Oil has crashed and now trading at roughly half the level it was just 6 months ago. There are winners and losers of course but this is not the point, the point is …this is either the sign of a credit contraction, the cause of a credit contraction or both. Consumers are obviously winners and producers the losers, just as oil importing nations are the winners and exporters the losers. But, as I just mentioned, this is not the point at all.
It is my belief that this was “our” plan to try to bust or at least hamper Mr. Putin and Russia. This type of action worked during Ronald Reagan’s era and the Soviet Union was financially broken. I believe Washington simply opened up the old playbook, started rubbing their palms together in anticipation and then …”let ‘er rip”. This action obviously included the help of our “friends” the Saudis, a glut could not ever develop without their help. Please understand this very important data point, supply and demand were only out of balance by less than 2%, something much bigger is at work here. “What is at work here” as I see it were all the high(est) level meetings held over the last six months between the Saudi royalty and both Russia and China, what do you suppose was discussed?
Has Saudi Arabia “bowed” to U.S. wishes and held or even increased output…BUT with the blessing of China and the knowledge of Russia? Let me explain the thought process. Has China calculated what would happen to the West’s highly levered and “derivatised” system were oil to crash “too far?” Did they have any idea what or how big the derivative time bombs were that are now surely being set off? Yes, it means cheap oil for China who is a huge importer of oil but I only believe this is just icing on the cake. In my opinion, this “U.S. plan” to bankrupt Russia was “PLANNED” (by the East) to boomerang back on the U.S. Yes it has already destroyed our shale industry but more importantly, what is it doing behind the scenes to banks and brokers who are sitting on trillions of $ worth of energy derivatives? We already know Phibro, the 130 year old commodities firm is shutting their doors… but what about the banks and brokers?
I ask the question and again repeat “there are both winners and losers” …but please remember, if the losers lose “so badly” as to make them insolvent …the winners suddenly become losers! The financial system in the West is so intertwined and leveraged, no one can be allowed to lose “so big” that they are bankrupted. But this is exactly what has already in most likelihood happened. Someone is already dead, or better said “someone(s)” plural are already dead! We are talking about 100’s billions or more likely trillions of $ have already changed hands (on P + L statements).
Another set of time bombs are all of the CDS issued and purchased not just on energy companies but on sovereigns themselves. Let’s assume (which I do not), Russia does actually default on their $200 billion of external debt. This is actually quite small when compared with other nations but how many credit default swaps have been written on this? Typically, CDS is insanely written at a 10-1 ration versus the actual credit. My question is this, if Russia were to default on $200 billion and triggered $2 trillion worth of CDS, someone wins and someone loses. “Who” could lose $2 trillion in today’s world? What about others like Iran, Venezuela and on down the line not to even mention the various corporate entities could bankrupt?
The oil crash in my opinion is really about a global credit contraction. Global economies are slowing and yes demand for oil has decreased but this decrease does not account for a 50% drop in price …leverage does. Oil, just like anything else is “commoditized” with levered bets which increases the volatility when it occurs. The leverage works on the upside where the move looks orderly and like it will never end, until it does. Once the trend has ended, “margin calls” force sales and is exactly what we are seeing now.
Switching gears just a little, the world’s monies are all debt or credit based, a credit contraction will also destroy various (all) currencies that are levered into this trap. What will happen if (I believe when) Russia decides to ask for gold in exchange for their oil and gas? Think about this question as it is very real. Were Putin to decide on this strategy, is he dealing from a position of strength or weakness? Does Russia need the revenue as much as the world needs his oil? Before making up your mind, remember, Russia is actually a larger producer than Saudi Arabia.
If Russia were to ask for gold in return for oil, where would things go from there? Oil would whipsaw in price as would the ruble. Gold would then be “remonetized” overnight and its price more than likely explode. But there is one more step to a “demand” of gold for oil. This step would “expose some folks” so to speak. In other words, who really has the gold to pay for oil? Yes I know, at current prices, sovereign gold would run out pretty quickly, a markup of gold prices versus oil which would be a natural from market forces would change this. What I am getting at here is, were Mr. Putin to demand gold in payment for oil, we would pretty quickly find out who actually has gold and who doesn’t.
