The Elite are so angry at Obama that words can’t describe it.

On the recent drop in oil prices Pastor Williams told me “You asked about oil prices. In the past my Elite friends have always told me before oil prices dropped. This time I did not know about the oil price drop before it happened because the Elite did not create the price decline. 

President Obama sent John Kerry to Saudi Arabia (Without any authorization of the Elite) to negotiate the price decline. It was done because of Obama’s hatred of Putin. (Read the article that follows from F. William Engdahl, it is correct) The Elite are so angry at Obama that words can’t describe it. There are some really big problems right now between Obama and the Elite.” 

 F. William Engdahl 

By now even the New York Times is openly talking about the secret Obama Administration strategy of trying to bankrupt Russia by using its oil-bloated Bedouin bosom buddy, Saudi Arabia, to collapse the world price of oil. However, it’s beginning to look like the neo-conservative Russia-haters and Cold war wanna-be hawks around Barack Obama may have just shot themselves in their oily foot. 

As I referred to it in an earlier article, their oil price strategy is basically stupid. Stupid, as all consequences have not been taken into account. Take now the impact on US oil production as prices plummet. 

The collapse in US oil prices since September may very soon collapse the US shale oil bubble and tear away the illusion that the United States will surpass Saudi Arabia and Russia as the world’s largest oil producer. 

That illusion, fostered by faked resource estimates issued by the US Department of Energy, has been a lynchpin of Obama geopolitical strategy. Now the financial Ponzi scheme behind the increase of US domestic oil output the past several years is about to evaporate in a cloud of fictitious smoke. 

The basic economics of shale oil production are being ravaged by the 23% oil price drop since John Kerry and Saudi King Abdullah had their secret meeting near the Red Sea in early September to agree on the Saudi oil price war against Russia. Wall Street bank analysts at Goldman Sachs just issued a 2015 forecast that US oil prices, measured by a benchmark called WTI (West Texas Intermediate) will fall to $70 a barrel. 

In September 2013, WTI was more than $106 a barrel. That translates into a sharp 34% price collapse in just a few months. Why is that critical to the US shale production? Unlike conventional crude oil deposits, shale oil or tight oil as industry calls it, depleted dramatically faster. A comprehensive new analysis just issued by David Hughes, a Canadian oil geo-scientist with thirty years’ experience with the Geological Survey of Canada, using data from existing US shale oil production that has now become public for the first time (the shale oil story is very recent), shows dramatic rates of oil volume decline from US shale oil wells: 

The three year average well decline rates for the seven shale oil basins measured for the report range from an astounding 60-percent to 91-percent. That means over those three years, the amount of oil coming out of the wells decreases by that percentage. This translates to 43-percent to 64-percent of their estimated ultimate recovery dug out during the first three years of the well’s existence. 

Four of the seven shale gas basins are already in terminal decline in terms of their well productivity: the Haynesville Shale, Fayetteville Shale, Woodford Shale and Barnett Shale. 

A decrease in oil daily of between 60% and 91% for these best possible shale oil regions means the oil companies must drill deeper to even stay still with oil production, let alone increase total oil volume. That means the drillers must spend more money to drill deeper, a lot more. 

According to Hughes, the Obama administration Department of Energy has uncritically taken rosy forecast numbers given them by the companies that boost the US shale oil myth. His calculations show future US shale oil output only 10% that estimated for 2040 by the Energy Department. Hughes describes the current deadly dilemma of the shale oil companies as a “drilling treadmill.” 

They must drill more and more wells just to keep production levels flat. The oil companies have already gone after the most promising shale oil areas, so-called “sweet spots,” to maximize their production. Now as production begins to decline terminally, they must start drilling in spaces with less rich oil and gas returns. 

He adds, “if the future of U.S. oil and natural gas production depends on resources in the country’s deep shale deposits…we are in for a big disappointment.” Oil price collapse What Hughes describes was the state of shale oil before the start of the Kerry-Abdullah Saudi oil price war. Now US WTI oil prices have dropped a catastrophic 25% in six weeks, and still falling. Other large oil producers like Russia and Iran are in turn flooding the world market with their oil to increase revenue for their state budgets, adding to a global oil supply glut. That in turn pressures prices more. 

