by David Stockman via International Man

The massive leveraging of US nonfinancial businesses over the last several decades is utterly incompatible with the stock market cap rising from 62% to 204% of GDP.

The US business economy is now carrying 13X more leverage than it did 50 years ago.

Nonfinancial Business Debt as % of Gross Production, 1972–2020

Here is what has actually happened to business balance sheets:

• Back in 1972, total business debt outstanding of $634 billion amounted to just 46% of the gross value of US industrial production, which was $1.38 trillion.
• By 2007, business debt had soared to $10.1 trillion and stood at 321% of the gross industrial production of $3.15 trillion.
• By 2020 the debt figure had risen to $17.7 trillion even as the value of industrial production had remained pinned to the flat line. That is to say, at the end of last year’s Fed-fueled borrowing spree in the US business economy, the leverage ratio clocked in at an off-the-charts 592%.

With this high leverage, growth and profits-generation will become steadily weaker over time. This means that the stock market capitalization rate of the national income should be falling, not heading skyward as described above.

Indeed, since March 2009 equity investors have come to realize that any correction would lead to a bounce and a new upward run. At the beginning it took a long time before positive trading emotions and Pavlovian rewards emerged, but as the bull run accelerated, the rewards came faster and faster.

Until very recently.

Previously, all the dips — even micro-dips — were almost instantaneously bought by the herd of traders and homegamers driven by Pavlovian reflexes, thereby reinforcing the power of positive feedback loops. But as Zero Hedge observed, this loop may finally be reaching its sell-by date:

Something’s different this time.

For the first time since the collapse in March 2020, the S&P 500 has failed to rebound back to new highs after testing its key uptrend technical levels.

Source: Bloomberg

The larger problem is the risk that an external shock — a black swan — will break the entire chain of dip-buying and options-based speculation and eventually trigger a put-buying stampede, especially among the homegamers who have never experienced a down market.

Their Reddit gurus will tell them they can ride out the storm and safely hang on to their FANGMAN, Teslas, and meme stocks by buying “protection” via puts on their portfolios. That, of course, will trigger more delta hedging among options dealers, more ETF liquidations, and more temptations for the fast money to engage in open shorting of a market suspended on a sky-hook.

As one analyst pointed out, the 1987 crash is a good illustration of the risks associated with out-of-control positive feedback. In the chart below, he laid the recent S&P 500 run against the final 12-months preceding the 30% stock market meltdown in October 1987.

We have no idea whether the high has yet been reached or what “shock” might cause the present coiled spring to lunge into reverse. But with each passing episode of sharp selloffs and only partial BTFD (buy the freaking dip) rebounds, the odds of a meltdown reversal continue to rise.

What’s wrong with that? Nothing wrong with ending the private ownership of money!

WASHINGTON, D.C. – President Joe Biden’s nominee for currency comptroller of the U.S. Treasury Department, Cornell law professor Saule Omarova, has raised eyebrows for her past praise of aspects of the former Soviet Union and recent advocacy of “effectively ‘end[ing] banking’ as we know it.”

The New York Post reported that while the White House hails Omarova as “one of the country’s leading academic experts on issues related to regulation of systemic risk and structural trends in financial markets,” Senate Republicans fear she would stand for “radically reshaping the basic architecture and dynamics of modern finance.”

Born in the former Soviet nation of Kazakhstan, Omarova immigrated to the United States in 1991. The Wall Street Journal reported that she “graduated from Moscow State University in 1989 on the Lenin Personal Academic Scholarship. Thirty years later, she still believes the Soviet economic system was superior, and that U.S. banking should be remade in the Gosbank’s image […] Ms. Omarova thinks asset prices, pay scales, capital and credit should be dictated by the federal government.”

While most Americans who once lived under the Communist regime saw it as a model of what they don’t want America to become, in 2019, Omarova tweeted that the “old USSR” had “no gender pay gap” (a common liberal complaint against the U.S. economy, based on a misreading of statistical averages that fails to account for various differences in men and women’s economic choices).

