Oh Six

Other Kunstler writings available at
www.kunstler.com

January 2, 2006
     The sheer weight and inertia of American life kept our systems on their feet through 2005, despite a worsening economic climate and some harsh body blows, like the hurricanes that pounded oil and gas production in the Gulf of Mexico. In a way, some perverse law of sociopolitical physics seemed to concentrate all the year's destructive potential in the devastation of New Orleans, Biloxi, and other Gulf Coast towns -- while the mighty din of motoring and cheeseburger sales roared on elsewhere without pause from Cape Cod to Catalina.

     First, a little background briefing on where we are at -- to use some of the bad grammar now normative in American life -- before I make predictions (i.e. guesses) about the year ahead.

     You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.

     This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life, under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied-to-housing started, as in the case of the proverbial rotting dead fish, at the head, the federal reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.

     The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.

     This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes or they fear the cost of heating a 4000 square foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 t o20 percent asset appreciation) to return. Eventually they will get the picture.

     The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. Oil coming into new production was not making up for signs of depletion showing among virtually all the world's major producers. Iran, Russia, Mexico, Venezuela, the North Sea, and, of course, the USA, were all past peak. The big mystery was Saudi Arabia, but their inability to boost production from the 50-year-old fields that comprised their main reserves suggested that they were topping out, too. Which left an energy-hungry world with the need to either A.) make other arrangements for powering industrial economies, or B.) contesting for control of the remaining oil reserves, which were substantially concentrated in the Middle East and Central Asia.

     Here, I hasten to remind the reader that peak is peak, meaning right now we are all operating on the basis of a lot of oil flowing around the world. The comfort level is still high. The factories are still humming in China, and the six-lane commuting corridors are still full of big cars around Atlanta, Dallas, Denver, and Minneapolis. The problem is that the oil supply will soon steadily diminish at a rate of at least three percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil. The US entered into the military phase of this turbulence before any other nation. We used our superpower status to set up a centrally-located Middle East garrison in Iraq, under the idealistic cover story that we were removing a dangerous head-of-state and helping to set up a model democracy that would invite us to stick around the vicinity indefinitely, and thus retain some control over the deportment of other oil-rich states in the region.

     The foregoing is the background of my predictions for 2006, which will be the year that the hardships and difficulties I lump together as The Long Emergency get some serious traction.

      The world oil allocation system is now so fragile that any disturbance in one producing region can send damaging shock waves around the planet. There is no more "swing producer." The US squeaked through the huge loss of oil production capacity this fall by taking oil from our own strategic petroleum reserves and from Europe's. These actions kept oil prices in the high fifty-dollar-range through the holidays, giving Americans a false sense of festive security. Those withdrawals are now over. Global demand for oil is still increasing. The strategic reserves will now have to be refilled (they're called strategic reserves for a reason). This will start oil prices moving upward again -- they already have moved above $61 as of this morning.

      I can't predict whether some maniac will drive a Zodiac boat into a tanker in the straits of Hormuz, or fire a shoulder-launched missile at an Arabian refinery. If nothing like that happens, the first year of post-peak will express itself in turbulent oil markets. Fear of not getting enough will rule. Futures will be overbought and then dumped or shorted and then overbought again. This will at least increase the violence of the ratcheting effect in the markets. Overall I expect to see $100-a-barrel oil at some point this year. Last year I made a bet with a friend that oil would end 2005 at $75. I lost the bet. But it is a fact that the price of oil altogether ended the year 40 percent higher than 2004, so it is not as if the markets did not show extraordinary stress.

     New laws regulating gasoline mixtures will also contribute substantially to higher gasoline prices (perhaps as much as 40 cents a gallon). So I will predict gasoline breaking through the $4-a-gallon mark sometime this year.

     Our natural gas situation is pretty dire. Prices shot up for a while above $17 (per one million btu's), but that was the energy equivalent of $100-a-barrel oil) and based at the time on the enormous damage in the Gulf of Mexico prior to the start of the heating season. The heating season so far as been abnormally mild in the northern US and prices have slumped back to the $11 range -- which is still a lot higher than the $7 range in 2004. Unlike oil, we will get no quick relief from international gas sources if the rest of winter turns sharply colder. We're short of terminals to receive significant quantities of imported liquefied natural gas and they cannot be built quickly (or cheaply). The natural gas markets in the US respond very sharply to current conditions. A warm week and the prices sink. A cold one and the price shoots up. Our gas storage for the year is slightly below 2004 levels. Even if we have a mild winter overall, there will be spikes of cold. Our production is still crippled in the Gulf. Therefore, I'll predict that methane gas prices will spike above $20 sometime before May.

