The "Oil Curse" and Splashy PR Announcements of Oil Production Cuts

It's not just the price of oil that matters: how much disposable income consumers have left to buy more goods and services matters, too.

The Oil Curse (a.k.a. The Resource Curse) refers to the compelling ease of those blessed with an abundance of oil/resources to depend on that gift for the majority of state/national revenues. The risks and demands of developing a diverse, globally competitive economy don't seem worth the effort when the single-source wealth of oil offers such a low-risk bounty of revenues.

This dependence becomes a curse when the market value of the oil/resources plummets. Having come to depend on that seemingly inexhaustible source of massive revenues, even states that have set aside prudent reserves soon find their expenses cannot align down to diminished oil revenues without unbearable political/social pain.

The ideal solution to this problem is to jawbone oil prices higher by splashily announcing major cuts in oil production and then ignoring the proposed cuts to pump as much oil as possible to restore spending to politically viable levels.

The problem is every other oil producer is pursuing the same game plan and so production doesn't actually decline. As global demand continues sagging in a global recession, oil supply remains at high levels. Since oil and other commodities are priced on the margin, even modest misalignments of supply and demand can generate huge swings in price.

There is no real enforcement of heavily promoted production cuts. The pressure on every oil producer is to assure the world they're complying to cover the reality that they're not actually cutting production because they can't afford to lose any more revenues.

The price of oil appears to be reflecting the global recession that's baked into receding stimulus and liquidity and higher inflation. China's attempt to secure Zero Covid is also exerting downward pressure on oil demand. As consumers globally come to grips with layoffs, depleted savings and maxed-out credit cards, demand can be expected to drop further.

All those who treated themselves to high living (vacations, dining out, etc.) on credit will soon find the noose of interest payments tightening around their necks, and all goods and services priced on the margin may fall with weakening demand, decimating hours worked, employment and profits.

There's another twist to The Oil Curse story: now that the easy-to-get oil is gone, it now requires massive, permanent investments in future production to keep the oil flowing. Governments seeing their revenues decline will naturally slash investment to fund the politically essential welfare-graft that enables their grip on power.

Starved of essential investment, oil production inevitably declines, further reducing revenues of oil-dependent states. This feedback loop is unforgiving: less investment leads to less oil which leads to less revenues which further squeezes investment.

It's not just the price of oil that matters: how much disposable income consumers have left to buy more goods and services matters, too. Put another way: demand can fall below supply for longer than oil producers can remain solvent.



My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

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Read excerpts of all three chapters

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My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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The Uncertainty in China Is Kryptonite to Global Markets

Few seem alive to the potentially consequential financial risks arising from uncertainties evolving in China.

One thing we know rather definitively is that markets don't like uncertainty: uncertainty is Kryptonite to markets.

Another thing we know is that the events unfolding in China are generating uncertainty on multiple levels. Whatever policy decisions are made, the potential consequences generate waves of profound uncertainty.

Should authorities respond to exploding Covid caseloads with heavy-handed lockdowns, that will trigger production and shipping consequences for global trade. If restrictions are relaxed, the healthcare consequences are also uncertain, as China lacks the facilities such as ICU beds in sufficient quantities to deal with a contagious virus spreading in a populace with very little immunity.

The reactions of both authorities and the people generate an entirely different level of uncertainty. Authoritarian regimes are trapped: if their response is increasingly brutal repression, punishment and lockdowns, this risks changing the populace's understanding of the social contract in a destabilizing dynamic.

But offering concessions opens the door to demands for further concessions, and this path is an equally destabilizing dynamic.

There are no positives for global markets in any of these developments, as each potential outcome has difficult-to-predict and control second order effects. Covid lockdowns have the potential to topple various supply-chain dominoes, and by weakening economic activity, they also have the potential to topple dominoes in the populace's understanding of the social contract between citizens and the state.

A great many commentators evince confidence that the protests will all blow over in a few days or weeks and everything will quickly go back to normal, but markets cannot afford to place much faith in such complacent forecasts, because risk rises asymmetrically in self-reinforcing uncertainty.

It's nice to dismiss low-probability long-tail risks as "nothing," but that's not prudent when it comes to risks with potentially severe financial consequences.

