Still Pretending

     The maneuvers that the big banks are making nowadays, along with their enablers at the Federal Reserve and elsewhere in Washington, really amount to little more than the old Polish blanket joke -- in which (excuse my concision) the proverbial Polack wants to make his blanket longer, so he scissors twelve inches off the top and sews it onto the bottom. Only in this case, the banks are shearing x-billions of losses off the top of their blankets and re-attaching x-billions of new debt onto the bottom. This new debt, of course, goes to cover the old losses and only represents further losses-to-be-reported-later, since the banks are basically insolvent. Borrowing more money when you're broke doesn't make you less insolvent.

      The banks can probably keep this gag running a little longer, but not without consequences. My guess is that it spins out of control in March sometime when some more hedge funds blow up and at least one big bank, perhaps Citi, rolls belly up like a harpooned whale. The game is really over, and all the playerz know it. The consequence of continuing to pretend the meta-fiasco of Ponzi endgame is fixable will be an even more shattering depression than the one we're already in for.

     We are a much poorer nation than we thought we were and the reality is just too hard to face. Nobody from the most august banker (Treasury Secretary Hank Paulson) to the lowliest wanker (the WalMart inventory clerk who "bought" a house outside Phoenix with a no-money-down, payment-option, adjustable rate mortgage) can believe that this is happening. The candidates for president are pretty much assuming that vast financial resources will exist to be deployed against a range of problems. Everybody is going to be hugely disappointed.

    When you introduce perversities into an economic system, they invariably end up expressing themselves as distortions. The economy that evolved the past two decades, driven by the perverse securitization of wishes and frauds, will now express itself in a stark cratering of American living standards. Incomes and jobs will vanish, massive quantities of stuff will collect dust on the WalMart shelves, the fragile infrastructures of daily life will go to shit, and there will be political hell to pay. Every attempt to avoid a straight-up workout of our massive losses, will represent another layer of perversity and more consequent destructive distortions.

     I feel sorry for the next president. Even as he takes his oath of office, the nation will be flying apart like a seized-up engine. Since the fiasco in finance is happening in lock-step with Peak Oil (and very likely because of it at a fundamental level) we can expect one of the distortions to take the form of oil shortages. These shortages will come not just from demand bottlenecks in a stressed-out world oil allocation system, but because exporting nations will start demanding payment in Euros or something besides the depreciating currency that reflects our disintegration, and we'll have a problem coming up with payments that amount to at least fifty percent more than we're used to shelling out.

     Once the US gets into serious difficulties with our oil supplies. every other sector of the economy wobbles, including especially the food-growing sector, which cannot function without copious amounts of diesel fuel and hydrocarbon-based soil "inputs." Americans will go hungry, and not just the "underclasses."

     Along in this process somewhere, there is huge potential for armed conflict with other nations. If the unraveling gets traction while George W. Bush remains in charge, the US may answer bellicosity from oil-exporting nations, or energy-hungry rivals, with truculence of our own. Things can get out of control very fast in such a situation. Nations that were happily selling us salad shooters six months earlier may be targeting our naval vessels with a different sort of shooter, say a Sunburn missile. In any case, we will be acting with a bankrupt, exhausted, and over-extended military, and the best case outcome would leave us merely isolated and marooned geopolitically on our own continent, with dwindling energy and mineral resources and an angry, demoralized population.

      This time around we have more to fear than fear itself. The banking executives, government officials, and candidates for president are not doing the nation a service by concealing and ignoring our losses. Finance, as the driver of an economy, is finished, but the deployment of capital is still an indispensable arm of a real economy. Sooner or later we'll get back to money that stands for something and banks that function as credible repositories of wealth. But we haven't even started down the path to that place, and the longer we pretend that we don't have to go there, the worse the journey will be.

Comments

[DerekK]

Excellent.

[David Mathews]

I bought and am currently reading "World Made by Hand" ... and enjoying the book, by the way. Only the second fiction book that I have read in the last ten years (the other one being "Slaughter-House Five").

I particularly enjoyed the sentiment expressed in Chapter 2 about the eroding Kmart store:

"I wasn't sorry it was out of business, but I was sorry the remnants were still there."

May the day come when forests own the parking lots!

[Dave]

sapolsky on anal sex.

http://ffrf.org/fttoday/2003/april/index.php?ft=sapolsky

[Dave]

hey rico, you can talk to DM about sh5. it was a good book. and i do like KV as an author.

[jp]

Great link Dave, thanks.

I really like JHK's writing in CFN, as well as Geography of Nowhere and the Long Emergency, but I really did not like "WMBH".

