Posted on Patreon, February 6th:

I asked a longtime friend who is a USG China-watcher for a no-kidding assessment of current energy usage in PRC. Energy usage is a vital sign for the economy:

China imports are down 20% with about a year and a half strategic stockpile in tanks inland and ships in port (China has a strange habit of keeping oil at sea). In fact, their oil use is down so severely that Saudi Arabia and Russia are coordinating their reduction in oil production (which is totally ridiculous because they are both one commodity economies and are directly confronting one another for customers to balance their national budgets).

This is from Chevron yesterday:

Working to lift markets this morning is the talk of supply cuts coming from OPEC+. Signs point to OPEC+ being willing to deepen cuts amidst the decreased demand caused by the coronavirus. OPEC+ is gathering for an urgent assessment of how Asia’s coronavirus may hurt oil demand; technical experts from the OPEC+ coalition will meet at the cartel’s Vienna headquarters to evaluate the disease’s impact.Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz spoke by phone and discussed the grim situation of the global hydrocarbon market, the Kremlin said in an emailed statement; both leaders confirmed their readiness to continue cooperation to keep the global oil market stable.

Crude is recovering most of yesterday’s losses this morning, but markets are still reeling from last week’s declines.

Concern continues over the effects of the coronavirus on oil demand in China and Asia, but traders seem to have priced most of those concerns into the market already. The major remaining variable is how long will the crisis continue.

Crude prices are up this morning. Crude is currently trading at $51.07, a gain of 96 cents.Fuel prices are up. Diesel is trading at $1.6049, a gain of 2.7 cents.

Gasoline is trading at $1.4892, a gain of 1.6 cents.

Basically, China was already using less energy from the tariff war and now the virus has literally shut down the Yangtze River from Wuhan eastward to Shanghai (basically Saint Louis towards New Orleans– that’s how serious it is).

Keep in mind, the impact of China’s decline in energy use is driving oil prices down to the point many important national budgets cannot meet their obligations, which will put people in the streets protesting already compromised governments (Russia is the most vulnerable, then places like Venezuela are put in even more trouble, and the whole Belt/Road thing will fall apart).

Rajeev Syal, blogging as “The Observer” at the Guardian, quotes a senior UN official who reveals that illegal drug money provided the only liquid capital during the crisis in the Fall of 2008, and may possibly have played the decisive role in averting a complete financial meltdown.

Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations’ drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.” Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

On the one hand, we libertarians can rejoice at the irony of the system being propped up by funds accumulated via victimless crime. On the other hand, of course, if drugs were legal, the massive profits that produced the vitally-needed needed liquid capital certainly could not have come from drugs.

Kevin Hassett argues that Barack Obama couldn’t be doing a better job of destroying the American economy if he was trying to do just that.

Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue?

He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough, the whole financial sector would be gone before voters could demand action.

Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”

These steps would create near-term distress. If our Manchurian Candidate leader really wanted to knock the country down for good, he would have to provide insurance against any long-run recovery.

There are two steps to accomplish that.

Discourage Innovation

First, one way the economy might finally take off is for some entrepreneur to invent an amazing new product that launches something on the scale of the dot-com boom. If you want to destroy an economy, you have to persuade those innovators not even to try.

Second, you need to initiate entitlement programs that are difficult to change once enacted. These programs should transfer assets away from productive areas of the economy as efficiently as possible. Ideally, the government will have no choice but to increase taxes sharply in the future to pay for new entitlements.

A leader who pulled off all that might be able to finish off the country.