Epocalypse Soon: The Great Economic Collapse is Happening

By: David Haggith

HitlerReaper















I use the term "epocalypse" to name the last days of the global economy as we know it -- a global economic collapse of biblical proportion. It is economic, epochal, an apocalypse that will change the world and a collapse ... all in one word that sounds the right size for what I'm talking about. Call it the "Great Collapse" or the "Epocalypse." Whatever you call it, it's about to change the world.
 
I am referring to an economic crisis so big that the global economy will be forever different after those days. This economic collapse has already begun throughout the world, but I am holding off on using the title "Epocalypse Now" until the US stock market joins the crash. That's the point at which we're all in (i.e., at a level where everyone knows it and denial that it is happening falls apart). I anticipate making that call in a matter of days now. Here is where we stand at present:
 
Destruction of Jerusalem as Metaphor for Economic Collapse on an Apocalyptic Scale
 

Economic collapse is already global

Open your eyes to a wider scope than just the US stock market, and it's as if a fog lifts all around you to reveal a war-ravaged landscape. It may not be like the landscape described in the New Testament book, The Apocalypse (The Revelation), but it's moving in that kind of direction. Let me describe what is already unfolding in case you haven't caught the big picture.
  • The energy crash is certain to worsen. The news last week that OPEC is not going to lower output, makes it clear that OPEC is in the energy price war for the duration. Driven by the Saudis, OPEC nations will assure oversupply until they see several major oil companies in the US collapse. To lower output now and raise oil prices would be to have suffered a year of pain for absolutely nothing. OPEC is committed to breaking the US fracking industry, and it's doing a pretty good job of it. That means energy stocks and oil prices are down for the long term. The price of oil now matches its lowest point in the Great Recession.
  • All commodity prices are collapsing, and the situation is clearly going to worsen and stay bad for a long time. China's demand for natural resources is not coming back for many years, as its slowdown was intentional, albeit apparently out of control. Because of its slowdown, China became a net seller of materials this year, versus a net buyer. This has become huge bad news for companies all over the world in the natural-resources industry. China is now playing a similar role in all natural resources to that played by OPEC is oil. China has huge overcapacity now in its product of refined materials, but it is cheaper to run some businesses at a loss than to shut them down due to fixed expenses, liabilities, etc. These businesses are underpricing their global competitors, hoping to shut them down so that Chinese businesses can survive in a market of reduced demand. This is crushing major US companies like Alcoa, which has closed down smelters because it cannot compete against the lower price of Chinese aluminum. Copper, to give another example is down 37% from its last high in June of 2014. All of this is a longterm change in the commodities market that is affecting the entire natural-resources industry. The Bloomberg Commodities Index has hit its lowest level in sales of all commodities valued in dollars since 1999. The global overcapacity in steel production alone is estimated at 700,000,000 tons a year. China is exporting deflation all over the world.
  • Globally, twenty-seven stock markets are now in correction (a decline of 10% or more) with thirteen of those being bear markets (a decline of 20% or more). Several markets have fallen more than 30%. Trillions of dollars have evaporated around the world. These all-out crashes can be found in Asia, Europe, the Middle East, Africa and South America. They are, in other words, global in extent and include such major economies as the United Kingdom, Germany, China, Canada, Australia and India -- not just the usual trouble spots. The last time we saw such widespread stock-market damage was in 2008 in the first part of the Great Recession. So, it is no overstatement to say we already have a global stock market crash. If you're in the United States, you might not be feeling the epocalypse yet; but the rest of the world is; and once the US is in, things will become even worse for the rest of the world, which in turn will make things worse for the US.
  • Economic collapse is everywhere; several economies have seen recession this year. Japan, Canada, Australia, Russia, Ukraine, Brazil and Greece are just some of the nations that have officially been in recession during 2015. Japan, of course, has revised its numbers to claim it is not really in recession. Whatever. If you're that close that you can't figure it out, you might as well be considered in. For Japan this makes five recessions in seven years. Global GDP -- the sum of all national GDPs -- has been falling for a year. The only other time in the past half century that has seen any drop in global GDP was 2008, during which it fell the same amount that it has fallen this year. As recessions are measured by drops in GDP, this means the globe overall is in recession.
  • Global economic trade has been collapsing all year. It is down 8.4%, and the rate of decline is getting steeper. The Baltic Dry Index, which monitors shipping costs, has dropped from 809 to 628 in just one month. Container costs go down as demand goes down, and shippers compete more fiercely for fewer customers. The China Containerized Freight Index has hit a record low, falling 31% for the year. German exports were down 18% for the year; US exports, down 10%. Shipping giant Maersk says that shipping indicates the global economy is actually doing worse than most economic projections indicate.
  • Europe is trying to absorb millions of impoverished refugees. Already teetering on recession, Europe averages an unemployment rate of 10%. I have to wonder why European leaders think Europe actually has the financial capacity to absorb millions of jobless refugees. Who is going to support them? Millions of jobless Europeans? The situation has the makings of social calamity, even without the huge cultural divide between the refugees and Europeans and even aside from the risk that such rapid immigration makes it easier for terrorists to slip in among the immigrants. Europe's leaders are completely unrealistic about Europe's capacity to absorb the refuge crisis.
  • Islamic terrorism is not going away. Forty-nine nations that are predominantly Islamic want to see the entire globe ruled by Sharia. Many of them are directly funding terrorists. ISIS is expanding its recruitment within nations all over the world, claiming now is the time for Muslims everywhere to rise up in battle within their own nations. Its efforts are sophisticated and inspirational, such as this new song in Mandarin in China (lyric translation). This epic battle creates a high security cost to the economies of all Western nations at a time when they are already weak ... and ISIS knows this. Their philosophy is to strike the giant while he is ailing in order to bring him down for good.

