Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on November 20, 2016

Bookmark and Share

The Peak & Decline Of International Reserves Warns Of Massive Asset Deflation Ahead

The Peak & Decline Of International Reserves Warns Of Massive Asset Deflation Ahead thumbnail

The world is sitting at the edge of a massive deflationary cliff.  Even though Central Banks are desperately trying to keep the world’s financial assets from plunging down into the great depression below, signs suggest they are losing the battle.

One critical sign is the peak and decline of International Reserves.  Hugo Salinas Price has been keeping an eye on International Reserves for quite some time.  In his recent article, A Reversal In The Trend Of International Reserves, he stated the following:

International Reserves peaked on August 1, 2014, at $12.032 Trillion dollars, and as of October 28, 2016 they stood at $11.066 Trillion dollars.

 

International Reserves stood at about $10 Trillion in 2011, but the rate of growth slacked off; the weekly increases in Reserves (which Bloomberg used to publish every Friday) stalled and became smaller, week by week. As mid-2014 came around, the increases were quite small. It was clear that the trend was for ever-smaller increases, and that could only mean that finally there would be no increase, which would be immediately followed by decreases in the total of International Reserves held by Central Banks. That is exactly what took place.

Here is a chart of International Reserves from Hugo Salinas Price’s article:

Internationa Reserves Hugo Salinas Price

Hugo Salinas Price explains in the article, “that the increases of International Reserves take place when the Reserve Currency issuing countries effect payments to the rest of the world.”  Basically, countries such as the United States that run trade deficits, exchange fiat money or Treasuries for goods from other countries.  This shows up as an increase in International Reserves.

Now, what is important to understand about the chart above is the timing of the PEAK & DECLINE of International Reserves.  I had an email exchange with Mr. Salinas on what I believe was the leading factor in why the International Reserves peaked and declined.

When I went back and looked at a five-year price chart of a barrel of oil (West Texas), I found a very interesting coincidence:

West Texas Crude Price

The price of a barrel of West Texas Crude fell below $100 starting at the beginning of August, 2014…. TO THE DATE.  Even though the oil price had traded between $85-$100 over the past three years, it averaged over $95.  However, by the end of 2014, it had fallen by more than half.

This had a profound impact on International Reserves as the low oil price gutted the energy-commodity-goods producing countries.  These are the countries that hold the majority of International Reserves.  So, as the price of oil continued to stay below $50 a barrel, these countries had to sell Bonds and acquire cash to fund their own domestic account deficits.

Thus, the peak and decline of International Reserves occurred right at the same time, the peak and decline of high oil prices.  THIS IS NO COINCIDENCE.

As Hugo Salinas Price’s chart above shows, the world has experienced massive asset inflation ever since President Nixon dropped the Gold-Dollar peg in 1971.  Furthermore, it isn’t a coincidence that the U.S. Debt went up in a similar exponential trend the same as International Reserves since 1971:

US Public Debt vs Oil EROI

The reason for the massive increase in U.S. debt shown in the chart above was due to the falling EROI – Energy Returned On Investment of U.S. Oil & Gas.  When the United States enjoyed an EROI of 30+/1 (prior to 1971), its debt remained low… relatively speaking.  However, as the U.S. Oil & Gas EROI continued to decline, its public debt skyrocketed.  Part of this U.S. debt is included as International Reserves.

Basically, the United States (and other countries) could no longer afford to sustain their domestic economies with their own energy sources, so they had to import energy (commodities-goods) to continue business as usual.  These trade or account deficits resulted in the exponential increase of International Reserves.

Unfortunately, the peak and decline of International Reserves represents the POPPING OF THE MASSIVE INFLATIONARY ASSET BUBBLE.  This is due to the falling oil price as well as the rapidly declining net energy in a barrel of oil.

Mr. Salinas is one of the few spokesmen in the precious metals community that understands the dire implications of the declining global oil industry.  He translated my Big Trouble At ExxonMobil article in Spanish on his website: Toca a su fin la época de la gran industria petrolera americana. ExxonMobil tiene enormes problemas.

While the Mainstream media is completely clueless to the disaster currently taking place in the Global Oil Industry, most in the precious community are oblivious as well.  This is due to the fact that most analysts in the precious metals community have BLINDERS on.  They just rather focus on the direct impact of gold and silver, and nothing else.  This is quite a shame as ENERGY is the KEY.