The shale oil and gas bonanza of the past five years in the USA has been built on a foundation of zero Federal Reserve interest rates and huge speculative investment by hungry Wall Street firms and funds. 

Because of the ultra-rapid oil well depletion, when market oil prices collapse, the entire economics of lending to the shale oil drillers collapses as well. Money suddenly vanishes and debt-strapped oil companies begin real problems. 

According to Philip Verleger, former head of President Carter’s Office of Energy Policy and now an energy consultant, in North Dakota’s Bakken shale, one of the most important new shale oil regions, oil at $70 a barrel could cut production 28 percent to 800,000 barrels a day by February from 1.1 million barrels a day in July. 

“The cash flow will go down as the prices go down, the amount of money advanced to these people to continue the drilling will dry up entirely, so you’ll see a marked slowdown in drilling,” said Verleger. Myths, Lies and Oil Wars The end of the shale oil bubble would deal a devastating blow to the US oil geopolitics. 

Today an estimated 55% of US oil production and all the production increase of the past several years comes from fracking for shale oil. With financing cut off because of economic risk amid falling oil prices, shale oil drillers will be forced to halt new drilling that is needed merely to maintain a steady oil output. 

The aggressive US foreign policy in the Middle East—its war against Syria’s al-Assad regime, its hardball oil sanctions against Iran, its sanctions against Russian oil projects, its cynical toleration of ISIS in Iraqi oil regions, its refusal to intervene to stabilize the Libyan oil economy but instead to tolerate dis-order are all premised on a cocky view in Washington that the USA is once again the King of Oil in the world and can afford to play high-risk oil geopolitics. 

The official government agency responsible for advising the CIA, Department of Defense, State Department and White House on energy, the US Department of Energy, has issued projections of US shale oil growth based on myths and lies. That has led the Obama White House to launch oil wars based on those same myths and lies about the rosy prospects of shale oil. 

This oily arrogance was epitomized in a speech by then Obama National Security Adviser Tom Donilon. In an April 2013 speech at Columbia University, Donilon, then Obama’s national security adviser, publicly expressed this: “America’s new energy posture allows us to engage from a position of greater strength. Increasing US energy supplies acts as a cushion that helps reduce our vulnerability to global supply disruptions and price shocks. It also affords us a stronger hand in pursuing and implementing our international security goals.” The next three or so months in the US shale oil domain will be strategic. -




Credit to Lindseywilliams.net

See more at: http://www.lindseywilliams.net/news-from-two-wall-street-insiders-pastor-williams/#sthash.kefKAKca.dpuf

Can Americans Win a Guerrilla War Against the Banker Occupation Forces?

“It is not the size of the dog in the fight, but the size of the fight in the dog”

This axiom is soon going to be put to the test in the United States. In any upcoming revolution, the American people will be outnumbered by foreign troops and Artificially Intelligent Robots and other high tech devices designed to destroy any rebellion.

While some of the 260+ command level officers fired by Obama are privately informing many of us in the media about the current state of affairs, they are not on the record.  Other than self-preservation, the major reason why these former military commanders are not on the record is because some of them are involved in planning a guerrilla war against the occupation forces commanded by this administration under the auspices of DHS. One of  my sources state that the coming civil war will be a guerrilla war and it will be prolonged. Another former General has told me that the American people do not have the stomach for guerrilla war and that majority of our people will lay down like sheep and be slaughtered. The latter point will be addressed in a future article. This article deals with an analysis of the means of forcible resistance, available to the American people, from which to resist the tyrannical takeover of the United States government by the banksters and their minions.

Can Americans Win a Guerrilla War Against the Banker Occupation Forces?

Why the Coming Civil War Must Be a Guerrilla War

There are a total of 1,455,375 active personnel in the US military. The United States has over 200,000 troops stationed in 144 countries. These 200,000 men and women will not likely be a factor in the coming conflict and will prove to be in grave danger in the coming conflict.

