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The Consequence(s) of Crude Oil Currency Valuation
Bob Stevens: Posted on Monday, December 29, 2014 4:23 PM
Hello Everyone Worldwide & Welcome!
I hope everyone enjoys all the various holidays currently celebrated & looks to the New Year with great expectations & anticipation! Personally I'm expected everything to "break loose" wide open in January and will announce in January as events unfold.
Today I wanted to examine what happens -consequences- of basing any nationally currency on price of the barrel crude. In reality, even the U.S. dollar "reflects" ( if not based on ) the price of crude for when the price of the barrel drops, automatically the "strength" of the dollar increases proportionately and visa verse.
The first article I will quote from is " As Recession Looms. Russia Acts To Support Ruble" here is the link -
First quote - " ....and a dramatic fall in the price of oil, Russia took another step Tuesday to shore up the value of the ruble, which has been one of the world's worst-performing currencies this year.
Russia's energy-dependent economy has suffered a severe economic shock over the past few months, largely because oil prices have tanked — the benchmark New York rate has fallen by around a half since June to stand at not much more than $55 a barrel.
Because the Russian economy remains hugely reliant on energy revenues, that spells trouble. Credit rating agency Standard & Poor's put the country on notice that it may face a downgrade following "a rapid deterioration of Russia's monetary flexibility and the impact of the weakening economy on its financial system."
When the price of the barrel falls, countries particularly hard hit are those whose economy is energy based meaning those countries which export crude - those economies are locked to the price & volumes of exports. Federal revenues are locked to price of the barrel. When oil prices are high & exports are high, corresponding profits / revenues are are also high.
Although you may assume based on above quote & article (link) any country whose revenues are not based on oil export revenues like the USA for example are immune to consequences Russia now suffers from, then consider the next article :
" Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives "
This article refers to the USA & fact American taxpayers are once again held hostage over energy / energy mismanagement by the politicians & federal government. Here's how the "scam" works -
'The preamble to the Dodd-Frank Act claims "to protect the American taxpayer by ending bailouts." But it does this through "bail-in": authorizing "systemically important" too-big-to-fail banks to expropriate the assets of their creditors, including depositors. Under the Lincoln Amendment, however, FDIC-insured banks were not allowed to put depositor funds at risk for their bets on derivatives, with certain broad exceptions.
In an article posted on Breitbart.com on December 10th titled "Banks Get To Use Taxpayer Money For Derivative Speculation," Chriss W. Street explained the amendment like this:
Starting in 2013, federally insured banks would be prohibited from directly engaging in derivative transactions not specifically hedging (1) lending risks, (2) interest rate volatility, and (3) cushion against credit defaults. The "push-out rule" sought to force banks to move their speculative trading into non-federally insured subsidiaries.The Federal Reserve and Office of the Comptroller of the Currency in 2013 allowed a two-year delay on the condition that banks take steps to move swaps to subsidiaries that don't benefit from federal deposit insurance or borrowing directly from the Fed.The rule would have impacted the $280 trillion in derivatives primarily held by the "too-big-to-fail (TBTF) banks that include JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. Although 95 percent of TBTF derivative holdings are exempt as legitimate lending hedges, leveraging cheap money from the U.S. Federal Reserve into $10 trillion of derivative speculation is one of the TBTF banks' most profitable business activities."
Starting in 2013, federally insured banks would be prohibited from directly engaging in derivative transactions not specifically hedging (1) lending risks, (2) interest rate volatility, and (3) cushion against credit defaults. The "push-out rule" sought to force banks to move their speculative trading into non-federally insured subsidiaries.The Federal Reserve and Office of the Comptroller of the Currency in 2013 allowed a two-year delay on the condition that banks take steps to move swaps to subsidiaries that don't benefit from federal deposit insurance or borrowing directly from the Fed.The rule would have impacted the $280 trillion in derivatives primarily held by the "too-big-to-fail (TBTF) banks that include JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. Although 95 percent of TBTF derivative holdings are exempt as legitimate lending hedges, leveraging cheap money from the U.S. Federal Reserve into $10 trillion of derivative speculation is one of the TBTF banks' most profitable business activities.
What was and was not included in the exemption was explained by Steve Shaefer in a June 2012 article in Forbes. According to Fitch Ratings, interest rate, currency, gold/silver, credit derivatives referencing investment-grade securities, and hedges were permissible activities within an insured depositary institution. Those not permitted included "equity, some credit and most commodity derivatives." Schaefer wrote:
For Goldman Sachs and Morgan Stanley, the rule is almost a non-event, as they already conduct derivatives activity outside of their bank subsidiaries. (Which makes sense, since neither actually had commercial banking operations of any significant substance until converting into bank holding companies during the 2008 crisis).The impact on Bank of America, Citigroup, JPMorgan Chase, and to a lesser extent, Wells Fargo, would be greater, but still rather middling, as the size and scope of the restricted activities is but a fraction of these firms' overall derivative operations.......
A fraction, but a critical fraction, as it included the banks' bets on commodities. Five percent of $280 trillion is $14 trillion in derivatives exposure -- close to the size of the existing federal debt. And as financial blogger Michael Snyder points out, $3.9 trillion of this speculation is on the price of commodities.
Among the banks' most important commodities bets are oil derivatives. An oil derivative typically involves an oil producer who wants to lock in the price at a future date, and a counterparty -- typically a bank -- willing to pay that price in exchange for the opportunity to earn additional profits if the price goes above the contract rate. The downside is that the bank has to make up the loss if the price drops........
Whatever happened behind closed doors, we the people could again be stuck with the tab. We will continue to be at the mercy of the biggest banks until depository banking is separated from speculative investment banking. "
So what am I pointing out with the above? Currency valuation based on the price of crude has so many ramifications / consequences that devastating "wars" can be conducted without any military force / weapons / physical attack(s) - just like the one Saudi Arabia currently conducts against the USA's shale oil. In any conventional war, economies suffer to the point of collapse as a result of physical warfare - bombs / infrastructure destruction etc.; with economic war like the one Saudi Arabia conducts, the devastation is direct economic impact - when you target the economy of any country, you destroy that economy thus conquering the country without firing a shot / invasion / loss of life.
Now let's look at any country which chooses PPP EVs (Portable Power Plant Electric Vehicles) / true consumer driven economy based on PPP EVs / currency valuation based on domestic sustainable energy from PPP EVs -
- Residual revenue streams are established at every level based on grid supply from PPP EVs with federal revenues not only at the top, but at every level.
- National grids are EMP immune as PPP EVs are.
- Residual revenues at the consumer level provides both immediate "retirement" income, but also new disposable income - both of these new federal tax revenue sources.
- Consumer spending from above point on "collateral items' such as eating out, clothing, shopping in general, travel etc. also provides new federal tax revenue sources.
- PPP EV provided sustainable non crude energy revenues empower currency valuation on such energy making currency immune to price of the barrel crude oil fluctuation(s).
Draw your own conclusions, I think you'll find the above extremely relevant and accurate.
Renewed American Spirit ~ Catch It Then Pass It On