A Different View of Venezuela’s Energy Problems

It would be easy to write a story about Venezuela’s energy problems and, in it, focus on the corruption and mismanagement that have taken place. This would make it look like Venezuela’s problems were different from everyone else’s. Taking this approach, it would be easy to argue that the problems wouldn’t have happened, if better leaders had been elected and if those leaders had chosen better policies.

I think that there is far more behind Venezuela’s financial and energy problems than corruption and mismanagement.

As I see the story, Venezuela realized that it had huge oil resources relative to its population, back as early as the 1920s. While these oil resources are substantial, the country misestimated how high a standard of living that these resources could support. To try to work around the issue of setting development goals too high, the country chose the path of distributing the benefits of oil exports in an almost socialistic manner. This socialistic approach, plus increased debt, hid the problem of a standard of living that could not really be supported for many years. Recent problems in Venezuela show that these approaches cannot be permanent solutions. In fact, it seems likely that Venezuela will be one of the first oil-exporting nations to collapse.

How the Subsidy from High-Priced Exported Oil Works 

Oil is a strange resource. The cost of oil production tends to be quite low, especially for oil exporters. The selling price is based on a world oil price that changes from day to day, depending on what some would call “demand.” The difference between the selling price and the cost of extraction can make oil exporters rich. In a sense, this difference might be considered an “energy surplus” that is being distributed to the economies of oil exporters. The greater the energy surplus being distributed, the greater the quantity of goods and services (made with energy products) that can be purchased from outside the country with the hard currency that is made available through the sale of oil.

In fact, the existence of such a profitable resource tends to crowd out development of other, less profitable, enterprises. Thus, Venezuela has tended to be a country whose economy revolves around oil. There is a small amount of agriculture and quite a bit of services, but for the most part, the goods used by the economy must be purchased from outside the country. Furthermore, nearly all of the revenue that is available to purchase these goods comes from the sale of oil exports. Thus, the economy tends to follow the fortune of oil sales.

Figure 1 shows a rough estimate of the benefit that Venezuela’s oil exports have provided in inflation-adjusted US dollars. Based on this approach, the per capita benefit from oil exports seems to have peaked very early, in about 1981.

Figure 1. Venezuela per capita value of oil exports, calculated by multiplying Venezuela’s year-by-year quantity of oil exports by the price in 2017$ of oil, and dividing by estimated population. Both price and quantity determined using BP 2018 Statistical Review of World Energy. Population based on 2017 United Nations middle estimates.

The people of Venezuela did not realize that the amount of benefit that oil exports would provide would start falling very early. Instead, leaders set their sights on living standards that would be affordable if the level of subsidy that the economy could obtain from oil exports were to remain as high as during the 1973 to 1981 period.

Figure 2 shows how much energy the population, on average, consumed over the 1965 to 2017 period. This figure shows that energy consumption per capita rose dramatically between 1973 and 1981. In this way, citizens were able to benefit from the huge rise in per capita oil export revenue, shown in Figure 1.

Figure 2. Energy consumption per capita for Venezuela, based on BP 2018 Statistical Review of World Energy data.

This higher level of energy consumption meant that the economy readjusted in a way that added more goods and services using energy. For example, the economy added paved roads, airports, schools, electricity generating capacity and healthcare. People came to expect this higher standard of living going forward, even if the level of subsidy that oil exports had been adding was rapidly disappearing.

The way the amounts in Figure 1 “work” is that they depend both on the quantity of oil exported and the market price for that oil. If Venezuela’s oil exports are not rising quickly enough, or if the price of oil is not high enough, the level of oil subsidy fails to rise enough to support the economy. Also, rising population becomes an issue because as population rises, more homes, cars, electricity, streets, and other goods (requiring energy consumption) are needed. Because Venezuela must import practically everything other than oil, it must either (a) export an increasing quantity of oil per year, or (b) get an increasingly high price for the oil it exports, if it wishes to support its rising population at its chosen standard of living.

