oil – Page 4 – The Burning Platform

True Believers

Guest Post by Jim Kunstler

There is a special species of idiot at large in the financial media space who believe absolutely in the desperate and tragic public relations bullshit that this society churns out to convince itself that the techno-industrial high life can continue indefinitely, despite the mandates of reality — in particular, the fairy tales about oil: we’re cruising to energy independence… the shale oil “miracle” will keep us driving to WalMart forever… our wells doth overflow as if this were Saudi America… don’t worry, be happy…!

Such a true believer is John Mauldin, the investment hustler and writer of the newsletter Thoughts From the Frontline, who called me out for obloquy in his latest edition. After dissing me, he said:

“I have written for years that Peak Oil is nonsense. Longtime readers know that I’m a believer in ever-accelerating technological transformation, but I have to admit I did not see the exponential transformation of the drilling business as it is currently unfolding. The changes are truly breathtaking and have gone largely unnoticed.”

Mauldin is going to be very disappointed when he discovers that the vaunted efficiencies in shale drilling and fracking he’s hyping will only accelerate the depletion of wells which, at best, produce a few hundred barrels of oil a day, and only for the first year, after which they deplete by at least half that rate, and after four years are little better than “stripper” wells. The PR shills at Cambridge Energy Research (Dan Yergin’s propaganda mill for the oil industry) must have pumped a five-gallon jug of Kool-Aid down poor John’s craw. He believes every whopper they spin out — e.g. that “Right now, some US shale operators can break even at $10/barrel.”

The truth is the shale oil industry couldn’t make a profit at $100/barrel. The drilling and fracking boom that began around 2005 was paid for with high-risk, high-yield junk bond financing and other sketchy, poorly collateralized financing. Most of the earnings in the early years of shale oil came from flipping land leases to greater fools. Now that the price of oil has fallen by more than 50 percent in the past year, the prospect dims for that junk financing to be repaid. Since that was “bottom-of-the-barrel” financing, the odds are that the shale producers will have a very hard time finding more borrowed money to keep up the relentless pace of drilling needed to stay ahead of the short depletion rates. They are also running out “sweet spots” that are worth drilling.

Continue reading “True Believers”

Lawrence Wilkerson: Travails of Empire – Oil, Debt, Gold and the Imperial Dollar

Guest Post by Jesse

“We are imperial, and we are in decline… People are losing confidence in the Empire.”

This is the key theme of Larry Wilkerson’s presentation. He never really questions whether empire is good or bad, sustainable or not, and at what costs. At least he does not so in the same manner as that great analyst of empire Chalmers Johnson.

It is important to understand what people who are in and near positions of power are thinking if you wish to understand what they are doing, and what they are likely to do. What ought to be done is another matter.

Wilkerson is a Republican establishment insider who has served for many years in the military and the State Department. Here he is giving about a 40 minute presentation to the Centre For International Governance in Canada in 2014.

I find his point of view of things interesting and revealing, even on those points where I may not agree with his perspective. There also seem to be some internal inconsistencies in this thinking.

But what makes his perspective important is that it represents a mainstream view of many professional politicians and ‘the Establishment’ in America. Not the hard right of the Republican party, but much of what constitutes the recurring political establishment of the US.

Continue reading “Lawrence Wilkerson: Travails of Empire – Oil, Debt, Gold and the Imperial Dollar”

NO INFLATION?

Aren’t you glad you don’t need to use gasoline or any other oil based products in your everyday life? I’m sure Yellen will write this off as transitory. Why disrupt a Fed induced bull market for the .1% with any move from extreme emergency level interest rates. That would be disconcerting to Jamie Dimon and his ilk. There would be hundreds of angry calls from the Hamptons to the Eccles building in D.C.