“I never claimed women and men were treated absolutely equally in every facet of Soviet life,” Omarova later said of her controversial remarks, while going on to insist that, under Soviet rule, “people’s salaries were set (by the state) in a gender-blind manner. And all women got very generous maternity benefits. Both things are still a pipe dream in our society!”

In 2021, Omarova authored a paper titled “The People’s Ledger: How to Democratize Money and Finance the Economy,” in which she advocated turning private banks into “non-depository lenders,” which she said would strip them of “their ‘special’ status entity-based access to the public subsidy,” thereby causing them to “lose their appeal as potential acquisition targets for other financial institutions” and ultimately “‘end[ing] banking,’ as we know it.”

These and other comments have given pause to Republicans, including ranking Senate Banking Committee member Sen. Pat Toomey, who says Omarova’s “extreme leftist ideas” give him “serious reservations about her nomination”; and ranking House Financial Services Committee member Rep. Patrick McHenry, who accused Biden of “placating his radical base by nominating” someone that McHenry fears “will prioritize a progressive social agenda over the core mission of the OCC — supervising and managing risk in our financial system.”

While President Biden rose through his party’s 2020 presidential primary in part on the belief that his perceived “mainstream, centrist” reputation would make him more electable than other Democrats, since taking office he has governed from the far left, from COVID vaccine mandates to Afghanistan to gender fluidity to social media censorship, as well as using the force of the federal government to threaten or coerce states that differ with the administration on issues such as abortion, mask mandates, and election integrity.

Via Greg Hunter’s USAWatchdog.com,

Economist John Williams, founder of ShadowStats.com, says the Federal Reserve has painted itself into such a tight corner with the economy it really has only two choices. Williams says it comes down to “Inflation or Implosion.”

What would happen to the financial system if the Fed stopped printing massive amounts of money for stimulus and debt service? Williams explains,

“You could see financial implosion by preventing liquidity being put into the system. The system needs liquidity (freshly created dollars) to function. Without that liquidity, you would see more of an economic implosion than you have already seen. In fact, I will contend that the headline pandemic numbers have actually been a lot worse than they have been reporting. It also means we are not recovering quite as quickly. The Fed needs to keep the banking system afloat. They want to keep the economy afloat. All that requires a tremendous influx of liquidity in these difficult times.”

So, is the choice inflation or implosion? Williams says, “That’s the choice, and I think we are going to have a combination of both of them...”

“ I think we are eventually headed into a hyperinflationary economic collapse. It’s not that we haven’t been in an economic collapse already, we are coming back some now. . . . The Fed has been creating money at a pace that has never been seen before. You are basically up 75% (in money creation) year over year. This is unprecedented. Normally, it might be up 1% or 2% year over year. The exploding money supply will lead to inflation. I am not saying we are going to get to 75% inflation—yet, but you are getting up to the 4% or 5% range, and you are soon going to be seeing 10% range year over year. . . . The Fed has lost control of inflation.”

And remember, when the Fed has to admit the official inflation rate is 10%, John Williams says, “When they have to admit the inflation rate is 10%, my number is going to be up to around 15% or higher. My number rides on top of their number.”

Right now, the Shadowstat.com inflation rate is above 11%. That’s if it were calculated the way it was before 1980 when the government started using accounting gimmicks to make inflation look less than it really is. The Shadowstats.com number cuts out all the accounting gimmicks and is the true inflation rate that most Americans are seeing right now, not the “official” 4.25% recently reported.

Williams says the best way to fight the inflation that is already here is to buy tangible assets. Williams says,

“Canned food is a tangible asset, and you can use it for barter if you have to. . . . Physical gold and silver is the best way to protect your buying power over time.”

Gold may be a bit expensive for most, but silver is still relatively cheap. Williams says, “Everything is going to go up in price.”

When will the worst inflation be hitting America? Williams predicts,

“I am looking down the road, and in early 2022, I am looking for something close to a hyperinflationary circumstance and effectively a collapsed economy.”

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with John Williams, founder of ShadowStats.com.

Exposure to plastics and other chemical hazards of modern life is reducing penis sizes and sperm counts, eroding fertility to the extent that the future of the human race is imperiled, a top epidemiologist claims in her new book.

