US Stocks Plummet 1000 Points After China Drop—Today Another 1000 Point Drop Expected

[Yesterday, the precious Dow dropped 1000 points when it opened, after the Chinese market dropped by 7%.  Look for a similar drop when it opens again this morning, after China falls another 7 (SEE: Dow drops 1000 points, US stocks plummet at open ).]

China Stocks Plummet Another 7 Percent Amid ‘Mood of Panic’ 

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The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 7.1 percent, while the Shanghai Composite Index collapsed 7.6 percent to close below the psychologically significant 3,000-point level.

Underscoring the panic gripping the retail investors who dominate China’s stock markets, all index futures contracts fell by the maximum 10 percent daily limit, pointing to expectations of even deeper losses.

After the turmoil in China rocked world equity and commodity markets on Monday, policymakers elsewhere in Asia sought to soothe fears about the broader impact on the global economy.

“I think it’s important that people don’t hyperventilate about these type of things,” said Australian Prime Minister Tony Abbott, whose country is heavily exposed to China, the biggest consumer of its commodity exports. “It is not unusual to see stock market corrections. It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound.”

Japanese Finance Minister Taro Aso also said Chinese stocks, which had more than doubled in the six months to May, had been a bubble that was now bursting.

“There’s also suspicion on whether China’s official GDP figures reflect the real state of the economy,” he told a news conference after a cabinet meeting in Tokyo.

After a year of heady gains, Chinese markets have been buffeted by increasing signs that economic growth is faltering.

The Impulse Towards Fascism and the Homogenized Society

Why aren’t we living in H.G. Wells’ scientific dictatorship?

IEET


Rick Searle

By Rick Searle
Utopia or Dystopia

 

One of the more depressing things to come out of the 2008 financial crisis was just how little it managed to effect our expectations about the economy and political forms of the future. Sure, there was Occupy Wall Street, and there’s been at least some interesting intellectual ferment here and there with movements such as Accelerationist Marxism and the like, but none have really gone anywhere. Instead what we’ve got is the same old system only now with even more guarantees and supports for the super rich. Donald Trump may be a blowhard and a buffoon, but even buffoons and blowhards can tell the truth as he did during last Thursday’s debate when he essentially stated that politicians were in the pocket to those with the cash, such as himself, who were underneath it all really running the show.

The last really major crisis of capitalism wasn’t anything like this. In the 1930’s not only had the whole system gone down, but nearly everyone seemed convinced that capitalism, (and some even thought the representative democracy that had emerged in tandem with it) was on the way out.

Then again, the political and economic innovation of the early 20th century isn’t the kind of thing any of us would wish for. Communists, which to many born after 1989 may seem as much like antiquated creatures from another world as American revolutionaries in powdered wigs, was by the 1930’s considered one of the two major ways the society of the future would likely be organized, and its’ competitor over the shape of the future wasn’t some humane and reasoned alternative, but the National Socialism of Hitler’s dark Reich.

things to come

If one wants to get a sense of the degree to which the smart money was betting against the survival of capitalism and democracy in the 1930’s one couldn’t do much better than that most eerily prescient of science-fiction prophets – H.G. Wells. In many ways, because he was speaking through the veneer of fiction Wells could allow himself to voice opinions which would have led even political radicals to blush. Also, because he was a “mere” fiction author his writings became one of the few ways intellectuals and politicians in liberal societies could daydream about a way out of capitalism’s constant crises, democracy’s fissiparousness and corruption, and most importantly for the survival of humanity in light of the nation-state’s increasingly destructive wars.


Well’s 1933 The Shape of Things to Come,

published not long after the Nazis had come to power in Germany, is perhaps his best example of a work that blurs the boundaries between a work of fiction and a piece of political analysis, polemic, and prediction. In the guise of a dream book of a character who has seen the future of the world from the 1930’s to the middle of the beginning of the 22nd century, Wells is able to expound upon the events of the day and their possible implications- over a century into the future.

Writing six years before the event takes place Well’s spookily imagines World War II beginning with the German invasion of Poland. Also identifying the other major aggressor in a world war still to come, Wells realizes Japan had stepped into a quagmire by invading China from which much ill would come.