[Dave]

because reading sucks.

http://youtube.com/watch?v=uZLDt3YBIpI

[Dave]

http://youtube.com/watch?v=7m5n7Nrn7_0

[Lost Horizon]

Idle financial web gossip has it that the Bushit Criminal Cabal and their Wall St ButtBoyz are hoping to keep enough duct tape and baling wire wrapped around the stinking pile of parrot droppings known as the 'aMerakin Economy' to reach April 15.

The last real cash infusion for the Gov'ment before it become obvious to even the most moronic of US 'citizens' that the cupboard is Bare.

I mean BARE.

Municipal bond auctions are dead as a door nail. This is how a huge number of towns and cities around the country raise money for many local government services. Even if the Masters of the Universe on Wall(eyed) St breathe some life back into the corpse of bonds, the interest payments towns and cities will have to cough up to raise operating capital will skyrocket. Municipalities might as well pay credit credit interest rates. This will have a Big Effect on everyone's local tax bill and services.

The MSM always talks about 3rd world countries and 1st world countries.

Well, I always wondered what 2nd world countries were, no one ever uses the term.

Welcome friends and neighbors to the new offical Second World country of America.

It's financial rating has just been downgraded a notch.

As Jim might call it, the Formerly First World country known as the United States.

[Loveandlight]

Lost Horizon:

The term "Second World" referred to communist countries, especially those in the USSR's sphere of influence. Obviously, this term is now somewhat dated.

[FARfetched]

I still see this as a fundamentally labor-related issue, much more than a finance-related one (and energy problems are only a minor factor, so far).

If we made the salad shooters at home, more people would be employed and paying their mortgages. There would be defaults — there's always defaults — but their number would be manageable and there wouldn't be an issue.

What are the big boyz thinking? Are they hoping to space out the losses over a year or two, hoping for a lesser emotional impact? If by some miracle, the economy recovers, it could come to the rescue? Naw, that's longer-term thinking than those guys are used to. If they'd been thinking that far ahead, they wouldn't have allowed all those manufacturing jobs to go to China.

For better or for worse, this is a consumer economy. Consumers need income to buy houses or crap at BigBoxMart. They need jobs to get that income; even if you're floating easy credit you still need income to pay the loan.

Perhaps the solution is to just write off all debts and start from scratch. Sure, some irresponsible people will get "rewarded" but many more who just got caught out will get another chance. Heck, we could probably finance most of it just by repudiating the Chinese debt. "But you'll get it all back because people will be buying more salad shooters." I know you can't just do one thing, so I wonder what kind of "knock-on effects" (as they say in the UK) it would cause.

[Lost Horizon]

Dmitry Orlov's classic:

Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US

is a must read on the differences between 1st and 2nd world skill sets.

http://www.energybulletin.net/23259.html

Also his new tome:

Reinventing Collapse: The Soviet Example and American Prospects

http://www.amazon.com/Reinventing-Collapse-Example-American-Prospects/dp/0865716064

The military-corporate meal-ticket complex in both countries leads to the same sad end. Bankruptcy. Moral, Spiritual and financial.

[Lost Horizon]

The new Bubble to rescue the US will be the "Green Everything" Bubble. Like the Dot-Bomb tech Bubble, this one will be managed and merchandized as the Answer to our wasteful energy ways. Wind, solar, electric this, electric that.

Trouble is, where's the investment capital? Oh I forgot, we will just 'Will" it into existence with the Federal Reserve. They've done such an Ace Job so far. Or better yet, let's all click our Ruby Slippers together, and just Print the Money!

These new photo-realistic inkjet printers are fabulous. (the ink however cost a fortune! Ha)

[Blunt Force Trauma]

Love and Light said; "....we could probably finance most of it just by repudiating the Chinese debt."

Forgive me if I'm not reading correctly. It seems as though you're referring to debt that China has with the U.S.(?)

Its known that China holds approximately 1.43 trillion of U.S. debt. Or are you merely saying that the U.S. should simply seperate or divorce itself with debt with China? If thats the case, then the U.S. is to see a depression happen a whole lot sooner.

In any case, I'm confused by what you mean. Please clarify should you see this.

[scott]

http://www.kitco.com/ind/Nadler/feb252008A.html

[Lost Horizon]

Stiffing the Chinese on all the money we owe them for Salad Shooters sounds like a Real Smart Plan.

The countries who export oil to us would watch on in amazement. Gee, ya think they would stop selling us oil?

I guess some Americans would think it's equivalent to stiffing the credit card companies and their bank mortgages. Easy, ya just stop paying and it will all go-a-way, like a really, really bad dream.