     High gasoline, heating oil, and methane gas prices will absolutely kill the housing bubble for reasons I've already outlined. The production home builders will be idle, stuck with huge inventories in places that never should have been suburbanized in the first place. A lot of Americans holding "creative" mortgages -- no money down, interest only, adjustable rate, what-have-you -- will be crushed by the expense of their obligations. Many of them will go bankrupt under new bankruptcy laws that leave no wiggle room for escaping partial repayment. Their houses will flood the real estate markets in an orgy of distress selling. "Greater fools" will snap up these "bargains," failing to realize that many of the logistical liabilities will remain -- namely remote locations and huge heating costs of enormous McHouses -- even if the ownership terms are less hazardous than the previous owner's. At some point in the future, after several flippings perhaps, all those 4000 square foot houses 44 miles outside Denver (or Cleveland, or Seattle) will be seen as the mistakes that they are, and their cash value will reflect that.

      With the cratering of the housing bubble, the US economy has to fall on its ass. The global economy is likely to fall on its ass, too, since so much of it depends on the decisions of Americans to take out exotic loans for buying houses they can't afford. Large numbers of jobs will vanish in construction, remodeling, real estate sales, and the various mortgage rackets -- those things precisely related to the recent gains in GDP.

      The sheer falloff in new mortgages will send a tsunami through financial markets addicted to continuous supplies of new "money" to preserve the illusion of expansion. I'd called for a Dow-4000 late in 2005. I think that was just an error in timing, and still call for the Dow to sink into that range, or worse, in 2006. This will represent a moment of painful clarity for market professionals, as they realize that an industrial economy and the finance that serves it must be based on the expectation of generating real future wealth, not on zero-sum rackets, games of monetery musical chairs, or casino legerdemain. Hedge funds, which depend on predictable stability, will be especially vulnerable. They will certainly take some large banks down with them when they go. I'll call for the so-called government sponsored entities of Fannie Mae and Freddie Mac to groan under and then drown in a sea of non-performing loans, probably with overtones of criminal irresponsibility.

     If these things occur, ugly things would happen to the dollar. I would predict an episode something short of hyperinflation -- say a rapid 30 percent drop in dollar value -- with a later deflation in the price of things like houses, paintings by Childe Hassam, and many consumer goods. Which means that standards of living will fall across the board as incomes vanish with jobs and food and energy prices rise -- while Americans try to shed their houses, at the same time that consumer products sit unsold on the shelves of WalMart, Target, and Best Buy. This will spell the beginning of the end for the chain store universe.

     The commercial airline industry is already whirling around the drain. 2006 will send it decisively down that drain. Since we cannot do without aviation in a nation as large as the US (with train service on the level with Bolivia) then the government may have to take over the crippled air routes. If that happens, then service will certainly be greatly diminished. Fewer people will be flying under the circumstances, anyway, but there is no reason to believe that this will all occur smoothly. Among other things, huge pension obligations would remain to be worked out.

      By similar reasoning, I see an excellent chance for General Motors and Ford to go out of business in 2006. Sales of their stupid SUVs were already tailing off in the second half of last year, and they are not positioned to offer much of anything else. Anyway, a middle class groaning under insupportable debt and bankruptcy is not likely to be assuming new time payments for exactly the kinds of vehicles they would be insane to depend on.

      As America roils in economic pain, factory workers in China will be thrown out of work. They will be extremely pissed off, and as their appeals go unappeased, they might start making political trouble in their country. That could easily stimulate Chinese leaders to divert their nation's attention with a compelling military project -- say some moves into the oil-rich former Soviet lands to China's west. Sooner or later, China eventually will go cuckoo from a shortage of fossil fuels. It only remains to be seen how this will express itself. So far it has only done so in terms of an aggressive outreach in oil contracts with producers like Venezuela and Canada. But those arrangements were based on a peaceful world and a peaceful China.

