For many decades, the world’s central banks coordinated their efforts to expand counterfeit credit (i.e. inflate). Why not? It has “always” worked to push more credit into the economy. Businesses will invest, hire people, etc. But then we hit the brick wall in 2008.
So their predictable response was to further push interest rates towards zero, on the long end as well as the short end. Every drop in the rate of interest causes capital losses on the balance sheets of bond issuers, which include most corporations.
It hasn’t fixed any problems. But it has led to a new wave of them. For example, the prices of certain commodities like oil are high and rising (Iran is obviously a major factor also). But at the same time, the bid on refined products such as gasoline is weak and getting weaker. The result is collapsing profits. This must necessarily cause the marginal refiner to fail
Today, a large oil refinery announced that it is shutting down:
The giant Hovensa oil refinery that has dominated the economy and part of the landscape of the island of St. Croix for decades will cease operations next month, the operator said Wednesday. … Hovensa generated a minimum of $60 million a year in revenue for the government, which already faces a budget crisis.
The refinery, the largest private employer in the U.S. Virgin Islands and once one of the largest refiners in the Western Hemisphere, will be converted to an oil storage terminal, said Brian K. Lever, president and chief operating officer of Hovensa LLC. …
In January, Hovensa entered into a consent decree with the U.S. Environmental Protection Agency and Justice Department in which the company agreed to invest $700 million on pollution controls after a series of chemical releases affected people living downwind from the refinery. Hovensa also agreed to pay a $5.4 million penalty for violating the Clean Air Act.
The article provides no indication about Hovensa’s usage of credit, but it does note that it is not competitive against new refineries being built now (in a period of falling demand), presumably with money borrowed at today’s insanely low interest rates.
The icing on the cake, and the final irony, is that several politicians are enraged that now their favorite milch-cow won’t be there to provide jobs, campaign contributions, and money for their favorite slush funds. And they call private capitalists heartless! We will never know how much impact the taxes and fees paid by Hovensa contributed, but it is possible that without those burdens they would still be profitable.
The capital destruction continues…
© Jan 18, 2012 by Keith Weiner
KW, I read elsewhere, that Hess had lost over 1/2 billion in the past decade and that the refiner was operating at less than full capacity.
Considering those factors and that the business is a low margin one, I am not surprised that the operator decided to shutter the facility..
There is little doubt in my mind, that the 3/4 of a billion in cleaner air upgrades forced Hess’ hand…
The global reach of the EPA is such, that even the Chicoms in Peeking, tremble in fear….
The score EPA 1 – First Nation Islanders 0….
No matter the Constitution – for we have cleaner air: After all, the Constitution can not be breathed; nor eaten; nor drank…..
Smokey The Bear says; if you must pollute, do it on a federal holiday, when soot don’t matter……
US Virgin Clean Islands