Where is the US economy headed?

@Cycloptichorn,

Cycloptichorn wrote:

I will repeat to you one more time: the depletion allowance allows companies to write off more than they originally spent developing the damn field!!! There is no other word for that then 'subsidy.'

Cycloptichorn

Well well, we finally get to the point of what this might be all about. Perhaps it is not the validity of the depletion allowance at all, but instead how it might be calculated? This also indicates that your opinion that it is a "subsidy" is probably just that, your "opinion." For example, just because you claim it allows companies to write off more than they originally spent on developing a field, I would personally not take your word for it on that, as I would need more evidence than you can offer in your statement, given you are as partisan as you are. At least it seems that you admit that the "depletion allowance' is a valid and proper consideration for oil companies to factor into their profit or loss.

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Everything you wanted to ask about Depletion, but was afraid to ask.

http://forestry.msu.edu/hardwood/economic%20links/facts1.pdf

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@okie,

okie wrote:

Cycloptichorn wrote:
I will repeat to you one more time: the depletion allowance allows companies to write off more than they originally spent developing the damn field!!! There is no other word for that then 'subsidy.'

Cycloptichorn
Well well, we finally get to the point of what this might be all about.

We would have gotten there a lot faster if you bothered to respond to this the first THREE TIMES I wrote it.

Quote:

Perhaps it is not the validity of the depletion allowance at all, but instead how it might be calculated? This also indicates that your opinion that it is a "subsidy" is probably just that, your "opinion."

It's not a matter of opinion, Okie. If Oil company X spends 1 million dollars developing field Y, and then uses the depletion allowance to write off 4.5 million dollars on their taxes - which is exactly what they do - that's a subsidy. They are receiving a tax break for nothing.

Quote:

For example, just because you claim it allows companies to write off more than they originally spent on developing a field, I would personally not take your word for it on that, as I would need more evidence than you can offer in your statement, given you are as partisan as you are.

Why don't you look into it for yourself, then? It's clear that you know nothing at all about how these subsidies work. You certainly don't have to take my word for it.

Quote:

At least it seems that you admit that the "depletion allowance' is a valid and proper consideration for oil companies to factor into their profit or loss.

No, I don't. At all. It's a bullshit loophole, that allows companies to write off on their taxes 'losses' from things they've already sold and made a profit on.

Cycloptichorn

1 Reply

@Cycloptichorn,

Cycloptichorn wrote:

Quote:
At least it seems that you admit that the "depletion allowance' is a valid and proper consideration for oil companies to factor into their profit or loss.

No, I don't. At all. It's a bullshit loophole, that allows companies to write off on their taxes 'losses' from things they've already sold and made a profit on.

Cycloptichorn

Losses or costs? If I sell a brick, I am certainly entitled to deduct my cost of the brick.

I'll try to check out the link this afternoon, C.I. It might shed some light on what is actually being done.

1 Reply

@okie,

There are, as I understand it, two methods of calculating the depletion allowance for tax purposes. One is the "cost" method essentially akin to depreciation. A producer invests $100 in setting up an oil well. An engineer estimates that there are 100 gallons below the well that will be extracted over time. The depletion allowance is calculated as $100 cost divided by 100 gallons = $1 per gallon. If 5 gallons is extracted in a year, the depletion allowance is 5 times $1 = $5. That recurs until the $100 original cost is used as a tax deduction.
The second method, and perhaps the one Cyclo refers to, is called the "percentage depletion allowance" which does allow more than the original cost to be deducted. That could be called a subsidy.
It dates back to the mid-1920's when much of the drilling was being done by
"wildcatters" who as often as not came up with a dry hole. In an effort to get those guys to drill somewhere else, the tax code was altered to allow taxes to be reduced by revenues on wells where the original cost had already been used up. 1924.
That is the best explanation I can find and try to explain. I'll leave further discussion of depletion to others.

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@roger,

roger wrote:

Cycloptichorn wrote:

Quote:
At least it seems that you admit that the "depletion allowance' is a valid and proper consideration for oil companies to factor into their profit or loss.