Hey kids, the biggest banks in 'Merika are technically insolvent, Now, as we speak. They are being kept afloat by loans from those Middle East oil kingdoms and other Lesser Puppet Regimes world wide, but at Uber premium interest rates, like, oh 14% plus. That's an unbelievably high interest rate for the 'Flagships' of US banking to pay. Loan Shark like in fact.

Reach for the Sky my Children, 'cause this is a stick up.

Groveling for oil money loans from Arab despots is a long way to fall for Titans of Wall St.

Like that old saying goes, the Bigger they are, the Harder they fall.

[scott]

"This [David Walker leaving the GAO] sounds to me like the ultimate sell signal on America. As the next president is just under a year away from having the operational authority and consensus to take any definitive action, the Bush administration will have to act. In a highly charged election year such as this, controversial new economic proposals are unlikely to even be discussed.

http://www.kitco.com/ind/Nadler/feb252008A.html

[FARfetched]

Blunt Force, that was me, not Loveandlight, who threw out the idea of stiffing China.

Look at 20th century history — we got stiffed by a bunch of countries, and we somehow (magic?) managed to not melt over it. We've had industries nationalized out from under us, and we didn't stop trading with those nations. I'm sure when the communists took over China, that there were debts & infrastructure that they simply appropriated. Why should it be any different going the other way?

Am I advocating this? No, not yet anyway. As far as other countries selling us oil, see "Export Land Model" — their own demand is climbing, so it won't be that long before they stop selling us oil anyway. Maybe when everyone is keeping their oil to themselves, that will be the time to do it. :-P

[TheBirdMan]

On the up side of this catastrophe you are predicting, we might finally be able to bring our exploding white tailed deer populations under control here in the Eastern US.

[Johnny Rico]

On Saturday, Obama was asked about a possible Nader candidacy. He praised Nader's work for consumers, but added, "My sense is that Mr. Nader is somebody who, if you don't listen and adopt all of his policies, thinks you're not substantive. He seems to have a pretty high opinion of his own work."

Nader responded in Monday's interview. "As if Barack Obama doesn't have a high opinion of his own work? That's name-calling.

"Address the issues, Barack. Address why you're not for single-payer health insurance… Explain why you don't challenge what you know as to be tens of billions of dollars of waste, fraud and abuse in the military budget.

Explain why you don't really get concrete about how you would renegotiate NAFTA and WTO, which is exporting jobs and industries to places like the communist dictatorship in China.

"And above all, explain why you don't come down hard on the economic crimes against minorities in city ghettos — payday loans, predatory lending, rent to own rackets, landlord abuses, lead contamination, asbestos. There's an unseemly silence by you, Barack, a community organizer in poor areas in Chicago many years ago on this issue."

http://politicalticker.blogs.cnn.com/

[jp]

thanks JR..this is also why the dems marginalized and shut Kucinich out of the "debates".

[EEofDC]

"ee, everybody got to get lucky sometime." --dave

Nah, dave... you're da man!! You are evolved.

"why do you like me?"

Because you've changed my life again with that link to Sapolsky. And Rudi likes ya. And Rico, too.

"...you seem intelligent. but there is something odd about you, kinda intrigueing."

This "kinda weirdness" is now called "schizotypal personality" according to Sapolsky.

How did Sapolsky know that I was putting on my choir robe and conducting communion services in my closet with grape juice and goldfish food when I was six?

"I still see this as a fundamentally labor-related issue, much more than a finance-related one (and energy problems are only a minor factor, so far)." --FARfetched

Agreed, FAR. We never look at things wholistically. Jeremy Rifkin, Peter Drucker, Hazel Henderson, etc. have been talking about this issue for decades. What do people do in an automated society? I agree with JHK that "green" is going to be the next snake oil/bubble. Solar-powered salad shooters!

Oh, and I'm old enough to remember when poor David Stockman got "taken to the woodshed" by Ronnie Raygun after his confessional to William Greider, then of the Atlantic Monthly, about the flaws in supply side economics. This is the same conceit that G.H.W. Bush referred to as "voodoo economics" when he was competing with Ronnie for the Prez nomination in 1980.

"Greider's piece depicted Stockman as a brilliant young conservative idealist who gradually became disillusioned with the conservative movement's grand theories about how the world worked. In a memoir published five years later, Stockman expressed some disgust with the political process itself." --Timothy Noah, Slate 2003

http://www.slate.com/id/2087957/

I vaguely remember Stockman saying something in his memoir afterward that the U.S. and Russia were in a race to the bottom... Russia just beat us to it. (Bye-the-by, last I heard, Stockman was indicted about this time last year by the SEC for securities fraud involving a Detroit auto-parts manufacturer that he was trying to save. And this from a conservative administration!)