These predictions of coming violence (Wells forecast the outbreak of the Second World War to be 1940- one year off) are even more chilling when one watches the movie based upon the book, and know that the bombings of cities it depicts is not some cinematographer’s fantasy, but will no doubt have killed some of those who watched the film in theaters in 1936- less than five years later.

Nevertheless, Wells gets a host of very important things, not only about the future but about his present, very wrong. He gets it ass backwards in generally admiring the Soviet Union and seeing its’ problem not being the inhuman treatment by the Communist regime of its citizens, but the fact that they have wed themselves to what Well’s believes is an antiquated, dogmatic theory in Marxism.

Indeed, Wells will build his own version of dictatorship in The Shape of Things to Come (though versions of it can be seen in his earlier work) using the ideas of two of Soviet communism’s founders- Trotsky’s idea of a global revolutionary movement which will establish a worldwide government and Lenin’s idea of an intellectual nucleus that will control all the aspects of society.

Nor, did Wells really grasp the nature of Nazism or the strange contradiction of a global alliance of fascist regimes that ostensibly worship the state. Wells saw Hitler as a throwback to a dying order based on the nation-state. His only modernity being

“…control by a self-appointed, self-disciplined élite was a distinct step towards our Modern State organization.” (192)

Wells therefore misses the savagery born of the competition between world shaping ideologies and their mobilization of entire societies that will constitute the Second World War and its aftermath.

Ironically, Wells mistakenly thinks WWII will be short and its fatalities low because he gets his technological predictions right. He clearly foresees the role of the importance of the tank, the airplane, and the submarine to the future war and because of them even anticipates the Nazi idea of blitzkrieg. At one point he seems to have a glimmer of the death spirit that will seize over humankind during the war when he compares the submarine to a sacrificial altar:

The Germans supplied most of the flesh for this particular altar; willing and disciplined, their youngsters saluted and carried their kit down the ladder into this gently swaying clumsy murder mechanism which was destined to become their coffin. (70)

Nevertheless, he fails to see that the Second World War will unleash the kinds of violence and fanaticism formerly only seen in religious wars.

Two decades after Wells’ novel many would think that because of the introduction of nuclear weapons wars would be reduced to minutes. Instead conflict became stretched out across multiple decades. What this is should teach us is that we have no idea how any particular technology will ultimately affect the character of war – especially in terms of its intensity or duration- thus those hoping that robotic or cyber weapons will return us to short decisive conflicts are likely seeing a recurrent mirage.

Wells perhaps better understood than other would be revolutionaries and prophets of the time just how robust existing societies were despite their obvious flaws. The kind of space for true political innovation had seemingly occurred only during times of acute stress, such as war, that by their nature were short lived. A whole new way of organizing society had seemingly revealed itself during World War I in which the whole industrial apparatus of the nation was mobilized and directed towards a particular end. Yet the old society would reassert itself except in those societies that had experienced either defeat and collapse or Pyrrhic victory (Italy, Japan) in the conflict.

Wells thus has to imagine further crises after economic depression and world war to permanently shatter Western societies that had become fossilized into their current form. The new kind of war had itself erased the boundary between the state and the society during war, and here Wells is perhaps prescient in seeing the link between mass mobilization, the kinds of wars against civilians seen in the Second World War and insurgency/terrorism. Yet he pictures the final hammer blow not in the form of such a distributed conflict but coming in the form of a global pandemic that kills half of the world’s people. After that comes the final death of the state and the reversion to feudalism.

It is from a world ruled by warlords that Wells’ imagined “Air Dictatorship” will emerge. It is essentially the establishment of global rule by a scientific technocracy that begins with the imposition of a monopoly over global trade networks and especially control over the air.

To contemporary ears the sections on the Air Dictatorship can be humorously reminiscent of an advertisement for FedEx or the US Navy. And then the humor passes when one recalls that a world dominated by one global straddling military and multinational corporations isn’t too far from the one Wells pictured even if he was more inspired by the role of the Catholic Church in the Dark Ages, the Hanseatic League or the what the damned Bolsheviks were up to in Russia.

