People who predicted the credit crisis

Here's Peter Schiff Video back from 2006:




Also, some reputable financial gurus like Jim Puplava are predicting a hyperinflationary depression by 2010. Here's Jim's "Big Picture" segment from last Saturday.

On the politicians' side, Congressman Paul also predicted the crisis with Fannie and Freddy.

What do all of them have in common? They follow what's called the Austrian School of Economics Business Cycle theory, which can be found here.

Adjusted Monetary Base

The Chart above shows the Adjusted Monetary Bases. Look at the growth between May and Sept. Roughly 9.20% growth in less than four weeks! That's what I would call hyperinflation. This is extremely important since the Fed had pursued a more or less stable AMB growth.

Being that the Federal Reserve has entered a stage of hyperinflation money creation, this would not allow for crude prices to go down significantly (absent Fed intervention, because of the underlying recession, commodities prices would fall)

From Gary North:
" Ben Bernanke's helicopter has finally lifted off the pad.

The FED is in panic mode. It is inflation the monetary base at an astounding rate.

This is the very early phase of the big bank bailout.

I think this is the turning point. From now on, Bernanke will imitate Greenspan in 1987, 1999, and 2001.

Monetary inflation has begun. It won't stay at this pace. No country can survive anything like this. But it shows where we are headed.

The FED has to get the Congress to intervene and save the banks. If Congress refuses, mass inflation is inevitable. There is a market for Treasury debt. If Congress authorizes the sale of Treasury securities by raising the debt ceiling, the FED can back off. If Congress refuses, then it's "mass inflation, here we come."

I think Congrress will buckle. But I could be wrong."

Chavez: China, Venezuela to plan two refineries

Chavez: China, Venezuela to plan two refineries

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Sept. 23 -- Venezuelan President Hugo Chavez said his country and China plan to construct two refineries, one in each country, with a formal agreement to be signed soon.

"Venezuela has enough oil to last for 200 years," Chavez said. "And the Chinese are already working to tap that."

Chavez said the refinery to be built in Venezuela will be built in the Orinoco basin, but he did not provide details of where the Chinese facility would be constructed.

China is a key link in Chavez's aim of developing new markets for its oil exports, and Chinese demand has been growing in the past year.

Earlier this month, China National Petroleum Corp. subsidiary PetroChina Co. said it would need to import more Venezuelan crude to feed its upgraded 180,740 b/d Liaoyang refinery in northern China.

PetroChina has completed upgrading a vacuum distillation unit at the refinery that will enable it to process 70,290 b/d of Venezuelan high-sulfur crude.

CNPC said the refinery had received 388,490 bbl of Venezuelan crude for a trial operation during August and will increase its runs in the future.

In August, Petroleos de Venezuela SA Vice-Pres. Eulogio del Pino said the state firm is sending about 360,000 b/d of crude to China. Del Pino said PDVSA aims to increase those shipments to 1 million b/d by 2012.

Venezuela's shipments to China have surged this year. In May alone, Venezuela supplied 14.1% of China's product imports, up from 3.1% in April, according to figures from the Organization of Petroleum Exporting Countries.

In the first 7 months of 2008, Venezuela exported 5.18 million tons, or 38 million bbl, of crude to China—an increase of 93.8% over 2007.

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This, among other reasons, is why the US should increase domestic crude production. Relying on suppliers like Venezuela is not sustainable not only due to geopolitical conflicts, but actual operations of PDVSA. PDVSA has been highly mismanaged, and has not reinvested back into the business. Natural declines coupled with lack of investment will reduce Venezuela's oil exports to the US.

The Idiocy of Wall Street: Applauding Its Own Demise

by Don A. Rich

"We were told less than six weeks ago by the Congressional Budget Office that the taxpayers may have to spend up to $25 billion dollars bailing out Fannie Mae and Freddie Mac. Secretary Paulson and Federal Reserve Chairman Bernanke assured us that beyond that, all was well. Why is anyone still listening to Paulson and Bernanke?

The resulting central-bank-induced disequilibrium relationships between price and risk is bound to generate massive movements in the prices of debt instruments back to their equilibrium relationship, a process that in its infancy has already destroyed the capital of the world's private-banking systems.

The federal government — through the Department of the Treasury and the Federal Reserve — is now committed to assuming the entire credit risk of the financial-services industry of the United States, and quite possibly much of the industrialized world. The US government itself is already insolvent in an intertemporal sense, with a budget deficit over time of $30 trillion in present discounted-value terms. How the federal government's assumption of the American and world financial systems' risks is supposed to be credible on a long- or even medium- and short-term basis is totally unclear.

In a bubble, asset prices are by definition far above equilibrium values. The federal government is now committed to guaranteeing the difference between the real equilibrium values of all debt securities and their stated/nominal value, which was created during the greatest credit bubble in history.

That difference between nominal and equilibrium/real value must by definition be a massive number because of the extent of the credit bubble, on the order of $5 trillion dollars in the United States alone.

Unlike the short-attention-span monkeys of Wall Street, the reasonable analyst will conclude that all the federal government's options for making up the difference between nominal and real values have bad implications for Wall Street.

