Going Going. . . .

      The feigned cluelessness in Paul Krugman's Sunday New York Times column ("The Face-Slap Theory") about the meltdown in finance is a good index of the cringing mendacity now emanating from those in service to the centers of power. I doubt an editor, or the publisher, Mr. Sulzberger, had to whisper in his ear to soft-pedal the situation. I don't even believe anything like his job depends on it. Krugman's glossing-over the truth is just social cowardice. He doesn't want to be called out dissing fellow members of his club.

      Krugman avers to the Federal Reserve's two previous big efforts since August to bail out the insolvent banks, insurers, and hedge funds with cheap loans as "slaps in the faces" of these wobbling corporations -- "yo, wake the fuck up!" -- as if narcolepsy was their only problem. (Try that with a wino on the sidewalk outside the Port Authority bus terminal and see if he immediately signs up for rehab and a high school equivalency program.) Krugman calls the club's latest plan -- for the Fed to just suck up their impaired and worthless collateral in exchange for more cheap loans -- as a "third slap," saying, with all the panache of a midwestern Rotary Club secretary, that "the third time could be the charm." Had the monkeys already flown out of his butt as he wrote that, I wonder.

     The line in Krugman's column I love best, though is this one: "Last month another market you’ve never heard of, the $300 billion market for auction-rate securities (don’t ask), suffered the equivalent of a bank run." He presumes that his readers go along with his pretense of innocence. We've never heard of the municipal bond market and it's too complicated to explain so "don't ask." Is he writing for the "newspaper of record" or Highlights For Children? Maybe it would be a good thing if readers of The New York Times asked what the fuck was going on in these markets so they could yank their depreciating dollars out and deploy them elsewhere or convert them into something of value.

     Well it was a bad week on the money scene in what is sure to be a worsening year. Paul Krugman and his fellow club members can pretend that the hallucinated finance economy is not really flying to pieces. After all, he / they are trying to avert panic. But, as noted previously in this space, the only thing we have to fear is not fear itself. We have to fear the consequences of actions by a banking leadership that has shown the grossest irresponsibility (and an American public that has been conditioned to expect a steady diet of getting something for nothing).

      The US faces a pretty stark choice right now: it can let the losers take their losses -- both the big institutions who created and traded in fraudulent securities, and all the "little guys" who borrowed too much money trying to get rich quick, or trying to live like the millionaires they see on TV. We can let them go down, and suffer the consequences of their bad choices (and maybe prosecute some of the culpable bankers and corporate executives), OR, in an effort to let these losers off the hook we can wreck the whole machinery of capital by making our medium-of-exchange worthless.

     The people in charge -- both in and out of government -- can't face the losses, so for now they've apparently decided to wreck the currency. The dollar has lost two percent of its value against the Euro just in recent weeks, as cheap loans from the Fed pour into the black hole on Wall Street (never to be seen again). Other soft-pedalers in the media claim that the financial markets have "already priced in" yet another expected .75-point interest rate drop by the Fed this week, but I'm confident that such a move will only accelerate the dollar's vanishing act.

     I'll admit, it's hard to believe what's going on in the American finance sector. But incredulity in the face of a rare catastrophe isn't the same as pretending that it's not happening. A whole flock of black swans is flying in front of the sun. Don't expect to work on your tan this month.

Comments

[bud4wiser]

JK, Very funny indeed. I read Krugman all the time and also felt as if some alien had must have taken over his body and written that piece. I remember thinking, I wonder what JK would think of this crap.

Like I said, "The end of the world has started", but it's not even on the news.

[Uncle Remus]

Let the bodies hit the floor.

[LaughingAsRomeWasBurningDown]

And the funniest line of all in Krugman's article:

Nobody wants to put taxpayers on the hook for the financial industry’s follies.

[Perfectscotty]

Excellent post this week Jim !

I have to fess up to being completely naive about the powers that be destroying our currency in order to save their own asses. Never heard of that angle before but I don't see it working for them in the long run. The last week has brought an overwhelming feeling of impending doom and I'm wondering if my fellow doomers don't feel the same ? The hair stands up on the back of your neck and you think :"this is really happening just as JHK and savinar thought it might and I'm not ready." A terrible feeling !

Keep up the writing and I'll keep buying that $ 105/per barrell oil.

