The Baltic Dry Index, (BDI), is a measure of how many trade ships are operating across the globe. It is possibly the best predictor of global economic activity. More ships means that economic activity will pick up and spread out in future months. Less ships means less trade, meaning that, in about 6 months, overall economic activity will drop. The BDI has been low in recent years, as you can imagine. However, it has now reached its lowest level since ~2007 - (or maybe in all history? - check that).
With the BDI dropping, despite the vain glory on Wallstreet, which is a structure of lies these days, it was certain that global economy(s) would be taking a nose-dive. Companies slowed up shipping, orders fell off, inventories clogged, certain business functions and companies shut down. This cut into profits and into manufacturing. Therefore, stocks would fall for many, many companies and investors. (Wallstreet has experienced some predicted downward corrections, but a bigger shoe has yet to drop).
The US Fed has been "printing extra money," and loaning to the government, (adding to the debt), a great deal in recent years - ("Quantitative Easing"). The idea was that some extra money could be pumped into the USA economy, in order to spur activity. People suddenly feel like they have more cash to throw around. The problem with this is that it can lead to inflation, so that the value of everyone's DOLLAR eventually goes DOWN. Wallstreet loosens up. Banks make more loans, theoretically. There may be some stimulus, but this (QE) is mainly a magic trick - an illusion - especially at a time when the BDI is dropping.
In fact, this QE contradicts the spirit of Keynesianism, as the money goes to big banks and monopolies, instead of to grassroots, small businesses, and jobs programmes. The debt that the government grows, involved in QE, therefore relatively much more of a drag on the economy than a stimulus. Much more of the debt was taken on because of the wars in Iraq and Afghanistan, because of the growth of the NSA state, because of financial deregulation, because of Medicare Part C, and because tax revenues have been VERY low on big businesses, and CEOs don't use that windfall to reinvest in those businesses, but to gamble it away on derivatives, etc.
Because USA jobs have gone overseas, followed by USA manufacturing, banks, now GLOBAL, consider that loaning and investing to people and businesses is too risky, bringing in low interest rates. So, most of the extra QE money has been loaned out, and invested, into companies OVERSEAS, mainly in China. Therefore, China was growing along at a good clip, even while its millions of empty real estate properties, so lauded in "60 minutes", betrayed a coming slow-down, or crash, there. In order to keep China-USA trade going, China has bought up a lot of USA bonds, keeping the USA dollar propped up as the world reserve currency.
But there is only so long the USA economy can go, keeping interest rates low, trying to keep QE working, and sending dollar investments overseas. Soon, interest rates have to rise, when lenders stop making money off of foreign loan-outs, (as China falters), and try to make money off of higher rates. Just a slight rise in Fed interest rates, however, will scare off China, and other holders of USA debt, in the form of their USA treasury bonds. So, they will try to cash in those bonds. This will cause a currency disruption to the US dollar, sending it towards a spiral.
Russia has already started selling off. China and India, though, have been smart enough to be buying gold and silver, as a hedge against the coming fall of the dollar. Currency wars have already been occurring in other countries, like Japan and Europe.
Dollar Dump Begins: Russia Unloads 20% Of Its Total U.S. Holdings In ONE Month - http://www.shtfplan.com/headline-news/dollar-dump-begins-russia-unloads-20-of-its-total-u-s-holdings-in-one-month_02202015
The dollar has been kept artificially high by a number of big, deliberate efforts by the USA government and its collabourating banks. A high dollar means it is worth more, compared to other things, like the Yen, and like gold. A high dollar buys more gold. (Unfortunately, a horde of selfish people has been depleting our supply of gold, and probably has depleted Germany's gold, which has been stored here in the USA).
A high dollar also buys more foreign goods, especially from China, (because it is stronger than those foreign currencies). On the other hand, a high dollar continues to run USA exports and manufacturing into the ground. The main exports we end up shipping overseas tend to be more third-world type goods, like grain, and garbage.