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One of the reasons the Financial industry is doomed to a decline

The chart above is one of the main reasons I think the financial sector will not do well at all. We can clearly see with this chart that consumers are already in debt, so the financial industry's growth they experienced since 1980 cannot be sustained anymore. Between 1980 and 2008, total household credit outstanding grew from $1.3 trillion to more than $14 trillion, a ten-fold increase!

As I have mentioned before, employment in Financial companies will experience a decrease.

Disagree? Agree? Drop me a line

Here's the link to that chart and the data behind it: http://research.stlouisfed.org/fred2/series/CMDEBT

Price Gouging?

by Alfonso Colombano

Our warmest sympathies go to those who lost their lives and homes in Galveston and all along the Gulf Coast. I hope that Southeast Texas gets back on its feet as quickly and pain free as possible.

Every time there is a devastating natural disaster, just as we witnessed this week with Hurricane Ike, we hear claims on the media about “gouging” First of all, what is “gouging”? How do you define it? Is it a profit level about a certain percentage?

To begin with, almost all transactions, except for taxes of course, are voluntary in nature. Why do I say that? Because valuation is subjective, in other words, the buyer of goods values the goods dearer and the seller values the money more. Otherwise, the transaction would not happen. If one part or the other is taking advantage of the other party, then the transaction would certainly not happen.

What does this have to do with gasoline prices? All week long, the media have been claiming that “consumers are being gouged with gasoline prices” First of all, gasoline prices were destined to increase due to extremely low levels of gasoline stocks (we were close to an 8-yr low) Moreover, the biggest reason for high gasoline prices has been due to the shutdown of refineries in the Gulf Coast (last I heard, about 13 out 20 Texas refineries were shutdown) Back from Econ 101, a decrease in supply, given the same level of demand, or perhaps an increased demand, simply means that prices will go up. If politicians “do something” about high prices, they will simply worsen the problem by implementing any sort of control.

The response by politicians, whatever it might be, worries me a lot. Absent major disruptions like hurricanes, thankfully, we haven’t had any gasoline shortages or lines at gas stations. In the 1970’s, when politicians implemented energy price controls, shortages began. Can you imagine trying to evacuate a hurricane and not having gasoline to flee? Or not being able to have gasoline for your generator? As we speak, companies , such as ExxonMobil, are rushing in to ship as many refined products into the gulf coast area as possible. Why do they do that? Because they’re kind hearted? No, because higher margins attract supply from other places, which is what we need right now, more supply.

Moreover, gasoline production regulations have crippled our gasoline supply (the last refinery in the US was built in the late 1970’s) Adding fuel to the problem, no pun intended, is the plethora of different gasoline specifications. Gasoline from say, California, cannot be shipped to the Gulf Coast under their current condition, must be reformulated through expensive processes. These constrain the ability of companies to have a single market for gasoline in the US (commonly called boutique gasoline specs) and having large economies of scale.

Lastly, the consequences for freedom are quite big. Being that gasoline is a scarce commodity, like everything else, in a free market, its natural ration system is through prices.

What we can currently do to lessen the problem is use less. Until companies can get their refineries back online, we should do everything we can to decrease consumption. From driving less, carpooling, to combining trips, consumers can help alleviate this problem. The only long term solutions to lower gasoline prices are less consumption and more supply. Don’t fall for politicians “solutions”

Oil & Gas Texas Employee Average Monthly Earnings

Locked in shale, riches beckon

Energy services companies among those eager to tackle natural gas work

By BRETT CLANTON Copyright 2008 Houston Chronicle

Oil and natural gas exploration companies aren't the only ones licking their chops at emerging shale formations in Texas and other states that may hold vast untapped supplies of natural gas.

Major oil field services firms, including Schlumberger, Halliburton and Baker Hughes, also see big opportunity and are jockeying to get their share of the work.

To those firms, the complex shale formations could bring a windfall of new contracts that call on specialized technologies, which have become indispensable in these frontier areas.

Perhaps nowhere is that truer than in the Haynesville Shale play, a major discovery in northwestern Louisiana and East Texas. Not only is it estimated to be the nation's largest natural gas field and the fourth-largest in the world, it may be among the most difficult of its kind to unlock, creating high demand for sophisticated service work.

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US Stocks of FInished Gasoline

As the above chart shows, there has been a decline in total US gasoline stocks since 1993. Even though many people claimed that the bull market in commodities is over, I disagree.

Not only gasoline stocks are low, but almost all commodities' inventories are in record low. Specially, agricultural commodities' stocks are at 25-year lows. This is extremely supportive of high commodity prices for the time being.  I strongly believe the current downturn in crude is just a short-term correction.

If we were in the "top" of the alleged commodities "bubble", we would see inventories hitting record highs, not record lows. Remember that the definition of a bubble is rising supply and increasing price, something that we are not seeing right now. In other words, the commodities bull market has a long way to go (Usually bull and bear markets in commodities last 18-25 years) The current bull market started in 1998 and could last at least until 2016.

Disagree? Agree? Tell me what you think