The Nausea Express

     The G-7 world, the club of "developed" western nations plus Japan, has commenced an ordeal of suddenly waking up much poorer. All the desperate work-arounds being engineered by governments and central banks on an al fresco basis are intended to overcome this stunning basic fact, and none of them will. The benchmarks of everything are in flux -- stocks, bond values and yields, commodity prices, most especially currencies -- but these tend to disguise the basic fact of growing and spreading impoverishment. Is oil priced at $80 a barrel this morning? That's nice. Except if the company that employs you is about to fold up and you face a holiday season of driving frantically around Atlanta in search of another job, which the odds are against you find finding. Or if you're living on a retirement fund that's just lost 37 percent of its value and it's time to fill the heating oil tank.
     Iceland is the poster-child du jour for this. The little island nation of about 320,000 souls (roughly half of Vermont's population) lately grew a banking sector that thrived on something-for-nothing finance. In little more than a month, its banks have imploded like mini death stars, leaving Iceland with a pariah currency. Since it has to import just about everything, and it suddenly finds itself unable to pay for imports, the people are stripping the grocery markets of whatever remains there now. You wonder what they will do in two weeks. Ten years from now there may be 32,000 of them left, subsisting on blubber sandwiches.
      I exaggerate perhaps a little, but who really knows where all this leads? Here in the USA, the Treasury, enjoying new and seemingly limitless powers of discretionary spending, has begun shoveling dollars into every truck that backs up to the loading dock. The numbers are staggering. In ten days it's reached into the trillions in loans and handouts. Most of this money is getting sucked directly into the black hole of debt and margin calls of one kind or another. This is previously-presumed wealth that is now un-presumed. It's leaving the system, never to be seen again. One useful way of thinking about it is to regard it as our society's previous borrowings against our own future. Thus, we are seeing our future vanish into a black hole -- our future comfort, health, and basic nourishment.
     This is the kind of fiasco that brings down governments, propels societies into revolutions, and starts wars. In a few months, America will be full of angry economic losers. We're not the same nation that crowded around the old radio consoles for Franklin Roosevelt's fireside chats. Back then, we were mostly a highly-disciplined, regimented, industrial society full of citizens who mostly did what they were told to do, and mostly trusted in authority. Today we're a nation of tattooed barbarian "consumers" with no impulse control, a swollen sense of entitlement, ruled by a set of authorities ranging from one G.W. Bush to the grifter-billionaire pantheon of Wall Street CEOs -- now heading into secret bunkers with their stashes of krugerrands, freeze-dried veal Milanese, and private security squads armed with XM-8 carbines.
     I go along with Nassim Nicholas Taleb's idea -- read "The Black Swan" -- that nobody really knows anything. We construct our narratives to try and explain circumstances that are unraveling non-linearly before us, and some narratives are more plausible than others, depending on your vantage point. There are infinite narratives. This is nothing more than my narrative. The circumstances we're entering appear, for the moment, to take the shape of a compressive deflationary depression with the cherry-on-top add-on of a hyper-inflation further down the road -- meaning initially that jobs, incomes, and pensions are lost, but that later on even the little money that people manage to get -- perhaps mostly from government hand-outs of one kind or another -- steadily loses its value. Every way you jigger things, it just ends up meaning the same thing: a much poorer society. It certainly won't be a society of recreational shoppers plying the Target store aisles for scented candles and home accents. Hyper-inflation could make old debts meaningless, but it would also make credit meaningless and spending absurd.
      Given the way our society has evolved to operate -- as an endless upward spiral of borrowings -- you can see an awful lot of things not working anymore, and an awful lot of people not working in them or at them. Maybe the governments of the G-7 will get lending unstuck at the upper levels, but who, exactly, is able to borrow now besides companies on the verge of bankruptcy -- and why continue to lend to them? (Except to maintain the pretense that "something is being done.") Besides, there's much too much previously borrowed money that won't ever paid back, and the "work-out" of all that debt only implies the continued distress sale of any-and-all assets -- so that the USA in effect becomes yard-sale nation.
     Personally, I think all the rejiggering in the world of numbers and indexes will not solve anything, and really only represents a kind obsessive-compulsive neurosis related to numerology that will do nothing to readjust our daily activities toward the production of things that have real and enduring value. In my narrative, the fate of industrial nations really depends on energy resources. The price of oil may be going down for the moment -- perhaps due to the deleveraging of hedge funds, banks, and invested individuals, perhaps combined with a perception of "demand destruction" -- but the geology and geopolitics of oil have not changed since June of this year when oil was at $147. Let's say US oil consumption is down one million barrels of oil a day. Within the next two years, we're liable to lose more than that in import declines from Mexico and Venezuela alone. The International Energy Agency's latest estimate is for only slightly less of an increase in worldwide oil demand than was previously posted. It's still a net demand increase. World oil consumption still exceeds world production now, perhaps permanently so. Finally, the current plunge of oil prices has suddenly halted the very capital ventures in exploration and development that were hoped to increase the worldwide supply of oil. All this portends an aggravation of oil supply and allocation problems in the five years ahead, and ultimately much more expensive, harder-to-get oil.
      What we can't face is the prospect that we might become something other than an industrial "consumer" society. My narrative includes the conviction that we will have trouble producing food for ourselves as petro-agriculture fails, and since society can't go on without food production, I see this activity coming back much closer to the center of our daily lives. We're not ready to think about that. The downside of our unreadiness may be that a lot of Americans will go hungry in the decade ahead.
      None of this is an argument for despair, by the way, but it certainly invokes the need for steeply revised expectations and serious attention to a national "to-do" list. We're on our way to becoming another nation, whether we like it or not. No amount of numerological augury or even hand-wringing will change that. The big question for, say, the 24 months ahead is: how disorderly will we allow this transition to be?
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My new novel of the post-oil future, World Made By Hand, is available at all booksellers.

