Monday, March 7, 2016

Canadian Trends: The Great Deflation and What Comes Next- Must Read!

Canadian Trends: Non-partisan trends and commentary for critical thinkers.

The Canadian Trends Blog is run by Richard Fantin.
Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.
While Richard writes from a Canadian persepctive, his post below, has a farther reach then just Canada. I'll add some additional information, including relinking older posts that are relevant.

Canadian Trends blog is linked in the sidebar at the right.
February 25/2016-
"I haven't written anything since the election on October 19th. I felt it pointless, Canadians were too obsessed with false victories in the political spectrum. "Defeating Harper" and the sort even though really the public has just once again been manipulated into doing exactly what was desired as I wrote about during the federal election breakdown 4 part series last year. Such as it is the honey moon has worn off and no amount of fancy public relations can hide the effects of the great deflation, and new bosses that look a lot more like the old bosses each and every day.

Look around folks, just.. look around.

The world is sinking into chaos.

Here at home Canadians are bickering about pipelines and other useless drivel as the elephant in the room goes unmentioned. The "west vs east" divisive lines I don't think have ever been so prominent in my life time. In many extreme "right-wing" circles there's even been talk of separation; silly of course but still, it's new. Or old, depending how you look at it. Articles like "It's raining schadenfreude on Calgary and Alberta" actually exist. The more the economic situation deteriorates, the worse the baseless finger pointing will become.

"It's the NDP". "It was the Conservatives". "It was Justin, and his hair".

You all need to just stop and think for a minute.. just what is it you expect to happen?

Look elsewhere in the world, it's not just here. Divisive fault lines are showing up everywhere. The "European Union" is falling apart as their already horrid ponzi-conomy has just been laden with the additional cost of refugees courtesy of NATO's war in Syria. China is escalating it's direct challenge to the U.S. in the South China Sea. Russia. The Middle East. And surrounding all of this conflict is intense divisions. You want to understand how divide and conquer works? You're witnessing it.

The great deflation is going to be a very trying time for a lot of people. Here is a portion of what I wrote early last year on the great deflation:
The majority of the world economy is now supported by near zero, zero, or negative interest rates. Seven years on from the peak-oil induced "great recession" central banks are finally out of ammo. Inevitably this situation can not last forever and with the Saudi's pushing the collapse in oil price the stage has been set, and in fact the play is already in the first act, for deflationary spiral the world has never seen the likes of before because the world has never seen a fiat asset bubble of this size before.

The expected benefit economists are expecting from lower oil and gas prices are not going to materialize as the middle class which is the primary driver of this trend has been crushed by unaffordable consumption and debt accumulation. The easiest path for this excess wealth to take is towards paying down debt which in itself is inherently deflationary and will only contribute further to the deflationary spiral we've entered. 
The artificial deflation of oil is having a direct effect on the outlook for oil related employment and income which both Canada and the U.S. have been completely reliant on for wealth generation. The entire myth of the current "U.S. recovery" which Canadian economists are banking on is essentially based on the economic performance of the shale oil industry prior to the collapse in price (you'll remember the latest U.S. recovery narrative was originally about the boom of shale oil) which is no longer valid. Without the high incomes oil related jobs provide the unaffordable asset bubbles become completely unbalanced. This is why the Bank of Canada is citing mitigating the effect of low oil prices (lower inflation) as the reason for lowering interest rates while effectively ignoring the increase in inflation high oil prices represent. They are selectively interpreting the situation to service their own needs of maintaining the credit markets. 
No amount of low interest or free currency can ever hope to make up for the loss in energy bounty as a result of peak oil and the focus on low EROI energy production though as currency is not wealth itself but the representation of wealth, it has an end of life and this is where C51 becomes very important for the status-quo.
It's now one year later, was I right?

The divisive environment in Canada is being driven, and I believe purposely fomented, on a false pretence; that if only we will build pipelines, if only people will stop talking badly about the oilsands, if only, the Canadian economy will come roaring back to life. That the job losses will stop, and the jobs return. It keeps the focus, and the arguments, and the finger pointing around a single topic: pipelines, and not say the more important topic we should be talking about: are the oilsands even viable to produce at any price?

This oil price collapse really couldn't have come at a better time for Alberta's oil companies who prior to the collapse, when they were even projecting oil to go higher, were already planning cuts to labour and investment. Companies have been looking at automation as a solution to the labour problem the oilsands have created for years. Of course readers of this blog should know all about 'the labour problem'. Despite the heartfelt rhetoric of guys like Doug Suttles who says the layoffs are the worst he's seen (and I also presume ever responsible for) the unspoken and it seems long forgotten reality here is that the layoffs and drying up of investment in the oilsands were already happening anyway.

