Do Mexico’s Cartels Have WMDs?

Authored by William Craddick via Disobedient Media,

Business has never been better for Mexico’s criminal syndicates…

Organized crime in Mexico and Central America has long played a dominant role in destabilizing the region while contributing to a host of social issues within the United States where one of their largest groups of clientele is located. But more recent events show that the cartels are gaining a previously unheard of boldness, potentially achieving the ability to create WMDs and expanding their control of Mexico’s economy and government while violence escalates within the country.

The threat of cartel-handled nuclear or biological weapons in particular is a grave threat to not only the Mexican government, but also the United States. With a migrant crisis due to looming unrest in South America becoming likely, possession of such weapons will give organized criminal groups a powerful bargaining chip.

I. Increasing Aggression And Acquisition Of Nuclear Materials

Heavy competition between various cartels has contributed to a murder rate that hit an all time high in 2017. Spikes in violence are due to a number of factors, such as removal of certain leadership figures like Joaquín “El Chapo” Guzmán and a spike in migration and unrest due to a growing “Latin Spring” in parts of Central and South America. The expected surge of refugees from countries such as Venezuela means that criminal groups are likely posturing themselves to control the routes that those fleeing conflict will take as they attempt to enter the United States.

Cartels have also been involved with a number of daring robberies where radioactive materials were stolen. In February and July 2018, Mexican authorities reported thefts of radioactive materials and placed multiple states on alert. These reports were followed by revelations on July 16, 2018 from the Center for Public Integrity that an unknown amount of Plutonium-239 and Cesium-137 had been stolen out of the vehicle of two US Department of Energy employees in Texas the previous year. The materials have not yet been recovered and neither the San Antonio police or the FBI disclosed the incident to the public. It takes only 7 pounds of plutonium to build a functioning nuclear warhead, and much less to combine with conventional explosives for the purpose of creating a dirty bomb. Moving these materials across the southern US border is not prohibitively difficult due to the number of federal employees who are controlled by cartel groups and would be unable to easily tell the difference between drugs and WMDs being moved cross-border.

The danger of WMDs in the hands of Mexican criminal enterprises is twofold. Primarily because they give these organizations serious leverage over the government in Mexico and the United States, but also because the cartels’ international contacts mean that these materials can be distributed worldwide to a variety of groups.

II. International Reach

International connections offer the cartels the opportunity not only to distribute nuclear and biological agents to other groups, but also to acquire more of these materials. International terror networks such as Al Qaeda and ISIS have long had ties to Central and Southern cartel groups through their involvement with the human and drug trafficking trades making the transport of weapons, operatives and materials across the Atlantic an easy process.

Reports claiming that weapons used in the 2015 Paris terror attacks were traced to one of the illegal weapons sales that occurred during Operation Fast and Furious further show the ability of Mexican transnational criminal groups to move not just drugs, but other products across the globe. Al Qaeda operatives have for years bragged that they are able to acquire the services of scientists, chemists and nuclear physicists. With international trade between organized criminals and terror groups becoming so fluid, the idea that the cartels would be able to employ individuals with these specialist skills are hardly far fetched. Claims have also emerged in October 2017 that far left groups from the US and Europe were meeting with members of ISIS and Al Qaeda with the intent of gaining bomb-making know-how in addition to materials needed for chemical and gas weapons. This indicates the alarming likelihood that trafficking groups could be helping to distribute nuclear, biological or chemical materials to Islamist and leftist groups abroad in areas such as the European Union and United States.

Another potential source of nuclear materials is through Russian organized crime networks who are known to deal with both the cartels and Islamic terror groups. Starting first with the Colombian traffickers before establishing economic relationships with their Mexican counterparts, this trade created a new market for cocaine and heroin coming from Central and South America while in return providing a fresh source of weapons and other munitions. This relationship would also allow cartels the opportunity to acquire nuclear material from Russian connected smuggling groups, who are known to have been seeking out ISIS representatives with the intention of selling them WMDs.