Lastly, there seems to be a lot of discontent in the precious metals community since the price of gold and silver declined after the Trump Presidential election.  Not only was the election of Trump as the U.S. President a surprise to most, the negative market reaction on the precious metals prices was the opposite of what most anticipated.

That being said, I am not surprised to see that the many people have become disillusioned or distraught on falling gold and silver prices.  This is the FICKLE NATURE of the general public or the typical investor.  Few have the mental or intestinal fortitude to withstand going against the grain (mob).

A perfect example of this was shown in the movie, THE BIG SHORT.  The original investor (played by Christian Bale in the movie) had severe threats against him from his investors when it seemed as if the MBS Short trade was going against him.  Ultimately, the Big Short trade against Mortgage Back Securities paid handsomely.

On the other hand, the falling gold and silver price has not impacted me at all.  The reason for  that is my understanding of the Oil and Energy Industries.  Again, most people in the precious metals community still don’t understand the dire ramifications of the collapsing global oil industry, so they continue to focus on the GOLD & SILVER PRICE.  This can be quite frustrating.

So, if you are a gold and silver investor and want to continue to be frustrated by the paper price of the metals, please continue what you are doing.  However, if you want to understand why the precious metals will be one of the only safe havens in the future, please learn more about the energy situation which I will provide in future articles.

SRSrocco Report, zerohedge



24 Comments on "The Peak & Decline Of International Reserves Warns Of Massive Asset Deflation Ahead"

  1. Hello on Sun, 20th Nov 2016 7:02 am 

    Can you say zerohedge without a smile?

  2. Davy on Sun, 20th Nov 2016 7:23 am 

    It is called global and macro stagflation or in other words limits of growth and diminishing returns. Oil is part of this but so is overpopulation and limits to complexity. Ecological destruction and climate destabilizations are nearly ready to gives us the knockout blow. We have systematic deflation with too much debt creating a dysfunctional economic system which is locked into a dilemma of global competitive cooperation. No one nation can decouple from this. The result of this catch 22 is not only deflation it is inflation. So many things are too expensive for the average man. All per capita metrics are negative. The dysfunction of years of malinvestment is setting us up for bankruptcies and loss of economic output. This at a time population is exploding by 80MIL a year.

    What we are really in is the reality of the beginning of contained hyperinflation. Globalism has contained hyperinflation because frankly where can one go with his money or his life. There is nowhere to move to and nowhere to invest that is not part of this phenomenon of global hyperinflation. Hyperinflation by definition is loss of confidence. Everyone is in cognitive dissonance to this loss of confidence and hyperinflation. The social narrative is telling us everything is OK. Technology is going to save us. We will find a way to overcome our problems as we sink deeper into the abyss. Blaming this process on oil and finance is just intellectual laziness. This goes to the heart of modern man and his defects. Oil and high finance are just an expression of this destructive change. There are no solutions only destruction.

  3. eugene on Sun, 20th Nov 2016 7:48 am 

    I couldn’t agree more re inflation. I have watched our costs climb 30-40% over the last ten yrs. Electric bill from 55 to 85. Home insurance from 800 to 1100. Dental cleaning from 90 to 140. And the list goes on. We retired in 2004 and, as costs climb, means we’ll have to start tapping savings.

  4. twocats on Sun, 20th Nov 2016 8:14 am 

    If you are paying a mortgage on a home that you bought for over $400/sq. ft., or have lots of stock in companies with P/E ratios over 50 you are probably going to experience deflation in the next decade.

    If you want to buy something from people trying to maintain that level of inflated assets you are probably going to experience inflation.

    As for food and fuel. I’m assuming they will go up relative to wage growth.

  5. peakyeast on Sun, 20th Nov 2016 9:19 am 

    Essentials up – non-essentials down. Unless they are in high stock by the super-wealthy.

    We are going back to the thralls and the monarchs in disguise.

  6. paulo1 on Sun, 20th Nov 2016 10:08 am 

    Who on earth buys a home that costs over $400/sq ft US? A freaking idiot, that’s who. Anyone who did and/or does should lose their shirt. I am including the price of the land/lot in this statement. People live waaaay beyond their means and the forgotten reality of common sense.

