Burning Down the House

     Behind all the blather and bullshit about the Federal Reserve's rescue gambits and the machinations of the ratings agencies, and the wiles of foreign sovereign wealth, and the incomprehensible mysteries of markets, and the various weather forecasts of a gathering "recession" is the simple fact that the USA is a way poorer nation than we imagined ourselves to be six months ago. The American economy has been running on the fumes of "creatively engineered" finance (i.e. new-and-improved swindling) for years, and now these swindles are unraveling. In their aftermath, they leave empty wallets, drained bank accounts, plundered retirements funds, boiled away capital reserves, worthless stocks, bankrupt companies, vandalized housing tracts, ruined families, and Wall Street executives who are still pulling down multimillion-dollar pay packages despite running their companies into the ground.

     We're burning down the house and kidding ourselves that there is a remedy for it. All the rate cuts and loans to big banks and bank-like corporate organisms, and "monoline" bond insurers, and mortgage mills amount to little more than a final desperate shell game to conceal the radioactive pea of aggregate loss. The losses are everywhere, and when you add up seven billion here and eleven billion there they probably amount to something like a trillion dollars in sheer capital evaporation -- not counting the abstract "positions" that the capital was leveraged onto by the playerz and boyz who mistook algorithms for productive activity.

     The shell game may run a few more weeks but personally I believe the timbers are burning. The losses are no longer "contained" or concealable. A consensus has now formed that we're in for a "recession." The idea is that, yes, this seems to be the low arc of the business cycle. Fewer Hamptons villas will be redecorated in the interim. We'll gird our loins and get through the bad weather and when the sun shines again, we'll be ready with new algorithms for new sport-with-capital.

     Uh-uh. Think again. This is not so much financial bad weather as financial climate change. Something is happenin' Mr Jones, and you don't know what it is, do ya? There has been too much misbehavior and it can no longer be mitigated. We're not heading into a recession but a major depression, worse than the fabled trauma of the 1930s. That one occurred against the background of a society that had plenty of everything except money. Back then, we had plenty of mineral resources, lots of trained-and-regimented manpower, millions of productive family farms, factories that were practically new, and more than 90 percent left of the greatest petroleum reserve anywhere in the world. It took a world war to get all that stuff humming cooperatively again, and once it did, we devoted its productive capacity to building an empire of happy motoring leisure. (Tragic choice there.)

       This new depression, which I call The Long Emergency, will play out against the background of a society that has pissed away its oil endowment, bulldozed its factories, arbitraged its productive labor, destroyed both family farms and the commercial infrastructure of main street, and trained its population to become overfed diabetic TV zombie "consumers" of other peoples' productivity, paid for by "money" they haven't earned.

        There is a theory (see Nouriel Roubini's blog) that a reform process will now ensue in the financial realm, new regulation and oversight of the same old familiar activities. This too, I'm afraid, will prove to be wishful thinking. The financial system will not be reformed until it lies in smoking wreckage, and when that "re-form" happens the armature of the re-organizing society will barely resemble the one that the previous burnt-down-house was designed to dwell in. Among other things, it will not support capital enterprise at anything like the scale that we became accustomed to lately. Globalism will be over. The great nations of the world will be scrambling desperately for the world's remaining oil supplies. It will not be a friendly contest, and anyone who thinks that current trade relations and capital flows will continue despite that is liable to be disappointed. (Are you reading this Tom Friedman?)

      Long before the mathematical projections of oil depletion play out, the oil markets themselves -- and all the complex operations that they comprise, such as drilling and exploration, and the movement of tankers around the planet -- will destabilize and seize up. We will no longer be any oil exporter's "favored customer." Many of the exporters will enjoy watching us suffer. Contrary to the political platitude-du-jour, the USA will never become "energy independent" in the way we currently imagine. Rather we'll become energy independent by being deprived of imported oil, and we'll be thrown back on our own dwindling supplies -- which means that we're not going to run our system of daily life the way it has been set up to run. When Americans can no longer run their cars on a whim, they will simply go apeshit and you can kiss normal politics goodbye.

