Hot!! -- Banks Hold Trillions in Bad Oil Swaps - Micheal will also give a talk - I will be speaking in Greely, CO this Wednesday morning, Jan. 7. The Weld County Republican Breakfast meets at Randy's in the Westlake Shopping Center - Mike is a must listen to speaker

Banks Hold Trillions in Bad Oil Swaps
http://godsdestiny.org/destiny_christian_center3_011.htm

Are you over the New Year's parties yet or is your stomach still a bit queasy from all that indulgence at the buffet line? Whatever the case, better reach for the antacid tablets again, economic woes are heating up.

The biggest bit of indigestion will come from the crashing oil prices.

I know you thought gasoline below $2.25 was great for the consumer and it is. And I know the consumer is still more than half of the total economic activity month after month. But the wonderfully inept financial sector--you know those boys who gave us the recession by creating a housing bubble that popped--have an even bigger problem than housing in the energy field.

The bankers are holding trillions of dollars in worthless oil options now just as they once held worthless housing mortgages. The correct action necessary to clean up the mess once and for all will require DC to bite the bullet and let the financial sector slide into the black hole of responsibility. This means the world's strongest currency, the dollar, will go into another tailspin that could threaten the entire global community that is already reaching the bottom of their central banks' printing press run. But some things demand drastic attention.

The crash in oil prices is due partly to the supply glut that appears to have no end on one hand and the relative strength of the commodity's benchmark fiat against the rest of the world's fiat on the other. The double fisted punch threatens to expose the fragile psyche of the financial sector as the swamp water it really is.

Remember all those glowing reports on how well our government did in 'addressing' the financial sector's problems with all those Consumer Protection and bank reform laws after 2007's TARP, the first stimulus of 2008 and then the on-going QE and Twist programs of the Federal Reserve? The bill for not letting the "Too-Big-To-Fail" crowd is getting bigger by the hour and us lowly, peon-styled taxpaying citizens are about to get our wallets picked once again.

Believe me when I assert the bill we will incur will not only reimburse the bankers fully for their faulty investments in the oil market but will, once again, assure them of a hefty profit come the end of 2015 if the economy lasts that long.

This time we are not talking about a few miserable, paltry hundreds of billions but will be getting into the real high stakes air of trillions, maybe double digit trillions. Possibly more than America's entire annual economic activity.

This is to satisfy the financial sector's incurable reliance on derivative swaps trades to boost profits. In the commodity trade it isn't unusual to 'hedge' your investment on a buy order with a smaller option on a sell.

With oil really not having many bad days between 1984 and today, fewer and fewer buy contracts were covered with sell hedges by the originators.

After all, the world population needed energy. Modern industry and household appliances would see to it the demand for oil continued to climb, climb, climb. Add to that the well-established mindset that this was a non-renewable energy source that was on its last production legs. Why should anyone even consider a long-term drop in oil prices?

Economic fundamental laws didn't seem to apply to anything after the politicians reached into our wallets to make the "Too-Big-To-Fail" whole. Maybe if the political types had bit the bullet then this wouldn't be hanging over our heads now. But they didn't and it is here. 

We have survived rise after rise in oil prices for nearly 50 years. Every time some third-rate tyrant sent a torpedo boat into the Suez Canal, oil prices spiked and then settled down, just not as far down as they began at. Americans, by far the world's largest per capita energy consumers, made a few adjustments but didn't get upset as long as gas was available in quantity at the local pumps. We even had state and federal officials push higher taxes on the use of the fuel to fund one special project or another. Through it all America kept pumping gasoline.

Then Putin invaded the Ukraine in the spring of 2014. Our Euro allies balked at standing against this invasion because their energy demands were being met only by Russian production. But world economic activity was slowing, demand for oil was slipping and the producing countries' relied even more heavily on the revenue from oil so they upped production to fill the revenue void in their lives.

This created the glut. A unexpected side benefit from all the changes Americans had to make over the past four decades was the environmental crowd had gotten them to accept smaller, higher mileage vehicles which, combined with the economic slowdown, added to the glut. God may not have flooded the earth with water since Noah's time but he sure has allowed the world to be flooded by crude produced by man himself. When there is too much of any product, price tumbles.

And those allegedly risk-averse bankers were caught with their collective pants down. Those prostitutes of the financial sector who would sell anything to add another ounce of fiat to their portfolios, are stuck with oil derivatives that aren't worth the paper they are printed on. Backroom political deals are already being made, just like what happened after Lehman Bros. crumbled.

What happens to all those national debts around the globe that rely on a rising oil price to keep them sustained? What happens to the state or municipal budgets that relied on high oil prices just to meet the next payroll?

Consumers got a big gift for the past two months of lower prices at the pump. But politicians around the globe, counselled by their campaign friendly bankers, are about to dump a huge, unexpected bill to pay for that gift. It's kind of like winning the lottery and finding the cash prize doesn't cover the tax liability so you had purchased a ticket with a dollar you didn't have to enjoy the benefits of paying the government even more dollars that you don't have. 

It's 2015. This promises to be the year that just keeps on taking--from anybody not in office or in their back pockets.

"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson

I will be speaking in Greely, CO this Wednesday morning, Jan. 7. The Weld County Republican Breakfast meets at Randy's in the Westlake Shopping Center and has asked me to give my economic wrap for 2014 and an economic prediction for 2015. The breakfast starts at 6:30 with the presentation slated to start shortly after 7. You are all invited to come and bring your questions. There might be a surprise or two in the presentation you won't get from the regular news outlets or other economic sources. Thank you for your support--Mike