Low oil prices has simply provided an excuse to speed up this process and not take the blame. What little blame has been remaining and not directed at the Saudi's has been kindly redirected towards the new NDP government by the always helpful and awfully plentiful "grass roots" movements that for some reason always seem to have ties back to industry.

The blame game has left very few people talking about the very real problems Alberta and subsequently all of Canada is and is about to be facing. Take for instance the massive expense of cleaning abandoned oil and gas wells which I was discussing in my Alberta Election post which have now come to the forefront among many other issues. Enbridge has set a long term plan to move away from oilsands all together.

It should be noted that all around the world the oil situation isn't exactly good. The deal to "freeze production" between the Sauds and Russians should be of particular interest for those who understand the geopolitical game at foot here. As I wrote last year an informed Twitter follower informed me that (1) the Saudi's were not working against the Russians, but were working with them. This new deal, which is not a deal I should point out between the Saud's and so-called 'Saudi-America', continues to fit the grand story of global divestment out of the USD. Divestment which is becoming so noticable that even the National Post wrote something about it.
It is a chilling statement from an expert on both gold and China. But he is speaking the truth: In a G2 world (the United States and China), he who is the piper calls the tune, and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others that lend money to the United States, such as Saudi Arabia, will determine the value of the U. S. dollar and gold. And they have spoken. They are not buying more U. S. treasuries and are buying gold as a new asset class. China announced that it was doing so quietly, and recent reports are that the Saudis and others have been buying bullion and hocked gold jewellery from around the world. 
The only way is up for gold prices because the United States, which backstops the International Monetary Fund, the world's lender of last resort, has had to become its own lender of last resort. 
Washington has cranked up the printing presses in an unprecedented way, replicating the behaviour of its spendthrift corporations and consumers. This year's budget is US$3.5-trillion, bigger than any in history. 
And as Ing points out, the "bi" in this bipolar global economy is China. Beijing has not only started to hoard gold but has continued to talk up a new reserve currency concept to replace the U. S. dollar. The only reason the Chinese and others don't dump U. S. dollars is because it would be like shooting themselves in the foot. 
Inflation, on top of excessive money supply dilution, will (unless mitigated by growth or stoppage) reduce the dollar's value. Ing estimates that the printing of money to bail out banks, autos and the U. S. economy will create a catch-up in gold bullion prices: "Gold should be US$9,000 an ounce to cover the [current and projected] U. S. monetary base," he says. 
China has become the world's fifth-biggest gold hoarder, in addition to being the world's biggest gold producer (through its government-owned mining companies). I also suspect that China is behind the political sabotage in Mongolia, to its north, which has for five years prevented Ivanhoe Mines of Vancouver from producing gold and copper from its massive discovery. 
Clearly, China also has been dis-investing from the U. S. dollar by getting slowly into hard assets (stock, commodities or ore bodies), which I have written about. This concerns Washington, which is why Hilary Clinton, U. S. Secretary of State, made her first state "house call" in Beijing to make nice with America's first mortgagor. 
At that time, and publicly, too, China warned the United States about its dollar woes, while suggesting a basket of currencies to replace its pre-eminence. These scary pronouncements were followed by an announcement in Washington a few weeks ago that there would be a massive U. S. Treasury buyback of U. S. bonds. Put another way, the Chinese and others aren't buying anymore so the surpluses are being mopped up by putting more on the taxpayer tab. 
It is an irreversible trend that China and others will continue to disinvest and diversify out of U. S. dollars, and that inflation will further impair the U. S. dollar's value. That's because the U. S. monetary/economic rescue is simply Washington's version of the excesses and over-leveraging that led to the need for a rescue in the first place.
(2) Speaking of gold, Canada just recently sold half it's reserves. Yes, that's right. Half. So whatever the government "deficit" is you're hearing about these days, add half our gold supply to it.

Are you starting to get the picture folks? This is not normal. This is not normal at all.

When the Saudi Minister says things like this:
“The producers of those high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” the minister told a business audience in Houston during a speech at the IHS Ceraweek event on Tuesday. 
“It sounds harsh, and unfortunately it is, but it is the most efficient way to rebalance markets. Cutting low-cost production to subsidize higher cost supplies only delays an inevitable reckoning.”
You must understand what he is really doing: he is calling North American oil production out on it's bullshit. And worst still he shows the real target: the banks. Borrow more, he says. But he knows these oil companies can not borrow more, and that their hedges are now expiring, and that the defaults are about to start rolling in.

Peak oil.

I've seen a lot of people talking about peak oil lately. It's pretty amusing. Apparently we beat it. Because the world is producing excess oil apparently all the peak oil theory is junk. Nevermind that were producing much of it at a loss. Nevermind that for almost an entire decade now we've been talking about "the recovery". Nevermind that for the first time in modern economic history banks around the world are having to introduce negative interest rates which our own BoC has even discussed. Just never. Fucking. Mind.