I constantly have former military write to my website and proclaim their allegiance to the Constitution and pledge to destroy all enemies both foreign and domestic. I do not doubt their resolve or courage, however, there are not 30 million combat ready veterans, with the technological means and military organizational skills who would be ready to fight as they frequently claim. There are only 1.8 million veterans who are under the age of 35, which would be the prime fighting age for any resistance force. This means that in the best case scenario, that any resistance that the occupation forces could muster would consist of about 2.5 million men who have combat training in both our active duty personnel and our veterans. The mere size of the army that the Chinese could muster, in addition to the DHS, and the Russians, would dwarf any force that the American people could place on the battlefield. And if the confrontation came following a power grid take down, the odds would be worse.

The only choice that this country would have to resist the coming occupation and genocidal purge would be to make the war a guerrilla war.

The Sides Are Drawn

The coming civil war will consist of the present administration, the DHS, the Chinese, and the Russians versus the American military and the American people.

Could a guerrilla war succeed? Is America equipped to fight a guerrilla war?

Four Types of Conflict

Military strategists identify four levels of conflict; (1) nuclear war is the trump card of all conflicts; 2) conventional warfare; (3) guerrilla warfare; and, (4) terrorism.

Terrorism is the least preferred option by any insurgent group. With terrorism, there is absolutely no hope of final victory because territory is never occupied. For that reason, nobody aspires to engage in terrorism if they have a viable alternative and the American people do have a choice given how well armed we are. However, terrorism arising out of a defeated guerrilla force is a distinct possibility as it would represent American guerrilla’s fallback position should they be defeated.

Please allow me to make one point perfectly clear, all of us, in these dire circumstances will be front line participants.Being a sheep will not ensure survival, it will only mean that by living the life of a sheep, means that you will die like a sheep. Most Americans will be targets of the occupation forces as the MIAC Report which labeled Libertarians, Constitutionalists, Second Amendment Supporters, Ron Paul Supporters, veterans and now Christians are considered domestic terrorists. Does it make a little more sense as to why DHS made these bold proclamations as to who is a  domestic terrorist?

DHS understands and has demonstrated their understanding of these facts and has also prepared for what I just wrote about in the previous paragraph.

Can a Guerrilla War Succeed?

Guerrilla warfare, for most of human history, is not new. Tribal war, which traditionally pits one guerrilla force against another, is the oldest form of warfare. The new “conventional” form of warfare, which pits guerrillas against “conventional” forces, is more recent as it arose in Mesopotamia 5,000 years ago.

The good news for future American freedom fighters is that guerrilla war has been getting more successful since 1945, but unfortunately guerrilla fighters still lose most of the time. An analysis of past conflicts featuring guerrilla war, reveals that only 25% of guerrilla forces, out of 443 such conflicts since 1775, were successful. The government prevailed almost 64% of the time with the remainder of the conflicts ended in a stalemate. Conversely, since the end of WWII, the percentage of success for guerrilla forces has indeed gone up to 39.6%. Yet that still means that government forces have continued to prevail 51% of the time.

When the American people engage in a guerrilla war in the upcoming years, the people have less than a 40% chance of success.

Guerrilla wars are rarely short and as a result do not favor the American culture and psychological makeup because of our collective psyche of instant gratification. When Americans flip the switch on the wall, we expect the light to come on. Will Americans set aside their entitlements as well as their entrenched soft lifestyle and rise to the occasion? A future article will examine the psychological elements needed to engage in a guerrilla war.

Successful Guerrilla War

The Vietnamese culture with an external locus of control predominating the people in which the group is more important than the individual is the perfect mindset for guerrilla fighters. This could prove to be the American rebels biggest challenge because guerrilla warfare is not something that one does like driving over a speed bump. It is a way of life, a very hard way of life filled with misery, extreme sacrifice and unspeakable losses.

Successful guerrilla leaders such as Lawrence of Arabia, Mao, Castro and Giap all concur that there are three phases of any guerrilla war. However, before the phases can unfold there are two preconditions which must be met.

