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

[greenbeans]

http://www.cheryglobal.com/

http://www.autoblog.com/2008/01/10/what-2-500-buys-in-india-tata-nano-unveiled/

[scott]

Stolen in 60 seconds: the treasure in your car

http://www.msnbc.msn.com/id/23117250/

[Dr.Doom]

"Stolen in 60 seconds: the treasure in your car"

And, when stolen, one of the few items least missed by the car owner (until safety inspection time).

I guess this answers my earlier question about junk dealer's recycling catalytic converters for their content of precious metals.

Green thievery!

[Nudge]

Ahh, so this explains the loud SUVs that sound like they're missing part of the exhaust system.

[LaughingAsRomeWasBurningDown]

LostHorizon, I agree that H is a pretty impractical fuel, or energy storage mechanism or whatever, but the explosion thing, Hindenburg humanity to the contrary, is probably not that big a deal. I'd rather be in a hydrogen fire than a gasoline fire, the hydrogen being lighter than air dissipates and is gone.

[godozo]

JHK: You scared me but good. I'm an apocalypicist, but I know better than to hope for anything more sudden then a ten-year's head start (so I can adapt or finish things).

As for the rest of US (note that I'm including myself in this), consider this: if it weren't for the armies in Iraq and Afghanistan oil would be traded in Euros and Yuans, the US would already be in a deep depression (from which we may not be allowed to recover from) and China would be learning to go on its own.

[LaughingAsRomeWasBurningDown]

Blood power. I guess as long as you got enough high fructose corn syrup to keep your blood sugar up, you can make a call on the tattoo phone... This makes more sense than that "air powered" car I keep hearing about, though. But tats are so 1994.

http://www.physorg.com/news122819670.html

The basis of the 2x4-inch "Digital Tattoo Interface" is a Bluetooth device made of thin, flexible silicon and silicone. It´s inserted through a small incision as a tightly rolled tube, and then it unfurls beneath the skin to align between skin and muscle. Through the same incision, two small tubes on the device are attached to an artery and a vein to allow the blood to flow to a coin-sized blood fuel cell that converts glucose and oxygen to electricity. After blood flows in from the artery to the fuel cell, it flows out again through the vein.

[FARfetched]

«if it weren't for the armies in Iraq and Afghanistan oil would be traded in Euros and Yuans, the US would already be in a deep depression (from which we may not be allowed to recover from) and China would be learning to go on its own.»

Um… no.

We've pissed away about two trillion buckaroos on Iraq alone… it's hurting, but not (yet) fatally. Last week, someone (Bud4?) asked what we could do with a billion (as in, 1/1000 of a trillion, 1/2000 of what we've thrown down the Iraqhole) to raise awareness… how many solar/wind farms could we have built with two trillion smackers? How many people could we have put to work (re)building our energy infrastructure?

[FARfetched]

Yes, I'm drinking. I'll be falling into bed shortly. Fortunately, it's about two feet from the keyboard.

[wombatmissile]

Sorry for not replying during Thanksgiving. You still ready to talk? Or now are you not ready?

http://www.youtube.com/watch?v=wA3QJM0p4JE
http://www.youtube.com/watch?v=eLw7-gu03eE
http://www.youtube.com/watch?v=XLTzz8Wkuw4

http://www.youtube.com/watch?v=uexxTjCXg7k

*fart*

[wombatmissile]

Sorry for not replying during Thanksgiving. You still ready to talk? Or now are you not ready?

http://www.youtube.com/watch?v=wA3QJM0p4JE
http://www.youtube.com/watch?v=eLw7-gu03eE
http://www.youtube.com/watch?v=XLTzz8Wkuw4

http://www.youtube.com/watch?v=uexxTjCXg7k

*fart*

[Johnny Rico]

@LaughingWRWBD-

Nice Tool quote. Perfect. I've always wanted to post that, you beat me to it. Best album of the last 10 years...actually when was that released, shit, I'm getting old.

@jp

I think you are relatively new here, but I can tell you are going to fit in with that saladshooter post. Welcome.

@Clusterfucks in general-

Any of you illiterate fools have a subscription to The Atlantic Monthly? Great article in the latest issue about real estate and suburbia. It appears JHK is not so "spot on" with some of his numbers and analysis(yeah, analysis, right) and he isn't the only one thinking about this stuff.

@Nudge -

I do have a subscription to the Atlantic Monthly and will email you the article, but I don't have your addy. I can't find it and I'm sure you don't want to rebroadcast it. So I'll give you instructions on how we can do this privately.

[Johnny Rico]

"keep this gag running"

Interesting. I just caught this on second read-through. When I first thought about the title "Still Pretending," I had to wonder who was still pretending.

This week's column repeats at least one error from last week and offers another prediction, this time thankfully with a more finite time frame, actually extremely finite, as in, like, March. Period.

JHK still doesn't understand how banks work. Yes, let me not repeat that. You can just go back and read what I said the first time.

No major American Bank in going to "roll belly up" in March. Major being defined as on the level with Citi. How do I know this? JHK said it would happen. Duh.

Banks don't borrow money from the Fed like I "borrow" money from my coke-dealer. They borrow it overnight to keep their reserve deposits in-line. Well, actually ... no, never mind.

The point I would really like to make is that I'm tickled by some of JHK's phrases. Dr. Doom very recently used "running gag" in reference to JHK's horrible record with financial/market predictions.

So my hat is off to JHK for reading the comments but making it look like he doesn't but throwing clues in to let the regulars and his most devoted fans know he does.

Wombat, welcome back. I missed you.

[Johnny Rico]

"Anyway, a pressurized tank of hydrogen in a car on the turnpike going 65mph is NOT a vehicle I want to be in.

