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Published on the Doomstead Diner on April 26, 2015

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Everywhere in the Political World you hear the phrase "Return to Growth", the Holy Grail for resolving the economic woes of the world.

With Growth, the Greeks got no problems, they can pay off the Mole Hill of debt they owe to everybody. With Growth, the FSoA can pay off the MT. EVEREST of debt owed to everybody. Growth is GOOD. It solves all problems.

Sadly of course, Infinite Growth on a Finite World is impossible, and as vast as the resources of the Earth may have seemed a century or two ago, an Exponentially growing population of Homo Saps has managed to burn through most of the good easy to get at stuff, and while burning through it load up the environment with the waste such consumption produces. We are essentially DIGESTING the Planet, and leaving it loaded with the excrement from said consumption.

Problem in the Near Term here though is that the Monetary System we used to access and distribute all these resources itself is also predicated on perpetual growth, and when the growth stops, so also stops the Monetary system. Except, not quite right away. Everybody and every thing DEPENDS on the monetary system to keep functioning, and we have Geniuses up there at the top running the show who endeavor to make SURE it keeps functioning, no matter what reality is telling us here.

How ARE they keeping this running? Two acronyms for you here which tell it all, ZIRP & NIRP. Those are the modern bankstering acronyms for ZERO INTEREST RATE POLICY and NEGATIVE INTEREST RATE POLICY.

From Zero Hedge:

Earlier today, we were quite shocked when we heard two statements by central bankers uttered during a press briefing in Washington. The first comes from the ECB's Mario Draghi: DRAGHI: LOW RATES FOR LONG PERIOD INCREASE FINANCIAL STABILITY RISKS The second: from his supposed nemesis, if only for public consumption and not during the BIS' bimonthly meetings in Basel, Bundesbank head Jens Weidmann, who said a carbon copy replica of what Draghi had said minutes prior: WEIDMANN SAYS LOW INTEREST RATES INCREASE FIN STABILITY RISKS We were "shocked" because for once, we agree with central bankers. And to get a sense of just how right the two central bank heads are we go to Bank of America which overnight released a report in which it said that as of this moment, "53% of all global government bonds are yielding 1% or less (Chart 3)." Let that sink in for a second. And while you are contemplating that, here is another fact from Bank of America: The global narrative remains maximum liquidity (Chart 2) & minimal interest rates. And it’s impossible to be max bearish with such an extravagant monetary backdrop. Central bank assets now exceed $22 trillion, a figure equivalent to the combined GDP of US & Japan So yes, low rates for a long period of time most certainly "increase financial stability risks" – the central planners are certainly correct about that. But next time they make that remark, perhaps someone from the media can ask Messrs Draghi or Weidmann the following question: does the fact that central banks now collectively own nearly a third of global GDP in government bonds and equivalent assets – an amount that is greater than the GDP of first and third largest global economies, have anything to do with "low rates" and the fact that "financial stability risks" as of this moment have never been higher? Oh, and good luck with that "renormalization."

Now, EVERYBODY KNOWS Money is supposed to "Make Money" in some kind of virtual perpetual motion machine. If you save a small pile of the stuff for your retirement, your supposed to get a "decent return" which in the olden days was something like 5-10% depending on how much "risk" you were willing to take on your "investments". Real risk averse people like my Mom who was a child during the Great Depression wouldn't invest in the Stock Market, too risky. She put her little pile into CDs, considered one of the safest places to park your cash, which gave a slightly higher return than a typical Savings Account. She probably collected an average return of around 3% over the years she was retired for this pile.

These days though, nobody including the Central Banks that issue out the money expects to get any return on it, they expect to LOSE money. If you are well connected enough, the Bank will PAY YOU to borrow money from them. That's what a Negative Interest Rate means. On the other side of the coin, if you happen to be someone with enough surplus income to actually save some of it, if you drop it in the bank for them to keep it "safe", they'll charge you for the priviledge of keeping your money "safe" with them.

So, basically the whole monetary system we have come to believe in is completely ass-backwards now, and what this really is is a recognition that Growth has stopped, and in fact reversed to contraction. I hate that Newzspeak term "degrowth". We're not "degrowing", at best we're shrinking and maybe DIEING.

Obviously, the super smart folks running the monetary system KNOW that there is no growth here in any real terms, but to keep the monetary system operational they need to present the ILLUSION of Growth. Every last Politician and Technocrat…Wait! Let me digress here for a moment on this "Technocrat" thing!