     The financial system that emerges from this cataclysm, and the economy it serves (which is supposed to be the master of its capital deployment "arm," not its servant) will likely be modest to a degree that will shock and embarrass everyone currently connected with what we have lately called finance. If it even trades in paper, that paper will have to stand for something based in reality, either a productive activity or a genuine asset. It may take decades for this society to even regain the confidence necessary to operate such an elementary system -- or it may not come back at all, at least as far as the horizon lies before us. That's how bad the mischief and the damage has been.

      It's not hard to understand why the Bernankes, Paulsons, Lawrence Kudlows and other public representatives of capital keep pretending that everything is under control. On the other side of their pretenses lies disorder and hardship. One wonders, of course, what they really see in their private minds' eyes. Do they actually believe that the statistics issued by their serveling agencies amount to a plausible picture of reality? Are they so lost in their fantasies of "management" that they think they're controlling events?

     My guess is that their credibility is spent. In the weeks ahead, nobody will know who or what to believe. We may even run out of questions to ask as we just all collectively stand there in a thrall of wonder and nausea, watching the nation's financial house burn down.

Comments

[Dave]

wrong alloy there UY. them bitches is pure. before and after. guarantee.

[Dave]

what i really want to know is how or why herbie hancock won album of the year?

[Nudge]

Here's what Americans need to hear now .. and it's in video format so there's no reading required to understand the message:
http://video.google.com/videoplay?docid=-726450075131909113

“Don't buy stuff you cannot afford”

Oh, and UY, what's with the “guaranteed” thing you mentioned? If perchance you mean the purity of the gold, it usually says so right on the coin. As to fiat-currency-dependent governments guaranteeing the value of gold, well, that's both an oxymoron and an example of putting the cart before the horse. Modern central banks & modern governments (like those here in the UPL) absolutely hate gold with a passion because they're unable to manufacture the stuff on demand ~ and in Bernanke's case, because it's too heavy to airlift via helicopters for those midnight cash drops to the proles.

It costs something like, what, $0.05 in ink, paper, labor, and machine time for the government to make a $100 bill. (And that's being very generous.) So simply by printing that scrap o' paper, they've made an immediate profit of $99.95. Sweet! That's sort of like a very high “financial EROEI” on the order of 1999:1. And it's even light enough to be carried aloft in bales and dropped out of helicopters, right into the hands of willing fools who conflate those little rectangular pieces of ink-stained paper with, of all things, money. Duh.

Gold, on the other hand, is not subject to this sort of silliness. The only way to end up with an ounce of gold is to start with an ounce of gold, or, failing that, to sell something or perform services & such in order to /earn/ the gold. Its financial ERORI is exactly 1:1.

Gold is real money. Ink-stained paper is just monopoly money. Anything denominated in monopoly money is only going to be worth bits of ink-stained paper later on. Let's not confuse the two kinds of money please.

[EEofDC]

MOU, UY et al--

Despite the possibility that Holmes may diss me for mentioning her, I would suggest checking out Catherine Austin Fitts' blog on her Solari website.

http://www.solari.com/blog/

She has discussion and links up the wazoo on metals and currency. I was never able to find her list of "10 things she would ask the presidential candidates," one of which was: "when would they move our nation's gold reserves out of the NY Fed and into Fort Knox?"

Word to the observant: Good things do come in small packages.

http://www.youtube.com/watch?v=5yI3GNwWxJQ

[UncleYarra]

Nudge,
At the Perth Mint, they sell coins that are legal tender and have the content (purity) guaranteed by the Oz Government. This is very useful as assaying costs can be a significant amount on small denominations of PM. After all, small amounts are more useful - no point trying to buy your groceries with a 100 troy ounce gold bar, much better to use a 1/2 or 1oz silver coin.
Another advantage is that being legal tender they don't attract taxes (import/export/GST) like gold bars do.
As for fiat currencies, I have 100% faith that my democratically elected government can supply me with the $1 face value of a 1oz gold kangaroo coin.
That makes for an astronomical FRFI (financial return on finance invested, pronounced 'furphy').