Producer Prices Jump MoM Most Since Sept 2012 Driven By Higher Energy Costs

Submitted by Tyler Durden on 06/12/2015 08:40 -0400

Producer Prices Final Demand rose 0.5% MoM – the biggest monthly rise since September 2012. With the gasoline index up a stunning 17% (but but but) 80% of the broad-based advance is attributable to prices for final demand energy – which increased 5.9%. In contrast, Final Demand PPI YoY Ex Food & Energy dropped to +0.6% – the lowest on record in the short time series.

Biggest jump in PPI in almost 3 years…

Not ISIS? Saudi Arabia To Execute & Display Beheaded Body Of Political Activist In Public “Crucifixion”

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

One of the ways that the U.S. government most clearly expresses its deep dedication to global human rights, democracy and decency across the globe is via its unwavering support for the feudal, inhumane tyrannical monarchy of Saudi Arabia. A monarchy that also increasingly seems to have played a key role in the attacks of September 11, 2001.

The Saudis have received a lot of bad press as of late due to it consistently breaking its own records for beheadings, but sometimes a simple beheading isn’t sufficient. In a punishment known as “crucifixion,” the executed person’s beheaded body is placed on public display for three days. Currently facing this fate are three political activists, including two children. We learn from Reprieve.org that:

Saudi Arabia has been urged to spare the lives of two juveniles and an ageing political activist, after plans emerged to execute at least one of them this Thursday (14th).

Sheikh Nimr Baqir Al Nimr, a 53-year old critic of the Saudi regime, and two juveniles, Ali Mohammed al-Nimr and Dawoud Hussain al-Marhoon, were arrested during a 2012 crackdown on anti-government protests in the Shiite province of Qatif. After a trial marred by irregularities, Mr Al Nimr was sentenced to death by crucifixion on charges including ‘insulting the King’ and delivering religious sermons that ‘disrupt national unity’. This week, it emerged that the authorities plan to execute him on Thursday, despite protests from the UN and Saudi human rights organizations.

The planned execution of Mr Al Nimr has prompted fears for the safety of the two juveniles, who were both 17 when they were arrested and eventually sentenced to death on similar charges. Both teenagers were tortured and denied access to lawyers, and faced trials that failed to meet international standards. All three prisoners, including Mr Al Nimr, have not yet exhausted their legal appeals.

Saudi Arabia has carried out executions at an unprecedented rate since the coming to power of King Salman in 2015. On May 6th 2015, the Kingdom carried out its 79th execution of the year, and it is already close to surpassing its 2014 total of 87 executions. Human rights organization Reprieve has urged the European Union to intervene with Saudi Arabia to prevent the killings.

Continue reading “Not ISIS? Saudi Arabia To Execute & Display Beheaded Body Of Political Activist In Public “Crucifixion””

Saudi Arabia’s Oil-Price War Is With Stupid Money

Hat tip Indentured Servant

Guest Post by Art Berman

Saudi Arabia is not trying to crush U.S. shale plays. Its oil-price war is with the investment banks and the stupid money they directed to fund the plays. It is also with the zero-interest rate economic conditions that made this possible.

Saudi Arabia intends to keep oil prices low for as long as possible. Its oil production increased to 10.3 million barrels per day in March 2015. That is 700,000 barrels per day more than in December 2014 and the highest level since the Joint Organizations Data Initiative began compiling production data in 2002 (Figure 1 below). And Saudi Arabia’s rig count has never been higher.

Figure 1. Saudi Arabian crude oil production and Brent crude oil price in 2015 U.S. dollars. Source: U.S. Bureau of Labor Statistics, EIA and Labyrinth Consulting Services, Inc.

Market share is an important part of the motive but Saudi Minister of Petroleum and Mineral Resources Ali al-Naimi recently emphasized that “The challenge is to restore the supply-demand balance and reach price stability.” Saudi Arabia’s need for market share and long-term demand is best met with a growing global economy and lower oil prices.

That means ending the over-production from tight oil and other expensive plays (oil sands and ultra-deep water) and reviving global demand by keeping oil prices low for some extended period of time. Demand has been weak since the run-up in debt and oil prices that culminated in the Financial Collapse of 2008 (Figure 2 below).