The ISIS Apocalypse: The History, Strategy, and Doomsday Vision of the Islamic State


 Economic collapse developing in the US
  • Junk bond interest is skyrocketing as the high-yield bond market begins to collapse. The US collapse into the Great Recession was led by junk bonds. Obviously, as junk bonds become riskier, the amount offered in interest to attract financiers rises. So, skyrocketing interest equates to a perception of skyrocketing risk. Junk bond interest this year has taken on that distinct "hockey stick" shape, reaching its highest level in five years. That rise is across the board, not just in industries where it would be expected, such as financing in the energy industry. Those who already hold high-yield bonds are seeing their first annual loss since 2008 as they seek to dump bonds that have a growing risk of default. Risky bonds usually average about one-and-a-half times the yield of safer bonds. They now average four times the yield in order to find buyers. This the start of a bond market sell-off. UBS, the largest bank in Switzerland, reported recently that over a trillion dollars of junk bond issuers are having troubles refinancing. This adds up to a likelihood of large defaults in corporate junk bonds like the defaults that created the Great Recession. Junk-bond crashes also have a longstanding reputation of foreshadowing stock-market crashes. The potential Fed rate hike is exacerbating the rise in interest.
  • The US Dept. of Agriculture has forecast that farm incomes will decline 38% this year. Not dire for everyone, but it calls to mind years of the Great Depression when farmers struggled against drought during a time of economic collapse, and it does add more downward pressure on some parts of the economy, including major corporations like John Deere. Poor farmers don't buy expensive equipment if they can avoid it. They also don't buy cars and trucks and a lot of other things. It all adds to the impact that the oil crash is having on the midwest.
  • Major retailers are in decline. Target, Macy's, Dick's Sporting Goods, Walmart, Best Buy, Nordstrom, Kohl's, Tiffany are all experiencing trouble. Sales are dropping so that inventories are backing up. The Wall Street Journal just published a story titled "Retailers Ring Alarm Bells for the Holiday Season," which describes the decline as "shockingly bad." This is not due entirely to customers switching from brick-and-mortar stores to online purchases. Bank of America reports that credit-card purchases, which happen equally in both physical stores and online stores, took their first holiday-season decline (year-on-year) since the official years of the Great Recession. Part of the decline, they say, but not all of it, was due to the drop in fuel prices, also purchased with credit cards; but part of it is due to retail.
  • Auto loans and student loans are a leaning tower of debt. Auto sales have peaked only as a result of a huge extension of looser, loser credit where loan terms are now up to seven years long, and interest is low or non-existent as are down payments. The last time we saw such desperate financing measures in the auto industry was just before the Great Recession, and we all know what happened to the auto industry then. We also know what happened to the housing industry when it peaked because of looser credit. We've learned nothing and have repeated the problem ... on steroids.
  • The US manufacturing sector is already in recession. When the index run by the Institute for Supply Management (the ISM index) falls below a reading of 50, it means US manufacturing is in contraction. Last month, it finally caved in to a level of 48.59. This is not a fluke. The index has been in steady decline since this past June. 65% of the time when the ISM index has gone below 50, the US economy has gone into recession. The 35% of the times when it did NOT go into recession were times that had nowhere near the downward economic pressures that the present time already has. The direction the ISM index moves has been a nearly perfect predictor of the direction US gross domestic product moves, and GDP is the measure by which economists determine if an economy is in expansion (growth) or contraction (recession). The last time the ISM index hit this level was during the pit of the Great Recession in 2009.
