Tag: Reserves

A Question of Money – Interest – Bankers

Guest Post by Martin Armstrong

INTR-CCON

The problem in so many areas is that we can focus on one issue, but the answer is a complexity of variables. The history of interest rates has been provided on this site. Interest rates in a developed economy reflect the “option” value on the expected decline in purchasing power of money. If I expect it to decline by 5%, then I expect a profit and say want 8%. You in turn will pay the 8% only if you think you also can make a profit above 8% perhaps 10%+.

In an UNDEVELOPED economy, we transpose the depreciation risk of money with risk in general. Lacking any developed economy, one will lend only based upon the risk of getting repaid. Therefore, without a legal system, the risk is either the person or the political climate. When we look at the history of interest rates, I demonstrated that the rate of interest even within the Roman Empire increased the further you moved away from Rome. Hence, the lowest interest rates are in the dollar and they rise in other countries based upon perceived political risk. Greece’s interest rates are significantly higher than those in Germany. This is a reflection of political risk, not simple the future inflation rate in the Euro.

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FILTHY STINKING LIARS

Oil company executives and Wall Street shysters were made for each other. The shale oil boom is built upon lies, misleading projections, false data, and bad math. The CEOs of shale drillers have only one purpose – to get rich. The easiest way to get rich is to lie about the potential, pump your stock price up, pay yourself with stock options, and sell the overinflated stock before the truth is revealed.

To count as proved reserves to the SEC, companies must have “reasonable certainty” that the oil and gas will be extracted from existing wells and those scheduled to be drilled within five years. The forecasts are based on fuel prices, geology, engineering and the performance of nearby wells. Planned wells must be economically and technically viable.

The amount of reserves they put into official SEC documents is 80% less than the figures they tell stock investors. I wonder why? Do you think they would be more likely to lie to the SEC or to muppet investors? The energy independence morons never address the “economically & technically viable” aspects of extracting shale oil. If it costs you more to extract the oil than you get by selling it, you won’t extract it.

We are nearing the point where extracting shale oil is no longer profitable enough for drillers to drill. Due to the worldwide recession which is spreading across the globe, oil prices have plunged from $100 per barrel to $85 per barrel. If prices drop below $80 per barrel, the shale oil miracle will become a shale oil bust. But liars gotta lie. It’s the American way.