No, I don't. At all. It's a bullshit loophole, that allows companies to write off on their taxes 'losses' from things they've already sold and made a profit on.

Cycloptichorn

Losses or costs? If I sell a brick, I am certainly entitled to deduct my cost of the brick.

That's not exactly how the depletion rules for oil and gas work. Currently, depletion percentage for oil and gas wells runs at about 15% of the annual gross revenue - but you can take that EVERY YEAR until the thing runs dry. So if a well produces for more than 7 or so years (according to the calculations in articles I've read), you are deducting more than you spent on it in the first place. Some wells, according to what I've read, have been producing for double and triple that amount of time, yet the tax breaks are still the same. Unless you can deduct $3 for a brick you bought for 75 cents, we're not talking about the same thing here.

I would point out that the budget passed by Ryan and the House GOP specifically calls for ending the depletion allowance for oil and gas companies. It also refers to it as a 'subsidy.' So before anyone jumps down my throat and calls me a partisan....

Cycloptichorn

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@realjohnboy,

Quote:

It dates back to the mid-1920's when much of the drilling was being done by "wildcatters" who as often as not came up with a dry hole. In an effort to get those guys to drill somewhere else, the tax code was altered to allow taxes to be reduced by revenues on wells where the original cost had already been used up. 1924.

From a political standpoint, the Republican party instituted this in order to drum up support in Texas in the '20's.

Cycloptichorn

1 Reply

@Cycloptichorn,

Today's numbers:
Dow: 12,584 - down 1.1%
Oil: 99.80 - down 8.6%
Gold: 1481. - down 2.4%
Silver: 36.24 - down 8%

1 Reply

@realjohnboy,

realjohnboy wrote:

Today's numbers:
Dow: 12,584 - down 1.1%
Oil: 99.80 - down 8.6%
Gold: 1481. - down 2.4%
Silver: 36.24 - down 8%

The disconnect between oil prices and gas prices leaves me wondering if speculators really are running that up.

Cycloptichorn

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@Cycloptichorn,

Some of it is speculators, but not all. Producers also affect prices.

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Here are a few bullet points from Jeffrey Leonard's long article on energy subsidies. Feel free to ask me about them. I can dig deeper into the article for details or I can say that a claim is not addressed in the article.
> The U.S. spends $20Bn a year on energy subsidies.
> He claims that is equal to the entire State Dept budget (bogus in my mind, but plausible if you manipulate the numbers).
> He argues for the elimination of all subsidies to oil, coal, gas, nuclear, ethanol, wind and solar.
> He claims that, "according to government estimates," 70% goes to fossil fuels: oil, gas and coal. 15% goes to ethanol. Hydro-power gets 10% while renewables - wind, solar and geothermal get the remaining 5%. Mr Leonard's pony in this race, it should be noted, is the renewables.
> He claims that there are hidden subsidies not included in the $20Bn. Nuclear, for example, gets up to $2BN to develop new technologies and figure a way to dispose of waste. In addition, the government provides loan guarantees to nuclear developers and liability caps for accidents (like BP).
> Page 1 concludes with the question "What do taxpayers get in return?" Not much, he argues. He claims that a recent government study found that, despite the subsidies, the amount of energy supplied by domestic sources (1999-2007) stayed the same.

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@Cycloptichorn,

Cycloptichorn wrote:

The disconnect between oil prices and gas prices leaves me wondering if speculators really are running that up.
Cycloptichorn

Speculators, or "profiteers" as Hitler called them, are necessary cogs in the wheel, cyclops. They tend to moderate or even out the prices over time.

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@realjohnboy,

realjohnboy wrote:

It dates back to the mid-1920's when much of the drilling was being done by
"wildcatters" who as often as not came up with a dry hole.

I agree there are crooks in the business, rjb. Same with the mining business. I knew a guy that called investors to get money to drill, but he never wanted to strike oil. It was simply a game of supporting his operation, from which he paid himself and assistants a handsome salary. Similar in mining, go stake a few claims, drill a core hole obliquely through a thin vein of high grade that is known to be there, in order to obtain a nice looking intercept of ore grade material, then get the papers to publish a handsome press release, at which time the stock of the company rises to new heights, but before the next drill holes show the prospect is a bust, sell your stock for a handsome return and then move onto the next scam.