  • Dow Theory is waving a bright-red flag. Shipping companies, railroads and trucking companies are all in serious decline, as is Cummins, the maker of diesel engines, as is the sale of new trucks, new rail cars and new ships ... because products and resources are not moving nearly as fast as they were. Sales are down. Stocks are down. The Port of Los Angeles reports a 15% decline in container shipping volume this year. Both imports and exports are down. Orders of large trucks are down 44% year-on-year. Railcar orders plunged 83% year-over-year in the third quarter, the largest decline in almost thirty years! Year-to-date, the Dow Jones Transportation Average has gone from a value of 9,200 to 7,800, a 15% drop. The Dow Jones Industrial Average, on the other hand, has lost less than half a percent for the year. According to Dow Theory, a healthy stock market with a good future sees both the Industrial Average and the Transportation Average going up together. When they diverge (especially this dramatically) trouble is afoot. The theory is based on the idea that when manufacturers are doing well, they produce more, AND they ship more. Transportation stocks are seen as the leading indicator. If shipping is slowing, demand is slowing, and so manufacturing will have to slow down, too, as inventories start to pile up. Exactly what we've been seeing all year. Since transportation stocks have dropped 15% overall, Dow Theory suggests that manufacturing has a similar or even greater decline waiting for it, as manufacturing slows to match plunging demand and rid itself of existing overstock.
  • Hedge funds are tanking. Money managers who made big names for themselves are failing. They have been failing all year. Some have been failing for a few years now, and their problems are only getting worse. Why is it that the nation's top stock pickers can no longer pick winning stocks to save their souls? Could it be that the stock market no longer works as a market for buying and selling interest in corporations but is purely a casino so that traditional fund managers no longer know how the game operates? Do you even wonder? When those with reputations of great economic success fail spectacularly and in fairly large numbers, can economic collapse be far behind?
  • The US stock market now rides on only ten stocks. Right now the US stock market is the best looking horse at the glue factory, so a whopping ten of its stocks are still fetching enough bids to keep the entire US stock average above water. Most of the US stock market is already in recession. When support in the market narrows down to only a handful of stocks that are going up in value enough to keep the market's average up, that leaning out is nearly always the dying breath of a bull market. It means investors are finding very few stocks they have confidence in and are crowding into those few remaining shares like rats running to the highest point of a sinking ship.
  • Corporate sales have been down every quarter of 2015, and stock buybacks have been the market's main support to share prices. Stock values have not risen due to sales but due to companies using cheap interest loans (as a result of the Federal Reserve's policies) to buy back their own shares, creating their own demand in the stock market. The last time we saw such an incestuous frenzy of buybacks as we did in 2015 was in 2007. We all know what happened right after that. With no reason for sales to go up and with interest rates likely going up, buybacks will end, so stock prices will fall. Any companies that have to refinance their debt will have to do so at higher interest at a time of declining sales, exacerbating their decline.
  • The Fed will raise interest rates in December. The gauges for jobs that the Federal Reserve pays the closest attention to when deciding on interest targets came in so strong last month that the Federal Reserve would be hard-pressed to find another reason to keep interest down. While Permabear Peter Schiff has predicted repeatedly that the Fed will not raise rates and will go straight into a fourth round of quantitative easing, I have strongly disagreed throughout the year, maintaining that the Fed is blind and, so, it will raise rates because it looks at a very limited array of gauges and will not see the economic demise that is happening all around it any better this time than it did when Ben Bernanke declared in 2008 that the Fed saw no hint of a recession in sight, even as it turned out he was already standing in the middle of one!
  • China's yuan is now a global reserve currency. That threatens the supremacy of the US dollar as a reserve currency. China, once the United States major financier of national debt has divested from US treasuries. So, has Russia, once the second-largest financier of US debt. Longterm, this indicates higher interest rates on US debt as major buyers have already moved away and more may move away now that China's yuan represents an option for storing sovereign treasure. With the national debt now four times higher than the mountain of debt that existed before the Great Recession, this could be calamitous.