"Technocrat" is another nice Newzspeak Euphimism for a Fascist Apparatchik. Prior to about 1930 this word didn't even fucking EXIST, and it didn't get much play after it was invented until the 1960s

Frankly, if Google's nGram stat system was updating this term from 2008 to today, I bet you dollars to doughnuts that "Technocrat" has reached still more dizzying heights in the world of NewzSpeak. Notice how the word is a confabulation of the Positively Held notions and words of Technology & Democrat? Technology is GOOD. A Technocrat must be SMART too. Democratic principles are GOOD. A Technocrat must care about Democracy, because it's right there in the name, right? Here's a typical Technocrat:

Super Mario Dragon



Do you think this former Goldman Bankster gives a flying fuck about "democracy"? Of course he doesn't. All he gives a shit about is keeping the system running here so he can stay at the top of the heap. Far as his Technical Knowledge goes, he's as fucking clueless as everybody else running this show. They don't have a solution to the problems we face, because short of a massive dislocation, probable World War and copious Death & Destruction, there really isn't a solution that works for everybody. SOMEBODY (or really many somebodies) will get completely FUCKED here! Super Mario's job is to make sure that isn't himself or any of his friends at Goldman.

He's not a stupid guy of course, so he certainly knows by now that there is no real Growth anywhere on the horizon for anybody, but in order to keep the system running, the ILLUSION of Growth must be maintained at all costs, and the costs are steep indeed. So Super Mario and the rest of the CB Apparatchiks out there jawbone Growth, but even with all the Free Money dished out to the well connected, they tacitly acknowledge there is no Growth with a Zero Interest Rate. How can you "grow" your personal little pile of Savings if you get no interest on it? If the Bank or Bonds you use to park your money have a NEGATIVE interest rate, your pile doesn't grow over time, it shrinks. Currently both Swissie and Kraut Goobermint Bonds are Negative Interest Rate "investments". So why does anybody drop their money into this dogshit? Because these Bonds are perceived as a "safe haven" when the inevitable Crash that Everybody Knows is coming arrives and the Magically Levitated Stock Market finally faces The Last Margin Call TM.

The evidence that there is no Growth is all over the place of course, all you have to do is look at the declining number of people in the Labor force…

…or the total Miles Driven and Gas Konsumed by the no longer working…

…or the CRASHING count of Oil Rigs across Frackerville

Watch Four Years of Oil Drilling Collapse in Seconds (Bloomberg)

Click the link to view the full Interactive Map

How was all that drilling financed to begin with? With a lot of DEBT, that's how, which is about the only thing left that IS Growing, and Growing Exponentially.

Please Enable Javascript for this Oilprice.com widget to work

Since the "Investors" out there couldn't get any kind of return on anything else, they started pitching out funny money at the drillers, "chasing yield" as the saying goes. Problem of course with this is that the folks who borrowed this funny money are in the process of Going Outta Biz. Those loans aren't going to be paid back anymore than the pile of Student Debt will be paid off either.

Currently, of the somewhere around $1.3T in Student Debt, fully 1/3rd is currently delinquent or in arrears.

From Zero Hedge:

It’s no secret that America has a $1.3 trillion student debt problem and as we’ve outlined on a few occasions recently, the actual delinquency rate for student borrowers is far higher than the (also high) 18% that’s generally reported because as The St. Louis Fed recently pointed out, it’s important to look not at delinquencies over total student loans but at delinquencies over loans in repayment and when you do the math on the latter you discover that once America’s best and brightest come out of deferment and forbearance, one in three quickly fall 30 days or more behind on their payments. In other words, the real delinquency rate (i.e. the rate for those who are actually required to make payments) is closer to 30%. And while the Obama administration debates more “efficient” ways to allow for the discharge of this mountainous pile of bad loans in bankruptcy proceedings, some folks saw their student debt ABS put on review for downgrade at Moody’s which cites default risk on nearly $3 billion worth of paper. As a reminder, these are the deals and tranches affected:

Now, since this nonsense of ever escalating levels of debt and ever decreasing quantities of available resource has been ongoing and working (sort of, for .01% of the Population), clearly TPTB have deluded themselves into believing they can keep this Ponzi running in perpetuity. Just KEEP ISSUING OUT MORE DEBT!

Problem of course is that the debt is only being issued out to .01% of the population, so consumption is shrinking and until they start issuing out the Funny Money to J6P to buy the junk on sale at Walmart at Low, Low Prices Every Day, it will keep shrinking. The Central Banksters can Jawbone growth from now until the cows come home, but it won't get J6P increasing consumption, which represents about 70% of the GDP.

Eventually, as already is the case with the oil price, you get a crash in the prices and the losses get recognized. Oil isn't like the Housing market, where you can keep all the unsold and foreclosed on McMansions in hidden inventory for years on end while you wait for a "rebound" in demand. There's a limited amount of above ground storage space for Oil, and once it is all filled up you have to dump inventory at whatever price you can get for it until you can get all the production shut in to limit the supply to match the ever decreasing demand.

The Saudis are taking advantage of this situation to try and drive everybody else outta biz faster, by INCREASING rather than decreasing their production. They're aware the prices are never going to go back up, so they're doing a Final Liquidation Sale. "Everything Must Go! 90% off all Merchandise!"

The ETP Model developed by the Hill's Group has been remarkably accurate in predicting the downward pressure on the price of Oil, and the conclusions drawn are inescapable. Below, from the 4th Update to the ETP Model:

The price of petroleum is controlled by two factors:1) The cost of production.

