The chickens & the cows

'...OPEC manipulating supply to drive US shale producers into non-profit...'

Whilst I concede the facts his conclusions are wrong. Here’s the way I see it.

1. The US shale industry is here to stay, either in free-float or with Federal assistance. One of the key policy riders in the US is energy independence. That’s been the case since WW11. If OPEC depress oil  by manipulating oversupply, to such an extent, that shale producers become unprofitable, the US Federal government will subsidise the industry. As it is the tax conditions for US energy companies are being reviewed favourably anyway.
2. The US, very recently, signed an agreement with the Saudis to buy oil at a specific price for the foreseeable future. That means this is not a price war aimed at the US. The price war is, in fact, aimed at Russia. It’s OPEC and the US squeezing Russia out of the European market, destabilising Putin and deflating the political escalation along Russia’s borders.
3. What’s more interesting is a sidelined China and an even less vocal Iran. China buys most of its oil from Iran and if I was to guess they have been appraised of the price war and are being compensated for their cooperation i.e.: for turning a blind eye. The compensation in Iran’s case is pretty obvious given the relaxation of Western sanctions against that country. In China’s case I would submit that a strong Russia on their borders is not exactly in their best interests. This then their motivation for cooperation.

No sir, if OPEC wanted to punish the US the easiest way to do so  would be to demand payment for oil in any currency other than the US $. As long as the US $ remains the international currency of exchange the US controls price through debt. A weakening dollar on long-term debt makes the market progressively cheaper for the US, not so? Get the US to pay in Euros, riyal, Yen or Yuan and we would have a financial Armageddon unlike anything we have ever seen before. The US would immediately default [be unable to pay even the interest] on ALL their international debt and we’d ALL be hammered back to the stone age. 

The financial derivatives market, by way of example and for interest, has an open-interest value of $600 trillion. That means $600 trillion worth of geared debt, on global exchanges, is held by Big Banks on behalf of clients. If the markets collapse, as they did in 2008, banks cease to exist, so too global financial structures. By way of comparison US GDP is about $17 trillion and the US economy is by far and away the largest economy on earth. That means it would take 35 years to pay off the current derivative debt – an impossibility obviously.

The world has been effectively bankrupt for decades ie: ever since we went off the 'gold standard' and have legislated the printing of money without asset-backed security. We’ve made it worse by using this non-asset-based currency for debt and then compounded it further by gearing it up in the derivatives markets by more than 10 times (1000%).

One day both the chickens and the cows will return home; they’ll have to because that’s what we’ll be reduced to, subsistence.