[UncleYarra]

I answer my own question...
"NOTICE: Liberty Dollar is a private voluntary barter currency. It protects your purchasing power. It does not violate Section 486 as it is not intended to be used as "Legal Tender", "Current Money" or "Coin". "
(from libertydollar.org)

[Movenonup]

An interesting idea:
_____________________________
Calling for a General Strike against the Illegal Federal Reserve System

April 15 2008

Show your support
A General Work Stoppage

Spend No money that day

Wear White armbands to show your support

Remove most of your money from the Banks in the days preceeding the Strike

http://www.dailypaul.com/node/28224
__________________________________

Don't need to like Ron Paul to play dat.

[Movenonup]

Thanks for all your comments on PM. Love ya'll and I may be more undecided than before (but now I have some solid information to be confused about!).

I only have a few grand. This is about where to best aim my very meager resources.

I'll probably buy guns, ammo, and Vodka. Hell of a party, oh yeah. Tools are an exceedingly sensible idea too. And toilet paper! After all, when the SHTF what are you really going to need?

Of course there are alternatives...

http://www.getlostmagazine.com/features/2000/0004hygiene/hygiene.html

[oneEyeOpen]

Nudge sez,

"OEO, in your 15:47 post above you spoke of the 1980 high gold price of $840/oz. Umm, sorry to be the one to point this out, but that was $840 in 1980 dollars, which would be roughly $3,000 in today's dollars. Gold still has a long ways to climb. It'll probably be above $1,250 by the time our election rolls around here in the UPL."

Umm, sorry to point this out to you but you have merely driven my point home. I was telling how it took me 28 years to see gold return to the 1980 price I payed for it without even mentioning "real dollars" as part of the equation. If I take your 3000.00 dollar figure as accurate it only emphasized how TRULY shitty my purchase was as I am still 2200.00 in the hole. But then you go on to say the following regarding gold's attributes"
"It's money that knows no national borders and is immune to inflation, rust, and compound interest."

Huh? If gold is immune to inflation how could I possibly be 2200.00 in the hole? What 'chu smokin' Nudgeness?

[thal]

Fed the quarter, "Game Over" simply stated it stated.

I was sated, and I drove away with a full tank of gas, and crawled off to lick my wounds in the corner.

[Nudge]

MOU, depending on how hard and fast the poop is going to hit the propellor (sorry to follow your link with something so scatological!) you may wish to invest in certain classes of things that would be innately valuable then due to demand going so far beyond supply:

- water bottles with filters, so you can purify water on the go while traveling long distance on foot;

- good camping gear, especially sleeping bags that can take the cold;

- lots of good ammo for your weapon;

- fuel preservatives & several 5-gallon metal jerry cans;

- high-end NiMH batteries, a good charger that can run off 12v and solar, communications gear for you and the family;

- a compact hiker's GPS .. those are going to be worth a /lot/ later;

- a good sense of humor! :)

Awhile back, someone posted a link to a long list of which things disappeared first during the recent war in Sarajevo. It made for really good reading. Conditions here may be not unlike that, except with a truly grotesquely large human overpopulation problem.

I'm planning to donate my spending stimulus cheque to some local militia, preferably one that needs the money for its legal defense in federal court.

OEO, you bought gold at its 1980 peak paper price? Ha ha ha ha ha giggle ha ha ha. Ooooh ha ha ha ha ha. Tee hee hee, ho ho, chuckle, *snort*, ha ha ha.

Thank you OEO! I just spewed water all over my keyboard!

No one but you can prevent that inner fool from coming out, OEO. Thanks for the laugh! :)

[PeakLife]

oneEye,

Whatever Nudge is smoking, it leads her to believe that she's not only an economist, but energy scientitst, petroleum engineer, and all around seer of the future. You'd do best to ignore her--unless you need a secretary, since that's her actual profession.

[Nudge]

Sorry, OEO, you were probably being serious and I wasn't. Apologies.