It became evident very early that Venezuela had set its sights on a living standard that was far higher than it could really support. In the period since 1965, Venezuela’s first debt crisis took place in 1982, as the subsidy suddenly started falling. Later debt crises occurred in 1990, 1995, 1996, 1997, 1998, 2004, and 2017. Clearly, as soon as the per capita subsidy started falling in 1982 (see Figure 1), Venezuela’s economy became very troubled. It could not really support its chosen standard of living.

How could Venezuela hide the problem of an unsupportable living standard for over 35 years?

I see three major ways the insupportable living standard could be hidden:

(a) Pushing the problem off into the future using added debt

Nearly everyone is willing to believe that oil prices will rise as high as is needed to extract oil resources that seem to be available with current technology. Would-be lenders are also willing to believe that oil resources can be extracted as rapidly as needed to support the economy. Given this combination of beliefs, Venezuela has had little difficulty adding more debt, even in periods not long after it has been forced to restructure previous debt.

Recently, the biggest lender to Venezuela has been China. With this arrangement, Venezuela has been able to obtain the economic benefit of part of its oil resources, before the oil has actually been extracted. Unfortunately, this arrangement makes Venezuela more quickly susceptible to the adverse impact of a downturn in oil prices. To make matters worse, the debt to China appears to include a provision that creates a lower repayment level (in oil) if prices rise, but creates a higher repayment level (in oil) if oil prices fall. This provision no doubt looked favorable to Venezuela, back in the time period when it was believed that oil prices could only rise.

As far as I know, Venezuela is the only oil exporting country that has used debt as extensively as it has. Some oil exporters, such as Saudi Arabia, have taken the opposite approach, setting aside reserve funds to use in the event that oil prices fall. Needless to say, Venezuela’s use of debt has tended to make its economy very vulnerable to restructuring or defaults if oil prices fall.

(b) Pursuing economic simplification 

A complex economy is one that is set up, as much as possible, to keep up with growing technology. A significant share of expenditures go both toward making new capital goods and maintaining existing capital goods. There are considerable differences in pay levels, to make certain that those who are providing technical expertise are adequately compensated for their efforts. Business leaders also are adequately compensated for their contributions.

A much simpler economy, which is what most of the Venezuelan leaders have been aiming for, is an economy in which everyone gets a basic level of housing, transportation, and healthcare, but virtually no one gets very much. There is also not much investment in new technology and new capital goods because nearly all of the hard currency being obtained by selling oil exports is being used to purchase imported goods and services to support the basic level of goods and services (such as roads, electricity, education, and food) being provided to the many citizens of the economy. Since the external value of oil exports sets an upper limit on the quantity of goods and services that Venezuela can import, this leaves virtually no capacity to purchase imported goods and services needed to support new capital investment and research.

In Venezuela’s economy, the cost of both oil and electricity have been kept very low–below the cost of production. This helps keep citizens happy, but it also cuts off funds for new investment in these areas. This, too, is part of the simple economy approach.

One disadvantage of a simple economy is that the low wages for engineers and other professionals encourage these professionals to move to other countries, where compensation is more adequate. Another disadvantage of a simple economy is that it encourages bribery, because graft is a way of adjusting the system so that those who “can make things happen” are adequately compensated for their efforts. The simple economy approach also tends to discourage research and investment in new areas, such as natural gas production and improved methods of heavy oil extraction.

A simple economy can be kept operating for a while, but it quickly reaches limits in many ways:

  • The limited skill level of residents who have not emigrated for higher wages elsewhere makes the completion of complex projects, such as new electricity generation facilities, difficult.
  • The inadequate level of oil export revenue puts a limit on the amount of spare parts and other goods needed to maintain the infrastructure, such as electricity transmission.
  • As existing oil wells deplete, little funding (in hard currency needed for imports) is available to make investments in new wells for extraction.
  • Research on new techniques for oil extraction is also inhibited.

(c) Neglect of current systems becomes an increasing issue, as the lack of hard currency revenue from oil exports becomes a bigger issue. 

