Lahar Rules

June 27, 2005
     The east coast is a steambath, the Dow Jones is tanking, oil has crossed the $60 barrier, and Don Rumsfeld says the Iraq insurgency could run for twelve years.

     Taking these things in reverse order -- why twelve years? Why not forever? Actually, twelve years might as well be forever. What Rummy seems to be saying to the US public is: better be prepared to keep Fort Apache going indefinitely. The part he left out was. . . "if you want to keep making that eighty-mile round trip commute from Cherokee County to Peachtree Street."

     Even that simple equation assumes a lot. For instance, that Mr. Suburban Atlanta Commuter will still have that job in the office tower on Peachtree. Or that he can continue to make a monthly payment of $3200 on a 4000-square-foot house in Hickory Flat. Or that the Fox TV News fans will maintain their enthusiasm for a war of attrition lacking in cineplex quality battles, while their property taxes are being jacked out of sight to cover the rising cost of maintaining senior parking privileges in the centralized school districts.

     The public indeed may be losing its appetite for the Iraq project, but not for Nascar racing, fried chicken buckets, car trips to Six Flags, and round-the-clock air conditioning. What shock of recognition will flash across the TV screens when the connection is finally made that keeping all these things going is why we're in Iraq? War is the answer. Sooner or later even the folks making those jitney trips to East Hampton are going to get it.

     Oil's remorseless up-ratcheting past $60 is as much a symptom of a weak dollar as a strained global energy allocation system, and the dollar is weakening because the way of life it represents is becoming more and more unreal. The harsh truth is that we've reached the limit of our ability to expand our suburban sprawl economy and there is no alternative US economy in the background ready to take its place. The world can't fail to notice this weakness. The inability to generate even fake wealth, in the form of ever more WalMarts, will take its toll on the consensus that the American Dream has enduring value.

      The stock market contraction ought to reflect this reality -- apart from desperate attempts by US government proxies to levitate share prices -- and it is hard to imagine a rally in the face of $60 oil. I'm inclined to predict a gruesome journey down for the Dow Jones into the 4000 range by the end of the year. Until now the dollars created by the Federal Reserve's supernaturally loose credit policy have sought shelter in the "hard assets" of houses? A meltdown of the stock markets will translate into vanishing leverage in all other areas of finance, especially in real estate (as well as a swath of destruction through hedge funds, retirement accounts and, eventually, the entire creaking superstructure of the hallucinated mortgage industry). A few Americans are actually going to get the message that this is not a good time to buy an overpriced raised ranch house. A lot of real estate geniuses are going to witness their own ruin with wonder and nausea.

    The striking aspect in all this is that the US appears to be reaching a breaking point in the absence of any precipitating disaster. Apart from the daily meat-grinder in Iraq, the geo-political scene is temporarily placid. The potential for disaster is huge, of course. Five pounds of Semtex in a crucial spot could crater the global economy. Sooner or later something will blow. But the US slide is commencing without a big shove. Phase change is a curious condition. Things just slip. Lahar rules. 

Comments

[Dave]

Oh boy, oh boy if JHK is right on this one and 4000 Dow appears on the horizon why it'll be time to franchise the Last Barrel Saloon, clone our skeletal bartender D Spair from his blazing one eye in the middle of his skull, and ask Old Dr. Karma to begin doing his magical replication act in the nightmare haunted worlds of our soon to be shell shocked middle class. In addition Rosy Scenario is going to be very busy and her KY Gell bill will skyrocket as Born Again types repair to Robert Shuller like bromides about the citing of Jesus in an El Dorado in the shared ride lane of the LA Freeway. As for Biff and Becky they better start looking over their shoulders. Oh this is just too much damn fun to be believed ! In surveying the scene I think it best to remember this catchy aphorism from Seth as quoted in the book the Seth Classes- "If its not fun don't do it !!" Maybe that is the truth that should guide us all in the very near future ? Maybe its just not fun to live this way anymore, just maybe bombing folks and invading countries for oil and whatever is no longer fun, maybe if we just resolve to create an interesting life that the real meaning of fun we can begin to see our way around the entrance to the Last Barrel Saloon.

