"Far From Normal"

      My new novel of the post-oil future, World Made By Hand, is available at all booksellers.
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     Those were the words that Fed chairman Ben Bernanke used to describe the financial markets (and by extension the economy) these heady spring days when everybody else with a rostrum, it seems, has pronounced the so-called liquidity crisis contained. There's a great wish for American finance to return to business-as-usual -- raking in fantastic fees for innovating new modes of tradable paper, and engineering mergers and buy-outs that generate huge fees plus $100 million kiss-offs for corporate CEOs in the noble struggle to dismantle America's productive capacity -- but apparently events are still out of hand.

       The Federal Reserve itself has been instrumental in promoting abnormality by doing everything possible to prevent the work-out of bad debts in the system. Since money is loaned into existence, and loans are debts, the work-out of bad debt suggests the discovery that a lot of money has disappeared -- which is exactly the case. The Fed has postponed the work-out by sucking up truckloads of impaired, untradable securities in exchange for loans to giant banks who don't have enough cash on hand to pay their janitors.
     Personally, my theory has been that the specter of peak oil pretty clearly implies the inability of industrial economies to continue producing real wealth in the customary way. In the face of this, either consciously or at a more mystical level, the worker bees in banking recognize that, in order to maintain their villas in the Hamptons, money has to be loaned into existence some other way (than in the service of industrial productivity). 
      We've tried just about everything else. There was the so-called service economy, an attempt to replace manufacturing with hamburger sales. Then there was the information economy, in which work would be replaced with knowing about stuff. Then there was the tech thing, which was about bringing internet companies that existed only on the back of cocktail napkins to the initial public offering stage of capitalization -- which allowed a few-hundred-or-so thirty-year-old smoothies to retire to vineyards in the Napa Valley, while hundreds of thousands of retirees lost half the value of their investment portfolios. Then there was the housing boom, which was all about the creation of more suburban sprawl under the theory that houses (or "homes" in the jargon of the realtors) represent an obvious sort of wealth, and therefore that using houses as collateral would allow humongous sums of money to be loaned into existence -- along with massive fees for structuring the loans into bundles of bond-like thingies.
     This has all failed now because the racket went too far. Every possible candidate for a snookering got snookered. Too much collateral for which there were no takers went into the ground. The insane run-up in house values made a downward price movement inevitable, and as soon as the turnaround happened, it fell into the remorseless algebra of a deflationary death spiral. More importantly, however, this society ran out of tricks for loaning money into existence and instead began to experience the pain of money thought-to-be-in-existence being defaulted into a vapor -- and worse, these defaults led to logarithmic chains of money destruction in its places of origin, the investment banks that had created the racket.
     The important part of this is that the money is gone. What makes matters truly eerie is that the "bubble" in suburban houses has occurred at exactly the moment in history when the chief enabling resource for suburban life -- oil -- has entered its scarcity stage.
       The logical conclusion of all this is not what the American public wants to hear: we have become a much poorer society and are now faced with the unavoidable task of making major changes in how we live. All the three-card-monte moves at the highest level of finance lately amount to an effort to avoid the unavoidable, acknowledging our losses. Certainly the political fallout of all this will be awesome. But it's not about politics, really. It's about the entire society's inability to form a workable new consensus of reality.
     It's hard to predict how long these institutions at the heart of our economic system can linger in the "far from normal" limbo of pretending that money has not been defaulted out of existence. Since the same process is underway in Great Britain and Spain, places beyond the control of Bernanke, Secretary Paulson, and the Boyz on Wall Street, and since actions and reactions there will affect the destiny of money here, its hard to escape the conclusion that we're at most months away from the brutal recognition that Wall Street has managed to bankrupt itself (and, by extension, the United States). This is dark heart of the matter of which no one dares speak.
     Meantime, on the ground, every mook and minion in the land sees the gas pumps levitate beyond the $4 hash mark, and notes with bugged-out eyes the double-digit price stickers on common supermarket items, and feels the rush of blood from the extremities when some check-out clerk at the WalMart declares that a certain proffered credit card is maxed out, and some strangers in overalls -- the neighbors say -- managed to hot-wire the GMC Sierra in the driveway, and took it away....
       The candidates for president will have a lot to talk about. I wonder if they'll dare to.  

Comments

[Johnny Rico]

Out of Brain on the 5:15

Inside Outside Leave Me Alone

http://www.youtube.com/watch?v=5tffF-AEkdE

[Holmes, I presume]

JR, p. 162. Did you find the quote you were looking for?

Let me try another random sampling: “It was the guards’ firmly expressed wish that every American without an overcoat should take one. The coats were cemented together with ice, so the guards used their bayonets as ice picks, pricking free collars and hems and sleeves and so on, then peeling them off and handing them out at random.” Slaughterhouse Five, p. 103.

