Wednesday, March 9, 2016

Dark Clouds are Moving Over More than Riyadh

In order for a cartel to work properly a few things need to happen. First is that the members of the cartel must remain disciplined in the release of the item the cartel was created around. This, of course, can be tricky when various members are not disciplined in other aspects of their economic life, and/or factors beyond their control make staying disciplined in either the item's release, or overall economic decision making, quite problematic.

The other thing, somewhat related to the first, is that the item itself must remain in high demand. A requirement made a great deal easier when the item in question is fundamental to economic life in general. With that essential demand at the get go, further efforts to keep the item dear do not need to be quite so extensive.

These relationships are usually pretty easy to see as they happen in the world and so most people can understand the mechanism. Things get complicated, however, when demand can ratchet up so quickly now, and just as quickly fall back; both because there are so many potential players at hand who may need the item, and because the item can be purchased and delivered so, relatively, quickly.

This then puts the question of the item's continued desirability in those factors that influence demand. And in that, even the sky can quite literally be the limit; as in one or more extreme weather events occurring at the right time and place, but certainly not limited even to that, where you need only consider one or more geo-political events to occur in the right time and place to also affect demand.

Then there's the fact that the item itself is a factor in influencing demand. At some point, as the item becomes more dear, to the short term satisfaction of the cartel (which can then influence respective disciplines), the aspect that this represents as a cost to the rest of the economic world becomes ever more of a burden, which, as burdens usually go, can only be born for so long; whereupon demand starts to fall off because so many purchasers have to cut back on so much across the board of what can be purchased. And to the degree for which the item in question is involved across that board in making what can be purchased, it will compound upon itself its own lessening of desirability.

This then begs the final question of how ultimately controllable the item's price can be, given that there are so many external factors, and the added fact that information about same goes to and from the decision makers at ever increasing speed, with the very aggregates of such decisions becoming just more information fodder to influence perceptions which are also so subject to their own rapid dynamics.

That this item might also be on the short list of things that there is a finite amount of only serves to simmer the rest of the pot with a heat of its own. One only needs to consider that there might well be more than just a few such "short list" items to conclude that "control" where price is concerned, in a world already heating up on so many levels, is a particularly dangerous illusion. And yet the mavens of macro economics continue to contentedly consume themselves within it

And people think politicians are mad.

Saudi Arabia is seeking a bank loan of between $6 billion and $8 billion, sources familiar with the matter told Reuters, in what would be the first significant foreign borrowing by the kingdom's government for over a decade.

Riyadh has asked lenders to submit proposals to extend it a five-year U.S. dollar loan of that size, with an option to increase it, the sources said, to help plug a record budget deficit caused by low oil prices.

And speaking about the speed at which prices are made manifest:

Big Banks to Take on Tech Rivals With Instant Payments