Comments

[jim e]

Change!

[coyoteyogi]

It is interesting to see JHKs tone change from last week_ a change from dizzy pleasure at being proven prescient to a much more sober assessment of the depth of our problems.
My narrative is that the solution will arise out of our imaginations and collective spirit and will not resemble anything much of the recent past. This threshold will be crossed but I've no idea what it looks like on the other side...neither does anyone else.

[MaryW]

None of this is an argument for despair, by the way, but it certainly invokes the need for steeply revised expectations and serious attention to a national "to-do" list.

Exactly, and the longer it’s put off the harder it will be.

Buy some extra food to ride out shortages/loss of income if you can, use as little heating as you can by dressing for the weather and if in a position to do so start a garden however small.

The expression “Harden up” is timely.

Three possibilities:

http://nz.youtube.com/watch?v=by2CLGRJecs

[Nicholas Paredes]

My compass for navigating the uncertainty of our deconstructionist narrative is numbers. Looking at recent charts by our newly minted Nobel laureate, one can see to get back to normal requires another half again of losses. This will be pretty painful.

But recent articles in the Economist for example, highlight that we require another round of financing our financial institutions for them to survive. It must be done. Our losses will be pretty large, but perhaps manageable. Manageable like the depression was manageable!

[jim e]

"Today we're a nation of tattooed barbarian "consumers" with no impulse control, a swollen sense of entitlement, ruled by a set of authorities ranging from one G.W. Bush to the grifter-billionaire pantheon of Wall Street CEOs --"

http://www.bloomberg.com/apps/news?pid=20601103&sid=aUQNBuasx900&refer=us

[robert magill]

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)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 with out 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.

[Lost Horizon]

Iceland will become a Russian aircraft carrier. Russia still has lots of oil relative to the US. Russia still has lots of gold, the US 'lent' out most of it's gold reserves to the international 'pawn shop' of our creditors.

To bad, that the two things left in the world that might actually back up a 'world reserve currency', Gold and Oil, are not something DuhMerika has in any substantial amount.

The dollar will not be the 'world reserve currency' for much longer.

When that happens, I suppose Duhmericans can buy their massive oil imports with giant dualy pickup trucks full of used consumer goods.

I'm sure the Saudis will exchange our consumer crap for oil. Sounds like a plan.

[Weaseldog]

Everyday now, I feel like I've walk through the looking glass.

Words have lost their meanings. Up is down, black is white...

Now if a bull wrecks your china shop, the sage wisdom is to give the bull a million dollars to glue your china back together.

Likewise, the people that worked to wreck the world's economy are the people we feel should be given what will amount to be, multi-trillion dollar blank checks.

