Global economic situation for liveaboard cruising yachties

[masalai]

Part of an email on the Aussy scene (from "The Daily Reckoning Australia")
"""--But the IMF wrote that, "A key remaining vulnerability is the roll-over risk associated with sizable short-term external debt. Banks' wholesale funding (domestic and offshore) accounts for about 50 percent of total funding, of which about 60 percent is offshore. Financial institutions short-term external debt (on a residual maturity basis) is estimated by staff at about $A 400 billion (35 percent of GDP) in March 2009."

--Maybe the short-term external debt levels have improved in the last six months. We haven't checked yet. But in simple terms, it means a lot of domestic lending is funding from external funding, borrowing abroad to loan at home. If American banks again blow up on the destruction of their remaining collateral (mortgage loans and U.S. Treasury bonds) we'd predict another ice age in global credit markets.

--Needless to say, as a capital importer, this would put Australia in an awfully uncomfortable spot. But hey! No one is worried about that at the moment. The Aussie dollar is being inflated by the U.S. dollar carry trade. It's a shame that the strong Aussie is going to devastate local industry and manufacturing with higher costs, but at least it obscures for now the risk that Aussie banks are reliant on foreign borrowing.
________________________________________________________________________________
--And what about our theory that a U.S. dollar rally will trigger a correction in gold, oil, and stock markets and lead to a mini-rally in U.S. Treasury bonds? Bond fund king Bill Gross agrees. Writing on Pimco's website, Gross concedes, "Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets -- while still continuously supported by Fed and Treasury policy makers -- is likely at its pinnacle."

--Dr. Doom himself, analyst Nouriel Roubini, called the present market "The mother of all carry trades." "This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals," Roubini said via satellite to a conference in Cape Town, South Africa. "The risk is that we are planting the seeds of the next financial crisis."

--With the S&P up nearly 65% since touching 666 in March (seriously), we'd say the seeds are already bearing fruit. But maybe it's poisoned fruit. After all, the rally has been worldwide and extremely impressive by historical standards. But it's fully consistent with previous bear market rallies. If anything, it's happened faster.

--What nobody yet knows is if it IS a bear market rally...or a garden variety stock market rally that precedes a recovery in the economy. You know what we think.

--There IS one notable difference between 2008 and today, though. Yesterday we mentioned that U.S. banks have loaded up on a whole other kind of super-dodgy collateral; U.S. Treasury notes and bonds. Demand for those securities may go up with a U.S. dollar rally and a reversal of the dollar carry trade. But in the longer-term, we think the banks have invited another toxic house guest on to the balance sheet.

--But where did the previous smelly houseguest go? You know, all those mortgage backed securities and subprime loans? Where does that risk now reside? And what happens if it comes home to roost? """

[masalai]

http://www.caseyresearch.com/displayGsd.php -- -- -- Not really gnu gnews, but nobody's nose knows? - nor is this comment relevant... but the tail-end links and stories are EXCELLENT http://www.lewrockwell.com/rozeff/rozeff318.html "On the LewRockwell.com website, an essay has been posted considering the value of gold if equated with the Fed's liabilities on various assumptions. An $11,090-$31,470 range is deduced."

http://www.caseyresearch.com/displayCwc.php?e=true "Conversations with Casey" from Casey Research...
http://www.gata.org/node/7942 "Those darn Middle Easterners are suspicious of paper gold" -- -- -- -- -- -- So am I, who wouldn't be in the current climate...
http://www.gata.org/node/7941 "Russian finance minister raises gold sales again"

[Tcubed]

Boston, i would like to be hopefull like that too, but unfortunately the evidence points to certain unavoidable problems that humanity is rushing at with impressive shortsightedness.

I'm trying to dig up a certain article that i may or may not have already saved.
In the meantime here is a brief article which gives a skimming overview of the basics of the unavoidable problems we have created for ourselves.

