Raising Interest Rates Can’t End Well!

The Federal Reserve would like to raise target interest rates because of inflation concerns and concern that asset bubbles are forming. Part of their concern seems to arise indirectly from the rise in oil prices, relative to their low level in early 2016.

Figure 1. WSJ figure indicating likely reasons for rate hike.

A finite world does not behave the way most modelers expect. Interest rates that worked perfectly well in the past don’t necessarily work well now. Oil prices that worked perfectly well in the past don’t necessarily work well now. It seems to me that raising interest rates at this time is very ill advised. These are a few of the issues I see:

[1] The economy is now incredibly dependent upon rising debt to prop up its spending. The pattern of total debt to GDP for the United States is shown in Figure 2.

Figure 2. United States’ debt to GDP ratios based on Federal Reserve Z1 data and BEA GDP data. The red line represents the increase over the latest three years.

There was a huge increase in debt in the period leading up to the 2008 crash. Every year between 2001 and 2008, the increase in debt was greater than four times the increase in GDP. In fact, for some years in that period, more than $8 of debt were added for every dollar of GDP added.

We now seem to be starting a new run up in debt. In 2015, the amount of debt added was $2.5 trillion ($66.1 trillion minus $63.6 trillion), while the amount of GDP added was only $529 million. This indicates a ratio of over 4.7 for the single year of 2016. (Figure 2 shows only three-year averages, because of the volatility of amounts.)

[2] The vast majority of the debt run-up since 1981 (Figure 2) seems to have been enabled by falling interest rates (Figure 3). Given how dependent we are now on large increases in debt to produce GDP, it would seem to be dangerous for the Federal Reserve to raise interest rates. 

Figure 3. US Federal Bonds 10 year interest rates. Graph produced by FRED (Federal Reserve Economic Data).

With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.

Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.

The interest rates that the Federal Reserve plans to change are of a different type, called “Effective Federal Funds Rate.” These also hit a peak about 1981.

Figure 4. US Federal Funds target interest rate. Graph produced by FRED (Federal Reserve Economic Data).

[3] The last time Federal Funds target interest rate was raised, the situation ended very badly.

Figure 4 (above) shows that the last time Federal Reserve target interest rate was raised was in the 2004-2005 period. This was another time when the Federal Reserve was concerned about the run-up in food and energy prices, as I mention in my paper Oil Supply Limits and the Continuing Financial Crisis. The higher target interest rate was somewhat slow acting, but it eventually played a role in bursting the debt bubble that had been built up. In 2008, the amount of outstanding mortgage debt and consumer credit started falling, and oil prices fell dramatically.

It is ironic that the US government is again trying to bring down food and energy prices, when they are at a price level similar to the price level when they tried this approach the last time.

Figure 5. Monthly average Brent oil prices, with notes regarding when the Federal Reserve changed its target interest rate.

The Federal Reserve looks at its favorite metrics, PCE inflation and PCE inflation excluding food and energy. From this high-level view, it is likely that they have no real understanding of exactly what energy price problems are causing the strange result. With this high-level view, they do not realize that a big contributor to the rising costs is the increase in oil prices between the January – March 2016 period, when they were under $40 per barrel, and recent prices, which were above $50. (They are now back below $50 per barrel, but this would not be apparent from the metric.)

When this high-level view is used, it is easy to miss how low energy prices are today, relative to the needs of energy producers. Most people who have been following what is happening in the oil industry know that prices are not high, relative to the prices needed for profitability. Even if some US companies claim to be profitable at $50 per barrel, it is clear that, in general, the industry cannot withstand prices as low as they are today. At the current price level, investment is too low.

Part of the problem is that oil exporters need higher prices if they are to obtain adequate tax revenue to fund their programs. For example, Saudi Arabia has found that because of its falling tax revenue, it needs to borrow money to maintain its programs. This is a big change from being able to set aside money in a reserve fund, out of excess tax revenue. This is another place where the shift is toward more debt.

[4] The pattern the Federal Reserve seems to want to follow is the 1981 model, in which temporary high interest rates seemed to force energy prices down for a long time.

If we look at oil prices compared to US wages per capita (dividing total wages by total population), we find that oil “affordability” was at a low point in 1981. We saw previously in Figures 3 and 4 that interest rates were raised to a very high level at that time. The gray stripes in Figures 3 and 4 indicate that a recession followed.

Figure 6. Average barrels of crude oil affordable by US residents, calculated by dividing the average per capita wages (calculated by dividing BEA wages by population), by EIA’s average Brent oil price for each year.

Figure 6 shows that after interest rates fell, affordability rose until 1998. To a significant extent this was the result of falling prices, but it also was the result of a larger share of the population working, and thus contributing to rising wages.

There were many things that allowed this benevolent outcome to happen. One was the fact that we already knew about available oil in the North Sea, Mexico, and Alaska. When this oil came online, oil prices were able to drop back to a much more affordable level. It is very doubtful that shale oil could play a similar role today, especially if it is likely that higher interest rates will drop oil prices from today’s $50 per barrel level.

One thing that helped improve affordability in the post-1981 period was improved gasoline mileage. There were also cutbacks in oil use for home heating and for electricity generation.

Figure 7. Average on-road fuel efficiency by Sivak and Schoettle, “On-Road Fuel Economy of Vehicles in the United States: 1923-2015,” http://www.umich.edu/~umtriswt/

Figure 7 suggests that the earliest changes in fuel economy provided the biggest savings. In fact, overall savings after 1993 are quite modest.

One factor that helped reduce oil consumption both in the 1970s and in the 2008 to 2013 period was high prices. Now that oil prices are lower, we cannot expect as good a result. If oil prices drop back further, there is even less incentive to conserve.

[5] Adjustments made using Quantitative Easing (QE) (a way of producing low interest rates) appear to have had a rapid, significant impact on oil prices.  

In late 2008, after oil prices had crashed, the US Federal Reserve implemented QE. Using QE created very low interest rates, which seem to have had an impact on world oil prices.

Figure 8. Monthly Brent oil prices with dates of US beginning and ending QE.

Clearly, lower interest rates encourage more borrowing, and discontinuing a program that gives very low rates would tend to have the opposite impact. Thus, we would expect the direction of the oil price changes to be similar to those shown on Figure 8.