That's the large picture. When you see large blocks of it all at once like that, you get more of a sense of the scale of economic collapse that is coming. Note that none of the enormous pressures above appear likely to reverse anytime soon.

The Four Fallen Horsemen of the Epocalypse
The Four Fallen Horsemen of the Epocalypse

 

My conclusions about global economic collapse in 2015

Major hedge funds collapsing, only ten stocks carrying the whole stock market, junk bonds failing rapidly, commodities crashing spectacularly and for the long term. Are these not the four horsemen of an economic apocalypse? Is that the company you really want to ride with. If not, get out!

The US stock market is teetering on collapse just as the Fed is ready to raise interest -- the perfect timing I have predicted all along for Fed foolishness. The perfect storm. As a reader of this blog, you have the advantage of knowing what the Fed will do, when it will do it, and how oblivious it will be to understanding that it is crashing its own false economy. You can't do anything to stop the Fed's childish ignorance. You can only watch it unfold from as safe a seat as you can find. So, find it quickly.
 
Clearly, 2015 is a year when things fall apart as a result of the end of quantitative easing at the end of 2014. The year has unfolded just as I said it would. If you've been around this site for awhile, you know I said that the big stock market plunge in September-October of 2014 marked the end of the bull market. Hindsight now verifies that the US stock market has bounced hectically sideways along an obvious ceiling ever since. The slope of the bull is long gone.
 
Why should it have been obvious that 2015 would go this way? Anyone understanding economic fundamentals can see that the "recovery" is a mirage created by TRILLIONS of dollars of free money -- a mirage that would, therefore, fall apart when the free money stopped that was sustaining it because nothing has been done to establish an economy built on anything other than endless mountains debt as its foundation, which was the cause of the initial economic collapse that we called "The Great Recession."
 
Almost-free money continues under the Fed's low-interest program. So, when the Fed raises interest next week -- a nearly certain likelihood -- the remainder of support to the bubblistic, mirage economy falls away. The false recovery vanishes as soon as the wizard's magic ends. I have said for years now that the illusory recovery is completely unsustainable because our only solution to the Great Recession has been to prop up the old dying regime as long as we could to milk it for all its worth.
 
When the government reacted to the Great Recession many years ago, I used the metaphor of a snow plow, which is supposed to push the snow off to the side, not straight ahead. I pointed out that, if you push the snow straight ahead, it piles up until the snow plow is no longer able to push it. That, I have said all along is all we are doing -- just pushing our mountains of debt higher and higher ahead of ourselves as our sole answer. ("Kicking the can down the road," as congress often said (and did).)
 
2015 is the year the snow plows lost traction. That's all you've heard all year is the screech of spinning tires. The end of 2015 is the time the epocalypse begins -- a great economic collapse that will ultimately lead to global economic transformation because a global crisis will seem to demand global solutions.
 
What is truly needed is freedom from the addiction to and bondage of debt along with justice brought against colossal greed, instead of bailouts. That is one global answer that would work -- a biblical "Year of Jubilee," in which all debts are dissolved everywhere in the world -- a global reboot that ends the tyranny of the 1%.
 
That would be a move for justice against the stockpilers of greed. You'd lose much of your retirement fund, but you'd also lose your mortgage and all other debts; and you're likely to lose much of your retirement fund in the days ahead anyway, unless you move your money to cash, and even that has some peril. A "Year of Jubilee" would reset the whole playing field on a level plane.

It won't happen.
 