Oddly enough, Wells foresaw no resistance to the establishment of a world-state (he called it The Modern State) from global capitalists, or communists or the remnant of the security services of the states that had collapsed. Instead, falling into a modernist bias that remains quite current, Wells sees the only rival to the “Modern State” in the form of the universal religions which the Air Dictatorship will therefore have to destroy. Wells’ utopians declare war on Catholics (Protestants oddly give no resistance) forcefully close Mecca and declare war on Kosher foods. And all this deconstruction to be followed by “re-education” Wells thinks could be done without the kinds of totalitarian nightmares and abuses which are less than two decades away from when he is writing The Shape of Things.

I am not particular fan of the universal confusion called post-modernism, but it does normally prevent most of us from making zingers like Wells’ such as this:

They are going to realize that there can be only one right way of looking at the world for a normal human being and only one conception of a proper scheme of social reactions, and that all others must be wrong and misleading and involve destructive distortions of conduct. (323)

Like any self-respecting version of apocalypse, Wells imagines that after a period of pain and violence the process will become self sustaining and neither will be required, though most honorably for the time Wells thinks this world will be one of racial equality that will never again suffer the plague of extreme want.

Analogous to the universal religions, after the establishment of the Modern State all of humankind will become party to ultimate mission of the scientific endeavor which the protagonist in the movie version sums up manically in this crazy speech at the end of the film:

For man, no rest, he must go on. First this little planet and its’ winds and ways, and then all of the laws of mind and matter that restrain him. Then the planets above and at last out across immensity to the stars. And when he conquers all the depths of space and all of time still he will not be finished.

All the universe or nothing! Which shall it be?

(As a side note Ken Stanley Robinson seems to think this modernist’s dream that the destiny of humanity is to settle the stars is still alive and kicking. In his newest novel he is out to kill it. Review pending. )

To return to our lack of imagination and direction after 2008: we, unlike Wells, know how his and similar modernist projects failed, and just how horribly they did so. Nevertheless, his diagnosis remains largely sound. It might take a crisis the scale none of us would wish for to engender real reform let alone the taking of radically new directions. Given historical experience such crises are much more likely to give rise to monsters than anything benign.

Anarchists seem to grasp the shape of the time but not its implications. In a globalized world power has slipped out of the grasp of democratic sovereignty and into the hands of networked organizations- from multinational corporations, to security services, to terrorists and criminal groups able to transcend these borders. Yet it is tightly organized “machine like” organizations rather than decentralized/anarchic ones that seem to thrive in this feudal environment, and whereas that very feudalism and its competition makes achieving a unified voice in addressing urgent global problems even more difficult, and where despite our current perceptions, war between the armed groups that represent states the gravest existential threat to humanity, we, unlike Wells, know that no one group of us has all the answers, and that it is not only inhumane but impossible to win human unity out of the barrel of a ray gun


Rick Searle, an Affiliate Scholar of the IEET, is a writer and educator living the very non-technological Amish country of central Pennsylvania along with his two young daughters. He is an adjunct professor of political science and history for Delaware Valley College and works for the PA Distance Learning Project.

The Evil within—The truth we dare not see about Saudi Arabia

The Evil within: The truth we dare not see about Saudi Arabia’s war in Yemen

Russia-Today
An air strike hits a military site controlled by the Houthi group in Yemen's capital Sanaa May 12, 2015. (Reuters / Khaled Abdullah)

An air strike hits a military site controlled by the Houthi group in Yemen’s capital Sanaa May 12, 2015. (Reuters / Khaled Abdullah)

On the 70th anniversary of the fall of Nazi Germany, fascism is far from dead. As Yemen bleeds under Saudi Arabia’s grand war, it is really the annihilation of one people we are seeing play out – the Zaidis of Yemen.

If Saudi Arabia, a regional super-power strong with its trillions of petrodollars, has ruled unchallenged over the Middle East and to an extent over the Islamic world, it has done so at the expense of people’s freedom and prosperity. Yemen, more than any other country in the region has suffered under its powerful and rich tyrant of a neighbor.