Indeed, from the point of view of asymmetric risks, the entire point of a market is to provide opportunities to limit risk by selling and/or hedging. The cost of waiting around is also asymmetric: only first-movers get high prices for at-risk assets and low prices for hedges.

Everyone who waits around because they dismissed uncertainties as "nothing" gets their head handed to them on a platter.

Few seem alive to the potentially consequential financial risks arising from uncertainties evolving in China. Those who complacently discount risk may regret it, as one of the few things we know is markets don't like uncertainty for a very good reason: uncertainty generates asymmetric risks that have the potential to deliver life-changing losses to the unwary and over-confident.





My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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FTX and the Corruption of America

What all the entrenched insiders in America's parasitic, predatory elites and institutions don't dare admit is that to protect themselves from consequence, we've had to sacrifice everything else.

Thanks to the FTX swindle, we now know the cost of a get out of jail free card in America: $40 million, paid to political elites. It seems even get out of jail free cards have suffered from inflation.

With hefty "donations" (heh) to elites, all wrong-doing is swept under a very capacious carpet. Jeffrey Epstein sprinkled a few million on the elites of Harvard, and he was ushered into this elite circle as an intimate pal. The fact that he was a rapacious predator of children was of no concern. A few million showered on the right people and causes makes evil and criminality disappear.

If a financier looter showers $40 million on "the right people," mouths the "correct" phrases and issues empty promises to give away his looted billions, he becomes an instant golden boy of the right elites who have the power to protect him from consequences.

This is how America works now: in-your-face corruption is not just accepted, it's glorified. Let's score America's wealth and power elites, regardless of party or political persuasion:

Integrity: zero.

Austerity: zero.

Restraint: zero.

Humility: zero.

Responsibility: zero.

Accountability: zero.

Sacrifice for the common good: zero.

Thrift: zero.

A society whose elites are so self-serving, corrupt, unaccountable and devoid of any sense of good and evil is doomed. Consider the bleatings of America's power elite on the FTX swindle. Let's have congressional hearings on this remarkable "financial event" that caught everyone by surprise, etc.

Translation: let's stage some political theater to cloak the fact that the looters are being protected from consequences. We all know what happens if you're caught selling a nickel bag on the street: you get a tenner in a hellhole prison.

But if you bribed the right people, you can swindle billions of dollars and walk free as an insincerely apologetic victim of your own success. Golly gee, I don't understand what happened to all that money, even though I'm not exactly shy about declaring my own genius.

For reasons lost on the rest of us, investigations by the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) always come up empty. Gee, the looting was complicated and we can't figure out who might have broken the laws against fraud, collusion, embezzlement, malfeasance, etc., so we're letting everyone off the hook.

Or some sleazy, unaccountable intelligence agency is referenced in whispers that the looters are "assets" and therefore untouchable. Where exactly is the rule of law in a society where bribes, political pressure and having knowledge of elites' skeletons in the closet melt away accountability and consequences?

The rule of law in America is an illusion, a useful myth promoted by PR hacks to cover the tracks of their employers. Corporate wrong-doing--swindles, collusion, fraud, embezzlement, malfeasance--is off the charts, but nobody is responsible. The criminal corporations are duly fined, a tiny clawback of their looting that's written off as a cost of doing business.

Consider this data base of 6,300 major corporate fines and settlements from the early 1990s to 2015 compiled by Jon Morse. Nobody paid any personal fines or served any prison time for any of these thousands of violations.

There are two systems of "justice" in America: one which grants elites freedom from consequences of their toxic criminality and another one for the rest of us that imprisons hundreds of thousands in the War on Drugs Gulag.

What all the entrenched insiders in America's parasitic, predatory elites and institutions don't dare admit is that to protect themselves from consequence, we've had to sacrifice everything else. Having stripped the nation of the essential foundation of a just, enduring social order--accountability, consequence, rule of law and a grasp of the difference between good and evil--there's nothing left but sound and fury, as if they're hoping the endless political circuses and trails of bread crumbs will forever distract us from their plunder and the injustices of the irredeemably corrupt America they've fashioned to protect their wealth and power.

To paraphrase Lao Tzu, if one insists on an extreme of corruption and injustice, that extreme will not dwell long.