Before you shut your brain down and call it lunacy … “no one will ever ask for gold as payment for oil” …ask yourself why China and Russia have been accumulating it so fiercely? Russia can certainly say “hey, you crashed the price of oil, but now we want something real for our real product”. This would certainly work for China as they are filling their oil reserves and would like their gold stash to be valued at a level to back their currency for the next 100 years or more. The other side of the coin of course is what will be learned of Western gold reserves. Do we have it or not to pay? Is this why the “core four” of Germany, Holland, Belgium and Austria want their gold back within their borders? Can they see the need to use it for oil and gas purchases or to back a bloc currency?
Think for a moment, think about the “shorts” in the ruble and now the shorts in oil? Are the “shorts” of Western origin? Who would lose the most from a spiking oil, ruble and gold price? As I mentioned earlier, there are most probably some very dead participants who were caught on the wrong side of oil. What will happen if some Sunday night Mr. Putin said “we will be happy to ship oil, please ship us gold?” The oil, ruble and gold shorts will be destroyed along with the record amount of dollar longs followed by the dollar itself!
Let me add this to the mix. I have written many times just how easy it would be for the COMEX to be broken. It would only take $2 billion to physically take out the registered inventories of gold and silver.
Another $10 billion would probably be enough to include the LBMA and topple their fractional reserve scheme. If this were done, it would be viewed as a declaration of war on the West by the East. Instead, we have declared financial war on Russia, who would blame Russia if they retaliated by asking for real money for their real goods?
I will leave you with a couple of questions. Why did the budget deal just pass in Congress with hugs, kisses and the inclusion of $303 trillion worth of derivatives being “covered” by the FDIC (read; “taxpayer”)? Why did CME expand limits for gold and silver trading to $400 and $12 per day effective next Monday? Why is Russia testing their own clearing alternative to the West’s SWIFT system? Oh, and one more question, is “gold” a part of this clearing alternative?
Before you write to tell me “this can never happen”, please don’t waste your time. It CAN certainly happen! Will Mr. Putin decide on this? I have no idea but if I were in his position I would certainly go this route. Especially since the Western credit edifice has never been more vulnerable than it is now. A credit “wobble” from a self-inflicted oil price implosion would be ironic. I would also do this as a way to move away from the dollar and toward an asset I have been steadily accumulating, gold. I would do this to FORCE a “perestroika” (Russian for “restructuring”) on the West!
You made a good point with saying that the BRICS would prefer play the card “we had no other choice” than looking to be the first to make an uppercut on the western Financial world.
I’ve read your articles for sometime now and have been following all this news fervently! It feels sooooooo close to something having to give and I think you may be right! I’ve thought about this for awhile, but now it’s getting downright SCARY! Ferguson 100x?
yes, the dots are piling up!
The FED may have just allowed Putin some `Considerable Time` to strike back. Putin is not one to back down… recall the boxer image he was so proud of.
If the SWIFT replacement systems works, there would be considerable number of turkeys left to pluck over the Christmas season, should Putin wish to action in real time ‘Twas the Night Before Christmas`(A Visit from St. Nicholas) !!
Bill… again, you reading of the situation is very astute. Thank You
Thanks Jack, we’ll see if this is correct or not.
Before he BRICS counter attack, they must connect all the BIRCS Financial networks, after they might be fireworks.
I follow your column daily. Thank you for your insights.
Two questions if I may: What effect would there be if Turkey and Iran started using gold for oil and using the Shanghai Exchange to settle their payments? And Number 2: How would the “collar” restrictions on silver and gold rising prices affect any ‘price-setting’ on the new Shanghai Exchange?
they probably already are … and it wouldn’t.
My Dearest Bill,
Thank you for the work that you do. I am upset that your writing is not more appreciated in your country and that so many silly Americans do not understand the value of gold.
President Obama is a silly man to fight me. I am ex-KGB, trained in martial arts and a very good chess player. Who would you bet on?
Please consider relocating to Moscow. It would be a great honor to have an American who can think in my inner circle.
I am sure this had already crossed your mind anyway, thanks for the “invite”.