“Simply put, we’re living in an age of reproductive reckoning that is having reverberating effects across the planet,” Dr Shanna Swan wrote in her book ‘Count Down.’ She added,

“The current state of reproductive affairs can’t continue much longer without threatening human survival.”

Swan is a leading environmental and reproductive epidemiologist who has studied declining sperm counts and the impact of environmental chemicals and pharmaceuticals for more than 20 years. Her book, which was released in late February, is a top seller in several scientific categories.

Swan alleges that phthalates, which are used in plastics manufacturing, and other chemicals have led to such alarming effects as: an increasing number of babies being born with small penises; sharply lower testosterone levels in men; sperm counts in Western countries plunging 59% from 1973 to 2011; and a fertility decline of more than 50% over the past half century.

Female reproductive development and estrogen levels also have been altered. “In some parts of the world, the average twenty-something today is less fertile than her grandmother was at 35,” Swan said.

Reproductive havoc is affecting animals, too, the scientist said, pointing to such findings as unusually small penises in alligators, panthers and mink, as well as more fish, frogs, birds and snapping turtles having “ambiguous genitalia.”

“Unless we take steps to reverse these harmful influences, the planet’s species are in grave danger,” Swan said. She wrote that humans meet three of the five criteria that define whether a species is endangered. Only one of the five has to be met for a species to be endangered.

Falling fertility rates are predicted to halve the populations of 23 countries, including Spain, Japan and Italy, by 2100, according to a University of Washington study. The global fertility rate (the number of children that an average woman gives birth to in her lifetime) is forecast to drop from 2.4 in 2017 – just above the 2.1 level pegged by the UN as necessary to maintain current population levels – to 1.7 in 2100.

Some people are in denial about the alarming fertility trends, Swan said, while others brush it off because they consider the planet to be overpopulated. It may take decades to get the public to take the issue seriously.

“Sweeping modifications” to the kinds and volumes of chemicals that are pumped into the environment are needed to restore reproductivity, she added.

Source: Watts Up With That?

[…] 12,800 years ago, the world abruptly froze. Temperatures plunged back to ice age conditions, and stayed cold for over 1000 years.

In 2009, a group of scientists researching high resolution sediment samples from Lough Monreach, an ancient lake in Ireland, claimed the return to ice age conditions might have occurred over a period of less than a year. In the lead researcher’s words, “It would be like taking Ireland today and moving it up to Svalbard, creating icy conditions in a very short period of time”.

There is nothing unusual about ice ages in our current geological epoch. It is the reprieve from cold temperatures which is unusual, not the glaciation. Most of the last 115,000 years the world was locked in a harsh ice age, with vast ice sheets covering Europe and Canada. The Holocene, our current brief respite from extreme glaciation, only stretches back for the last 12,000 years.

While climate alarmists parade their worthless computer models and shriek that the world is overheating, paleo-climatologists are aware that far from being unusually warm, the world is currently in the grip of the Quaternary Glaciation, a period of unusual cold which has so far lasted 2.6 million years. What we are experiencing right now is the Holocene, a brief respite from the vast ice sheets which define much of the Quaternary.

A return to extreme cold is unlikely to happen in our lifetimes. Noteworthy geological scale events rarely happen on a human timeframe. But a return to glaciation at some point in the future is inevitable. Let us hope our descendants maintain the technological and engineering prowess they will need to hold back the ice, when the ice finally returns to challenge our beautiful home.

Authored by James Rickards via The Daily Reckoning,

By now, you’ve heard of the Green New Deal, an ambitious agenda to decarbonize the economy. The overall Green New Deal calls for ending the use of oil and natural gas, moving to electric vehicles, solar, wind and geothermal power, imposing carbon taxes to reduce C02 emissions and providing government subsidies to non-carbon-based energy technologies.

The U.S. would also seek to embed these policies and priorities in new trade treaties and multilateral agreements. President Biden has already begun this process by rejoining the Paris Climate Accord, which actually doesn’t mean much; it’s mostly for show.

The Paris Accord is also a platform for pursuing the Green New Deal.

But it’s difficult to conceive of any other program that would do more harm to the U.S. economy and give more of a boost to the Chinese, Russians and Iranians.