[kuros]

"Beyond the Euphrates began for us the land of mirage and danger, the sands where one helplessly sank, and the roads which ended in nothing. The slightest reversal would have resulted in a jolt to our prestige giving rise to all kinds of catastrophe; the problem was not only to conquer but to conquer again and again, perpetually; our forces would be drained off in the attempt."

Emperor Hadrian AD 117-138

[speedbird]

Basically we're talking about addiction, right? Thinking about it like that, I'd be glad to see the back of Cheap Oil. It has to Go. Bring on the cold turkey!
My only concern is this:
what happens to the heroin junkie faced with a price rise?

[Trefayne]

In the July/August 2005 issue of the Atlantic Monthly, the cover story is about an economic “meltdown”, as seen from 2016. But that scenario aside, there is another article in the same issue about how Americans respond to economic crises. We don’t always pull together like we did in the 1930’s. Sometimes we go crazy, as Benjamin Friedman points out looking at the economic troubles of the late 19th Century.

“Meltdown: A Case Study” -- http://www.theatlantic.com/doc/200507/friedman

I imagine that this is the sort of thing that Mr. Kunstler is concerned about. For example, in September 2002 he wrote that “The cratering of all these expectations -- with a concurrent cratering of an oil-starved suburbia (and especially of assumed real-estate values contained in it -- is liable to provoke a disappointed former middle-class into scapegoating, recrimination, and violence at levels not seen since Germany in the 1930s.” You could also say, “not seen in the United States since the 1880’s and 1890’s.” In that time you had labor organizers attacked and disrupted by police, Pinkertons, and hired goons. You also had anti-Chinese riots, a ban on all Chinese immigration, the implementation of Jim Crow, anti-Catholic and anti-Jewish politicking, and an overall rise in vigilante violence.

My question is, how do we keep history from repeating itself?

Please be careful, though. I know that at least one reader of this blog WANTS the aforementioned madness to return. So maybe we shouldn’t show our cards too much when we discuss how to defeat him and his scapegoating kind. Maybe we should just think about this and discuss it offline in our own communities.

What do you all think?

[Weaseldog]

According to this article, we're now trying to use diplomacy in Iraq, like Clinton did.

http://www.cnn.com/2005/WORLD/meast/06/27/iraq.main.intl/index.html

Back in 2002, we were inundated by the media and the White House proclaiming that diplomacy is for cowards and democrats. That brave souls dictate terms, not discuss them.

So is Bush a Democrat now? Why is he negotiating with terrorists?

[Rodrigo]

Lahar? Who's he? Her? It? Is this some kind of code? A cult perhaps? Do any readers know what JHK referrs to here?

Jeez, talk about inaccessible!!!

[jy]

Lahar (also called debris flow) is an Indonesian word used by geologists to describe a mudflow or a water-saturated debris flow on a volcano. Technically, any flow that is not saturated should be referred to as a debris avalanche; however, lahar is the term most often used to describe any type of debris or mud flow on a volcano. Lahars are powerful forces capable of moving great quantities of debris - house-size boulders, trees, etc. for long distances in a short amount of time. They look and behave like flowing concrete and destroy or incorporate virtually everything in their path. The result of lahars is usually a deposit of sediment that can range anywhere from a few yards to hundreds of yards thick (Hoblitt and others, 1995:4). Topography greatly influences the direction of lahars, so developed regions located at the base of volcano valleys are in extreme danger. In addition, any reservoirs in the path of lahars could add to the threat. The debris carried in the lahars could quickly fill the reservoirs and release the previously contained water (Hoblitt and others, 1995:4).

Lahars develop from volcanic eruptions, glacial melting, and sector collapse but can also develop from earthquakes, steam explosions, and intense rainstorms (Hoblitt and others, 1995:4). All these possibilities exist in profusion on Mount Rainier’s steep slopes. Of all the risks associated with this volcano, the threat of lahars is certainly the greatest. Rainier’s history, as well as current eruptions elsewhere, can prove how destructive these lahars can be.

[kd]

Good post, Jim.