What are the odds of me finding two quotes, from successive first random samplings of two different (arguably randomly selected) books, that both include the word “random”? (This has earned me a beer, I declare… as does having a pulse and being sufficiently ambulatory still to go get one.)

UR and dave, belated thanks for your thoughts regarding AG from the prior thread.

The Chinese do indeed have a long history with silver.

Links to information about Chinese sycee…
http://www.charm.ru/library/syceelist.htm

Of numismatic interest…
http://www.charm.ru/library/sycee2.htm

[Uncle Remus]

Summertime Blues

http://youtube.com/watch?v=-kJONgWKFi0

[Uncle Remus]

The fact that logic cannot satisfy us awakens an almost insatiable hunger for the irrational.

A. N. Wilson

[Uncle Remus]

America, which has the most glorious present still existing in the world today, hardly stops to enjoy it, in her insatiable appetite for the future.

Anne Morrow Lindbergh

[Uncle Remus]

au revoir, mon ami

[Dr.Doom]

Cool. I finally re-found the doomer comments thread on TOD. Here's the link: http://www.theoildrum.com/node/4013#comments_top

Happy reading! Bon nuit!

[Johnny Rico]

Big Failure:

Ian MacKaye

Mogambu Guru? Dude is an ode to his own failureness everytime he writes. Who's he kidding. He's better than Tom Kloza, I guess.

Mogambu Guru is seriously retarded. When was the last good stock tip you got offa him?

The funny thing is somebody actually pays him over 50 gees(jeez) to write that retarded shit.

I mean, right? Or more. Ask Mogambu Retard what he makes and Who pays him.

I will bet money nobody will answer either of those questions.

What does RETARD do? That my Mom can't do?

(Besides make awesome Mexican dishes, duh)

[OGH]

I'm reading The Black Swan too...
i've read the prologue and am now on page 6 of Chapter One,The Apprenticeship of an Empirical Skeptic.

[Nudge]

Good morning all. The march o' pennies continues upward, with regular unleaded being $3.800 and diesel being $4.539. That diesel price is up 1.7c daily and up 55.7% YOY.

EE, thanks for the NPR link. Priceless! :)

Mmm .. nice to know there are others out there seeing the same thing ..

“GM and gas wars .. 'we're as well-positioned as anybody' ”
http://info.detnews.com/redesign/blogs/danielhowesblog/index.cfm

So says the General top sales analyst, who in one sweeping statement essentially confirms what General Motors Corp.'s critics -- including my Toyota Prius-loving father-in-law -- have been saying for years: Detroit is fixated on its big pickups and SUVs, even as it has vastly improved its cars, their designs and their fuel-efficiency.

"We've been promoting our trucks more than we should have," Mike DiGiovanni, GM's top sales analyst, told a conference in Warren. "We're going to shift our marketing toward fuel economy and hybrids."

Sheer genius, as a reader, Gary S., pointed out to me today: "Oh, so now GM is figuring out that gas prices might affect truck sales? I'm just this middle class small-town guy, no genius by anyone's account, and I kinda sorta figured out -- oh, maybe three years ago or two years ago? -- like everybody else (except apparently the execs at GM) that energy prices were heading up and up, and smaller, more fuel-efficient vehicles would be in demand."

Would make you want to weep if it wasn't so infuriating because Mickey D., as he's known to his friends, has it right: GM is well-positioned. It just prefers to cede the fuel-economy high ground to Toyota. Why is beyond me.

Here's a company that has spent the better part of 15 years playing catch-up to the standard in its industry (that would be Toyota). It has watched the Prius hybrid become a synonym for market savvy and anticipation. It has gutted through global restructuring after global restructuring, labor contract after labor contract. And, still, it doesn't acknowledge the reality of wrought by higher gas prices? Still, it has trouble telling its story?

What $4-a-gallon gas and the knowledge that a goodly chunk of every fuel dollar goes to support the likes of Hugo Chavez, Vladimir Putin and Iran's mullahs doesn't change, then peer pressure and the changing needs (and tastes) of aging baby boomers will. The trends have been obvious at least since 9-11, and have accelerated in the past couple of years.

That GM is acknowleging it now -- in a news story that runs the day its newest critic, probable Democratic nominee Barack Obama, is in Michigan for the first time in 10 months -- tells you why the General (and Detroit's other two companies) keep finding themselves in deep holes. They don't know when to stop digging.

--
In the parlance of today, it seems that GM's admittedly limited capacity for improvement has been “successfully contained”.

[Johnny Rico]

Holmes, OGH, EEofDC, who else?

Jesus.

Black Swan Nation.

Nice.

[FARfetched]

«The only problem with stopping the spending on Iraq, is that we are/were spending on credit. Just as with rebuilding NOLA, show me another trillion that we can use to spend on rebuilding our transportation system.»