I'll post the whole thing;

_______

The World Does Not Need More Fossil Fuel, or Alternative Energy Sources to Replace It

© 2003 Joseph George Caldwell. All rights reserved. Posted at Internet web sites http://www.foundation.bw and http://www.foundationwebsite.org . May be copied or reposted for non-commercial use, with attribution. (5 February 2003)

There is a lot of discussion in the news, and a lot of concern by world governments, on the subject of how to ensure continued access to a high level of oil. There is much less talk, however, about how fast the world’s fossil fuel reserves are exhausting. It is generally agreed by geological engineers that global petroleum reserves – both existing and the new ones to be discovered – will be exhausted by the year 2050, and that coal will last a few centuries longer. In other words, the petroleum age, which nominally began in 1950, will last about 100 years.

Since the industrial world runs on oil and uses oil to produce virtually everything in it, the end of the petroleum age will make a tremendous difference to civilized life on planet Earth. The large human population that has been made possible by oil will disappear, and human society will by and large return to a primitive lifestyle (that is, if it avoids extinction from a greenhouse-gas death of the biosphere, global war, plague, or some other catastrophe brought on by global industrialization).

Oil is so important to industrialized society that it will go to any lengths to acquire it and use it. The US, for example, is on the verge of going to war in Iraq to ensure access to the large reserves there. What is remarkable, however, is that no matter what steps are taken today to discover and develop oil fields, it will all be gone in a few decades. The nations of today should be using the world’s windfall of fossil fuel to prepare for a better world after fossil fuel is gone, but instead they are racing to see who can consume the most at the fastest rate (i.e., who can have the largest economy and the highest per-capita income). It is, quite frankly, amazing that the world leaders of today spend all of their energy trying to ensure uninterrupted access to oil, when it will all be gone anyway in just a few decades.

The rush of the world’s nations to use all of the world’s oil supply as fast as possible is causing terrible things to happen to the biosphere. Global industrialization, which is made possible by fossil fuel, is causing the “sixth extinction” on planet Earth – the loss of an estimated 30,000 species per year. If global industrialization continues for the full term of the petroleum age, it may cause a greenhouse-gas death of the biosphere and extinction of man. It has already caused a great loss of biodiversity. The substantial changes that it is making to the biosphere are producing permanent changes in the balance of nature. Global industrialization is making massive and irreversible changes to the ecological environment in which man evolved, and on which he depends for his continued survival and happiness.

One cannot help but wonder at why mankind is obsessed with using up the global oil supply as fast as possible, when this is destroying the planet, not just for the rest of nature, but for all the millions of future human generations to come (or that might have come). It is almost as if God has placed blinders on the human race – lowered a veil of unconcern over our intellects and emotions. This phenomenon has been noted before, and has been referred to as “discounting in time and space.”

In any event, that is not the main point of this article. While there is much discussion and expenditure of energy on the subject of finding and developing and using oil, there is also much discussion on the topic of alternative energy sources, such as nuclear fission, nuclear fusion, and solar energy (including all uses of the current flux of solar energy, such as hydroelectric and biomass, not just solar heating and solar electric). In my book, Can America Survive?, I made the point that these other sources of energy cannot replace the energy of fossil fuels, for a number of reasons. I will not go into those reasons here. The point is that, relatively soon, mankind is going to be restricted to living on the budget of the current solar energy flux. And the salient consequence of this is that the current-solar-energy budget can support at most only a few hundred million human beings. When fossil fuels are gone, the global human population will drop from over six billion to far less than one billion.

But even this is not the point. Even if mankind could find a source of energy to replace fossil fuel, it would be a fatal error to do so. Mankind is currently using an estimated 40 per cent of the world’s biologically useful supply of solar energy, and is using many times that amount of energy in the form of fossil fuel. And it is that high level of energy use that is the problem. Mankind is using so much energy (current solar energy plus the stored energy of fossil fuel) that it is destroying the biosphere. For human beings to survive, and for the biosphere to survive in a condition similar to that in which mankind evolved, it is necessary for mankind’s use of energy to drop dramatically. In other words, if an energy source (e.g., nuclear fusion) could be found to replace fossil fuels, the demise of the planet would be assured. The biosphere cannot continue with the present high rate of energy use. That high rate of energy use is causing mass species extinction, and is destroying the biosphere. The survival of mankind and the biosphere is totally dependent on mankind’s reducing the level of energy utilization back to that level at which the biosphere and mankind evolved.

