[AgentR11]

Russia is on the brink of TOTAL COLLAPSE.
Russia is seriously running out of cash - Sep. 16, 2016
CNNMoney‎ - 1 day ago
Russia's rainy day fund has shrunk to just $32.2 billion this month and is likely to dry up ...
Russia 'could run out of cash reserves in 2017'
The Independent‎ - 14 hours ago
Russia is seriously running out of cash | Money
WLWT.com‎ - 1 day ago

I have news for you. The "rainy day fund" is *MEANT* to run out. That's what its supposed to do; it accumulates when export revenue is high, and depletes when revenue is low. Now, tweaking the budget to try to make it run out just as prices begin to recover would be the perfect implementation, but you have to be able to see the future to do that; and Keynesian principles would dictate it better to run out early, than to have excess you didn't spend before prices recover. I'd give them a B- on this particular cycle's implementation; especially since they also managed to achieve true float in the face of sanctions and imminent arbitrage risk though UA via exploiting EU-AA to EEU tax duty preferences.

Worst case, Russia issues ruble denominated bonds internally, to pay ruble denominated expenses internally; if there are not enough domestic bond buyers, their central bank will basically do the same trick ours does. Its just not a big deal.

[dissident]

Correlation with a causal mechanism does imply causation. Oil is the base input to the economy that directly affects transport and production from agriculture to services. Dialing up the oil price puts upward pressure on prices and removes consumer liquidity which contracts demand and the GDP.

Most people have no feeling for the numbers and think some cataclysmic inflation rate is required to damage the economy. In actuality, economic processes are more finely balanced and even small price perturbations can cascade through the system producing recessions and depressions. The oil price is magic since it impacts all prices directly and indirectly. No product or service has this sort of global impact. And in spite of all the prattle, oil is not fungible on any timescale that matters. So there is no way to hide from oil price increases.

[AdamB]

Please provide reference to seminal, basic peak oil theory .... that says anything about the economy being sensitive to high oil prices.

Check out Dr. Colin Campbell's writings.

Cheers!

Starting with his prediction of peak oil in 1989 perhaps?

[AdamB]

Correlation with a causal mechanism does imply causation.

Well, I guess we wait until the Etp fabricates another one, not so easily discredited?

[davep]

The Great Oil Spike was followed immediately by the Great Recession. They sure seem to be related. Can you explain in some sort of logical way why the biggest oil spike in history didn't effect the economy?

As others have said, correlation does not mean a causal relationship. Every great recession happens after banks relax credit before tightening money supply. In the process, costs of energy will increase as production increases and we're awash with money. Then after they tighten credit and broad money becomes scarce, we have a recession and a collapse in energy prices.

There may well be an element of causality for the final days of easy money, but it certainly follows an established economic pattern with debt-based money (yes, I have a hobby horse too). See https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Fisher and many of his contemporaries perceived to be the major source of business cycle
fluctuations, sudden increases and contractions of bank credit that are not necessarily
driven by the fundamentals of the real economy, but that themselves change those
fundamentals. In a financial system with little or no reserve backing for deposits, and with
government-issued cash having a very small role relative to bank deposits, the creation of
a nation’s broad monetary aggregates depends almost entirely on banks’ willingness to
supply deposits. Because additional bank deposits can only be created through additional
bank loans, sudden changes in the willingness of banks to extend credit must therefore not
only lead to credit booms or busts, but also to an instant excess or shortage of money, and
therefore of nominal aggregate demand

We find strong support for all four of Fisher’s claims, with the potential for
much smoother business cycles, no possibility of bank runs, a large reduction of debt levels
across the economy, and a replacement of that debt by debt-free government-issued money

[davep]

So Davep, you are willing to say relaxing credit without concurrent money-supply tightening causes every recession?

Going out on a limb, aren't we?

I'm saying you didn't really understand the principle. Relaxing credit and concurrent money-supply tightening is impossible when the vast majority of broad money supply is created as credit by private banks.

[davep]

Yes money supply is created out of debt. Debt is a call on work. Work is accomplished with energy, specifically energy made available by stored hydrocarbons. Which are in decline.

Monetary debt is not necessarily a call on physical work, we just need to constantly keep growing the economy (via more credit) to pay off the interest (because when you pay off the principal, the interest needs paying with new money, hence the economists banging on about the need for monetary growth). They are indeed linked. In fact, cheap energy is the bedrock of the current exponential ecoonomic model. Which is one of the reasons I bang on about it. It needs reform as it is not fit for purpose as resources get scarcer and we destroy the planet in order to stand still (and get further in debt).