The cartels have also established ties with Asian organized crime groups who act as foreign policy agents for the government of China. In 2014, the South China Morning Post reported that Hong Kong based triads 14K and Sun Yee On were engaging with the Sinaloa cartel to provide them with precursor materials needed to produce methamphetamine. In return, Mexican syndicates have been utilizing Hong Kong banks and shell companies to launder money earned from sales of illicit goods. Human smuggling of Chinese nationals into the United States has boomed due to what law enforcement officials say is an “alliance between Chinese and Latin American smuggling rings.”

Disobedient Media reported in 2017 that the 14K triad was working with local affiliates on the American West Coast to push out pro-Taiwanese criminal interests and consolidate control. A 1997 expose by The New Republic showed that the 14K triad operates as a foreign policy proxy for elements of the Chinese Communist Party.

III. Close Ties To Current Mexican Government

Despite the fact that Mexico’s incoming President, Andrés Manuel López Obrador (AMLO), is seen as a populist and fresh change from Mexico’s elite class his party has known ties to criminal organizations. AMLO has directly advocated a number of policies that will drastically improve rather than hamper the position of the cartels. Obrador’s Party of the Democratic Revolution (PRD) has been described as a “trojan horse” by observers for many years. In 2011 leaked audio recordings revealed that PRD candidate for governor of Michoacan Silvano Aureoles had received $2 million from the Knights Templar cartel. In November 2014, the former mayor of Iguala, Mexico, José Luis Abarca, was arrested and subsequently charged in connection to the kidnapping and murder of 43 Mexican students by the Beltrán Leyva cartel.  Abarca, who ordered municipal police to hand the students over to cartel members, was also a PRD member.

AMLO has caused outrage during his campaign by floating the idea of offering amnesty for drug trafficking leadership. He is a member of the Foro de Sâo Paulo, whose members includes states such as Venezuela where the government engages in direct collaboration with trafficking groups like the First Capital Command (Primeiro Comando da Capital or PCC). Economic reforms touted by Obrador also have the convenient effect of assisting cartel business interests. On August 28, 2018, Reuters reported that a document drafted by advisors to Obrador outlined a plan to close off Mexico’s oil and gas reserves to international companies indefinitely. Mexican oil companies such as Pemex report losing over a billion dollars a year to cartel interests, meaning that government attempts to hedge foreign groups out of the oil industry will result in greater control by organized crime over these important business interests.

A government that is firmly in the pocket of criminals alone would give Mexican trafficking syndicates the leverage they need to remain the supplier of 90 to 94% of all heroin consumed in the United States. With weapons of mass destruction in their possession, they could not only dominate Mexico but threaten the United States as well, particularly as relations between the two states have come increasingly to loggerheads over President Donald Trump’s policies concerning immigration, illegal trafficking and border security. Taking adequate measures to degrade the capabilities of the cartels is essential to improve Mexico’s anti-crime operations and ensure US national security.

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Rand Paul Rages At Cory Booker’s Rhetoric, Warns “Someone Is Going To Be Killed”

I fear that there’s going to be an assassination…

I really worry that someone is going to be killed and that those who are ratcheting up the conversation, those who are saying ‘get in their face’ – they have to realize that they bear some responsibility if this elevates to violence.”

Those were the ominous words that Senator Rand Paul spoke during an interview with a Kentucky radio station after a few tense weeks around the Capitol because of the Supreme Court fight.

Specifically taking aim at the rhetoric employed by Sen. Cory Booker, who last July told activists to “get up in the face of some congresspeople,” Paul referenced both his own assault at the hands of a neighbor as well as last year’s baseball field shooting in which Rep. Steve Scalise was wounded to show that “unstable” people can easily take things too far

“These are people that are unstable,” Paul said.

“We don’t want to encourage them. We have to somehow ratchet it down and say we’re not encouraging them that violence is ever OK or ever a reason or a means to try to resolve things.