One ongoing move the USA "imperial conspiracy" has been to short-sell large amounts of gold contracts on the market, forcing the value of gold to go down - which makes the value of the dollar go up. Additionally, the banks offer way too many contracts, promising repayment in gold which they just don't have. This is a paper-gold BUBBLE. It is affecting the price of real gold, bullion and coins, driving them down, when in fact true demand for them is rising greatly, (as is exemplified by the buying frenzy by China and India). It is a complete disconnect.
Another continuing programme employed to keep the dollar high has been a constant warring on nations which try not to USE the dollar to buy and sell their oil; to switch to some substitute, (for this globally common reserve currency), such as bartering, gold, or some other currency. Libya tried to do as much, and was raped, becoming a staging ground for US-supported terriblists, (see upcoming post about the severed heads!) Of course, Iraq tried to stop using the dollar, and it was invaded, and now it is unstable and poor, and Cheney & Company is exploiting the profits from its oil companies.
The danger that printing EXTRA money, (QE, dollars), is that there will be so many of them, that inflation could result. This hasn't happened, yet, since so many dollars go overseas, and we in the States remain rather bereft, jobless and non-credit-worthy. This danger of inflation has been why the Fed and Janet Geller has been saying that they are trying to reign in the printing, and the associated government debt. However, they are in an addiction - so every time they say they will stop the money presses, they keep them going. They only make these false announcements in order to dupe most investors on Wallstreet that everything is under control, and it is OK to loan out money without the fear of less valuable money coming back as repayment over time.
Ironically, a little inflation is what the government wants, to "stimulate" and deceive, but also because, as dollars drop in value, then the repayments on its massive debt becomes relatively less, (although the same enumerated amount). This is an important concept to grasp, if you have not grasped it yet. Say you take out a loan for $1000. But, by the time you are paying it back, the value of the dollar drops by 50%, (buying 50% less). Even though you will be paying back $1000 enumerated dollars, the VALUE of that amount will only now be 1/2 of what it was - essentially $500 in value.
Inflation makes things better for borrowers, (but it leads to allowing less people to borrow in the future). Present borrowers pay back less value than they initially got from the loan.
To check inflation, making it better for banks who LOAN OUT, the thing to do is to raise interest rates, meaning that more profit comes back to the lender. (This is only true in a somewhat robust economy). However, the Fed and the government has been keeping interest rates very low. Why? Because it does not care about banks lending internally, in this country. Those banks are getting higher interest rate returns by loaning to booming economic powerhouses, mainly China. And the money is concentrated at the top, for major corporations dealing in status quo ways.
In fact, the Fed feels it MUST keep interest rates low, (which is a legacy of Alan Greenspan's folly). Why? One reason: keeping those Treasury bonds viable, and so keeping the national debt growing. Why would China hold on to a portion of that debt, if the debt becomes more expensive? This relationship between debt, China, the USA and currencies, is complex and fragile. It is ready to fall apart.
Another reason that the Fed is keeping interest rates low is because this has gone on for so long that everything is keyed into a continuing expectation of low rates. A slight rise in interest rates will result in a disruption of the global banks LIBOR rate, which will make it harder for them to make loans. This is the reverse side of what I mentioned above. Yes, there is a higher profit on loans made - but in a dead economy, esp. here in the USA, WHO WANTS TO TAKE OUT LOANS WHEN THEY ARE MORE EXPENSIVE? Previously, there was the ability to loan-out and invest OVERSEAS, but this is now slipping.
Another reason that the Fed is keeping interest rates low is another status-quo problem... Derivatives. These are trillions of dollars of BETS, not investments, and once there begins a RUN on them, (Tragedy of the Commons), there will be not enough money in the world to pay up on them. This is really the most serious, dangerous threat to the world economy right now. Once interest rates rise, they will affect derivatives, as people try to cash them in and unload their own debt.