2) The $ amount that the end consumer (the NEGs) can afford to pay for it.What the end consumer pays must be sufficient to cover the cost of production. All production cost must be borne by the end consumer, who includes the end buyer, and the societal cost required to produce petroleum, and its products.The Petroleum Price Curve, shown below, reflects the two factors that have, and will continue to control petroleum prices. The E TP derived Cost Curve is constructed from the E TP model, and has mapped the price of petroleum since 1960 with a correlation coefficient of 0.965. It is the most accurate pricing model that has ever been developed, ( see report )*.The Maximum Consumer Price curve was also developed from the E TP model. It represents the maximum price that the end consumer can pay for petroleum. It is based on the observation that the price of a unit of petroleum can not exceed the value of the economic activity that the energy it supplies to the end consumer can generate. A more complete explanation of how the Maximum Consumer Price curve was formulated is show in chart# 160 below: The two Maximum affordable price curves labeled 71% (black), and 62% (light blue) are skewed logistic curves. There is no explicit mathematical equation to describe them. They are derived numerically, and the dots represent values for specific years. The 71% curve is the maximum theoretical energy that can be extracted from a unit of 37.5° API crude. Its value is derived from the combustion equations of hydrocarbons. The 62% curve is the average energy extracted from the same hydrocarbon by the end user. It passes through the E TP derived price curve at the inflection point of the E TP curve in year 2012. 2012 was the energy half way point for petroleum production. It was the year when it required one half of the energy content of petroleum to produce the petroleum, and its products. The individual points are generated from the equation: $/barrel = (Energy delivered – E TP value/ BTU/$) * 42.Energy delivered = 140,000 BTU/gal *0.62 (140,000 BTU/gal – the energy content of 37.5° API crude)

E TP value is derived from the E TP function

BTU/$ is taken from the BTU/$ graph – Graph# 12 The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy. Its only function will be as an energy carrier for other sources. Production will continue as long as producers can realize the lifting costs at existing fields. E&D expenditures, and field maintenance costs will have been curtailed. All production from that point forward will be from legacy fields only. The economic impact that will result from the energy lost to the general economy is beyond the scope of this report. Return * Depletion: A determination for the world's petroleum reserve The energy content of a unit of petroleum is fixed by its molecular structure. The energy to produce a unit of petroleum, and its products increases with time as a result of the entropy production of the PPS (Petroleum Production System). The energy remaining for use by the general economy declines, and the economic activity that the petroleum can power also declines. Chart# 161 below shows the historical, and projected economic activity in 2014 dollars that a barrel of petroleum (37.5° API crude) has, and will be able to power. Historically, petroleum has been a primary beneficiary to the economy. The economic activity that it powered was greater than the cost of the petroleum. Its historical effect can be seen in Graph# 25 (World GDP vs Cumulative Production). That benefit is now declining, and by the early 2020's an increased use of petroleum will no longer add to GDP. It will become more cost effective for society to begin limiting its use of petroleum as the use of petroleum transitions from a GDP enhancer to a GDP reducer.

The Hills Group isn't alone in having modeled this crash, Steve Ludlum on Economic Undertow modeled it also when he noticed two converging and irreconcilable trends, the increasing cost of what it takes Drillers to extract the Oil and Natural Gas vs. the decreasing price the customers can afford to pay. Back in August of 2012 Steve published the first of his Triangle of Doom TM charts predicting the crash in Oil prices.

We all know what occurred in November of 2014:



…and here's the LATEST in Triangle of Doom Charts…



The rest, as they say, is History. Steve predicted TO THE MONTH the collapse in the Oil Price, so when you read in the MSM "Who Cooda Node?" this would occur, you can tell them we knew.

Where does it go from here? First off, as is obvious above here, Drillers are going Bankrupt and Outta Biz, the smaller operators first. Rig counts in the Bakken and Marcellus drop daily (see the interactive map from Bloomberg above), and the most expensive to extract Oil is getting shut in first. The biggest companies and largest exporters like the Saudis with the deepest pockets will last the longest, but they also inevitably will succumb to the downward spiraling demand from increasingly impoverished consumers. As noted in the Hills Group Report, by 2020 Oil will be a negligible part of the economy as the cost to extract versus the price that can be paid to burn it becomes uneconomic for everyone. It may even occur before that, since many enterprises driven by Oil such as Refineries can only operate at large scale. Once refineries start shutting in, it doesn't matter if there is still some Oil left in the ground or a few people still with functioning money who could buy it. It simply will not be available at ANY price.

How will our society function without Oil and it's products? Simply stated, IT WON'T. Not in its current form anyhow. What sort of new society we will transition into and how we will cope with the many problems resultant from this kind of radical change is an open question. The only thing you can say for certain is the transition will not be an easy one, and that life a decade into the future will not resemble much the life we are still living now, at least if you haven't yet fallen off the Economic Cliff.

The Dominoes are falling as we speak. It is only a matter of time before it Comes to a Theater Near You.

More Rogue Economist Articles & Rants:

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