Venezuela can, in theory, buy what it needs from abroad, but there is a limit to the total amount of goods and services that can be imported, based on the amount of hard currency funds it obtains from selling crude oil. If the price of oil falls, then Venezuela must, in some way, cut back on goods and services that it had previously supplied. One of the least obvious way of doing this is by cutting back on maintenance and repairs.

The recent long electricity outage in Venezuela seems to be at least partially related to neglect of usual maintenance activities. It seems that Venezuela’s state-owned electrical company failed to keep the brush cleared under electric transmission lines leading away from the very major Guri Dam. It now appears that one of the causes of Venezuela’s recent long electricity outage was damage to transmission lines caused by a brush fire within the Guri complex. This could perhaps have been prevented by better maintenance.

Figure 2 shows that energy consumption per capita has been falling, especially since 2011. This would suggest that standards of living have been falling. Needless to say, if Venezuela’s oil exports drop further, a further reduction in standard of living can be expected.

Why Is America Issuing Sanctions Against Venezuela’s Oil Company PDVSA?

On January 28, 2019, the United States imposed sanctions against Venezuela’s state oil company, PDVSA. The reasons given for these sanctions are the following:

  • To hold accountable those responsible for Venezuela’s tragic decline in oil supply
  • To restore democracy
  • To help prevent further diverting of Venezuela’s assets by Maduro, and thereby preserve those assets for the people of Venezuela

These reasons sound good, but I expect that the primary real reason for the sanctions was to try to take Venezuela’s oil production offline and, through this action, force oil prices higher.

World oil prices have been far too low for oil producers since at least 2014.

Figure 3. Historical inflation-adjusted oil prices, based on inflation adjusted Brent-equivalent oil prices shown in BP 2018 Statistical Review of World Energy.

Many people, thinking about the oil price situation from the consumers’ point of view, are completely unaware of the problem that low oil prices can cause for producers. Oil producers may not go out of business immediately because of low oil prices, but eventually the low prices will cause a cutback in investment, and thus production. Countries that have sold some of their oil production in advance, such as Venezuela, are especially vulnerable.

Figure 4. Venezuela’s energy production by type, based on data of BP 2018 Statistical Review of World Energy.

Figure 4 shows that oil production for Venezuela has been dropping for a very long time. Its highest year of production was 1970, the same early high year as for the United States’ oil extraction. Natural gas is mostly “associated” gas, which is made available through oil production. Hydroelectric is small in comparison to oil and gas. Hydroelectric production has been generally falling since 2008.

There is a widespread belief among oil executives and politicians that reducing oil production will force oil prices up. I expect to see, at most, a brief spike in oil prices. The major issue is that the world economy is a networked system. Prices for oil and for electricity cannot rise higher than consumers, in the aggregate, can afford. If there is too much wage disparity around the world, the low wages of many workers will tend to hold oil prices down, because these workers cannot afford goods such as smartphones and automobiles made with oil and other energy products. These lower oil prices reflect the fact that the economy has been changing in ways that leave less surplus energy to distribute to oil exporters to operate their economies.

The way the networked economy works is determined by the laws of physics, whether we like it or not. As far as I can see, the end of oil extraction comes because oil prices cannot be raised high enough to make extraction profitable. Once oil extraction becomes unprofitable, oil exporting nations will start collapsing. Venezuela is the “canary in the coal mine” in this collapse process, because of the extensive use it has made of debt.

What If Oil Prices Can Be Forced Upward? 

If somehow oil prices could be forced up by reducing Venezuela’s exports to practically zero, this would have a double benefit:

  1. More oil from around the world, including the United States, could be profitably extracted, because oil resources that are more expensive to produce would suddenly become profitable.
  2. Venezuela’s oil could be more profitably extracted.

If prices actually rise, and if the United States remains in control of the situation, the US could theoretically expand Venezuela’s oil production. Venezuela has the largest oil reserves of any country in the world. Its expected cost of production is relatively low, if the exports of oil are not expected to support essentially the whole economy. The cost of pulling the oil out of the ground in Venezuela seems to be about $28 per barrel, if we believe a 2016 estimate by Rystad Energy.