      I have no idea what will happen with Iran. Their leader Mr. Mahmoud Ahmadinejad, is clearly a maniac -- calling for Israel to be removed to Alaska, for instance. But here I invoke my allergy to conspiracy theories by saying I do not necessarily expect any US or Israeli strikes against that country. One could argue that Iran could comfortably kick back and watch America get tortured by the insurgency next door in Iraq, and I think they will do just that through 2006. The nuclear card is wild, however, and anything could happen if they keep slapping it on the table.

     Which brings us to the extremely sore subject of Iraq. I maintain that our reasons for being there have not changed one bit, namely to make sure that we don't lose access to Middle East oil in any shape or form. Now my stating that does not mean I think we will necessarily succeed. The creation of a constitution in Iraq and holding elections based on it amounted to an admirable stunt, but I tend to think this experiment will dissolve into sectarian violence and civil war, probably within 2006, no matter what else we do. I predict that circumstances will impel us to withdraw from the Iraqi cities but that we will not give up large bases near the oil production areas of the north and south, and that we will continue to control the air space over Baghdad. Our position in that country would then devolve to a sort of Fort Apache situation. I imagine the vast emptiness of the desert combined with air cover will afford us some protection. But our presence there will only inspire more turmoil, hatred, and jihad elsewhere.

      King Abdullah seems to be in pretty good health, but he is going on 82. I predict that there will be fissures in the kingdom, and continued confusion about their oil production capacity. But by the end of the year it ought to be clear that they have not increased their output. Peak for Saudi Arabia may be the beginning of the end of the Saud kingdom -- since peak itself is highly destabilizing.

     In Europe, we are beginning to see some of the first tectonic heavings over energy as Russia jerks poor Ukraine around on their natural gas shipments. England has managed to piss away all the former advantage of their North Sea oil bonanza and they now face a future of dependence on Russian gas plus the bankruptcy of their remaining industrial base. France enters 2006 somewhat more energy self-sufficient, at least as far electricity is concerned, since 70 percent of it comes from nuclear reactors. The other nations of Europe are apt to get restive this year, and may more actively join the worldwide contest for access to fossil fuels. At the same time, they will be struggling to contain large Muslim immigrant populations and I would be surprised if there were fewer problems in 2006 than last year -- with the riots in France and the London subway bombings. We tend to write off Europe as a region of sclerotic cafe layabouts, but for the time being many of these nations can still mobilize potent military forces if they have to defend vital interests. Generally, I predict 2006 will see a shift in power to the big energy bear, Russia. It's industrial infrastructure is otherwise decrepit. It's armed forces are bankrupt. But it has at least enough nuclear arms to blow up the world a few times over, so that, combined with its oil-and-gas assets, require us to take it very seriously.

     Japan has nearly been forgotten. It now imports 95 percent of the fossil fuel it needs to run itself. God knows what they will do if geopolitical turmoil shuts down the shipping lanes that bring a steady stream of oil tankers to the islands. They are capable of mobilizing to defend their vital interests. We just haven't seen them do it since the 1940s. What role Japan will play in the Pacific remains a mystery, especially in relation to the growing power of China. Perhaps some of this oriental mystery will be revealed in 2006. Perhaps Japan will enter into some kind of Asian co-prosperity sphere alliance. Japan's economy will otherwise be subject to the severe economic strains emanating out of America.

     South America is going loco on us. They will probably never amount to a united front, but one-by-one they will become more hostile to us, in the manner of Venezuela's Hugo Chavez and the newly elected Evo Morales of Bolivia, a former coca farmer who aims not to allow America any more say in what crops his people can grow. Chavez can jerk America around on oil imports if he wants to, but probably not without risking his health and position. Mexico's economy is dependent on ours, only Mexico will suffer by another order of magnitude if the US economy turns down in a big way. In 2006 I think we'll see the first signs of overt hostility between our two nations as the US desperately tries to come to grips with the flow of illegal immigrants, and Mexico attempts to divert its suffering peoples' attention by making threats of incursion and reviving claims to lands along the border. We could see the first shots of what could turn into a huge ongoing border nuisance, perhaps even a quasi-war. Meanwhile, Mexico's premier oil field, Canterall, has entered depletion. They depend on imports of natural gas from us, and under the rather insane terms of NAFTA, we in the US depend on imports of gas from Canada to make up for the stuff we have to sell to Mexico. Those relationships may be subject to review.