Instead, we'll see global answers that keep the majority of the world indebted to the minority and that consolidate the power of those already in power. You'll see a loss of human freedoms in the face of anarchy and terrorism. Today's people will readily give up their freedom in exchange for a sense of security. Gone are the days when brave souls gave up their own lives to assure human freedoms for others. Here are the days in which people will give up their own freedoms in order to assure their own lives.
 
That, however, is writing for another time. It is too soon right now to say such things, as people have not seen the epocaplyse that will change the world. Therefore, it seems too dismal by present measures to imagine such surrender of freedom is possible, much less likely.

Nevertheless, that is the trend I see, but the first measure of the accuracy of that insight will be whether the epocaplyse comes this year, as I have maintained all year long it will. If I'm wrong, I'll go away, as the world does not need dismal people, but one is not dismal if he is simply right. In that case, he cannot help that the truth doesn't look good. Better to see it for what is than to be blindsided by ti.
 
The epocalypse has already begun in most of the world. Look for it to materialize clearly next week as the Fed raises interest. In fact, look for it to materialize even if the Fed does NOT raise interest. The Fed is damned if it does and damned if it doesn't. Their magic has ended. Because the entire market is now anticipating the Fed will raise interest, based on the Fed's own telegraphed messages, the Fed will send shock waves through the market if it does not follow through. If the Fed cannot raise interest even when all of its job gauges are where it said it wants them, that would say to many people that the Fed doesn't believe in its own recovery either.
 
I am certain, however, that the Fed does believe in its false recovery, and am confident it will end its stimulus with the worst possible timing. That's why I've predicted unflinchingly that the US stock market will crash this fall. The global economic collapse that I also predicted for this year, is clearly already happening; but for US citizens, it will take a stock-market crash to convince them that the end is here.
 
While JP Morgan and Citi were finally smart enough last week to put the likelihood of a recession at 65% (after years of talking about "recovery" as if it were happening), they were also safe enough in hedging their prediction to give that a three-year time frame for happening.

You can find much better precision and courage here. I'm stating a higher likelihood with a window now of one week. I'm not hedging my bets. Of course, it will take months to play out; but you'll see the dramatic shift begin before fall has ended.
 
2015 was a year of moving sideways after the bull market ended. 2016 will be a long year of decline with many plunges along with some brief phantom rallies.
 
You've got a few weeks left to secure your financial positions. After that, things will change rapidly enough that you may not be able to get ahead of the wall of water that will be coming your way. Get as safely out of the way now as you can and watch it unfold from a position that is out of the way.
 
This is likely to be my final warning.

sábado, diciembre 19, 2015

THE FRENCH RALLY TO THE REPUBLIC / PROJECT SYNDICATE

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The French Rally to the Republic

Bernard-Henri Lévy

 French flag
PARIS – Before the second round of France’s regional elections on Sunday, most predictions suggested that five, perhaps six, of the country’s regional governments would fall into the hands of the National Front (FN). But the French people pulled themselves together and turned out to vote in much greater numbers than anyone expected. The result is that a xenophobic, racist party, one hostile to everything essential to the spirit and greatness of France, was defeated in all of the contests that it was supposed to win.
 
Some will express surprise at this strange country, which is never so great as when it is on the edge of a cliff. They will worry – and they are right to worry – that a situation of extreme peril, a veritable threat to the nation, was required before the French recovered their senses and took the path of reason. And they will regret that the French are not the prosaic sort of people who know how to be themselves at normal cruising speed, without having to hear a cannonball whistle past. But that is how it is.
 
And I, like many others, will not try to hide my satisfaction at seeing the smug scoundrels of the FN break down and resume speaking in their historic register, with their authentic voice, which is one of hatred and mob rage. This, truly, was a victory for the republic – a triumph of popular resistance.
 
The French turned out, en masse, to say that they did not want to see the Le Pen gang take possession of their regions. That is the most important lesson from Sunday’s vote, and it is a reassuring one. But what caused the nation to right itself?
 
Obviously, nothing happened between the elections’ first and second rounds that addressed the “malaise” of the French people. Nor was any particular promise made in response to the “hard questions” raised by FN voters just a week earlier.
 
No. What we saw, instead, was a moral surge among the French – an act of self-defense by the body politic.
 