One hypothesis regarding the rapid impact of QE was that it encouraged borrowing in US dollars, in order to purchase bonds in other currencies with higher interest rates (“carry trade”). When QE ended, the carry trade was cut off, reducing investment in countries with higher interest rates. Instead, there was more interest in investing in the US. These changes led to the US dollar rising relative to many other currencies. Since oil is priced in US dollars, these shifting relativities made oil more expensive in non-US dollar currencies.  Thus, the affordability of oil declined for buyers outside the US. It was this decline in affordability outside the US that brought down oil prices. Figure 9 shows the shift in currency levels when the US discontinued QE in 2014.

Figure 9. US Dollar vs. Major Trade Weighted Currencies. Chart created by FRED (Federal Reserve Economic Data).

Increasing Federal Reserve target interest rates would seem to have the effect of further raising how high the US dollar floats compared to other currencies. If this happens, we would expect lower oil prices, and more problems with excessive supply.

[6] The way increased lending seems to move the economy along is by using time shifting to provide a “layer” of future goods and services that can be used as incentives for businesses to invest in making goods and services now.

The problem when making goods of any kind is that resources need to be purchased and workers need to be paid, before the finished product is available for sale.

Figure 10. Image created by author showing how goods and services are created. It also needs a “government services sector,” but it didn’t fit easily on the slide.

As a result, at the time goods and services are produced, there aren’t enough already-created goods and services to pay all of those who have contributed to the effort of making the goods and services. To work around this problem, debt or a product similar to debt is needed to pay some of those contributing to the process of creating future goods and services.

One way of thinking about the situation is that an increase in debt during a time period adds a layer of future goods and services that can be distributed to those contributing to the effort of making the goods and services (Figure 11). This significantly increases the amount of goods and services to be distributed above the level that would be available on a barter basis, based on goods that have already been produced.

Figure 11. Figure by author showing how the “increase in debt” effectively adds another layer of goods and services that can be distributed. (As with Figure 10, this chart should include a category for government services as well.)

[7] The spending ability of US citizens has been lagging behind, even with the huge amount of debt being added to the economy. If the Federal Reserve raises interest rates, it will tend to make the situation worse.

The biggest expenditure for most households is housing costs, either for an apartment or a new home. As with oil, we can compare affordability by comparing prices to per capita wages (total US wages/total population). On Figure 12, one amount shown is the median rent for unfurnished apartments in the US, based on US Census Bureau data; the other is The People History’s estimate of “new home” prices over the years. In general, affordability has been falling. Figure 12 shows that the fall in affordability of apartment rent is a relatively recent phenomenon. The fall in affordability of home prices is a long-term phenomenon, no doubt enabled by falling interest rates since 1981.

Figure 12. Comparison of new home prices from The People History and median non-subsidized rental asking prices based on US Census bureau data. These are divided by (total US wages/ US population) from the US BEA. The indexes are different for home and apartments, chosen so that two would show separately on the chart. If amounts shown are falling over time, housing is becoming less affordable.

Another product whose affordability is of interest is electricity. Electricity is an energy product whose affordability is important, because it is used in residential, commercial, and industrial locations. The affordability of electricity tends to be less volatile in pricing than oil, whose affordability was shown in Figure 6. Because the pricing of electricity is more stable, I have shown the affordability of electricity at three different spending levels:

  • Per Capita Wages – Total US wages divided by total US population.
  • Per Capita DPI – Total Disposable Personal Income (DPI) divided by total US population. Disposable Personal Income includes government transfer payments (such as Social Security and unemployment payments), in addition to wages. It also includes “proprietors’ income,”which is a relatively smaller amount.
  • Per capita DPI+Debt – Total Disposable Personal Income, plus the increase in Household Debt during the year, divided by population.

Figure 13. Quantity of electricity that an average worker could afford to buy, using three different definitions of income. (Average wages are based on BEA total salaries and wages, divided by BEA total population, and Disposable Personal Income is defined similarly, using BEA data. DPI plus debt includes the change in Household Debt, from the Federal Reserve’s Z1 report, in addition to DPI in the numerator.)

Based on Figure 13, electricity was becoming more affordable until 2001 on a wages-only basis. Since then, its cost has been relatively flat.

On a DPI basis, electricity was considerably more affordable until 2004, after which it declined, and then rose again.

On a DPI + Debt basis, there was a much bigger jump in affordability. This big increase in debt corresponds to the housing bubble of the early to mid 2000s. Interest rates were lower and underwriting standards lessened, so that almost anyone could buy a home. This allowed a run-up in home prices. Homeowners could borrow this equity and use it for whatever purpose they chose–for example, fixing up their home, buying a new car, or going on a vacation. The big increase in DPI+Debt, relative to DPI, gives an indication of the extent to which the housing-related debt bubble in the early 2000s affected spendable income.

Which of these scenarios is really correct? It depends on the segment of the economy a person is looking at. For people of modest income, in other words, those who rent apartments, the wage-only scenario is probably the most representative. For people who have high incomes and own a home, the DPI plus Debt scenario is probably more representative.

[8] All income seems to ultimately derive in part from rising debt, and in part from energy consumption. If interest rates are too high, the required interest payment exceeds the benefit of time shifting.

We can see from Figure 13 that debt is very helpful in producing income for workers. Some of this comes from the government transfer payments, funded by debt. Some of this comes from the wages paid by businesses, funded in part by shares of stock, which are debt-like in nature. The currency with which workers are paid is, in fact, debt. A person can see the connection, by thinking of currency as being similar to “gift cards,” issued by a business. The business would need to record the value of these gift cards as a liability on its balance sheet.

The underlying problem giving rise to the need for debt is “complexity,” and the need to obtain the services of many trained people and of many types of tools, before goods and services can actually be created. All of this builds extra expense and delays into the system, in the manner described in Figures 10 and 11. Somehow, there must be interest payments to compensate for the time shifting that is necessary: the whole string of events that must lead up to producing the products that are needed. Tools must be made far in advance of when they are needed. In fact, there is a whole string of “tools to make tools” that takes place. Factory buildings need to be built, and roads need to be built. Workers must be trained. In order for the people and businesses involved in these processes to be compensated for their effort, and induced to delay their own consumption of goods and services, there need to be interest payments made for the time-delay involved.