Now they admit over the weekend, that they don't know what to do. They've got a giant pile of our money, and they don't know what to do next. This has calmed the markets according to Yahoo Finance. 'Stocks Soar!', they proclaim as the DOW is up 468 pts.

All the birds that soar though, dive down to feed on prey or carrion. I'm not sure I like the soaring analogy.

The bankers that profited handsomely while bringing us to the point, have met to exchange their wisdom and come up with a plan to feed the great and growing black pit of imminent debt.

By the time this is over, it may take the productivity of scores of planet Earths to feed the derivative monster, and save the world currencies. Then we can do it again.

The root issue is growth. Paulson said so. He said we must keep the markets growing. Already it takes scores of planet Earths to provide the assets needed to back the financial system we have. Do we need to grow it so that the money sloshing in it is worth the productivity of hundreds of planet Earths, then bail it out again?

One positive side effect is that we may all become millionaires in a few years. Bread will cost a hundred dollars a loaf, but we'll have more money than we ever had.

[Nudge]

Fantastic post, Jim :)

The key sentiment within is that we will no longer be the nation we have been. For many of us, it will be a godsend to know that our industry will someday return (albeit at a scale appropriate to the perhaps-meager energies available), or that it will no longer be possible for toxic-asset-class-designing yahoos to tool around in their Bentleys and rake in millions in bonuses for poisoning the economy, or that our children may grow up in a nation not engaged in endless resource wars, or that it may be possible to bicycle to the next town without risking being run over by some SUV-driving dimwit who's not paying attention to the road.

In all fairness, of course, there will be many SUV-driving dimwits who will mourn the passing of their mechanized bullying (like putting on a robotic bodysuit imbued with superhuman powers), many Bentley-driving yahoos who will miss the good old days when they could ruin the nation's finances and still earn good bonuses for their efforts, and people who will miss getting paid to do little more than click on various pixels in some remote cubicle farm.

We have been a better nation before. We are not one now. Let's hope we can become one again.

[Movenonup]

Could be we go through another round of everything seeming sort of normal, of shipments showing up at their destinations, of people working the fewer jobs they have for fewer hours (or no pay increases). Could be. I see a downward step function of crises, punctuated by periods of stability that, if we are wise, we can use to build up reserves again. What I have come to is that I should have always been as prepared as I am now (should be more so but getting myself gradually out of debt and building up a buffer so that I can survive a period of unemployment takes time and fighting against a paradigm that says I am a nut job for doing these things). Never should I have allowed myself to become this dependent on the system (fractional reserve banking and credit as money). But I am. My meager preps are measures that I hope can deliver me and my family to something else, as articulated here, I know not what. But I know what it should feel like when I finally get there-- self sufficiency within a local context.

[Consultant]

"Now if a bull wrecks your china shop, the sage wisdom is to give the bull a million dollars to glue your china back together."

That's it. For the last 40 years we have rewarded greed, stupidity, mediocrity and corruption. Jim says it best, a 'something for nothing' nation. Most of our leaders at all levels and in all sectors 'think' this way.

We have survived on this con game only because of the accumulated resources from previous generations. We've now burned through this surplus like a drunken sailor on shore leave.

The fundamentals of our economy are all wrong so we will continue to crash, and crash hard.

What's around the corner will not be pretty or soft.

[bud4wiser]

____________________________
Swindles, Swans and a Math Problem
____________________________

James K. – great essay this week! You managed to condense the current status of civilization to a single article while including details of some of the more salient aspects of the future.

I echo most of all your points regarding oil pricing and consumption. The “bigger picture” hasn’t change, but the biggest games in town have now proven themselves to have been played out on the most unequal board of all – the NYSE. And as you pointedly remark, the “winners” are all sporting security details as well as blacked-out limos and gated, fortress like residences.

In addition to your notes on deflation, hyper-inflation and a general public’s lack of benefit for anything the government purports to be currency, I offer a decidedly ultimate depressing scenario for the making of the “blackest” of black-swans.

You may recall, I often mention a particular month in the future, February 2009. I offer this month to be renamed “Black-swan-uary” – for the very ugly turn of events that will begin to transpire as Americans continue to grow cold, angry and desperate.