    I have some in-laws who have contracted to build a new house at just over $200/sq ft. Plus land costs, they will owe close to $500,000. At age 50 I call this insanity. The bottom line, regardless of tax considerations, if you still owe on a mortgage you cannot retire.

    JH Kunstler talks about happy motoring. We should add to that mindless aquisitions and consumption.

    The record player is slowing down. You need a chair when when the music stops….not a mortgage or car payment.

    regards

  7. shortonoil on Sun, 20th Nov 2016 10:53 am 

    “Thus, the peak and decline of International Reserves occurred right at the same time, the peak and decline of high oil prices. THIS IS NO COINCIDENCE.”

    The reserves that any individual producer holds is dependent on the quantity of oil the producer can extract, and then sell at a profit. That means that reserves are a matter of price and production cost. The higher the price the greater the reserves; the higher the production cost the lower the reserves. When the price declined by 50% in 2014 the reserves also declined at the same rate. Few noticed because most assumed that the price would recover. It didn’t!

    The world now holds less than half of the reserves that it held at the start of 2014. To add to the dilemma almost no new oil has come on line to replace what is being extracted:

    https://assets.bwbx.io/images/users/iqjWHBFdfxIU/icbkDFACM4iA/v2/-1x-1.png

    The price is too low to allow producers to bring new oil online. The world is now facing a critical shortage of oil that it can afford to produce.

    That means that there is less wealth to back the fiat currency the world uses. The currency has lost purchasing power because there is less to be purchased. A suit case full of $100 bills on a deserted island would have no value. It would have deflated to zero; its true intrinsic value.

    As we have been saying for several years the world is now in a deflationary spiral for which there is no escape. The ongoing depletion of petroleum assures it. Less energy from oil means less goods and services to be consumed by the economy; the fewer goods and services there are the less the total currency in circulation is worth. The velocity of money falls because there are fewer goods and services to acquire. The creation of currency by the central banks remains on their books (or in the banking sector) because there is less and less for the economy to spend it on. Deflation appears not for a lack of currency in circulation, but for a lack of goods to acquire.

    The oil age ends when producers can no longer make a profit producing oil. As the world’s reserves fall their ability to make money falls with it. [b][i]”Depletion: A determination for the world’s petroleum reserves[/i][/b]” defines when that level will reach zero. Mr. Price stated that on [b]”October 28, 2016 they stood at $11.066 Trillion dollars”[/b] or 7.44 years at current price, and production levels. With prices scheduled to be going down, and production likely to follow:

    http://www.thehillsgroup.org/depletion2_022.htm

    that could be a little optimistic!

    http://www.thehillsgroup.org/

  8. Northwest Resident on Sun, 20th Nov 2016 11:26 am 

    Nice post, shortonoil. My only disagreement is that a suitcase full of $100 bills on a deserted island STILL has value — as toilet paper and fire starter. So, not exactly an intrinsic net worth of zero, but close.

    BTW, it annoys me to find posters on peakoilbarrel, here and other places sniping at the math that Hills group did to come up with your projections and conclusions. I personally have no interest in digging into your math — if you tell me that the sky is blue on a sunny day, I’m not going to question your decision-making process to arrive at a fact that is undeniably true. And it is the same with oil depletion and the catastrophic impact on the global economy that oil depletion is wreaking — the effects are obvious, you predicted it, something MUST be right about your math.

    Glad to see you’re not letting the ankle biters get you down.

  9. Bob Inget on Sun, 20th Nov 2016 12:47 pm 

    Before deflation there’s hyperinflation.
    Let’s use Venezuela as an example.
    Arguably, Venezuela has the world’s largest
    reserves of untapped Orinoco (heavy oil) reserves. Venezuela, like Every Other OPEC
    Member needs a minimum of $65 to $80 to return to profitability.
    Are low world oil prices perpetuating imported consumer goods (food) shortages?
    Is it possible suppliers, (shipping, agriculture,
    commodity, manufacturing) are also suffering from an almost 100% sales drop?
    Unsubsidized food remains, for the masses, priced out of reach.

    Artificially low oil prices andNorthern Nigeria’s famine:
    http://www.washingtonpost.com/sf/world/2016/10/13/they-survived-boko-haram-now-millions-in-nigeria-face-a-new-threat-starvation/

  10. Dave on Sun, 20th Nov 2016 12:56 pm 

    Right NR, Hill’s group is making a point that is not hard to understand and see in process. If you have been on this board for any length then you have seen and discussed all the variables in question. Depletion is a phenomenon we can understand and gauge. We can argue some of the detail but the underlying reality is solid in my mind. I don’t have a problem with people who diminish it. The process of discovering the truth requires debate. I do have a problem with people that want to dismiss and discredit their work without a valid argument.

