America is on vacation from its financial, fiscal, and economic
problems, having left the centers of power in Wall Street and
Washington for a Nantucket-of-the-mind, where, in a haze of artisanal
vodka and bong smoke, it's out in the cool dune grass watching
imaginary whalefishes blow, leaving only the TV Bubbleheads behind back
home. Larry Kudlow of CNBC was practically drooling into his cufflinks
on screen last week when the dollar popped against the Euro, and crude
oil slumped, and the equity markets climbed up a flagpole.
This sort of euphoria is actually an alarming pre-crash symptom,
in this case of a patient (the US) entering the terminal phase of
sclerosis. Our society and all its playerz -- especially the appointed
communicators -- just can't fathom the reality of the threats we face,
which are 1.) the loss of primary energy resources, 2.) the loss of
technological potency, and 3.) the loss of a comfortable standard of
living.
As the boys over at the Financial Sense
News Hour podcast have been saying for months, we're caught in a
paradigm shift and we're trying desperately to prove (to ourselves)
that we can get back to the way things used to be. This is a broad
cultural phenomenon and helps to explain why even the greenest captains
of environmentalism strive to find groovy new ways to run all our cars,
while their counterparts on Wall Street strive desperately to salvage a
set of "innovative" financial rackets based on getting something for
nothing. It also explains the foolishness of the "drill drill drill"
crowd, which believes we could be back to 99-cent gasoline if only
Exxon-Mobil were allowed to prospect offshore where the codfish used to
swim. (By the way, I'm in in full favor of granting them permission to
do so, if only to put an end to this foolish debate.)
Reality,
meanwhile, strives to take us in another direction. Our destination is
a far less complex society in a larger, rounder, and less
economically-integrated world. We will be leaving a lot of our
technological comforts behind, staying closer to home, living in
smaller cities and reactivated small towns, working the land more
intensively to produce the food we need, and possibly organizing our
governance at something less than the continental scale our dwindling
riches used to afford. That is, if we're lucky enough to avoid the real
possibility of social disorder and violence that would attend a
fullblown economic collapse scenario.
August is historically a quiet time for oil, the so-called
"shoulder season" when vacationing climaxes, but before deliveries of
heating oil get underway in earnest. We have no real prospects of
overcoming any of the structural problems now built-in to our oil
supply, starting with the grim central fact that we import at least 70
percent of the oil we use. Add to this the fact that world production
of conventional crude has not exceeded the 2005 rates; that export rates from our Number 3 and 4 sources of oil, Mexico and Venezuela, are down a combined 30 percent this year; that discoveries of new oil are meager to the degree that they fail by a long shot to offset current world-wide depletion;
that the oil available on global markets is proportionately more sour
and heavy crude than the light and sweet our refineries are designed
for. And so on....
These geological matters form the base on which the geopolitical
issues work their hoodoo. For instance, the war currently underway in former Soviet Georgia
(I say this in case the folks in Atlanta wonder why Stone Mountain is
not being bombed) will at least end up with Russia in control of the
major oil pipeline that runs from the Caspian region across Georgia,
through Turkey, to Europe -- even while parts of that pipeline get
blown up. The net effect will be of Russia will taking control of even
more of the oil now flowing to Europe. The whole point of building that
pipeline was to bypass Russia, which was crippled by its own paradigm
shift in the years when the pipeline was built.
The US might talk tough about this threat to the status quo, but
what is it going to do? Pull troops out of Iraq and Afghanistan to
mount a land war against Russia in a landlocked region of its own
neighborhood? Fuggeddabowdit. Notice, the Europeans are not making so
much as a peep -- because when the time comes that Russia does control
that pipeline, the Europeans will do anything to keep the contents
flowing toward them. Europe may be organized as a trade-and-currency
confederation, but not as a military power. NATO is strictly a US
auxiliary, not a power unto itself. The result of all this will be that
Russia, already the world's leading oil producer, even as it has
entered depletion, will now possess a potent geopolitical-and-financial
weapon with control of that pipeline. A collateral effect will be
Europe's inclination to bid more desperately for Middle East oil -- the
oil that comes via the Suez Canal -- which can't help but boost the
price-per-barrel that the US is forced to pay.
