Sunday, July 20, 2014
The leaders of the BRICS nations – the emerging markets of Brazil, Russia, India, China and South Africa – announced in Brazil the launch of a $50 billion development bank this week. The move by the five nations is in response to the Western influence of the US-dominated World Bank.
Though it will be much smaller and less funded, the new bank is an attempt to counterbalance the hegemony of US and Western banking interests. In essence, it is an attempt to expand the financial relevance of the world's emerging economies.
The BRICS also set up a $100 billion currency reserves pool to help countries manage their short-term liquidity troubles during a currency crisis. The decision presents a small, but potentially growing, challenge to the International Monetary Fund (IMF), which is based in Washington, DC.
The World Bank finances development projects around the world, and the IMF is the lender of last resort to countries that don't have the dollars to pay their foreign debt.
Unable to exert more influence over the World Bank and IMF, the BRICS will now gain greater control over the funding decisions that directly affect them.
Though China is one of the world's two largest economies, it has less voting power in the IMF and World Bank than Belgium, the Netherlands and Luxembourg. Yet, China has 1.3 billion people, while those three European nations have less than 30 million people combined.
Belgium — a county with 11 million people and a $508 billion economy — has more IMF votes than Brazil — a nation of 199 million people and a $2.2 trillion economy.
Frustrated that their economic weight is not reflected in global financial institutions, the BRICS countries have now established one of their own.
In the process, they have suddenly carved out a larger role for themselves in international finance.
At the least, they have created some global competition for international lending.
Initially, the bank will have $50 billion in capital, divided equally among its five founders. The bank will start with just $10 billion in cash put in over seven years and $40 billion in guarantees, and it won't start lending until 2016. However, capital is planned to eventually grow to $100 billion.
To put this in perspective, subscribed capital in the World Bank is $223 billion.
The development bank, which will be based in Shanghai, intends to fund development and infrastructure projects in developing nations. India will lead operations for the first five years, followed by Brazil and then Russia.
The BRICS nations banded together in 2009 to press for a large role in the global financial system created by Western powers in the post-World War II Bretton Woods agreement.
Given that they account for almost half the world's population and about a fifth of global economic output, the BRICS' influence will likely continue to grow.
In fact, other nations, such as Indonesia, Mexico and Turkey, could ultimately join the development bank.
The bank is the biggest undertaking and the most significant achievement of the BRICS in their five-year partnership.
When the BRICS first announced their intention to form the bank in April of 2013, it was greeted with great skepticism in the West. But the emerging nations have shown their willingness to coordinate, cooperate and act.
Wary, and weary, of the terms and conditions applied by IMF and World Bank, the BRICS can now turn to one another for the financing of their development and infrastructure needs.
The US and, more broadly, the West may not have taken seriously this challenge to their supremacy in the world economy a year ago. But it's a good bet they're paying attention now.
Moreover, the creation of the development bank is not the end of the BRICS' ambitious plans.
These nations have previously called for an end to the dollar's singular role in international trade and the settlement of debts.
For example, since crude oil is bought and sold in dollars, the BRICS have publicly voiced their interest in collaborating in non-dollar oil payments. Their hope is to have an alternative payment system in place by 2018.
In 2012, the BRICS announced plans to extend credit to each other in their own currencies, with the goal of eventually replacing the dollar with their own currencies for trade amongst themselves.
That's a direct challenge to the dollar's role as the world's reserve currency.
So, the development bank may be just the beginning. It may take a few more years, but the BRICS are determined to increase their role and influence in international finance and credit, while simultaneously diminishing that of the US and the West.
Wednesday, July 09, 2014
The American Southwest is a vast, arid desert. Yet, it is home to some 40 million people and the cities of Las Vegas, Phoenix and Los Angeles. All of them are served by the dwindling water resources of the Colorado River and one of its primary reservoirs, Lake Mead.
A massive civil engineering project in the 1960s diverted part of the Colorado River to feed Phoenix and Tucson. Those cities could not exist in their current state without this unnatural influx of Rocky Mountain snowmelt.
A quarter of Arizona's water comes from the Colorado River, which has been drained to dangerously low levels. There's not enough water in the basin to keep Arizona's crucial Lake Mead reservoirs topped up. As of this week, the lake is about 39 percent full.