The very fact that you sign your name with “Vlad” diminutive gives away that you know nothing about Russia. No self-respecting Russian Vladimir would go by a short form of “Vlad”, which is only seen in Romania and Moldova.
The correct Russian usage is either Volodya or Vova.
I have been suggesting that Russia will demand Gold for Oil since the first sanctions.
I believe China is slowing this down because they are not ready with a fully convertible currency – YET.
The analogy I’ve been using is a couple wanting a kid, when they are ready.
Sometimes things happen . . .
more sanctions by the end of this week may force the issue?
Wow! POW! You hit it outta the park with this one Bill!
I firmly believe that your premise, or a version of it, is the correct one that will come to pass.
One more sign post between the dots, is the fact that Swiss based Gunvor (worlds fifth largest commodity trader) has announced that it’s ceasing trading gold. The reason is that “clean” (read; legal title) gold is becoming increasingly difficult to find. Most gold in the market has an origin that cannot be “documented”. Most probably due to hypothecating the hypothecated, hypothecation! Old Wall street ditty; He who sells what isn’t hissin, goes to prison!
… or some version of it.
Very good job of connecting of the dots. There is perhaps another possibility. What if the whole collapse of the oil price has been engineered to bring about the collapse of the international monetary system so that a big reset can occur? As late as Sept 26th the daily spot price of WTI crude was $95. It was at $80 on Oct 31st, the last day of QE3, and has been dropping since. As you stated, this has most likely triggered many margin calls and started the chain reaction throughout the world financial system. China and Russia have been buying all the gold they can get. Has this been to prepare for the collapse and to be in a position afterwards to emerge with a gold-backed yuan and ruble? In addition, as you proposed, Russia will then sell its oil and natural gas for gold. Will China buy oil from Russia and Saudi Arabia with gold? Will Saudi Arabia demand gold for its oil too? Wild days are ahead. Maybe we should keep watch on the upcoming long holiday weekends of Dec 26th and Jan 2nd.
part of the theory.
I reread this piece again. It is very good. This paragraph makes me sit up and take notice since these events all took place during one week. It is all just too coincidental!!!
“I will leave you with a couple of questions. Why did the budget deal just pass in Congress with hugs, kisses and the inclusion of $303 trillion worth of derivatives being “covered” by the FDIC (read; “taxpayer”)? Why did CME expand limits for gold and silver trading to $400 and $12 per day effective next Monday? Why is Russia testing their own clearing alternative to the West’s SWIFT system? Oh, and one more question, is “gold” a part of this clearing alternative?”
there are no coincidences!
Bill, another great commentary! Another perspective from another blog, I stumbled upon today —Selling Oil for Rubles. However taking this perspectivea bit further, Russia can back the Ruble with Gold and Natural Resources after they have purchased as many rubles on the open market with US dollars as they can right now. It just could fit as well.
– Our country has a stock of dollars
– The currency of our country – roubles – is held by other countries
– We – Russia – are planning to sell oil for roubles in the future
– Everyone who buys oil from us in the future will have to look for these roubles to buy oil
– The harder it is to look for them, the more expensive they will be
Naturally, the task is simple – we need to drop the rouble to the bottom, and then buy all the roubles that we can, giving away the dollars that are no longer needed and not guaranteed by anything. This will help concentrate all of the roubles inside the country and to assign their price independently, while holding and releasing more money to the market.
yes, similar thought process.
Oil priced in gold. Looks like the currency rate for 1 microgram of physical gold is 1 USD? Will this mean “Gold Trade Notes” functioning like LCs (Letters of Credit) will unitized at micrograms of gold?
there is enough gold …at the right price.
Haha Bill, you keep writing more articles like that and you might find yourself in Guantanamo giving company to Chelsea or Bradley Manning.
😉 I say that toungue-in-cheek of course! But knowing that terrorist network of Citigroup – JPMorgan – Goldman Sachs is in charge of governing here, there is no telling to what extent these criminals will go to. There is plenty of precedence from Soviet Union, Nazi Germany and Mao’s China for when terrorists take full control of governments.
it will suck.
Talking seriously: Paul Craig Roberts has long said they would love to “eliminate” him in the middle of the night. Only reason they don’t need to bother right now is because, he can be easily discredited as a senile, doofus man. And none of the American public ever pays attention to him, or even has a clue who he is.
