tisdag 4 oktober 2011

There are Economies and then there are so called Economies

Shorter term anything can happen and in regards of the oil price but longer term we will all look back at the days when demand destruction was the key concern as in fact the constraints of supply will become the real challenge.

We are all aware of by now the IEA clearly has stated crude oil production from existing fields has already peaked in 2006 and that we on an annual basis and if sufficient investments are made will be at a 6% decline level and that the decline rate will increase to 9% annually if not sufficient investments are made in order to try to manage the declines.

Thus four new Saudi Arabia has to be not only found but brought on line next coming twenty years to compensate for this decline from the existing fields. Given the fact new ww oild discovery peaked already 1964 and that we today every year comsume three times as much as we find that sure is an issue. That then of course is assuming there will be zero increase in oil demand coming next 20 years.

Quite unlikely as where the real increase in oil consumption occurs are in the parts of the world least affected by the OECD suicidal financial crisis. It will take no longer than two years possibly even earlier before this oil supply crunch is a fact for all to see.




And this oil crunch is what in fact is behind this whole issue we have with our current financial and monetary system:

Then regarding the situation in Greece I myself have an issue of these escalating debt levels as most OECD countries in fact already are drowning in debt. Sweden as you might be aware of as a country had a memorandum regarding the Euro and as we then voted no to the euro were not part of the Euro.

The Norwegians are not even part of the European Union and the Danes that voted against the Euro was forced to join any how. Thus we have in fact what can be described as productive, producing , no debt burdened Germanic (Scandinavia and Germany) part of Europe. Then we have an immensely debt burdened south Europe (including France). Then as a third part you have the paper shuffling, financial based Anglo Saxon economies of London and Wall Street. Long gone are the days when things actually was manufactured and produced in the US and the UK where today its all about "innovative" new financial instruments.

What we see now is the end of the sun and bath based southern Europe based economies as they for decades have been living way over their means. Then you have the verge of the collapse of the Anglo Saxon paper based “extrapolate the future” financial transaction derivates economies as all large banks in fact are not having issues with liquidity but in fact are insolvent.

Thats then as the real bigg issue is related to this unregulated black hole derivates market that today is expected to be a plus $600 trillion market. Creative accounting is what is holding these banks alive today as values in there books are booked not at real market value but with a fictisiouse "booked" value.

Trying to solve then an insolvency issue by trying to add further liquidity regardless of whether it’s a bank or a country is a complete and utter waste of money. In fact what we all now are witnessing is a massive capital destruction as more debt is created in order to try to pay of old debt.

This whole mess started in the US and was manufactured in the US as the derivates business was allowed to grow without any insight and regulation, as the Glass-Staegal act was removed by Clinton and as the rating institutes in the US gave AAA rating to financial products derived out of the excessive loaning subprime mess that then in fact was worth zero.

These toxic derivates products, and mind you as they had been “approved” by e.g. Standard & Poor then spread to also the European French and German banks. Thus when now head of US Treasuries Mr Geitner the man very much involved in creating this mess now tells us Europeans we need to create a fire wall around Greece in order to limit the contagious spreads effect of a very likely Greece default well then that’s what we should have done a very long time ago – that is created a fire wall against the Anglo-Saxon derivates junk paper shuffling economies.

The Warning

So now we in southern Europe and as a consequence of all of this have the “best” of two worlds happening at the same time in e.g. the French and Italian banks as well as the overall Italian and Greece economies and that is way over in debtness and complete and utter derivates black hole chaos.

As part of this contagious effects we have the American firm Goldman Sach that one decade ago was instrumental in making it possible for Greece to join the Euro as they created solutions that in fact deliberately hidden large parts of the obligations in that economy. Now GS are back with a vengeance and shorting the hell out of its client as they know full well where all the corpses are hidden.

And now then what really disturbing is that this very firm Goldman are the once that in fact have created the EFSF mechanism where the intent is that countries so deep in debt that they are not able to finance themselves via the bond markets will be able to do so via a back door provided by the Germans so that these countries in Europe will be able to loan at favorable T&C provided by the Germans as they then would guarantee it all.

You do not have to be a rocket scientist to understand why the German people are very much against this “solution” as it risks to jeopardize also the only sound Euro economy. Now what is discussed is a “solution” whereby this could be implemented anyhow without having the need of any parlamentic consensus and approval from the taxpayers what so ever. Thus it’s the democracy as we now it now at the stake.

So the same people that in fact created the problem are now the people promoting the solutions. The only thing then we know for sure is - it won’t work. The only way out of this it to let real producing economies thrive and let the derivatives based junk economies as well as large banks die off and throw it in the historic dust bin where it belongs.

The too big to fail has become the too big to bail and no matter how much more central banking is centralized (call it EFSF, SDR, IMF etc etc), how much more money printing out of thin air that is created it will not solve the underlying insolvency issue. It was an insolvency issue 2007 and it still is an insolvency issue. ALL the measures made 2007/2008 has just enlargened and delayed the problem stretching it ever further down the road to where we are today.

As an example despite the extended loaning to Greece that has happened Greece today is in more debt than it was when the crisis started. Banks in France and on wall street may get saved (for a while) but even the austerity measures put in place in Greece as outlined by IMF will as an end result get green in a 100% of GDP indebtness by 2030. I mean 100% of GDP debt as a target after that austerity has brought down the economy to a stone age level?

And now it’s clear as the Greece economy is slipping further down the drain ( no wander as austerity takes its toll – I mean how are you supposed to be able to pay any tax if you are out of work?) even this objective now seems unrealistic.

An economy however that choose a completely different way forward than the path so far chosen by the Baltic countries and by Ireland, Portugal and Greece is Iceland. And now as a result of what they did their economy is thriving. That’s real Viking spirit for sure.

Iceland didn’t bail out banks, economy thriving

At the end of the day people will still need stuff real tangible things like something to eat, something to drive their economy like e.g. energy. What is not needed is a financial sector 10 times as large as the real economy. People that will be able to produce food, energy thus and in the end will become the winners out of this mess.

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