So, I'm saying oil price wasn't the cause of the 2008 crash (although it was no doubt a contributing factor) but that cheap energy is obviously a pre-requisite to a functioning credit-based economic model. So, yes, we will be seeing further credit loosening followed by tightening (and recession), but these will become more common and the highs will never hit the heights of previous monetary expansion as we go down the saw-blade of the downslope.

[dissident]

The Great Oil Spike was followed immediately by the Great Recession. They sure seem to be related. Can you explain in some sort of logical way why the biggest oil spike in history didn't effect the economy?

As others have said, correlation does not mean a causal relationship. Every great recession happens after banks relax credit before tightening money supply. In the process, costs of energy will increase as production increases and we're awash with money. Then after they tighten credit and broad money becomes scarce, we have a recession and a collapse in energy prices.

There may well be an element of causality for the final days of easy money, but it certainly follows an established economic pattern with debt-based money (yes, I have a hobby horse too).

Please give references showing that this pattern was at play in 2008. There was no money supply tightening in any major OECD economy in 2008. We did have the repackaging of subprime mortgages in the USA as solid investments but the collapse of this pyramid was triggered by the oil price shock and the death of the ex-urbs where many of those subprime mortgages were active.

[davep]

davep, I am unwilling and unable to lose myself in this debate. I am not trained and have no interest neo-classical corporate economics. It seems to me that neoclassical economics is inconsistent with laws of ecology, thermodynamics and common sense. Put it another way: economics exist all over the world without the need for the Federal Reserve and US Treasury. Your chosen theory of money creation is only one among many.

I'm not choosing a money creation theory, I'm describing the current one. The Bank of England describes it quite well http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf. Here's a snippet:

Lending creates deposits — broad money determination at the aggregate level As explained in ‘Money in the modern economy: an introduction’, broad money is a measure of the total amount of money held by households and companies in the economy. Broad money is made up of bank deposits — which are essentially IOUs from commercial banks to households and companies — and currency — mostly IOUs from the central bank. Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.

And as for

Please give references showing that this pattern was at play in 2008. There was no money supply tightening in any major OECD economy in 2008.

try reading http://www.frbsf.org/economic-research/publications/economic-letter/2012/may/liquidity-risk-credit-financial-crisis/

For example, banks today often lend by extending credit lines that borrowers can tap on demand, or by making other kinds of loan commitments. Increases in borrower use of these commitments make this business risky. When the overall supply of liquidity falls, borrowers draw on funds from existing credit lines en masse. Thus, in the 2007–08 financial crisis, nonfinancial firms lost access to short-term funds when the commercial paper market dried up. Commercial paper issuers turned instead to prearranged backup lines at banks to refinance their paper as it came due. Banks were obligated to fund such loans. As a result, funds became less available for new lending...

Banks more exposed to liquidity risk increased their holdings of liquid assets most. They also reduced new lending most. Liquidity exposure affected behavior along several dimensions. On the asset side, banks holding securities with low liquidity, such as mortgage-backed securities, expanded their cash buffers during the crisis and decreased new lending. Such banks were worried about their ability to finance securitized assets. They protected themselves by hoarding liquidity, to the detriment of borrowers. On the liability side, banks that relied more on wholesale sources of funding cut new lending significantly more than banks that relied predominantly on traditional deposits and equity capital for funding.

Basically, banks DID decrease lending. And that is how broad money supply is decreased. The origins of the crisis are multiple, but all stem back to loosening of credit prior to panic.

the peak-oil deniers live in a a modern globalist dream.

Pete, you have no idea what I'm talking about. Modern economics relies on cheap energy. As I said above, it's a pre-requisite to expanding money supply. And it is why the current economic system will either fail dramatically or be changed. Believing that peak oil and current economic practice are mutually detrimental to the well-being of humans and the ecology of the planet does not make me a peak oil denier. It's just a slightly bigger picture view.

[rockdoc123]

I

t is obvious that oil prices over $100 per barrel are not good for the economy. But rockdoc123 tries to claim that the biggest oil spike in history ($147.50) had absolutely no effect on the economy. He cannot support his wild claim logically, so instead he tries to pompously claim that every economist in the world agrees with him. This has been proven false.

If it is so obvious then please show us exactly your proof? You have none. What you have been shown is that fro 3.5 years oil prices hovered above $100/bbl and during that period global GDP continued to increase and global oil demand/consumption continued to increase. How many times do we have to show the same plots? The run up to $140 oil also had no impact on GDP or consumption the flattening in GDP after 2008 as result of the financial crisis not the other way around.

