Monday, 30 November 2015

BHP mining disaster & the ECB obsessed printing problem

A devastating mining disaster that has hit Brazil when a tailings dam operated by BHP Billiton and Vale collapsed leading to the biggest mining disaster in Brazilian history. Millions of litres of toxic waste and mud flowed into the villages surrounding the dam in the region of Minas Gerais with the water now having reached the Atlantic sea.

The Brazilian government announced over the weekend it's intention to sue both companies for compensation of the losses being experienced by those affected by the disaster. Some reports coming out say the claim could be as high as $7.2 billion.

BHP Billiton, the world's largest mining company stands to lose a lot of ground to other competitors if the Brazilian government gets it right which is highly probable as the company hasn't swayed away from the disaster and actively helping to restore calm in the area which is spreading as the dams content continues to move towards the sea.

In the midst of a commodities rout this is possibly the worst time to be dealing with a situation like this but BHP has always had a strong management team and I'm interested to see how they will approach the matter in months and years to come.

The similarities in terms of scale between this and the BP oil spill in the Gulf of Mexico is  the attracting feature to the story that has claimed the lives of 13 people with an additional 6 missing and hundreds being displaced.

I'll be following this story as it develops.

The age of unlimited money supply has been upon us since global financial markets suffered the worst shock to the system yet after the subprime crisis led to many banks going under water with bad debts that had little chance of being recovered due to the quality of the borrower.

The US government stepped in to save the day but this wasn't enough to prevent what economist termed "double dip recession". So then it was the turn of the Federal Reserve to impose its presence on the economy by purchasing trillions of dollars in a bid to rescue the US and more importantly the world from catastrophe.

There's an old adage that most will know which I think is appropriate; Monkey See Monkey Do

As the US intervened so other economies found the need to do the same to protect their currencies or simply on the basis that if the US, as the world leader of economic trends, could use extraordinary measures to help itself out of trouble then so could they and so it began in earnest.

Coming back to the present we see the second most influential economic zone in the world namely the Eurozone has been battling deflation for a number of years now and with the political impasse amongst policymakers and european citizens at the moment, the easiest solution is to print money.

The problem comes in is when will it all stop?

You may be short circuiting the necessary mechanisms now to allow breathing space for politicians to work on a solution but there doesn't seem a strong commitment from any EU politician involving the continuity of the economic zone.

Then you have the impact on other nations such as the case below of Switzerland whose central bank is looking to depart from already extreme measures placed on money supply that were deemed necessary when the first round of stimulus was announced. It only serves to move the goalposts further making these economies susceptible to even deeper economic crisis.

The world needs to step back and assess what has happened over the last few years and the potential outcomes whether good or bad can come from continued support of these measures without any counter policy to bring balance to the order of things. From the way things are progressing this seems very unlikely.  
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