Lake Mead's surface is now about 1,080 feet above sea level, which is below the 1,082-foot level recorded in November 2010 and the 1,083-foot mark measured in April 1956 during another sustained drought.
If current trends continue, the level will drop to 1,000 feet by 2020, says the federal government. That's just six years from now.
Under present conditions, that would cut off most of Las Vegas’s water supply and much of Arizona’s. Phoenix gets about half its water from Lake Mead, and Tucson nearly all of its.
The problem is worsening quickly.
The federal Bureau of Reclamation forecasts that Lake Mead will fall this week to a level not seen since the lake was first filled in 1938. Again, Lake Mead is now about 39 percent of capacity and is dropping steadily.
Last month, officials at the Central Arizona Project (the state’s canal network) said they may have to cut water deliveries to Phoenix and Tucson, its two largest cities, due to the dire state of the dwindling Colorado River.
Despite Arizona's dwindling water resources, the state's population continues to swell. Here's a look at Arizona's population in recent decades:
1980: 2,718,215 (55.7% increase)
1990: 3,665,228 (34.8% increase)
2000: 5,130,632 (40% increase)
2010: 6,392,017 (24.6% increase)
2013 (est.): 6,626,624 (3.7% increase)
In essence, Arizona's population has nearly quadrupled since 1970. Yet, the desert state is getting ever drier.
Arizona is in the midst of the worst drought ever seen in the state's 110-year long observational record. The last two years were the driest in a century in the Southwest.
Consequently, the state will have to reduce water consumption rather quickly. Mandatory cuts could begin as early as 2019, according to an analysis by the state's water project.
Arizona does not presently have a plan to deal with water shortages as extreme as those being predicted by 2020, just six years from now. It's unconscionable that state officials have allowed the situation to come this far with no actual, valid plan.
The fact that a pending water shortage in Arizona's two biggest cities is just now being raised publicly is tough to comprehend. Denial, or withholding vital information from the public, are not solutions.
Arizona's groundwater levels have dropped by hundreds of feet over the last century. Yet, the state still grows cotton on its arid lands.
According to the Arizona Department of Water Resources, more than two-thirds of Arizona’s water is still used to irrigate fields, down from a peak of 90 percent last century.
However, roughly 42 percent of the land in Arizona is covered by desert. In fact, there are four different deserts in the state, making it a very difficult place to grow food, much less sufficiently feed its 6.6 million residents.
Of Arizona's total area, just 0.32% consists of water, which makes Arizona the state with the second lowest percentage of water area (New Mexico is the lowest at 0.19%).
Climate change will only make the drought situation worse, and the effects are continually occurring faster than scientists had predicted a few short years ago.
Most scientists believe global warming will make an already arid desert Southwest even drier in this century.
Research done at the University of California, Berkeley shows that the 20th Century was an abnormally wet era in the West and that a new mega-drought may be starting.
The U.S. Global Change Research Program projects 20 percent to 50 percent less water by the end of this century, with temperatures 5 to 10 degrees warmer (Fahrenheit).
With 6.6 million residents in Arizona, 4.3 million of whom live in the metropolitan Phoenix area, there are simply too many people vying for far too little water.
Given its limited water resources, the desert region was not meant to support a population that large. Yet, those limited water resources are rapidly dwindling.
However, Phoenix is not alone in facing this issue. Most of the Southwest is reliant on the same water source.
Seven southwestern U.S. states share the Colorado River's water supply under a 1928 allocation agreement that also provides shares of the river water to Native American tribes and Mexico.
“The Colorado is essentially a dying river. Ultimately, Las Vegas and our civilization in the American Southwest is going to disappear, like the Indians did before us,” said Rob Mrowka, a Las Vegas-based scientist at the Centre for Biological Diversity.
Las Vegas, which has more than 2 million residents and about 40 million tourists a year, is almost completely dependent on Lake Mead for drinking water. The city is presently grappling with a water crisis.
“The situation is as bad as you can imagine,” said Tim Barnett, a climate scientist at the Scripps Institution of Oceanography. “It’s just going to be screwed. And relatively quickly. Unless it can find a way to get more water from somewhere, Las Vegas is out of business. Yet they’re still building, which is stupid.”
Monday, June 30, 2014
The Great Recession was the worst economic downturn in the U.S. since the Great Depression. In fact, seven years after it's onset, the nation is still trying to crawl out from under the weight of the recession's burden.