Real estate "geniuses" indeed! How often I see little crowds before the "Real Estate" & "Investing" bays at the bookstore, scouring for pearls of wisdom that might turn them into "instant millionaires" (In fact, a popular book has the title "The Automatic Millionaire"). I gaze out the window at a full parking lot where the majority of spaces are taken now by SUVs. The Texas sun pours down heat, shoppers struggle in & out of air conditioned cars, emerge from air conditioned stores

"like overweight ants dragging their take
away from an abandoned sandwich"

(Ed Dorn)

The hours spent recreational shopping...
What will happen when/if the malls can no longer pay the electricity bill? Or the power just gets cut? What if the cine-plexes were to close? What if we could no longer be an ever expanding 24/7 consumer's paradise? What would folks do with themselves? The prospect is tantalizing.

"Twenty-five yard long strips of freezers
full of Stouffers
which should smell like cat-puke if the
power gets cut

As in the Gulf War, when Iraqis had to throw
thawed food to the dogs who soon got fat and ran in packs"

(Ed Dorn, "High West")

[jy]

Above quote nabbed from uccs.edu--Lahar is also the name of a Dutch doom-metal band, whatever that is.

[kd]

Thanks, jy.

I like the sentence: "They look and behave like flowing concrete and destroy or incorporate virtually everything in their path."

[jy]

Me too. Its a good analogy--the American Way of Life ends not with an eruption, but a mudslide. Kind of like the way the world ends, according to T.S. Elliot--not with a bang, but a whimper.

[kd]

Good link, Trefayne.
All should read it.

[tgc]

A water-borne apocalypse may be the best possible analogy for what is about to happen here at the dawn of the age of Aquarius.

[Stephen Hermann]

Great post, Jim. We're stuck in Omaha which appears to be a place you and some of the other writers are familiar.
Keep up the good work. Seems like the stuff we were talking about in 1973 over the Whole Earth Catalog and the Dome Book. Oh, but we were just a bunch of stoned hippies and didn't know what we were talking about.

[al]

Ii took everything I had to convince my wife to resist the real estate market. Around here real estate is god, magic.... the "it". "It" cannot hold it's value, ironically, for the very reasons of the way it's valued and those pressures- are the very reasons, mentioned above, that will send it into the lakes of lahar. Real estate is a vast debt sucker machine and those who can least afford to loose anything will be hurt the most... intitially... then we will all feel it. Stay liquid and flexible. Livin' large is over... we all need to keep our wits about us... I did have a talk recently with an individual who manages a large trust... very large... their strategy is to lie in wait to buy up vast sections of real estate... after the crash...pennies on the dollar... Now do I think this is true?....Given the cost spectrum of the war, oil, the fragility of the economy .... well, what do you think?

[wolfy]

I LOVE this one! In fact, I have been keeping a journal and noting just how things are, as you put it, temporarily placid. The REM song, "Imitation Of Life" comes to mind. If last summer was an imitation of life that we pulled off somehow, this year there is no way Jose that we can pretend all is hunky-dory. It reminds me of the years before the Great Crash of 1929, when Florida real estate sold like crazy and people were promised homes to be built later of these plots of land. Of course, that never came to pass! These morons who buy Florida land now are as dumb as these folks were in 1927 or so.
Wolfy

[Sean Corley Burke]

From the Wall Street Rag: "Former President of Nymex Says High Oil Prices Will Last! 'Now is a good time to invest in energy,' said the ex-president of Nymex, pacesetter for the world's oil markets. 'The investment thesis is very compelling. Political issues, terrorism, volatile weather and declining reserves all allow for the achievement of high yields.'
Mr. Collins, who started energy hedge fund MotherRock LP last month, estimates oil prices will range from $45 to $55 a barrel in New York for at least the next three years and could climb as high as $60.
'We have ignored investing in energy infrastructure and making broad-based investments to keep up with demand,' he said. 'We need to stimulate domestic production and supply, invest in renewable energy and improve the efficiency of energy consumption.'
These changes don't appear to be in the offing, as energy companies focus on short-term returns and the U.S. shows little sign of curbing its appetite for fuel.
While Mr. Collins contends $50 oil is harmful to the economy, the market appears ripe for funds like MotherRock, which invests solely in energy derivatives.
With the global energy market offering a wide array of investment opportunities, funds like MotherRock -- named for a type of rock in which hydrocarbons are formed -- can easily diversify holdings across geographical regions and asset classes. Mr. Collins estimates most energy funds can 'realistically' expect returns of 15% to 35%."