A few years ago, I wrote that it was possible that the China economy might slow down. I said that this would probably turn our quasi-inflationary depression into a DEFLATIONARY depression, which is more like what occurred in the 1930s. Well, a deflationary depression is something terrifying to corporations and elites. It slows everything down, prices plummet, nobody buys or invests. Businesses close and corporations collapse. Accumulated capital begins to disappear. Loans don't go out. And, so, banks collapse. We are already seeing the probable departure of Greece from the Euro-Union, electing Socialists.
By the way, another way that the dollar has been kept high has been through the sometimes-manipulated dysfunctioning of other countries' currencies. Troubles in Greece began with crimes and sins by Goldman-Sachs, and ended up with a collapse, leaving the people supposed to be holding the bag. The people blame Germany, and its absolutist financial moralism. But USA criminals had a hand in it. Now, the future of the Euro-Union is in peril, and the Euro is further falling in value. Well, when the Euro falls, the dollar rises not only in relation, but because investors move their money and bet on the dollar, since it remains the world's common reserve currency. More money goes into safer investments, like Treasury bonds. Once again, the USA economy is off the hook.
Meanwhile, the Yen is falling, and so is the Brazilian currency, and so forth. Since the USA CONTINUES to be the center of the world economy - the "fail-safe" for (deceptive) status-quo - then people continue to invest in it - in perpetuating it, though it may be in error. But, this won't last much longer. Most economists know this. And many bankers are being suicided for what they know.
The only "out" for corporations and elites who gravely feed a deflationary depression is to artificially ramp up production, via governments and complicit voters, through war. War also acts as a diversion and a terror to populations, who are expected to march along towards their graves, or else be painted as traitors - by peers and etc. No longer is there the need to rely on will-motivated consumers, now people are more easilly controlled via force and fear and deprivation. CONTROL is the ultimate game of money, and of psychopaths who grow up in money.
The fact is that only a tiny group skims of the wealth of most of humanity, keeping it constrained and in perpetual virtual scarcity. It is a MAMMOTH waste. So, when large populations become restive, then this tiny group reacts in fear, and will do anything to preserve its own wealth.
Decreasing the surplus population creates a whole new game board of opportunities for some corporations. This is why world wars come during the straining transition of predominance of an old superpower to some new one - everything is shaken up and loosed. Government puppets have unlimited leeway to change things. New countries can be selected as wide-scale investment arenas. Meanwhile, real development of progressive technologies can also occur at the same time. However, war is basically a lock down of one side of status-quo against the other side, resulting in far more destruction than any progress.
A weird advantage of decreasing the population? The labour pool shrinks, at least in some countries. While there is a real need for reconstruction after war, (if we get that far), there are simultaneously fewer workers, meaning wages go up. This can be afforded by the corporations maintaining prominence.
Well, China is now slowing down, as predicted. (Merely the BDI predicted that this could happen eventually). You might guess that this puts a crimp on US-China trade; in China holdings of USA treasury bonds; on currency relationships; on capital movement, etc. It also threatens the collapse of the dollar, as BRIC countries move away from the inherently, though central, depressing USA economy - and war machine - and spying empire.
Where does all that investment money now go, now that China offers less return? Probably into more derivatives, which is a forboding sign of inevitable global collapse. But, there will also be more money just floating around, awaiting the day when all reserve dollars suddenly get dumped back into the USA proper...
I also wrote that oil would be good as an investment in the short time, but that it would crash soon enough, so don't stay in long. Turns out, I was somehow right about this.
The whole story of oil is too much to get into right now. I have written about the petro-dollar and all its associated wars and disruptions. Mainly, the USA imperial conspiracy forces countries to keep using the dollar to buy and sell, and this keeps the dollar in demand, and so more valuable, i.e., high. This is an artificial endeavour, and is mainly a use of FORCE to determine VALUE - something intrinsically undemocratic. Bullying. Bullies always fall. This policy goes back to pre-WWII, but began steamrolling with the Dulles brothers and their associates, like Hoover and Nixon and the Kochs. People who got in its way, and in the Fed's way, were assassinated.