Debt (together with shares of stock, which are debt-like) cannot operate the economy alone. Energy products are also needed to provide the physical transformations required. These include heat and transportation, and electricity to operate devices that use electricity. Of course, human workers are needed as well. The major pieces of the system, and the way they operate together, are shown in Figures 10 and 11.

It would appear that an economy can start “from scratch,” using only debt, plus available resources (including energy resources, such as biomass for burning), and some sort of government (perhaps a self-declared king). If the king sees a productive project that might be undertaken–perhaps building a bridge, or cutting down more trees for farmland–the king can impose a tax on the citizens, and use the tax to hire a group of laborers to use the available resources. Once the tax is imposed, it is a debt of the citizens. It can be used to pay the laborers who do the work.

The debt-based system seems to build upon itself. As more wages are available, these wages allow workers to take out loans, and allow businesses to create new goods and services that can be purchased using these loans. These loans are promises that can be exchanged for future goods and services. Since energy is used in creating all goods and services, these loans are more or less guarantees that the economy, and its use of energy products, will continue in the future.

The thing that connects debt to the rest of the system is the interest payments required for time shifting. When the system is relatively efficient, the return on investment is high, so interest payments can be high. As diminishing returns set in, interest rates need to be lower. We are now encountering diminishing returns in many areas: extracting fossil fuels, extracting minerals, producing enough fresh water for a rising population, creating an adequate supply of food from a fixed amount of arable land, creating new antibiotics as bacteria become drug resistant, and the cost of finding new drugs to treat diseases that affect an ever-smaller share of the population.

[9] It is relatively easy to make economic growth occur when energy products are becoming more affordable, relative to spendable income. When energy products are becoming less affordable, it becomes virtually impossible for economic growth to occur.

We know that historically, the cost of energy products has tended to fall over time. This has been described in more than one academic paper.

Figure 14. Figure by Carey King from “Comparing World Economic and Net Energy Metrics Part 3: Macroeconomic Historical and Future Perspectives,” published in Energies in Nov. 2015.

A United Nation’s report also shows the same pattern (the bottom two categories are energy related):

The only way that energy costs can fall relative to GDP, at the same time that energy use is rising, is if energy products are becoming less expensive over time, compared to the incomes of the citizens. This falling price level allows more energy products to be purchased. As energy prices drop, it is possible for the economy to afford the increasing quantity of energy products required to produce even more goods and services.

There are many ways that energy products can become less expensive. For example, the mix can shift among different energy products, shifting to the less expensive products. Or new techniques can be found that make extraction less expensive. Finding more efficient ways to make use of energy products, such as the increasing miles per gallon shown in Figure 7, also contributes to the falling relative cost to workers. Of course, “falling EROEI” tends to work in the opposite direction.

Unfortunately, we are now running out of ways to truly make energy use cheaper over time. The ways we seem to be down to now are (a) paying energy companies less than their cost of extraction, and (b) reducing interest rates to practically zero.

We can see from Figure 6 that oil was becoming more affordable relative to wages between 1981 and 1998. Falling interest rates and rising debt seemed to play a role in this, as well as success in drilling for oil in places such as the North Sea, Mexico and Alaska. Since then, the only way that oil affordability could rise was by oil prices falling below the cost of extraction, starting in mid 2014.

The situation for electricity is shown in Figure 13. Electricity was becoming more affordable on a “wages-only” basis, until 2000. Since then it has plateaued. The economic push that would have come from falling electricity prices must come from elsewhere–presumably from adding more debt.

Affordability of electricity on a “DPI plus debt” basis rose considerably more, with a peak in 2004. Thus, adding more debt, in the form of transfer payments and rising debt for homes and vehicles, added considerable spendable income. But it has not been possible to regain the affordability of the 2004 period in recent years.

We are now reaching limits because we no longer are truly seeing a reduction in energy costs. Instead, we are seeing very low interest rates and oil prices lower than the cost of production. These seem to be signs that we now are reaching limits. Energy prices really need to drop for the economy to grow; the economy will make them drop, whether or not producers can profitably extract oil at the low cost that is affordable by the citizens.

[10] China seems to be cutting back on growth in debt now, at the same time the US is talking about increasing interest rates. Energy products, especially oil, are sold to a world market. If China cuts back on debt at the same time as the US raises interest rates, energy prices could drop dramatically. 

Figure 16. UBS Total Credit Impulse. The Credit Impulse is the “Change in the Change” in debt formation.

UBS calculates a global “credit impulse,” showing the extent to which there is a trend toward increasing use of debt. According to their calculations, since 2014, it is China that has been keeping the Global Credit Impulse up. If China is cutting back, and the US is cutting back as well, the situation starts looking like the 2008-2009 period, except starting from greater problems with diminishing returns.

Observations and Conclusions

The economy looks to me like a type of Ponzi Scheme. It depends on both rising energy consumption and rising debt. Judging from the problems we are having now, it seems to be reaching its limit in the near term. Raising interest rates will tend to push it even further toward its limit, or over the limit.

Debt is used to pay participants in the economy using a promise for future goods and services. This allows the economy to appear to distribute more goods and services than are actually available. In a way, adding debt is like being able to manufacture future energy supplies that can be used to pay those who participate in making the goods and services we produce today. When energy products are high-cost to produce, and delayed in timing (such as wind and solar PV), the need for debt especially rises.

Part of our problem today is the extent of specialization of those analyzing our current problems with energy and the economy. This means that virtually no one understands the full problem. Bankers seem to think that debt, and interest rates on debt, can solve all problems. Energy analysts think that energy resources in the ground are all-important. They both create incorrect analyses of the overall problem. Rising debt is needed, if energy products that have been created are to be absorbed by the world economy. The energy gluts we are seeing are signs of inadequate wage growth. A major function of growing debt is to add wages. Unwinding debt leads to the kinds of problems that we encountered in 2008.

It is tempting for world financial leaders to think that they can find a solution to today’s problems by using higher target interest rates to slightly scale back economic growth. I don’t think that this is really a good option. The world economy is operating at too close to “stall speed.” The financial system is too fragile. If any solution can be expected to work, it would seem to need to be in the direction of re-starting QE. Even if it produces asset bubbles, it may keep the world economy operating for a bit longer.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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2,229 Responses to Raising Interest Rates Can’t End Well!

