Easthampton Burning?

     In the typhoon of commentary that's blown around the world a step behind the financial tsunami that's wrecking everything, two little words have been curiously absent: "fraud" and "swindle." But aren't they really at the core of what has happened? Wall Street took the whole world "for a ride" and now a handful of Wall Street's erstwhile princelings have shifted ceremoniously into US Government service to "fix" the problem with a "toolbox" containing a notional two trillion dollars. This strange exercise in financial kabuki theater will shut down sometime between the election and inauguration day, when the inaugurate finds himself president of the Economic Smoking Wreckage of the United States. What will happen?
      I have thought for some time that things could get dangerously out of hand in America, despite our exceptionalist notion that we are immune to the common plot-lines of history. For starters, inauguration night will seem more like Halloween, as those two little words fly in to haunt the new president. So, a large and looming question is: who will be appointed the next attorney general of the US (to replace the human sash-weight currently occupying the office), and how soon will the federal marshals be scouring the wainscoted hallways of Goldman Sachs, JP Morgan Chase, not to mention a thousand Greenwich, Connecticut, hedge fund boiler rooms, with man-sized nets?
     A story-line is already emerging to the effect that these birds really didn't quite know what they were doing in grinding out that multi-trillion dollar basket of alphabet securities sausage (a theme on Sunday's "60-Minutes" broadcast). Nobody will buy that line of bullshit, though -- and certainly not in the courtroom where, for instance, Mr. Hank Paulson will have to answer why his own firm of Goldman Sachs set up a special unit to short its own issues. It will be edifying to see how they answer.
     In the meantime, however, millions of Joe-the-Plumber types will have gotten their pink slips, slipped helplessly into foreclosure, watched the repo men hot-wire their Ford pickups, and eaten down the kitchen cupboard to a single box of Kellogg's All-Bran (which had been sitting there for eleven years infested with weevils). They will be watching the official proceedings in the federal courtrooms with jaundiced eyes as they hunch in their tent cities, in the rain, sipping amateur-brand raisin wine bartered for a few snared rock doves. How long before the hardier ones among them venture out to Easthampton with long knives and matches?
    It will bring little satisfaction though, and the disappointment could lead to a more inchoate outbreak of civil disorder that would be more like a free-for-all of vengeance and grievance. There will be a great outcry for the new government to "do something!" Perhaps that will finally bring the troops home from Iraq -- only for them to find that the Homeland has become Iraq....
     If the financial system completes its self-destruction -- and that's looking more and more like a real possibility -- there will be several pretty awful consequences. One is that the United States will be forced to declare bankruptcy by repudiating its own debt. All those who took refuge in US Treasury bonds and bills will be like folks who sought shelter from a tornado in their out-house. That would go hand-in-hand with a massive currency inflation that is likely to follow the current phase of compressive liquidating deflation -- in which every possible asset is being sold off for less than its face value. That process is self-limiting due to the finite supply of real salable assets. The trillions of dollars injected into system while this is happening must eventually snap-back as people shed the last fungible article and compete for necessary commodities like food and fuel with dollars that are suddenly plentiful but worthless. At some point, the government may have to summon up a new currency. I don't think it will be anything like the "Amero" which the paranoid fringe incessantly mutters about as part of their fantasy in which the US, Mexico, and Canada all join up to become one country. But any "new dollar" would probably have to be backed by gold.
     As we discover ourselves to be a much poorer nation, one of my correspondents put it: "the bogus risk-swapping economy must be replaced by a net value-added economy." That means actually making things, growing things, and rebuilding things, and that can only begin to happen if we do not stupidly sucker ourselves into a war with other nations who are liable to be extremely ticked off at us for destroying the global economy, but also competing with us for a dwindling supply of resources that are not equitably distributed around the world.
      This means especially oil. I hope you're enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls. My guess is that oil and its byproducts will become much more difficult to get in the months ahead -- not just more expensive, but literally not available. The current falling price of oil has little to do with the real supply and demand fundamentals. It's simply a function of the markets being in near-total disarray. We're running on current inventory, and running it down. In the background, all kinds of peculiar and terrible things are happening. The entire apparatus of allocation and distribution is being thrown out of whack. The smaller tanker operations are going bankrupt. The "less-developed" nations are heading back to the 17th-century level of daily life without electricity. The oil exploration and development projects that were planned for hard-to-get oil netting $100-a-barrel minimum -- in places like the deepwater Gulf of Mexico, Siberia, and Central Asia -- are being shelved, which means the world has less of a chance to offset coming depletions in old fields.
      The bottom line of all this is that we in the US could find ourselves in a situation of shortages, hoarding, and rationing. This would pretty much kill off whatever remains of the previous shuck-and-jive economy -- hamburger sales, theme park visits, Nascar weekends -- while it makes obvious the failures of our suburban living arrangements (and drives the value of housing there closer to zero).
     The new president will have to be Franklin Roosevelt on steroids, with some Mahatma Gandhi and Florence Nightingale thrown in. My pet project of restoring the American passenger railroad system might seem pretty minor in the face of all this, but it's at least a place to start that will accomplish several things: allow people and things to get places without cars and trucks; put many thousands of people to work at many levels doing something of direct, practical value; and be a small step in rebuilding confidence that we are a society capable of accomplishing something.