Although, no one can predict the future, I can say with some certainty there will be millions of Americans ready to put their fingers on their triggers to either do-in, or do-right by their families. The installation of a “black man” as president – may be the seminal event that gives "flight to a flock of swans" that changes America forever. I hope more of them are white than black.
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Extra credit for solving this “word problem.” --- ($80-$120 trillion phony global paper), minus ($X amount of foreign-held phony paper) equals ($X amount American-held phony paper) minus (actual-value of any “real” American assets.)

Obviously, JK, you will “downgrading” the value of suburban property, but c’mon, some of the McMansions can be re-habbed into multi-unit rentals, even if they are forty miles from town.

My guess we’re on the hook for about $60 trillion, brother, can you spare ten bucks for a cup of coffee? Got five million, you’ll get by fine……

[Abrey]

Dear Jim:

Vindication. Someone at The Washington Post has been reading your website! Enjoy.

Abrey

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/10/AR2008101002267.html?referrer=emailarticle&ref=patrick.net

[Moondog]

I thought the "Nausea Express" would be alluding to the McCain campaign, but there was nary a reference to the conflation of economics and presidential politics, made even weirder by the mock oil price decline. The careening straight talk express is the perfect vehicle to take us over the cliff early in 2009. The mob rallies playing on fear and race and ethnicity, with rants about the socialism that will destroy America with an Obama administration. What tripe. America has played out capitalism and milked it relentlessly, and now in its death throes having been exported to the world most ironically to the PRC]. Rev. Wright said that our chickens have come home to roost. Greed and unbridled wealth have damned America, Rev., so we didn't any God to do that.

I could retire and take a chance on collecting my pension [from the NYSTRS] but that may go the way of Lehman Bros., so I will just keep working for awhile and see how things unfold. My students are becoming keenly aware of the reality and what the future holds for them; the next generation of teachers will invariably be those quaint local Amish folks with the straw hats and suspenders. Academic types like me in the fields of history and English will likely [and aptly] be relegated to the dustbin. Perhaps my skills as a musician will still be of some use.

Meanwhile I am planning for an uncertain future, and I do need to learn a lot about sustainable living in a post-oil world... before it's to late.

"And we've got to get ourselves... back to the garden"

[dale]

Scott,
In Florida late last week, funny aside, wife's hard right family all starting to sound vaguely "socialist", that has to be a sign of the apocalypse.

Yeah....that action in CHK was nasty last week, you had it right. Could be a long time before that one is back to 50.

I'd tell ya what I think will happen next, but I haven't the slightest idea.

[Zack S]

http://www.bloomberg.com/apps/news?pid=20601109&sid=aVFtDRGwcc50&refer=home

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

By Chad Thomas

Oct. 13 (Bloomberg) -- After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''
Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.
Iceland's foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won't trade the krona and suppliers from abroad are demanding payment in advance. The government has asked banks to prioritize foreign currency transactions for essentials such as food, drugs and oil.

[westville_girl]

JHK: "Today we're a nation of tattooed barbarian "consumers" with no impulse control, a swollen sense of entitlement, ruled by a set of authorities ranging from one G.W. Bush to the grifter-billionaire pantheon of Wall Street CEOs..."

Jim, please get over this tattoo thing, man! Makes you sound like a geezer...
The real "barbarians" I see 'round here everyday are NOT the tattooed scary-lookin' folks - they are the big-butted, straight-laced conservatives who want to shove their values and beliefs down everyone's throats and nauseate us with their self-righteous bullshit....You know, the ones who bitch about tattooes, piercings, as though it's their business what other people do to their bodies....They are the ones who fucked things up, and the tats are a bird finger to them....
From what I've seen, the best hope for a new American Revolution lies with those who dare to be different....

[FARfetched]

Good point, Westy!

JHK, the thing is, if Americans are less disciplined than they were 80 years ago, they are also unable to conceive taking matters into their own hands — what's the matter? It matters not. As long as the TVs run, "hanging on in quiet desperation" (to borrow a Pink Floyd lyric) will be the American way at least as much as the English way. People turning off the TVs and getting down to business in the streets, now *that* would be a black swan.

Monday morning markets seem to have taken heart from the nothing said by the G7 this weekend… the way that dead cat bounced, it must have been made of rubber. But that's all good, because I've said for decades that the "market" is all about *perceptions* than any real attempt to put serious values on much of anything. If the traders think that something is being done to loosen up the closed credit markets, they'll breathe a sigh of relief and get back to it. 'Course, that has to be followed up with some real action in the here and next couple of weeks.