      Here in USA, I predict that we will be diverted by a fantastic circus of congressional hearings and court proceedings. It will be scandal-o-rama for the Bush administration and the Republican party. The domestic spying issue will be a huge stink (I recognize I defended it on this blog), but it raises issues that our political system cannot digest right now. The Abramoff scandal is going to be huge and may take down twenty congressmen. Karl Rove will probably join Lewis "Scooter" Libby in the indictment pen for the Valarie Plame incident. Tom Delay is going to have a very ugly trial in Texas, and senate majority leader Bill Frist may end up being prosecuted for stock sale irregularities. These shows may so successfully entertain the public -- and the cable news impresarios -- that we will fail to notice the rising predicament of oil and gas prices and the cratering of the suburban sprawl economy (just as Watergate -- a very satisfying melodrama for those of us who were young reporters in 1973-4 -- diverted the US from the first throes of the oil crisis). All this activity will tend to degrade the standing of the Republican party to "junk" status. But there is no sign that the Democrats offer an alternative world-view to the "non-negotiable American way of life."

      Political circuses will not completely divert the middle class from its own suffering, as their mortgages devour what is left of their financial lives. But as they sink in fortune and hope, I predict we will see a turning of all the recent celebrity envy -- and the infotainment value spun off it -- into a vicious hatred of the rich and famous and a new desire not to emulate them, but to punish them. Look out, Nicole Ritchie and the Donald Trump. The grandchildren of Ozzie and Harriet will be looking to eat you for dinner starting in 2006

Comments

[Dave]

JHK
Great Post ! Enjoyed it very much and it made my weekend a little bit brighter than it otherwise would have been given some personal stuff that in a way reflects the deeper malaises you have written about so well and often.
My one resolution is to stop telling others about the significance and possible consequences of the coming energy shitstorm. NO ONE SEEMS TO GIVE A DAMN ! The response is either dismissive of me personally " OH your just a doom and gloomer !" or denial "They would never let that happen !" Let the sheeple find out for themselves. People are going to think that aliens have invaded and few will even remember my rants.
Happy New Year fellow bloggers and thanks for the links ! They are an education in and of themselves !

[maxconfus]

I live in the 12345, considering the regular amount of gun violence, some random and some not, I doubt we will see any suburbanites returning to this or other cities for that matter any time soon no matter what the financial conditions become.

[fizure]

Poopy,

The PPT is a farce. Capitalism controls itself, in the end.

http://www.safehaven.com/article-721.htm

[Poopy]

fizure: the author of the article you pointed to, Mauldin, is notorious for his sticking up for the "purity" of the system and rejecting "conspiracies" like the PPT. In other words he's naive. He proly also believes the POG's not manipulated, and for that matter, as JHK proclaims, that Muslim extremists with boxcutters knocked down 3 WTC buildings and more on 911 coz they hate our freedoms. Pfft. http://911blogger.com

I'd point you to the 2 Sprott reports above.. there's no serious question that the PPT is rigging the markets.

Here's another one, a 2 part Flash presentation, about another rigged market scandal, "Naked Shorting".

Part 1:
http://www.businessjive.com/nss/darkside.html
Part 2:
http://www.businessjive.com/nss2/darkside2.html

[Dmytri Kleiner]

How could any discussion of Iran in 2006 have no mention of the impact of the non-USD Oil Bourse to be opened in the coming year?

[Shep]

Finally! A solid posting, chock full of good information, and - most importantly - focused on Peak Oil.

May JHK never again succumb to the temptation of attempting to immitate a political talking head.

This is the quality of info that we've become accustomed to, Jim. Keep feeding us.

[Cyndiluwho]

Maxconfus, I agree w/you because cities have simply become undesirable for families and believe that suburban communities will form their own enclaves and protect themselves rather than move to cities with their crime and noise issues.

James Kunstler seems to think that suburbanites will simply fold based on lack of cheap gas and creative mortgages but I don't believe it. I think suburbanites will get to know their neighbors, form groups based on their financial resources (we're talking doctors and lawyers here) and protect what they have, even if they have to use violence to do so. I simply don't see affluent suburbanites rolling over and playing dead.

[fizure]

poopy, for now may we agree to disagree?