Case in point: The U.S. economy contracted 2.9% in the first quarter, the worst performance since the first quarter of 2009.
Moreover, it was the first quarterly economic contraction in three years, and only the second since the Great Recession ended in mid-2009. The last negative quarter was in early 2011, when growth fell by 1.3%.
So, this contraction was a doozy.
In an effort to help the U.S. along the path to economic recovery, the Federal Reserve is nearly six years into an absolutely massive and unprecedented intervention.
The Fed's quantitative easing (QE) program, initiated in December 2008, has bloated its balance sheet to almost $4.4 trillion. Yet, it is still adding to that absolutely massive sum by buying $45 billion in assets each month.
But that isn't the only extraordinary Fed intervention.
In response to the financial crisis, the subsequent recession, and the collapse in lending/borrowing, the central bank also cut short-term interest rates to historically low levels.
Beginning in December 2008, the Federal Reserve set a target of 0.00 - 0.25% for the Federal Funds Rate, essentially an overnight lending rate for banks. The FFR is presently 0.10%, which allows banks to virtually borrow for free.
It has also allowed large corporations to borrow very, very cheaply.
Despite these unprecedented central bank interventions, the U.S. economy contracted nearly 3 percent in the first quarter, which was like a kick in the gut.
However, the economy's health has remained weak ever since the recession officially ended.
Since the economic recovery began in mid-2009, annual growth has hovered around 2%, well short of the nation’s historical average of 3.3%. In fact, the U.S. economy has not surpassed 3% annual growth since 2005.
This is rather stunning considering the absolutely massive Fed stimulus designed to re-inflate the economy. The central bank's drastic measures have barely made a difference.
Any hope that we'll reach 3% GDP growth this year has been eliminated.
The International Monetary Fund said the U.S. economy would only grow 2% this year, down from its earlier forecast of 2.8%.
And the World Bank has cut its projection for U.S. growth down to 2.1% from 2.8%.
The U.S. economy is driven by consumer spending, which accounts for more than 70% of GDP. Yet, consumers are in no position to be the engine that brings this economy roaring back to life.
Wages and incomes have been stagnant for many years. In fact, household income is roughly the same today, in inflation-adjusted terms, as it was back in 1990. That's why Americans came to rely so heavily on credit during the bubble years.
Credit card debt per indebted household was $17,630 at the end of the first quarter of 2010. However, it has dropped to $15,191 — though it is again on the rise. That four-year decline is substantial.
Meanwhile, overall consumer debt is now 9.1% below its 2008 peak of $12.68 trillion, according to the Federal Reserve.
So, despite all of the Fed's absolutely massive, historic and unprecedented efforts, the economy continues to limp along — now threatening to fall back into recession again — and consumer debt remains well below the level that tanked the economy in the first place.
And therein lies the problem: Ours is a debt-based economy, and without continually expanding debt at all levels — consumer, corporate and government — there can be no return to what was once thought of as "normal."
In short, there can be no growth without debt. However, in light of what happened to the U.S. economy in 2008, perhaps that is a good thing.
Debt is a double-edged sword.
If managed correctly — and kept at levels that allow investment, growth and practicable repayment — it is a useful tool.
If not, it is a financial burden that can tank an entire economy.
We've already seen how that story plays out.
The takeaway here is that the Federal Reserve has already taken massive, extraordinary, and rather drastic measures to get the economy out of recession and resume vigorous growth.
Yet, their nearly six-year efforts are now failing, and that is a frightening reality.
Tuesday, June 24, 2014
According to the US Federal Reserve, credit card debt currently stands at $854.2 billion, and the average consumer has $15,191 in debt.
Though those figures have declined since the onset of the Great Recession, American consumers are again driving themselves further into debt through the use of their credit cards.
Case in point: There was a whopping 12.3% annual increase in revolving credit card balances in April, according to the Federal Reserve.
CardHub projects a $41.9 billion net increase in credit card debt by the end of this year – 8 percent more than last year and 14 percent more than 2012.
The optimistic spin-meisters would have you believe this is a function of higher consumer confidence. But the evidence shows otherwise.
According to Gallup, weekly economic confidence has been flat-lined between minus 13 and minus 15 since the beginning of the year.
That's likely due to the fact that workers are plagued by stagnant wages.