Coerced into assuming the role of a passive vassal, Yemen was prevented from rising to its true potential through a clever network of bribery, religious sponsoring and social engineering. Ever since this poorest nation of South Arabia attempted to break away from the shackles of tyranny back in 1962, Riyadh has preyed on Yemen, sabotaging and manipulating, invading its lands and eroding its institutions, all to the tune of a disruptive and perverse game of tribalism with sectarian undertones.

The overlord of Arabia, the Kingdom is responsible for much, if not all of the unrest we have seen play out in the region.

But back to Yemen!

Yemen has always been a thorn in Al Saud’s thigh, a threat to its hegemonic ambitions.

As professed by Ibn Saud (the patriarch of the house of Saud) all those decades ago – left unchecked Yemen would spell the end of Saudi Arabia as the region’s hegemon. One might argue that this one warning actually shaped Riyadh’s policy towards Yemen, feeding its paranoia over this most unruly and now poorest nation in the peninsula.

Ravaged by pandemic corruption, insecurity, political instability, social injustices and an over-bearing, ever-spreading sense of despair, Yemen has become but a shell of its former self, an institutional husk with no social cohesion left to hold it together.

But if Yemen has become what it is today, it is by Saudi design. Yemen’s demise, its very unraveling has been engineered by Saudi Arabia ever since 1994 when then-King Fahd bin Abdulaziz propped a loose coalition of tribes and Sunni radical factions to act as a counter-power to then-President Ali Abdullah Saleh, in exchange for military back up against Al Hirak – the Southern Secessionist Movement. For the sake of territorial unity President Saleh delivered Yemen’s future to the rapacious hands of the Kingdom, not realizing just how much this alliance would cost him in the end.

And so Al Islah – which acts as an umbrella for the now infamous Muslim Brotherhood – was born to act as Riyadh’s proxy in Sana’a.

This one party would serve as a catalyst, a protective shield and a nurturing hand for Wahhabis and Salafis alike, which religious movements we know now have inspired terror groups such as Al-Qaeda and ISIS.

But if Saudi Arabia has played a role in the crumbling of Yemen from afar, a dark cloud above the once clear sky of Felix Arabia, March 25, 2015 shattered whatever restraint Riyadh could master. Faced with an increasingly politically independent Yemen, Riyadh chose to intervene before the Houthis could actually manifest a grand political and tribal coalition and fulfill Yemenis’ calls for fairer political representation.

At the risk of upsetting the Western media narrative and Saudi Arabia’ self-proclaimed intentions in Yemen, democracy and constitutional legitimacy were never part of Riyadh’s equation, more worldly ambitions have animated Al Saud royals: natural resources and geopolitics figuring high on the list.

But that is not all – ideology, rather, clashing religious ideology has played a trigger to this Saudi-led war against Yemen, and there lies an evil which the world has yet to wake up to.

More than a month into this unilateral and grand military intervention on Yemen and it appears clear that Saudi Arabia has singled out not just the Houthis as its target of choice but the entire Yemeni Zaidi community.

Because of their rejection of Wahhabism, the Yemen Zaidi community has been labeled as “apostate” by all Salafi and Wahhabi clerics; a religious aberration to be dealt with by annihilation. Back in 2009 during a live TV interview with BBC Arabic, Adel Al Kalbani, the Imam of Mecca professed his hatred of all Shia Muslims when he called for their hunting down and death. More recently, in April 2013, Saad Al Durihim, a Saudi cleric, posted a series of comments on Twitter in which he advocated that militias in Iraq demonstrate a more “heavy handed” approach when dealing with Shia Muslims and kill any Shias they might encounter – women, men and children. Such statements are the expression of Saudi Arabia’s strict theocratic reactionary regime.

It needs to be pointed out that Saudi Arabia’s official line vis-a-vis Shia Islam echoes that of both Al- Qaeda and ISIS, which groups, Stephen Lendman, a prominent US political analyst and writer has said are but the offshoots of the Kingdom’s religious fascist construct.

But if Saudi Arabia’s religious “policy” has failed to raise even an eyebrow in Western capitals, it has become increasingly difficult to ignore the ongoing cultural and religious genocide which is taking place in Yemen.

For weeks now Saudi Arabia has pounded Sa’ada and several neighboring regions, oblivious to civilians’ safety in its desire to lay flat Zaidi Islam.