Listen below (Senator Paul’s comments start at around the 9:40 mark)

“I think what people need to realize is when people like Cory Booker say ‘get up in their face’ — he may think that that’s OK, but what he doesn’t realize is that for about every 1,000 people who might want to get up in your face, one of them is going to be unstable enough to commit violence,” said Paul.

Additionally, as The Daily Caller’s Scott Morefield notes, The Kentucky senator also pointed out the “double standard” when it comes to left and right wing violence.

“If it’s an accusation with no substantiation it’s utterly to be believed,” he said, referencing the allegations against Judge Kavanaugh.

In my case it wasn’t an accusation. I actually was assaulted …and yet the media discounted that completely because they don’t like my politics. So this just shows it’s just about politics. It really isn’t about concern or people wanting to lessen violence.”

As a reminder, The Hill points out  that Paul’s wife, Kelley Paul, wrote an op-ed to Booker in which she appeared to blame him for the threats and protests her husband has faced this past week. Booker’s office argued, in a separate op-ed, that his remarks are being taken out of context and that he “has nothing but respect and admiration” for Paul and his family.

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Cops Stop Teen for Suspected ‘Truancy,’ End Up Pepper-Spraying Him

Virginia police are investigating the conduct of two officers after a 16-year-old boy was pepper-sprayed and arrested this week. While police claim the officers thought he might be skipping school, the teen’s family and a witness who saw the entire encounter say he did nothing wrong.

The Norfolk Police Department said in a statement that two officers saw the teen “walking in the roadway” at about 12:50 p.m. on Monday. “The officers stopped the 16-year-old under the suspicion of truancy, not being in school during school hours,” the statement said, adding that at some point, “one of the officers utilized” pepper spray. The incident is now under investigation, while the “officers involved,” who the department has not identified, “remain on duty.”

Michael Muhammad, a non-attorney spokesperson for the boy’s family, detailed what happened from the perspective of “Tariq,” whose last name was not provided.

Having received permission from both his mother and Granby High School, Tariq went home early on Monday, Muhammad tells Reason. Tariq travelled part of the way on public transit, then got off and started walking, at which point a “police car pulled up beside him,” Muhammad says. The officers said something to him, but Tariq ignored them. “Young Tariq did not feel as if he had to respond and so he didn’t within his constitutional rights,” Muhammad adds, explaining that this “is the posture that he developed from interactions with the police in his community.”

Tariq kept walking. Then, “one of the officers got out of the car and put his hands on him,” Muhammad says. But Tariq still wasn’t interested in engaging. “I don’t have to talk to you all,” he told the cop, according to Muhammad. The other officer got out of the car and “maced him,” Muhammad says.

Larry Ricks, a market analyst who works in the area, told The Virginian-Pilot he witnessed the whole incident. “[Tariq] did absolutely nothing wrong,” Ricks said.

Several videos posted to social media show what happened after Tariq was pepper-sprayed. In one video, the officers, both of whom are white, try to untangle Tariq’s backpack as his hands are behind his back. “All I seen was a young man walking across the street looking like he was coming from school,” a woman says in the video. “What did he do for them to do all this to him?”

In another video, the officers are holding Tariq up against the police car as they search him. Tariq tells the officers that they’re “pulling me to the ground.” He asks: “How am I supposed to stand up straight if you got pressure on me?”

As Tariq was being arrested, Ricks spoke with one of the officers in an effort to figure out what the teen had done wrong. The Pilot reports:

[The officer] offered different explanations for stopping the teen. At first, he told Ricks they just wanted to talk with him, but he “gave us attitude.” Later, he mentioned a string of break-ins in the area.

At one point, the officer pulled a pencil out of Tariq’s pocket. “See, he could’ve stabbed me in the face with this pencil,” Ricks recalled the officer saying.

The officer also discovered an ankle monitor on Tariq’s leg. “You think he might be in trouble before?” he told Ricks.

