<DrumBeat: July 8, 2009 The Oil Drum Peak Oil Day - July 11>

77 comments on CFTC - Futures Position Limits on Energy?

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Neil1947 on July 7, 2009 - 7:50pm Permalink | Subthread | Parent | Comments top

Nate,
Doesn't that mean that the counter-party risk is the $5,000 capital the contract buyer outlays not the $30,000, in other words in aggregate not the 1000Trillion but the actual amount of "non-leveraged" investment.? Surely it's possible to estimate this from the leverage ratio of specific investments?

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Nate Hagens on July 7, 2009 - 8:00pm Permalink | Subthread | Parent | Comments top

Not possible, but we have alot of clues. Here is equity as % of assets for some major banks at end of 2008:

I am in the (minority) camp that believes we have significant deflation before inflation -quant easing is drop in a bucket compared to credit destruction in real economy.

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Neil1947 on July 7, 2009 - 8:13pm Permalink | Subthread | Parent | Comments top

Nate,
Thanks, that very interesting, if those derivatives are not hedged or poorly hedged it's easy to see big financial problems quickly developing.

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PeakPlus on July 8, 2009 - 1:50pm Permalink | Subthread | Parent | Comments top

Hi guys,

Nate, I'm on your side. Japan's been "printing money" for almost 20 years now and know nothing of inflation. The deleveraging continues. It will take a long long time for paper money to catch up with "digital" money, especially with the demographic and peakoily situation.

Welcome to Kondratieff winter. Like in Narnia maybe a winter that will never end...
Well, will take a while to be played out:-(

Cheers, Dom

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css1971 on July 8, 2009 - 2:42pm Permalink | Subthread | Parent | Comments top

a 0% interest rate isn't printing money.

while true
do
 let MONEY = $MONEY + ($MONEY * $N)
done

Choose your value for N. Inflation can always be made to win in a fiat system. All it takes is for someone to stand up and say "I am going to make your money worthless.", then actually start doing it.

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PeakPlus on July 9, 2009 - 5:41am Permalink | Subthread | Parent | Comments top

"0% interest rate"
You're refering to Japan, right?

You're right, hyperinflation sounds so *easy*, but...

Please explain how to add money to the system in order to create price inflation (central bank / treasury). Why isn't it working right now?

Where did your $MONEY come from to multiply with inflation ($N)??

Fiat is not Fiat, meaning, it is not just "printed" without obligation. Instead, it is "borrowed" into existence. In the (Central Bank's) books "new" money looks like this:
Debit = Credit

Looking at your equation let's define:

$MoneyB + $NewDebt = $MoneyA + $NewMoney

Now, like a good Enron, wie act like we don't have any debt or say that our debt is part of the economy too and redefine: $MoneyB = $MoneyA + $NewMoney + $NewDebt, which will end in bankrupcy if there's no wealth behind that new debt. But that's not our question right now.

What we like to do in our economy is forget that the new debt ever has to be paid back:

$MoneyB = $MoneyA + $NewMoney

If this were the case, then inflation would be easy to produce. Then your equation could make sense. But what's happening now is not only new debt but also "deleveraging" ($DebtRepaid) and/or "defaulting" ($DebtDefault). Meaning:

$NewMoney = $NewDebt - $DebtDefault&Repaid
meaning:
$MoneyB = $MoneyA + $NewDebt - $DebtDefault&Repaid

Which tells me that inflation will ONLY occur if we make more debt than what is being defaulted and deleveraged.

Or is there a fault in my logic?

Cheers, Dom

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olepossom on July 7, 2009 - 10:10pm Permalink | Subthread | Parent | Comments top

IF you see John Mauldin around the fire in that camp, tell him Goober sayes hey. But that is pretty much what he said today: things are going to deflate for quite awhile. I want to believet that, but it is hard to reconcile delation with a debtor dominated democracy. Can't happen for very long, before the government just starts handing out money.

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WeekendPeak on July 9, 2009 - 1:45pm Permalink | Subthread | Parent | Comments top

Nate,
The net of all derivatives/oil contracts is ZERO. For every long JPM has there is a short somewhere (and vice versa of course).
Bringing the number of "paper barrels" in line with the number of physical barrels doesn't change that. The only way to make a tight link between paper and real barrels is to not allow offsetting transactions / netting but to require physical delivery of every contract. Obviously that would cause trading, and therefore to some extend price discovery, to grind to a halt.
WeekendPeak

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Nate Hagens on July 9, 2009 - 5:56pm Permalink | Subthread | Parent | Comments top

the net of ALL derivatives may be zero on paper but is not zero in reality, because much of the capital used by investment banks was penstroked into existence. It is not about oil contracts so much as it is about TOTAL claims in our system compared to real things. I talk about this all the time and must not be making myself clear - half the people get it right away and others continue to think it is a zero sum game - it isn't. The proof is that if it was announced that all derivatives/credit/loans/futures contracts etc. were to be settled next week, the world would be bankrupt (creditors far outweigh the amount of capital in system). It is true for oil and probably true for a large % of interest rate swaps etc. that they could be offset, but not the whole system - I doubt anyone knows how deep the system is in hock until we have a 'cancel all debts' jubilee.

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Dryki on July 7, 2009 - 9:33pm Permalink | Subthread | Parent | Comments top

Neil1947, you are quibbling over a detail irrelevant in the big picture

a system whose claims on the future are higher than its real assets.

The best governments can do - within the current paradigm - is print money to plug the holes on the balance sheets. That's not enough, however, to keep business running. The bankers know they cannot make loans expecting them to get paid back from real wealth; the only way they can make money now is to extend the printing and looting.

The pledges - the loans and bonds and social security and whatever - exceed Gaia's blood. Smart traders shut down or game the system.

cfm in Gray, ME

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hightrekker on July 8, 2009 - 1:42am Permalink | Subthread | Parent | Comments top

Exactly! These claims violate basic laws of the universe.

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77 comments on CFTC - Futures Position Limits on Energy?

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