One part of the oil equation we haven't seen yet this year -- the
prelude to the heating season which could be just as spectacular as the
opening of the Beijing Olympics -- is the hurricane season. This will
be an interesting week for that, as two tropical depressions have now
formed off West Africa and begun their grinding progress into our part
of the world. Stay tuned to that (National Hurricane Center).
With Wall Street on vacation at its various beaches, the idea has
taken hold that the so-called credit crisis is mostly over. In fact,
we're still in the first quarter of that classic. The big move before
the investment bankers packed their snorkels and baggies was Merrill
Lynch selling off a batch of its fraudulent securitized debt bundles
for roughly five cents on the dollar. That pretty much marked-to-market
the similar garbage that every other big bank or pension fund or hedge
fund has hidden in its closet. My guess is that some of them will just
declare "game over" without even bothering to haul their garbage out
and hang a "for sale" sign on it. Fannie Mae and Freddie Mac are
essentially there now.
The Federal Reserve will be in the awkward position of having to
make more loans (that will never be paid back) to many of these
companies and entities, and in the process will fork over their
remaining treasuries in exchange for garbage collateral that they will
never get rid of. I don't see how the Federal Reserve survives this
process. It will not have any reserves left. The collapse of the
Federal Reserve would take America into an outer space version of
uncharted territory, really into a whole other dimension of distress.
While Europe faces its problems on Russia and energy and its own
economic performance, it has more probability of staying afloat than
the US in this upcoming period. I would look for the dollar to make a
new big "leg" down against the Euro.
It was fascinating to watch a CNBC report Sunday night about the
progress of General Motors and McDonalds Hamburgers in China. It sure
makes one wonder about the current mood of Sino-triumphalism -- the
favorite car of the Chinese elite is... the Buick, a product that even
demented old ladies in Columbus, Ohio, will not touch with a stick. It
appears that China has succeeded in turning Peking and Shanghai into
simulacrums of Atlanta and Dallas, complete with glass office towers
and all the on-and-off-ramps they'll ever need -- a pretty stupid
project when you consider how little oil of its own China actually has.
One can only say, with a shudder, that they got into the Happy Motoring
game a bit late, and wish them "good luck."
The Mickey-D phenomenon appears to be a mere fad, a toy that
Chinese trade officials tossed to its people in the euphoria of ramping
up the world's last manufacturing economy. For starters, China doesn't
have enough groundwater or grain to feed the necessary steers (and
hogs) that McDonald's uses for it's "meat products" there.
The most amusing part of the CNBC segment was the deportment of
the smarmy American executives representing those companies:
Rick Waggoner of GM, who was depicted in the full flower of a campaign
to hose his Chinese "partners," blowing smoke up their asses as if he
were some kind of a human walking-talking bong, and the two necktied
creeps from McDonalds' Asian office scheming on camera about opening
tens of thousands of so-called "restaurants" across the ancient
kingdom. These were all perfect representatives of people stuck in a
paradigm already bygone. When the Olympic mania ends, China will find
itself in a new reality, too. Its single advantage, as far as I can
see, is that it holds a lot of US dollars in various formats, and I
don't know that this is much of an advantage given the imminent tanking
of American finance. Yes, China has become the world's factory. But if
the world's leading shopper is shopped-out and busted, this might not
be much of an advantage. Beyond that, as suggested above, they face
huge problems with oil, water, and food, not to mention over-population
and environmental degradation at a scale we can barely imagine here.
The slide toward Labor Day will remain interesting, even with all
the Boyz off at the beach. Notice we haven't even touched on the
upcoming political theater of presidential politics, a show that I'm
inclined to call "The Party That Wrecked America."
GM sells more Buicks in China than they sell here in the US if I am reading these stats correctly. Seems appropriate, somehow, they fill our Wal*Marts with crap, and we put them behind the wheels of Buicks in return.
Posted by: LaughingAsRomeWasBurningDown | August 11, 2008 at 09:47 AM
ya, the USA is as fucked as all that, no doubt about it. but it still has NATO, a bunch of nukes, a toehold in the middle east oil patch, 300 million totaly dependant wage slaves, bunch of coal, about the best ag. land out there(steadily destroying it of course), and, lest we forget, a subtantial homegrown military. still plenty of opportunity for us to do plenty of damage, no matter what happens to wall street and the bankers.
Posted by: Dave | August 11, 2008 at 09:49 AM
er, not sure what any of that has to do what what you might have said, oh well.
