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Generational Dynamics Web Log for 15-Dec-2014
15-Dec-14 World View -- Lynchings of 43 students revive the Mexican Revolution fault lines

Web Log - December, 2014

15-Dec-14 World View -- Lynchings of 43 students revive the Mexican Revolution fault lines

Oil production to increase despite, or because of, crashing prices

This morning's key headlines from GenerationalDynamics.com

Lynchings of 43 students revive the Mexican Revolution
Oil production to increase despite, or because of, crashing prices

Lynchings of 43 students revive the Mexican Revolution

Wanted poster for Pancho Villa - March 9, 1916. He was wanted in Columbus, New Mexico, for killing American citizens in Mexico

Wanted poster for Pancho Villa - March 9, 1916. He was wanted in Columbus, New Mexico, for killing American citizens in Mexico

On September 26, a group of 43 students in a rural teachers' college in Ayotzinapa, Guerrero, in southern Mexico all disappeared, while traveling to the town of Iguala for an anti-government demonstration. At first it was believed that criminals from drug cartels had abducted and killed the students. But later it turned out that José Luis Abarca, the former mayor of Iguala, working hand in hand with the police and the drug traffickers, ordered the lynchings. The 43 students were believed to be burned and dumped, though only the remains of one have been found. Abarca was later arrested by federal officers and charged with murder.

These atrocities led to violent mass protests in Mexico City last month. They are inflaming the fault lines of the Mexican Revolution of the 1910s. Mexico's last crisis war was the Mexican Revolution, running from 1910-1922, so Mexico is deep into a generational Crisis era, and overdue for a new crisis war, from the point of view of Generational Dynamics.

Mexico is like other Latin American countries in that the major fault lines are between the indigenous peoples ("Amerindians") and the indigenous descendants of French and Spanish invaders. The indigenous peoples in Mexico are the Mayans in the south and the Aztecs and Comancheros in the north. The French and Spanish descendants generally live in the center, around Mexico City. During the Mexican Revolution of the 1910s, Pancho Villa (from the north) was the leader, along with Emiliano Zapata, of the indigenous rebel insurgency groups in the south.

Ayotzinapa is in a region populated mostly by indigenous Mayan descendants. The students were called "normalistas" because they went to a "normal" college, one of those that were set up in the 1920s, following the Mexican Revolution, to help the poor indigenous people.

José Luis Abarca was born nearby in Arcelia, Guerrero. He started out poor but got into the gold business and, as a member of the Democratic Revolution Party (PRD), became mayor of Iguala in June 2012, despite having no political experience. He and his wife María de los Ángeles had ruled as "the Imperial Couple." Three of María's brothers were drug traffickers, but had been killed or captured.

The atrocities and massive corruption are pushing all the buttons of the indigenous activists. From the point of view of Generational Dynamics, Mexico is headed for a new war, refighting the Mexican Revolution of the 1910s along the fault line separating the people of European ancestry versus the indigenous peoples. This war may spread into southwestern United States, as there are Aztec descendants in the Aztlán movement who claim that the southwest really belongs to them, and was their ancestral homeland. Reuters and Vice News and Yucatan Times

Oil production to increase despite, or because of, crashing prices

Oil prices have been plunging due to increased supply from US shale production (fracking), and due to falling demand caused by a slowing world economy. The oil importing countries (Indonesia, India, Taiwan, South Korea, Japan) are benefiting enormously from the plunge in oil prices, while it's a disaster for several oil exporting countries -- Venezuela, Russia, Iran, Iraq, Nigeria. Saudi Arabia has announced it will try to increase oil production, presumably in the hope of putting the US fracking industry out of business.

An analysis by the US Energy Information Administration (EIA) that may shed some light on what's going on. Even though the price of oil is plummeting, US fracking production is going to continue increasing, though perhaps slightly less rapidly than has been previously predicted.

Oil production in 2014. WTI is West Texas Intermediate (EIA)

Oil production in 2014. WTI is West Texas Intermediate (EIA)

The graph on the left shows that drilling permits have been holding steady, while the number of rigs has fallen slightly. The graph on the right shows that oil production continues to increase, despite the fall in oil prices.

The existing wells are backed by hedge funds and junk bonds that are now in distress because of the fall in prices. As a result, production in the existing wells will actually be increased as much as physically possible, to generate revenue at low oil prices to meet margin calls for these junk bonds.

It occurs to me that the Saudis may be in a similar situation. They may also have shaky investments backing up their oil wells, and so they too would have to keep production as high as possible to make their own margin calls.

This is a good illustration of how deflation feeds on itself, and how some deflation causes more deflation, almost as if were caused by a deflationary attitude. By the law of supply and demand, falling prices normally should cause production to decrease. But the current situation we're in, a highly leverage debt bubble, is an anomalous situation. Falling oil prices are causing production to increase, not because of the oil market, but because of the debt market, resulting in a deflationary spiral. Businesses desperately increase production and sales in the hope of making up for lost earnings, in order to meet their debt margin calls, but the increased supply simply causes prices to fall even faster, resulting in more deflation.

This is a dangerous situation because, as the price of oil continues to fall, one or more of these funds may go bankrupt, and that may cause a chain reaction of multiple bankruptcies. US Energy Information Administration (EIA) and Investment Watch/Wolf Richter

(Comments: For reader comments, questions and discussion, see the 15-Dec-14 World View -- Lynchings of 43 students revive the Mexican Revolution fault lines thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Dec-2014) Permanent Link
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Lynchings of 43 students revive the Mexican Revolution

Oil production to increase despite, or because of, crashing prices

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Generational Dynamics Web Log for 15-Dec-2014
15-Dec-14 World View -- Lynchings of 43 students revive the Mexican Revolution fault lines