So what is to be done? All of the industrial nations are seeking to consume fossil fuels as rapidly as possible, and they are also eagerly and urgently seeking alternative energy sources, despite the fact that this high level of energy use is destroying life on the planet. I have two points. First, as I argued in Can America Survive?, it is very unlikely that mankind will find any energy source to replace the energy of fossil fuels. Second, even if it did, to continue to use energy at the current rate would continue the mass species extinction and destroy the biosphere. Such a discovery (although not likely in my view) would sound the death knell for the planet and seal its doom.

Mankind evolved on a planet and in a Garden-of-Eden biosphere that lives on the current solar energy flux. It cannot survive in its current state at a higher energy use level. And that is the point to this article. The biosphere cannot tolerate the continued high use of fossil fuel, and continue as it was. We do not need more fossil fuel. We do not need a replacement to fossil fuels when they are gone. We need to stop using fossil fuel at the current high rate. And all fossil fuel that is used should be used solely for the purpose of preparing the world for the post-industrial age, when mankind and the biosphere return to living on the current solar energy flux.

As I have argued many times before, there is essentially only one decision facing mankind at the present time, and that decision concerns the future state of the biosphere and man’s place in it. The alternatives – the state of the planet in a few more decades – are essentially three: (1) A catastrophic collapse of the biosphere caused by industrial pollution (e.g., greenhouse-gas global warming), with the possible or even likely extinction of many or most large plant and animal species, including mankind; (2) A seriously damaged biosphere, devoid of all other large animal species, but with mankind still extant; and (3) Essentially the same Garden-of-Eden paradise in which mankind and the other species of the present world evolved, with mankind and the many other large animal species still in it. It seems obvious that no one would select the first alternative (death of the planet), although that is exactly where mankind is currently headed. With respect to the latter two alternatives, it is incredible that the current generation of human beings would sentence all of the millions of future generations of human beings to life on a planet devoid of other large animal species, yet that is exactly what is happening. It is hard to believe that the human species has no leaders who wish for the biosphere to continue in essentially the same condition to which it evolved when mankind made its appearance, and have the power to bring this about. The planet does not have to die. The planet was once a marvelous, wonderful place to live. It can be so again, for millions of years to come. Mankind has the power to make this happen. All it takes is the will. The fate, the destiny, of planet Earth is in our hands. Who will speak for Gaia?


_________

[Submarine Tom]

"Necessity is the mother of invention."

We desperately need to evolve. If we can't learn to stop burning fossil

fuels (and I firmly believe we wont) then the sooner we run out, the better.

But, you know, whatever happens will be our evolution. As individuals we

can't make change happen, only time will make it happen. So, hang on and

enjoy the ride, where ever it may take us.

Tom

[Tcubed]

Well put.

[hoytedow]

Oil is a natural by-product of Soylent Green.

[masalai]

"The Daily Reckoning Australia" From Dan Denning in St. Kilda, Victoria: Thurs., 29 Oct, 2009

<drinker> --"Hey dude, I have a question for you."
(Dan) ----"Okay."
<drinker> --"Why so serious? I mean, all you do every day is write about the worst-case scenario. It's depressing. Who died and made you the harbinger of financial doom? How about something positive for a change?"
(Dan) ----"Is that code for, 'buy me another beer?'"
<drinker> --"No, seriously. It's not all bad all the time is it?"
(Dan) ----We'll tell you how we answered our friend's question below. But first up, the markets. It was another red day in New York, with Dow stocks down over one percent. Tech stocks on the Nasdaq-the ones enjoying a bit of euphoria renaissance-were down 2.67%. September new home sales in the U.S. fell 3.6% from the month before. The Aussie dollar shed 1.44% against the greenback.