  1. Fast Eddy says:

    When Buffalo, New York couple Akram Shibly and Kelly McCormick returned to the U.S. from a trip to Toronto on Jan. 1, 2017, U.S. Customs & Border Protection officers held them for two hours, took their cellphones and demanded their passwords.

    “It just felt like a gross violation of our rights,” said Shibly, a 23-year-old filmmaker born and raised in New York. But he and McCormick complied, and their phones were searched.

    Three days later, they returned from another trip to Canada and were stopped again by CBP.

    “One of the officers calls out to me and says, ‘Hey, give me your phone,'” recalled Shibly. “And I said, ‘No, because I already went through this.'”

    The officer asked a second time..

    Within seconds, he was surrounded: one man held his legs, another squeezed his throat from behind. A third reached into his pocket, pulling out his phone. McCormick watched her boyfriend’s face turn red as the officer’s chokehold tightened.

    Then they asked McCormick for her phone.

    “I was not about to get tackled,” she said. She handed it over.

    Shibly and McCormick’s experience is not unique. In 25 cases examined by NBC News, American citizens said that CBP officers at airports and border crossings demanded that they hand over their phones and their passwords, or unlock them.

    http://www.nbcnews.com/news/us-news/traveling-while-brown-u-s-border-agents-can-search-your-n732746

    This reinforces my policy of absolutely NEVER stepping foot into America under any circumstances – EVER.

    Did I tell you the one about a buddy who went to San Fran for a tech conference a few years ago — he arrived on a very early flight and the immigration queue was empty — so he just walked under the cattle herder rather than wind through it — and the Gestaop yelled at him ‘WHAT ARE YOU DOING! YOU CANNOT DO THAT!!!’

    ‘I was just…’ NO – YOU CANNOT DO THAT!!!

    F789 You America. I cannot think of a more disgusting country…. how can Trump drain the swamp — the entire country is a swamp …

    No — that’s insulting the swamp — it’s a open sewer

    • Bergen Johnson says:

      That picture is in Africa, stupid, not the US.

      • Fast Eddy says:

        Really? No way? Thanks for telling me. I hate to insult the people of Africa like that.

        Apologies to the wonderful people of Africa for depicting the American sewer with a photo of your continent.

        Let’s type filthy washroom in America into Google… I cannot guarantee this is an American washroom…. but it is a metaphor (you know what that is right?) for what I think of America.

        • Fast Eddy says:

          Hmm… let’s try this one

          • Fast Eddy says:

            YEEEEEeeeeesss…. apparently it all got blocked up when I tried to flush an American flag down the hole… sorry about that…. naaaaht

            • i1 says:

              Looks like an apartment I had to rehab when the artist/gamer couple hauled ass to portlandia. On the bright side, an exotic dancer moved in when I was done.

    • Artleads says:

      They might want my cell phone. But since I drove over it and cracked the screen and no menu is available, and since I never had a password, and since it’s 10 years old and the kind you flip open…well good luck to them with that.

      • Fast Eddy says:

        Elizabeth Warren: ‘Your Muslim ban is now 0-2 vs the Constitution’
        http://www.businessinsider.com/elizabeth-warren-your-muslim-ban-is-now-0-2-vs-the-constitution-2017-3

        When Liz is finished bitching about the flea in her crotch …. maybe she could scream about this massive constitutional violation:

        Federal judge says NSA program appears to violate Constitution. A federal judge ruled Monday that the National Security Agency’s gathering of data on all telephone calls made in the United States appears to violate the Constitution’s protection against unreasonable searches.Dec 16, 2013

        Come on Righteous Lizzy — surely that’s got to make your blood boil????

        America = Diseased Sewer. Avoid at all costs.

        • Kenny Starfighter says:

          Fast Eddie, are you drunk???

          Oh no, have you started the End Of The World Party without me?

          That is just my life in a nutshell! It is the end of the world as we know it, and I miss it. Damn.

    • xabier says:

      It’s usual to call that sort of thing ‘fascist’: in fact, the US may very well turn into a version of the old Soviet totalitarian state.

      It is not what states choose to call themselves, but how they act which matters.

      Consider:

      Imprisonment without fair trial on trumped up charges.

      Torture in distant locations.

      No freedom of association or protest.

      No privacy of communication.

      Crappified goods, growing pollution, little real choice.

      Privileged and untouchable officials.

      Constant propaganda as to the perfection of ‘our’ system.

      Exhortations to be on guard against an external enemy bent on ‘destroying our freedoms.’

      News media which are almost solely a medium for lies.

      • And the upper class and upper middle class have no trouble with that if these measures keep them safe and secure.

        Even during the Soviet rule, except in the height of Stalin’s purges, higher-ranking people had little to fear.

      • Froggman says:

        From the Moscow Times (English Edition), November 10, 2001, by Chris Floyd:

        “Fascism in America won’t come with jackboots, book burnings, mass rallies, and fevered harangues; nor will it come with black helicopters or tanks on the street. It won’t come like a storm, but as a break in the weather, that sudden change of season you might feel when the wind shifts on an October evening: Everything is the same, but everything has changed. Something has gone, departed from the world, and a new reality will have taken its place. All the old forms will still be there: legislatures, elections, campaigns, plenty of bread and circuses. But “consent of the governed” will no longer apply; actual control of the state will have passed to a small and privileged group who rule for the benefit of their wealthy peers and corporate patrons.

        To be sure, there will be factional conflicts among the elite, and a degree of debate will be permitted; but no one outside the privileged circle will be allowed to influence state policy. Dissidents will be marginalized: usually by “the people” themselves. Deprived of historical knowledge by a thoroughly impoverished educational system designed to produce complacent consumers, left ignorant of current events by a corporate media devoted solely to profit, many will internalize the force-fed values of the ruling elite, and act accordingly. There will be little need for overt methods of control.

        The rulers will act in secret, for reasons of “national security,” and the people will not be permitted to know what goes on in their name. Actions once unthinkable will be accepted as routine: government by executive fiat, state murder of “enemies” selected by the leader, undeclared wars, torture, mass detentions without charge, the looting of the national treasury, the creation of huge new “security structures” targeted at the populace. In time, this will be seen as “normal,” as the chill of autumn feels normal when summer is gone. It will all seem normal. “

        • Fast Eddy says:

          The Police State… hath arrived.