Yes, I could tell a few stories from my days in the mineral exploration business.

1 Reply

@okie,

I think that, given the risks in the oil industry 90 years ago and the technology of the time, legitimate drillers needed to be given an incentive to keep searching. The problem that Jeffrey Leonard and Cyclo have is how these incentives/subsidies never seem to go away.
By the way, you can make $$$$ by BUYING a list of well-heeled investors and calling them and talking them into putting them into an oil well in OK. I get a flurry of calls about every 3 months. Gradually it dawns on these callers that they have been scammed. They bought a list of people like me who don't have any money.

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A boatload of economic news out today (Friday). Is there anything you see as worth commenting on?

1 Reply

@realjohnboy,

realjohnboy wrote:

A boatload of economic news out today (Friday). Is there anything you see as worth commenting on?

A good jobs report plus unemployment going up simultaneously = confusion in the media.

Actually, I think the jobs number - +244k - is the best we've had since the recession started. I saw this graph today -

http://dailydish.typepad.com/.a/6a00d83451c45669e2014e8846d456970d-550wi

We're inching back into it. Would love to see that line going up faster. Perhaps if the Fed would get off it's ass and do something about it, it would.

Nothing makes me sicker than listening to inflation hawks drone on and on about things that aren't happening and aren't likely to happen.

Cycloptichorn

2 Replies

@Cycloptichorn,

I saw this one today with the following comments:

Quote:

And so it goes. Nearly everything that got whacked yesterday is rallying today.

Today, traders are celebrating that the U.S. economy added the most jobs in nearly a year. Or so they're led to believe. Let's examine the payroll data first:

* The economy supposedly added 244,000 jobs in April. The private sector added 268,000 jobs; government cut 24,000
* However, 175,000 of those new jobs can be attributed to the BLS' "birth/death model" — in which the economists guess at the numbers based on the launch of new businesses and the demise of old ones.

In other words, nearly three-quarters of these new jobs are a statistical invention. And most of the rest are the 62,000 people McDonald's hired in a one-day job fair publicity stunt.

The separate household survey is nothing to write home about, however:

* U-3 unemployment, the number the media latch onto, rose to from 8.8% to 9.0%
* U-6, the more honest figure that includes people who've given up looking for work and part-timers who want to work full-time, rose from 15.7% to 15.9%.

As always in these situations, we turn to the two figures the statisticians can't game:

The red line is the percentage of the working-age population in the labor force. The black line is the employment rate of the overall population. Both lines are stuck at the same level they were when Hollywood inflicted the first Police Academy movie on an unsuspecting populace and Paul Volcker was getting kudos for "slaying inflation." Source

I think what they're calling the red line is blue. Regardless, my crystal ball says we're looking at a non-recovery recovery. Interesting trend from 2000 to the dive of 2008/9

1 Reply

@Cycloptichorn,

Some numbers to end the week:
DJIA: 12,639 (up .43% today)
Oil: 97.18 (down 2.6% and down about 8% for the week)
Gold: 1,491 (down .7% but down about $40 for the week)
Silver: 35 (down 2.6% and down drastically for the week. Can you say bubble?)
Unleaded gas: 3.09 and down .17% today)
I see $3.62 after my credit card rebate (3%) for gas. I expect it to drop to $3.58 next week, or roughly a 1% drop.

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@JPB,

When they can't get simple things like red and blue right, it makes me wonder what else they aren't getting right. Their statistical models on unemployment they game to show those higher new job numbers are not reliable for anything. Why even bother?

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@realjohnboy,

realjohnboy wrote:

I see $3.62 after my credit card rebate (3%) for gas. I expect it to drop to $3.58 next week, or roughly a 1% drop.

I'm still getting about 40 miles to the Burrito.

Love biking past gas stations. Love it.

Cycloptichorn

0 Replies

Where is the US economy headed?

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