Figure 2. World liquids demand (consumption) as a percent of supply (production) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.
(click to enlarge image)

Continue reading “Saudi Arabia’s Oil-Price War Is With Stupid Money”

The Real Reasons They Hate Iran

Keep That Iranian Genii Bottled Up!

By Eric Margolis
April 11, 2015

The deal reached in Lausanne, Switzerland by Iran and five powers, led by the US, appears to be about nuclear capability.

In fact, the real issue was not nuclear weapons, which Iran does not now possess, but Iran’s potential geopolitical power.

Iran, a nation of 80.8 million, has been bottled up like the proverbial genii by US-led sanctions ever since the 1979 Islamic Revolution deposed Shah Pahlavi’s corrupt royalist regime. The Shah had been groomed to be the chief US enforcer in the Gulf.

More than a dozen American efforts to overthrow the Islamic government in Tehran have failed. Washington resorted to sabotage and economic warfare, sought to throttle Iran’s primary exports, oil and gas, to derail its banking system, and prevent imports of everything from machinery to vitamins.

The US and Israel have used the extremist group People’s Mujahidin to murder Iranian officials and scientists.

There is no doubt that this western economic siege drove Iran to make major concessions over its nuclear energy program, a source of great national pride and prestige that broke what Grand Ayatollah Ali Khamenei called the “backwardness” imposed by the western powers on the Muslim world to keep it weak and subservient.

Continue reading “The Real Reasons They Hate Iran”

WAR AGAINST IRAN HAS BEGUN

This attack on Yemen by Saudi Arabia/United States is part of a larger plan to create a conflict with Iran. Again, the U.S. has actually armed the rebels in Yemen, just as we armed ISIS in our failed effort to oust Assad. This begins to explain why Saudi Arabia and the U.S. have continued to pump oil and fill our storage facilities to the brim at low prices. The price of oil has already jumped 10% in the last two days as fears of Iran/Yemen blocking oil flow from the Gulf.

It seems clearer every day that the U.S. promotes chaos in the Middle East to make sure no one country gets too powerful. We attacked Tikrit yesterday to help our “allies” from Iraq defeat the ISIS terrorists who we armed to fight our enemy in Syria. Hysterically, it is Iranian armed forces who have been helping Iraq fight ISIS, but Iran is our enemy. Right?

Is it all clear now?

And the average ignorant American doesn’t even know we are militarily engaged in the Middle East, but they are fully supportive of defeating whatever existential threat our government creates this week. I wonder how many Americans could find Yemen on a world map.

Guess who is really happy? The American arms dealer corporations. More “political contributions” (bribes) to the Congress critters coming.

RETAIL SALES PLUMMET FOR 3RD MONTH IN A ROW, BUT ALL IS WELL ON WALL STREET

I thought all those Obama jobs, the millions of Obamacare enrollees getting “free” health insurance, and the plunge in gas prices would lead to billions of excess disposable income being spent on stuff. Considering consumer spending accounts for 68% of GDP, this juggernaut of jobs would propel the US economy to new heights. Keynesianism at its finest. But something went awry on the road to prosperity. The American people have stopped spending money they don’t have on shit they don’t need. The blathering boobs on the tube will use the tried and true weather excuse, except last winter was the winter of the polar vortex. The very same morons who reported that this past winter was the 15th warmest in recorded history, will use cold and snow during winter time as the reason the American sheeple didn’t shop. How could they possibly get to the mall in their leased four wheel drive SUVs, pickups, and minivans?