Comments

[mikeh13]

Holy Fucking Shit I'm Number One again!!!!

[robert magill]

The Plain Folks at Home

Four years from now, after the interrupted administration of McCain and subsequent handover to Palin, the Dems will nominate and elect the first Old Order Amish president.

He will represent the only repository of farming knowledge that can save us from mass starvation. Since not even the horse-and buggy life is what it used to be (think propane use)yes, even the Amish are on the grid, sort of.

But that small item aside, the new prez ,after consulting with his Bishop, will fill his cabinet with the Secretary of Barter, Secretary of Animal Husbandry, also Peace, Eighth Grade Education, Buggy transportation, etc. etc.

The USA will survive and industry will return to our shores. The newest fad will be trousers without zippers so the button trade will thrive, ditto suspenders and men's hats. Beauticians will not do well, nor will jewelers, NASCAR drivers, or anything using much energy, think internet.

So we will read the Farm and Home news for guidance and scripture for inspiration and all will be well.
http://www.noabominoidshere.blogspot.com/

[oneEyeOpen]

rob,

Saw this post before. Move on, son.

[Tracy Adams]

Could we get back to "fraud" and "swindle?" And, you forgot "accountability."

Let's create thousands of jobs for people, who will hunt down the bastards, prosecute them, and take all their assets. We'll call the new department: Swindlers List. I'll be the first to sign up -- I'm dying to add "Financial Terrorist Hunter" to my business card.

[DanW]

Hi...

RE: "inauguration night"

You say Syria and I say Cambodia, you day Deeeebold and I say Diebold...Syria, Cambodia, Deeeeebold Diebold...let's call the whole thing off. You say 1970 and I say 2008, you say "guarantee" and I say "fuzzy math"?, 1970, 2008, guarantee, fuzzy-math...let's call the whole thing off

[LaughingAsRomeWasBurningDown]

human sash-weight... perfect turn of phrase there. Excellent post this week.

[oneEyeOpen]

Jimmy,

As for peak oil that is real and I believe we are there. As for current supply and demand, demand has tanked big time. US demand is down 9%. 9% of approx. 25 million barrels is 2,250,000. That is significant. The rest of the world is using less as well. Will we see 150 oil again? Yes and probably son but the current decline is real and effecting prices in a real way.

[DanaJ]

Say, howz about a new episode of Dawg the Bounty Hunter - Dawg in the Hamptons.
But Tracy is right, there has to be some ACCOUNTABILITY for the high crimes that have occurred here. If not, well, we may see "BushVilles" camped out in the Washington Maul, with a little impromptu justice down 'round Wall St.

[Riddick]

The amazing thing is how absolutely clueless and "Lemming-Like" Amerkians are...watching the "Series" and eagerly awaiting the playoffs with the nouveau InBev-inspired Busch products in their hands, at least their drinking a dam Amerikan Beer! Not! Try Belgium.

Around here in Northern Virginia I am still surrounded by dyed blond Moms in Massive SUVS ushering the kiddies to soccer, cheerleading, football, dance or karate (your choice). Often at the gas pump while my little 4 banger sedan is quietly filling her 12 gallon tank I lie in the "shadows" of Ford F-Monsters and Humvee H2s. Nothing has apparently changed, NOTHING, despite all the gloom and doom here and even to an extent in the MSM.