Posted by: Dave | August 11, 2008 at 09:52 AM
Did we really think that Russia was going to forget the really good rat f**king our Harvard MBA boys gave their economy in 1990's?
Putin's a murderous jerk, but he's not a stupid murderous jerk like our Preznit. Man being stuck between these two really stinks, although it's obviously even worse for those in the Caucausus right now...
Posted by: 2LegsBad | August 11, 2008 at 09:54 AM
i was reading somewhere that the latest wall street scham was in putting together finance for the sale of public facilities; highways, airports and such.
Posted by: Dave | August 11, 2008 at 09:55 AM
4legsgood
Posted by: Dave | August 11, 2008 at 09:56 AM
It's funny, I happened to be researching Yukos this morning for a project and I came across this quote on Wikipeadia "According to the Moscow Times of Friday, February 4, 2005, Issue 3099, Page 5, Mikhail Brudno and Vladimir Dubov fled to Israel in 2003, and were seen on February 2, 2005 in Washington, D.C. at an official function of George W. Bush. [8] Both men are cited in an international arrest warrant regarding their involvement in the Yukos tax case. Leonid Nevzlin, a former Yukos CEO ("Nevzlin gained a controlling stake in Yukos when Khodorkovsky handed him a 60 percent share in the holding company that controlled the firm") also now living in Israel, is sought on several counts of murder and attempted murder and is also stated by Russian authorities to be a suspect in the poisoning death of Alexander Litvinenko."
Putin's been consolidating the Russian oil patch and slowly puhing out any unfriendly oligarchs for years now...he's seen this endgame for a LOOONG time.
Posted by: 2LegsBad | August 11, 2008 at 09:59 AM
the only wise use of our remaining oil reserves is to rip up the oil dependant infrastructure. you know, like rip up and throw away the roads and rails and airports and shit. that would make plenty of jobs, stimulate a new economy, and shit, i think.
Posted by: Dave | August 11, 2008 at 09:59 AM
I still find it weird that Kunstler is a Democrat. For example, he consistently argues for localization and downsizing, whereas democrats are the party of centralized power and growth. Old style conservatives, paleo-cons, were the ones that were against bigness per se, big government and big business. However, in the face of communism, they were vehemently pro private property rights and this has allowed big business the opening to destroy their traditional antagonists on the right and replace them with the neo-cons’ subservience to international corporations. Much like Kunsler, the traditional conservative’s ideal was the independent businessman, the shop owner of the traditional American Main Street. These people were the bastions of the middle class, and the pillars of the community not only in an economic sense, but those who provided much of what consider the virtues of community, shared values, interdependence and support, trust. Americans embrace of big business has wiped out these people and replaced the traditional Main Street with Kunstler's hated big box stores that blight the American landscape today.
The traditional left found it greatest support among labor groups which required the existence of big business for their own existence. They might have been against management, but they were comfortable with big business as long as it played by certain rules. There is now a movement among the new left, the neo-libs, to emphasize community and localism, to shop local and support local businesses. The arguments given for this support are very similar to what you would hear a Republican circa 1955 espouse, i.e., the already mentioned facts that these people were the bastions of the middle class, and the pillars of the community not only in an economic sense, but those who provided much of what consider the virtues of community, shared values, interdependence and support, and trust.
On top of this, Kunstler is amazingly socially conservative. Just take his recent tirades against tattoos, baggy pants, and popular music. Kunstler's ideal is that traditional 1950s (or maybe it's 1850s in his case) American small town, the kind of thing paleo-cons have been arguing for for ages. Kunslter is far more paleo-con than Democrat.
Posted by: Empedocles | August 11, 2008 at 10:00 AM
so has my man dick. why you think he expanded nato into eastern europe and got us in solid in the ME. mafucker ain't dumb.
Posted by: Dave | August 11, 2008 at 10:01 AM
Kunslter is far more paleo-con than Democrat.
ya, he even looks like dick cheney. that's why i read his shit every week.
Posted by: Dave | August 11, 2008 at 10:03 AM
Some good stuff to chew on here, although I feel obligated to point out that those aren't tropical depressions out in the Atlantic. Just yet.
JHK, I'd like to see you address the current reduction in fuel consumption and the fall in fuel prices that has accompanied it. Screw-ups like this Ossetia War or whatever they'll call it can potentially be a blip, depending on how quickly they resolve it. But if I was Hu Flung Dung, I'd be bitching at Pooty-Poot and making things difficult for the Russians for distracting the world from "China's" Olympics.