Figure 5. Cost of producing a barrel of oil and gas in 2016. WSJ figure based on Rystead Energy analysis.

The cost of supporting the entire economy with the revenue from oil exports is far higher. Figure 6 shows that back in 2013-2014, the cost of oil, including the subsidies needed to maintain the operation of the rest of the economy, amounted to about $110 per barrel. I would expect that with all of Venezuela’s debt, the real cost might be even higher than this.

Figure 6. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from Arab Petroleum Investments Corporation.

If the US doesn’t plan to support all of Venezuela’s population with the export revenues from oil extraction, it can theoretically extract the oil more economically than the $110 per barrel price that is needed to support the whole economy. Thus, it could get along with a price closer to $28 per barrel.

Furthermore, the investment capabilities and technical expertise of the United States could, at least in theory, ramp up Venezuela’s oil production, if this is desired at some future date. Similarly, “non-associated” natural gas production could be ramped up, if desired, because this seems to be available, but has been neglected.

I expect that all of this development would be more difficult and expensive than a simple comparison such as this seems to suggest. The ultimate problem is that a whole economy needs to be in place to make the extraction possible. Even if a cursory examination suggests that substantial savings are possible, the cost associated with maintaining necessary support services would make the total cost of energy extraction much higher.


Venezuela seems to be the canary in the coal mine with respect to where oil exporters are headed. Other countries will want to push them out of oil production, so as to try to raise prices for themselves. Debt defaults and lack of availability of debt may also become issues.

One item of interest is the fact that in Venezuela, lack of oil revenues can adversely affect electricity supply. Thus, we should not be surprised if electricity supply fails at about the same time that oil production falls. Even electricity supply provided by hydroelectric plants seems to be at risk.

Another item of interest is how Venezuela’s attempt at even distribution of goods and services, using a somewhat socialistic approach, is working out. This approach (which is now being advocated by some political candidates) seems to have some short-term benefits, because it tends to keep the population happy–almost everyone seems to have a minimum standard of living. But, over the long term, this approach leads to the loss of the ability to maintain today’s high-tech economy. This approach doesn’t prevent collapse either, because a lack of investment and expertise eventually causes important parts of the system to stop operating.



This entry was posted in Financial Implications and tagged , by Gail Tverberg. Bookmark the permalink.

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.

1,454 thoughts on “A Different View of Venezuela’s Energy Problems

  1. “The state-run Korea Development Institute on Sunday said Korea is slowly going into recession. The KDI said Sunday that the economy is “in a phase of gradual slowdown” as demand both overseas and at home shrinks. Until last October, the institute had said Korea’s economy was improving. According to market researcher CEO Score, investment at 855 subsidiaries of Korea’s top 60 businesses fell 3.1 percent last year to W98.5 trillion (US$1=W1,139).”


    • “An economist believes falling Malaysian trade figures are an indication of a looming… recession and says the federal government should begin making preparations to meet the challenge. Barjoyai Bardai of Universiti Tun Abdul Razak said the dip in Malaysian export and import figures for February were in line with a contraction in global trade…Malaysia’s export-oriented industries would be affected by the slowdown in global demand because of the country’s position in the global manufacturing supply chain and as a commodity exporter.”


  2. “China’s central auditing authority has sounded the alarm on a surge of dangerous debt at small banks across the nation, elevating the query of whether or not Beijing will proceed to bail out struggling lenders or finally enable some to go bankrupt… Many massive banks have introduced NPLs beneath management, however metropolis industrial banks and rural monetary establishments, which make up greater than 26 per cent of China’s whole banking property, have continued to file greater charges of soured loans as financial progress cools.”


  3. “UK Business confidence has crashed to the lowest point since 2012, and the economy is only growing because firms are stockpiling ahead of Brexit, according to a key sentiment indicator.
    “The BDO optimism index… fell faster in March that at any time since the bleakest days in the aftermath of the Lehman Brothers collapse in 2008. The figures suggest that the UK economy could struggle to post any positive growth in 2019, BDO said.”