(Dan) -- Is that all just noise? Or is there a melody building in the markets? The chorus chanted by Ken Henry, Wayne Swann, and most of the media is that the strong Aussie dollar, the strong market, and the strong(ish) economy are all factors of Australia's great policymaking and unique relationship to the China boom.
-- But the alternative tune-the one which we've been humming-is that most of the rally in stocks since March and most of the 30% rise in the Aussie dollar is a result of the carry trade. Yes, Aussie assets are relatively more attractive when the cost of capital in the U.S. is zero. But this can change in a flash when foreign speculators change their trading minds.
-- That's just what happened last year. Only then, it was both a dollar and yen carry trade that led to a rise in Aussie assets. Once the credit crisis set in, the yen carry got dropped and investors fled risk assets and piled right back into the greenback and U.S. Treasuries. Stocks fell, commodities fell, and the Aussie dollar plummeted to nearly 60 cents against the USD.
-- It doesn't have to happen that way now just because it happened that way then. But since our main job here is to question conventional wisdom and offer you an alternative explanation, that's the one we're offering you. Beware carry trades promising false permanent prosperity!
-- But what about today's earnings? ANZ followed up yesterday's bad debts bonanza from NAB with one of its own. ANZ reported an 11% fall in net profits (to $2.94 billion) and a 46% rise in bad debts to $3 billion. But both banks hinted that the end of the "bad debt cycle" is over and that things can only get better.
-- Let's take the other side of that trade. Again we'll focus on two risks: access to foreign funding and asset values on the balance sheet. ANZ sourced more of its funding from domestic savers and less from short-term whole sale funding, according to its report. Aussie savers funded 55% of ANZ new loans for the year (up from 50%) while the company reduced its reliance on short-term whole sale funding by 17% (now just 17% of all funding).
-- What does that mean? It means the company is making plenty of new loans (you'd want to, especially to the housing market, to prop up the value of your real estate portfolio). But it means the company is relying a lot less on short-term borrowed money from overseas in order to boost lending to Aussie homes and businesses.
-- Whether it is doing this by necessity or by choice is big question. But all we want to point out is that if your economy relies on imported capital to finance investment (or consumer spending, or new mortgage lending) you're vulnerable if that capital is not forthcoming. It's great when the dollar is high and capital is flowing. But if those capital flows reverse, the banks may find themselves in a jam that even a government guarantee makes it hard to escape.
-- It's not just us saying this, by the way. "We need to figure out how we can become less dependent on wholesale funding to finance our economic growth," said Commonwealth Bank of Australia chairman John Schubert in last Friday's Australian Financial Review. "It is not assured that we will get the funding into the future."
-- No foreign funding, no continued housing boom. In fact, we'd be willing to say that a cut off from short-term wholesale foreign funding is just the sort of thing that could lead to a major correction in Aussie house values. Naturally, the government here would step into the mortgage finance market in a big way, and not just for non-bank lenders, as it's done with the Australian Office of Financial Management buying securitised residential mortgage backed securities.
-- The U.S. government has done everything it can to keep the mortgage credit flowing and household net worth from imploding. Australia would do the same if it had to. But like in the U.S., this means more government borrowing to prop up the property market. More debt, higher interest payments, less capital available for lending to the rest of the economy.
-- But let's assume for now the public sector does not enlarge again to Depression-era levels of debt. Let's assume that Aussie banks have access to overseas credit. There is still the issue of asset values. ANZ says it is leveraged about 17 to 1. With $476 billion assets, that leaves it with about $28 billion in equity (according to how it calculates both assets and equity). And like yesterday, it's fair to say that a few billion in loan losses and bad debts are hardly the sort of thing to wipe out that much equity.
-- That's not where the real risk is, though. The real risk is to the asset portfolio. Twenty eight billion in equity capital is just under 6% of total assets. Or, put another way, a 6% loss in assets wipes out the equity.
-- A six percent loss in assets? Is that possible? The IMF and APRA have stress tested Aussie banks for scenarios in which large chunks of homeowners can't pay their mortgages. They chuck in large corporate bond default rates just to make things more stressful. And after all that, they've concluded that most of the banks' assets are solid and safe and unlikely to incur mammoth losses that would jeopardise the equity capital (solvency).
-- And maybe they are right. But we're just saying...in a world dominated by massive credit write downs...where we have just seen six months of re-leveraging...and where house values here in Australia have managed (thus far) to escape massive deflation...is a six percent loss on assets totally unimaginable?
-- We can imagine it, although we don't relish it. Either way, we wouldn't buy the banks just now.
-- But if you're looking for the most over-valued asset class in the world-the one worth a punt for going short-it has to be U.S. government bonds. Paolo Pelligrini, the man who helped John Paulson make a mint shorting the U.S. housing market, told Bloomberg that shorting long-term U.S. debt is the "only attractive bet" going at the moment.
-- "I always like to think about assets that are likely to experience a breakdown; the only thing I'm pretty comfortable with right now is U.S. Treasury securities and U.S. agency mortgage-backed securities...I think that those are overpriced so they are attractive shorts."
-- If you're not going to short the U.S. long-term bond market any time soon, the take away from this is to look for assets that go up when U.S. bond prices fall. If U.S. bond prices fall it means U.S. interest rates go up. That might, for a bit anyway, lead to a stronger USD and a weaker AUD.
-- For a trader-other than cash and gold--we'd look to see which of those Aussie stocks hammered by the stronger Aussie dollar have been beaten down the most. They might be due for a quick rebound-although they will be fighting the general trend in the market. We'll ask Murray what he thinks and get back to you.
-- So what did we tell our drunk friend when he asked us why were so critical, sceptical, negative, and gloomy all the time?