Now, I read of the first real rumblings of real impending disaster, the County GuvMent is in a deep hole and it is getting deeper. What is a self-respecting County Administrator to do what with all the mega-high schools in the pipeline and the still endlessly growing list of new kiddies in the "pipeline". Courtesy of a Republican mantra that went, it is my property, I'll build what I dam want, make as much as I can and shove the friggin costs to the County for all the services. Problem is that the County just milks the people and businesses for their money so in a very real and tangible way I payed for that developer's villa in Cancun. Maybe I need to fly down and pay a visit?

Oh well, at least their is still beer.

[ConservativeGreen]

Re: Walking to the Hamptons.

My mother often tells me the story about her mother, and her mothers mother moving from one town to another around 1920. A distance of about 30 miles.

They did not have a car, they did not have enough money for the train. So they packed their belongings into suitcases, and walked.

Google maps walking directions say that today it would take about 9h. I suspect that most Americans would balk at the idea of walking to the store, never mind a two week trek to the Hamptons.. and why go so far? The banks, high-rise glass buildings, and discount electronics stores are just down the street.

Think LA Riots, not French Revolution.

But that still won't happen, not until there is a sea change and Americans stop believing that they are pre-rich, and their ship is about to come in, any day now, as soon as the market goes back up.. really.. this is just a blip..

[The Wonk]

If the Federal Government defaults, how are we going to fund railroad upgrades, build non-fossil-fuel electrical plants, and the like?

By the way, one out of ten Americans is on food stamps now. They are a lot less visible, because they use plastic debit cards instead of coupons. But the fact remains that there are close to 30 million Americans who are receiving help from the US Government to feed themselves.

[starcade]

As I've said about a lot of this financial mess -- if the truth ever comes out, it's riot. The whole mess goes down with all the tattooed freaks and the like finally getting their apocalypse and Armageddon. The reason you don't hear the words "fraud" and "swindle" is that those words are part of said truth. Something to keep in mind there.

If the "kabuki theater" shuts down sometime between 11/4/08 and 1/20/09, there will be no inauguration. Period. It won't happen. One has to wonder if that's why there is a "homeland" state-side military brigade ready to put down civilian unrest... (And that's just who they admit to.) If things are about to get that "dangerous" because of situations coming about before inauguration day, then we don't have an inauguration. Your vision of "Halloween" becomes a continuing nightmare.

I mean, the fact of the matter is that if this ever comes to light, you can forget about trials -- they'll shoot anyone substantively involved. There will be so many Jack Ruby's to their Lee Harvey Oswalds, it isn't even funny. And the populace will openly cheer the mass spillings of blood which result.

How long before they go to the Hamptons with lethal intent? I think that's the *first thing* more than a few would do if the systematic fraud were exposed. I think there is a significant portion of the population ready to go violent when they know they have nothing left to lose and don't care anymore.

And, James, "a free-for-all of vengeance and grievance" is a perfect description of the America to come. They won't have enough places to bury all the bodies.

There will have to be a new currency -- at some point, unless they openly want to enslave the population in debtors' prisons, a Jubilee and a full economic reset would have to be declared. That's the only real way out.

For there to be a "net-value added economy", such an economy would have to be possible. Sadly, it's not with a legal population of 305 million plus 20 or so million illegals. I think that's one of the reasons this is all going on: Systematic economic population attrition as a means of balancing things out.

[oneEyeOpen]

Democrats Devastate Chicago

Love this. More killed in Dimotwatt Chicago in last 6 months than US soldiers in Iraq.

Story here:

http://canadafreepress.com/index.php/article/5833

[cosmic cowboy]

"Steal a little and they throw you in jail, steal a lot and they make you king."

-Shakespeare by way of Bob Dylan

[starcade]

The Wonk: I'm surprised it's just 30 million -- they'd be the first to riot, it wouldn't take long, and the first to also be killed (they probably aren't even considered worth enough to the process to enslave).

[Cymon Dendu]

"I think there is a significant portion of the population ready to go violent when they know they have nothing left to lose and don't care anymore."

Isn't that everyone? I know I'm ready to start the Star Chamber as soon as I'm down and out.

[Jynx]

jeezus-cuntlicking-keerist what a depressing post Jim (even by your standards)! But you've nearly always right about these things.

[Benny Muller]

A different scenario:

Americans, shell shocked the by 4 $/gallon gasoline, are driving much less and stop using monstertrucks to do so. GM has already shelved all development programmes geared towards the next generation of SUVs.