[Zack S]

Tonight on the History Channel (March 10, 11 PM EST) there is a story about peak oil.

http://www.history.com/schedule.do

Mega Disasters: Oil Apocalypse

The oil that our world runs on won't last forever. The gap between supply and demand is ever increasing. Will alternative energy save us or is it already too late? What would happen to the world as we know it when our oil dependent industries come to a grinding halt? A worldwide depression is a certainty but a power struggle for the basic necessities of life would be complete chaos.

[scott]

"Backed by the full faith and credit of the United States of America."

The whole idea of widespread debt allocation is a fairly recent phenomenon, instituted in the U.S. after WWII primarily to promote growth in housing and auto sales. The whole concept of "faith and credit" is predicated on an expectation of FUTURE "growth". There is an indisputable correlation between growth in energy distribution, particularly in transportation fuels and general growth. If capacity for growth in energy distribution has been reached then it stands to reason that our expectation for future growth should be adjusted downward except that we are loathe to because that would mean recession, depression and probable economic collapse -- the kind of verbiage associated with an economic model that REQUIRES growth to be successful.

Since WWII and arguably back to the beginning of the use of abundant sources of fossil fuels in the industrialization of civilizations has correlated with persistent growth that has steadily increased to the point that we rely upon it to the point where hundreds of millions of humans primarily in the parts of the world where widespread consumption of fossil fuels has correlated with persistent growth the longest, are indebted for their entire existence for many years into the future.

[LaughingAsRomeWasBurningDown]

...but a power struggle for the basic necessities of life would be complete chaos.

Complete chaos? Too mild a term. I'm thinking they can't say "clusterfuck" on TV listings, though.

[Cymon Dendu]

Jeff Jacoby, a Boston Globe op-ed columnist, weighs in on two topics oft discussed here:

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/03/09/how_government_makes_things_worse/

Jacoby is the house conservative for the “liberal” Globe. He holds these truths to be self-evident:

Automobiles are Good Things
Population growth is a Good Thing
Global Warming is a Liberal Fraud

So I find him in self-contradiction on the topic of ethanol and (unrelated) just flat wrong about the mortgage meltdown. I’m composing a letter to the editor and will appreciate any input.

Cy

[BarbaraAnn]

Cy,
I'll be disappointed if you don't mention the similarity of our situation to the collapse of the Soviet Union. How come we never see the usual suspects mention it? Also I'd like to see someone give credit to St. Ronnie of Reagonomics. Anyone who gives him credit for the collapse of the Soviet Union has to give him credit for the collapse of the Corporatist States of America. It's a twofer!

[Lost Horizon]

My favorite line:

"yo, wake the fuck up!" -- as if narcolepsy was their only problem.

..Try that with a wino on the sidewalk outside the Port Authority bus terminal...

The coming real life scenario will be more like slapping a junkie and having him whip out an Uzi and spray the sidewalk with 9mm.

The financial carnage is going to be literally breath taking.

So were is the Congressional Committee that will haul the Ass Clowns of Wall-Eyed St in front of the National Granite -Top Counter?

The Whole World will be Watching.

[PeakOilBoy]

Then pick up a shovel and get to work! Many Americans still haven’t accepted the idea of growing their own food on whatever plot of land they have available. It seems most people still expect the Federal government is supposed to help us ween ourselves from mono-culture, which is of course laughable. We all know deep-down that America has crashed into the rocks of reality, but why give up when we can play until the end of the game?

There are many positive things we can all change about ourselves to fix this place. It starts by getting off our butts, turning off the TV, and checking out our lawn / soil conditions. But until all media programming concentrates on turning Americans into farmers no matter where they live, my questions are:

- What percent of Americans are at least making an attempt to grow ANY food at all? Herbs? Carrots? Anything?
- What tools are available to help non-farmers enjoy the benefits of farming?

[Lost Horizon]

The other notion that comes to mind is the almost inevitable temptation by the Baby Bushit Crime Family for a distraction (WAR) to take the blame off their gross mismanagement of the economy.

Hey Kids, Iran just attacked us, that's why oil prices are so high and the economy is in the crapper.

Hey Kids, Venezuela just attacked us, that's why oil prices are so high and the economy is in the crapper.

Hey Kids, (Make Up Your Own Country) just attacked us, that's why oil prices are so high and the economy is in the crapper.

What we've got here is a Blivot.

From the Urban Dictionary:

blivot

Twenty pounds of shit in a ten pound bag.

A situation or item that is foolishly perceived to be simple and easily manageable when in fact it is twice as complicated and unmanageable as first foolishly perceived.