One might argue that Riyadh is actually specifically targeting civilians. Why else would the Kingdom have resorted to using cluster bombs in heavily populated areas, especially when studies have established that such weapons stand a lethal threat to civilians? According to handicap international 27 percent of all recorded cluster bombs victims are children.

Activists in Yemen, among which Hussain Al Bukhaiti, have also accused Riyadh of using chemical agents such as chlorine and white phosphorus in Sa’ada, Haja and even the capital Sana’a.

Following an attack on Saudi soil by the Houthis earlier last week, Saudi coalition spokesman Brig-Gen Ahmed Al Asiri warned Riyadh’s revenge would be swift and radical. And indeed it was – hundreds of thousands of civilians were put in harm’s way, trapped in Sa’ada, under relentless bombing. For 24 hours Saudi Arabia would rain bombs on this one “Zaidi” region of Yemen, unchallenged and unquestioned, cloaked by Western powers’ deafening silence.

But if civilian casualties are often the first victims of war what about cultural genocide? How can any nation ever justify the destruction of historical and religious landmarks? On May 8, Saudi Arabia reduced late Sheikh Hussein Badreddin Al Houthi’s shrine to rubble. A few days after that, another sacred Yemeni monument was destroyed – Al Hadi Mosque, the third mosque to have been built in Yemen over a thousand years ago. If not hate what could justify such actions?

If the world came together to decry ISIS’ rampage against Iraq and Syria heritage, why stay silent over Saudi Arabia’s crimes? Or is it that money white-washes war crimes these days?

On the 70th anniversary of the fall of fascism the US and the EU might want to open their eyes to their allies’ intrinsic nature.

Catherine Shakdam for RT.

Catherine Shakdam is a political analyst and commentator for the Middle East with a special emphasis on Yemen and radical movements.

A consultant with Anderson Consulting and leading analyst for the Beirut Center for Middle East Studies, her writings have appeared in MintPress, Foreign Policy Journal, Open-Democracy, the Guardian, the Middle East Monitor, Middle East Eye and many others.In 2015 her research and analysis on Yemen was used by the UN Security Council in a situation report.

TSIPRAS TO FIRE BANK OF GREECE BOSS FOR ‘UNDERMINING SYRIZA POSITION’

GREECE EXCLUSIVE: TSIPRAS TO FIRE BANK OF GREECE BOSS FOR ‘UNDERMINING SYRIZA POSITION’

the slog

gunptnet

Syriza aims smoking gun at Central Bank Governor

Former Nia Demokrita Finance Minister Yannis Stournaras asked to leave BoG

Sources within Athens media and finance told The Slog last night that Bank of Greece Governor Yannis Stournaras will be quitting his post today (Sunday). Alexis Tsipras will ask for his resignation in the light of documentary proof that the former New Democracy Finance Minister personally gave specific briefs to a top journalist about “putting the most negative spin possible on the news” about Greek finances.

Influential Greeks have long suspected that Troika sympathisers in the banking system were working in close-knit coordination with the creditors to destabilise the Syriza government led by Alexis Tsipras and Yanis Varoufakis. But the smoking gun apparently emerged last week in the shape of briefing documents from the central bank’s Governor to “a leading influential Greek journalist”.

The Slog has posted before about coordinated withdrawals from Athenian banks, and high net worth customers being encouraged to withdraw funds soon after the Syriza election victory. This case, however, is infinitely more insidious because it potentially opens up a trail of deliberate destabilisation and dirty tricks all the way back to Brussels, Berlin….and Washington.

1. YannisStournaris was the Greek Minister of Finance from 5 July 2012 until he moved to the BoG last year. It is unlikely bordering on unthinkable that senior New Democracy colleagues didn’t have any idea this briefing was going on.

2. As a senior consultant to the BoG, he was personally involved in the entry of Greece into the euro. This is now widely known to have involved corruption on a grand scale. So Stournaras has every motive for urgently destabilising the government now investigating all aspects of EMU and Greek debt.

3. Stouranaras is a senior Governor who sits on the Board of the IMF. This gives him a serious conflict of interest….but also ready access to Christine Lagarde should he need it.