Gold doesn't fluctuate in value as much as the fiat currencies in which people try to price it. This is exactly bass-ackward. Try it the other way around: price the currency in terms of gold, and then you'll see what's happening. Observe:

http://pricedingold.com/us-dollar/

OEO, for bonus points, please draw the line in your mind's eye (the one that's open, preferably) and tell me when the USD will be worth nothing. (hint: it's not far off from the predicted Mayan-calendar voodoo BS)

Looky here .. how does it look when we price oil in terms of gold instead of ink-stained paper that was cheaply printed in volume and dropped out of helicopters?

http://pricedingold.com/crude-oil/

If you want to refute the notion that an ounce of fine gold is today significantly different in terms of goods and services than it was 10 years ago, or 50 years ago, or 100 years ago, or 500 years ago, or 1000 years ago, or 5000 years ago, then by all means you're welcome to try. Give it your best shot, boyo.

[greenbeans]

Trees are a good investment. Fruit and nut trees are my favorites. Walnuts and almonds have been used as currency historically.

[Nudge]

GB, nuts are great. Walnuts, macademias, peanuts, etc, then there are the raisins, dates, apricots, figs type things. Then there are mixed nuts like we sometimes find dropping on us here. Oh, hi, PL, is this early for you or are you up late? Still got a good grip on that CTL corn cob with your sphincter?

[Holmes, I presume]

Do they make a left-handed corn cob?

[oneEyeOpen]

"If you want to refute the notion that an ounce of fine gold is today significantly different in terms of goods and services than it was 10 years ago, or 50 years ago, or 100 years ago, or 500 years ago, or 1000 years ago, or 5000 years ago, then by all means you're welcome to try."

I purchased an ounce of gold in 1980 (in 1980 dollars) for $840.00. You are telling me that for me to break even on my 1980 purchase that my ounce of gold (in 2008 dollars) would now have to be worth $3000.00. It is not. The last time I checked it was worth around $915.00. This is a clear indication that not only did gold not stay even with inflation but it has declined in real dollar valuations.

I'm not about to waste time with your 10, 50, 100 and 1000 year scenarios as my personal experience knocks your silly theory on its weak ass. But I am certain that gold ownership during these periods brought about differing fortunes for those who owned it which was dependent upon what individuals paid for it at a given point in time. Once again, I will state that I currently own shares of Barrick and Gold Corp both precious metal companies. I am merely pointing out that ownership of gold (or gold stock) is a guarantee of absolutely NOTHING. Now go stand in the fucking corner and be quiet.

[OGH]

Hey dad ,can i borrow twenty bucks?
Jeez son, money dosn't grow on trees!
30 years later.
Wrong dad... Respectfully......Yes it does.
And even legit trees keep relentlessly adding value while you go about your day to day work.
Greenbeans Black Walnuts will be worth a small fortune at retirement ......well would have.......with TLE they may have to be used for more mundane uses than Yamaha Grands or wood veneer in Rollers

[Nudge]

As I suspected, OEO, you're completely unable to extend your own personal worst case gold price scenario out to the longer term. Why don't you grow a brain before coming back? Posting without one isn't doing you any favors.

[FARfetched]

I'm not much of a gold bug, myself. Like anything else, gold is money because enough people say it is. If enough people say specially printed paper is money, it is. If enough people say labor is money, it is (Google "Ithaca Hours"). In colonial America, nails were money (thus the 10-penny, 16-penny nomenclature) as well as nails.

I can't *make* more gold. But I can hike down to the creek and pan some out. Or my brother-in-law can; he's had good days & bad days at gold panning.

But I'm getting off my point. Gold's value as a "collapse" currency is its portability. If TSHTF, I'd rather have a room full of canned food than a pocket full of gold — I can't eat the latter. But if I'm on the move, I don't have a room to store that food so the gold (or silver) would be the better choice.

[oneEyeOpen]

'As I suspected, OEO, you're completely unable to extend your own personal worst case gold price scenario out to the longer term. Why don't you grow a brain before coming back? Posting without one isn't doing you any favors."

Hey stupid fuck. In 28 years (That is a long fucking time in terms of investing.) My purchase lost value. Gold had a 28 year period to return to its glorious 1980 price. It did not and still has not. You stated (rather stupidly, I might add):

"If you want to refute the notion that an ounce of fine gold is today significantly different in terms of goods and services than it was 10 years ago, or 50 years ago, or 100 years ago, or 500 years ago, or 1000 years ago, or 5000 years ago, then by all means you're welcome to try. Give it your best shot, boyo."

