The Glad News Bears

The Glad News Bears are cute and entertaining, but should not be mistaken for financial advisers or life coaches. (Painting by Frederick Stuart Church [Public domain], via Wikimedia Commons)

The Glad News Bears are cute and entertaining, but should not be mistaken for financial advisers or life coaches. (Painting by Frederick Stuart Church [Public domain], via Wikimedia Commons)

This week, the U.S. Energy Information Agency forecast that oil production in the country’s two largest fracking patches — Bakken in North Dakota and Eagle Ford in Texas — will actually decline this month. To those who have been watching the agony of the oil patch with clear eyes, this had all the shock value of a soaked weather forecaster, standing in a downpour, predicting rain. But it had no effect at all on the Glad News Bears, the relentless chanters of “Don’t Worry, Be Happy,” and “Ain’t Gonna Rain No More, No More.”

By Glad News Bears I mean the people who have been successfully spun by the propaganda juggernaut run by the Masters of the Fracking Universe and their financial-engineer accomplices. It is they who invented and sold the idea of a renaissance of the American oil bidness that would lead to energy independence and total world domination (cue the insane laughter). They sold it to the riverboat gamblers who comprise the financial industry these days, who for five years have lavished other peoples’ money in unlimited quantities on anyone who could even pronounce “hydraulic fracturing;” they sold it to the corporate news industry, which as usual demonstrated all the reserve, dignity and critical faculties of a drunken football cheerleader; and, it goes without saying, they sold it to a gullible public, who seems to want nothing more than to watch Dancing With the Stars, undisturbed.

Grace under pressure is one thing, but this is something else. As the conflagration consumes the fracking industry, and spreads to the high-yield bond markets and the subprime lenders, and threatens the entire banking industry and the stock market, the Glad News Bears warble on. For example:

Everything will be fine when the prices go back up. It’s just another temporary bust in a boom-and-bust industry, we’ve seen it all before. The producers will just hunker down, wait until prices come back up, and everything goes back to normal. This ignores the fact that every player in the fracking patch — every single one — is up to its eyeballs in debt. It is now mathematically impossible for most of them to ever repay what they owe, but to keep going they to have to pay the interest, and roll the old debt over into new when it comes due. Wait until prices come back up? If you find that your mortgage payment exceeds your income, you can’t just put everything on hold for a few years until things get better.

Low gas prices are good for the economy because people will have more money to spend. Not only is there no evidence for this, it is an illogical proposition. People have exactly the same amount of money to spend when gas is at $4 as when it is at $2. That they get to spend it on food, or cigarettes or lottery tickets instead of gas may mean a marginal improvement in the urgency of their choices, but it does not mean that their income increases or that the economy as a whole improves. It means mainly that they drive more miles and get bigger cars.

So what if the frackers go out of business? It’s a nasty, polluting industry that we won’t miss, it’s only a tiny fraction of the U.S. economy. Similarly, Glad News Bears wondered back in 2008 who was going to miss the hedge funds and the subprime mortgage hucksters (turns out we never got much of a chance to miss them, they were back in business about a week after the Crash of ‘09). When they flamed out, we didn’t miss them, we missed the pension funds and 401(k)s and portfolios and homes and lives they took down with them. The money at risk right now in the oil patch is estimated to be twice the amount that was at risk in ‘09. It’s not just their end of the boat that’s sinking.

We can handle it. The stock market’s up, job creation is up, unemployment is down, consumer confidence is high. The glass is half full. That glass doesn’t have any water in it at all. Price/earning ratios on publicly traded stock have swelled, balloon-like, to twice what is normal and prudent (almost always happens just before a crash). Along with extreme volatility, today’s unnaturally high valuations are signs of sickness, not health. While we are creating about 250,000 jobs a month (most of them food service), last month 375,000 people left the work force. They gave up. They’re still out there, jobless, but they are no longer part of the statistic. The unemployment rate cooked up by the government has been branded by no less than the Gallup organization as a sham. Consumer confidence is what the television tells it to be.

Like the orchestra playing on the submerging deck of the Titanic, the Glad News Bears singing while the economy goes up in flames might sound nice, but it sure doesn’t make much sense.

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5 Responses to The Glad News Bears

  1. Tom says:

    It doesn’t look good from here, but i’m staying still while the lull (before the crash) holds. There’s no way around the various predicaments regarding all things financial: all the fiat currency, the junk loans, over-extended derivatives, insolvent banks and the underlying nonsense of economics and debt-based money. We’re going to have another crisis – [which i’m sure they’re COUNTING on and have plans to make even more money from it] – it’s just a matter of when, and this year’s as good as any.

    With water becoming the new oil, food production on the skids, and climate change rearing up to give us an interesting summer we should begin to see people heading for the exits by fall.

    Thanks for another essay Mr. Lewis. They’re always topical and well researched.

  2. Tom says:

    Why We’re Drifting Towards World War 3

    Financial Experts: World War Looms … Unless We Stop It


    10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

    [selected opening quote]

    If you go back to 2007, people were feeling really good about things. Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low. But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end. Of course it didn’t come to an end – it was just the first wave of our problems. The waves that come next are going to be the ones that really wipe us out. Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis. Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow. We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

    [just t’rowin’ a coupla more logs on the fahr]

  3. Avery says:

    “Everything will be fine when the prices go back up” — but a model that I reposted to Peak Oil Barrel at the beginning of this year projected that prices will stay low through 2020, before skyrocketing:

    (I incorrectly said in that post that the model predicted the results of the fracking boom; in fact, the author of the thesis emailed me to say that he neglected to include fracking, which actually makes things worse!)

  4. colinc says:

    Who cares? In the context of present circumstances it matters not who burns it or where, the result will be the same.

  5. SomeoneInAsia says:

    When this world is ever ablaze,
    why this laughter, why this jubilation?
    Surrounded by darkness,
    will you not seek the light?
    (Dhammapada, 146)

    This was written more than 2,000 years ago. Quite evidently we haven’t changed much.