A Real Freak Out

   

Note: This is the official publication week of my new 'post-oil' novel, "World Made By Hand," a vivid depiction of life in The Long Emergency.  Visit the book's website:

     Things are getting very weird very fast -- and will probably get even weirder, faster, as the train wreck of bad debt meets the Saint Paddy's Day Parade of bacchanalian excess at the grade-crossing of destiny. The train is carrying America's financial system, but the engine driving it is peak oil, because declining energy resources necessarily means declining capital wealth -- and declining value of all the institutions, instruments, and markers that denote that wealth or hope to profit by trading in it. The fiasco leads straight to the necessary reinvention of American life on other terms and by other means.
      I've maintained for a long time that, even among those who recognize we have a big problem, there are many impediments to imagining a credible outcome. One thing I've noticed is that in any given public meeting (or lecture hall) you can divide participants into two groups: those who believe we will 'high-tech' our way out of this predicament; and those who believe we'll organize our way out.
     I don't subscribe to either point of view, strictly speaking. Both POV's assume that there will be an orderly transition between where we're at now and where we're headed. They're tainted by the kindergarten ethos of entitled happy endings and outcomes, which has been the chief operating system for the Baby Boomers, a therapeutic bias for placing 'good feelings' ahead of reality -- which also has obliterated the tragic sense of life that acts as the only brake on humanity's inherent hubris.
     Ultimately, in my view, the issue of what happens next will be settled not by the fantasies of the algae-biodiesel geeks or the wishful thinking of the sustainable futures organizers, but by the natural, self-organizing properties of a society responding 'emergently' to new circumstances. One of the implications of destiny-as-emergence is the probability that we will try any damn fool thing besides the right things to keep the old game going for a while -- even in the face of obvious failure.
     I'm sure our political leaders will mount a campaign to rescue the futureless infrastructure of suburbia. It will necessarily be an exercise in futility. But it has already started. That's what the swindle of ethanol has been all about. And the touting of hybrid cars, and the flimflam of "energy independence." Even the "environmental" crowd" squanders most of its attention these days on how to keep all the cars running on something other than gasoline. They don't question the assumption that we will remain a car-dependent society.
      As much as I loathe the suburbs in their grotesque late-stage efflorescence, I can understand why those stuck in them would wish to defend their misinvestments. I just hate to think of the political consequences when their disappointment catches up to the reality that the suburbs will not be rescued. And by that I mean not just the houses but the way-of-life associated with them and all its accessories, furnishings, and activities. Bewilderment will soon turn to rage out in the highway-strip-and-cul-de-sac empire.
     Now, apparently, we'll also opt for a bail-out of all those who tried to become rich by getting something for nothing at both ends of the Ponzi scheme called the housing bubble -- the "little guys" who signed mortgage contracts they could never hope to pay off, and the Wall Street playerz who bundled these hopeless contracts into fraudulent securities (and their enablers in the ratings agencies, plus the hedge fund smoothies who tried to cash in by using recondite algorithms to dissolve the risk associated with imprudent lending.) The bail-out is likely to accomplish nothing except the more rapid bankruptcy of government at all levels and a second Great Depression at ground level (worse than the first one).
     Over the weekend, the Federal Reserve engineered a $30-billion dollar Saint Paddy's day present for the JP Morgan bank by handing them the corpse of Bear Stearns. The object of the game is to prevent the "assets" of Bear Stearns from going to the auction block, on which they would be discovered to be nearly worthless, which would instantly render all similar assets held by the other big banks to be similarly worthless, and would result in a universal margin call that would pretty much unwind the hallucinated "wealth" acquired the past ten years.
      Despite the heroics around the fate of Bear Stearns, it looks like the financial system is tottering anyway. Perhaps the last trick left in the rescue bag will be the 100-basis-point drop in the Fed rate rumored to be announced tomorrow. It won't help any of the big banks, since their problem is holding liabilities in excess of assets. Almost certainly it would crater the US Dollar.
     The next thing in store for America, in my opinion, will be a rather new surprise: oil-and-gasoline shortages. While frightened money pours into the oil futures markets, driving the price up, strange behavior will start brewing in the actual physical allocation process. Imports of oil and gas to the US may not be as reliable as it had been when America seemed to be a solvent nation. The exporters may be changing their terms of doing business with us -- and that's nearly two-thirds of all the oil we need. The public would probably suck up oil price increases indefinitely, but shortages are going to be something else. A real freak out.