[LaughingAsRomeWasBurningDown]

In my neighborhood, 100% of the people have a garden. Not sure there are too many butt-sitting TV watchers here, but preach on. As for tools to help non-farmers farm, not sure what you are getting at. A good hoe, shovel, pick etc., and if your neighbor will let you borrow his roto-tiller, then that's about all you need. Well, all I need, anyway. What tools did you have in mind?

[LaughingAsRomeWasBurningDown]

LH, Another war? Didn't Afghanistan bankrupt the USSR? Are we there yet? Getting closer. Maybe some Killing Joke on the earworm, to kick my DST Monday blues:

Just enough water to ensurface the world
Oil baron running the government
So I'll start a war

All votes invalid
Use any old lie
Gonna carve up your wealth,like pumpkin pie
Only fools won't realise and won't be told that empires run on the old black gold

[CHORUS]
It's a global abrasion
It's consecration
United Nations
It's a total invasion!

Terrify them
Complete submission
This is our goal,this is our mission
Destroy your customs
You'll have no say
We'll clothe your women in the western way

I's a fucking crusade
A lesson trade
So all you intellectuals
We're gonna invade

[CHORUS]

The final push
The last battle
Even restored?
Man is cattle
We want your oil
We want your land
We'll take your welth
You'll have much less
We'll change your God to the Bitch Godess
[CHORUS]

[SqueakyRat]

This seems a little hard on Krugman, considering he interpreted the New York Fed governor's remarks as virtually equivalent to the admission that the financial system is in meltdown. As for the third slap perhaps being the charm, his column can hardly be read as giving much hope in that direction. In fact, he is obviously skeptical. Failing to be a full-throated doomer is not yet the same as moral cowardice, Jim. And not explaining the auction-priced securities market? You do realize he only gets 700 words, right?

[IVAN]

My bank sent me this the other day.
Scotia Global Climate Change Fund
The Scotia Global Climate Change Fund is designed for investors looking for exposure to companies that are developing strategies to adapt to or mitigate the effects of climate change, without compromising solid returns.

More information is available in the simplified prospectus.
Who is this fund for?

This fund is designed for investors that are interested in:

* exposure to environmentally responsible companies, without compromising solid returns

* investing in companies over a three to five year period using a disciplined, integrated review of environmental and financial criteria, with comprehensive research inputs from a variety of leading-edge industry sources

* diversifying across nine climate change themes that cover all economic sectors, enabling the fund to capitalize on a broad universe of opportunities while reducing the risk associated with a narrower investment approach.

Nine Climate Change Themes
Sustainable Living
health care, communications, sustainable retail Power Technology
power management, hydrogen, distributed energy
Efficient Transport
automotive, freight Environmental Finance
carbon finance
Water
filtration and distribution
systems Renewable Energy
wind, solar, biomass, geothermal, hydro
Power Merchants & Generation
natural gas,
nuclear Clean Technology & Efficiency
smart energy transmission, end-user energy efficiency
Clean Fuels
ethanol, cellulosic ethanol, biodiesel, agricultural efficiency

If any of you find this as insane as I do, you may understand why most people I talk to think AGW is fear mongering and another way to take money from chumps. Look at me, I am going to save the world, but only if the returns are good. I wonder what the folks who started Greenpeace think about it being publicly traded. The modern environmental movement is bullshit it has been hijacked and turned into yet another cash cow to milk.
We just had a carbon tax added to the price of gas here in BC, yet our provincial gov't is intent on insane unsustainable development, more mega resorts, more cat and heli skiing, and don't get me started on the fucking scam that is the Olympics.
Interesting that some SUV driving, 12 condo owning, latte drinking, fucktard is lecturing me on the evils of plastic bags and my "carbon footprint", western society has never been big on introspection now has it. Praying for 12$ a litre fuel, maybe that will make this shit stop.

[Nicholas Paredes]

“So maybe the markets aren’t hysterical — maybe they’re just facing reality.”

I don’t mind cutting Krugman a new one every now and again, but having read the post the previous night, skating the issue didn’t appear to be his m.o.. The reality is not good, though he tends to be optimistic on the economy in general. We still do make tractors and useful items. We just so happen to purchase way too much crap.

I’m not sure that my mental preparedness for the fallout is solidified, but articles like this make me think that the dollar will bottom out one day soon, and inflation will be rather German-ish. That will be pleasant for nobody! The effects tend to wipe away imbalances in wealth, though the lower socio-economic layers always suffer more. Hence, our monetary policy actions relative to our monetary policy prescriptions for others, tend to favor lower inflation for capital preservation.