This and a modest global recession pushes oil prices well below 40. This bankrupts Venezuela within a year and a new, ever so US-friendly regime will come and ask Obama for assistance to crank output back up to 3-3,5 million barrels. The US no longer has to rely on oil imports from hostile nations (not counting SA).

Turns out there is no such thing as the Taliban (www.newsweek.com/id/165584), the US will put a couple of hundred thousand non Pastun and perhaps even some Pastun tribal members on a 100 US$/month payroll and successfully copies the awakening movements in Iraq. Bin Laden is captured within weeks. Everybody is happy and thankful and all the Afghan poppy growers switch to switchgrass.

The US pays off it's entire foreign debt by printing money, this made possible by deflationary forces resulting from de-leveraging of the financial system. There's actually a few trillion or so left to restore the American passenger railroad system. Under Obama's inspirational leadership, places like LA start to resemble Munich and even Americans outside Manhattan are starting to wonder whether they actually really need that Prius in the driveway ...

By 2013, most of the ice on the North pole is finally gone and no longer restricts access to it's oil and gas reserves which turn out to completely dwarf those of the middle east.

A new golden age for oil is upon us and Obama is voted president for life.

[Lost Horizon]

I've been glued to world currency markets this past week.

As much as DuhMerika is a Dead Banker Walking, it seems Europe and Asia have even larger, and more importantly, faster Unwinds going on in their financial systems.

Euro banks lent money to emerging economy that are now folding like wet Kleenex.

The US cannot 'save' European banks or currencies.

Spain, for example, lent many Latin and South America countries almost $325bn that looks like it will default. This is on top of Spain's crazier than batshit housing/mortgage overbuild.

The German's, who many thought had the sanest and most conservative banking system in Europe turn out to have 'cut some corners' and also, cannot save the other European banks.

Gee, the last time Europe had a mega banking/currency collapse, didn't it turn out poorly?

Oddly enough, and I have been surprised by the strength of it, there is a 'flight to (the) safety of US treasuries from the rest of the world.

Gee, US treasuries 'safety factor' are almost make believe at this point, backed as they are by future taxpayer receipts which probably will NOT materialize.

I guess that leaves slave labor to save the day and pay all the debts.

A classic solution to a timeless problem.

[oneEyeOpen]

I'm with you Benny. Sounds plausible.

[Frank Gifford]

Thank you Mr. Kunstler for you keen insights. The situation you describe with the Big Money Boyz lends credence to this notion: Capitalism seems to select for undesirable human characteristics. What is required for success in business? Greed, Sociopathy, maybe Psychopathy. Is this what we want to become?

I think Nancy Pelosi was brilliant in her decision to forgo impeachment of Bush. Let's learn from that. We are all in this together. Maybe we can learn from our mistakes, and together design a system that is more in line with desirable human values. From one important perspective, the Republicans and what now passes as conservatism in America is really the politics of Cultural Collapse. Frank from http://EntropyPawsed.org

[oneEyeOpen]

Obama Shuns Press Conferences, Sits With 'EXTRA!'s' Mario Lopez

Whats wrong with that? That Mario dude asks some penetrating questions.

Story here:

http://blogs.abcnews.com/politicalpunch/2008/10/obama-shuns-pre.html

[Cymon Dendu]

“More killed in Dimotwatt Chicago in last 6 months than US soldiers in Iraq”

Saw this post before. Move on, son.

[oneEyeOpen]

"Saw this post before. Move on, son."

Yeah? Well you didn't see it posted here before.

[steve duncan]

New, rivatalized rail and train systems are needed. I wonder though at the contention it will somehow alter people's attitudes towards cars and personal control of their travel and commutes. Transportation is getting from point "A" to point "B". If "A" and "B" are the departing and arrival train stations I'm out of luck without a car. How do I get to "A"? And upon arrival at "B" what takes me to my real destination, the job or doctor or school I'm needing to get to? Laying rail and building trains seems as if it might be but 1/10th the battle. You are going to have to make my use of a personal car nearly cost prohibitive. Otherwise when I compare the cost of the train ticket, the taxi or bus fee before and after each trip to the train station and finally the sacrifice of large swaths of personal time waiting and getting on and off a half dozen assorted vehicles involved I'm tempted to stick with my car.