The first condition which is a prerequisite for guerrilla war, is based upon the fact that there has to be a decisive battle for the belief systems of the people as a whole. The globalists have invested billions of dollars in order to dominate the mainstream media. On the other side is the independent media. Both sides are vying for control of the belief systems of the country.

There are two very distinct ideologies playing out today in the court of public opinion. On one hand, the future rebels are adept at exposing the loss of national sovereignty and civil liberties every chance they get. Conversely, the globalist dominated media is spending billions of dollars to convince the masses that there is no such thing as a conspiracy theory and despite some governmental incompetence, the government loves and protects its people. And the globalists are being somewhat effective. Have you ever noticed that when you are describing a globalist inspired conspiracy such as what happened at Benghazi, and no matter how well documented your position is, that your audience frequently responds with “you must be one of these conspiracy theorists.” Our facts are rarely attacked because they are generally accurate, but the idea of the existence of any kind of conspiracy is what gets challenged. This kind of programming coming from the media is brilliant and effective. Who is winning this war of words? The jury is still out, but the unmistakable conclusion is that the ideological battle lines for the upcoming conflict have clearly been drawn.

The globalists sell the sheep on the notion that we have to control you to protect you (from a threat of our creation), and the other side is saying, “we will take our chances, give us freedom.”

The second precondition which must be met prior to descending into guerrilla war consists of both sides engaging in an arms race. In response to the Obama administration’s threat of seizing our guns for the false flag events of the Aurora Batman massacre and Sandy Hook, Americans went on a gun-buying frenzy which continues to this day. DHS has engaged in their own arms buildup as they have purchased 2.2 billion rounds of ammunition to go with 2700 new armored personnel carriers and that is not all. The federal government has invested in 30,000 drones, super soldier robots and intelligence gathering techniques which are mind-blowing. And lets not forget about the untold number of foreign troops available to subjugate the American people. The other side is prepared to lock and load for what is coming. Former members of the military are waiting for many more of the American people to wake up as to what has happened to their country.

The Instruments of Oppression

The architect of the Viet Cong Resistance, Vo Nguyen Giap, once said that the war against the French, and later against the Americans was a “People’s War”. The center of gravity is always the people. This isn’t only the center of gravity of the enemy but also the center of gravity of one’s own forces. The “hearts and minds” of the people decide the victor in any “People’s War”.

Vo Nugyen Giap

Vo Nugyen Giap

Giap further proclaimed that, “The war of liberation of the Vietnamese people proves that, in the face of an enemy as powerful as he is cruel, victory is possible only by uniting the whole people within the bosom of a firm and wide national united front based on the worker-peasant alliance.”(The Military Art of People’s War, p. 97-98).

“Using fear is the key to motivating the people to fight”.                             General Giap

Giap tells us that fear of the oppressor is a strong ally. Tell your neighbors about DHS and their 2.2 billion rounds of ammunition and their 2700 armored personnel carriers. Speak about the Civilian Inmate Labor Program. Let people know they can be snatched off the street without due process under the NDAA. Talk to your friends about the detention camps and the Wackenhut buses that will take you there along with the trains containing shackles. Ask your neighbors how we can pay off $238 trillion dollars in unfunded mandates or bail-out the bankers one quadrillion derivatives debt?  Make your friends see that a currency collapse is imminent.

I highly recommend Steve Quayle’s book,Xenogenesis, which details the intended end of humanity as we end of humanity as we know it.

The globalists have even invented another term to complement the phrase “conspiracy theorist” and that term is fear-monger. If one tries to alert the public as to the dangers which lie in front of us, you are labeled a “fear-monger”. Wear that label as a badge of honor for it is fearful to have your bank account, pension, mortgage, civil liberties and even your very life stolen. Extermination of Christiansand transhumanism are indeed fearful and the globalist occupation leaders openly brag about all of these elements as being a necessary part of their agenda to establish a New World Order. This debate over a New World Order is not just about freedom and the type of economic and political system that we will have, it is about mankind’s right to survive..