I’m hoping for the slow burn of stagflation… Pay off the debts and hold on!

[David Mathews]

Hello Ivan,

> "We just had a carbon tax added to the price of gas here in BC ..."

I feel so very sad for you! Those enviro-nuts are making driving so very expensive for you! And look at all the money they are making by fear-mongering!

How sad. How so very sad!

Isn't it nice that the honest, wise, and humane oil corporations are fighting and winning their battles against the enviro-nuts in the Alberta tar sands. Making billions of dollars in the process, too!

Who cares that a region the size of Florida is becoming transformed into a polluted, desolate, lifeless moonscape! The environment can die because we really do want to drive.

Morbidly obese people need their SUVs. Americans need their McMansions. So we'll thoroughly trash the planet in order to keep the economy growing!

***

Wisdom is God's gift to the wise.

[Nicholas Paredes]

BTW, my feeling is that once the market hits mid 11’s, down almost a hundred today, that the game will change. It’s held remarkably well, but flight will be nearly meaningless at that point. I bet that there is an awful lot of stock propping up various positions.

[dale]

Apocalypse Now!.....or soon.....or maybe.

What we're really seeing is the flip side of the many years of "asset appreciation" where consumer goods became cheaper...relatively, while assets went nuts.

Now we'll have a few years of the reverse, assets like homes becoming cheaper while consumer goods and commodities climb in price.

Of course the above hypothesis is contingent upon something which has never happened before, the U.S. economy decoupling from the rest of the world.

If that doesn't happen commodities (including oil) and assets will soon start to head in the same direction,....down.... no matter what happens to the dollar relative to other currencies.

Look at it this way, devaluing the dollar slowly is the only way, given our disfunctional political system, that historically absurd trade balances can be resolved without a collapse. Take your hemlock slowly, you might survive. Take it all at once and it curtains for sure. Hell, of a choice. Drink up!

On the up-side, if we do survive, we might actually be able to create a production based society again, on a different model surely, but something more sustainable than the current "consumer" society.

[Matt Holbert]

The same critique applies to just about everything in the NY Times. I went about four links deep in the Times after reading the Krugman piece and found it all to be surreal in light of our predicament. Times readers -- and therefore the Times -- may well be the last to admit there is a problem as they likely have the most to lose when it collapses. They will be the last to stop running around with sticks trying to prop up this rotten egg.

[PeakOilBoy]

"As for tools to help non-farmers farm, not sure what you are getting at..."

I mean tools like Bright Neighbor, which will be an All-In-One save America's butt application that municipalities can deploy to their citizens.

One component you can start out with right now is heading over to www.growveg.com.

It's a tool to help non-farmers plant food gardens using simple and effective software that includes permaculture automation.

[JLee]

Well in fact the tax increase on gas here in BC is a magnificent joke. As if $.02/litre is going to make any difference to anyone, except maybe those at the very lowest levels of the income spectrum. So the government imagines that I won't use as much gas in my $65,000 BMW now that gas prices are taxed by $.02. I am more likely to die from laughing than from anything else. And our government in BC is the only one in the country to even take this radical step. The others imagine that the $.02 will kill the ecomony! But we've got the 2010 olympics so everything is going to be just peachy keen (or so we are told).

[Nudge]

Jim, great post & very funny! No, the wino in front of the Port Authority building is not reacting as predicted to the slap in the face. Best line :)

Diesel fuel prices are now in their 17th consecutive day of new upwardly-revised record numbers every day. At $3.829/gallon it's 40.4% over the price at this time last year. Gasoline is now only $0.005/gallon shy of its all-time record of $3.227. C'mon, America, we can do it! Fire up those Hummers, Suburbans, Yukons, Excursions, V-10 Ram pickups, Nissan Armadas, etc, and let's take the long way to the maul to go buy stuff we don't need with money we don't have.

Strangely, the powers-that-be seem to have gotten the idea crammed into their little heads that the most the typical American consumer can do for the economy is spend, spend, spend ~ based no doubt on the notion that economic activity is good for the economy. While true, this is an oversimplification: the real way to say it is that /responsible/ economic activity is good for the economy.

What we see happening here in the USA today is anything but responsible.

[Dave]

http://www.youtube.com/watch?v=dKdjU7xfVDM