          NSA! NSA! NSA!

          Funny how the snowflakes are ready to protest for the rights of house flies — but they don’t mind that Big Brother is watching and recording their every move…

        • timl2k11 says:

          For those who stubbornly seek freedom, there can be no more urgent task than to come to understand the mechanisms and practices of indoctrination. These are easy to perceive in the totalitarian societies, much less so in the system of “brainwashing under freedom” to which we are subjected and which all too often we serve as willing or unwitting instruments. – Noam Chomsky, 1987

          Nothing new really. Western societies have been brainwashed for quite some time. We’ve been taught to see ourselves as “consumers” among other things. We may have “Freedom of speech”, but say something controversial publicly and you get the boot. Power and control never went away with democracy, it just went “underground”.

      • Fast Eddy says:

        Those sound like good chapter names for a book.

        Shall we call it 2017? 1984 has a nice ring … but it’s already taken

    • Joel says:

      Waterfront homes are at premium in most area’s, location, location.
      Your account of the officer’s behavior is indeed unfortunate, sounds like your in the right place to avoid them. The swat team behavior is also appalling as well…

    • JMS says:

      FE, your furious diatribe deserves a (equally furious) musical accompaniment!

    • zenny says:

      I find it odd that people do not know this my company gives us burner phones and forbids us to travel with personal phones or a pc…Not a big deal because they are paying but some people complain.

  2. Fast Eddy says:

    Tesla Announces $250MM Common Stock, $750MM Convertible Offering, Musk Buying $25MM; Stock Surges

    In what will hardly come as a surprise, Tesla – which burned half a billion dollars in the fourth quarter – just announced it is raising capital in the form of a $250 million common stock and $750 million convertible offering. In addition, Tesla has granted the underwriters a 30-day option to purchase up to an additional 15% of each offering. Elon Musk will participate by purchasing $25 million of common stock. According to the press release, the aggregate gross proceeds of the offerings, including the options granted to the underwriters, is expected to be approximately $1.15 billion.

    http://www.zerohedge.com/news/2017-03-15/tesla-announces-250mm-common-stock-750mm-convertible-offering-musk-buying-25mm-stock

    I’ve got it all wrong …. I need to start a business that LOSES billions of dollars each year … a business based on hype and fraud and lies — a business with no possible path to profitability — a business that a government will back with subsidies (but that still loses money)

    And then – and ONLY then…. can I realize THIS:

    I know — Space Solar — Keith can you give me a ring…. +641212121212… ext 6578 make sure you mention the private jet …. otherwise my various gate keepers will not put you through (I am EXTREMELY busy and they are told not to interrupt me unless it is VERY important)

  3. MG says:

    The meaningless debt

    When I was visiting one of my friends during the last year, there was a cute, girl coming to him in the afternoons (wearing a delicate cross on the subtle chain, simply dressed. You would say what a nice, good young woman! I knew they were spending a lot of time together…

    Recently, I have heard the background story from him: this nice, cute Christina girl was a wife of somebody else. She lived with her mother, married and she and her husband built a house on the neighbouring plot to the house of her mother.

    Here comes the point: The house was built using a horrible mortgage, which requires monthly payments that consume her whole monthly wages, while her husband earns only twice the amount as she earns. There was no problem for this woman to commit infidelity. She liked my friend more as her husband.

    The answer is simple: The meaningless debt constitutes burden of additional stuff without the corresponding energy. She is forced to work and pay for the dead stuff and additional rising energy prices with terribly low wages for many years to come. What would you do? Would you like your stupid husband who accepted such idiotic idea or would you choose to spend time with a poor guy who has no such burden?

    The answer is simple…

    • MG says:

      Obviously, I have made a mistake, “Christina” should by correctly “Christian”.

    • Fast Eddy says:

      Does your friend pay her?

      • MG says:

        Are you crazy? He is poor. But knows the human species other species in the living world. He has no car. She was using her husbands car for going to him during the whole half of the year.

  4. Making nuclear war the coolest thing again?

    This has been linked in recent ZH article on some EU faction advocating its own nuclear deterrent, which in turn threatens to unravel standing non proliferation treaties, so resulting roughly ~60 state entities getting easily the bomb in few yrs time (think Gulfies, Japan, Poland, and other freaks, ..).

    Now for the link inside, basically, the new hot trend is to have precision guided bunker busting missile capability in order to substantially lower the kt yield per missile head even bellow 1.0kt ! So, all those doomerish MT strong bombs of cold war era will not be in the vogue anymore. Planners will redraw the strategies and tactics towards using the small kt yield nuclear weapons to cripple nodes of infrastructure instead in much easier and practical fashion ! So, if simplifying it a bit, in not so distant future we could be in a new reality of low yield kt nuclear weapons to be used as today depleted uranium, i.e. all the time when events don’t work as cunningly planned.

    https://fas.org/blogs/security/2016/01/b61-12_earth-penetration/

    ps so, in that light all the NZ bound “strategic relocation” makes sense after-all as big nukes won’t be used ..supposedly..

  5. Joel says:

    Small yield, when less is better, so you think more players will get into this game? No shortage of weapons on earth, creative minds at work. Sometimes you just have to step away from the news and enjoy nature.

  6. Rainydays says:

    Have you guys and gals seen this new Marvel movie “Logan”? Besides from being really good it gave me a lot of “doomer vibe” where the main character’s life/world in many ways have collapsed.

    It seems like hollywood is catching on to the doomsday-scenario, and this films popularity might be a sign of collapse awareness growing in the general public imo.

  7. Schinzy says:

    Figure 6 is quite interesting. According to our theory of cost share (http://link.springer.com/article/10.1007%2Fs41247-016-0016-6), a rising cost in a growing economy indicates lack of importance while a shrinking cost share in a growing economy indicates importance. Thus Figure 6 suggests that since the price collapse, oil has not contributed to economic growth, on the contrary it has been a drain on economic growth. One explanation would be that investors are financing oil wells that don’t pay out.