(Dan) ----"Relax dude. It's my job to plan for the worst case scenario. It makes me happy to have a purpose in life. If you want the best case, turn the TV on and turn your brain off. And I object to your overly negative characterisation of my work."
<drinker> --"Huh?"
(Dan) ----"My work isn't negative. It only seems that way because we live in a period of wealth destruction. I wish it were a world of wealth creation. But in a world of wealth destruction, you have to focus on preserving your wealth and maybe, when you can, growing it if you've got the big picture sorted out correctly."
<drinker> --"But you make it sound like the end of the world every day."
(Dan) ----"It is the end of the world every day. But it starts all over the next day. And it is just the end of the financial world as we know it. Not the end of the world world...Besides, it's a lot less scary when you face up to what is really going on and make a plan for it. Uncertainty is scarier than risk because with uncertainty, you have no idea what to expect. Risk you can at least manage."
<drinker> --"But how can you be so sure you're right about the big picture? Everyone else I talk to says there's no way the dollar is going down as a reserve currency and that only kooks believe that. Are you a kook?"
(Dan) ----"Certified. But that doesn't mean I'm wrong. You can't keep adding debt forever to fund your way of life. Debts have to be repaid. And interest has to be paid on the money you've borrowed. The politicians in America keep making new promises they aim to keep with borrowed money. This borrowed money is massively interest rate sensitive. And it's in addition to a huge amount of money they've already borrowed. It's the end-game for the whole financial/fiscal/political model."
<drinker> --"But so what? Isn't everyone else doing the same thing?"
(Dan) ----"Well yeah. All fiat money is a scam. It's a way for the government to run perpetual debts and steal savings through inflation. It's an immoral living arrangement in that respect. But more importantly, from a financial perspective, it's a way of funding a political arrangement. And that way of funding it-borrowing more and raising taxes on a small productive class to pay for a larger public sector-is every bit as dead as the funding model for investment banks."
<drinker> --"But the government bailed out the investment banks. Who is going to bail out the government?"
(Dan) ----"No one. Nothing. It will try inflation. But that doesn't work. Printing more money to pay off your debts just destroys wealth. That's where we're headed. That's what you should plan for. Sooner, not later."
<drinker> --"I would like to begin my plan with another beer, if it's all the same to you."
(Dan) ----"No worries." (I think that means the <drinker> got another beer from Dan )