Retail sales have fallen three months in a row. The last time this happened was at the beginning of the 2008 financial collapse. Do retail sales fall three months in a row when the economy is booming, or does it do that when we are in a recession? And these haven’t been miniscule drops: December -0.9%, January -0.8%, February -0.6%. If we dig into the numbers we can assess the truth of our current situation:

Retail sales have only grown by 1.7% versus last year. This is far lower than the real level of inflation.
If you back out the subprime loan juiced auto sales, retail sales have grown by a pathetic 0.8% in the last year.
The rapidly rising level of auto loan defaults and repossessions is leading to a decline in auto sales, as they fell 2.6% in February versus January.
All the discretionary retailers – furniture, electronics, building materials – have seen sales fall over the last three months. How could this happen if we are having that strong housing recovery I’ve read about?
In a positive development, the gas price plunge reversed, and you spent $500 million more for gas in February.
Department store sales fell again and were $350 million lower than last year. The JC Penney, Sears death march slogs on.
Things have gotten so bad, people are even drinking and eating out less. Makes you wonder how we can keep adding those Obama jobs – waitresses, bartenders, fry cooks.
On-line retailing, which used to grow at 10% to 20% rates, has grown by 3.9% YTD. Maybe Amazon isn’t really worth $370 per share. It couldn’t happen to have anything to do with the government sucking the life out of the business by implementing sales taxes.

Continue reading “RETAIL SALES PLUMMET FOR 3RD MONTH IN A ROW, BUT ALL IS WELL ON WALL STREET”

Whiplash!

Guest Post by Dmitry Orlov

Over the course of 2014 the prices the world pays for crude oil have tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before heading much higher before collapsing again before spiking again. You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies and the rolling bankruptcies of energy companies, then the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy crude oil would be reclassified as toxic waste. But that is still two or three decades off in the future.

In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela’s heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico (Mexico and US), Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US. All of these producers are now burning money as well as much of the oil they produce, and if the low oil prices persist, will be forced to shut down.

An additional problem is the very high depletion rate of “fracked” shale oil wells in the US. Currently, the shale oil producers are pumping flat out and setting new production records, but the drilling rate is collapsing fast. Shale oil wells deplete very fast: flow rates go down by half in just a few months, and are negligible after a couple of years. Production can only be maintained through relentless drilling, and that relentless drilling has now stopped. Thus, we have just a few months of glut left. After that, the whole shale oil revolution, which some bobbleheads thought would refashion the US into a new Saudi Arabia, will be over. It won’t help that most of the shale oil producers, who speculated wildly on drilling leases, will be going bankrupt, along with exploration and production companies and oil field service companies. The entire economy that popped up in recent years around the shale oil patch in the US, which was responsible for most of the growth in high-paying jobs, will collapse, causing the unemployment rate to spike.

Continue reading “Whiplash!”

Outspooking The Lehman Apocalypse: Could A Russian Default Be In The Cards?

The American MSM is cackling at the collapse of the Russian ruble and the Russian stock market. They seem to think Russia’s loss is an American win. They are too myopic to realize a Russian collapse will just be a first domino in a worldwide conflagration. The collapse in oil prices is mainly due to a collapse in worldwide demand because we have entered a global recession. No one wins in a global recession. Central banks have shot their load. The debt binge has failed to cure a disease caused by too much debt. Deflation has taken hold and will ravage the debt laden countries. The pain is just beginning.

As a reminder – Russian debt to GDP is 20% and they still have hundreds of billions of barrels of crude oil under their land. The US has debt to GDP of 103% of GDP and shale that is worthless unless oil prices are above $80 per barrel. Oil is currently $56 per barrel. Are we really winning?

The wildcard in this is Putin. The faux journalists and toady politicians think he will back down, leave the Ukraine, and bow down to Obama. Really? Not a chance. He is more likely to launch tanks into the Ukraine and see if Obama and NATO have any balls. Obama is an amateur with 40% approval who will not be able to accomplish anything in the last two years of his failed presidency. If he pushed Putin too hard, the unintended consequences may end up being a major chapter in a future history book.

The sheep are busy preparing for Christmas while tweeting, texting and facebooking to their heart’s content. They have no idea they are being led closer to the slaughterhouse.

Submitted by Tyler Durden on 12/16/2014 15:10 -0500

Via Mint – Blain’s Extra Porridge,

“Nazhmite Lyubuyu Stavku…“

Extra Comment – this might be getting serious.