4. His media ‘order-taker’ (who is known to the Athenian cognoscenti) regularly passes these briefings on to a number of neoliberal global publications…notably Reuters.

Meanwhile, the forensic investigation into debt overstatement in 2010 and how much Greek debt can be objectively defined as ‘odious’ continues.

Hat-tip to Archie X for giving me the lead on this exclusive.

The Slog would like to thank all senior members of the Eurobnoxious tendency in the British Labour Party for its unstinting support of the Greeks, and virile attacks on the bullying control freaks of Brussels-am-Berlin. It will stand forever as a beacon of apathy among progressives in the UK, and got the reward it so richly deserved in last Thursday’s British General Election.

U.S. Supports Renewed Saudi Airstrikes Because Houthis Are Still Moving

[SEE: Saudi Yemeni Bombing Killed Impending UN Peace Deal]

U.S. blames Houthi battlefield moves for renewed Saudi strikes

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(Reuters) – The United States squarely blamed Houthi fighters on Monday for renewed Saudi-led bombings, accusing them of using a relative lull in airstrikes meant to help set the stage for peace talks to instead pursue battlefield advances.

Saudi-led aircraft pounded Iran-allied Houthi militiamen and rebel army units on Monday, dashing hopes for a pause in fighting to let aid in as relief officials warned of a catastrophic humanitarian crisis.

U.S. Secretary of State John Kerry said he would discuss the conflict with Iran’s foreign minister later on Monday, adding: “I will certainly urge that everybody do their part to try to reduce the violence and allow the negotiations to begin.”

Kerry and other U.S. officials said Houthis had sought more gains since Riyadh’s announcement last week that it was ending its nearly five-week-old bombing campaign, except in places where the Houthis were advancing.

“The Saudi shift … was predicated on the notion that people would freeze in place,” Kerry told a news conference in New York.

“But what happened was the Houthi began to take advantage of the absence of air campaign, moving not only additionally on Aden, but moving in other parts of the country.”

Kerry and other U.S. officials said the Houthis were shifting artillery and forces and targeting certain elements of the Yemen army.

A coalition of Arab countries led by Saudi Arabia, rattled by what they saw as expanding Iranian influence in the Arabian Peninsula, is trying to stop Houthi fighters and loyalists of former President Ali Abdullah Salah taking control of Yemen.

But the air campaign has had little success and vital aid has been reported held up by both sides.

(Reporting by Phil Stewart and Arshad Mohammed; Editing by Cynthia Osterman)

 

Shell Oil Bows-Down Before the Gods of Predatory Capitalism, Then Buys BG

(SEE:  Obama Pushing the World To Embrace American Failure ;  Sermon from the Corporate Church)

ImageOfTheEnemy

Shell’s carpe diem a lesson for all

AFRI COM

Royal Dutch Shell’s $90 billion pitch at step-change growth is expected to trigger a tornado of consolidation across a wide landscape of global petroleum, with the Deepwater Horizon-blighted BP rated the next-most-likely landing point of acquisitive interest.

Indeed, while Shell’s interest in the British-based Mini Me that is BG Group has long been anticipated, there are some surprised by this acutely timed fulfilment, only because it was felt BP might be a more attractive target for the world’s second-biggest oil company.

The word is that Shell certainly took more than a sideways glance at the other British-born super major. But, in the end it plumped for BG, because it introduced more momentum in Shell’s transitional embrace of global gas markets as a core growth engine, would arrive in the original dual-listed giant carrying less uncertainty and reputational risk and was a deal more likely to be consummated reasonable quickly.

But there is some conviction that the mighty ExxonMobil might not feel as constrained by risk and that BP would deliver the world’s biggest listed petroleum house with massive reserve growth, at a serious discount to the cost of finding replacement barrels and with the potential of serious synergies, given the considerable geographic overlap of their resource bases.

The fact that the addition of BP would retain for any foreseeable future Exxon’s place as petroleum’s biggest listed operator might not hurt either. Given Shell is successful with the BG pitch, that title is likely to be a matter of some contention by about 2018, when the new combination’s production will outstrip that of the Exxon we see today.