[masalai]

LISTEN TO THE Ron Kirby interview..... ASTOUNDING REVELATION and sound advice.... (minute 6:32 to 26:03 - staggering stuff

http://www.gata.org/node/7945 "GATA consultant Rob Kirby interviewed by Jay Taylor" at http://www.miningstocks.com/radio/ra...20091027-2.mp3

http://www.gata.org/node/7944 "Turkey to drop dollar in trade with Iran, China"
http://www.gata.org/node/7943 "Saudis don't want oil price set in U.S. anymore"
http://www.caseyresearch.com/displayCdd.php?id=261 "Who Owns Your Mortgage?" and "Lazard Confirms Death of Dollar"
http://financialsense.com/Market/wrapup.htm "Another Fundamental Look at the Recent Dow Non-Confirmation"
http://financialsense.com/fsu/editor...2009/1028.html "A Short History of British Bankruptcy"
http://financialsense.com/fsu/editor...2009/1028.html "Power Shift"
http://financialsense.com/fsu/editor...2009/1028.html "Emerging Shift Out of Higher Yielding "
http://financialsense.com/fsu/editor...2009/1028.html "USD Future and a World Currency"

[masalai]

which adds to the flavour of Soylent Green. (oil, that is, not "Texas Tea" the edible stuff)

[Boston]

I think he should have bought the kid a beer and said
just kidding

[masalai]

Corrupt the mind with inkohol is OK and probably done but tell lies as well??? - not in a pub, if you please...... (It is OK for the alcohol to befuddle the mind and distort the truth in the quest for a better yarn, but not blatant lies in a pub if you please)

[Boston]

that last had a drinkin look to it Mas
must have asked someone why all the doom and gloom in the pub yourself

round here we just got slammed with about 18~24" of snow
gives me a chance to catch up on some hangin out at the pub as well

cheers
B

[Tcubed]

The fact that economic wellness has become subservient to oil remains a blind spot for most economists.
The crux of the illness invalidating contemporary analysis is the nonrecognition that an exhaustible resource is constraining economic growth and that this phenomenon is intimately related to the crisis of monetary-financial institutions. A cardinal manifestation of this infirmity is the constant search for parallels to a radically novel situation by combing the annals of “bubble history,” from the royal defaults of England’s financially challenged Edward III to the housing debacle.
“Definitive” new books about credit cycles written by first water professors of economics trying to convince a bewildered public that the future is symmetrical to the past (although with proper policies and “political will” we may just be able to avoid its pitfalls) only deepen the darkness of our generation’s culturally inculcated ignorance. Instead of bolstering the will to unpack defunct notions, they strengthen faith in them.
A correct diagnosis of the world’s economy’s convulsive disarray will not emerge on a decisive scale until the following epigrammatically compressed simple truth becomes pre-analytical certainty: The increased throughput of oil -- from free energy manna at the production site to energetically inaccessible molecules of filth and fumes -- is tied to an economic system that feeds on exponential growth, which in turn, depends on an even faster acceleration of debt. A growing supply of relatively cheap oil has been the foundation upon which financial innovation which, by its very nature produces not only beneficial (capital allocative) but also parasitic and ponzi schemes, built layer upon layer to insane and obviously untenable heights using the real economy as prop, excuse, and structural material.
Evidently, when the increasing flow of inexpensive oil changes into a constant flow of expensive oil, the sky-high pile of rickety financial instruments is the first to catch the blackleg. The infection develops quickly and is transmitted mercilessly across national boundaries, classes of obligations, and economic sectors.







READ more herehttp://www.energybulletin.net/50503

[Tcubed]

And for those who think we'll just shift to nuclear ,
There's news too;

Open the attachment to see why nuclear dreams will never substitute anything.

[Submarine Tom]

I believe what we need is a huge shift in our perception of our world.

If oil were to go to say, $1000 a barrel tomorrow I think we'd see some

real change overnight. Cars would all be electric by the end of the year!

Tom