   

Comments

[Zack S]

A few weeks ago my family and I were on a cruise and visited Saint Martin. We took a tour of the island in a cab and I asked the driver a few questions about the local economy. Turns out that a few years ago the Dutch government decided that the economy would be best served by becoming 100% tourism based and they have achieved that goal. Then I asked about food production and she told me that all food was now brought in from neighboring islands as no farms on Saint Martin were in production any longer.

I wonder how that islands economy will look in a year or so after the oil shock really hits and few tourists visit? And I wonder what they will do for food….

[Dave]

good post.

[steve duncan]

Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.
Benjamin: Just how do you mean that, sir?

[Tangurena]

>In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.

http://biz.yahoo.com/bw/080316/20080316005053.html?.v=1

So. In this week's Rodney Dangerfield moment, the Fed had to tie a $30 Billion pork chop around Bear Stearns' neck to get JPM to play with them.

And to think that JPM only paid $236Million for that $30Billion pork chop (it is a non-recourse loan, which means the Fed can't go after JPM if they default on it). Ain't corporate welfare wonderful?

[LaughingAsRomeWasBurningDown]

He said "taint." Huh huh.

Sorry. Need some humor this morning. Too much desperation on the toob. Some poor guy on CNBC explaining why an asset "worth zero" should be held onto. And that poor financial expert on the Today Show, she was visibly shaken as she encouraged folks not to panic...

[DocMiller]

Ya hit the nail on the head - again - shortages and supply disruptions will be the one and only wake up call for the somnambulism of the average American TV zombie

[javaman8263]

The problem with our government is very simple.

Virtually everyone of our "elected" officials have grown up in some sort of version of suburbia. And also given the fact that they are in power, rather than actually figure out a logical solution (as if there really was one to begin with), they believe that looking tough, spewing rhetoric and throwing money at something will fix anything.

we are on our own folks. Once you understand that, the rest becomes clear.

See you all on the other side.

[Nicholas Paredes]

Well, the BS building is worth a billion, so half of the $2 Billion price tag is a hard asset. Thank goodness there was a $30B incentive!

Finally, a market update! Only $125 down at the start… Mid $11 is a game changer though.

Oops $200… It should be 4-5%, but we’ll see.

[LaughingAsRomeWasBurningDown]

Frank Zappa -- It Can't Happen Here:

It can't happen here
It can't happen here
I'm telling you, my dear
That it can't happen here
Because I been checkin' it out, baby
I checked it out a couple a times

Who could imagine
That they would freak out in Washington, D.C.
(AC/DC bop-bop-bop)
(AC/DC do-do-do-dun, AC/DC
Ma-ma-ma-ma-ma-ma-ma, AC/DC)
But it can't happen here
Oh baby, it can't happen here
(AC/DC bop-bop-bop)
Oh baby, it can't happen here
(AC/DC bop-bop-bop)
It can't happen here
Everybody's safe and it can't happen here
(AC/DC bop-bop-bop)
No freaks for us
(AC/DC bop-bop-bop)
It can't happen here
(AC/DC bop-bop-bop)
Everybody's clean and it can't happen here
No, no, it won't happen here
(No, no, it won't happen here)
(AC/DC bop-bop-bop)
I'm telling you it can't
(AC/DC bop-bop-bop)
It won't happen here
Bop-bop-ditty-bop
(I'm not worried at all, I'm not worried at all)
Ditty-bop-bop-bop
Plastic folks, you know
It won't happen here
You're safe, mama
(No no no)
You're safe, baby
(No no no)
You just cook a tv dinner
(No no no)
And you make it
Bop bop bop
(No no no)
Oh, we're gonna get a tv dinner and cook it up
(No no no no no no no!)
Oh, get a tv dinner and cook it up
Cook it up
Oh, and it won't happen here
Who could imagine
That they would freak out in the suburbs!
(No no no no no no no no no no
Man you guys are really safe
Everything's cool)

I remember (tu-tu)
I remember (tu-tu)
I remember (tu-tu)
They had a swimming pool
I remember (tu-tu)
I remember (tu-tu)
They had a swimming pool
I remember (tu-tu)
I remember (tu-tu)
They had a swimming pool

And they thought it couldn't happen here
(duh duh duh)
They knew it couldn't happen here
They were so sure it couldn't happen here
But . . .