Russia’s markets have been spanked hard despite last night’s hike. 19% currency crash and 13% down stocks in a session. Ouch! Cumulatively, over the past few weeks stocks, oil and the Ruble are off 50% plus, and bonds off 40%. This morning felt like free-fall. Expect more action from the Russians to stave off economic catastrophe… imminent capital controls are rumoured, but markets are demonstrating a massive loss of confidence.

Lots of old market hands are talking about how its similar to the Russia default and crash of ‘98 all over again.. Actually.. its worse.

Much worse.

The scale and speed of the current collapse is a magnitude greater, and the effects are accelerated and magnified by the utter absence of liquidity, and by the political stakes at play. Lots of comments about how a Russian crisis might play out and what cornered Putin may do – or be forced into. Let’s not speculate, but it seems pretty clear that any Western support to calm the crisis and stabilise markets would come at a very high personal cost to Putin. That would be a good point to get selectively involved.

It’s too early. We’ve seen a few cautious buyers get wallpapered with Russian and Ukraine paper – and done decent amount of business, but generally none of the main distressed players feel it’s yet time to get involved. “Don’t expect a V-Shaped recovery – its different and aint going to happen..” said one manager. Hope is not a strategy when it comes to Russia at present.

The big risk is whether the Russian meltdown can be contained within the borders of the Rodina. All kinds of no-see-ems suggest themselves.

What are potential knock-ons into other markets? Perhaps Russians having to unwind London Property, (we understand Russians have been very big buyers in recent weeks prefiguring potential exchange controls), or further ructions in Europe? We’re already concerned European sovereign debt is poised on a knife-edge between brutal reality and over-inflated hopes for QE. A strong nudge from a conflagurating Russia and bang goes Italy?

Or will it come from safe-haven flight triggering sell-offs across every asset class in a replay of 2008? Could a Russia default that will outspook the Lehman apocalypse be on the cards?

So much for dull Christmas markets…

WE’LL GET WHAT WE DESERVE

What Do Central Banking and “Twerking” Have in Common?

Guest Post by Bill Bonner

Mr. Market Shall Prevail

New York is filling up with holiday shoppers and tourists. On Saturday, we went to the Broadway show Jersey Boys. It was not an especially complex or subtle storyline. But the music, of Frankie Valli and The Four Seasons, was lively and agreeable. It took us back to the early 1960s. Those were the days!

Back then people had jobs … prices were fairly stable … and the GDP was growing at twice or three times today’s rates (and so were personal incomes). How was it possible?

Back then, under chairman William McChesney Martin Jr., the Fed ran much tighter monetary policy. So America’s savers could earn a decent return on their money. And the Fed wouldn’t have even dreamed… let alone dared… to target higher stock market prices. What about quantitative easing?

It was probably illegal. And certainly would have been considered immoral or insane. But there are fads in music… and in central banking, too.

The music industry has given us “twerking.” (Google it.) And in central banking, we have multitrillion-dollar asset price manipulation programs. Both are obscene. But both are popular. And almost nobody wants to see them stop.

But in the end Mr. Market… nature… and the gods… will prevail. Thy will be done. It always is.

Miley Cyrus, the gal that made “twerking” popular. Quite harmless compared to money printing, although it’s kind of embarrassing …

Photo: Larry Marano / Getty Images

Defying the Gods

As we closed out last week, US stock market benchmarks were climbing to new highs. And gold was taking a $17-an-ounce hit. But what happens next is not up to us. It depends on the gods, who represent the forces of “what shall be,” not “what we want things to be.”

All we know is the Fed cannot control the outcome. Nor can individual investors. Nor Paul Krugman. Nor the president of the US. Not even Warren Buffett or the NFL can dictate the terms of this story.

You can tinker with nature… you can bend and twist the markets… you can delay and outrage the gods… but you can never control them. If smart, well-informed people, armed with modern theories and “policy tools,” could control an economy or a market, why would there ever be meltdowns, breakdowns or shakedowns?