Exxon Fails to Replace Oil, Gas Production for First Time in 22 Years
Exxon Mobil Corp. disclosed Friday that for the first time since 1994, it failed to find enough new oil and gas to replace what it produced last year.
Oil investment is weakest in 30 years
That will be the first time since 1986 that upstream investment has fallen for two consecutive years, the agency said, warning that the collapse could be storing up problems for consumers further down the track. 
"It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not too distant future," said IEA Executive Director Fatih Birol on Monday.
So. Who can guess what comes next after the great deflation? Anyone? Bueller?

Once the defaults really get rolling and work their way thru the banking system all confidence in oilsands and shale production will be destroyed. The levels of investment weve seen will not be returning. Ever. EVER. I really want that to sink in. When I discussed Alberta's new permanent reality, I really did mean permanent.It will be when the damage is done that the Sauds, along with Russia, and their partner China will finally give North America exactly what we've been asking them for: they'll turn off the taps. And all hell will break loose. This is how they will put the final nail in the coffin of the U.S. dollar.

By turning off the taps the price of oil will rise very rapidly, lacking it's own production North America will be forced to buy foreign oil in whatever currency they choose. They will not be choosing the U.S. dollar. This will also be the start of true hyperinflation in the U.S. as the energy shortage quickly adds pressure to deflation and they are forced to print more and more currency (borrow it from private banks at interest that is) to simply get life's necessities.

It's not a pretty picture but unless the people all around the world stop pointing fingers, making baseless accusations, and petty demands and stop just long enough to realize we've all been had, these forecasts, like my previous ones, will quickly be upon us. Just look around.
 China says 'really needs' South China Sea defenses in face of United States

I did omit Richards' musical selection. If you want to listen simply access his blog from this post or the sidebar- Instead adding the exchange between Richard and myself.

All I can say is Wow!

And is it ok with you if I repost with attribution at my blog?

You've written a very provocative article here, and by provocative I am not using the insulting context, I am saying this really get's one thinking about what has been going on as of late- where it's headed etc.,

I don't want to get to caught up in fear, because, it doesn't serve any real or practical goal.

It's better to be as prepared as one can be. So that reduces the fear factor.

Richard: I suspect the carbon bubble is the planned replacement to keep this whole charade moving along, (3)
Any thoughts on that?

Good job and I will check back for your response

  1. I agree and wrote about that here:

    These facts might be forgiveable if their usage to invest in the future was genuine but like most big-money schemes this one is likewise false. The carbon tax outright will likely over time simply end up in general revenue providing yet another tax base for expansionary monetary policy which if the banking system is not to collapse the government will need to engage in. The carbon trading market on the other hand is just the next market bubble oriented around the only thing more plentiful and common than printed currency itself and is the only financial bubble that can hope to exceed the global bond bubble.
  2. Absolutely feel free to repost btw.
Thank You Richard :)


(1) -Saudi Russian Rapproachment Back on Track F. William Engdahl

(2) Just 3 days ago it was reported that Canada has sold nearly all of it's gold reserves: 
March 4/2016 -Ottawa sells off all it's gold reserves, leaving just 77 ounces---or less
(3) Goldman Sachs et al. The next bubble: Carbon trading! Banks win, humanity loses, again.


  1. james I think you'll enjoy this one-

    I know there are a bunch of Canadians here from across the nation and you guys and gals need to read this post.

    The great deflation and the carbon tax soon to be inflicted on us here in Ontario, and elsewhere, seems to be tied in with this push for a guaranteed minimum income and move towards cashless, tyrannical, total control society- alongside another bubble, that will inevitably burst. I don't like where this is heading- Not at all.

    So share some thoughts and share Richard's post with others- it deserves a much wider read.

    Thanks everyone

  2. Canada, Texas, Oklahoma, Montana, The Dakotas, are going to turn into West Virginia coal slum towns. Prepare to see a lot more meth and drug abuse.

    1. Avirgo, it's already happening here in Canada..
      There are slum towns. IMO
      The only thing that is keeping the illusion going are the ultra low interest rates and the giant housing bubble- when that goes- people here are going to realize how impoverished they, we, all are

  3. Well, it seems other sites are catching up to Richard!

    Fort Russ put this post up today:

    - Two weeks after Richard wrote his awesome post!

    " As I wrote last year an informed Twitter follower informed me that (1) the Saudi's were not working against the Russians, but were working with them. This new deal, which is not a deal I should point out between the Saud's and so-called 'Saudi-America', continues to fit the grand story of global divestment out of the USD.