Paramedics soon arrived on the scene, and Tariq was eventually taken home to his mother. “They didn’t charge him, they didn’t take him to juvenile [detention],” Muhammad says. Still, one of the officers allegedly told Tariq’s mother: “Be thankful that it wasn’t worse” and “don’t make excuses for your child’s behavior.”

The mother plans to file a complaint with internal affairs. And the family has retained legal counsel due to what Muhammad referred to as the “threatening” statement from police. In the statement, police said “charges for [the] teen will be determined at the conclusion of the internal investigation.”

That doesn’t sound like the correct procedure, Muhammad says. “Generally, if he were to be charged with anything, it would be a misdemeanor for that type of interaction, and that would be determined by the field investigating officer or the arresting officer. It wouldn’t be done via an internal panel,” he explains. “We saw the need to secure legal counsel for the young man so as to not have him arrested unsuspectingly or to be charged with a crime when in fact he was observing his constitutional rights and able to move about freely as a citizen.”

Muhammad thinks Tariq’s experience represents a larger problem in the area.

Chief Larry Boone, he says, “is touting” Norfolk as a good example of “community policing.” But “in truth, there is no real penetration in the relationship between police and citizens,” Muhammad says, particularly between cops and African Americans. “As citizens, we should have the same rights, privileges and responsibilities as any other citizen. But apparently we don’t have that.”

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United Nations: A $240 Per Gallon Gas Tax Is Needed To Fight Climate Change

Authored by Mac Slavo via SHTFplan.com,

The United Nations has declared that a $240 per gallon gasoline tax is “needed” to fight climate change. To limit global warming, the UN’s report says that $27,000 per tonne of gasoline will need to be stolen from the public by the year 2100.

For Americans, that’s the same as a $240 per gallon tax on gasoline in the year 2100, should such a recommendation be adopted. In 2030, which is only 12 years away, the report says that the carbon tax would need to be as high as $5,500, and the equivalent to a $49 per gallon gas tax, reported The Daily Caller. 

The constant fear mongering of, and theft from, the public in the name of climate change has not dwindled much in the past ten years, and if anything, it has gotten worse. No amount of money will ever be enough to satisfy the ruling class elitists that expect us to just accept that they will continue to steal from us in the name of any agenda they try to scare us about. This is no longer about climate change, but about the desire to steal from those on the very bottom of the economic ladder by those who believe themselves to be superior with authority over everyone.

Hopefully, this is an unlikely scenario, but with more and more humans demanding their own slavery at the hands of other humans, who knows.  This huge tax is, however, what the Intergovernmental Panel on Climate Change’s reportreleased Sunday night,sees as a policy option (normal people see it as egregious theft) in the name of reducing emissions enough to keep projected global warming below 1.5 degrees Celsius, according to The Daily Caller. 

The IPCC’s report is meant to solidify political support for the Paris climate accord ahead of a U.N. climate summit scheduled for December. The report calls for societal changes that are “unprecedented in terms of scale” in order to limit future global warming to below 1.5 degrees Celsius, the stretch goal of the Paris accord.

But, according to their own report, there is very little evidence that global warming has caused many types of extreme weather events to increase.  “The IPCC once again reports that there is little basis for claiming that drought, floods, hurricanes, tornadoes have increased, much less increased due to” greenhouse gases, University of Colorado professor Roger Pielke, Jr. tweeted Sunday night pointing out this “inconvenient truth.” 

For example, the IPCC’s report noted that “there is only low confidence regarding changes in global tropical cyclone numbers under global warming over the last four decades.”

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Amazon Announces More Wage Hikes After Bonus Cut Fiasco

On a day when Amazon logged a gut-wrenching 6.5% drop, one of its sharpest declines in recent memory (amid a crushing rout for the FAANG stocks in general)…

AMZN

… the company quietly announced that as a result from the blowback for its recent hypocritical PR fiasco generous “wage hike” for warehouse workers which prompted a furious response from veteran employees who feared their compensation would actually decline because the company also eliminated bonuses and stock awards, Amazon would sweeten the pay for some of its longtime warehouse workers with further wage increases.