Biden has temporarily halted all new oil and gas drilling leases and permits on federal lands. He’s moving quickly to make the ban permanent. This ban will kill the fracking industry and help to destroy what’s left of the coal industry. Because of reduced supply, it will raise energy prices globally. New carbon emission taxes will raise prices even further.

Why Kill the Keystone XL Pipeline?

Very significantly, Biden has also canceled the Keystone XL pipeline. This is a pipeline that brings oil from Alberta, in Canada, to the central United States. The pipeline would then go to Nebraska, where there would be a hub and a distribution center.

Killing the pipeline would cost tens of thousands of jobs. And when you count suppliers and subcontractors, it could be at least 100,000 high-paying lost jobs, mostly union jobs with benefits.

But the fact is, the oil is still coming anyway. That oil from Canada is still coming to the United States, except it comes by truck and train. That’s the reason you build a pipeline. It’s faster and cheaper to move the oil by pipeline than it is to move it by truck and train. What we have now is just a pipeline on wheels with one difference…

They release much greater CO2 emissions. All these trucks and all these trains are putting more CO2 into the atmosphere than a pipeline would. Again, that’s why you build a pipeline.

So if you’re doing this for economic reasons, it makes no sense because you destroyed maybe 100,000 high-paying jobs. If you’re doing it for environmental reasons, it makes no sense because you will have more CO2 emissions from the trains and trucks than you would from the pipeline. But they’ve done it anyway.

This is a good example of what I call the triumph of ideology over common sense. Common sense will say, build a pipeline for the reasons I just mentioned. But that doesn’t fit the ideology or their worldview. They’re immune to the facts. They just say pipelines are bad, so get rid of them.

A Propaganda Cover for the Real Objectives

Biden justifies the Green New Deal based on fear of climate change. I don’t want to dive into the climate change debate today. But there’s good science that says CO2 is more or less a harmless trace gas, not the existential threat that many environmentalists would have you believe.

Climate science provides almost no evidence that slight observable temperature changes have anything to do with C02 emissions. It is far more likely that any temperature changes are the result of solar flare cycles and volcanic eruptions. Some data strongly suggests that the earth is slowly cooling, not warming.

Scare tactics about the “costs” of hurricanes have more to do with expensive homes built on exposed barrier islands (subsidized by federal insurance programs) than the intensity of storms, which were actually greater and more frequent in the 1940s.

Climate change is a propaganda cover for the real goals of higher taxes, more regulation, slower growth and favors for tech entrepreneurs. It’s a globalist’s dream.

What About Congress?

When you add it all up, Biden’s proposals will destroy high-paying jobs with benefits in the energy sector, raise energy costs for consumers and help flat-line economic growth.

Still, given the ideological momentum behind the Green New Deal and the imperatives of getting policies enacted quickly, it seems likely that some of these misguided provisions will become law at great cost to consumers and the economy as a whole.

But the prospects of the most radical parts of the Green New Deal becoming law are problematic. The projected adverse economic and geopolitical results will possibly derail the program in Congress. But, there can be no assurance of that. This will be one of the legislative priorities that Biden puts on a fast track because a Republican takeover of the House in 2022 would stop it indefinitely.

But the climate change agenda is seeping into all aspects of policy, including monetary policy. The original role of central banks was to provide a sound currency, which, in turn, facilitated government borrowing.

By the late 19th century, a new mission was added, which was to be a lender of last resort to banks themselves in a financial crisis. It held that in a crisis, the central bank should lend freely to solvent banks against sound collateral at a high rate of interest. That’s been flipped on its head.

Today’s version is to lend freely to anyone without collateral at a zero rate of interest.

From Lender of Last Resort To Climate Savior

After 1934, the Federal Reserve and other central banks were given broad regulatory powers over the banks in their jurisdictions. Finally, in 1978 the Humphrey-Hawkins Act gave the Federal Reserve a dual mandate, which included price stability and job creation.

With the job creation mandate in its portfolio, the Fed was empowered to interfere with almost every aspect of the real economy, including jobs, inflation, interest rates, liquidity and financial regulation.