    • “The recovery after the eurozone financial crisis was never that strong. But in the last year or so, the region has been hit by adverse trade winds. It matters particularly to Germany, which is Europe’s leading goods exporter and number three globally (after China and the US).”


        • “A cocktail of negative interest rates, over exposure to sovereign borrowing and expanding debt bubbles has left European banks susceptible to shocks, laying the ground for a fresh credit crunch on the continent, experts have warned. Financial institutions in the EU and the US leveraged loan market are two of the greatest threats to the global credit markets…”


            • Ah, the Guardian: the Right is always ‘hard’, ‘extreme’, menacing and the biggest threat ever; but the Left is always gentle-as-a-dove and ‘progressive’, ‘can’t make omelettes without breaking eggs’, etc…….

              I have to admit, though, that Spain is almost back to a 1936 level of political polarisation, thanks to the whole Catalan nonsense. But really it’s more the case that the gloves are now off, rather than it being a new division in the country. The economy is slowing once more.

            • thanks to the whole Catalan nonsense.

              Well, it has been going on for 40,000 years.

      • And yet in Warsaw, they are still building like crazy. I was downtown yesterday and it was impossible to turn your head in any direction and not see multiple cranes and new buildings going up. Back at my house in the village just spring bird songs and pine cones popping open.

        • Eastern Europe seems to be one of the very few bright spots in the global economy right now. Poland’s growth is set to slow, according to the World Bank, but it’s still growing at a good rate:

          “Poland’s economic growth will slow to 4.0 percent this year from more than 5 percent in 2018 because of a decelerating global economy and shortages on the domestic labour market, the World Bank said on Friday.”


          • Sort of like in the last downturn. Bad, but not as bad as eveyone else. In last recession, Poland was only EU drone not to actually enter recession. Most of it is just luck as in right time to be accessing EU funds and lots of Western countries looking to expand east. I’m not complaining!

        • 23.2 thousands new dwellings were completed within Warsaw city limits last year. That’s 70% of what was built in whole Czech Republic. Warsaw pop. 1.8m, Czech pop. 10.6m

          • “Building lots of homes” helps lead to high energy consumption per capita, because the building of homes requires a lot of energy, to prepare materials that will be used in the building, to transport the materials, and to make all of the devices like hot water heaters, furnaces, and air conditioners that go into building the homes. Considerable energy goes into creating bulldozers to move the dirt going into homes, and into operating them. If concrete is used in any way, (even to build new streets in the areas of the homes), it used a disproportionate amount of energy consumption.

            Of course, considerable wages are paid to workers, both on the construction site and making the materials that go into the home. These workers spend their wages on things like vehicles and homes for themselves. These wages tend to be mid-level (not absolutely not rock-bottom, and not way over the top) so provide disproportionate effect to the economy. These workers are ones that often would be left out, if there were not enough building going on.

          • Warsaw is the capital of Poland, so the overall population is slightly higher 🙂

  4. “Turkish companies are struggling to get off the hamster wheel of debt as foreign borrowings run near record highs. The reason: a plunge in the lira that has driven up the cost of their obligations in dollars and euros. Banks are being left to carry the burden amid a surge in demand from some of the country’s industrial giants to restructure their liabilities — on top of a jump in bad loans. Lenders are also pulling back on providing new credit as the financial system comes under increasing pressure from the recession and an inflation rate of almost 20 percent.”


      • “With [Pakistan’s] inflation at its highest in five-and-a-half years, we are only seeing the beginnings of a period of double-digit inflation. The rupee is losing value every other day, adding to this inflation, and will depreciate a great deal more, whether, or especially when, the government gives in to yet another IMF programme.”


        • I believe Pakistan will be the first major over the falls, but it could be India or, less likely, Indonesia.
          They all will go soon, as they are not survivable.

            • Desperate hopium….”drilling in ultra-deep waters offshore”…..let’s see, how deep….try 18000 ft.
              “Pakistan Prime Minister Imran Khan had also hinted at finding ‘massive’ oil reserves off the coast of Karachi.
              He said he would soon share good news with the nation. He had said Pakistan would not need to import oil after the offshore reserves are found.”