Yard Sale Nation hasn't reached Planet Georgia yet. Now that the Great Gas Panic is over, the fall tourism season is in full swing and cars are filling the lots of Burt's Pumpkin Farm and other tourist traps, packing GA400, US441, and I-575 (the major arteries into the mountain tourist areas), and generally living it up. The two big local craft festivals are this coming weekend & next; if we have much in the way of fall colors, they'll be packing the highways and parking lots again. It helps that gas prices are plunging even faster than they climbed through the summer; the average has dropped 40 cents/gallon since Thursday & I've heard reports of $2.99 gas here and there. This could build demand just as fast as higher prices killed it earlier in the year… leading to another round of hikes… etc. Eh. We're always behind the times here.

But if you want to be ahead of the times, the latest FAR Future episode is up: http://farmanor.blogspot.com/2008/10/far-future-episode-55-caught-in-draft.html

Hope you enjoy it…

[inquisitivemind22]

One of the smart moves that FDR did was restore confidence to the system via his "banks are ok, do not remove money" lie told over one of the early fireside chats. Do our current elected officials have the ability to restore confidence in the financial system through re-assurance alone? No, not W. or any of his people. Given that today the news broke that Alaska's legislative council found that Palin's conduct relating to the firing of Wooten was unlawful, (although the firing itself was lawful) I ask myself if this is a person who can distinguish between right and wrong. Does Palin understand that her sister's divorce is not something that she should be prioritizing doing something about while in office? This kind of "mis-use of power" reminds me a lot of the Bush admin. Over the weekend, I heard commentary from Ben Stein calling for a fraud investigation into the Bush admin and big boyz on Wall Street for the financial mess we are in. Sounded good to me.
Regarding oil- yes $80 a barrel is bad because everyone forgets that at $147 it was a crisis. All of the rigs have a 5 year waiting list and what we should be doing is building new rigs. What Obama should be telling the American people is that no new drilling will meaningfully move the price of oil, so that those in the center don't think that voting for McPalin will somehow lower their fuel bills. I really would love to take a drive through the southern counties in Ohio that gave Bush the election in 2004 and see how those people are faring. I would love to dig up the names of the registered Republicans in those counties and ask them what "W" has done to make their lives better since 2004. ha! They are likely the people most hurting from all of this I bet, living in rural car dependant areas with low incomes and paying high percentages of their incomes for gasoline.

[oneEyeOpen]

"Jim, please get over this tattoo thing, man! Makes you sound like a geezer..."

Yikes, sounds like Westvillegirl is sportin' some tats. And some ideas of how we'll come back from the brink.

[cosmicray2]

All manner of people have tattoos--conservatives, Wall Street guys (I would not believe for a second that tats are not found all over the place there), finance people included. They are almost perfectly meaningless now, especially in the larger metro areas. The blog's author is not in one of those. It's symbolic of nothing but consumerism, just another form of fashion. I don't think it's any more representative of poor impulse control, of open-mindedness, than the mass purchase of certain faddish kitchen implements.

[ihavenomouth&imustscream]

For those interested in DOING something;

In all of my 'truth seeking' I have not yet found anything quite like Permaculture. Bill Mollison is a fucking genus.

Watch for yourselves.
http://ca.youtube.com/watch?v=qdpT6r370ik

[ihavenomouth&imustscream]

Geoff Lawton is sort of a shit, but truly capable. This is video of Geoff using Permaculture to 'green' 10 acres of desert just a few clicks from the dead sea in Jordan. Imagine what you can do in your backyard.

http://ca.youtube.com/watch?v=LJ8pjOG4pXI

'Swales' are key to any design..

http://ca.youtube.com/watch?v=kPrfNVzDNME

[ihavenomouth&imustscream]

I am going to take this course if Bill will ever teach it again. $1500 AUD... seriously what the fuck are you doing with your money??? investing? ha ha ha
www.tagari.com

[Weaseldog]

I've started implementing mini-swales in my backyard garden. I've already see improvement in my fruit trees where I've implemented it.

My backyard slopes and usually the rain just washes over it. With swales, I define places where the water is forced to stand and soak into the yard, rather than drain straight into the concrete drainage ditch in the back.