Early Warnings: An Oil Debt Crash, a Congress Run by a Wall Street Zombie GOP
Dec. 9, 2014 (EIRNS)—Debt defaults have already begun to hit in the North American shale oil/gas industry, due to the collapsed oil price and the relative great inefficiency of the hydraulic fracturing (fracking) technology. More significantly, credit has quickly frozen up in this sector in the past two months, and the effects are spreading to the so-called "high-yield" bond and loan markets as a whole. Discussions of a coming, supposedly "mini financial crash" have appeared even on the Wall Street polyanna network, CNBC-TV.
Former Reagan budget chief David Stockman, in a long analysis on his "ContraCorner" website Dec. 9, estimated that the now-shaking high-yield debt bubble in energy is $500 billion—$300 billion in leveraged loans and $200 billion in junk bonds. This is the same estimate EIR has made in recent Briefings, of one-quarter of the $2 trillion high-yield market being junk energy debt. In that junk energy debt market, interest rates have suddenly leaped, in the past 45 days, from about 4% higher than "investment grade" bonds, to 10% higher; that is, credit in that sector has disappeared, triggering the start of defaults of the highly leveraged shale companies and their big-oil sponsors.
Bloomberg News reported Dec. 8 that Southern Pacific (Calgary-based) has hired Royal Bank of Canada to advise on quarterly interest payments it can’t make on C$432 million of bonds. Conacher, with C$977 million in debt, hired Bank of Montreal to advise on a similar default.
In the larger, $2 trillion high-yield debt market as a whole, interest rates have also risen sharply, so far by 2-2.5%: i.e., contagion. Whether the debt collapse will be "mini", or maximum, may be determined in the markets for $20 trillion in commodity derivatives exposure.
Is it a coincidence that Republican leaders in Congress are in a strong push, with Wall Street bankers, to pass legislation which allows commodity derivatives, among other types of these financial weapons of mass destruction, to be put under FDIC insurance? In other words, to make the U.S. taxpayer the guarantor for financial derivatives speculation in the many tens of trillions of dollars of "nominal value."
This, on the path to another financial blowout.
This was the reason the negotiations on a resolution to fund the government for the months ahead, suddenly broke down on Monday night. House Republicans led by Jeb Hensarling (TX) and Mike Rogers (MI) had pushed Senate Democratic negotiators into agreeing to attach this Wall Street crime to the government funding bill, when a public revolt was begun by Senate Banking Committee Democrats Jeff Merkeley (OR), Sherrod Brown (OH), and Elizabeth Warren (MA), along with retiring Senators Tom Harkin (IA) and Carl Levin (MI), and spread to Democrats in the House.
The GOP is not relenting. The insane Republicans around House Leader John Boehner have given notice for the next Congress, that if Wall Street’s survival means non-survival of the American people and nation, the GOP will be the party of undead marching out from the Stock Exchange to carry out the slaughter.
Of note: Well over half the 535 members of Congress are now millionaires. (For now.)