Needless to say, the existing Exxon is the product of the same sort of targeted and ambitious opportunism that would be required to take on BP. It was at the depths of a slump in oil prices in 1998 that Exxon opened a campaign that ended with it paying $75 billion in paper to merge with Mobil. History says that deal was done at a discount to long-term value and generated far more in synergies than originally anticipated.

Whether Shell will extract more from BG than the $US2.5 billion ($3.25 billion) of annual savings targeted for 2018, time will tell. What is more certain though is that Shell is getting BG at a 50 per cent discount to its five-year average valuation and that more that justifies the similarly sized premium it has offered for ownership.

Well timed

Add to that the fact that Shell is using its own paper to cover 70 per cent of price and what you have is a deal as well timed as it is structured.

Interestingly enough, the man who led BG to this deal was chairman Andrew Gould. We know the former Schlumberger boss better as the lead independent director of Rio Tinto through a period that included the resistance of BHP Billiton’s attempt at mega-major consolidation in 2008.

To some degree, Gould’s readiness to accept a deal at BG highlights the polar opposite tacks being taken by mega petroleum and big mining during these days of cyclical retreat in their respective markets.

The oilmen are seizing their moment to drive tectonic change that delivers geographic diversification, with new reserves being acquired at a discount to their long-term value. Meanwhile the miners, with the notable exception of Glencore’s bellicose Ivan Glasenberg, seem content to live within the security of their known knowns.

Australia’s pair of dual-listed resource houses, for example, have been strident in their rejection of opportunistic, inorganic growth through this period of cyclical weakness across their suite of commodities. Instead both, publicly at least, are sticking resolutely to strategic rhetoric that focuses on driving growth through targeted brownfields expansions, cost management and productivity enhancement.

This focus on the known has been particularly laser-like at the world’s biggest diversified resources business, BHP Billiton. The only concession chief executive Andrew Mackenzie has made to counter-cyclical opportunism is in deep-water petroleum, where he has raised the potential of acquisitions as the most economically attractive way of filling an emerging medium-term production gap.

As we keep noting, Mackenzie’s management thesis stands unique in the resources business, because he expresses so little interest in the reserve replacement that sits central to big oil’s routine of consolidation through period of price retreat.

Eating itself

Despite throwing $35 billion annually at growth, Shell has recently been unable to find new resources at a rate fast enough to cover its production. Reserve replacement has been running at less than 80 per cent and that means Shell is eating itself.

Exxon, on the other hand, is under considerably less pressure to acquire reserves, given it has been replacing them at 101 per cent over the past three years. In other words, it has more reserves now than it did in 2012.

For all that, though, chief executive Rex Tillerson told the market in March that Exxon stood ready for a big transaction. Whether coincidence or not, there was a consensus formed that Tillerson had ambitions for BG and speculation abounds that Exxon might yet invited itself to Shell’s party.

Back at BHP, Mackenzie insists the Global Australian has its foot on all that it needs to sustain a compound production growth of 6 per cent and will, in turn, support the company’s progressive dividend strategy. Instead, the BHP strategy is aimed at maximising returns on every key measure, from operating margins to shareholder returns. Mackenzie insists, too, that being the biggest is not the point and has underlined that point by moving to release a fleet of sub-scale assets to shareholders in the form of South32.

But, given BHP’s pretty fine history of engineering growth through structural transition has enabled it to anticipate long-term shifts in commodities demand, this certainty in the sustainability of the existing BHP asset base sits just that little bit uncomfortably for some.

As one senior mining executive observed on Thursday: “To a degree, Shell is calling an end to the oil era and the transition to the gas era. But while Shell is moving to the future, to gas, the likes of BHP are committed to the past, to steel-related products and thermal coal.”

Now, while this is a pretty high-level view and one that does not account fully for intricacies of either the attributes of the Shell deal or to BHP’s portfolio investment strategy, it does effectively capture the divergence of approach to generating growth.

For a start, of course, Shell is buying a good deal more in BG than expanded exposure to export gas markets, the gas resources that sustains them and the massively expensive LNG chillers that facilitates them.

Oil prosects

BG will arrive with Brazilian oil prosects that are expected to be producing at 550,000 barrels a day by 2018 – equivalent to about 15 per cent of Shell’s current daily oil output – and that remains highly prospective exploration territory. It introduces upside too in the North Sea, Kazakhstan and Tanzania.