As a reminder, one week ago, Amazon announced it would eliminate worker benefits, replacing larger hourly wage increases with new cash bonuses tied to employment milestones and productivity when it unveiled its plan to raise wages to $15 an hour earlier this month.

Amzn

But some workers quickly did the math and realized their all-in comp would decline as a result of the “pay hikes” as they would lose out on exposure to Amazon shares, which have been an extremely lucrative investment in recent years. In response, the company said it would add to its planned raises.

Amazon said any workers already earning $15 would get raises of $1 per hour. Now some of those employees have learned their hourly raises will actually be $1.25 an hour, Bloomberg reported. Additionally, Amazon is (re)introducing a new cash bonus of $1,500 to $3,000 for tenure milestones at five, 10, 15 and 20 years. Slaves workers with good attendance in the month of December will also get a $100 Christmas bonus.

Even so, workers still suspect they could lose money, according to an employee who asked not to be identified.

The previous cash bonuses based on attendance and productivity could total more than $2,000 a year, which made a $1-an-hour raise a wash, according to another person familiar with the pay policies. The loss of stock that was awarded annually in exchange for bonuses every five years could still leave some employees with less overall money, one of the people said.

Other workers were unable to calculate what these changes to their compensation packages would mean: there was general confusion among Amazon’s employees regarding the pay changes, which are still being worked out to make sure everyone’s compensation increases. Workers will get more details on the pay changes before they take effect Nov. 1, said a Bloomberg source.

Jeff Bezos eating an iguana.

Amazon said the decision to remove stock awards from compensation packages would make pay “more immediate and predictable.”

“Some employees have benefited from a bull market and the unusually strong appreciation of Amazon’s stock price in recent years. This is a good outcome for those employees, but such stock price appreciation is by no means guaranteed to continue,” the Seattle-based company said. “For employees who want to invest in stock for the possibility of future growth, we will be rolling out a direct stock purchase plan in 2019. We are continuing to roll out the details of all these changes to employees this week.”

Amazon’s promises to make things right aside, workers are probably right to complain about the lost stock grants. After all, Amazon shares have dramatically outperformed the market, rising six-fold over the past five years. Even if higher wages do provide more of a benefit in the short term, over time, the cancellation of stock awards will likely contribute to worsening economic inequality as fewer middle- and working-class individuals own stocks.

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Child Separation Policy at Border Led to Procedural, Personal Chaos, Says Inspector General Report

The practice of separating children from their parents during border-crossing arrests left border officials “not fully prepared to implement the Administration’s Zero Tolerance Policy or to deal with some of its after-effects,” according to a recent report from the Department of Homeland Security’s Inspector General (IG). “The Zero Tolerance Policy…fundamentally changed DHS’ approach to immigration enforcement,” the IG concluded.

“Detaining unaccompanied alien children for extended periods resulted in some CBP [Customs and Border Patrol] employees being less able to focus on their primary mission,” the IG report says. “Instead of patrolling and securing the border, officers had to supervise and take care of children.”

As the Washington Post reported on the study, federal authorities had a hard time following their own rules for this heinous practice, with “at least 860 migrant children…left in Border Patrol holding cells longer than the 72-hour limit mandated by U.S. courts, with one minor confined for 12 days and another for 25.” The chain-link holding pens for kids in southern Texas lacked beds or showers.

The IG report, sums up the Post,

“describe[s] a poorly coordinated interagency process that left distraught parents with little or no knowledge of their children’s whereabouts…..U.S. officials were forced to share minors’ files on Microsoft Word documents sent as email attachments because the government’s internal systems couldn’t communicate…Based on observations conducted by DHS inspectors at multiple facilities along the border in late June, agents separated children too young to talk from their parents in a way that courted disaster, the report says.”