Here is Paul Craig Roberts with his latest missive:
Financial Imperialists Attack Russia
Financial Market Manipulation Is The New Trend: Can It Continue?
some have already “gone” in the middle of the night.
Love your sight & I trust your judgement. My husband & I have $25,000. in a rollover account but the money is sitting on the sidelines. I know, stupid. When Obama said in 2009, get in the stock market, I didn’t trust anything he said & we put it on the side.
If you had $25,000. sitting on the side, what would you do to protect it right now? We have already lost so much already, I would really appreciate any help you could give us.
Thank you for helping people who don’t understand the stock market but are really trying to learn.
Merry Christmas to you & your family. God Bless the USA, it may be our last Christmas to celebrate. Hope for the best but prepare for the worst.
Merry Christmas to you and yours too Patricia. In my opinion, silver is the cheapest asset on the planet.
Patricia. Plan for a way to eat for several years out. Seeds, storable bulk food staples, water, can you keep yourself sheltered, warm and protected.
Then buy silver. Bill is correct.
yes, first things first!
Bill, I wish it would all come true. From what I know, Vlad Putin has met many Americans thru the years, likes Americans and respects the country America has become but he hates the U.S. Gov’t and the Jewish Wall Street Bankers who are hell bent on taking over his country as part of the new One World Order Plan. Putin will never give up Russian sovereignty and rightfully so. So waking up everyday becomes very suspenseful for all of us wondering what the news will be. What’s really crazy is probably 90 percent or more Americans have no clue what is really going on.
a much higher figure than 90% unfortunately.
You should have asked Vlad – What happens after the Stuff hits the fan and instead of the West winning the East wins. Will Vlad demand that the Americans string up our President like the Italians strung up Mussolini or will they give him a chance to do what Hitler did? Maybe there is another ending and Vlad will let him stay in the seat of power like the Emperor of Japan. That would certainly be a fitting end for the Americans for what the American people have done to themselves. We all have an end story to this mess. I wonder what your readers ending sounds like. If somebody hadn’t already said it, I would say it now. “Stop the world I want to get off.”
I had not thought of this, I plan to write a piece entitled something like “the day after”…I had not thought about “power” and how it will be handled.
So all the other oil producing country’s in the world go “WHAAAT? ” we’ll take your dollars for oil, besides there are too many country’s without the necessary gold to barter for oil and even those that have it might not want to part with it knowing they’ll eventually run out and then what? And that leaves Russia in the embarrassing position of having to go back to the dollar or what ever, Saudis would clean up because they would be pumping much more oil, as we’ve seen they aren’t really running out of oil just saying so so they can hike the price. And right now the russian people are thinking thank god we have a savvy president like Putin and not a nut job gold bug who comes up with false premises thinking everybody craves gold as he does!
…something for nothing.
Are you “John Kerry”?
Venezuela and Iran would surely love to jump on-board the “oil for gold” train. Venezuela did get back some of their gold. It might be possible for Venezuela to participate in a “gold backed yuan” or some equivalent gold backed currency. Iran already has history of “oil for gold” transactions with Turkey and India.
No clue about Nigeria or Indonesia, what their situation is regarding ability to enter “gold backed currency” plan. I would have to think OPEC has destabilized both of those oil producing nations already, that they might have incentive to disengage from Saudis (and Kuwait, UAE, Bahrain etc.)
Venezuela received ALL of their gold back.
Also see related by Jeff Nielson:
U.S. Declares (Currency) War On Russia
Sadly, Jeff Nielson got much maligned in some circles by calling out Rothschilds by name. But he continues to motor on, calling a spade a spade.
Great writing as usual Bill. Here is a question I have been grappling with.
Assume Russia does say,”gold for oil from now on”. Would that not be the catalyst for the energy dependent clients of Russia (Europe) to rush over to the Saudi’s and the rest of the Gulf states for their energy supplies. Not least because they don’t want to lose what little gold they have left. And isn’t that what the Saudi’s are aiming at, increased market share. Ostensibly that is what the energy war is about;eliminating the US, Russia, as well as the hated shiite states of Iraq and Iran from the competition.