But the view that Shell’s BG play is an evolutionary investment holds. This is a deal driven by short-term expediency and long-term strategy and one that illuminates Shell’s view of the potential of gas as the transitional fuel for both advanced and emerging economies as they manufacture a reduction in the carbon intensity of their energy infrastructure.

The phrase “straw hats in winter” is embedded in BHP history. It was uttered in 1984 by BHP’s then chairman Sir James MacNeill to explain why he would countenance spending $US2.4 billion on a coal company during a price slump. That deal delivered two of the four pillars that support Mackenzie’s strategy – coal in the Bowen Basin coal and copper at Escondida.

And Shell’s shape-shifting approach on BG arguably offers a timely reminder that a bit of counter-cyclical carpe diem can go an awfully long way.

Guaranteed Financial Security Is A Fantasy

Guaranteed Financial Security Is A Fantasy

investing

Charles Hugh Smith Charles Hugh Smith

Guarantees based on extracting higher taxes, borrowing trillions of dollars and creating trillions more out of thin air only guarantee eventual systemic implosion.

It is difficult for those living through tectonic social and economic shifts to recognize the passing of one era and the emergence of a new era. We are clearly in such a tectonic shift, yet it is slow enough and uneven enough that those who hope the old era will somehow endure despite the erosion of its foundations can find evidence to support their beliefs.

One such cherished belief is the faith that financial security can be guaranteed. This faith has two components:

1. The faith that risk can be identified and managed to the point it cannot disrupt the payment of promised pensions, benefits, yields, etc.

2. The faith that the system can pay what has been promised by one means or another.

If tax revenues are inadequate, taxes can always be raised. If tax revenues fail to rise, then the money needed to pay the promised pensions, benefits, etc. can be borrowed. If the money cannot be borrowed, then it can simply be created out of thin air by central banks or printed by government treasuries.

Before the advent of high finance, lowering risk could only be achieved by spreading the risk over a large populace. To lower the risk to individuals that their house would burn down in an accidental fire, insurance was sold to 1,000 homes. If one or two of the 1,000 homes burned down each year, the insurance could pay the claims and still build up reserves for future claims.

But if a conflagration burns down all 1,000 homes, the insurance is overwhelmed; the guaranteed coverage is rendered worthless.

The creation of a volunteer (or tax-supported) fire brigade will also lower the risk that an accidental fire could spread. But once again, such a brigade can only mitigate very limited fires; a second fire or a windstorm would exceed the capacity of the brigade to extinguish multiple fires.

The faith in guaranteed security is actually a faith that there will be no consequences from borrowing or printing enormous sums of money, and no possible risk to the system that cannot be anticipated and mitigated with some fancy financial footwork.

Is this faith reality-based? We know that borrowing immense sums of money does have consequences: interest must be paid out of future income, reducing the income that can be consumed or invested, and dependence on borrowed money creates moral hazard: rather than make difficult trade-offs, the borrower just borrows more money.

Creating money out of thin air is also not consequence-free. Fancy financial footwork can mask the consequences of creating money to pay promised pensions, benefits, etc., but eventually the reality that creating money does not create wealth intrudes on the fantasy that if tax revenues are insufficient, and borrowing has limits, then we can guarantee incomes, pensions, benefits, etc. by creating money out of thin air.

Those dependent on the promises made in the previous era will support any policy that “extends and pretends” the illusion that financial security can be guaranteed, regardless of seismic shifts in the natural and financial economies.

The irony of “extend and pretend” is these policies only push the system to extremes that guarantee systemic collapse. The more we avoid facing the intrinsic insecurities generated by tectonic shifts, the more we hasten the sudden implosion of old systems pushed beyond their limits.

Real security arises from the constant volatility, friction and insecurity of experimentation, adaptation and dissent. Guarantees based on extracting higher taxes, borrowing trillions of dollars and creating trillions more out of thin air only guarantee eventual systemic implosion.

Put another way: spreading the risk of a house fire amongst the 1,000 homeowners does not actually lessen the risk of a conflagration burning down the entire town.