It is time to scare the excrement out our fellow countrymen because these threats are real and they are life-threatening for the majority. Fact-based fear and repetition of the message are our best friends in terms of driving the public to our side. Subsequently, when the active part of the guerrilla war commences, the leaders of the revolution will have the support of the people. However, don’t waste time on the hard core sheep among us. We do not need a majority of the population to wage a successful guerrilla war as this was proven during the American Revolution.

Giap was brilliant at couching their words in such a way as to demonize his enemies, thus drawing closer support from the people. Notice his use of the term “The People’s War.” The “people” already resent the elite because they know that they are not and never will be part of the elite.

Average people understand that the golden rule is based upon those who have the gold, get to make the rules. Giap was a master at turning envy into resentment and then into hatred. People emote before they act. Consequently, we in the independent media need to continue to appeal to the emotions of the people.

Remember, the use of the term “people” builds a sense of collective identity that is needed in every successful revolution. Therefore, fellow Americans, every word coming out of your mouth must speak of these problems in the collective. This is class warfare and you need to pound the message into people’s head that the leaders of the major corporations pay no tax and you work until June of each year paying off your debt to this criminal government.

If you are talking to your friends about baseball, the weather and your child’s report card, do not fail to drop in a zinger about the globalists.   

Winning the Minds of the People 

The late Colonel David Hackworth, a highly decorated Vietnam war veteran, once told PBS that he knew very early on, that if the US was going to win the Vietnam War, they had to win the people. The French made the mistake of ignoring the people and the Americans committed the same mistake. The Viet Minh and later the Viet Cong won the hearts and the minds of the people and thus, won each guerrilla conflict.

Hackworth related the following metaphor in his PBS interview, “The guerrilla is the fish and the people are the water. If you want to kill the fish, you remove the water. If you want to kill the guerrilla, you remove the people, because they find all kinds of assistance, medical help, they put out the booby-traps, they provide the intelligence and they provide the trail-watchers. They are the sea in which the guerrilla swims.”

Conclusion

The “People” should commence a letter writing campaign to every friend and relative in the military and the message should be very blunt and very simple: “We need you to save us from the banksters who have hijacked our government”. The Nazi’s used to say that if one told a big enough lie, often enough, it would be believed. The same works for the truth. Remember, we do not need the size of the military as much as we need their technology.

Can Americans Win a Guerrilla War Against the Banker Occupation Forces?  This is still an open question and the answer to the question should be rephrased to “Does America have the stomach fight a guerrilla war against the banker occupation forces?” This will be covered in a future article. 

Credit to Zero Hedge

‘US uses N. Korean bogeyman to help justify its military build-up in Asia’

North Korea threatens strikes on US

SEOUL, South Korea (AP) — President Barack Obama is "recklessly" spreading rumors of a Pyongyang-orchestrated cyberattack of Sony Pictures, North Korea says, as it warns of strikes against the White House, Pentagon and "the whole U.S. mainland, that cesspool of terrorism."

Such rhetoric is routine from North Korea's massive propaganda machine during times of high tension with Washington. But a long statement from the powerful National Defense Commission late Sunday also underscores Pyongyang's sensitivity at a movie whose plot focuses on the assassination of its leader Kim Jong Un, who is the beneficiary of a decades-long cult of personality built around his family dynasty.

The U.S. blames North Korea for the cyberattack that escalated to threats of terror attacks against U.S. movie theaters and caused Sony to cancel "The Interview's" release.

Obama, who promised to respond "proportionately" to the attack, told CNN's "State of the Union" in an interview broadcast Sunday that Washington is reviewing whether to put North Korea back on its list of state sponsors of terrorism

The National Defense Commission, led by Kim, warned that its 1.2 million-member army is ready to use all types of warfare against the U.S.

"Our toughest counteraction will be boldly taken against the White House, the Pentagon and the whole U.S. mainland, the cesspool of terrorism, by far surpassing the 'symmetric counteraction' declared by Obama," said the commission's Policy Department in a statement carried by the official Korean Central News Agency.

North Korea has said it knows how to prove it had nothing to do with the hacking and proposed a joint investigation with the U.S.