Shorting is shorting, no matter what Patrick Byrne thinks. Now, little 'ole grandma may be taken to the bank to withdraw some cash money so some stocks can swindle her... You know what I say to grandma? Don't invest in fucking stocks! Jesus, it takes someone with about the IQ of 20 to realize the stock market is fucking vegas on meth. It is all bullshit. Hedge funds? Mutual funds? The S&P 500? The Dow? Give me a break. It is all a scam, practically. You just need to know *how* to scam, and 'naked shorting' is the least of the scams. I'd trust many people, and many textbooks, over the CEO of www.overstock.com

Let me illustrate something to you. This is not coercion, at least not forcefully. This is people. People are idiotic, hate to say it, and capitalism is run simply by people OK just like communuism is. There are lots of situations where people believe stupidly and greedily. Welcome to the world.

The markets are fairly will regulated. I'll be the first to admit that it is a shellgame, and that the fucker is more inflated and threatened than the hinderberg. The Dow is way overvalued, and lots of people are going to loose lots of money soon. The simple fact remains that the markets are way to big and influential for individual organizations (even for the Federal government, or the Federal Reserve--try as they may bless their dear little souls) to wield control. It is a reflection of a herd, a mass, a mob of dollar sign eyes... all thinking that there are even more fools out there to partake, to drive prices even further up.

Buy commodities (Gold, Crude, Nat-Gas) now.

[Byron]

I work in the airline industry and I can say that JHK's predictions for government takeover of it, presented with certainty here, are far from certain. Currently, supply of seats in the US airline industry is greater than demand, hence prices are low and all but the most efficient airlines are hemorrhaging cash. We're about 1 major airline over capacity, so that if Northwest or Delta goes bankrupt and liquidates, supply will decrease relative to demand, and prices will rise to a more sustainable level. Everyone (except United employees) was hoping United would liquidate, but the Federal bankruptcy court allowed them to default on their employee pension plan, and they escaped.

If peak oil occurs and more airlines go bankrupt and are forced to liquidate, it won't signal a government take-over of the industry as JHK asserts. It will simply mean that the most efficient airlines will be free to purchase the assets of the others as needed and retask them to their more sustainable, adaptable business models. Airlines will hedge their fuel purchasing more judiciously as Southwest did last year, and embark upon numerous other cost-cutting measures and price increases until they are able to break even. Only the lean will survive, but this is a far cry from government-operated airlines.

Finally, even if oil prices get so high that not even the most efficient airlines can operate profitably, it is more likely that the government would simply loan some the money to continue operations, rather than taking over the entire industry. The government lacks the expertise and manpower to take over and run several airlines more cheaply than simply funding several of the most efficient and necessary ones.

JHK's predictions of peak oil chaos also fail to take into account the fact that as oil prices rise, it becomes economically viable to extract oil from other sources. The December 2005 issue of Wired magazine constructed a nice summary of alternative oil and energy resources and at what oil price point they become economically viable: http://www.wired.com/wired/archive/13.12/gas.html. There are associated problems with these, but not necessarily unsolvable.

Peak oil is inevitable and so are high fuel prices it will cause, but JHK's analysis is suspect b/c he fails to take into account the mitigating effect of alternative oil and other sources made possible by higher oil prices. Further, I see from his About page that he is hardly an expert on these, or even any related matters. He has penned this missive in the confident style of a global economic analyst, and presents his views as fact, but only the least critical reader would accept them as such, even moreso in light of his track record. He cites anecdotes and information that only support his views, while ignoring a host of facts and data that contradict them. Even if it came to the same conclusion, an honest analysis would at least include both, and attempt to debunk the information that contradicts the author's argument. JHK disingeniously does neither.

[Poopy]

What's up with Nat Gas tonight? Breaking to 5 month lows, pre-Katrina level. I got stopped out of some contracts 2 weeks ago in the low $13s, whew! Dodged a bullet. Here's the Feb-06 chart:
http://www.crbtrader.com/data.asp?page=chart&sym=NGG06

[fizure]

Poopy, this seems like a good and fair take on Patrick Bryne.

http://jeffmatthewsisnotmakingthisup.blogspot.com/2005/02/when-ceos-obsess.html

[Poopy]

fizure: it seems you're religiously believing what you WANT to believe wrt key markets not being rigged. I urge you to look at that Sprott "Adam Smith" report. It's lengthy but it has an executive summary at the beginning and a summary at the end, so just skim those and then backfill with the meticulously documented body as you see fit.
http://www.gata.org/SprottReportTheVisibleHand.pdf