China, after all, is a big wildcard — not only for us, but for Russia. The sleeping giant on Russia's southeastern frontier is awakening. As much as we worry about China holding a bunch of our worthless paper, Russia has to worry even more about an emerging superpower on their flank, one that will not simply shrug at Russia disrupting the flow of a necessary import.
Posted by: FARfetched | August 11, 2008 at 10:05 AM
i always though that dems were the party of hoes with asses what like to slapped. that's why whenever i thought that i might vote i thought i might vote for a dem.
Posted by: Dave | August 11, 2008 at 10:08 AM
luckily i came to my senses. anyine who votes is a fucking idiot, just sayin'.
Posted by: Dave | August 11, 2008 at 10:09 AM
but putin didn't start it. it was the caucasians and my main man, dick. that boy is world class fucking genuine genius.
Posted by: Dave | August 11, 2008 at 10:11 AM
the chinks can come over here and buy some railroads and shit. haha, i make myself laugh sometimes.
Posted by: Dave | August 11, 2008 at 10:13 AM
dat's all folks. i'm outta here. dis place gives me the heebeegeebees and shit.
Posted by: Dave | August 11, 2008 at 10:19 AM
I love the slam on the rednecks in Georgia who would be looking out their windows for the Russkies if you hadn't clarified the news flash.
Wow, Dave. You could be the biggest idiot on the entire web.
Posted by: JJackson | August 11, 2008 at 10:22 AM
Frankly I find it very refreshing to see Russian tanks and columns of troops once again on the move. The Georgian fascists warmongers asked for it and they got it -- right up the ass. And in all probability, they'll keep right on getting it, and will be completely occupied by the Russians for some time to come. Who do the Georgians think they are? The Ossetians and the Abkhazians are ethnically and linguistically separate peoples from the Georgians, they were never part of Georgia historically, only part of the USSR -- and even more recently, in 1992, right after the USSR broke up, they kicked Georgia's ass by themselves and remained independent.
So now the scumbags in the US and Israel sent their assassians and torture trainers to Georgia and try to promote an enthic-cleansing of the Ossetia people (with probably the Abkhazians next) and big brother Russia stomps them flat. Hey, I really hope Russia doesn't let go of the pipeline. Turn it around into Ossetia and into the Russian oil grid.
What would really be even more fun would be if those morons in Washington would actually try to do something about it. Just what the US needs, another warfront.
Posted by: Harmon | August 11, 2008 at 10:23 AM
Empedocles, labels are just that. The Dems haven't been the big-government party since 1980, about the same time the goplet abandoned fiscal responsibility & replaced it with privatized profit and subsidized expense.
Go back even farther, and the different between a "liberal" and a "conservative" was that liberals favored a loose interpretation of the Constitution. They may still, but cons are (by their actions) in favor of burning it down and replacing it with the Rule of Whim.
Kunstler probably votes Democratic for the same reason as I do: not because I necessarily agree with everything stay stand for, but because they're likely to do less damage on the way down.
Posted by: FARfetched | August 11, 2008 at 10:25 AM
Good bye dave...please DON'T come back.
Posted by: 2LegsBad | August 11, 2008 at 10:25 AM
"That is, if we're lucky enough to avoid the real possibility of social disorder and violence that would attend a fullblown economic collapse scenario."
Interesting topic for a future column, perhaps. I've always thought that the union wouldn't survive a slip from supremacy, and I'm curious how things would fragment.
I think Richard Morgan's depiction of things in "Black Man" ("Thirteen" here in the politically correct US of A) is spot on: Jesusland, RimSec, etc.
Anyway, good column as usual, but as much as we all enjot the schadenfreude, we've also been waiting for the other shoe to drop for years now. Any concerns about that?
Posted by: Hecho En Venezuela | August 11, 2008 at 10:32 AM
the current relief rally is like a bunch of folks who have sunk to their necks in quicksand and
are now rejoicing that they have stopped sinking
Posted by: upstatebob | August 11, 2008 at 10:43 AM
Good bye dave...please DON'T come back.
er, i'm here just about everyday.
Posted by: Dave | August 11, 2008 at 10:59 AM
Wow, Dave. You could be the biggest idiot on the entire web.
wow, jim!
Posted by: Dave | August 11, 2008 at 11:00 AM