The Glad News Bears

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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.