As if that weren’t enough, economist Barry Eichengreen now calls on central banks, especially the Fed, to use their regulatory powers to control climate change! Part of the agenda would address racial inequality, income inequality and credit access for underprivileged groups.

These may be laudable goals, but it’s a long way from the Fed’s role as lender of last resort.

What’s frightening about this push to expand the Fed’s mandate is not that it can’t work, but that it could. A central bank could require commercial banks to lend money to solar and wind generating companies and deny credit to oil companies.

A central bank could require more loans to disadvantaged neighborhoods and require that no credit be made available to gun manufacturers or gun dealers.

There is no aspect of the economy and business activity that could not be affected positively by mandatory credit or destroyed by the lack of credit and access to the payments system. This is already being done to some extent by cabals of commercial banks. It would be even more powerful if required by central banks.

This is exactly the outcome that has been warned about for centuries by philosophers and political scientists. It is exactly the reason Americans abolished two U.S. central banks in the 19th century.

Any party that controls money can control the world. One solution is to abolish the Fed. Another solution is to abandon the money and move to something the Fed cannot control — gold.

by Simon Black via Sovereign Man

Nearly 186 years ago to the day, on January 8, 1835, US President Andrew Jackson accomplished what no other American president has done before, or since: he paid off the national debt.

Jackson was a staunch fiscal conservative. He despised banks, and, according to his biographer, he considered central banking “black magic”, and the national debt a “moral failing”.

So he paid it all off– roughly $5 million.

That was the first and only time that the US national debt was zero. By the end of 1835, the debt had increased to a trivial $33,733. Within three years it was 100x that amount at $3.3 million. And by 1847 it had increased another 10x to $33 million.

The trajectory continued; the national debt crossed $1 billion for the first time during the Civil War. Then $10 billion for the first time during World War I. Then $100 billion for the first time during World War II.

It crossed $1 trillion for the first time during the peak of the Cold War in the early 1980s.

And it crossed $10 trillion for the first time in 2008 after years of war in Iraq and Afghanistan, followed by the Global Financial Crisis.

The national debt is now nearly $28 trillion– 40% larger than the entire US economy. And the debt will most certainly hit $30 trillion over the next several months.

Last year alone the debt grew by $4.5 trillion due to all the Covid stimulus.

This matters. Because, sooner or later, that debt is going to mature and will need to be repaid.

Now, traditionally, whenever government bonds mature, many investors simply reinvest their proceeds into a brand new bond.

In this way, the government doesn’t actually have to pay anyone back; they just keep refinancing and kicking the can down the road farther out into the future.

And the Treasury Department is praying that bondholders will continue this practice forever.

Unfortunately that’s probably not going to happen.

For starters, foreign governments like China and Japan (which are among of the biggest owners of US government debt) have already started reducing their holdings.

Back in February, just prior to Covid gripping the world, foreigners owned $7.23 trillion worth of US government bonds– approximately 30% of the total national debt.

By October (which is the most recent data available from the Treasury Department), the total amount had fallen slightly to $7.07 trillion. But as a percentage, foreigner ownership had dropped to about 25% of the total national debt.

This isn’t a earth-shattering decline. But it shows a clear unwillingness from foreign governments to buy more US government debt; and also that some of them would like to be repaid when their existing bonds mature.

Just look at China. After years of rising tensions, China has gradually reduced its holdings of US debt, from a peak of $1.32 trillion in November 2013, to $1.07 trillion in October 2020.

And it’s unlikely that China will suddenly have a fit of generosity and choose to extend their US Treasury holdings.

Aside from foreign governments, another major holder of US government debt is the Social Security program; in other words– US citizens.

Social Security built up enormous cash reserves over the years in its various trust funds, and those trust funds are 100% invested in US government bonds.

Traditionally, Social Security always buys new bonds whenever its existing bonds mature. So they keep refinancing the debt for the US government.

But now Social Security has a huge problem: the trust funds are rapidly running out of money. Prior to Covid, the Treasury Secretary estimated that Social Security’s trust funds would be fully depleted by 2034.

But Covid has ravaged Social Security’s finances.