The IG report also reveals that a DHS announcement in June, after the child separation practice was halted, about an alleged “central database” regarding the location of separated children turned out to be untrue.

In a Senate hearing Wednesday before the Homeland Security and Government Affairs Committee, DHS Secretary Kirstjen Nielsen was asked about the IG report and admitted, “[W]e do not have detention facilities at DHS for 10,000 children who were sent here unaccompanied.” She blamed this not on government policy, but on the fact that “their parents chose to do that.” The Committee believes as of last week that 104 separated children who should have been returned this summer based on court order are still not reunited with their parents.

Sen. James Lackford (R–Okla.) praised Nielsen at today’s hearing, saying her agency is “putting a positive face forward for America to be able to help provide care for kids who are in a vulnerable moment. I appreciate that.”

The child-detention policy the IG report focused on continues to effect lives of would-be immigrants and the practice of border security. The Post reports this week that Immigration and Customs Enforcement (ICE), facing an overload of arrests on the Arizona border, “can no longer conduct basic reviews of migrants’ case files and travel plans without running the risk of exceeding court-imposed limits on how long children can be held in immigration jails.” The agency has thus taken to “dropping off busloads of families at church shelters and charities, some with ankle monitoring bracelets….”

The ICE spokeswoman blamed circumstances other than the agency’s mission, which is largely to violently halt the free movement of people: “After decades of inaction by Congress, the government remains severely constrained in its ability to detain and promptly remove families that have no legal basis to remain in the United States,” the ICE statement said. Most of the current influx in Arizona is thought to be from Guatemala in what an unnamed ICE official called “a well-orchestrated smuggling venture” (of the sort that’s only necessary because would-be migrants can’t legally come in via, say, a bus ticket).

As of last month, The New York Times reported that “[p]opulation levels at federally contracted shelters for migrant children ha[d] quietly shot up more than fivefold since last summer…reaching a total of 12,800 this month. There were 2,400 such children in custody in May 2017.”

And what might the eventual fate of children thus separated from their parents by U.S. border law enforcement be? As the Associated Press reported this week, in some cases it can result in the children being permanently kept from their parents via adoption to American families:

More than 300 parents were deported to Central America without their children this summer, many of whom allege they were coerced into signing paperwork they didn’t understand, affecting their rights to reunify with their children. Some parents also contended that U.S. officials told them their children would be given up for adoption.

“And the reality is that for every parent who is not located, there will be a permanent orphaned child, and that is 100 percent the responsibility of the administration,” U.S. District Judge Dana Sabraw said in August while overseeing a lawsuit to stop family separations.

The AP asked the State Department, as well as embassy officials in El Salvador, Guatemala and Honduras, whether they were working with deported parents to find their children in the U.S.

The State Department deferred to the Department of Homeland Security, which said in a statement: “DHS is not aware of anyone contacting embassy or consulate in a foreign country to be reunified with a child. This is unsurprising given the fact that these parents made a knowing decision to leave their child in a foreign country.”

This is not just a mess, but a travesty.

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Carnage Continues After-Hours – Dow Down 1000 Pts, Nasdaq Collapses 5%

After the ugliest day in years, things got uglier after-hours…

Dow futures are now down 1000 points…

The S&P is testing a critical trendline…

And Nasdaq futures down 5%!!

This is the worst day for Nasdaq Futures since 2011…

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WTI Slumps To 2-Week Lows After Biggest Crude Build In 20 Months

After holding around $75 yesterday amid storm news as Hurricane Michael shut more offshore oil platforms and the International Energy Agency warned that the global market is entering a “red zone,” today saw risk-off sentiment slam it lower, back below $73 ahead of tonight’s API data.

Globally, supplies from Iran and Venezuela have been shrinking, creating a “risky situation” for the world economy, said IEA Executive Director Fatih Birol.

Gulf operators shut 718.9k b/d of oil production (around 42%), 89 platforms evacuated amid Hurricane Michael, BSEE says in notice.