Over the past year, average weekly earnings have risen 2.1% — about the same as the 2% increase in consumer prices. That has negated the marginal rise in earnings. We'll get back to that rise in consumer prices in a moment.
The median usual weekly earnings of full-time wage and salary workers, adjusted for inflation, have actually declined since the end of the recession, according to government data.
This has caused revolving credit to now become non-discretionary. In essence, Americans are using their credit cards just to afford the basics. It's the only way that many of them can bridge the gap between their stagnant incomes and rising food and gas prices.
Which brings me back to the 2% increase in consumer prices noted above. The problem with that figure is that the government doesn't include food and energy prices when calculating inflation.
Consequently, the official inflation rate is quite misleading.
Overall, food costs are more than two percent higher than in 2011. However, the consumer price index (CPI) for U.S. beef and veal is up almost 10 percent so far in 2014. Egg prices are also climbing — up 15 percent in April alone — and are expected to rise by 5 to 6 percent this year. And higher milk prices are feeding through to other products in the dairy case, particularly cheese. Additionally, fruits and veggies have jumped more than three percent.
"The ongoing drought in California could potentially have large and lasting effects on fruit, dairy and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further," says the U.S. Department of Agriculture.
The spot price of U.S. Foodstuffs — which is not driven by speculation as futures are — is up a whopping 19% this year, according to the Commodity Research Bureau index.
The reality is that food price inflation has been higher than overall price inflation for nearly a decade now.
But that's not all.
Gasoline prices have risen more than 10% since the beginning of the year, while natural gas and heating oil prices have spiked as well. Higher oil and gas prices ultimately lead to higher food prices.
Consumers are financing their food and energy purchases with credit cards. Of course, this just raises the costs of these purchases in the long run since they add to revolving card balances.
Because consumer spending comprises more than 70% of U.S. economic activity, some people will applaud any increase in spending, even if it is debt-based spending for essentials, like food and gas.
However, that's surely not something to celebrate, and it's certainly not the sign of a healthy economy or consumer base.
Tuesday, June 17, 2014
The U.S. housing market was at the heart of the financial crisis that led to the Great Recession. Yet, most of the hopes for our economic recovery have been pinned to a housing recovery.
While there has been some semblance of a recovery (home prices have increased 20 percent nationally over the past two years), it has been uneven, differing greatly from market to market.
The S&P/Case-Shiller 20-City Composite Home Price Index shows that in February prices were back around the same levels as in 2004, though still down from their peak in 2006.
Home prices nationwide, including distressed sales, increased 12.2 percent from February 2013 to February 2014, according to CoreLogic. This change represented 24 months of consecutive year-over-year increases in home prices nationally.
However, the housing recovery has been driven largely by investors, not typical buyers.
Sensing an opportunity, institutional buyers have accounted for a large percentage of home purchases, which has boosted prices. This is not a market driven by normal consumer demand.
All-cash purchases accounted for almost 43 percent of all sales of residential property in the first quarter of 2014, up from almost 38 percent in the previous quarter and 19 percent in the first quarter of 2013, according to data released in May by RealtyTrac.
These investors are eager to make a profit by buying low and renting these properties — or flipping them — which is driving up the number of all-cash deals. Wealthy Americans and downsizing empty nesters also account for some of these all-cash deals.
According to the National Association of Realtors' annual study of consumers, the 2014 Investment and Vacation Home Buyers Survey, investors accounted for 20 percent of market share in 2013, down from 24 percent in 2012.
As a result, the median price of a new home rose to $290,000 in March, the highest level on record, according to the Commerce Department.
This is pricing out many first-time and lower-income buyers. When you look at incomes, it's little wonder.
In April, for example, weekly wages for the average American worker were just 0.2 percent higher compared to a year earlier, adjusted for inflation. And real hourly wages were actually down 0.1 percent in the same one-year span.
In real dollar terms, the median annual income is 7.5 percent lower ($4,309) than its January 2008 high.
This makes the 20 percent increase in home prices over the past two years tough to reconcile. It's even more confounding when you look at the broader inflation rate.
The latest annual inflation rate for the United States is 2.1 percent through the 12 months ended May, as published by the US government on June 17, 2014.
So the rise in home prices is wildly out of line with general rise in prices throughout the economy.
As previously noted, this is hurting first-time buyers, many of whom tend to be younger.