Why would Zimbabwe’s currency become worthless? Why would Venezuela be feeling “the hurtin’”? Why would Japan’s GDP be the same as it was 25 years ago – despite a quarter of a century of “stimulus”?

No, dear reader, even the most powerful policymakers and the smartest theorists cannot defy the gods. In the end, we don’t get what we want; we get what we deserve.

23.40 A procession of the 12 Olympian gods from the Walters Art Museum. From left to right: Hestia (scepter), Hermes (winged cap and staff), Aphrodite (veiled), Ares (helmet and spear), Demeter (scepter and wheat sheaf), Hephaestus (staff), Hera (scepter), Poseidon (trident), Athena (owl and helmet), Zeus (thunderbolt and staff), Artemis (bow and quiver), Apollo (lyre). Not to be trifled with.

Photo via Wikimedia Commons / Walters Art Museum

Cheap Gas!

Now, thanks to our enlightened economists and their careful management, we’re told, the US economy is doing quite well. Reports the New York Times:

“On Friday, the Labor Department reported that US payrolls rose by 321,000 jobs in November and that hourly wages jumped, easily beating economists’ expectations. This year will be the best for job creation since the boom years of the late 1990s.”

Meanwhile, federal deficits are falling. And you can buy a gallon of regular gasoline for $2.71 – only five times the price of when Ike and Dick were “sure to click.”

The Fed says falling prices are bad. They are adding trillions of dollars to the monetary base to make sure the consumer price index rises by its target of 2% a year. But falling oil prices are a good thing. Do we have that right? Sometimes we can’t remember.

Let’s see, Americans can spend less on gasoline, leaving them more to spend on other things. Heck, we don’t need no stinkin’ QE anymore. Now we have cheap gas!

Wait. Since the crisis of 2008-09 about one-third of capital spending by S&P 500 companies went into energy. And as much as 20% of the high-yield market (junk) now is concentrated in the energy sector.

That boom was built on low interest rates and a high oil price. Without cheap money, cheap gas wouldn’t be possible. And when gas gets too cheap, the cheap money suddenly gets very dear.

Nearly a trillion dollars of spending worldwide is focused on new energy production. And with oil prices down nearly 40%, much of that spending… and all the subprime energy debt… is in danger. Unless oil prices go back up soon, there could be hell to pay.

Junk bond ETF JNK (unadjusted version excluding dividends). Feeling the pinch from plunging oil prices. Needless to say, this doesn’t look good, via StockCharts – click to enlarge.

The Saudis seem to be determined to keep on pumping, despite plunging crude oil prices. The only way they can protect their market share is by remaining the low-cost producer.

US frackers are likely to keep fracking too. They’ve bet big money on forcing crude out of grudging rock. They won’t give up easily. Instead, they’ll borrow more heavily to stay in business. But the more they pump… the longer oil prices stay low.

Paying $60 to extract a $50 barrel of oil is not a good business – no matter how low interest rates are. Already, the gods have smashed the oil companies, the drillers, the transporters and almost everything else that reeks of gasoline. Soon, they’ll whack at their subprime debt too.

Will they bring down other stocks? Bonds? The economy? Only a fool would pretend to know. As to twerking, your editor hasn’t made up his mind. But as to the Fed and its meddling in the markets, he is sure: Less is more.

Trying to manage an economy is like trying to manage the love life of a teenage daughter, it’s just going to make things worse.

al-naimi_6

Saudi Arabia’s oil minister Ali Al-Naimi. Rumor has it that the Saudis were so offended by Miley Cyrus’ twerking, they decided to pump the US fracking industry off the map out of sheer spite. They’re probably short JNK too.

Photo via AP

The above article is taken from the Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

Plunging oil prices will starve the world of its economic fuel

Guest Post by Chris Martenson

Low prices mean no new oil, and no new oil means no growth

If oil prices do not recover and quickly, the U.S. shale miracle will rapidly turn into a shale bust.

