America’s Oil Boom Is a Fraud
Apocalypse Now! Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom. Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now! The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.
You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota. The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply. But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.
Had credit been priced properly, it never would have happened. From The New York Times: “The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.
Or it could be said of emerging markets, which have managed to suck up the loose change spilling out of the financial industry. They promised slightly higher yields, and now, they owe far more than they can pay. It could also be said of Silicon Valley carmaker Tesla, which now has an estimated $10.5 billion in debt – despite never having made a profit… Or of the entire stock market, where trillions of dollars in cheap capital have produced very little real return.
“When the wind blows hard enough,” say the old-timers, “even turkeys fly.” The wind never blew as hard as it did from 2009 to 2018. And overhead now are so many plump, money-losing birds that we suggest you take cover.
Two-trillion-dollar deficits? Maybe more. A breathtaking infrastructure boondoggle. A “space force” so far out that it is quickly lost somewhere beyond Mars. New trade wars to protect U.S. industries from fair competition. A “guaranteed income” for everyone. Bailouts… Subsidies… Grants… Contracts… Spend, spend, spend. “It’s good for the economy!” Oh… and new controls on banking and cash… and perhaps gold and even bitcoin… closing the doors to prevent people from escaping the burning building.
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2018/09/americas-oil-boom-is-fraud.html
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