As to what the reasons for the great recession were you may have found an outlier who disagrees with pretty much everyone else including The National Commission report:

The Financial Crisis Inquiry Report
https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

In this report, we detail the events of the crisis. But a simple summary, as we see it, is useful at the outset. While the vulnerabilities that created the potential for crisis were years in the making, it was the collapse of the housing bubble—fueled by low interest rates, easy and available credit, scant regulation, and toxic mortgages— that was the spark that ignited a string of events, which led to a full-blown crisis in the fall of . Trillions of dollars in risky mortgages had become embedded throughout the financial system, as mortgage-related securities were packaged, repackaged, and sold to investors around the world. When the bubble burst, hundreds of billions of dollars in losses in mortgages and mortgage-related securities shook markets as well as financial institutions that had significant exposures to those mortgages and had borrowed heavily against them. This happened not just in the United States but around the world. The losses were magnified by derivatives such as synthetic securities. The crisis reached seismic proportions in September  with the failure of Lehman Brothers and the impending collapse of the insurance giant American International Group (AIG). Panic fanned by a lack of transparency of the balance sheets of major financial institutions, coupled with a tangle of interconnections among institutions perceived to be “too big to fail,” caused the credit markets to seize up. Trading ground to a halt. The stock market plummeted. The economy plunged into a deep recession.

or you can go to any number of places that describe the exact same thing....no mention of high oil prices
http://www.investopedia.com/articles/ec ... review.asp
http://www.conferenceboard.ca/insideedg ... d-the.aspx
http://www.economist.com/news/schoolsbr ... rs-article
http://www.globalissues.org/article/768 ... ial-crisis

[davep]

Yes Davep, credit was loosened prior to the panic. Here in the US by allowing Moody's Standards and Poor to green-light housing loans they perhaps shouldn't have. (someone should have known that the price of oil would skyrocket. We did here at peakoildotcom) But your attribution to the Fed is nonsense. Those loans could not be paid back . . . because unlike every previous housing boom that particular housing boom did not create a general overall economic boom as all previous housing booms did. It created failed loans. It created massive contraction.

I didn't attribute it to the Fed. I attributed it to loosening credit prior to a contraction in credit. The loans helped create broad money just as any other loans did. It's only when the panic set in that things got bad generally. Same process as ever, different specifics as ever.

What's cheap? All modern and ancient economies rely on energy, expensive or cheap, human labor or nuclear power. What's the difference? Semantics as far as I am concerned.

We don't all get more productive every year. We use cheap fossil fuel energy. The specifics in this case are the exponential nature of the current economic system that requires constant new money creation to pay off the interest of debts where the principal has been paid off. It only works when growth outpaces debt. We've kinda hit that limit. It's got nothing to do with semantics and everything to do with a ponzi-scheme style monetary system. The bedrock of that system is no longer the infinite driver for growth that it once was. I'm sure we can agree on that.

It will fail.

It's a deliberately opaque economic system that tries to hide the simple fact we're being screwed by bankers behind myriad artifacts of the money system itself. Letting it die of natural causes is going to be very painful for a lot of people. Which is why I think it's important to understand its mechanics. YMMV.

Your post make no sense. Peak oil is good for the non-human ecology. Without monster earth-moving machines, there are no roads into the Amazon. Or deep coal pits. For you to believe we can continue this planet-raping madness without oil is crazy. You are a peak-oil denier because you do not understand the role of energy to economy.

You again missed my point. I'm talking about the link between cheap energy and the ability to have a debt-based growth model. Now we're hitting peak oil the economic effects are getting pretty grim, but they're soldiering on regardless as the inertia is very strong (and the vested interests have very deep pockets and a penchant for power). Understanding the economic model is a part of the overall process of change to more sustainable governance including moving to an economic system that doesn't rely on debt and growth.

Anyway, server's not playing ball tonight so I'll leave it at that for now.

[onlooker]

I find all this strand of thinking interesting in so much as it demonstrates how wed as a species we are too economics and its diverse systematic processes to bring the wealth of Earth to human societies. But I do side ultimately with Pstarr in so much as no matter what method of doing Economics, it cannot function in a manner that does not respect natural limits. Our current predicament as a species attests to this. We have overpopulated the entire planet, we have gone about dismantling the fabric of ecosystems upon which we ourselves ultimately depend on. We did and do this under the false impression that we can continue to defy the laws of nature. We cannot. Economics and ultimately every human activity including procreation must rest on the bedrock of respect for the Commons or else it is ultimately an activity or activities that will lead to the ruin of the society or civilization who practices it. The Creed of Consumerism and the biological imperative of Sex together have led us to this impasse. The latter impossible to voluntarily control and the former not.