My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Roxanne F. ($54), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.

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What Do You Value Most? Thanksgiving 2022

When these are no longer valued as essentials for the common good, society is lost.

I'm thankful for the eight things to aspire to listed at the bottom of the right-hand column of the main blog page:

integrity

austerity

restraint

humility

responsibility

patience

sacrifice

thrift

When these are no longer valued as essentials for the common good, society is lost.

These aspirations remind of Chapter 58 of the Tao Te Ching:

When the country is governed through simplicity and leniency,

The people are genuine and honest.

When the country is governed through harshness and sharp investigation,

The people are more deceitful and dishonest.

And Chapter 9:

To hold things and to be proud of them is not as good as not to have them,

Because if one insists on an extreme, that extreme will not dwell long.

When a room is full of precious things, one will never be able to preserve them.

When one is wealthy, high ranking, and proud of himself, he invites misfortune.



My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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Demographic Cliff + Let It Rot = Collapse of Global Growth

As workforces shrink and opting out becomes increasingly attractive, Global Growth implodes on both the production and consumption sides.

A funny thing happened on the way to permanent global growth. Actually, three funny things happened. One is the cheap, easy-to-access materials that enabled a vast expansion of consumption have been pulled out of the ground and what's left will cost more going forward, meaning there will be less to squander on consumption.

True Believers are confident that some Savior Technology will emerge and scale up globally to save us from any nasty reduction in consumption, but they overlook the inconvenient fact that all the proposed Savior Technologies need vast quantities of the same materials that we've already consumed.

Two other funny things will also impact global growth: the sharp decline in birth rates in most developed and many developing nations--the Demographic Cliff--and the collapse of young workers' willingness to sacrifice themselves on the altar of Global Growth (i.e. systemic inequality) via working in miserable conditions for low pay--wages that will never enable the purchase of a home or support a family.

Since it's hopeless to secure "the good life," why bother sacrificing one's life? Why not enjoy life on a much more modest level?

This rejection of self-exploitation in service of further enriching the already-rich is global: The most descriptive terms are from China--laying flat and let it rot--but they apply to youth around the world.

Unfortunately for the already-rich benefiting from Global Growth, this puts upward pressure on global wages as employers have to offer higher wages to entice reluctant young workers: Younger Chinese are spurning factory jobs that power the economy (Reuters.com)

Higher wages might have some effect on the margins, but the real problem is vast wealth-income inequality created by hyper-financialization and hyper-globalization. Increasing wages by 10% isn't going to fix what's broken. Doubling wages and eliminating all taxes on labor would be a start. (Taxes on capital and financialization's churn would have to rise significantly to offset the elimination of taxes on labor.)

As the charts below indicate, the population of elderly living off the labor of the younger generations will soar, putting increasing financial pressure on governments and pension plans. Scrape away the hype and obfuscations and all pension/healthcare for the retired cohort are pay as you go, i.e. funded by taxes on the current workforce.

As that workforce shrinks, the burden will quickly become unbearable. Promises made when there were four workers for each retire break down when there's only 1.5 workers per retiree.

Wages' share of the economy has a long way to climb to reach previous levels. As wages rise, capital's share of the economy will have to shrink. The already-rich will become less rich.

Many commentators are confident young workers will be forced by need to take miserable jobs at miserable rates of pay. I suspect these commentators don't understand the immense spectrum of options to opt out. In developing economies, young people can return to villages with family homes and grandparents. Young people in both developed and developing economies can take informal gig jobs that earn just enough to get by, or find ways to produce real goods and services on a modest scale.

As I've often discussed here over the years, opting out is the best strategy when things fall apart. Trying to maximize your self-exploitation leads to burnout. The decision to abandon self-exploitation in service of increasing the wealth of the already-rich opens the door to Self-Reliance in the 21st Century.

As workforces shrink and opting out becomes increasingly attractive, Global Growth implodes on both the production and consumption sides. Toss in higher costs due to the depletion of the easy-to-exploit materials and the foundations of Permanent Global Growth crumble into dust.

Plan accordingly.







My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Peter P. (7.50/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Thank you, Tony J. ($54), for your splendidly generous contribution to this site -- I am greatly honored by your support and readership.

Read more...