  11. joe on Sun, 20th Nov 2016 1:02 pm 

    Oil might also be bartered. The dollar system of pricing only maintains the US empire. While a the destruction of that system will produce a tougher more ‘traditional’ America, it will also produce a much smaller world. Oil traded for wheat or other staples will likely emerge. However the intrinsic value of oil is what we make it into, the real question then is imo this: at what point do we no longer want the products of oil? Trump will likely reduce corporate taxes and so Americans should see many overseas jobs returning, so five years from now we should see some results e.g more domestic demand and a higher value of the dollar. That process though will have allot of pain. Also a world of reduced global trade reduces the requirement for the wto, imf etc. Ironically much of the left might be happier, Trumps policies might produce a more local world, more than merely rhetorical poetry. None of this reduces the truth about the bumpy plateau we are on.

  12. peakyeast on Sun, 20th Nov 2016 2:33 pm 

    @bob: There is a big difference between oil being profitable and profitable enough to support budgets made while dreaming of endless riches.

    In politics tomorrow is a hypothetical problem that we will pretend doesnt exist until it does.

  13. SRSrocco on Sun, 20th Nov 2016 2:38 pm 

    Shortonoil is correct. Deflation will impact the value of stocks, bonds and real estate in a negative way that will totally blindside the investing public.

    Venezuela is suffering from two types of deflation:

    1) The destruction in value of their paper currency.

    2) The Deflation in the number of goods and services.

    Thus, Gold and silver can buy a lot of goods and services because there are very little forms of real money in the country.

    1 Oz of silver buys 9 months worth of food from a rural farmers harvest.

    As the collapse of the price of oil and production occurs as The Hill’s Group’s ETP model forecasts, watch as the same situation in Venezuela spreads to the United States and throughoutthe rest of the world.

    Steve

  14. Boat on Sun, 20th Nov 2016 3:17 pm 

    Steve,

    So you can buy 9 months of food for 17.50. Where do you live? Home of the 10 lb man?

  15. SRSrocco on Sun, 20th Nov 2016 3:42 pm 

    Boat,

    In Venezuela. An associate of mine knows a missionary who just came back from Venezuela. This is what he sees going on in the country, not cities in Venezuela.

    Steve

  16. peakyeast on Sun, 20th Nov 2016 3:54 pm 

    Thanks for commenting SRSrocco.

  17. paulo1 on Sun, 20th Nov 2016 5:16 pm 

    Good comment NW resi.

    I have also been irritated at the attacks on etp model. Regardless of the math, it is undeniable that a poorer thermodynamic return on product for the energy invested to develop that product must have an effect. The problem that I see is the interpetation of the falling price of oil. People think of the 1% surplus to oil required as a glut, and add, “See, the whole Peak Oil talk was wrong, otherwise, we would have skyrocketing prices”. Instead, as people find less and less need to buy oil for a host of reasons, some related and some not, the price is dropping. Sure, dummies might be going out and buying SUVs, but if you took away 7 year financing would there really be the money for this to occur? Surplus energy wealth is being replaced by debt as available energy declines (quality), and that is clouding the discussion and also covering up the obvious. The obvious, to me, is that the economy and opportunity is winding down. Growth is anemic, at best.

    My dad used to always descibe the Great Depression thus, “We always had enough to eat because we lived in farming country. We just never had any damn money to do anything or buy anything”. To me, that describes bot Canada and US in a nutshell. When interest rates one day rise, and they will, the whole damn circus will grind to a halt. Then, see how much oil is being used and what the price is?

  18. makati1 on Sun, 20th Nov 2016 6:01 pm 

    Spot on, Paulo1. There are many here who cannot think through the WHOLE system and get past their personal ignorance. DEBT is killing the demand for oil, or anything else, and will only get worse. Take interest back to the historical 4-6% and even the fake ‘growth’ will be gone, forever.