North Korea and the U.S., which fought each other in the 1950-53 Korean War, remain technically in a state of war because the conflict ended with an armistice, not a peace treaty. The U.S. stations about 28,500 troops in South Korea to deter aggression from North Korea.

The rivals are locked in an international standoff over the North's nuclear and missile programs and its alleged human rights abuses. In the spring of last year, tension dramatically rose after North Korea issued a string of fiery threats to launch nuclear strikes against Washington and Seoul.

Credit to Yahoo News

Iran has the technical knowledge to develop a nuclear weapon

A leading Iranian cleric claimed that Iran has the technical knowledge to develop a nuclear weapon, but that it chooses not to because it is religiously forbidden.

Ayatollah Ahmad Khatami told Iranian military personnel that the Islamic republic had the means to enrich uranium to levels needed for nuclear weapons, the Guardian reported, citing an official Islamic Revolutionary Guards Corp website.

“[We] can enrich uranium at 5% or 20%, as well as 40% to 50%, and even 90%,” the paper quoted Khatami saying. The report gave no indication when Khatami made the comments to officers in the western Kurdistan province.

Developing nuclear weapons, however, violated Islamic principles, he said.

Khatami also said that Iranian Supreme Leader Ayatollah Ali Khamenei had nixed any discussion of Iran’s missile system in the ongoing nuclear talks since the US did not “follow principles,” according to the report.

Referencing the Islamic republic’s ongoing nuclear talks with world powers, Khatami criticized Iranian President Hassan Rouhani for attempting to reestablish diplomatic relations with the US and for attempting to ban the use of the slogan “Death to America” at government-sponsored rallies.

Khatami, a senior ayatollah who currently serves as the interim prayer leader in Tehran, has previously called the US a “hostile enemy” that should not be trusted, and has openly praised the violent 1979 takeover of the American embassy in Tehran.

His comments were published days after a leaked confidential International Atomic Energy report confirmed that Tehran was honoring the interim 2013 agreement reached between the P5+1 powers to halt Iran’s uranium enrichment above a 5% concentration level.

The IAEA document said that Tehran had not made “any further advances” at two enrichment facilities and a heavy water reactor which was under construction.

The P5+1 powers failed to meet a November 24 deadline for the comprehensive deal on reining in Iran’s nuclear program in exchange for an easing of crippling Western sanctions.

Nuclear talks between Iran and six world powers have been extended until July 2015.

Credit to The times of Israel

Read more: Iran has know-how to build nukes, senior cleric claims | The Times of Israel http://www.timesofisrael.com/iran-has-know-how-to-build-nukes-senior-cleric-claims/#ixzz3MZbG31uV

"Houston, You Have A Problem" - Texas Is Headed For A Recession Due To Oil Crash

The American Petroleum Institute said last week the U.S. oil and natural gas sector was an engine driving job growth. Eight percent of the U.S. economy is supported by the energy sector, the industry's lobbying group said, up from the 7.7 percent recorded the last time the API examined the issue. The employment assessment came as the Energy Department said oil and gas production continued to make gains across the board. With the right energy policies in place, API said the economy could grow even more. But with oil and gas production already at record levels, the narrative over the jobs prospects may be failing on its own accord.... The API's report said each of the direct jobs in the oil and natural gas industry translated to 2.8 jobs in other sectors of the U.S. economy. That in turn translates to a total impact on U.S. gross domestic product of $1.2 trillion, the study found.

Two weeks ago we followed up with an article looking at "Jobs: Shale States vs Non-Shale States" in which we showed the following chart:

And added the following:

According to a new study, investments in oil and gas exploration and production generate substantial economic gains, as well as other benefits such as increased energy independence.  The Perryman Group estimates that the industry as a whole generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation. 

The ripple effects are everywhere. If you think about the role of oil in your life, it is not only the primary source of many of our fuels, but is also critical to our lubricants, chemicals, synthetic fibers, pharmaceuticals, plastics, and many other items we come into contact with every day. The industry supports almost 1.3 million jobs in manufacturing alone and is responsible for almost $1.2 trillion in annual gross domestic product. If you think about the law, accounting, and engineering firms that serve the industry, the pipe, drilling equipment, and other manufactured goods that it requires, and the large payrolls and their effects on consumer spending, you will begin to get a picture of the enormity of the industry.