Well girlo I did. My 28 year period falls between your 10 and 50 year period. How fucking dull can you possibly be? Christ, if I knew where you lived I'd come over and rob you because for you to be so blind to the potential pitfalls of any precious metal you must have a cute little pile stashed away. What a fucktard!

[Gulland]

Speaking as a blacksmith, steel has been more valuable than gold. In the old days, if an attacker's sword would break a defender's sword, then the gold that was being defended belonged to the one with the better sword.

I'm with you, FAR. When it comes right down to it, food is the ultimate currency, and has absolute value... as long as you can defend it. I believe that those that can produce food well will be very important in the future.

Gulland

[DanaJ]

Nudge, OEO, try thinking of things this way. In the Depression of the 1930's most people still carried their money around in silver dollars, they had some intrinsic value, as PM's always have had. Look at it this way, if the shit hits the fan and you and some other guy need some food and you both go the the guy up on the hill thats living in the bunker filled with cans of Spam, who is gonna get some of that wonderful food product, the guy with a brief case full of $100 bills, or the guy who will trade his $10k Rolex for some yummie Spam. The guy with the gold will get some canned pig asses, the guy with $100 can just burn them to keep warm. Gold will always have some value to someone else, and they know that they can trade it for more ammo to keep their hoard of Spam safe. Who cares what it was worth in 19fucking80, its what it will be worth in the future that matters, especially if the USA quits circling the bowl and goes down the drain.
Look at oil, is there ANYONE out there that thinks it will ever be $20 a barrel again, or that gas will be $.99 a gallon? And in the future, the nice Arabs may ask us to pay for "our" oil in somthing other than TP with pictures of dead presidents on them, perhaps gold? What do you think Bush's buddies in SA do with all the $ we give them for thier oil, they by freaking gold with it. Check out the gold marts in the mid east, when the oil is finally all gone, they will be sitting on a huge pile of gold. We will probably be eating each other.

[Nudge]

OEO, sorry, I misunderstood the sense in which you purchased gold.

Given the nadir of the remorse you've expressed at your own personal experience with commodity-buying at the zenith of bubble prices, it's clear that you never intended to hold gold for the long term. No, you, sir, were just a mere flipper, no different from the polyester-jumpsuit-wearing burger flippers who bought McMansions during the recent real-estate run-up with the hope of flipping them for a quick buck. Too bad for you, you got in too late in the scheme, so you've been stuck holding something you couldn't unload except at a loss.

Well, boo fricking hoo, mister. Cry me river and go drown in it. That you, like these wannabe house flippers, bought at the wrong time and for the wrong reasons, and then had a bad experience with 'commodity X' certainly doesn't mean that others will share your own bad experience, unless perhaps they too had the same bad timing that you did.

You will note, upon reading all the current whining and wailing about real estate, that the people who bought houses to live in them for the very long term (30+ years) aren't all that distressed over the recent valuation changes. The key here is that they were never planning to flip houses for a quick buck in the first place, and that to them, the primary value of the house was not in being able to sell it quickly but to have a place to live in for the next few decades. In other words, they weren't gambling like flippers, they were investing in quality of life and peace of mind.

The approach that you took to buying gold was that of a gambler, and the remorse you express at a gamble gone awry is no different from that of any other hard-luck fool steaming in the foyer of the casino after getting kicked out. I don't suppose you're going to spend the same energy telling everyone how bad it is to buy a house that you do telling everyone how bad it is to buy gold, hmm?

Gold is more of an investment than flipping fodder. If you can't tell the difference, OEO, perhaps you should stick to simpler purchases.

[thal]

All my copies of TLE are now out on semi-permanent loan (8 copies and counting)...I expect none of them back. Scattered to the local winds. C'est la amore. This blog is now transitional to my pathetic mind.

I'm hunkered down now for a novel from the Bard. I'm queued in that regard.

Carry on brilliant people (I say that not lightly). Love, from Me to You.