“Go Mr. Putin, gold for oil” Might the Saudi’s not just love it? They’ll take Putin’s market share and with the paper proceeds buy all the gold Vlad won’t have the currency to pay for.
Just thinking out loud.
Thanks for everything Bill.
mark in Victoria, BC
thanks Mark, I don’t think so because of logistics. Saudi does not have the ability to deliver to many Russian clients. Please remember, Russia and China have held the highest level of talks with the Saudis over the last 6 months.
A line of thinking that I would appreciate your input on.
I see both China and Russia, to a lesser degree the rest of the BRICS, as even more STATIST than the present Powers That Be.
As such, I see them looking to replace the veto power the US has in the IMF, not eliminate the IMF.
Putin certainly lives the premises of Charles Conant to no less of a degree than Goldman Sachs or JPM, he is just sick and tired of being on the wrong end of the stick.
Conant was well aware that the power the Czars had, was what he wanted for the “Better Races” of the Developed World. Russia was The Competition – 120 years ago. China the desired market, reason we took the Philippines. A century changes nothing.
While circumstance may, in the short term bring about a Perestroika as suggested in your present article, the longer game looks different to me.
yes Joe, they will usurp power, the question long term is what they will do with it.
Another interesting read. But I think either you’re reading a little too much into this oil crash, or the entire G20 are planning every step of the rebalancing of power.
For demonstration purposes, here’s an analogy,,,
I have 250K USD Inventory (retail value) in my store.
I currently rent my store front in a shopping center.
I pay my rent every month. The building I’m in goes into foreclosure. Hey, now’s agood time to buy the building. It is fully leased. So I go to the bank. I am declined, not enough cash flow.
Meanwhile, back at the ranch, The FED is giving money to the banks, they need to lend. So some smart, fast talking folk, goes to the bankers,, OIL, black Gold, Texas tea,,, sure how much money you need, said the banker. The world runs on oil, the more oil the US produces, the better the trade balance, the better off US will be.
Personally, I do not think the current administration has the foresite to have planned the oil crash, albiet they’re quick to go with the flow, though.
The size of the oil bubble, is an order of magnitude LESS than the housing bubble. The Fed can easily paper over the losses without the need to add QE. couple billion a month will paper this over until the price of oil rises. Remember who has bottomless pockets.
Just as Abenomics is kicking in the inflation, Japans main import (oil) the cost drops in half. WOW what a deflation event for the Japanese, making Abenomics inflationary expansion a short term wash.
All (or most of all) OPEC members really agreed to keep production levels, as they realize cheap oil will help kick start the world economy more than any other factor, barring war.Venezuala has their gold back, so even with them hurting with the low price of oil, they know what’s going to happen to the POG, so they throw a temper tantrum for show. Putin has agreed to the price collapse because as the ruble devalues and the price of oil drops, it’s a wash. The oil workers are paid in rubles, are they not? With Russia’s $300 billion dollar valued contract with China re. oil, it’s still $300 billion dollar equivalent, as that oil is not valued in dollars, but rather Yuan and Rubbles. Wow could that be a carry trade? Dollars for rubbles, rubbles for Yuan?
coffee cups empty,,, got to go
… or, I’m not reading enough into it?
Do you think Putin could ask for gold in exchange for oil at a rate that prices gold (in dollars) higher than what it is now? For example, if oil is at $50/barrel, he can offer 40 barrels of oil for every ounce of gold – which prices gold at $2000 an ounce. Would that work?
the ratio if/when he were to demand gold for oil will be set as part of the re set, the Chinese will have some say in this I am sure.
Food for thought on the $303 trillion in derivs and the taxpayers on the hook.
These pensions, retirements, etc. (that gub wants)is the LAST of real earned money that people SAVED from the sweat off their backs. Granted they had beneficial interest to grow their nest egg, but they saved that money after they were taxed to death and ran a household.
It is all that is real and left for them to steal.
To survive, people must focus on living close to home…globalism is their dream…not mine.
It is just that simple.
everything else has already been hypothecated.
Bill, you seem to have forgotten that Turkey is already paying Iran in gold for its oil.
That way it can evade the US sanctions.
Look at the gold import statistics of Turkey.