Between the two rounds, the following simple idea sank in among the electorate: The National Front can revamp its façade all it wants, but it has never been, is not, and can never be a normal party. For how long have France’s moral and political authorities been telling us that “stigmatization” of the National Front doesn’t work, that it strengthens the party instead of weakening it? Well, that was wrong 20 years ago, and it is still wrong.
 
It cannot be repeated often enough that when the moral left and right have been strong, when groups like SOS Racisme set boundaries that are bright and clear, the FN has been contained electorally. But when those boundary lines are blurred, when the dikes crumble and the antiracist watchdogs allow themselves to be intimidated or lower their guard, the FN tries to make itself at home.
 
The same is true today. The happy surprise of the regional vote owes absolutely nothing to accommodations with the FN by major parties that supposedly “heard the message” of “angry” voters (rhetoric that they relentlessly drummed into us). On the contrary, a sufficient number of voters came to understand that in that very anger – in its spokespeople and in the words used to express it – lurked a threat to the republic, to democracy, and to the nation’s fundamental values. That is the second lesson.
 
What awaits us tomorrow? How can we be sure that the FN wave, having receded, will not regain strength and break with even greater destructive force in the upcoming presidential election?
 
Better “unemployment figures” will be required, no doubt. Faster “growth,” certainly. We will also need “efforts” and “gestures” directed toward the one-third of people under 30 and the nearly one-half of industrial and service workers who are said to have expressed their “frustration” and “anxiety” by voting for the FN. Fine. But none of that will ever be a substitute for leaders taking the moral high ground and restoring to our public discourse its lost luster.
 
No strategy will work if it is implemented by mediocrities who, in a political comedy as dishonorable as it is vain, rush to the television studios to declare, hand over heart, that they have heard the voters “loud and clear.” The key will be for French leaders to say – as loudly as possible and as often as necessary – that there is no answer to the “hard questions” as the FN poses them. And, like it or not, it must be said not only to the FN’s leaders, but also to its voters.
 
There have been other times in France’s history when entire segments of the electorate have ejected themselves from the game, without the rest of the players rushing over to beg them to get back on the field. Georges Clémenceau, Jean Jaurès, and Raymond Poincaré, at the outset of the twentieth century, did not pander to the nearly half of the electorate that, during the Dreyfus Affair, had exiled themselves from the republic.
 
Nor did Charles de Gaulle have any qualms about telling the proponents of French Algeria that, in the end, he did not understand them. Nor did Pierre Mendès France in the 1950s hesitate to tell the Communists that he didn’t want their votes to support his government.
 
France must now recall these great moments in its republican tradition and hold them up as a model for today’s leaders. For what will be needed to hold the territory that the republic nearly lost to the FN is political courage of a sort that, for the moment, is in short supply.
 


Emergency Opec meeting aired as Russia braces for sub-$30 oil

Oil markets are becoming dangerous with no grown-up in charge. Spare capacity is wafer-thin, despite the glut, and any upset could trigger an oil shock

By Ambrose Evans-Pritchard


Opec will be forced to call an emergency meeting within weeks to stabilize the market if crude prices fail to rebound after crashing to seven-year lows of $35 a barrel, two of the oil cartel's member states have warned.

Emmanuel Kachikwu, Nigeria’s oil minister and Opec president until last week, said the group is still hoping that the market will recover by February as low prices squeeze out excess production from US shale, Russia and the North Sea, but nerves are beginning to fray.
 
“If it [the oil price] doesn’t [recover], then obviously we’re in for a very urgent meeting,” he said. Indonesia has issued similar warnings over recent days, suggesting that the Opec majority may try to force a meeting if Saudi Arabia’s strategy of flooding the market pushes everybody into deeper crisis.
 
The comments came as Brent crude plunged to $36.76 as the fall-out from Opec’s deeply-divided meeting earlier this month continued. Prices are now within a whisker of their Lehman-crisis lows in 2008. West Texas crude dropped to $34.54 before rebounding in late trading.
 
Lower quality oil is already selling below $30 on global markets. Basra heavy crude from Iraq is quoted at $26 in Asia, and poor grades from Western Canada fetch as little as $22. Iran’s high-sulphur Foroozan is selling at $31.

The oil market is now in the grip of speculative forces as hedge funds take out record short positions and exchange-traded funds (ETFs) liquidate paper holdings, making it extremely hard to read the underlying conditions.