“Yesterday there was some concern about more extensive losses of production due to Hurricane Michael,” said John Kilduff, partner at Again Capital LLC. “Now that the oil infrastructure is in the clear, this weeks EIA report will help ease concerns once we see a build printed.

API

  • Crude +9.75mm (+2.5mm exp) – biggest build since Feb 2017

  • Cushing (+800k exp)

  • Gasoline

  • Distillates

Storm-related impact should not be present in this data but after last week’s huge crude build we saw another massive crude build…

 

Bloomberg notes that sanctions on Iranian oil exports are hitting much harder than most people predicted as the Trump administration takes a tough line on enforcement, said executives from the world’s largest energy traders. However, Saudi Aramco will supply about 4 million barrels of additional crude to Indian customers for November, according to a person familiar with the matter. That’s on top of their monthly contractual supplies from Aramco.

“The market is just struggling with the expectation of the reduction in Iranian exports combined with physical evidence in the U.S. that inventories are rising,” said Kyle Cooper, a consultant at Ion Energy Group LLC.

WTI hovered below $73 ahead of tonight’s API data and kneejerked lower as the data hit…

Western Canada Select’s discount to West Texas Intermediate crude widened to $50 a barrel on Tuesday, the widest on record…

The plunge in Canadian crude prices may dent exploration budgets and shrink the nation’s rig fleet, according to the chief executive officer of a major drilling contractor. The discount on Canadian crude will hammer cash flow, Precision Drilling Corp. CEO Kevin Neveu said at an event in Calgary.

With Canada’s debt and equity markets “almost closed” to energy producers, cash is the sole source of funding for drilling, he said.

“If cash flows get crimped back on a quarterly basis or a daily basis by the widening differential, they would adjust their rig counts sometimes even weekly,” Neveu said.

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The Global Doom Distortions, Part 2: The Fatal Flaws Of Reserve Currencies

Authored by Charles Hugh Smith via OfTwoMinds blog,

Read, The Global Doom Distortions, Part 1: Hyper-Indebted Zombie Corporations, here…

The way forward is to replace the entire system of reserve currencies with a transparent free-for-all of all kinds of currencies.

Over the years, I’ve endeavored to illuminate the arcane dynamics of global currencies by discussing Triffin’s Paradox, which explains the conflicting dual roles of national currencies that also act as global reserve currencies, i.e. currencies that other nations use for global payments, loans and foreign exchange reserves.

The four currencies that are considered global are the US dollar (USD), the euro, the Japanese yen and China’s RMB (yuan). The percentage of use in each of the three categories of demand for the reserve currencies–payments, loans and foreign exchange reserves–are displayed below.

Many observers don’t seem to grasp that demand for reserve currencies extend beyond payments. Many of those heralding the demise of the USD as a reserve currency note the rise of alternative payment platforms as evidence of the USD’s impending collapse.

But it’s not so simple. Currencies are also in demand because loans were denominated in that currency, so interest and principal payments must also be paid in that currency. There is also demand for the currency to be held as foreign exchange reserves–the equivalent of cash to settle trade imbalances and back the domestic currency.

Notice the minor role played by the yen and yuan, despite the size of the economies of Japan and China. There’s a reason for this that’s at the core of Triffin’s Paradox: any nation seeking to issue a reserve currency must export its currency in size by running large, permanent trade deficits (or an equivalent mechanism for exporting currency in size).

The reason why the yen and yuan are minor players is neither nation runs much of a trade deficit, and neither exports its currency in size via loans or other currency emittance mechanisms.

Triffin’s Paradox is the tension between a currency’s domestic role and its global role. The nation’s issuing central bank prioritizes domestic concerns–bolstering employment, tamping down (or generating) inflation, supporting the private banking system, etc.–but the rate of interest, etc. set by the issuing central bank has enormous impacts on nations using the currency for payments, loans and reserves.