I play some stocks, energys/PMs/commodities, and some home builder, FNM & FRE shorts, but it's with the knowledge that the game is rigged to a large extent; so I build that into my decisions asking, what are TPTBs intentions with their latest manipulation, and I try to stay on the right side of it. I welcome you to go on believing that everything about the markets is fair and transparent and free of invisible hands.. nothing personal but my people call your people "the dumb money", and that's good eatin'. As I said above, I don't expect the markets to "crash" in nominal fiat face value; the PPT will prevent that with their injections of printing press and global narcotrafficing-profit dollars. But the *buying power* of dollars going sideways not down, will be crashing hard over the next couple years of hyperinflation. Similar story with capital parked in real estate. This will put a flimsy mask on what TPTB will be doing in crushing the lower 99%. I think commodity plays will be the only assets which'll preserve capital in the coming years. And yes everyone should have a base of hands on precious metals...

[fizure]

Funny thing, we agree on the fundemental, but disagree on the function that creates it.

I do not believe the markets are transparent, they are anything but that. However, for anyone interested, it is plain to see. The stock market is far far overvalued. I will look into what you cited. I don't know what you mean by "key markets being rigged". I would hardly classify any market as being truly "rigged". I was down in Palm Beach before the New Year, and had a chance to talk to my grandfather and one of his extremely wealthy friends. They both seemed to believe that a collapse in financial markets is not possible because the proverbial "they" would not let it happen. There was no evidence provided when I asked them to cite something, anything mentioning this "they" (aside from the fed, which will soon hardly be able to *control* anything.) What else is a bigger determinent of market directions than actions from the Fed? There actions are public (sort of, some of the time!)

Anyways, I'm the last person to believe that markets are fair, transparent, easily understood in the present or for that matter controlled. Markets are markets, sure they can be controlled--however, can the Dow be controlled? Perhaps. But what kind of control is it?

Are you postulating absolute control? 10%? 20% 50%? 80%? Clearly, the Dow is much more than whatever group you want to paint as "controlling" it or "rigging" it. I believe capitilism is a system that works--WHEN regulated properly.

The problem with capitalism is its abuses, which mostly stem from major corporations forming monopolies and oligopolies and stifling innovation and keeping us in a trance of whatever feels good and increases the bottom line, the best example of this is transport in this nation.

[fizure]

wow:

their*
capitalism*

off to bed.

[eskrib]

JHK is disaster porn fetishist. It gets a bit embarrasing after a while. I wonder if he even knows what Dow 4000 means, in any real sense.

It's such an un-nuanced view -- the same thing that Bush et al are always accused of. Disaster ain't as easy as all that. this bullsh*t of "Everything will fall apart, neat and tidy-like in 2006" is just intellectual laziness.

There are constraints and the are many mitigating forces. I don't deny the general trend, but this is what pissed me off about the Long Emergency. It really is like porn -- and just as the pizza guy doesn't get laid by two horny girls every time he delivers a pizza, the stock market doesn't tank every time JHK gets his knickers in a worried twist. The world is just a little bit more interesting than that. Otherwise, I'd be a pizza delivery guy.

[McNonymous]

I like the term "McMansion" much better than "McHouse". It sound more like the real thing... yes I'd like some fries with my McMansion.

[dangerbird]

How 'bout a Ranchburger?

[davedog]

which are consumed by ranchburghers...

[Mike]

As to the economic outlook, I think much will depend on where the Fed's "excess liqidity" goes. Cause it's coming, whether from Bernanke, Greenspan or whoever heads that wretched institution.

But will it flow, as it has recently, from the Fed, to the 22 banks, to targeted markets, like assets, commodities, energy, housing? Fannie/Freddie helped the latter.

This question is key for one reason: if that money can be "hidden" in one sector, like it has with housing, we get "only" a bubble in one sector of the economy. And this is surely troublesome. No arguments.

But without a targeted sector to absorb all the additional money & credit (as would be the case in JHK's doom scenario of a burst housing bubble & declining asset markets), then we get the systemic hyperinflation everyone fears. For that reason alone, I think 22 of the biggest banks in the world, in concert with the Federal Reserve & the US government, will find somewhere to "stick" all that dough.