Russian finance minister Anton Siluanov said his country is bracing for the worst. “There is no defined policy by the Opec countries: it is everyone for himself, all trying to recapture markets, and it leads to the dumping that is going on,” he said.



“Everything points to low oil prices next year, and it’s possible that it could be $30 a barrel, and maybe less. If someone had told us a year ago that oil was going to be under $40, everyone would've laughed. You have to prepare for difficult times."

The rouble fell to 71 against the dollar, helping to cushion the blow for the Kremlin’s budget but also further eroding Russian living standards. Elvira Nabiulina, the head of Russia’s central bank, said the authorities are now preparing for an average price of $35 next year, a drastic cut even from the earlier emergency planning.

Bank of America says Opec is effectively suspended as Saudi Arabia wages a price war within the cartel against Iran, its bitter rival for geo-strategic dominance in the Middle East. This duel is complicated yet further by a parallel fight with Russia outside the bloc.



Global oil demand is rising briskly. This is a 'positive supply shock', not a collapse in demand
Mike Wittner, from Societe Generale, said the Saudis' motive for floating a proposal at the Opec summit for a 1m barrel per day (b/d) output cut if Russia, Iraq and others agreed to join in was tactical, chiefly in order to demonstrate to critics at home that no such deal could be forged.

He said the strategy to flood the market was not taken lightly and has support from the “highest possible level”. Part of the goal is to discourage energy efficiency and deter investment in renewables.

Opec is not due to meet again until June 2016 but by then a string of its own members could be facing serious fiscal crises. Even Saudi Arabia is freezing public procurement and drawing up austerity plans to rein in a budget deficit near 20pc of GDP.



In one sense this is a huge transfer of wealth to the US, Europe, China, India and the consuming nations. Opec revenues have collapsed from $1.2 trillion a year in 2012 to nearer $400bn next year, if prices stay this low. JP Morgan said the latest fall is likely to boost global economic growth by 0.3 percentage points next year.

Yet the situation is fraught with hazard. Saudi Arabia has stopped acting as the “central bank” of the crude markets and is no longer steering prices to ensure long-term global stability.

Spare capacity has fallen to wafer-thin levels of 1.5m b/d. This is in stark contrast to the oil slump in the mid-1980s, when spare capacity was around 10m b/d and the Saudis could flood the markets and drive out high-cost competitors without depleting the world’s safety buffers.



Any serious political upset in a country like Iraq – or a terrorist pipeline attack in the Gulf - could trigger a violent reversal and a global oil shock at any moment. “It is a lot more dangerous than in the 1980s,” said Miswin Mahesh from Barclays.

Barclays said oil is unlikely remain near $30 levels for long whatever happens, given that Libya is still in political chaos and Iran will struggle to crank up its output as fast as planned after sanctions are lifted next year. Iran’s effective exports have actually fallen by 100,000 b/d in recent months as old fields decline.

Mr Mahesh said output is expected to fall by 100,000 b/d in Algeria next year due to high depletion rates, with drops of 80,000 b/d in Venezuela, 50,000 in Qatar and 45,000 in Ecuador.

Mapped: How the world became awash with oil


North Sea oil production is likely to fall by 180,000, and Russia and central Asia by 190,000.

The US is more resilient, since rising output in the Gulf of Mexico offsets most of the 400,000 decline in shale.

On the other side of the ledger, Chinese oil demand is booming. Barclays said it has jumped by 600,000 b/d over the past year, double the previous growth rate even after stripping out strategic storage. The country has added 20m cars to its national fleet in 12 months.

The paradox of the oil market is that a glut disguises the tightest balance of supply and demand in modern peacetime history.


