What Now?

      It's fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that "the worst is over" (maybe... we hope... fingers crossed... hail Mary full of grace... et cetera). The cluelessness would be funny if it didn't involve a world-changing catastrophe. All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you. As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That's what the $700-billion bail-out (excuse me, "rescue plan") and all its associated ventures are about.
      To switch metaphors, let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.
       So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction.
     And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story -- the New Prometheus -- is yet another apt narrative to inform us what we have done. We have "played" with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think. Perhaps, in some countries (maybe the USA, if we're lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment "products" that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments). I think it has already begun with the inquisitors summoning the shifty Dick Fuld of Lehman Brothers -- but there are hundreds of other characters like him out there, who scored untold millions of dollars in activities that were simply grand swindles. I wouldn't be surprised if, eventually, Treasury Secretary Hank Paulson found himself in the dock to answer how come, when he ran Goldman Sachs, there was a special unit in the company dedicated to short-selling the very mortgage-backed securities that another unit in the company was so busy pawning off to every pension fund on God's green earth.
       Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval -- revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history.
      Anyway, prosecution through the courts, while perhaps satisfying the hunger for justice (or, more particularly, revenge), is not a productive economic activity. So, the question begs itself again: what will we do? Under the best circumstances we will reorganize our society and economy at a lower level of energy use (and probably a lower scale of governance, too). The catch is, it will have to be a whole lot lower. I think we'll be very lucky fifty years from now to have a few hours a day of electricity to do things with.
     The energy story and its hand-maiden, the climate change situation, are both lurking out there beyond the immediate spectacle of the financial fiasco. Both these things imply pretty strongly that the economic relations currently unraveling will not be rebuilt -- not the way they were before, or even close to it. The best outcome will be societies that can practice small-scale "process-intensive" organic agriculture and equally small-scale process-intensive modes of manufacture in the context of very local sociopolitical networks. An accompanying hope is that we can remain civilized in the process. Personally, while I recognize the appeal (to others, not me) of the "singularity" narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bullshit fantasy that has zero chance of occurring, given our stark predicament.
      But returning to the short term, or "the present," shall we say, there is the matter of how the US gets through the election and then the first months of a new government, even while the larger fiasco continues. I'm voting for Mr. Obama. While I believe he will make a much better president than the addled old mad dog Mr. McCain has become, I feel sorry for anyone who is placed nominally "in charge" of things this coming year. The best a President Obama can do is offer some reassurance to a public that is totally unprepared for the convulsion now upon us. Mr. Obama will certainly not have "money" to "spend" on any of the promised social support programs that have been endlessly debated. But he could clearly articulate the reality we're facing, and ask not necessarily for "sacrifice," as the common plea goes, but for something more and better: for bravery and resolute spirit, for intelligence and resilience, for kindness and generosity -- among a people long unused to consorting with the better angels of their nature. He's already begun to set the example by appearing in public with his sleeves rolled up. The change that has been in the air all year -- that Mr. Obama has talked so much about -- is coming in a bigger dose than anyone expected. I hope we're ready to get with the program.
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My new novel of the post-oil future, World Made By Hand, is available at all booksellers.

Comments

[comrade simba]

LMAO. Those were some funny metaphors - fork and spoon level of civilization!

So true is the tidal wave theory - perfectly sums up the business as usual attitude that baffles me as I look at my fellow man. At least I headed for high ground here on the ol' doomstead.

Great post Jim.

[LaughingAsRomeWasBurningDown]

Great column this week. One thing though,

...the "singularity" narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bullshit fantasy that has zero chance of occurring...

never say never. I, for one, would welcome our new robotic overlords.

[Nicholas Paredes]

Our new robotic overlords! We go from monkey to mannequin. Perhaps our leader was simply showing us how it's done!

Totally agree with the economics. I've been saying for a while that we would see asset deflation, not so much commodities, and then inflation. Real inflation! I can't really see how commodities can decrease in cost unless you have panic, and people do whatever they can to survive. Oil is still up overall...

My monkey mind needs a banana.

[Nicholas Paredes]

BTW, I like the optimism!

[LaughingAsRomeWasBurningDown]

Yeah, maybe "cyborg overlords" would have read better. Either way, we'll make great pets. Cold morning here in the Appalachians, could use one of those bananas myself.