But that would, once again, just put off the pain we'll all have to feel eventually. Greenie did that in '87 and he did it in a big way in 2000/01. Let's see how the Helicopter Man plays it.

[Mike]

And, if I may, I'd like to offer a hearty Welcome Back to our good friend, Lilli.

For those who don't recall, Lilli explained last week that she was done with CFN, she was doin the Big Log Off. She was never comin back!

She's back. And not, as she mentioned, for the sole purpose of kickin poor little me "in the balls" either. Whassup Lil?

I predicted that despite your dramatic farewell, you'd be back in 2 to 3 days to entertain us with your observations, wit & complaints.

I was wrong. You came back in 6 days. Congrats.

[Ben]

eskrib, great post.

[dangerbird]

Ben
Ditto.
Mike
Once again your piercing insight into the machinations of the idiosyncracies of the economic situation gives the readers of this blog yet another opportuniy to learn from your keen abilities at observing the real lay of the land through all the opacity of the foggy surroundings. All of which leads me to this highly pertinent query, which has troubled me for quite some time.
Why Helicopter Ben? What gives? To what does freakin' "helicopter"
refer? Enlighten me.

[Mike]

Danger-

This little excerpt from the Wikipedia entry on "Helicopter Money" gets the description off the ground, so to speak:

"Milton Friedman suggested that a monetary authority can escape a liquity trap by bypassing financial intermediaries to give money directly to consumers or businesses. This is referred to as a money gift or as helicopter money (the second term implies that a central banker must fly over cities in a helicopter while dropping suitcases of money). Political considerations make it difficult for a monetary authority to grant the money gift, because individuals and firms not receiveing free money will exert political pressure. The monetary authority must act covertly to give gift money to specific individuals or firms without appearing to give money away. During the Great Depression in the United States, the Federal Reserve offered to buy any gold at a price well above current market prices. This was essentially a money gift to gold holders. In Japan in the 1980s, the Bank of Japan began buying newly-issued common stock and bond as a hidden money gift to firms." (http://en.wikipedia.org/wiki/Helicopter_money).

And now, this excerpt from the entry for "Ben Bernanke":

"He gave a speech in 2002 entitled 'Deflation: Making Sure 'It' Doesn't Happen Here' in which he discussed possible Fed actions to prevent deflation saying, 'A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money.' Further describing several options in the government's arsenal for fighting deflation Bernanke also said, 'the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.' These metaphors referred to the potential of the Fed to give money directly to citizens (as opposed to working through banks) as a last-resort possibility to stop deflation. Critics of Bernanke, calling him 'Helicopter Ben,' argue that he is too worried about deflation and too sanguine about its opposite, inflation." (http://en.wikipedia.org/wiki/Ben_Bernanke).

So . . . because of his stated fear of deflation; his axiomatic preference for it's opposite, inflation; and his unironic desire to see Friedman's Helicopter Money Drop if the economy needs a kick . . . viola, we get "Helicopter Ben." His printing press line is more frightening actually, since it literally describes the scenario. Maybe "Ben Guttenburg" is coming.

The fiscal conservative punditocracy has a bevy of great names for Greenspan, as you've probably seen. The best is "Easy Al," though I've been trying lately to push my own term, "The Green Genie." Rub his lantern and he appears, spurting money. You don't even have to rub him & he'll still fill the trough.

[kd]

Toward the end of Jim's long post this week, he writes "But there is no sign that the Democrats offer an alternative world-view to the 'non-negotiable American way of life.'"

This is, of course, true, but it seems more & more true of the comments at Clusterfuck Nation. Discussions of the U.S. economy--whether the stock market, housing bubble, oil prices--begin to abound, but the "world-view" (operative phrase here) remains much the same. In other words, things are "alright" when our consumer society/economy is chugging along. Anything to upset that is quickly called a threat ("disaster") & those who critique it are called "doom sayers".

[Lilli]

'I have no idea what will happen with Iran. Their leader Mr. Mahmoud Ahmadinejad, is clearly a maniac -- calling for Israel to be removed to Alaska, for instance.'

I read his full statement and that bit was at the end of it. I think the message he was trying to get across was that Israel is an american colony so why dont you put it in Alaska (american colony) instead of putting it in the middle east. It was the last sentence exaggerated to make I point I thought.

Much like the few lines you put at the end of your post. You must be a maniac Jim because as I british person they made no sense to me.