The Millennial generation, in particular, is being squeezed out of the housing market. This group is not only contending with rising home prices, but also tighter lending standards, tight supplies and high student loan debts.
Some graduates end up paying off student loans well into their 30s and even 40s. As a result, many Millennials simply can't come up with hefty 20 percent down payments. Others don't have good enough credit to qualify for loans.
Consequently, just 36 percent of Americans under the age of 35 own a home, according to the Census Bureau. That's down from 42 percent in 2007 and it's the lowest level since 1982, when the agency began tracking homeownership by age.
Yet, it's not just Millennials. Home ownership, in general, is on the decline.
Just 74.4 million American households — less than 65 percent of the country — owned the homes they lived in during the first quarter of this year, according to a recent U.S. Census Bureau report.
That was the lowest level since 1995 and a big drop from 2006, when a peak of 76.5 million households, or 68.9 percent, were owner-occupied.
The price of homes, the lack of sufficient down payments, and stricter lending standards have killed any hope of ownership for millions of Americans. What was long considered the "American dream" is no longer the dream for a huge percentage of people.
According to a May poll by the National Endowment for Financial Education, only 13% of Americans considered home ownership as their “top long term financial goal,” down from 17% in 2011.
Lending standards should indeed remain strict. Lax standards helped to drive the housing bubble in the first place. But the stagnation in wages has thwarted the ability of millions of Americans to save for a down payment, or service a mortgage.
The rise in home prices is a two-sided coin. It's been great for owners that have been underwater, and for those seeking to sell their homes. But it's hurt millions of other would-be buyers.
The question is whether the increases in home prices can be sustained. It doesn't seem likely, since it is so out of line with precedents.
Historically, home prices have appreciated nationally at an average annual rate between 3 and 5 percent, according to Zillow, though different metro areas can appreciate at markedly different rates than the national average.
This historical average is important to consider as we look for signs of another housing bubble.
Again, home prices nationwide, including distressed sales, increased 12.2 percent in February 2014 compared to February 2013, according to CoreLogic.
So, price increases over the past year are anywhere from 244 percent to 406 percent above the historical national average.
Cause for concern? Perhaps. This certainly isn't normal appreciation.
Additionally, as interest rates have slowly risen, institutional investors — people or companies that have purchased at least 10 properties in a calendar year — have been gradually leaving the market.
Investors accounted for 5.6 percent of all U.S. residential sales in the first quarter, down from 6.8 percent in the fourth quarter of 2013 and 7 percent in the first quarter of 2013.
One way or anther, this market looks quite tenuous. Incomes don't match home prices, and mortgage rates will only tend to rise.
As it is, the housing market is already slowing down.
New-home construction fell 6.5 percent in May.
Meanwhile, existing home sales saw a 3.4 percent increase in March. However, that was the first gain in nine months. And in April, existing home sales increased just 0.4 percent.
The housing market was a drag on the economy in each of the last two quarters.
Housing cut economic growth in the first quarter, as it did in the fourth quarter of 2013, resulting in the sector’s first back-to-back subtraction since the first half of 2009.
That trend could continue into the second quarter, and beyond.
Clearly, this is something we should watch closely in the months ahead.
Sunday, June 08, 2014
The good news from the latest Bureau of Labor Statistics (BLS) report was that the U.S. economy added 217,000 jobs in May.
This means the U.S. labor market has finally surpassed its pre-recession level of employment (last seen in December 2007), making this the longest employment recovery in the postwar era.
Think about how much damage the Great Recession caused to our economy; it's taken 6 1/2 years to get back to our former employment level.
However, even after taking into account the number of people who have retired in that span, millions of additional workers have since entered the labor market, meaning we need millions of additional jobs to create adequate employment for everyone that wants full-time work.
For example, over this period, the U.S. civilian population increased by nearly 14.5 million people, but the labor force grew by just 1.7 million new jobs, according to BLS data.
When the media and government discuss the unemployment rate, they typically refer to what is known as the "U-3" unemployment rate. In May, that number was 6.3 percent.
However, the "U-6" figure provides a broader measure of the unemployment rate. When this number is viewed, things don't look nearly so rosy.
The "U-6" includes two groups of people not calculated in the "U-3" figure:
1. "Marginally attached workers" — people who are not actively looking for work, but who have indicated that they want a job and have looked for work (without success) sometime in the past 12 months. This group also includes "discouraged workers" who have completely given up looking for a job because they feel that they just won't find one.
