Category Archives: Debt

Trump Thinks US Oil Is His Strength When It’s His Achilles’ Heel, by Tom Luongo

It’s hard to call shale oil a US strength when so much of it is produced at a loss and funded by borrowed money. From Tom Luongo at strategic-culture.org:

Headlines abound about the massive surge in US shale oil production. The energy independence-cheering punditocracy hail this as a great victory. This includes President Trump.

And it would be if this surge in production was built on financially stable ground. But it isn’t. The fracking industry continues to bleed massive amounts of cash. As I pointed out in an article earlier this week, when accounting for this inconvenient truth much of the U.S’s return to dominance in the energy space is a lot of hot air.

Nick Cunningham’s article at Oilprice.com tells the tale.

Heading into 2019, the industry promised to stake out a renewed focus on capital discipline and shareholder returns. But that vow is now in danger of becoming yet another in a long line of unmet goals.

“Another quarter, another gusher of red ink,” the Institute for Energy Economics and Financial Analysis, along with the Sightline Institute, wrote in a joint report on the first quarter earnings of the shale industry.

The report studied 29 North American shale companies and found a combined $2.5 billion in negative free cash flow in the first quarter. That was a deterioration from the $2.1 billion in negative cash flow from the fourth quarter of 2018. “This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures,” the report’s authors concluded.

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Italy’s Mini-BOT Trojan Horse Could Blow Up the Eurozone, by Mike “Mish” Shedlock

Italy shows no sign of folding like the Greeks did a few years back when they took on the EU. From Mike “Mish” Shedlock at money-maven.io:

Italy threatens to create a parallel currency dubbed the Mini-BOT. If launched, it could lead to a Eurozone breakup.

Italy’s is on a collision course with the EU in two different ways. The first regards Italy’s budget.

Outgoing European Commission President Jean-Claude Juncker warns Italy faces an “Excessive Deficit Procedure” and may be fined billions of euros. No country has ever been fined. This is the first time a country has faced such a ruling.

France regularly breaks the deficit rules but “France is France” as Juncker once stated.

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Much More Than A Trade War, by Daniel Lacalle

China doesn’t bring as many weapons to the trade war as many people think. From Daniel Lacalle at dlacalle.com:

In these weeks we have read a lot about the so-called trade war.  However, this is better described as a negotiation between the largest consumer and the largest supplier with important political and even moral ramifications. This is also a dispute between two economic models.

Nobody wins in a trade war, and tariffs are always a bad idea, but let’s not forget that they are just a weapon.

Why right now?

For many years China has been allowed to maintain a mercantilist dictatorship and protectionist model under the excuse that its high growth made it attractive.

Shortly before the US launched its set of tariffs, the Chinese government accelerated two dangerous policies that we cannot ignore: intensifying capital controls , limiting the outflow of dollars from the country, and increasing the list of banned companies and sites, two measures that proved that the Chinese government was unlikely to open  its economy, rather the opposite. These measures intensified in the last year and a half. Two other factors show China’s decision to halt the opening of its system. The “Made In China 2025 Plan” and the removal of the two-term limit on the presidency, effectively allowing Xi Jinping to remain in power for life.

Between 2004 and 2018, the United States filed 41 complaints against China at the World Trade Organization, focused on 27 different areas. The vast majority of these WTO resolutions are not enforced (“Paper Compliance: How China Implements WTO Decisions.” The previous strategy of looking the other way and expecting the Chinese economy to open up little by little met the reality of increased interventionism.

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Doug Casey on Trump and the Trade War

Like all wars, once the first shots are fired in a trade war the battleground is enveloped in confusion and unintended consequences. From Doug Casey at caseyresearch.com:

Justin’s note: The trade war is spiraling out of control.

If you’ve been reading the Dispatch, you already know what I mean. In short, Trump’s taken his tough stance on trade to new heights.

He hit China with more tariffs last month. He also threatened to impose tariffs on Mexico. This is a huge deal. After all, we’re talking about two of America’s biggest trading partners.

Unfortunately, this is likely just a taste of what’s to come.

Doug Casey explains why in today’s brand-new Conversations With Casey. Doug also tells me why Trump absolutely cannot win the trade war…


Justin: Doug, Trump’s really been living up to the “Tariff Man” nickname lately. Why can’t he stop it with the tariffs?

Doug: This really brings us to a discussion of Trump himself. I admit to kind of liking Trump when he was running in 2016, despite the numerous philosophical and psychological problems that I pointed out – accurately – in 2011 when he was toying with a run. And I did make a gentleman’s bet for 100 ounces of silver with Marin Katusa that Trump would win – but that’s a different matter. The main reason I hoped Trump would win was because he wasn’t Hillary, who would have been a total and complete disaster.

Although it was clear Trump didn’t know anything about economics, he at least had a business background, unlike Hillary or most politicians. He also said he was going to end all the pointless wars the U.S. either started or aggravated.