The difference is, this is an *investment*. I'm sure FDR's opponents wailed and gnashed their teeth about how the country couldn't afford the New Deal, but the WPA and various other agencies gave people useful work & left the US with infrastructure that's still in use to this day. Float bonds to pay for it, maybe, if anyone's still buying our paper.

«Don't forget the chickens»

Good point, Roachman. As I've said before, factory-style chicken farms are not going to be viable for much longer. You gotta get that chicken on the table *somehow*.

JR, the [q]cha cha[/q] thing is, I believe, quote markup for PHPBB, popular software for online forums.

«GM's top sales analyst [said] "We're going to shift our marketing toward fuel economy and hybrids."»

Did you catch that, folks? They're going to shift their *marketing*. Not their products, or even their product mix. They're going to make a lot of noise about how fuel-efficient they are (honest!) and sell the same ol' pigs.

You can always count on a big corporation for loopy thinking.

[bud4wiser]

There seems to a lot o confusion about how much crude oil pricing affects gasoline prices in the US.

Similarly, there is very little effort by the media to alert or otherwise inform the US driving public that US gasoline refinery capacity is the main relevant factor with respect to current gasoline consumption/costs.

Refinery capacity hasn't tracked US consumption for at least 5 years. Imported gasoline market/futures is what drives current gasoline costs/pricing.

[Dave]

scott,

like i said before, good call on synm. thanks.

dave

[Nicholas Paredes]

I get that it's an investment, but when you've maxed your Visa on vacations in the Middle East coming up with fodder for the fatherland is more difficult. In my mind it becomes about driving down labor costs, and who doesn't work for food, to the point that people will build that damn in the Arizona heat, no matter how many become the damn.

It would cost a trillion to make NOLA the Netherlands, which is what will be required in another six inches of cool crisp glacial water by the half liter. God, I saw 4oz. bottles of water not too long ago! I felt like a whore drinking them...

As my grandfather worked for Tucker, my feelings for Motown are lacking. And, people like Lutz make me head hurt. That's why I drive (drove) those vehicles made by crafty little German trolls. Except my grandfather's '70 Coupe de Ville was quite the car for entertaining!

Sorry Rico, I love Quadrophenia, and may put it on right now, but Floyd? I can't. I just can't...

[theroachman1]

Lovelock the hippy, now thats funny.

He is boring because but that is the only type of scientist NASA ever hired back in the 60s thus we have NASA to thanks for Gaia.

Read the Gaia book back in 1990 and would need to pull out math books to wake myself up.

[Brandon]

Gasoline $1.25 per litre in Southern Ontario. CND surpassed USD yesterday yet again.

[Uncle Remus]

"Mogambu Guru is seriously retarded. When was the last good stock tip you got offa him?"

Sweet Jeebus Rico. I don't read the guy for f'ing stock tips.

[Uncle Remus]

D3PO,

Thanks for the TOD doomer thread link.

[Rudi]

Yeah, really. Whether or not I invest in PM's I would never take a stock tip from Mogambo. Mogambo Guru is really a relationship advice column and since I've started reading a few years ago I've really learned how to sweet talk all the ladies.

[theroachman1]

up. Relationship guru Mogambo Guru. So true I never knew that shouting abusive swearing meaningless tirades at the top of my lungs would get the chicks so crazy for me.

[Movenonup]

Check the news. Gold up. Silver up. Oil pushing towards $130. Dollar down. Stock Market down. Asian Markets and Australian markets Down.

Articles like this:

Megabubble waiting for new president in 2009
'Numbers racket' exposes potential disaster for economy, markets

http://www.marketwatch.com/news/story/governments-numbers-racket-about-blow/story.aspx?guid=%7BF91A0843%2D69B4%2D4C0C%2D92CE%2DB835D9907945%7D&dist=TNMostRead

Is this what that guy in Apocalypse Now meant when he said "God I love the smell of napalm in the morning"?

[LaughingAsRomeWasBurningDown]

Kilgore: Smell that? You smell that?

Lance: What?

Kilgore: Napalm, son. Nothing in the world smells like that.
[kneels]

Kilgore: I love the smell of napalm in the morning. You know, one time we had a hill bombed, for 12 hours. When it was all over, I walked up. We didn't find one of 'em, not one stinkin' dink body. The smell, you know that gasoline smell, the whole hill. Smelled like... victory. Someday this war's gonna end...
[Kilgore unhappily walks off]

[EternalOptimist]

Just discovered Jim's blog. Seems very clued up about many things. Who, exactly, are the 'Boyz' in the band? (band of thieves, I assume?)

What happens to gas prices when we're in the middle of the next Depression? (about a year from now). What are the Boyz in Brazil gonna do with all that oil they just discovered? What about all those Canadian tar sands? Who will be driving to work when there is no work? Horses might just catch on - they're so environmental! ;)

Let's be optimistic!

[Uncle Remus]

scorched economy