Depletion is the declining availability of natural resources. Wars for resources are both indicators and consequences of depletion. We are currently seeing such conflicts every month, and on every continent. Depletion demands that nations nationalize natural resource wealth. Depletion also demands that countries with precious mineral and energy resources acquire advanced weapons to defend those resources, or make strategic deals with nations that do have weapons. With treacherous circular logic, war requires nations to try to acquire strategic commodites at virtually any cost, to enable its military.
All the world's gigantic "elephant" oil fields are now in decline. This is depletion! Did anyone notice that Saudi Arabia admitted that their major legacy fields are now declining by 8% annually? This was reported by Platts news, and didn't stay live for long, but ASPO picked it up. Replacing enormous oil fields with smaller ones, at huge capital investment, will neither bring down the price of oil, nor increase supply. The largest copper mines are slowly becoming less and less productive. Depletion! Replacing big mines with smaller ones, at huge capital investment, will not bring down copper prices. The world will shortly face peak oil, peak copper, peak you-name-it. Note that we don't have to "run out" of any given commodity for it to become far more expensive, just for some mines or wells to become too expensive to operate because of declining yields, higher energy costs, and higher capital costs. If the problem is a production "bottleneck", then that is a result of depletion.
Wars and nationalization of resources will remove large sources of energy and mineral production off the open markets. This will mean that far more oil will change hands than is sold on the futures markets. Oil will be sold directly from one state oil company to another, at secret prices. Nationalization is an unstoppable trend. Venezula moved only last week to nationalize "inactive" mines. Economists and investment analysts like to suggest that if nations with oil wealth would simply let private firms come in and invest massive capital then production would rise and we would not have a peak oil problem. Whether this is true or not, it does not benefit the oil producing nation. Protecting a strategically important resource, like oil, is far more important than getting the best price and highest production for that resource.
Even the United States will be forced to nationalize its remaining mineral and energy resources someday, if only to keep them out of the hands of its creditors.
Just as every nation must now attempt to create a secure energy supply, it is just as important to deny, or limit, energy supplies to strategic rivals. A nation that must use all its available energy just to maintain its own economy is a nation that is unlikely to go to war. Economists need to start admitting that these things are not anomalies, and that depletion exists. It is the trend. It is formenting nationalization and war.
Sunday, June 18, 2006
Tuesday, June 13, 2006
US Markets To Be Sacrificed
I think we should just consider the possibility that the Fed is willing to sacrifice US stock and real estate markets to keep the dollar afloat. The Fed could easily do this with a half point rate hike next with no indication that hikes are finished. Such a policy would have the support of our creditors. The resulting fire-sale asset prices would look very attractive to cash rich foreign buyers who are wondering what the heck they can do with all the dollars they have accumulated. In the resulting recession commodity prices might soften, and international trade would be able to continue, although at depressed levels.
I know I've been ragging on the dollar for a while, predicting its ultimate collapse to near worthlessness, but lately an alternate scenario has been brooding in my mind. Suppose the dollar doesn't collapse? Maybe the Fed can save the dollar. I think this is possible, but at enormous cost.
Joe Duarte describes the increasingly worried tone of the Fed, as expressed by Fed governor Janet Yellen:
Unfortunately, Wall Street is now counting on an end to rate hikes. Money managers have been saying for the last six months that the Fed has to be near the end of its rate raising cycle. They were saying "one and done" in December, or, in the worst case, then they would endure "two and through". Quarter point rate hikes that is. Since then we've had two rate hikes and they are not through. The horrible possibility of more rate hikes, or even the truly terrible, unspeakable thought of accelerated hikes (half a point instead of a quarter), has not been considered. If you are working on Wall Street, managing over a billion dollars and have a staff of traders, then you probably see the American financial markets as the center of the world, the key to prosperity and stability, the one thing that must be preserved at all cost. But the world is changing.