Collins is right up until a point, of course. In the future, the real money will be in water trading. Make no mistake, commodities traders are already laying the groundwork for that--stuff that'll make Bolivia look like child's play. And the irony? Well, gone will be the glassy office towers and high-tech mercantile exchanges. Todays titans will be sitting astride camels rather than behind maghogany desks. They'll be paying for protection in sheckels as they pick at their rotting teeth. Baghdad'll come home.

[Andy R]

A repeat of 1880s and 90s?

In some respects maybe, but my guess is, if the jobs disappear, so will our visitors from the south who have been the only ones willing to do "the shit work" that got our own ancestors a leg up. Many of them left family behind and send paychecks south of the border. When the checks stop, they will leave. There will be no need to limit immigration because there will be no immigration.

Unless we are stupid enough to further expand the welfare state (the land of opportunity lives on...)

My guess is we'll inflate our way out of the next meltdown just like in the 70s.

Consider - anyone who maxed out their credit @ 1970 and held on through 1985 realized a hefty reduction in their real debt, by virtue of double-digit inflation through many of those years.

Could it be that the holders of the $3000 mortgage payments will have the last laugh?

[gaa]

I convinced my husband that the market for houses was over-heated largely through your column. I'm more convinced everyday that you are right and so is the husband. While Texas consumes around us, we are working toward full liquidity.
The final "joke" though was last week's SC decision that municipalities can take property for virtually any hair-brained scheme of "economic development"

The developer/mayor in our city already did it. This all makes buying property even more of a fraud right now. If prices don't crash (as they should) then the city can always decide that you have too much "view" for your neighborhood's taxbase level and toss you out.

[xenotype]

The real-estate bubble now appears to be subsiding. If it goes slowly, the catastrophe will be avoided. Still, the variables are beyond our ken. We simply cannot imagine every slight twist of the economic kaleidoscope.

There will be hell to pay, of course, if oil keeps climbing. One unexpected event, and the entire edifice will shake. But I'm not sure we can know from this vantage point. Schadenfreude is our intellectual arrogance, and predictions are its toxic fruit.

[Weaseldog]

In the 1970s, we went from being dependant on our own oil, to being even more depenedant on other people's oil.

Who's oil will we become dependant on this time around, to repeat the 1970s cycle?

[Weaseldog]

I don't think there's ever been a painless bubble pop, but as everyone keeps saying with each bubble, this one is different.

[Andy R]

Ultimately, we became more dependent on other people's oil, but isn't it true that during the 70's themselves, our demand leveled or dropped and so did our dependence?

[Andy R]

Ultimately, we became more dependent on other people's oil, but isn't it true that during the 70's themselves, our demand leveled or dropped and so did our dependence?

[Weaseldog]

For a very short period, our demand lessened as we entered a recession and manufacturing took flight to Japan.

It did the same during the recession in the late 1980s.

Then it did it again in 2001.

But each time, we were able to rebuild our dependance and dig our way out the recession. The two go together.

So if you mean reducing dependance by ending employment, then I think you understand the problem.

In the 1970s, we passed the peak of oil production in the US. Regardless of how many wells there were and how productive they are, aggregate production peaked, took a dive then levelled out because we scaled back production on purpose.

In fact no other nation has followed the US example, and kept production low for so long. Yet the USGS models optimistically assume that all nations do that. None have.

Now the North American continent is evidently peaking in Natural Gas. And unfortunately, it doesn't have a long decline slope like oil. Once a field is depleted, it goes from good production to zero pretty quickly. On a per well basis, almost all the new wells dug today, have a productive life of only a year.

Finally, Natural Gas doesn't ship well. Even liquidized we won't be able to ship enough to the US to provide our electric generater needs.

In a few short years, if that Exxon report is accurate, then we'll see the grid going down all over the US.

What we need is to go back in time and get the railways rebuilt and make the new plants run on clean coal instead of natural gas.

Without a time machine to save us, we'll have to just live in interesting times.