Unemployment surged, countless businesses closed, and payroll taxes were suspended. In other words, there was no money being paid into the trust funds.

At the same time, Social Security payments increased; even more people have retired and started collecting benefits. So while Social Security inflows went to zero, the outflows jumped.

And some analysts (like the Bipartisan Policy Center) now estimate that the program’s trust funds could be fully depleted as early as 2029 because of the adverse Covid impact.

So, needless to say, Social Security will need to be paid back when its Treasury bonds mature in the coming years.

As it turns out (according to Bloomberg) $8 TRILLION worth of government debt in the US will mature THIS YEAR alone.

Plus, the Congressional Budget Office expects another $2+ trillion deficit this year due more Covid stimulus.

So that’s potentially $10+ trillion worth of government debt that will need to be placed this year. That’s $300,000 per second.

The only way they’ll realistically accomplish this is if the Federal Reserve ‘prints’ trillions of dollars of new money.

The Fed did this last year; in January 2020, the Fed owned $2.3 trillion worth of US government debt. Today they own $4.7 trillion, plus trillions more in other bonds, for a total balance sheet of $7 trillion.

This is the ‘black magic’ of central banking; the Fed conjured money out of thin air and expanded the money supply by roughly 25% last year. Then they used that money to buy US government bonds.

They’ll have to do it again this year and create trillions of dollars more.

It is rather interesting that Janet Yellen is the incoming Secretary of the Treasury; she used to be Fed chair, and during her tenure she oversaw unprecedented money printing programs.

So there will likely be plenty of cooperation between the Fed and Treasury to print absurd quantities of money this year.

Certainly there will be some bondholders who extend their securities. But most likely the Fed will need to print another $3+ trillion, pushing its balance sheet beyond the $10 trillion mark.

And if they really go down this destructive path– $30 trillion national debt, a $10 trillion Fed balance sheet– then 2021 may be the year that the world finally loses confidence in the US dollar.

Authored by Bill Blain via MorningPorridge.com,

Let’s consider Wind Power.

If you believe in Wind-power then don’t – whatever you do – read The Costs of Offshore Wind Power: Blindness and Insight. Although it was written way back in Sept 2020, the report might make you quite unhappy about the current direction and prospects for the Green Economy. The authors describe how costs are escalating rather than declining as promised. Operating and maintenance costs have risen even faster than they were anticipated to fall! Gas prices will look impossibly cheap compared to renewables if the true facts are ever revealed.

How about this for a quote from the report:

“This leads to the prospect of what is not so much a car crash as a motorway pile up in the fog of ignorance.”

The report suggests the narrative that “Wind power is getting cheaper and more efficient all the time” is complete nonsense. The majority of the 350 odd UK wind farms will need a bail out. The government’s approach to green power completely underestimates the long terms O&M costs and drop-off which means most wind projects are massively overpriced, and we’re still years away from carbon neutral.

If author Professor Gordon Hughes is correct – and I see no reason not to believe him – then the UK will be in serious crisis over it carbon neutral green energy costs. The knock on in terms of future decarbonisation efforts will be huge, it will change the maths for a “green hydrogen” powered future, and change the pricing and timing outlook for gas and even coal-fired power.

I’ve done my own digging, and wind investments just don’t perform like promised in the fancy brochures.

If you maintain a very traditional windmill very, very carefully it might last a couple of hundred years. If you build them quick out of plastics, keep them light and pump them out vast numbers, then you are going to spend lots of time and money maintaining them… Checking and replacing bearings gets more and more difficult the bigger they get. You need to check for hairline stress fractures on the blades. Because of the rotational movement, they put additional pressure on the foundations and sink into the bottom. And all these things get much, much more difficult if you stick the thing in the middle of the English Channel, North Sea or Atlantic approaches where salt-water literally eats them.

The brutal reality is off-shore wind is far less efficient than promised and requires much more expensive maintenance. They break down, sink into their foundations and don’t generate anything like the power expected. For all the due-diligence, they simply won’t ever make any money unless the price at which they sell energy is dramatically increased – at which point they make zero sense.