Unfortunately, what little mettle Trump had has apparently been corrupted by living in Mordor for the past two years. The Deep State is a very real thing.

He hasn’t pulled troops out of Afghanistan, Syria, or a dozen other countries where the U.S. has varying levels of actual combat troops. Instead, he’s made the already bloated military bigger. He’s letting his warmongering advisors play chicken with China, Russia, and Iran. So, he’s failed from that point of view.

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Energy Dominance or Flatulence? Shale Drillers Bleed Cash, by Tom Luongo

The shale drillers are the Elon Musks of natural resources: they produce products at a loss, but intend to make it up on volume. From Tom Luongo at tomluongo.me:

All of President Trump’s foreign policy can be summed up by two themes, making the world safe for Israel and controlling the price of energy.

He calls the latter “Energy Dominance.” And to those who still believe Trump has a plan, these two things are the only ones consistently in evidence.

His reactions to things contrary to his plan, however, are purely limbic.

These two themes converge completely with Iran. Trump wants Iran neutered to force Jared Kushner’s now-delayed again, “Deal of the Century” onto the Palestinians while also taking Iran’s oil off the market to support surging U.S. domestic production in the hopes of taking market share permanently.

Everything Trump does is in support of these two themes while throwing some red meat at his base over China, Mexico and the border.

It was never his intention to leave Syria back in December, really. Look how easy was it for John Bolton and the Joint Chiefs to convince him to stay because how else would we cut Iran’s exports to zero if we didn’t stop the land route through Iraq?

This is why we’re still harboring ISIS cells in the desert crossing around Al-Tanf at the Jordan/Iraq/Syria border, to stop Iranian oil from coming into the country.

This feeds right into hurting all of Syria’s allies to strengthen Israel’s position.

To paraphrase the song from Aladdin, “It’s stupid, but hey, it’s home.”

If the average Trump voter truly understood the lengths we are going to starve the Syrian army from having enough energy to finish wiping out the Al-Qaeda-linked groups in Idlib and Homs provinces they would burn their MAGA hats and stay home next November.

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Going Where, Exactly? by James Howard Kunstler

Politicians can promise away, but the country is $22 trillion in the hole and that number grows by at least a $1 trillion a year, and the pie is shrinking. From James Howard Kunstler at kunstler.com:

In response to what has become a nation of shameless racketeering, vivid wealth disparity, and shocking destitution on display in city streets, the party of the common man seeks remedies in the redistribution of capital. Seems more than fair to many. It’s not for nothing that they style it “social justice,” the cutting edge of an economic system called socialism — with overtones, of course, of settling racial and gender scores for good measure.

Socialism might seem to be the answer to all this unfairness and indignity. And naturally it focuses on the two activities that have turned into the worst rackets in America: higher education and health care, a.k.a. “Eds and Meds.” Both are now cruel bloated parodies of what they used to be, turning their customers into debt serfs and bankrupts, apart from their dismal failures of basic mission: to prepare developing minds for reality and to “first do no harm.”

The proposed remedy is for the national government to take responsibility for running them and to make their services free to all. That would do nothing, of course, to reform the patent idiocies of the gender studies departments; or rescue the sorry victims of obesity and diabetes from their toxic consumption of whoppers, pizza, and slurpees. Those dynamics operate on feedback wheels of futility for which there is no happy ending outside of drastic changes in thought and behavior.

The Left now promises redemption from these great quandaries with the tag-team of Robin Hood and Santa Claus ushering in a new golden era of free stuff. It’s understandable perhaps, considering how desperate so many citizens of this land are, and how desperation feeds rescue fantasies. And the Left may even get a chance to try this wizardry after the next election. But it’s really not where history is taking us. America is not going to go socialist, it’s going medieval. Why is that?

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The Cheap Credit Trap, by the Zman

The world and US economy are addicted to debt and low interest rates. From the Zman at theburningplatform.com:

The Federal Reserve is making noises about cutting interest rates for the first time in several years. The reason is the trade dispute with China and now Mexico is potentially having an impact on the global economy. Even though it is only a signal of an intention, markets rallied on the news. Global investors and their robot traders love cheap credit from the Federal Reserve, so anytime there is the promise of more cheap credit, there is a rush into equities. It is a reminder of what actually drives stock indices.

It used to be that recessions were seen as a correctives for the system, as they eliminated unproductive and parasitic elements from the economy. In good times, all sorts of inefficiencies are tolerated, as everyone is making money. When times get tight, everyone gets serious again. Inefficient businesses and industries fail, thus putting those resources into more productive areas. The recession was the economy’s way of policing itself, so it was considered a necessary, if unpleasant, feature.

No one thinks like that today. Any sign of a downturn produces panic, especially among office holders. Part of it is no one has any respect for office holders, so voters will look for any reason to throw the bums out. For people who live off the public, losing an election is worse than death. Another part of it seems to be the sense among the ruling classes that they have only a tenuous grip on power. This is a bread and circus world now and they better make sure both are in ample supply.

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