However, like the UN, it did have modernistic idealism behind it - (and then corrupt greedy bastards behind THAT). It felt that we were making the world safe for democracy, i.e., our corporations. This sort of degrading altruism eventually turned into the habitual creation of terriblist armies, drggg and gnnn running, severed heads, and so on.
Well, we have seen a drastic drop in the price of oil, following the tragically low BDI, and endless pointless war attempts, and bankster games. This parallels a loss in trust and morale - a fall in confidence world-wide. But, it never shows itself as such. It may be intimated by, e.g., a loss of consumer confidence, slumps in Wallstreet, etc. The USA has been pulling along the world economy, through a faltered ideology, and it is beginning to feel the weight now. But why is oil collapsing? Is that good or bad - for the USA economy, or for the dollar?
Thematically, oil is collapsing in parallel to a fall of confidence in the USA dollar, the present reserve currency.
More practically - Oil is collapsing because the global economy is saturated by over-capacity, not merely too many good compared to the willingness or ability of the markets to buy, but also investment is all tied up in ridiculous, invalid investments, mainly derivatives. Each greedy person goes for the big prize - but the WHOLE of humanity has occult knowledge that the entire system will be falling apart, unable to pay off everyone. Investments are KNOWN to be a joke. But no one says this, because the truth is too grave to imagine. Each person is afraid to defy the peer, and etc., pressure. Evryone remains locked into the dead-end status quo.
That means being locked into the fossil-fuel, perpetual manufacturing machine. There is no way out of perpetual manufacturing, in our current models of economics. It is not available in our collective brain.
Near the beginning of the fall in oil prices, many theorised that Saudi Arabia was deliberately selling its oil low, in order to put Russian oil companies out of business. Actually, this is how businesses and countries act when the economy goes stale: They lower prices in order to survive. It is a natural thing in capitalism. The conspiracy theory is only true in so far as SOME jerkwads will aggregate or condense along these natural lines of activity, and deactivation, (or along the $ opportunities offered through them), and knowingly seek to make Russia fail. But that is not the genesis of the process. The genesis is in atomistic capitalism itself.
How could Saudi Arabia drop oil prices, and so threaten the USA oil industry? Even while being a profound partner in crime, Saudi Arabia - the banks, the corporations, the royal family - work for their own interests.
Well, why did the USA go nuts on a fracking campaign, much of it covert, when this would threaten the oil industry of Saudi Arabia? Self-interest. And, I dare say, a strategy meant to bring the dollar down, to impress Americans that the Democrats are making our economy better, which they are not. Yes, cheaper oil means less expensive drives to the Superbowl, and some business and buying stimulus. But the deeper reality is that this is bringing on a deflationary depression, soon to collapse the dollar.
The USA caused an oil glut on the world market, perhaps convinced that only pushing ahead stronger, producing more oil, would FORCE their way out of the post-2008 economy. As the center of the world economy, this is pretty much the only option is has, as far as attitudes go. (We see that in our wars for oil, for the dollar). This oil glut came after China slowed down, and during a big fall in the BDI. Many stats have been fudged to make things look like we have only been in recession - but the fact is, we have been in depression since 2008. Producing an oil glut in a depressed economy, while printing money to pretend that there is a little inflationary boom, is just plain stupid. But, most everyone has been out for their own self-interest.
Consequently, loans and investments made to fracking and shale companies are failing, and these new companies in the USA are going under. The greed has come around to bite us. Now, what will be left? The giant oil corporations, which are more and more like banks. What will fall? Commodity prices. Trade. NEW ALTERNATE ENERGY COMPANIES.