[Loveandlight]

"They're tainted by the kindergarten ethos of entitled happy endings and outcomes, which has been the chief operating system for the Baby Boomers, a therapeutic bias for placing 'good feelings' ahead of reality -- which also has obliterated the tragic sense of life that acts as the only brake on humanity's inherent hubris."

Very well said, Jim. And I'm sure XER will agree. :-D If you could just get over your disdain for homosexuals, you would actually be one of the few Baby Boomers I would regard as being well-clued.

[farmerhunt]

Funny thing happened to me yesterday as I was returning to Northern Ohio from Louisville which, by the way, has managed to push the most grotesque exerbian expansion (eastward into the next county!) I've seen so far. Splotched in the midst of manor estates housing the most luxuriant horse farms imaginable is a seemingly endless (at least 20 miles of previously rural country)glob of gated mansionettes, many never occupied and still unsold, along with other occupied houses looking for new owners. All kinds of supporting infrastructure, like firehouses, very exclusive-type schools, etc. is springing up. Doomed to early decay. I imagine that others who have left their old hometowns for several decades experience a similar shock upon return.

Anyway, back to the "funny thing" . . . I stopped for a fill up at a very busy highway station and while waiting in line, noticed that those ahead of me were managing to "fill" up pretty quickly. I did too, because I was only able to get four gallons before the pump stopped! Were they simply auto-allocating because it was a very busy day, or is the squeeze starting to happen? Have used that station many times as it's handy for many of my trips, but never had this experience. Anybody?

[PeakOilBoy]

I wonder how Community Supported Agriculture farms that have already been paid the fee for shares will respond to customers?

For instance, those that have pre-paid for food (Usually $400 - $500 a share)... will immediate cost increases have to be passed along to customers already in contracts?

As for shortages, expect armed security guards around food places and gas stations soon?

[PeakOilBoy]

Oh, and for what it's worth, there are two "How To survive" videos at this link that might help during the crash: http://lawnstogardens.wordpress.com/about/

[bud4wiser]

________________________

You want weird? Watch TV

Yes, JK, we are headed for a “real” freak out indeed. The most salient idea I comprehended from this week’s essay was the “assumed expectations” of an orderly meltdown of the US economy resulting from the twin pressures of fraud and loss of cheap–oil-produced wealth.

I’ve been holding on to hope that “emergent circumstances” could guide the American electorate to a popular consensus regarding energy consumption and conservation. A consensus is required for “orderly” anything as far I know. [at least a super-majority]

After watching the Sunday-afternoon television coverage of the opening ceremonies of the “Food City 500” NASCAR race yesterday I have lost all hope for any chance of an orderly response to Peak Oil. During the opening of the broadcast a minister asked God to bless “Food City” and the Bristol, TN race track as the crowd stood at attention, hands on chests, and F-18 fighter jets roared above.

As the camera panned thousands and thousands of people in the stands cheering the war planes at the conclusion of the singing of the National anthem, I came to realize the enormous breadth and depth of disparity among American’s attitudes toward automobiles and recreation. Although I watched only fifteen laps of this 500 mile race, it was already evident to me who the “losers” are at these events.

There is no hope for consensus. God will have to “bless” more than Food City and the Bristol TN race track if we are to survive the coming challenges to our “way of life.”.

[sangell]

I recall the CEO of Syntroleum, in testimony before the US Congress, noted that were 5% of American coal reserves converted via an existing coal to liquids technology it would double American oil output.That is almost 6 million barrels per day. At current production the US has about a 270 year supply of coal. I mention this not to disagree with your fundamental premise that energy costs will increase and force some changes to the American lifestyle but that these costs will be more politically driven than what is technically possible.
Econuts hate coal even if carbon could be sequestered and oil made from it at an oil equivalent price of $100 per barrel. A price we are already at. Electric cars could be manufactured IF we had sufficient base load electrical power and a grid that could charge a 100hp electric motor battery pack in every garage. But the environmentalists hate nuclear power plants. If windmills and passive solar are the only form of new energy we can install then your scenario is imminent. If a more practical and relaxed change then it is perhaps a couple of generations hence.

[steve duncan]

Market trading in positive numbers. Bear meltdown but a blip. I think if NASA scientists announced concrete proof the Earth was getting sucked into the Sun on April 1st there would be a 500 point rise in the Dow. There is seemingly no such thing as bad news. And what we think is bad news produces positive trading action. Go figger........