This will feel very familiar to many investors who’ve seen all the blithe assumption about O&M costs on all kinds of technological green marvels fail to meet expectations. Biowaste generators, Biomass, thermal pellets – you name it, and the rosy assumptions failed to materialise because the difficulties in making them work and keeping them working were glossed over by the promoters.

Most of the smart money already knew that about renewables and is deeply sceptical. The not-so-smart money still laps the deals up! Sadly, renewables is likely to become another charming but flawed investment thesis. I am no stranger to investment madness… three times I’ve invested in Airships and lost my dosh every time…

The problem is: we really do need to address climate change… which means energy prices have to rise to keep the inefficient windfarms working… meaning a less efficient economy.

And its not just renewables that are attracting big bids because someone else is assumed to have done the work to check they work. There are a host of other Green assumptions that are unlikely to stand up to rigorous testing. Whatever you believe about recycling Lithium batteries, its challenging. They are toxic to mine, toxic to process and toxic to dispose of. As the surveys now show, if you diligently use your EV for 300k miles it will achieve carbon neutrality – as long as you don’t worry about how the electricity is made or how the batteries will be recycled.

POSTED BY SRSROCCO IN ENERGY

It’s Official. The collapse of U.S. shale oil production has begun. The mighty Shale Oil BOOM has now finally turned into a BUST. While the pandemic shutdowns sped up the process, the collapse of the U.S. shale industry was going to occur, regardless. According to the U.S. Energy Information Agency, shale oil production will continue to decline below 7.5 million barrels per day in January.

At the peak last year, the top five shale oil fields combined production reached nearly 9.2 million barrels per day. Since the shutdowns during March-April, many of the companies curtailed shale oil production. However, all of these wells have now been brought online, but the massive decline rate is kicking in due to a lack of drilling and completion activity.

As we can see in the chart below, shale oil production in these five fields fell from 9.16 million barrels per day during the peak in 2019 to 7.27 million barrels per day forecasted next month (January).

In a little more than a year, the combined shale production from these five fields declined by 1.9 million barrels. The data in the chart above is shown in thousand barrels per day. According to Shaleprofile.com, these five fields add more than 11,000 new wells in 2019. In looking at the new well trend data for Jan-Oct 2020, I would be surprised to see more than a total of about 5,000 wells added this year.

While the Permian suffered the highest decline in shale oil production, the biggest loser in percentage terms was the Anadarko Field. Oil production from the Anadarko declined from 603,000 barrels per day (b/d) at the peak last year to a forecasted 363,000 bd in January. That’s a stunning 40% decline in a little more than a year.

The Niobrara in Colorado reported the next largest decline at 34%, followed by the Eagle Ford (-30%), Bakken (-22%), and Permian (-18%). The average percentage of production decline from the fields since the peak last year was 21%.

Oil Geologist Art Berman produced this chart showing where he forecasts U.S. oil production by September 2021.

Art believes total U.S. oil production will decline to 7.7 million barrels per day by September 2021. However, I don’t believe this forecast will happen because his chart shows total U.S. oil production will be approximately 10.2 million barrels per day by January 2021. The EIA reports that U.S. oil production is 11.0 million barrels per day on Dec 11th.

It’s probably more realistic to forecast a decline to 9.5-10 million barrels per day by September 2021. We will see. Regardless, the mightily U.S. shale oil Boom has now turned into a Bust. While it will take 5-10 years to collapse by 75%, it’s not ever coming back.

by Wolf Richter via Wolf Street

The Incredibly Spiking US National Debt has soared by $3.75 trillion since March 1, powered by stimulus and bailouts, and by $4.2 trillion over the past 12 months, to $27.3 trillion, after having already spiked by $1.4 trillion in the final 12 months of the Good Times. Trillions are zooming by so fast it’s hard to even see them. But these are all Treasury securities, and someone had to buy them:

With the Treasury Department’s Treasury International Capital data through September 30, released Tuesday afternoon, Fed’s balance sheet data released weekly by the Fed, bank balance-sheet data also released by the Fed, and the Treasury Department’s data on Treasury securities held by US government entities, we can piece together who bought those trillions of dollars in Treasury Securities over the past 12 months.