Just as lowering prices undercut upstart Russia and USA, it also forces out competing green energy possibilities. So - this is a logger-jam, for the status quo. Once the competition is laid to rest, Saudi Arabia will try to raise its prices again. Once again, the big-oil regime prevails. Those crooks who get rich by it, and associated banks, will also prevail. Yet, this contradicts where the world obviously needs to go! Thus, to climb out of this trap, the main solution sought will be war, where nations (and religions and races) do indeed blame each other for competing and supposedly conniving.
What does the present low price of oil mean for the high petro-dollar? I haven't thought enough on this, but it seems obvious that it threatens it. But, like all other threats to the dollar, such as problems in Europe, things usually work out well enough for the dollar, as we discussed. The whole world is winding backwards, but the US at a slower rate, giving the appearance of moving ahead. So far so good. But not forever. When things get too tight around the growing periphery of the world economy, some concerted action will be taken by the BRIC countries, deliberately contesting the strength of the US dollar. In other words, war will be inevitable.
Meanwhile, the USA imperial conspiracy has been on a manic, methodical campaign to undercut the BRIC countries, as in its sponsored upheavals in Ukraine. Push ahead, in a bastardly fashion, this is the only option it sees available to it. The center either forges ahead or collapses. Peaceful transitions or revolutions are not seen as possible, and all movements in these directions are sniffed and snuffed out.
Granted, many people in government, in the military, in life, they make sincere efforts NOT to facilitate such movements. This is often true of Obama, who also plays a dif game with the other hand. But, there remain good people and good efforts in this country. But even the best intentions, and best-laid plans, can be taken on a highway to hell.
At the same time, new USA fracking and shale companies are failing. The cost of producing oil, that way, is just way too much, compared to the low return, (due to falling oil prices). I have always looked with sadness and scorn, and irony, at how the world just goes on, digging itself in deeper and deeper, addicted to oil, like a vampire to blood. It comes up with new and more oblique ways to pull out oil, drilling sideways for miles, pumping in water and chemicals, destroying well water and aquifers, even though all this costs companies more - and costs the creatures of the planet even more. Its called crapping in your crib.
And, while the Arctic recedes, due to global warming, there is nothing progressive - but only a mad dash by northern countries to compete and drill for oil in the Arctic, with methane leaking from the permafrost all around.
I believe in abiotic oil - produced by geological processes - in addition to oil from biological residues. It is probably that many oil wells can sometimes be replenished. But, we may be extracting way too fast for this replenishment to satisfy our growth. The fracking and shale drilling only costs more and more, causing more and more damage. All things being said, the concept of peak oil still remains a truth, in my opinion, although qualified by these points.
In addition, in capitalism, no energy resource is every fully depleted. Instead, the costs of obtaining it become more and more expensive, given the set technologies and "standard value grids" of distribution and such, (not to mention set economic procedures within the financial and political systems). The cost of obtaining and using one resource then, (hopefully), begins to give way to some cheaper resource and means.
We were headed in that direction, but have been turning back for decades now. The mass investment in fracking and shale has been a form of denial of this natural trend, trying to turn the clocks back, reclaim old wealth, or preserve the status quo, (& status hierarchy).
Enough of that little rant...
With the drop in oil prices, the new fracking and shale companies are failing, (as are some gold and silver mining companies, btw, due to the artificially low price of gold/silver). What about all the investors in those companies, holding stock? What about the bank loans made to those companies? They are failing, too! And that's a LOT of money. A lot of easy, crap money - that's what is behind those companies: poor hedge funds, derivatives, expensive loans. These were all the securities which the companies either dipped into, or borrowed off of as collateral, in addition to direct stock investments. All of these are failing. And people are rushing to pull their cash out ASAP.
The most dangerous of these is derivatives. Billions (or trillions) of dollars of derivatives are now being called in, all at once, which threatens a more widespread run on derivatives, which will ultimate bring the dollar down. Before this happens, interest rates are being disrupted. More cash is floating around looking for bubbles. It is a very precarious situation.