[Matt Holbert]

"Well, the BS building is worth a billion"

Over the past 10 years, commercial real estate values have climbed faster than the equity market. Hence they have further to fall. Most the activities that take place in these structures are part and parcel of the manipulation that drove the markets upward.

"Econuts hate coal"

"Econuts" like clean air and clean water and may not be the ones that are nuts.

[Dave]

Dear JHK

You called for a banking beached whale to be found dead on shore back in early Feb so I just wanted to congratulate on the accuracy of your call.
Went to the Left Forum in NYC and spent the entire day listening about the financial crisis. It was reformist claptrap for the most part and from what I saw the left has no real appreciation for just how dangerous and crazy things may get but they are shit scared that is apparent.

[FARfetched]

Mornin' folks! Hope y'all kept the blog warm this weekend; I was in motorcycle-wrenching… dang. It wasn't heaven by any stretch, and it was successful so hell doesn't fit either. Purgatory? Hm. Maybe. Anyway, I try to stick to JHK's topic first off…

«One thing I've noticed is that in any given public meeting (or lecture hall) you can divide participants into two groups: those who believe we will 'high-tech' our way out of this predicament; and those who believe we'll organize our way out.»

Organize our way out? Hm. Sounds familiar… :-)

«The next thing in store for America, in my opinion, will be a rather new surprise: oil-and-gasoline shortages. [...] The public would probably suck up oil price increases indefinitely, but shortages are going to be something else. A real freak out.»

Yeah, I've been saying the same thing for a while. People will complain mightily about $4/gal regular, maybe even cut back on driving a little for a few months, but they'll adjust. But when they can't fill their Expeditions up *at any price* we'll see things change. (BTW, if you could only get five gallons at a time, that's more than enough to fill up a motorcycle unless you have a freakish-big aftermarket tank.)

[Nicholas Paredes]

I don’t disagree that the rises in urban property values have been excessive, but when gas hits six or seven, you’ll be much happier owning a piece of that as opposed to a bunch of McMansions in the burbs.

A couple of years ago, my assessment was 20-30 percent across the board, but once oil becomes an issue, the urban values will begin to recover. I don’t even want to get into inflation and deflation in this conversation, but basically my thoughts were that we would see general inflation with ex-urban asset deflation. Sort of a double whammy for the NASCAR set!

Coal! Sure we have plenty of coal. But, does liquified coal run in cars? Does it require conversion of plants, delivery, and stations? It’s sort of like changing railroad gauges, but without the money or community spirit!

Perhaps we can carve wooden nickels out of coal to drop in our tanks, that way we don’t have to use money.

[LaughingAsRomeWasBurningDown]

FAR, you are right about that wrt gas shortages. It's going to be a real shock if you weren't around in the 70's, even/odd days,eight gallon limits, five gallon limits, gas lines, lots of gas stations just closed/out of gas.

[LaughingAsRomeWasBurningDown]

God Bless Food City? With the stormy weather, would have been the perfect opportunity for a God-sent lightning bolt.

[JLee]

A selection of puerile comments today from quoting faded rock passés to saying I told you so in February (at the latest!). All we need is a global warming denier, a christian, a channeler for Diana, and a Friedman economist to make this a complete clusterfuck.

[rbentley]

This all coincides with one of my long-held theories that we'll never see $10 per gallon gasoline. We will simply run out first. "Run out" not being strictly accurate, but the big sucking sound will be coming out of the pumps. America will simply lose the ability to pay. The recently inaugurated Iranian oil bourse based on the Euro was one piece of this process. China's willingness to pay whatever it takes to acquire the "American way of life" is another.

[Movenonup]

Sangell,

"At current production the US has about a 270 year supply of coal."

Don't be so certain about this. In Richard Heinberg's PEAK EVERYTHING, he cites the EWG report "Coal: Resources and Future Production" to argue:

"while coal is often referred to as being an abundant fossil fuel, with reserves capable of supplying the world at current rate for two hundred years into the future, recent studies updating global reserves and production forecasts conclude that global coal production will peak and begin to decline in ten to twenty years (Heinberg 2007, p.3)."

On prior threads on this blog, other folks have posted evidence that the reported reserves of coal were over stated by some countries as much as 90% and they have restated their reserves. Also China and India are burning more coal than anyone calculating the 270 year number could have known. This too makes it necessary to adjust the reserve estimates downward.

BTW Sangell, why are you willing to foul your own nest just so you can drive?