market is the economy” meme. First, where did the NFE info come from? The BLS stats show that 2010 was barely higher (0.1%) than 2000 as an annual average.

    Longer term, the Dow was in neutral from 1966-82 and the real GDP grew some 3% per year. Dow exploded 1982-2000 and economy grew…about 3% per year.

  12. Jb

    The wheels are starting to fall off and the effects on the human population in Greece are being studied:

    “A study conducted by a team of Greek clinicians and American researchers has found when Greece’s economy began to collapse three years ago that murders and disease rates soared, suggesting the the effect of pay cuts, tax hikes and slashed pensions is worse than believed.”

    http://greece.greekreporter.com/2013/04/19/greek-austerity-is-killing-people/

    The Mighty Orlov tells us this, and it is so. (P.S. I’m looking forward to reading his latest book which I ordered last week.)

    1. enicar666

      The case for austerity causing the problems is in my opinion, questionable. It’s more a problem of human behavior, according to the article and how I interpret it.

      But when programs like needle-exchanges for drug users and condoms for at-risk groups were slashed, the disease rates ballooned.

      I think Society is better off, and will improve without these individuals.

      Also, there was a 57 percent spike in newly diagnosed cases of HIV infection, from 607 new HIV cases in 2010 to 954 in 2011. “These aren’t small percentage changes,” said Waitzkin, distinguished professor emeritus of sociology and medicine. The study said Greece initially attributed the outbreaks to environmental risk factors but the fact that public health measures had to be deployed after the fact implies that “the risks of transmission had not been addressed through prevention.”

      It’s simply NATURE curing the problem of bad human behavior. This helps others to survive.

    2. steve from virginia Post author

      The choices are becoming harder for Greeks and others. Certainly the 1st step would be to recognize the problem as something outside of partisan politics or ‘Brand X’ economic administrative policy. The energy-economy matrix needs to be measured and appropriate longer-term limits for themselves determined. Priorities within those limits can then be set.

      One way or another the Greeks will live within (very modest) means … so will the rest of us!

  13. Sandor

    Steve sez “The real price of fuel — that relative to other goods and services — increases relentlessly.”

    Gold is held up as an historically ‘neutral’ arbiter of value, a proxy for goods and services. If so, the gold to oil ratio should go down over decades in time, even as the nominal price of oil in USD rises. Unfortunately, gold is not ‘neutral’ even if it is a form of money without ‘counterparty risk’. It is now a leveraged financial instrument (like all other exchange-traded commodities) whose value is largely inversely proportional to perceptions of systemic banking risk, multiplied by the froth of credit at the margin. Alas, there is no ‘neutral’ arbiter of value to measure the ‘real price of fuel’. We can only measure it obliquely, much like the blind men grasping at different regions of the elephant and compositing our perceptions.

    Current ratio of 15.9 barrels/oz in the middle of the range (approx 7-30) since the Nixon ‘float’:
    http://www.macrotrends.org/1380/gold-to-oil-ratio-historical-chart

    Steve’s deflation thesis implies this ratio should head back toward 6 *if* the IMM banking system remains ‘stable’, especially after hyper-leverage has been sucked out of the system.

    Another way of looking at the ‘real price of fuel’ is to divide average hourly earnings by the average price of 87-octane gasoline. For US manufacturing workers today it stands at 5.48 gallons/hr ($19.22/$3.506). In 1950 it was 4.45 gallons/hr($1.29/$0.29). So for US manufacturing workers today, even given decades of automation, global wage arbitrage, and the onset of peak oil, the ‘real’ or ‘labor value’ cost of gas is lower than in 1950! That said, we should see this magic number fall over the next 20 years if Steve’s assertion is correct.

    http://research.stlouisfed.org/fred2/data/AHEMAN.txt

    1. steve from virginia Post author

      Charles Hall has a time-series in ‘Energy and the Wealth of Nations’ comparing the changes in flows over time, (increased) funds/resources are needed to acquire energy with (decreased) discretionary flows toward other goods and services. Even if nominal prices shift for whatever reason, the funding need for energy acquisitions increase relative to funding need of ordinary consumption. Over time the energy supply component siphons resources from discretionary flows.

       
      Cheese slicer model
       

      Here is a ‘run’ version:

      A quibble with the time frame suggested by Hall: he does not make the link between discretionary sectors and the size of the overall economy. Discretionary spending/outflows make up the bulk of the economy, when they shrink the economy as a whole shrinks.

      There are other ways to look at ‘an economy’, one might be an economy that does nothing but produce energy goods. Because of the resulting ‘glut’ energy would be ‘cheap’ relative to scarce and costly energy consuming goods. The energy providers would soon fail as they could not meet their costs by way of sales … this is what’s been taking place with natural gas in the US.

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