Good ole entropy. It gets you every time.

[wisewebwoman]

Is the truth setting anyone free?
JHK speaks the truth, Nader challenges the other candidates to speak the truth. All we get, to quote Colbert, is truthiness which is truth's antithesis. The coming cataclsym will be the truth jolt everyone needs. Gaia will shrug us all off like the pestilent bunch of fleas we all are.
Read this~
http://www.amazon.ca/World-Without-Us-Alan-Weisman/dp/0002008645/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1203962300&sr=8-1

to get a glimpse of what the future holds. We have no part in it. Our time has come and gone.

[upnatpishtim]

how do you stop an uh-merikan tank?
shoot the guys pushing it.
the shit has hit the fan. in 2008.
read and weep.
dont you just love it when a bunch of rich guys tell you there is no more money left.
now they say there is no more food left.

Shoppers Warned Bigger Bills On Way
February 25th, 2008

Via: Financial Times:

When William Lapp, of US-based consultancy Advanced Economic Solutions, took the podium at the annual US Department of Agriculture conference, the sentiment was already bullish for agricultural commodities boosted by demand from the biofuels industry and emerging countries.

He added a twist – that rising agricultural raw material prices would translate this year into sharply higher food inflation.

“I hope you enjoy your meal,” Mr Lapp told delegates during a luncheon. “It is the cheapest one you are going to have at this forum for a while.”

His warning that a strong wave of food inflation is heading towards the world economy was met by nods from agriculture traders, food industry executives and western’s government officials at the USDA’s annual Agricultural Outlook Forum.

Larry Pope, chief executive of Smithfield Foods, the largest US pork processor, warned delegates of a wave of “real food inflation” just at the time central banks were under pressure to cut interest rates.

“I think we need to tell the American consumer that [prices] are going up,” he said. “We’re seeing cost increases that we’ve never seen in our business.”

The comments highlighted one of the conference’s main concerns – that rising agricultural prices have reached a stage at which the impact will be felt not only on fresh food but will also filter through the supply chain and raise the cost of processed food.

Tom Knutzen, chief executive of Danisco, one of the world’s largest ingredients companies, said rising vegetable oil costs made it more expensive to produce preservatives, colourings and flavourings.

“Our products are based on vegetable oil. “Our input cost has gone up so we are increasing prices,” he said in an interview in Brussels. He added that preservatives, colourings and flavourings made up only 1-2 per cent of the cost of food but there would be a ripple effect as they were present in almost all the food sold worldwide.

US agriculture officials forecast that food inflation will rise this year at an annual rate of 3-4 per cent, warning that the risks were skewed to the upside. Last year, food inflation rose 4 per cent, the highest annual rate since 1990.

Joseph Glauber, the USDA’s chief economist, said in an interview that until now some companies had absorbed the rise in commodities prices, but that trend was about to change.

He said that wheat prices had previously moved from $3 to $5 a bushel without significant pain for consumers. “But now the wheat price has jumped to nearly $20 a bushel. These large increases will show up [in consumer prices].”

Some people hope a slowdown in the US or global economy would push down agricultural commodities prices. But Mr Glauber said that would have a limited impact on agriculture commodities prices. “I am more concerned about higher prices than lower prices.”

However, Simon Johnson, chief economist at the International Monetary Fund, said in an interview that for most agricultural commodities and metal markets the global slowdown would push prices down.

“The commodities market believes in the decoupling of developing countries’ growth,” Mr Johnson said. “The IMF does not believe in decoupling to that extent.”

But even if commodities prices do slow down, other forces could still push consumer prices higher, food industry executives said.

Companies until now have moderated consumer price increases thanks to large inventories and financial hedges in the commodities market futures. But during the course of this year those mitigating factors would vanish, executives said.

“The final result will be higher prices,” Mr Lapp said. The global economy is “at the beginning of a period in which consumer will face higher food prices”.

[LaughingAsRomeWasBurningDown]

Good post this week, nice touch on including both salad shooters and Sunburn shooters.

[Lost Horizon]

The Ass-Clowns of Crony Capitalism are just going to blow the rest of us a Big Air Kiss (BAK) as they retire with unnumbered Swiss accounts to the safe havens of their off-shore, guarded "Green Zone" citadels and wait for the world to burn down around them as they sip fine wine and dine on delicacies.

Or maybe not....the new Finanicial Bounty Hunters Law giving 'extra-legal' powers plus 25% of all ill gotten gains to a lethal new breed of Professional White Collar Bounty Hunters (PWCBH) spoils the party...