It has been said, by Jim Puplava and company, that the Fed "walks a fine line". They risk a dollar crisis and runaway inflation if they lower rates, and a real estate and stock market crash if they raise interest rates. Now it looks like they will have to choose one or the other. There is no such line that will avoid both these catastrophes, rather it is choose which one is the lesser of two evils. And hope that energy shortages or political crises don't bring us both. If the Fed keeps doing what it is doing, that is raise rates by one quarter point at every meeting, we will almost certainly get both a dollar crisis and market crashes. They can't simply stay the course because:
a) Central bankers around the world are getting very anxious about the dollar. Soon the Fed will not be able to withstand the combined attacks from currency speculators, Vladimir Putin, and Hugo Chavez.
b) The stock and real estate markets are clearly showing the strain from rising interest rates and energy prices. A crash is only a matter of time anyway. Markets around the world have all fallen heavily lately, but the American markets have only fallen in the single digits so far.
In the end the Fed will have to try defend the dollar to support the all important treasury bond market. This is what keeps the government solvent. And if things play out this way, I wonder how how much independance our Federal Reserve will really have anyway. I wonder if China's central bank Governor Zhou Xiaochuan, and Russian central bank chairman Sergei Ignatiev are now discrete and unofficial members of the Federal Reserve, and if they will be the ones who really set monetary policy.
I know I've been ragging on the dollar for a while, predicting its ultimate collapse to near worthlessness, but lately an alternate scenario has been brooding in my mind. Suppose the dollar doesn't collapse? Maybe the Fed can save the dollar. I think this is possible, but at enormous cost.
Joe Duarte describes the increasingly worried tone of the Fed, as expressed by Fed governor Janet Yellen:
"Ms. Yellen, and the Fed are slowly coming to grips with the gravity of the situation. Her remarks show that Ms. Yellen may just be starting to come to grips with the fact that despite the potential for an economic slow down, perhaps of some significance, the Fed may have to continue to raise interest rates indefinitely, just to keep the dollar from collapsing."
Unfortunately, Wall Street is now counting on an end to rate hikes. Money managers have been saying for the last six months that the Fed has to be near the end of its rate raising cycle. They were saying "one and done" in December, or, in the worst case, then they would endure "two and through". Quarter point rate hikes that is. Since then we've had two rate hikes and they are not through. The horrible possibility of more rate hikes, or even the truly terrible, unspeakable thought of accelerated hikes (half a point instead of a quarter), has not been considered. If you are working on Wall Street, managing over a billion dollars and have a staff of traders, then you probably see the American financial markets as the center of the world, the key to prosperity and stability, the one thing that must be preserved at all cost. But the world is changing.
It has been said, by Jim Puplava and company, that the Fed "walks a fine line". They risk a dollar crisis and runaway inflation if they lower rates, and a real estate and stock market crash if they raise interest rates. Now it looks like they will have to choose one or the other. There is no such line that will avoid both these catastrophes, rather it is choose which one is the lesser of two evils. And hope that energy shortages or political crises don't bring us both. If the Fed keeps doing what it is doing, that is raise rates by one quarter point at every meeting, we will almost certainly get both a dollar crisis and market crashes. They can't simply stay the course because:
a) Central bankers around the world are getting very anxious about the dollar. Soon the Fed will not be able to withstand the combined attacks from currency speculators, Vladimir Putin, and Hugo Chavez.
b) The stock and real estate markets are clearly showing the strain from rising interest rates and energy prices. A crash is only a matter of time anyway. Markets around the world have all fallen heavily lately, but the American markets have only fallen in the single digits so far.
In the end the Fed will have to try defend the dollar to support the all important treasury bond market. This is what keeps the government solvent. And if things play out this way, I wonder how how much independance our Federal Reserve will really have anyway. I wonder if China's central bank Governor Zhou Xiaochuan, and Russian central bank chairman Sergei Ignatiev are now discrete and unofficial members of the Federal Reserve, and if they will be the ones who really set monetary policy.
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