    • JT Roberts says:

      Just stop funding oil and watch what happens to the economy. Your suggesting it will grow? I suggest it will collapse. This a net energy trade from none oil energy resources. This is a coordinated last ditch desperate act to keep BAU in play. Everyone’s retirement just got spent in North Dakota and Texas and Alberta. If you didn’t take a trip somewhere last year that’s too bad at least you could have enjoyed some of it.

      • Schinzy says:

        Currently investment in oil is completely dysfunctional and many people will lose money. I would say 10-15% of oil extraction is not profitable. This represents maybe 20-25% of oil investment. LTO extraction can ramp up quickly but declines rapidly. Offshore extraction takes 5 to 10 years of investment to come online, but does not decline as rapidly. Given decline rates, if the financial industry was functional, investment in short term extraction, that is LTO, would have pulled back much sooner and been kept very low, with investments in long term projects maintained to be brought online once production declines in a higher price environment. LTO extraction should be kept available to mollify sudden supply shocks. The opposite is occurring. Investment in LTO is rising in a low price environment and investment offshore is slumping. This is setting us up for a supply shortage beginning in 2020. See https://www.forbes.com/sites/gurufocus/2017/03/07/iea-forecasts-oil-shortages-and-sharp-price-rise-by-2020/#35a9f9485a14
        .

        • I am not sure if “profitable” is necessarily the right measure. The issue is whether the price includes an adequate margin for necessary reinvestment, dividends, and taxes. On that basis, it would seem like a large share of the world’s oil production is not profitable.

          • timl2k11 says:

            Gail, question, if the costs of extraction are roughly the same as the price of oil on the market, is that any indicator of net energy or EROEI? Would it be incorrect to say that if it costs $40 dollars to get a barrel of oil out of the ground and the economy can’t afford a price of say, more than $50 a barrel, that the EROEI is close to 1:1 and net energy close to 0? Similarly, if shale plays are losing money could that be an indicator that the net energy is negative? The shale boom has led to an over 50% increase in US oil production in just 5 years, one would think that such a rapid increase in energy production would fuel a robust economic boom, as it did in the 50’s and 60’s, but instead our economy is stagnant. So I question if the EROEI of shale is even above unity.

            • You have to be very careful when talking about EROEI, because it doesn’t actually mean what you probably think that it means. It is traditionally calculated “at the wellhead” (not “as delivered’) and adds together dissimilar stuff–coal products used years ago to make metal parts and oil used to day, for example. Natural gas which would normally be burned as “waste” is often included in the calculation. The amount that is calculated as “net energy” doesn’t really give you anything that approximates “net” in the sense that you and I would mean net, when the word net is used elsewhere. You have an idea of what you mean by “EROEI of shale is even above unity,” but this likely to be quite different from what the actual calculation would give you.

              In general, the amount of taxes governments are able to collect on an energy product give an idea regarding how much energy they are able to add to the government sector–one of the areas needing the biggest support. So it does give an indication that there is a problem. An energy product that needs a subsidy has huge problem. It isn’t supporting the economy at all.

            • Fast Eddy says:

              Applying my model for bringing down the costs of energy production to oil…

              If you are correct (and you may be) — then the solution here is to allow all the oil producers to go into Chapter 11 — write off all their debt (CBs can dump that into some sort of black hole and make it disappear… or maybe just saddle the Greeks with it… that camel’s back can handle a few hundred billion more…. )

              Then they can start afresh — zero budgets for R&D — zero budgets for exploration — zero budget for drilling any new wells — just turn on the pumps on the existing wells…. and just pump away….

          • Schinzy says:

            I agree. The market price for oil used to exceed the extraction cost by such a large margin that oil companies could pay good wages and share their profits not only with investors but mineral rights owners and governments in the form of taxes. I should have qualified my gesstimate on profitability as a WAG. What is indisputable is that the financial conditions of oil companies is deteriorating and with it their ability to quickly ramp up production even in the event of higher prices.

    • Thanks very much for giving a link to your new article. You gave us a link to your working paper earlier. By the way, my favorite quote is,

      During the growth phase of oil extraction, low prices increased demand, and high prices increase supply; during the contraction phase, low prices will diminish supply, and high prices will diminish demand.

      Regarding the price collapse, and the experience since then, the problem is that all energy prices have been in collapse, not just oil. Even uranium has been in collapse. Food prices have tended to follow the same path.

      To me, the shrinking cost share indicates that we have a coming crisis on our hands. The economy is headed in the direction of collapse from low prices. Cost shares for education and healthcare are rising, at a time that the population cannot possibly afford such high costs. Adding intermittent renewable energy has tended to push total energy costs up, with only a tiny increment to supply. All of these stresses on the economy are more than it can handle.

      Also, China’s coal consumption has been falling, in response to low coal prices. This is putting downward pressure on total energy consumption. Coal is reaching diminishing returns as well. Since the early 2000s, its growth was propping up the world economy.

      • Fast Eddy says:

        Stagflation … the worst of all worlds…

        http://www.zerohedge.com/news/2017-03-15/paul-brodsky-stagflation-horizon

        How to solve stagflation?

        It is not easy. For example, the Central Bank could use Monetary policy to try and reduce inflation. Higher Interest rates increase the cost of borrowing and this will reduce AD. This will be effective for reducing inflation, but, it will cause a bigger fall in GDP. Therefore, the Central Bank may be reluctant to target inflation when growth is already low.

        In 2008/09, The Bank of England tolerated cost-push inflation of 5% because they were concerned about UK economic growth.

        If the MPC cut interest rates to try and increase GDP, they could make inflation worse. Therefore demand side policies cannot solve stagflation they can only solve one particular aspect.

        More http://www.economicshelp.org/blog/429/inflation/solution-to-stagflation/

        • ejhr2015 says:

          Not a particularly good article FE. Inflation comes from excess spending power but stagflation requires raising the spending power, so that punters have more pocket money. This will get spent into the economy and raised interest rates are then affordable. Unlike now.

      • richarda says:

        I’m working from memory, which is never a good idea, but you work with what you have. I seem to recall that in the early 1960’s people budgeted 16% of their income on food. I *think* today that is closer to 6%, but obviously the wealthier you are, the smaller the percentage. That ten percent of income enables the present lifestyle choices, if you are lucky enough to have the means. Hence, once margins get squeezed, there is no room for manoevure.

