Aubrey McClendon and America's fracking boom(theguardian.com)
theguardian.com
Aubrey McClendon and America's fracking boom
https://www.theguardian.com/news/2018/aug/30/how-the-us-fracking-boom-almost-fell-apart
4 comments
The things said in this article about natural gas' reliance on massive amount of cheap capital sound similar to what was being said about banks and commercial paper in 2008.
US natural gas prices are 1/2 what you see in most other nations. Those prices can move up further without causing much consumer harm, to offset an increase in capital costs as necessary.
Cheap capital is going to continue to be normal however. The US Government can't afford far higher Fed rates today, and it certainly won't be able to afford high rates when the national debt hits $30 trillion in seven or eight years (the next recession will produce at least a $1.5t deficit year). You're better off assuming the Japan scenario of perma low rates, and all the consequences that go with that in the US (eg corporations getting drunk on debt, artificially inflated asset prices). Ultimately over time nobody is going to buy a trillion in new treasury paper each year except for the Fed, unless you're offering high rates of return on that (which the US Govt can't afford). So the Fed will have to keep rates lower than it otherwise would to keep the government solvent, and the private economy will continually be doused with cheap capital as a result (likely in rolling cycles; when this one runs out, the Fed will drop its rates back to zip and restart QE, and the cycle will repeat; that will increase inequality due to the top 1/3 asset holders primarily benefiting from the cycles, which will increase populism and voter anger in all its forms).
Cheap capital is going to continue to be normal however. The US Government can't afford far higher Fed rates today, and it certainly won't be able to afford high rates when the national debt hits $30 trillion in seven or eight years (the next recession will produce at least a $1.5t deficit year). You're better off assuming the Japan scenario of perma low rates, and all the consequences that go with that in the US (eg corporations getting drunk on debt, artificially inflated asset prices). Ultimately over time nobody is going to buy a trillion in new treasury paper each year except for the Fed, unless you're offering high rates of return on that (which the US Govt can't afford). So the Fed will have to keep rates lower than it otherwise would to keep the government solvent, and the private economy will continually be doused with cheap capital as a result (likely in rolling cycles; when this one runs out, the Fed will drop its rates back to zip and restart QE, and the cycle will repeat; that will increase inequality due to the top 1/3 asset holders primarily benefiting from the cycles, which will increase populism and voter anger in all its forms).
wouldnt it be true that, basically, every boom bust cycle is "caused" in part by 'traditional' investments having low returns which makes investors look for something with higher returns? which by definition is probably riskier?
the 'cheapness of capital' seems to me to be relative to the times that one lives in, in that the cheapness is only cheap in comparison to what investors believe they can profit from it.
the 'cheapness of capital' seems to me to be relative to the times that one lives in, in that the cheapness is only cheap in comparison to what investors believe they can profit from it.
I suspect that there's a slightly different way of thinking given that most of the folks involved know a lot about operations rather than just trading paper. But it's an interesting parallel nonetheless.