The world economy is slowing down and the authorities are worried.

Besides the official gross domestic product statistics, we have further confirmation of this slowdown from the four big commodities associated with growth; oil CLF5, -3.81% (-40% from June 2014), coal (-52% from peak in 2010), copper (-14.4% in 2014), and iron ore (-41% year-to-date 2014).

Japan, Italy, and Greece are all in recession. China is slowing down according to its official statistics, and even more according to the whispers.

The days of rapid economic growth are behind us because the days of cheap oil are behind us.

Germany, France and the Netherlands are all at stall speed.

The U.S. is, according to the Commerce Department, doing just great at nearly 4% growth, but you wouldn’t know that from either the quality of the new jobs being created (which is low) or consumer spending (also low).

The worry, as always, has nothing to do with the central banks’ concern for you, your job, your children, wealth equality, or the future, and everything to do with the simple fact that the stability of the banking system absolutely depends on a steady stream of new loans being created.

The core of the problem is that we have a monetary system that is either expanding or collapsing. It has no steady state.

In 2008 and 2009, net credit creation was only slightly negative, but that was enough to very nearly cause the entire system of money and banking in the developed world to collapse.

Either money and credit are expanding and the banks are relatively happy or the banks are collapsing and demanding taxpayer bailouts. It’s really that stark.

Now after the most heroic run of interest rates forced to zero (ZIRP) and below (NIRP in Europe) and the grandest experiment with money printing in global history, credit growth is somewhat back on track but not enough to ease the bankers’ worries.

So they continue to pump, and jawbone, and panic at every slight downturn in wildly inflated financial asset prices because those are their only major successes in this drama.

The actual economy, the one that lives on Main Street, never really recovered, at least not compared to past recoveries. Growth, jobs and incomes all were anemic compared to prior recoveries. Capital expenditures by corporations were all but dead in the water throughout the “recovery.”

If oil prices do not recover and quickly, the U.S. shale miracle will rapidly turn into a shale bust.

And this brings us to the collapse in oil prices.

Our view here at Peak Prosperity is that the days of rapid economic growth are behind us because the days of cheap oil are behind us.

Oil fuels the engine of growth and the world has spent $2.5 trillion over the past nine years chasing more oil and yet is producing roughly the same amount of oil as it was before it spent all that money.

As Jeremy Grantham put it in his latest quarterly newsletter:

“As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less — replacing in the last 12 months only 4½ months’ worth of current production! Clearly, the writing is on the wall.”

Unless investment in oil production really accelerates from here, new production will be swamped by existing declines.

But with oil down some 40% since June, new oil drill programs are being scrapped left and right.

New drill permits in the U.S. shale plays were down 40% in November compared to October and for good reason: most of the plays are uneconomical at current prices:

The bottom line, though, is that without growth in oil supplies robust economic growth is impossible to achieve.

What Is the 2015 Economic Outlook?

If oil prices do not recover and quickly, the U.S. shale miracle will rapidly turn into a shale bust. The decline rates on these wells are ferocious. With that loss of production will go the entire narrative that says that peak oil is somewhere off in the distant future and that we can safely ignore it for now.

Worse, global oil projects are now on hold and those potential future supplies have been pushed out further waiting for higher oil prices.

No new oil means no new economic growth. It’s as simple as that.

This calls into question the sky-high valuations we currently see for stocks and bonds. The operative question being, what is the value of these stocks and bonds in a world without growth?

To me the answer is simple; a lot less than they currently are.

So the central banks are worried that their efforts to ignite new borrowing are not working, but I am worried that the bloated asset prices that were a product of this quest are going to run straight into the reality of diminished oil output.

In short, my worry is that we are now well past the point where the next financial correction can be avoided. It’s going to hurt.

The central banks have failed, perhaps honestly and with good intentions, but they have failed nonetheless. All because they were peering out just one of several portholes and thought they understood the world.

Chris Martenson is an economist and futurist who co-founded the PeakProsperity.com blog.