Doha Oil Deal a Dud

If the Saudis and Russians make an oil deal and no one takes it seriously, does the crude oil price still fall? And if you’re in the forest, would you hear it?

I’m joking, of course. But the point is simple: it will take more than Russia and Saudi Arabia freezing their oil production at record highs to put a floor under the oil price. Both countries pump more than 10 million barrels of oil a day. That’s 21% of global production. It’s a lot. But if Iran and Iraq don’t go along with the deal, there is no deal.

Controlling the oil price from the supply side isn’t as easy as it used to be. There are more large producers than there used to be. And their interests aren’t always aligned. Even within the cartel (Organization of the Petroleum Exporting Countries, or OPEC) you have competing agendas. Hence the Doha dud overnight.

Venezuela made a strong pitch for a production cut. But nobody else went along. And in not unrelated news, credit default swaps on Venezuelan government debt are sky-high. The prospect of the year’s first sovereign debt default is now on the table.

By the way, if Jeremy Corbyn and Bernie Sanders are fair dinkum about democratic socialism, they ought to go have a good look at Venezuela and see if they can turn it around. The country has $70 billion in debt. $9.5 billion of that matures this year. It has $15.4 billion foreign exchange reserves, two-thirds of which is in gold. It’s promised everyone something for nothing…and delivered a whole lot of nothing.

How much wealth can socialism destroy? A lot, apparently. The government has arranged a gold swap with Deutsche Bank to stave off a day of reckoning. And in the meantime it hopes a rebound in the oil price will generate more cash from the nationalised oil industry to pay for all the other things that are free. The clock is ticking.

Wealth isn’t just something lying around on the ground you can pick up. Even when you steal it from individuals or the private sector via nationalisation, it takes skill and effort to make productive assets productive. Socialists take that for granted, and then scratch their head in frustration when things grind to a halt.

Oil reserves don’t find themselves. Gold mines don’t dig themselves. You need good geologists and business people to run the extractive industries at a profit, so you can afford new capital equipment. Wealth is created in a specific institutional framework: private property, rule of law, free markets, small government, low taxation.

It may not be fashionable to say that in this day and age. But it’s true.

But Western welfare states will rue the day they forgot that the road to freedom and prosperity begins with certain rules. Change those rules and you make yourself poorer.

Summers launches winter offensive on cash

You’re seeing the banking elite’s version of a blitzkrieg (lighting war). Yes, I’m talking again about the war on cash. With the trouble in Europe’s banking sector, limiting how much cash people can hold is moving to the top of the authoritarian agenda. Nothing says “capital control” like banning notes with a face value of 50 units or more.

I’m not making that up, either. It came from former US Treasury Secretary Larry Summers. In his blog, Summers wrote that, ‘Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100… Such an agreement would be as significant as anything else the G-7 or G-20 has done in years.

Why so significant? You taking your cash out of the banking system has two negative implications for the people who run the world’s financial system. First, it bleeds capital from banks. That’s capital the banks badly need, given the debts many of them have on the books.

Second, if your money is in cash and not in the bank, a negative interest rate imposed from above will not have the desired effect. The desired effect is that you spend your money to create the growth and inflation central bankers have targeted. Targeted why? Because they know better than you. Shut up.

Look if you didn’t believe me before, I don’t know what else to tell you. The motives and the methods of the financial authorities are increasingly transparent. Whether that’s because they’re increasingly desperate — based on the current state of the financial markets — I can’t say.

Monopoly: ultimate banker’s edition!

There is good news in the war on cash, though. Your friends and family won’t be able to cheat you at Monopoly anymore. Not if you buy the latest ‘ultimate bankers’ edition. According to website Engaget:

Hasbro has released a new edition of Monopoly called Ultimate Banking that should help keep familial infighting to a minimum. Instead of paper money, which can easily be laundered or stolen when you aren’t looking, this new edition uses debit cards. It also does away with the easily-corrupted Banker position, replacing the human with an electronic card reader (aka an ATM).

If only we could get rid of the ‘easily corrupted banker position’ in real life! Or the ‘easily corrupted government minister position’. Or the ‘easily corrupted elected politician position’. Can you imagine how much fun the game of life would be then!


Dan Denning,

Contributing Editor, Money Morning

Ed Note: Long time readers will remember Dan Denning, former Publisher of Money Morning. Dan has now gone on to the UK, where he writes for our friends at Capital and Conflict. The above article is an edited extract from that publication.

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Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Money Morning Australia