    Was this too scary for readers, cause, I thought it a very good and informative post and there has been way, over 100 reads!!

    Realizing it's a different topic for this blog, but, it is totally intertwined with all going on globally?!

  4. Well this well written and researched Thanks. Yes the Russians and China are play chess while the idiots in Amerika and else were play with themselves. Richard pointed China gold buying and mining is amazing and know no one knows what reserves they seat on. The mined gold doesn't go to market and with a gold market now in Hong Kong it's even a harder read. Russia is no different so as Russia and the house saud play there game, China and Russia along with the BRICS are playing a different one. The house saud has made a big mistake thinking Russia is along for the ride. The house saud is burning threw reserves while Russia not so much. The best thing that happened to Russia is resections on trade to it. Amerika is working on taking down the eu and Russia, only it's killing the eu and forced Russia to turn in and boy have they. The eu was developed to fail and the plan was written by a fellow who wrote Ronnie-ray-guns trickle down austerity program for Amerika. I'll try and find the link for that tomorrow. Thanks Penny and Richard. My advice, Plant a big Garden if you can and be bill free.

    Time for some whine;)

    1. Hi jo- thanks for sharing and wine... yummy ;)

  5. I forgot this.
    covers PM an American living in Paris
    good all around site

    1. Seen naked capitalism previously
      have not seen the other site, but, will check them out
      thanks again!

  6. Penny, though the author makes several great points, he makes certain points which I must comment on. Sorry to rain on the parade, however he makes some statements that are not correct.
    As for his statements concerning China and US Treasuries there is a simple fact he fails to mention. When China exports its production to Empire it receives in return what? US Dollars. Since the Peoples' Republic cannot depend upon internal consumption simply because the general population does not possess the required wealth and consist mostly of an agrarian peasant class. When they receive those dollars what can they do with them? Spend them on dollar denominated goods and services OR buy US Treasuries. Since they are not permitted to "get into hard assets" in the US, it is not permissible by law in many asset classes, especially they cannot purchase US companies. So his argument may pertain to many countries it doesn't to the US.
    Though they might have stopped buying UST"s, their books are cooked and information is not reliably truthfull, they still must take those dollars. Not to mention US ownership of many of their companies. In actuality it is a stretch to state the US owes China some ungodly sum. Just look at the rates of return. Take a moment to see the forest and you just might begin to question who's zoomin' who? He also appears not to understand fully certain concepts. What is the deficit in the US? Funny but it corresponds exactly with the value of UST's held by the FED. He does not understand the root causes of hyperinflation. Maybe he should read Michael Hudson so he does. Investment in Oil is weak due to prices and low prices which do not support alternative source production. Why would investors invest. Yet overall the large conglomerates are still turning exhorbitant profit. He also does not understand money and its creation. The US Treasury does not print money; other than the actual cost of physically printing the notes. That is except for coinage which at best makes up less than 7% of money in circulation. Almost all money is created electronically when loans, debt is issed by private banks.
    Lastly, Gold Bugs have been predicting an unprecedented rise in the price of gold for decades. They've been consistantly wrong. Commodities are easily manipulated. And does he really believe the oligarch's have all of their eggs in the US/Dollar basket. They are not invested in China, Russia, and soon Iran in big ways. They are aware you can rest assured. The US/NATO thugs are still the most powerful military in the world. They fight the whole way down. The consequences of which I rather not contemplate. And, peak oil has not been proven to be fact. Sorry for the book. Just had to say it.

    1. That ok, Charles- don't apologize
      this economic stuff is not so much my strong suit
      Richard wrote a good piece, imo, and I posted it
      He did write a bit more from a Canadian perspective that could be applied more broadly

      I thank you for taking the time to write a response

  7. I've spent much of the last decade studying the history of money, the creation of it and economics. Much of what is written about these topics is what the mainstream economists, who exist in a fantasy world, want people to believe is factual. Rather they teach, publish and speak about is not reality. Unfortunately, since these same economists teach their b.s. theories at the most prestigious places of "higher learning". Their students come out of those institutions spouting and believing that same horse s/%t. The bull about "free markets", which do not exist. Free for the extraction of rents from the real economy through privatization. Free to hollow out the industrial base, free to hollow out the public sector, free to impose austerity upon the working class. What few understand is until the unearned income that the oligarchy grows richer on is taxed and efforts are made to eliminate the policies that make it possible we all are headed toward collapse. These simple facts are what the author fails to comprehend.

  8. Hello, Penny. Thank you for this excellent article, and link. I have time at the moment to read more on current events, after a long hiatus (big life upheavals), and I knew looking through your older posts would be a good starting point. I do live in Alberta, and read this info with great concern, but not surprise.