No currency can serve two masters at the same time. If the issuing central bank raises interest rates for domestic reasons, the increase in rates may be ruinous to offshore borrowers who must convert weakening home currencies into the strengthening reserve currency to make interest payments.

Higher yields strengthen reserve currencies and weaken emerging market currencies. This increases the costs of servicing loans denominated in reserve currencies.

The question for any wannabe reserve currency is: how do you export enough currency into the global system to support the demand for payments, loans and reserves? If the issuing nation runs a trade surplus or modest deficit, trade doesn’t export enough currency into the global financial system to meet the demands placed on a reserve currency.

The alternative mechanism is debt. If the issuing central bank issues lines of credit to banks, then institutions can make loans denominated in the reserve currency to offshore borrowers.

The EU banks have issued loans in euros, and the fatal consequence of this is now becoming clear. Emerging market borrowers will be forced to default as their currencies weaken against the euro and the USD, driving the costs of servicing their debt denominated in euros and USD higher.

Loans denominated in USD and euros will bring the periphery crisis home to the core’s banking sectors as these loans default. It was all fun and games when the USD was weakening thanks to the Fed’a ZIRP (zero interest rate policy), because it became progressively cheaper to service loans in USD as USD weakened and emerging market currencies strengthened.

Now that dynamic has reversed: every click higher in U.S. yields vis a vis other currencies will only push the USD higher.

The system of reserve currencies is dysfunctional for everyone, creating and incentivizing fatal imbalances in trade, yields and debt. Some look to a basket of currencies (SDRs) as the solution, but all this does is tighten the coherence of a system that’s already dangerously hyper-coherent, i.e. highly susceptible to contagion.

There is no perfect reserve currency. Even gold has its limitations. As a result, the best available solution is a world of multiple currencies, some of which are not borrowed into existence, i.e. gold and bitcoin. Given a transparent range of options, nations, borrowers and lenders could choose whatever mix of currencies best suited them.

Some years ago I proposed using bitcoin as a reserve currency: Could Bitcoin (or equivalent) Become a Global Reserve Currency? (November 7, 2013)

The way forward isn’t to replace the USD with another dysfunctional reserve currency– the way forward is to replace the entire system of reserve currencies with a transparent free-for-all of all kinds of currencies.

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President Trump Briefed On Market Sell Off

What a difference a week makes.

It was just on October 3 that Trump, gloating in the warm glow of a new all time high in the S&P tweeted that “The Stock Market just reached an All-Time High during my Administration for the 102nd Time, a presidential record, by far, for less than two years. So much potential as Trade and Military Deals are completed.”

Fast forward just 1 week when things are decidedly less glowing, and on a day in which the VIX exploded, the Nasdaq tumbled 4%, the S&P slumped below all key support levels, and the Dow plunged more than 800 points, its worst day since February in a Black Wednesday for tech stocks, there is far less cause for celebration.

In fact, according to CNBC’s Eamon Javers, Trump was briefed on the market sell off this afternoon. And while Trump will most likely not tweet any celebratory message today, a senior White House official give Javers the following comment: “This is a bull market correction. It’s probably healthy. This will pass and the US economy remains strong.”

So who was behind the selloff: deleveraging risk parity funds? Selling CTAs? A wholesale derisking into a higher interest rate environment. Or… could it be China, with its $1.5 trillion in reserves sending Trump a clear message what could happen if Trump continues to unleash hell in Beijing’s general direction?

While it is unlikely that the culprit will be revealed, there is nothing that would prevent Trump from pushing the former narrative and blaming Beijing for today’s rout.

That said, there is one more person who should be rather nervous after the plunge: recall that exactly 24 hours ago Trump said that he doesn’t “like what the Fed is doing.” What better justification could Trump have to “push” Powell than to accuse him of the second worst selloff of 2018?

Indeed, as one notable fintwit member said, a little more downside in the S&P, “and Powell can start putting his coffee cups and pencils in a cardboard box.”

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