[IVAN]

Jim

You need to watch this. Tested to perfection. The left wing and the right wing are attached to the same bird. You regular posters seem so erudite and enlightened tell me who is really in charge? Curious.

http://video.google.com/videoplay?docid=4353655982817317115&ei=BJD8SK2gFKeKqQPPgIH4Dw&q=argentina+financial

[Francesca]

You say so well: "But he (Obama)could clearly articulate the reality we're facing, and ask not necessarily for "sacrifice," as the common plea goes, but for something more and better: for bravery and resolute spirit, for intelligence and resilience, for kindness and generosity"
And I believe he will. We need a clear vision of what the world could be in the event that our best natures rule the day. A new metaphor - perhaps "Paradise Regained"?

[Empedocles]

Kunstler starts by criticizing the $700 billion bailout, moves to suggesting that we "reorganize our society and economy at a lower level of energy use (and probably a lower scale of governance, too), but then ends with an endorsement of Obama without mentioning that Obama voted for the bailout and is for centralizing power, not localization! Obama is for offshore drilling, not conservation; Obama is in favor of military interventions, not non-interventionism; Obama is for free trade, not protectionism. Kunstler is too smart not to realize that Obama stands on the opposite side of every issue from him, I can only surmise that Kunstler has been dazzled by the Obama's empty platitudes, oratory skills, and rhetoric like everyone else on the Left, or is so blinded by hatred for Bush that he is willing to support someone who holds opposing positions on every issue.

[scott]

I think that if generations X,Y, and Z, knew what I think I know, they would be pissed, and maybe, rightly so. What I think I know is this, While the standard of living in the West, and recently the world, has steadily gotten better for the past 100 years or so--it will not much longer.

I realize that I am pissing in the wind here, no one in those generations of young people are going to believe it, but here it is.

Look at the government, and what I mean by the government is by it's largest outlays. It's a PDF: http://www.fms.treas.gov/annualreport/cs2007/outlay.pdf It's a pie chart that shows what the government IS. The government IS social security, The government IS medicare. The government IS national defence and the war in Iraq and Afghanistan.

All those other things you were taught in civics classes about what the government IS are so miniscule that they are barely worth talking about.

The government is NOT Obama or McCain or Nancy Pelosi or any politician--it's us. They don't call it the third rail of politics for nothing--touch it and your political career will be vaporized instantly.

So we know these outlays are not going to change much--so who is going to pay for it? The "donators" thats who! Certainly not the entitlement classes that are benefitting from those enormous outlays.

CHANGE--yeah, theres going to be some change. all those "reckonings" jim talks about are going to happen. The entitlement classes will simply ratchet up the cracking of the whip on gen x,y and z to pay for it.

If you think it's gonna be the "masters of the universe", or from Corporations, businesses, etc. I got some bridges and oceanfront property in AZ. to sell ya.

[LaughingAsRomeWasBurningDown]

Emped, seems like we've been through this before. We are gonna vote for some crazy old man and his Jesus freak sidekick lady instead?

[Consultant]

Get with the program indeed!

As you have said many times, there is a level of denial in our culture that is extraordinarily wide and deep.

I think President Obama's most important cabinet selection will be Attorney General. If he selects a veteran prosecutor, that will signal he intends to go after many who created and benefited from this vast, epic Ponzi scheme.

Seeking prosecutorial justice would give him some leverage as he tries to manage the sinking ship of our economy and people's expectations.

I think the country is ready for Bush and Cheney to be arrested and prosecuted for crimes against this nation.

[FARfetched]

A Truth & Reconciliation Commission, like they had in South Africa after apartheid, might be a good model for what we'll need starting next year. Of course, I'm assuming Obama gets elected, and that's not a lock but looking good at the moment — McSame wouldn't lift a finger to go after the Boyz. I'm all for letting the Boyz buy their way out of jail time, assuming the price is sufficiently high (like 90% of their assets, plus 100% of what they off-shored to Switzerland or Bermuda, etc. or what they otherwise try to hide). Plow that money into infrastructure investment, sustainable energy, and so on.

But the point of the TRC must be to lay bare the entire nasty story of how we got into the fix we're in now, take immediate steps to fix the problem, and put structure in place to prevent it from happening again.

[FARfetched]

BTW, FAR Future Episode 56 is up:

http://farmanor.blogspot.com/2008/10/far-future-episode-56-letter-from-boot.html

Rene sends a letter from boot camp.