        • Right. Also, there used to be quite a few more 2, 3, and 4 income families than there are today. When there are multiple incomes, then the rest can get along on the income of the others. Now, young people find it harder to find a job that pays enough for them to get to and from work and buy uniforms. One of the partners has often dropped out of the labor force. This is a chart I made, that I didn’t have room for in any post to date.

          Share of US households with varying number of earners

        • DJ says:

          Americans are rich. According to first source swedes spent 52% 60 years ago, 19% today. Sounds reasonable.

          I think it went a LOT of effort into keeping costs down to 52% compared to mostly mindless shopping today.

          I see this as about 20% of population is involved with putting food on the tables, even if just 0.2% is working on a farm. (1% of food production is farm work, rest is complexity)

        • Food is one of the energy products that we have been getting more and more efficient at producing. As you point out, the spending in the USA on food has been dropping. In fact, this has been happening everywhere. The USA can produce all of this food with only 2% of the population being farmers. The others workers can produce other goods and services.

          The catch, of course, is that big machinery operated by oil products has been substituted for the human labor. If the cost of the fuel and making machines (and perhaps interest costs for financing) goes up, the price of food goes up, and poor people are especially squeezed. They cut back on discretionary products (such as going out to eat in restaurants), and a recession starts.

    • timl2k11 says:

      “Thus Figure 6 suggests that since the price collapse, oil has not contributed to economic growth, on the contrary it has been a drain on economic growth.”
      Wow! If your analysis is correct it shows what I’ve suspected all along, that the recent gains in the rate of oil production are somewhat, or even mostly, illusory. I suspect that wind and solar are a drain as well and represent maleinvestments. Germany had their Energiewende, and now they have expensive electricity and increased carbon emissions! So the shale oil boom, all it’s doing really is hiding what should be in plain sight, as you ended your paper with “…the contraction period in oil extraction has begun and … policy makers should be making contingency plans” (13). I sure hope they are, but I don’t see any signs that any of the “higher-ups” have any clue.

      • Fast Eddy says:

        ‘should be making contingency plans’

        But they are…. they are…. https://www.forbes.com/sites/ralphbenko/2013/03/11/1-6-billion-rounds-of-ammo-for-homeland-security-its-time-for-a-national-conversation/#207723ba624b

        The police state is locked and loaded….

        • timl2k11 says:

          Sorry I still don’t buy into that sort of conspiracy theorist junk. It doesn’t get any truer if you post it more. What it was was a quote (one of many as part of a competitive bidding process), for an amount of bullets they could buy at a steep discount over several years, i.e. “We, a bullet manufacturer, are willing to sell this many bullets at such and such price over so many years”. So, unfortunately, still no evidence that anyone is planning.

          • timl2k11 says:

            Didn’t see the picture in my WordPress app. I would certainly concede that the police are oddly over-militarized for peacetime. However in Hillsborough (which is just south of the county pictured) I have not seen that sort of “militarization”. Just standard SWAT team stuff. TPD might be different. I don’t know. My point being it’s not a consistent militarization across agencies.

            • ejhr2015 says:

              I’ve spent time making a plea for a UBI [universal basic income] Here’s an idea. The government makes EVERYBODY a policeman! Then the UBI can be just a wage. It’s already getting close to being a police state, and we have the NRA wanting everyone to be armed. The 2nd amendment mentions a militia. so in the US the militia is 300 million strong, all armed and ready to fight. What could go wrong?

            • Tim Groves says:

              Just standard SWAT team stuff

              All we have in my part of the world are these well-trained guys

            • timl2k11 says:

              That cat looks suspect. Like he’s slowly walkIng away from the scene of a crime. Which reminds me, my neighbor’s cat brought me a bird the other day. He might come in handy post apocalypse. 🤓

          • Fast Eddy says:

            You did notice that the rounds are illegal hollow points. These are used by snipers in wars…

            Is that a conspiracy?

            Can you point me to a reference that details how buying a 100 years+ worth of bullets — and storing them in warehouses for that period — is more economical than just buy what you need on an annual basis.

            A hollow-point bullet is an expanding bullet that has a pit or hollowed out shape in its tip often intended to cause the bullet to expand upon entering a target in order to decrease penetration and disrupt more tissue as it travels through the target.

            Hollow points are designed to increase in diameter once within the target, thus maximizing tissue damage and blood loss or shock, and to remain inside the target, thereby transferring all of the kinetic energy to the target (whereas some fraction would remain in the bullet if it passed through instead). Both of these goals are meant to maximize stopping power.

            Jacketed hollow points (JHPs) or plated hollow points are covered in a coating of harder metal (usually a copper alloy or copper coated steel) to increase bullet strength and to prevent fouling the barrel with lead stripped from the bullet. The term hollow-cavity bullet is used to describe a hollow point where the hollow is unusually large, sometimes dominating the volume of the bullet, and causes extreme expansion or fragmentation on impact.[1]

            The United States is one of few major powers that did not agree to IV,3 of the Hague Convention of 1899, and thus is able to use this kind of ammunition in warfare, but US ratified the second (1907) Hague Convention IV-23, which says “To employ arms, projectiles, or material calculated to cause unnecessary suffering”, similar to IV-3 of the first Convention. For years the US military respected this Convention and refrained from the use of expanding ammunition, even made special FMJ .22LR ammunition for use in High Standard pistols that were issued to the OSS agents. The US Army has mentioned that it has been considering using the ammunition for sidearms, with a possible start date of 2018.[9]

            The state of New Jersey bans possession of hollow point bullets by civilians except for ammunition possessed at one’s own dwellings, premises, or other lands owned or possessed, or for, while and traveling to and from hunting with a hunting license if otherwise legal for the particular game. The law also requires all hollow point ammunition to be transported directly from the place of purchase to one’s home or premises, or hunting area, or by members of a rifle or pistol club directly to a place of target practice, or directly to an authorized target range from the place of purchase or one’s home or premises.[10]

            Oh I see… perhaps they are stockpiling these because they are useful and legal when hunting big game…. the Homeland boys are going to use these post BAU to shoot deer and moose to feed their familiies

            It all makes sense now!

