Scenes From a (Suddenly) Nude Beach
on December 31, 2014
“You only see who’s swimming naked when the tide goes out” … . Zero Hedge just published a great piece on this topic … . Here’s a summary …
Overly-easy money (set up this problem) in the 1980s, when the developed world … started borrowing way too much money … then tried to inflate away its debts by creating a tidal wave of new currency and pushing interest rates down to unnaturally low levels. …
Consumers (especially in the US) bought huge amounts of imported junk. This in turn led China … to go on an infrastructure/factory building spree of epic proportions, which shifted into hyper-drive after the 2008 crash. Chinese demand for industrial materials like copper, iron ore, and oil soared, pushing their prices far above historical averages.
This in turn led miners and drillers to mine and drill on an unprecedented scale, which caused the supply of industrial materials to surge. The flashiest case in point is the US shale oil boom … .
But it was all a money illusion, and every part of this process has recently hit a wall. Consumers refuse to go more deeply into debt … China has tapped the brakes on its infrastructure build-out. The US is trying to stop monetizing its debt, which has sent the dollar through the roof on foreign exchange markets … .
As a result of the above, demand for basic materials is returning to normal levels … tanking prices across the commodity complex. … Back when oil was over $100 a barrel, everybody wanted to lend to drillers, especially in the … shale oil sector. $170 billion of energy-related junk bonds are now outstanding, and they are tanking along with the price of oil. …
Emerging market economies … have accumulated about $6 trillion of dollar-denominated debt, and with the dollar up … losses on those loans could exceed half a trillion dollars … .
Mining/drilling firms (many) are earning less per unit of product than it costs to mine/drill it. Massive bankruptcies and consolidations are coming. …
The Texas economy — like those of Brazil and Russia, is falling back to earth. JP Morgan Chase predicts a recession in 2015. …
The US economy (since most of the gains) in the past five years have come from the energy sector … (Reversing) out the oil patch jobs and the $10 or so trillion it took to engineer the “recovery” will (make it) look like just another piece of money-illusion malinvestment. …
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