2. People who are looking for full-time work, but who have settled for part-time work due to economic reasons. In essence, these people want full-time work, but simply can't find it.
These are critical distinctions that make "U-6" a far more accurate representation of true unemployment.
The U-6 unemployment rate was 12.2 percent in May, according to the Bureau of Labor Statistics (BLS). That's nearly twice the 6.3 percent figure most often cited by the government and media.
What this means is that there are 23.5 million Americans who either want a job, or want to work full-time, but can’t due to the weak economy.
That is a massive number.
Though this figure is down nearly 5 million from the peak of 30.4 million four years ago, it’s still up 7.5 million from the pre-recession level of 16 million.
With 23.5 million people either unemployed or only working part-time, employers can hold the line on wages and salaries.
Over the past year, average weekly earnings have risen 2.1% — about the same as the 2% increase in consumer prices. That has negated the marginal rise in earnings.
Median usual weekly earnings of full-time wage and salary workers, adjusted for inflation, have actually declined since the end of the recession, according to government data.
A significant part of the problem is that this jobs recovery has been too reliant on low-wage jobs. In fact, low-wage jobs have accounted for two-fifths of all new jobs added.
The bulk of new jobs have been in food services, temporary help services, retail trade, and long-term health care — industries known for low wages.
For example, employment in temporary jobs accounts for 10% of overall employment gains in the recovery, while employment in accommodation and food services accounts for another 17% of total new employment.
Low wage jobs won't address our economy's fundamental problem, which is a lack of demand. Consumers aren’t consuming enough to spur the economy because they don't have the means to do so.
So, while finally recovering all the jobs lost in the Great Recession is certainly good news, it's clear that we need millions of additional jobs — specifically good-paying, middle-class jobs — before we can really celebrate, or think we've returned to anything resembling "normal."
Saturday, May 31, 2014
A rather astonishing thing happened about a week ago. It was undoubtedly one of the biggest stories of the year, and it has implications for the United States for years to come.
Yet, you may have completely missed this stunning news.
The U.S. Energy Information Administration slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits.
Why is this such big news?
The Monterey Shale formation, a 1,750 square-mile area, contains about two-thirds of the nation's shale oil reserves.
In other words, nearly two-thirds of the US shale oil that was previously believed to be recoverable is not. A 96% reduction is a virtual wipeout.
The Monterey formation was previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times as much as the Eagle Ford shale in South Texas.
But — POOF! — just like that, the contention that shale oil would generate US energy independence, and lead us to surpass Saudi Arabia in production, went up in smoke.
Only 600 million barrels of oil can be extracted with existing technology from this vast stretch of Central and Southern California, far below the 13.7 billion barrels once thought to be recoverable.
To put that into perspective, at current usage levels, 600 million barrels would meet US oil demand for just 33 days. Yes, you read that correctly.
The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.
Apparently, they are not.
Oil driller Occidental, which owns most of leases in the Monterey Shale, earlier this year put its California business up for sale in part due to lagging oil production.
Fracking — the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations — has not been productive in the area, which runs down the center of California roughly from Sacramento to the Los Angeles basin and includes some coastal regions.
This is a stunning reversal, and it's a reminder of that old adage: Don't count your chickens before they hatch.
It was previously believed that an oil boom would bring millions of new jobs to California and boost tax revenue by tens of billions annually.
All of those rosy projections were wiped out the instant this news was announced on May 21.
It's hard to overstate what an enormous blow this is to US energy interests.
For California, in particular, this is a huge setback for the economy and for anticipated tax revenues.
In 2013, a USC analysis, funded in part by the Western States Petroleum Association, predicted that the Monterey Shale formation could, by 2020, boost California's gross domestic product by 14%, add $24.6 billion per year in tax revenue, and generate 2.8 million new jobs.
The fact that none of this is true is a kick in the gut to the Golden State. And it could lead to a national oil shock in the coming years that would be devastating to the US economy and our way of life.
If we're ever going to develop energy independence, it will have to come from other means. The shale oil "revolution" was a myth from the beginning, and one that has quickly gone bust.
Perhaps this news will compel California to instead focus more on developing and advancing renewable energy.
That would provide a happy ending to this truly remarkable story.