  19. makati1 on Sun, 20th Nov 2016 6:09 pm 

    joe, I hope you didn’t buy that bullshit. “Trump will likely reduce corporate taxes and so Americans should see many overseas jobs returning,…” ZERO jobs are “coming back”. Corporate taxes may drop, but then labor’s cost (wages/bennies) must drop to 3rd world levels to be competitive and profitable. Not going to happen … yet.

    The stupidity of American voters is mind boggling, but I am glad he was elected. Now we will see if he makes it to office. January 20th is a long way off.

  20. antaris on Sun, 20th Nov 2016 6:48 pm 

    So how is Trumps rebuilding going to be paid for?
    Maybe all roads and bridges will become toll.
    Or will the Mexicans get stuck paying for it.

  21. Davy on Sun, 20th Nov 2016 7:05 pm 

    It likely won’t be paid for because it may not happen. It will be a whole lot of talk then *Boom* the bottom will drop out of the global economy and rebuilding will be forgotten about. Instead it will be all about fighting political, economic, and social fires. Trump is walking into a hornets nest.

  22. joe on Sun, 20th Nov 2016 11:40 pm 

    Mak, the answer is no, I dont buy anything from Trumps mouth. I also noticed that Merkel has decided to run for 4 more years. She must think she is the last hope of liberalism and the only one who can save Europe (and the EU). Its sad what power can do to create megalomania. Trump will probobly end up the same way.

  23. makati1 on Mon, 21st Nov 2016 3:06 am 

    Joe, that might happen, but there is a huge billion dollar difference. Trump is already famous and rich. He doesn’t need to beg for it. I am hoping that he does at least 50% of what he said he would. That is, IF he actually makes it to the Oval Office. I’m thinking Lincoln and JFK.

  24. Theedrich on Mon, 21st Nov 2016 4:12 am 

    The “Leonardo sticks” structure that Gail Tverberg has long and repeatedly shown on her website graphically illustrates the dilemma of Tainteresquely increasing complexity.  Take out a single stick and the whole structure collapses.  The global system has been “growing better” for mankind due to the Ponzi scheme based on biospheric degradation.  But as the Club of Rome explained with its “Limits to Growth” many decades ago, collapse is an automatic result of such business as usual.  The Left, headed by the Sörös squid and its national and international co-conspirators (e.g., ex-Commie Angela Merkel), preaches that killing the goose that lays the golden eggs will (besides stealthily enriching oligarchs) lead to salvation for all.  It is amazing how much appeal this sermonizing has amongst the herd.  Despite the experience of Communism (leading to 150 million deaths) in the last century, Venezuela decided to follow the same path.  Papa Frank demands the same of us.  Nor is this all:  the military absurdities committed by a megalomaniac U.S. have only greased the chute to catastrophe.

    Of course, all of this preparation for mass suicide is justified by moralizing and sob stories and by the political manipulation of religion.  As if blather could stop the tides.  Regardless of the facts, the propaganda continues:  we are facing a tsunami of lies and falsehoods of every type, the currently most fashionable one being the accusation of consummate evil genetically implanted in the White man and in him alone.  He is told he must simultaneously accept all ThirdWorld parasites into his homelands and extinguish himself utterly.

    Removal of one small Leonardo stick will be enough to terminate the entire scheme.  It could be a small North Korean nuke landing in the middle of L.A. or an ISIS “dirty bomb” of some sort in New York.  After all, complexity is not limited to “constructive” elements alone (e.g., another self-driving car) but includes many destructive ones (narcotraffickers allying themselves with neo-nihilists on the southern U.S. border, “pious” Mohammedans demographically taking over European governments and ending democracy, etc.) as well.  Stopping any single one of these threats is ideologically impossible for the White man, since he is paralyzed by his religion and his “humanistic” values.

    The election of Trump represents a movement of the uneasy collective unconscious slowly becoming aware of the fact that we are facing the end of civilization.  As Gail says, Trump’s program would seem to be an attempt to reduce complexity, a reduction that the Left is enraged about, even though the cards he has been dealt are stacked ominously against him.  The sinistral oligarchy, in generating anti-Trump protests among clueless mobs on and off campuses, is doing its best to incite as many homicidal maniacs as possible in the hope that they may thereby bring about a Ukraine-style coup.  If they succeed, of course, the globe will collapse all the sooner, perhaps immediately.  Given the nihilism which drives them, that may be their real goal.

Leave a Reply

Your email address will not be published. Required fields are marked *