  8. JT Roberts says:

    Just to back up some previous comments the Iraq war was a resource war. It was all about oil security not just profitably for E&P majors. What it means is the powers in play recognize the value of oil is greater than its face value. That is why the US was in essence willing to subsidize oil from Iraq with a Trillion dollar war. All wars are resource wars the US military is just an arm of corporate capitalism. By establishing 700 bases around the world they keep the world safe for exploitation. The big prize has been Russia but as usual ever since the central banks botched the Bolshevik Revolution corporate control has been elusive. Almost got it in 1991 but Putin caught on to the play. That’s why there is so much pressure now to vilify and demonize the Russian Federation just like the run up to Iraq. Ask a very simple question would the present tensions remain if Russia’s resources were dominated by western investors? Only one answer to that question.

    Here’s a good article on Iraq.

    https://www.google.com/amp/s/amp.theguardian.com/environment/earth-insight/2014/mar/20/iraq-war-oil-resources-energy-peak-scarcity-economy

    • Joel says:

      Smedley spoke of that some time ago:

      https://www.goodreads.com/author/quotes/115545.Smedley_D_Butler
      “Smedley D. Butler quotes (showing 1-23 of 23)
      “I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.”
      ― Smedley D. Butler, War is a Racket: The Antiwar Classic by America’s Most Decorated Soldier”

      The Russian Federation sort of slipped out the noose so to speak.

      • JT Roberts says:

        That’s why American industrialists backed the Nazis. They wanted to bring Russia back into the fold. Oops that didn’t work well. Hate it when my dog bites me.

        With that lens on let’s look at some other wars. I think I see a trend here!

        • Moreover, the US public helped even elect twice (thrice) presidents directly spawn from such circles, Grandpa Bush (father of the first POTUS) was investigated – sanctioned under the Trading with the enemy act during WWII.. Not mentioning the later career of his “intelligence” son dealing with “ex” nazis throughout the 1950-60-70s.. Links to 1963 and 2001 threshold events notwithstanding.

          This is the true nature of the human farm as sheeplez (bother to) know nothing about such basics.

          • unravel says:

            I am a sheep.
            There is grass in my paddock.
            There is an abattoir over the hill – its a ugly business.
            I am a happy sheep because i choose not to ponder such things.

      • JT Roberts says:

        Smedley knew a thing or two but as usual no one listens.

      • I am afraid that there is some truth to this.

      • “The Russian Federation sort of slipped out the noose so to speak.”

        While likely meant in positive sense, this is an understatement.
        It took very special and unique (extraordinary) conditions to put Russia back on the map. Large part of it is of cultural and historical nature. For example, during the lowest points of despair during early-mid 1990s, it wasn’t uncommon event for the staffers at top labs of the Russian space-mil industries not to be paid in cash, so provisions of food, heating for homes and schools for children were at least semi regularly patched together. And during such conditions some scientific projects basically went on, and endured as hobbies at glacial pace. Imagine that. Very few societies would not completely disintegrate into far less complexity of those years.

        It almost seems as divine intervention, firstly getting the right person/s for the gov spot in the late 1990s stopping the crash, then energy spike (revenues) wrestled out of foreign hands and also putting domestic oligarchs on tighter leash, step by step rebuilding the country.

  9. JT Roberts says:

    Because the value of oil is greater than its face value (which economists do not understand) not only is the US willing to fight Trillion Dollars wars. They are willing the exhaust the balance of the economy and ecology to keep it flowing. They know shale is a Ponzi that is propped up by money printing which it consuming all store of wealth (energy) but it doesn’t matter. So the point is we’re already far into the crisis much of it is behind us the average shmoe just doesn’t know it.

    • Fast Eddy says:

      +++++

      We are at the Whatever it Takes point…. all the rules get thrown in the garbage… if it buys us another year Just Do It…. the is desperation on steroids

      And meanwhile Zero Hedge and Stockman and Roberts and Wolfstreet and everyone else continues to scream STOP — this is madness!!!

      It’s not madness at all — it is what one would expect from a cornered beast — it is completely logical — if one understands the true nature of the problem.

    • Tim Groves says:

      the value of oil is greater than its face value

      ++++++++++

      The value of oil is potentially many times greater than its face value. And this in turn may make it very worthwhile for governments to subsidize its procurement, even to the extent of going to war over it.

      Many of us see examples of this in daily life. Say down on the farm I use 10 liters of gasoline with some simple machines and 2 man-days of labor to plant and harvest a ton of rice. Without the gasoline the same job would have taken roughly 22 man-days. So the value of each liter of gasoline was 4 man-days of labor. The cost of the gasoline was about 120 yen per liter while the minimum wage for laboring would be 8,000 yen per 10-hour day. So by using 1,200 yen worth of gas and the related machinery, I have saved 176,000 yen in labor costs.

      On the other hand, I could simply use the 10 liters of gasoline to drive around the countryside and enjoy the view. In which the gas is worth whatever I judge it to be worth.

      My 10 liters doesn’t add up to a hill of beans, but the world economy’s need for the juice is great enough to make it an invaluable resource for as long as we can afford to keep purchasing it.

      • The value is higher than its face value, when it sells for $20 per barrel. This becomes less and less the case, as the cost of extraction rises higher. The market price gives somewhat of an evaluation of what the worth of a barrel of oil (or unit of natural gas or coal) is worth, given what non-elite wages it generates, and other parameters of the system. The market evaluation is now coming in quite low for a variety of commodities.

  10. Joel says:

    ZH news link, profits at $40, is it too good to be true ?

    ” The U.S. shale cowboys are back on their horses and leading a strong recovery in the oil patch that is not expected to falter even as WTI prices dropped last week below $50 per barrel for the first time in more than two months. ……
    At the same time, reduced breakeven prices in many shale plays and forward locking-in of production is allowing the companies currently drilling in the U.S. to turn in profits even at a price of oil at $40 a barrel.”
    http://www.zerohedge.com/news/2017-03-16/has-opec-underestimated-us-shale-once-again

    • The US knows that the world cannot live without oil. It also has a huge number of unemployed oil workers. It needs to keep as many of these people employed as possible, if it is to have any chance of being continuing in the future. It used the OPEC promise to cut production as a reason to bump up capabilities, where production could easily be added, whether or not there was real certainty that prices would rise very high.

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