Another way of visualizing the impact of the shale industry on the US economy comes courtesy of this chart from the Manhattan Institute which really needs no commentary:

The Institute had this commentary to add:

The jobs recovery since the 2008 recession has been the slowest of any post recession recovery in the U.S. since World War II. The number of people employed has yet to return to the 2007 level. The country has suffered a deeper and longer-lasting period of job loss than has followed any of the ten other recessions since 1945.

There has, however, been one employment bright spot: jobs in America’s oil & gas sector and related industries. Since 2003, more than 400,000 jobs have been created in the direct production of oil & gas and some 2 million more in indirect employment in industries such as transportation, construction, and information services associated with finding, transporting, and storing fuels from the new shale bounty.

In addition, America is seeing revitalized growth and jobs in previously stagnant sectors of the economy, from chemicals production and manufacturing to steel and even textiles because of access to lower cost and reliable energy.

...

The surge in American oil & gas production has become reasonably well-known; far less appreciated are two key features, which are the focus of this paper: the widespread geographic dispersion of the jobs created; and the fact that the majority of the jobs have been created not in the ranks of the Big Oil companies but in small businesses, even more widely dispersed.

Fast forward to today when we are about to learn that Newton's third law of Keynesian economics states that every boom, has an equal and opposite bust.

Which brings us to Texas, the one state that more than any other, has benefited over the past 5 years from the Shale miracle. And now with crude sinking by the day, it is time to unwind all those gains, and give back all those jobs. Did we mention: highly compensated, very well-paying jobs, not the restaurant, clerical, waiter, retail, part-time minimum-wage jobs the "recovery" has been flooded with.

Here is JPM's Michael Feroli explaining why Houston suddenly has a very big problem.

* * *

• In less than five years Texas’ share of US oil production has gone from around 25% to over 40%
• By some measures, the oil intensity of the Texas economy looks similar to what it was in the mid-1980s
• The 1986 collapse in oil prices led to a painful regional recession in Texas
• While the rest of the country looks to benefit from cheap oil, Texas could be headed for recession

The collapse in oil prices will create winners and losers, both globally and here in the US. While we expect the country, overall, will be a net beneficiary from falling oil prices, two states look like they will bear the brunt of the pain: North Dakota and Texas. Given its much larger size, the prospect of a recession in Texas could have some broader reverberations. 

By now, most people are familiar with the growth of the fossil fuel industry in places like Pennsylvania and Ohio. However, that has primarily been a natural gas story. The renaissance of US crude oil production has been much more concentrated: over 90% of the growth in the past five years has been in North Dakota and Texas; with Texas alone accounting for 67% of the increase in the nation’s crude output over that period.

In the first half of 1986, crude oil prices fell just over 50%. At the end of 1985, the unemployment rate in Texas was equal to that in the nation as a whole; at the end of 1986 it was 2.6%- points higher than the national rate. There are some reasons to think that it may not be as bad this time around, but there are even better reasons not to be complacent about the risk of a regional recession in Texas.

 

Geography of a boom

The well-known energy renaissance in the US has occurred in both the oil and natural gas sectors. Some states that are huge natural gas producers have limited oil production: Pennsylvania is the second largest gas producing state but 19th largest oil producer. The converse is also true: North Dakota is the second largest crude producer but 14th largest gas producer. However, most of the economic data as it relates to the energy sector, employment, GDP, etc, often lump together the oil and gas extraction industries. Yet oil prices have collapsed while natural gas prices have held fairly steady. To understand who is vulnerable to the decline in oil prices  specifically we turn to the EIA’s state-level crude oil production data.