              “According to data of a recent study, existing deposits in Pakistan will further deplete 60 per cent by the year 2027. ”
              “Pakistan currently meets only 15 per cent of its domestic petroleum needs with crude oil production of around 22 million tons; the other 85 per cent is met through imports.”
              They absolutely must keep the hopium alive to try to manage an orderly transition into bankruptcy versus chaos.
              This will end in war.

  5. What we are seeing across every country is “scrapping off the bottom of a barrel”, doing whatever it takes to extend and pretend. It was easy to do it in the 1970s but the law of diminished returns dictate that this is not the case anymore

  6. Urban Planning/Zoning in Japan


    “What led to such a wide distinction between zoning in Japan and in the United States? Gray puts forward three main factors. For one thing, “the U.S. privileges real estate as an investment where Japan does not, incentivizing voters to prohibit new supply with restrictive zoning.” Current law encourages homebuyers to treat their property as a way to “build wealth,” standing in for a more robust social safety net. In Japan, however, homes have little resale value, fully depreciating in some cases after an average of only 22 years.”

      • I don’t know how the “multi-generational mortgages” fit this picture.Maybe the author left out something.

        “In Japan, however, homes have little resale value, fully depreciating in some cases after an average of only 22 years.”

        • sounds like BS. Tokyo used to have some of the highest priced residential properties in the world. the only thing i can think of to lower that even a bit might be the Fukushima fallout measured there. there are just too many people wanting to live there, so demand is high.

    • Interesting! If ” In Japan, however, homes have little resale value, fully depreciating in some cases after an average of only 22 years,” I wonder how buyers can ever get mortgages to buy these homes. Why would anyone lend money on something whose value is disappearing so rapidly? It is sort of like having a nation of mobile homes, whose value depreciates to zero in about the same timeframe as automobiles depreciate to zero. What happens to all of these homes with little value? I have heard than in the countryside, the Japanese government has taken over a lot of homes that children have no interest in inheriting; the inheritance taxes would be too high for the home to have any real value.

      I would note, too, that a great deal of the “wealth” of families in the US has come from inflationary appreciation of their homes. People expect this to happen in the future, but with prices as high as they are today, this is highly unlikely, unless somehow wages rise correspondingly. There group of young people who are able to afford to purchase these homes is not large enough to maintain this property bubble.

    • In Japan, however, homes have little resale value, fully depreciating in some cases after an average of only 22 years.

      I’m confused.

      “Depreciation” is a tax term, not a market-value term.

      You can depreciate a home used for business purposes in the US in about the same amount of time, and then sell it for more than you paid for it. (You then have to pay capital gains on the entire sale price, as you have taken tax benefits from depreciation.)

      In order for market value to dissipate over 22 years, there would have to be a steady supply of houses under 22 years old, no? Either that, or population decrease.

  7. “Almost every major rich-world economy is slowing down in a fresh sign that the risk of a global recession is rising. “The United States, Japan, the eurozone, UK, Canada and Russia are all losing momentum, according to leading indicators compiled by the OECD that seek to predict the path of growth over the next six to nine months.

    “Its composite leading indicator points to the worst economic outlook since 2009, when the world faced the depths of the financial crisis. At the same time Germany’s exports slowed and confidence in the Japanese economy fell. The figures come after a series of other warning signs, including the inversion of the US yield curve that has in the past indicated a recession…”


    • “Global air freight demand hit a three-year low in February, down 4.7 percent from last February, according to data released by the International Air Transport Association (IATA)…

      ““Cargo is in the doldrums with smaller volumes being shipped over the last four months than a year ago. And with order books weakening, consumer confidence deteriorating and trade tensions hanging over the industry, it is difficult to see an early turnaround.””


      • “The drumbeat of warnings about a looming worldwide recession is growing ever louder. According to the latest Brookings-Financial Times TIGER indexes, which track the global economic recovery, growth momentum is declining in virtually all of the world’s major economies. And what this portends in the longer term is ominous, especially given the limited macroeconomic policy options for stimulating growth.”