Some articles -
Oil Collapse: “This Could Cause The Most Destructive Economic Situation Since the Great Depression”
Why The Damage To The Economy Caused By The Oil Crash Is Going To Get Progressively Worse
Birth Pangs Of The Coming Great Depression
How to survive when the dollar collapses
Global economy continues to wither as West Coast ports remain shut down
What would happen if Greece quits the euro?
Euro plummets as EU edges toward collapse
Now, on to a few interesting points. Remember, above, how corrupt people may creep in and try to force other nations to go under, when they are merely parasiting off of a natural process in capitalism, for companies and cabals to lower prices, to survive, ergo, to undercut competition in general? (It is intriguing how the economic and the human coalesce almost indistinguishably). I have written before of how conspiracies do exist, but along these natural lines of competition, etc., which are the main force - since EVERYONE involve therein are pushing their own little self-interests. Well, a comparable coalescing or coincidence occurs when economies sour. Not only do corporations experience financial stress - but - at the same time - workers step up, reacting to their own stress, making demands for better pay or working conditions! Just when the companies need it the least.
(Well, an aside... Labour progress doesn't always begin in bad times. It also occurs in greedy times of plenty, when it can be afforded. Today, we are seeing all that being dismantled).
Back to our old friend, the Baltic Dry Index, (BDI). This measure tells us how many ships are moving, and how many are ladened down, languishing in the docks, or not even contracted out. If the volume is low, then you can bet that the economy will be taking a dip soon, when financial exchanges are ledgered, when production orders slow down, when manufacturing tapers off, when investment in companies follows, downward, etc. Trade slumps off, and so will the demand and use of oil, eventually. Trade empties out, and so must oil eventually, then affecting all other prices. A critical hit ends up as a general slump.
Well, at the same time that shipping is low, and companies are hurting, what do we see in Southern California? Workers on strike against poor working conditions! Why? Because they are hurting too. They need money even more than the CEOs do. But, CEOs are always looking up - just like the (central) USA economic planners. They have a blind-spot towards everyone down there - the workers and the jobless. The poor. The hungry. It is callous disregard, as well taught by the machine of capitalism itself. How sad it is that we all conspire in this system of stress, and of reactionary greed, always wanting-needing more, always desperate and tired and angry. No wonder we end up consuming everything in sight - a false substitute for real life.
Centuries ago, when the Portuguese were discovering everything in their little big ships, the Chinese started building REALLY REALLY big ships. They dwarfed all other ships of the past, and even of the future. They hauled cargo. Well, once again, the Chinese are building gigantic shipping ships. And this is what the dock workers are protesting about. It takes too much work to deal with these behemoths.
I don't know if the BDI takes into account the sizes of ships. In any event, while global shipping is stalled, here are the Chinese, reacting in their own way to encroaching constraints, by building bigger and bigger - just like we build up banks supposedly too big to fail.
It's always the same old story: Consolidation, growth, monopolisation - until the resulting monster gets too big for his cage, and died for want of oxygen. Warding off the onslaught of entropy, surprised by new chaos seeping in from the workers below, and so forth, always looking up - the only solution is to get bigger and bigger. Move more stuff at a cheaper rate per item - by saving on oil costs, ha ha. Well, now it's going down to $20 a barrel. And we don't want so much of China's stuff anymore. The time is coming soon, after the dollar falls, when the USA will start exporting crap goods. And China won't know how to deal with that one.
So, yes. You see workers demanding a living wage at McDonalds, at the same time McDonalds is suffering losses, because people don't want to spend their minimum wages on crap food anymore.
And you see WalMart saying it will raise the hourly wage of its workers to $10 an hour. But even WalMart has been suffering losses. So, it will likely turn around and fire tonnes of workers. Or ship them away to Australia in giant ships.
That's about all for now, ciao.