Trump is not America but he could be



Dear Barack, someone needs to reassure the middle class of America — me. Yours, Joe Biden
 
U.S. President Barack Obama delivers a statement about the nuclear deal reached between Iran and six major world powers with Vice President Joe Biden at his side during an early morning address to the nation from the East Room of the White House in Washington, July 14, 2015. REUTERS/Andrew Harnik/Pool©Reuters
President Barack Obama and vice-president Joe Biden
 
 
Dear Barack, You made a fine address to the nation last Sunday — so fine that a lot of folks misunderstood it. They say you’re an apologist for Muslims and that you’ve already checked out of the job. They weren’t listening. They were hearing what they’re programmed to hear. I wish I could deliver such a cool, analytical, address. But that’s not me. Someone must speak to the fears of our white middle class before this gets out of control. Someone must reassure the world that Donald Trump is not America. I believe that person is me. We need to spell out what we are going to do — not just what we’re not going to do, as you did last week. No one can speak from the head like you can, Barack. Let me be the one to speak from the heart. Yours, Joe Biden.
 
Fellow Americans, we live in troubled times. Terrorists the other side of the world cut off the heads of US citizens and our European friends and say “God is great” while they’re doing it.

Here at home, for no reason we can fathom, a quiet suburban couple suddenly turn on their neighbours and co-workers with semi-automatic weapons. In the name of religion, thousands of young men and women — some of them from these shores — quit promising lives to join a death cult that sees us as its mortal enemy.

This isn’t your grandfather’s war, or your father’s — with their tanks and their planes. This is a new kind of menace in which the foe is invisible until it is too late. Fear and suspicion are its fuel. I get why people are scared. Believe me I do. I also know in my heart that we must not be governed by our fears. Franklin D Roosevelt — maybe the greatest American of all — said the only thing we have to fear is fear itself. He was right then and he is right today. Isis must be defeated by all means practical. But we must do so with our values intact. We must not repeat the mistakes of George W Bush.

We also live in confusing times. When I was growing up in Scranton, Pennsylvania, a strong middle class was the backbone of America. As the saying went, if you worked hard and played by the rules, you got ahead. If I had traced an arc with my arm, within a radius of a few hundred miles I would have taken in the industrial engine of the world. These were the auto plants — the Buicks, the Fords, the Cadillacs — that FDR converted into the war factories that defeated fascism and saved the world from its darkest hour. These were your forebears.

Today, most of those plants have gone. The rules have changed. Too many of you work day and night at three jobs just to keep your head above water. If the polls mean anything, most of you see no better future for your children. We no longer trust our leaders when they say it will all be fine. Economists define the middle class as $50,000 a year or whatever. But this isn’t about numbers. Being middle class is a value. It’s about reward for effort and hope for the future.

It breaks my heart that the life expectancy of middle-aged white Americans is falling. Don’t get me wrong. I’m delighted to know that it’s rising for Hispanics and not falling for African Americans. But it is tragic that so many lives are being cut short by rising suicide rates, alcoholism, a suburban heroin epidemic and addiction to prescription opioids. When hope is lost fear takes over.
 
It is not my style to tear other people down. In many ways Mr Trump is a fine American. In which other country could you name half the golf courses after yourself and turn it into a platform for the presidency? Where else could a reality TV star be taken seriously on the hustings? OK, I know — it happened in Italy.
 
But Italy aside, all things are possible in America and that is part of what makes us great.
 
Fellow Americans, we are in danger of electing someone who could do great damage to our country.
 
When fear takes over, humans forget reason. Since 9/11 almost a quarter of a million Americans have died in gun violence. Thousands were children. Some of them were gunned down in their classrooms.
 
We did not call these acts of terrorism. Don’t misunderstand me. I am not suggesting we take away everyone’s guns. I am realistic. But you should know that your chances of being killed in everyday gun violence are several thousand times greater than dying from terrorism on US soil.
 
Forty Americans have been killed by terrorists since 9/11. We need to keep our sense of perspective.
 
Who are we? Is America turning into a game-show democracy that can be manipulated to laugh and cry and boo on a whim by the host with trophy wives? Are we the kind of people who would close our shutters to a fifth of the world and two per cent of our law-abiding citizens?

Would we set up a police state so that we could round up 11m Mexicans? Is that who we are?

I know the answer our grandparents would have given. They gave their lives to prevent such a world. We were resilient then when the threat was far greater. Today, we often seem to be scared of our own shadows. I hope I am wrong about that. In my heart I know I am. Our enemies hope otherwise.

So go ahead — applaud Mr Trump. We live in a democracy. Make him a winner. But do so in the knowledge of what we would be losing. The world has not yet given up on America as its beacon. It’s time to fire Donald Trump.