        • ‘What is it Caruthers? You look a bit queer!’

          ‘I can’t stand it: it’s the drums in the jungle, the incessant beat of the drums, they never stop! On and on and on,….. is there no escape?’ 🙂

          • The clan McGibbs has an all-purpose recipe for unpalatable realities:

            Take one duvet (an eiderdown quilt will do in a pinch) and one bottle of whisky (large, ideally). Drink the latter in quick, panicky gulps under the former. Et voilà! No more menacing drums.

            • Clearly for the hard men of the North ( I am sure Lady McGibbs just takes tea)!

            • The woman will take what she’s told! …Please don’t tell her I said that.

        • “An array of data has pointed to worrying signs of a slowdown in the euro zone with further signs last week that Europe’s largest economy Germany is weakening. And more bad news could be on the way. Euro zone industrial production data for February is due Friday and economists polled by Reuters expect it to have declined by 0.6 percent month-on-month.


          • “Swedish motor vehicle factory orders dropped sharply in February, according to data released on Monday that highlight the slowdown early this year in Europe’s manufacturing sector. New orders within the Swedish auto industry fell by 12.7 per cent from January to February, data released by Statistics Sweden show.”


        • And lots of airlines struggling or going under.

          “Jet Airways India Ltd.’s lenders invited initial bids to buy as much as 75 percent of the debt-laden carrier, starting a process that will determine the future of India’s oldest surviving private airline.

          “Potential buyers must submit their interest by April 10, State Bank of India Ltd., the lead creditor, said in a document Monday. A strategic bidder should have a net worth of at least 10 billion rupees ($144 million) in the preceding financial year, or at least three years of experience in the airline business.”


  8. “Around the world the banks bought nearly 90 tonnes of gold in January and February, up from 56 tonnes year-on-year, the World Gold Council reported. It is the highest level of growth in the first two months of the year since the financial crisis… “Despite a decade passing since the global financial crisis, times seem no less certain. Central banks reacted to rising macroeconomic and geopolitical pressures by bolstering their gold reserves,” the council said.”


    • “Russia is buying gold. A lot of gold. Within the span of a decade, the country quadrupled its reserves… Are the Russian authorities preparing for a renewed clash with the United States and are they attempting to reduce their vulnerability to financial sanctions? Or do they fear a homegrown financial crisis?

      “…The sheer size of the purchases might reveal bolder motives, with Moscow preparing its first salvo in the coming battle for a monetary reset. What makes the recent moves especially significant is the fact they are being replicated in Beijing.”


        • The mindset is certainly interesting though. The central banks are giving every indication of being alarmed of late.

  9. “Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP. As you can see below, each recession going back to the mid-1980s coincided with elevated debt-to-GDP levels—most notably the 2007-2008 financial crisis, the 2000 dot-com bubble and the early ’90s slowdown.”


    • “What is really alarming is that there is a high-percentage of covenant lite loans. If the share of covenant-lite loans in 2006 was around 10%, this became 80% in 2018. Another source of worry is that the ratio of debt to EBIDTA has risen, and that means that companies have taken on more debt than they should have…

      “It is important to understand that companies have concentrated on financial engineering to boost stock prices by implementing share buyback programs that have been financed by debt. The capital has not been invested in R & D (Research and Development) or in Capex (Capital Expenditure) in order to strengthen the company and make it more resistant to a crisis or recession.

      “Capital has been grossly misallocated, and the economy is basically weaker than it should be and therefore more prone to suffer disastrously when there is an economic downturn. What is more is that the share buyback programs have taken place when the market is extremely overvalued and share prices are very high.”


      • Availability of too much debt, with too little cost, and to little in the way of requirements on the profitability of the company using the loan money is headed for disaster!

  10. “The Federal Reserve on Monday put forward two proposals to modify regulations put in place after the 2008 financial crisis that the banking industry complained were too restrictive. The proposed regulatory changes were approved on a 4-1 vote with Fed board member Lael Brainard opposing the changes. She said they “would weaken important safeguards” put in place after the crisis.”


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