Any body here wanta be a Crash Test Dummie in a hydrogen powered hotrod?"

Lookit, this is just stupid, and gets in the way of rational discussion of the topic. Run your questions by Nudge first, then let her ask them. I mean "Any body" is one word.

Nobody wants to be a Crash Test Dummy.

Nobody wants to be in ANY vehicle at 65 in a crash on the highway.

It ignores the reality that these safety concerns have been part of the hydrogen issue since the beginning.

And it ignores the reality that a move in a direction towards hydrogen would be based on the necessity to reduce highway speeds to at least 55mph, probably to 45mph.

I don't want to be stationed at an outpost in Tora-Bora with an 8-man squad against a whole village dressed like Barack Obama. But this doesn't mean guns are bad. Oh, wait...nevermind...but you get my point, right?

C'mon Lost Horizon, tell me you understand.

[Johnny Rico]

@wombat - Moistboyz, ehh, I'll let Holmes comment on that. I thought they kinda sucked.

That shit's from 2005 anyway. WTF? Are you part of the band. You're the drummer with Dreads! I knew it.

Okkervil River?

Look I'm gonna go back right now and watch the rest. But I formed my opinion in the first 10 seconds. I'll let you know if I change it.

Dylan played guitar and harmonica at the same time. It's his worst shit. Plus he was Dylan.

There is no way this guy is going to do anything but make an ass of himself. Plus, he's TRYING to be like Dylan. And he wears glasses. Dylan didn't.

[Johnny Rico]

OMFG, he's horrible. He sounds like a combination of a bunch of French cats during a 14th century May-Day celebration and a cattle-car of Jews on Zyclon-B.

Can we have some Ozzy, please. Holmes, where are you when I need you?

[Johnny Rico]

"Are China and India using catalytic converters?"
-Scott

I don't know. But I'll tell you something that I keep kicking myself in the ass about.

Two years before I started studying oil, I was fascinated with metals.

"Metal Men" is a great book. Look it up on Amazon. About Mark Rich, the guy Clinton Pardoned.

I come from an extremely heavy mining background, so this was inevitable.

Anyway, I was convinced circa 1999 (and this is when people pretty much started getting all their info off the internet and I was reading "kitco" all the time)that palladium was the place to be. For exactly the reasons we talk about it today.

Life took its course.

Lesson to be learned. If you think you know something. Go with it. Don't second guess yourself.

Don't let some bitch get control of you. Follow your dream. If you are convinced Palladium is the shit, put your money on it.

[Johnny Rico]

"What's the most standard coin type you know of for palladium?"
-Rudi

Rudi, palladium is a weird metal. I don't know it personally, but it is supposed to be kinda like a dull silver. Really dull.

From years back, I remember reading it had a certain favoritism for wedding bands in certain countries, why I don't know. Cool places like Romania and Albania (I'm just making that up, I can't remember where).

And again, I'm just guessing, I'll bet Scott will become the resident Palladium expert.

It's not an attractive metal. It is a by-product of Platinum, which really isn't that great itself.

But it has wicked "industrial value." Which gold and silver are starting to lose in a relative manner.

Palladium is "the shit."

[Johnny Rico]

http://en.wikipedia.org/wiki/Palladium

[Holmes, I presume]

JR, check out today’s Spengler article at Asia Times if you feel like railing on Obama some more.

Wombat! Motherfucker! I'm so happy to see you, I'm going to do song parody based on something the Remus posted earlier.

Okay, I've only sampled two of the videos, but here's the preliminary gut impression...
What’s Iggy Pop doing slummin’ with so many deadwood guitar players? If they tighten that shit up, it might start sounding like Ministry, which would be a step in the right schizotypal direction. The backup band is coming off like a tranquilized, less creative version of the The Godz. Just sayin’.

[Holmes, I presume]

“He sounds like a combination of a bunch of French cats during a 14th century May-Day celebration and a cattle-car of Jews on Zyclon-B.”

It is not possible to keep a straight face while reading that. Fucking Brilliant. This shit will bring thal out of the woodwork, eventually. But not tonight. I’m trying to decide what to read next, even though reading sucks. And you’re right about superficially flippant questions needing to go through the Committee of Nudge.

[Dr.Doom]

Remember in the movie "The Graduate" the guy whispers into old Dustin's ear "Plastics"? Well, I'm whispering "Manganese Nodules".

[Johnny Rico]

"However, it's a little bit hard to reconcile this story with the rig counts. They have only been going up much more gradually. If the industry is about to double the number of delivered projects in 2008, it must have roughly doubled the number of started projects back in about 2005/2006. But it certainly didn't double the rig count. So that suggests perhaps the average length of a project increased a lot also. Which makes one wonder how much of the 2008 new projects will actually slip into 2009 or beyond.
"

Heeheeheheeehee.

What a stupid cunt. Staniford is a cunt.

Not once in his analysis did he let a certain "Pitt the Elder" get "in on it."

Pitt, for those of you who don't know is the one that is intelligent. Pitt smokes SS every time. Staniford on occasion has said, "I'll get back to you." Never does.

Stuart is fucked. Because once I join the scene on Pitt's side. It's all over.

[Johnny Rico]

"Manganese Nodules".

I have no idea. I'm gonna hafta look that shit up.

All I know is that I will look it up very shortly.

So I hafta laugh.

Without Holmes and Doom I'd be...well, looking up stuff on wiki.

Manganese. I'll leave that to Scott. Scott is the balls. I wish Wombat had his guts.

You want some more Saving Private Ryan Clips! I didn't think so.

Only Dave loves that shit.

[Holmes, I presume]

Napalese lozenges? Okay, Doom. I trust you implicitly. I’ll call my broker in the morning.