The first point, mentioned at the outset, is that Texas, already a giant, has become a behemoth crude producer in the past few years, and now accounts for over 40% of US production. However, there are a few states for which oil is a relatively larger sector (as measured by crude production relative to Gross State Product): North Dakota, Alaska, Wyoming, and New Mexico. For two other states, Oklahoma and Montana, crude production is important, though somewhat less so than for Texas. Note, however, that these are all pretty small states: the four states where oil is more important to the local economy than Texas have a combined GSP that is only 16% of the Texas GSP. Finally, there is one large oil producer, California, which is dwarfed by such a huge economy that its oil intensity is actually below the national average, and we would expect it, like the country as a whole, to benefit from lower oil prices.

Texas-sized challenges

As discussed above, Texas is unique in the country as a huge economy and a huge oil producer. When thinking about the challenges facing the Texas economy in 2015 it may be useful, as a starting point, to begin with the oil price collapse of 1986. Then, like now, crude oil prices collapsed around 50% in the space of a few short months. As noted in the introduction, the labor market response was severe and swift, with the Texas unemployment rate rising 2.0%-points in the first three months of 1986 alone. Following the hit to the labor market, the real estate market suffered a longer, slower, burn, and by the end of 1988 Texas house prices were down over 14% from their peak in early 1986 (over the same period national house prices were up just over 14%). The last act of this tragedy was a banking crisis, as several hundred Texas banks failed, with peak failures occurring in 1988 and 1989.

How appropriate is it to compare the challenges Texas faces today to the ones they faced in 1986? The natural place to begin is by getting a sense of the relative energy industry intensity of Texas today versus 1986. Unfortunately, the GSP-by-industry data have a definitional break in 1997, but splicing the data would suggest a similar share of the oil and gas sector in Texas GSP now and in 1985: around 11%. Employment in the mining and logging sector (which, in Texas, is overwhelmingly dominated by the oil and gas sector) was around 3.7% in 1985 and is 2.7% now. This is consistent with a point we have been making in the national context: the oil and gas sector is very capital-intensive, and increasingly so. Even so, as the 1986 episode demonstrated, there do seem to be sizable multiplier effects on non-energy employment. Finally, there does not exist capital spending by state data, but at the national level we can see the flip side of the increasing capital intensive nature of energy: oil and gas related cap-ex was 0.58% of GDP in 4Q85, and is 0.98% of GDP now.

Given this, what is the case for arguing that this time is different, and the impact will be smaller than in 1986? One is that now, unlike in 1986, natural gas prices haven’t moved down in sympathy with crude oil prices, and the Texas recession in 1986 may have owed in part also to the decline in gas prices. Another is that, as noted above, the employment share is somewhat lower, and thus the income hit will be felt more by capital-holders – i.e. investors around the country and the world. Finally, unlike 1986, the energy industry is experiencing rapid technological gains, pushing down the energy extraction cost curve.

While these are all valid, they are not so strong as to signal smooth sailing for the Texas economy. Financially, oil is a fair bit more important than gas for Texas, both now and in 1986, with a dollar value two to three times as large. Moreover, while energy employment may be somewhat smaller now, we are not talking about night and day. The current share is about 3/4ths what it was in 1986. (Given the higher capital intensity, there are some reasons to think employment may be greater now in sectors outside the traditional oil and gas sectors, such as pipeline and heavy engineering construction).

As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession. Such an outcome could bring with it the usual collateral damage that occurs in a slowdown. Housing markets have been hot in Texas. Although affordability in Texas looks good compared to the national average, it always does; compared to its own history, housing in some major Texas metro areas looks quite dear, suggesting a risk of a pull-back in the real estate market.

The national economy performed quite well in 1986, in spite of the Texas recession. We expect the US economy will perform well next year too , though some  regions – most notably Texas – could significantly underperform the national average.

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So perhaps it is finally time to add that footnote to the "unambiguously good" qualified when pundits describe the oil crash: it may be good for everyone... except Texas which is about to enter a recession. And then Pennsylvania. And then North Dakota. And then Colorado. And then West Virginia. And then Alaska. And then Wyoming. And then Oklahoma. And then Montana, and so on, until finally we find just where the new equilibrium is following the exodus of hundreds of thousands of the best-paying jobs created during the "recovery" offset by minimum-wage waiters, bartenders, retail workers and temps.

Credit to Zero Hege

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