[Nicholas Paredes]

Be it possible to actually indict the people who created this mess, it would be great. But, simply having an adult in charge will be a nice change of pace.

It's called politics, and while the Republicans seem ever so able to vote for a candidate based upon their belief that the agenda will match their own, Democrats are required to detail the voting records of their choice. It's called politics, it's imperfect, and I am voting based upon records and abilities.

And, we are in charge. However loud the complaining gets, the people voted for the mess that happened. They voted with their dollars and their investments. They voted with their lack of consideration for the world both close and far. And, the sooner they recognize the ability to change things the better.

[Frank Gifford]

I suspect most Americans will be happier with less stuff and more real work to get by. We have an education focused, nature linked low energy living demonstration site in West Virginia, EntropyPawsed (http://entropypawsed.org), where we seek to help with this transition. Mr. Kunstler was right on with his prediction of financial implosion before the election. I have been trying to spread his suggested meme, "The GOP, the Party that wrecked American."

I am not sure we deserve Obama. I believe Colin Powell had it right, "... a transformational (human being)..." The growing ugliness on the right is troubling, however. Shades of Germany in the early 1930's?

[oneEyeOpen]

Jimmy,

Ya gots to read the fine print. The Journal and the Financial TImes are calling for the same things as you. Initially, a recession and then once the injected dollars get a chance to work their magic, inflation. What the fuck you readin' boy?

Whey they talk about the worse being over they are talking about the Dow average bottoming out. In that I tend to agree.
We may yet see 7500 but that will probably be close to a bottom. Could it stay low for a period of time? Hell yes. I think it'll bounce around in a trough for 9 to 12 months. We're in for a bit of a slow down. End of the world? I wouldn't throw in the towel just yet. People are too fucking ornery. Every watch someone in their 90's refuse to die? They're stubborn about giving up the ghost. Living is all they've ever known.

[oneEyeOpen]

Obama is "transformational" only in that he is of a new generation and a minority. I've been watching him very closely and have yet to see him walk on water.

[oneEyeOpen]

"We go through cycles of self-delusion, sometimes too giddy and sometimes too glum. The consolation is that the genesis of the next recovery usually lies in the ruins of the last recession."

Interesting take:

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/19/AR2008101901329.html

[BigRIJoe]

I call this Generation KY because it's totally ficked.

[djcrow22]

Great post Jim. For a couple of weeks now I've been watching numerous videos of McCain/Palin supporters attending various speeches and rallies. The deep rooted racism, hate speech and ignorance seen and heard from these Americans is incredibly sad, disgusting and depressing. I have never in my 53 years felt as ashamed and despondent about my country, the American people and our government as I do at this moment. It is grey and raining and foggy in the Pacific Northwest today and my beloved Red Sox lost to a better team last night, only adding to the gaping and acidic hole in my gut I feel at this moment. Dark times indeed...

[djcrow22]

The more ya know...

http://news.yahoo.com/s/ap/20081019/ap_on_bi_ge/the_influence_game_housing

[LaughingAsRomeWasBurningDown]

DJ Crow, if you think the Palin rallies are bad, you should try canvassing door to door for Obama here in red-state nutland.

[scott]

"There is no question that economic historians studying this financial crisis will harshly judge Senator Christopher Dodd, Democrat of Connecticut, for the indefensible role he played defending Fannie Mae and Freddie Mac. But to my mind, his unwillingness to send reinforcements to the Fed at this troubled time is, given the current storm, an egregious partisan act that will live in infamy."
http://www.bloomberg.com/apps/news?pid=20601039&sid=aSG.D4ugg6QA&refer=home

[scott]

Someone should inform the author of that Bloomberg article that, "winners write history".

[Nicholas Paredes]

Some good comments by Bruce Sterling regarding design and the clutter we accumulate. The last page is pretty apt in terms of politics.

"Well, if you think the clutter in my home was bad, imagine when I lifted my eyes, and thought about the clutter in my political convictions. Where they beautiful political convictions? If I forgot these doctrines, would I ever want to remember them again? Did they clearly help me achieve any practical benefit in my everyday life?"

We take prognostication for action. Sadly, it is not.

http://www.scribd.com/doc/7403512/My-Twin-Brother-Bruno-Argento