The share of foreign holders is waning:

Foreign central banks, foreign government entities, and foreign private-sector entities (companies, banks, bond funds, individuals, etc.) increased their holdings in the third quarter by $32 billion from the second quarter, which brought their holdings to $7.07 trillion.

Compared to Q3 last year, this total was up by $147 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt at the end of Q3 declined to 26.2%, the lowest since 2008 (red line, right scale):

Diminishing importance of Japan and China: Japan, the largest foreign creditor of the US, increased its holdings in Q3 by $15 billion, to a total of $1.28 trillion. Over the 12 months, its holdings increased by $130 billion (blue line).

China (red line) continued to whittle down its holdings in Q3 by $13 billion, and over the 12-month period, by $40 billion, to $1.06 trillion, following the trend since 2015,with exception of its capital-flight phase:

Over the past five years, Japan’s and China’s combined holdings of US Treasuries has been roughly stable, with some variation in between. At the end of September, their combined holdings amounted to $2.34 trillion, down just a tad from their holdings at the end of 2015 of $2.37 trillion. But their combined share of the of the Incredibly Spiking US Debt fell to 8.7%, the lowest share in many years:

Next 10 largest foreign holders in September. This list is top-heavy with tax havens and financial centers, including those where US corporations have legal entities that hold US Treasuries, such as Apple in Ireland. In others words, some of these “foreign” holders are US entities, such as Apple, that are holding Treasuries registered in their foreign mailbox entities (the amounts in parenthesis indicate their holdings a year earlier):

1. UK (“City of London” financial center): $425 billion ($413 billion)
2. Ireland: $315 billion ($274 billion)
3. Brazil: $265 billion ($303 billion)
4. Luxembourg: $262 billion ($252 billion)
5. Switzerland: $255 billion ($231 billion)
6. Hong Kong: $246 billion ($242 billion)
7. Cayman Islands: $232 billion ($250 billion)
8. Belgium: $218 billion ($215 billion)
9. Taiwan: $213 billion ($189 billion)
10. India: $213 billion ($161 billion)

Germany and Mexico, among the countries with which the US has the biggest trade deficits, are much further down the list: Germany in 20th place, and Mexico in 24th place.

Diminishing importance of US government funds.

US government funds – the Social Security Trust Fund, pension funds for federal civilian employees and the US military, and other government funds – added $16 billion in Q3 compared to the prior quarter and $22 billion over the 12-month period, to $5.92 trillion.

While the dollar amount has been increasing gradually (blue line, left scale), their share of the Incredibly Spiking US National Debt has declined from over 45% in 2008, to just 22%, the lowest since dirt was young (red line, right scale):

The Federal Reserve became a huge factor.

In Q3, the Fed added $240 billion to its Treasury holdings, bringing the pile to $4.44 trillion (blue line, left scale), a record of 16.5% of the Incredibly Spiking US National Debt (red line, right scale). This is the portion of the US debt that the Fed has monetized. Over the 12-month period, the Fed added $2.4 trillion in Treasuries to its holdings, most of it since March, doubling its pile,and increasing its share of the US debt from 9.3% in Q1 to 16.5% in Q3:

US Commercial Banks pile it on.

US commercial banks piled $116 billion in Treasury securities in Q3 onto their balance sheets, and $269 billion over the 12-month period, bringing the total to $1.19 trillion, according to the Federal Reserve’s data release on bank balance sheets. This amounted to 4.4% of the total US debt:

Other US entities & individuals

The holders of the remaining Treasuries – after all foreign holders, US government funds, the Fed, and US banks – are by definition US individuals and institutions such as bond funds, pension funds, insurers, cash-rich corporations, hedge funds that use Treasuries in complex trades, private equity firms that are sitting on cash, etc. During the chaos earlier this year, they piled into Treasuries, adding $800 billion in Q2. But this settled down in Q3, when they added only $95 billion, bringing their pile to $8.31 trillion, which amounted to 30.9% of the Incredibly Spiking US National Debt:

And here they are, this monstrous pile of Treasury securities, all combined into one incredibly spiking chart, by category of holder as of September 30: