Decoupling From Reality

     Back in the golden age of American Flyfishing -- say around 1913 -- when technical innovation in a prissy and recondite sport was joined by a new leisure class emanating from the white glove canyons of Wall Street, some new-minted guru of angling came up with method for whipping up action on a trout stream when no fish would rise to the fly. It was really lame. The idea was to artificially create the illusion of a mayfly hatch -- that moment when the larva of, for instance, Ephemerella subvaria, the Hendrickson mayfly, swims to the surface, molts, and dries its newly unfurled adult wings in the brisk spring air. This is famously the moment that drives trout crazy, and when it occurs en masse, with zillions of mayflies "hatching" off the water, a trout feeding-frenzy can ensue. The idea with the artificial hatch was to pitch a fake Hendrickson fly made of feathers and fur in so many furious, rapid casts that the dumb trout lurking below would get suckered into a feeding frenzy -- and, shortly, into the buttered frying pan, with a nice "tuxedo" of cornmeal and bacon.
      In the annals of flyfishing, this gambit has been all but discredited, except among the mentally sub-normal who sometimes venture over from the lumpen realm of crank-and-plug fishing in search of improved social standing. But the tactic naturally transferred into the precincts of finance, where it reappeared in such disparate practices as Ponzi schemes and Keynesian "pump-priming." Now it is being employed at a scale never seen before, on an economy that is the equivalent of a great dead river poisoned by the toxic effluents of the same society that inhabits its banks (no pun intended). The dark secret of this river is that the fish who once ran there are all dead.
     Much has been made in recent weeks of "animal spirits" and the "psychology of markets" in the hopes that mere attitudes might overcome the laws of thermodynamics. Math wizardry has now yielded to self-esteem building, an understandable sequence of events, since trafficking in the mutant spawn of Wall Street algorithms has ended up completely demoralizing the United States of America. Sadly, this is a little like subjecting a man who has just watched his house burn down to twelve segments of Oprah shows about the triumphal secrets of weight loss.
      The Great Wish across America is to resume the life of comfort-and-convenience that seemed so nirvana-like just a few short years ago, when the very constellations of the heavens might have been renamed after heroic Atlanta realtors and Connecticut hedge fund warriors, and the boomer portfolios groaned with earnings, and millions of graying corporate salary mules dreamed of their approaching retirement to a satori of golf and Viagra, and the interior decorators grew so rich installing granite countertops that they could buy their own houses in the East Hampton, and every microcephalic parking valet in Las Vegas qualified for a bucket full of Ninja mortgages, and Lloyd Blankfein could dream of divorcing his wife to marry his cappuccino machine.
      The choices now are stark and the kind of life on offer by the future is rather austere. The job of the current president, and the people who work with him, is to manage an epic contraction -- let's say, to land a very large, loaded defect-ridden airplane that has both run out of fuel and suffered grievous mechanical breakdown... and to bring down that vehicle in an unfamiliar country filled with angry savages. Sadly, the new president and his co-pilots just want to keep the plane up there, circling. The president's viziers are working round-the-clock to come up with some way, some toggle-switch, that might turn off the laws of gravity (which are not unrelated to the laws of thermodynamics). But all they seem to be able to come up with are mumbled prayers that are pale imitations of the algorithms once concocted by the Wall Street engineers who designed the aircraft they're riding in.
     Well, that's enough conceits and metaphors for today.
     We've digested the so-called "stress tests" for now with nary a burp and in a few weeks General Motors will step into the dark cave of bankruptcy. All the ancillary businesses linked to the US car-makers face contraction and annihilation. A couple of things occur to me which have not even entered the national debate on these matters: 1.) the US will still need to manufacture engines and chassis for military vehicles. Do we intend to send out to Mitsubishi for those things in the years ahead? 2.) the US will need rolling stock (i.e. choo-choo cars and engines) for a revived passenger railroad system. Do we intend to buy all that from the quaint peoples of other lands? (While the US workforce instead focuses on updated releases of Grand Theft Auto.)
       At the moment, there is tremendous hoopla and jubilation over the start-up of so many "shovel-ready" highway projects around America -- as if what we need most are additional circumferential freeways to enhance the Happy Motoring lifestyle. How insane are we? Is this the only thing we know how to do?
      I remain confident that the months ahead will introduce the American public and our leaders to a range of horrors that will begin to penetrate our addled collective imagination. We're far from done with the crisis of banking and money and the related fiasco in mortgages -- which translates into the very real situation of many people become homeless. It remains to be seen what may happen on the food production scene, but the current severe shortage of capital and the intense droughts shaping up around the world will resolve into a much clearer picture by mid-summer. The price of oil has resumed marching up and has now re-entered a range ($50-plus) that spun the airline industry into bankruptcy last time around. Enough carnage has already occurred on the jobs scene that the next act among many chronically jobless may tilt toward desperation, anger, and violence. The sporting goods shops around the nation are already rationing ammunition.
     It's not just the stock markets that have decoupled from reality as we enjoy the fragrant vapors of spring -- it's the entire conscious consensus of everybody holding the levers of power and opinion. To put it as simply as possible, we're still sleepwalking into the future.
____________________________________

My 2008 novel of the post-oil future, World Made By Hand, is available in paperback  at all booksellers.

Comments

[asoka]

We are either a toxic river, a defect ridden plane, or we are sleepwalking.

Which it is we shall know by mid-summer? Deferred TSHTF...again.

[Tenth Jager]

How can you mention Oprah's weight loss secrets without mentioning her KFC grilled chicken free two-piece giveaway?

You can print the coupon out online.

[asoka]

Oh, by the way...

Toxic rivers can, and have been, cleaned up and restocked with fish...

Defect-ridden airplanes can, and have been, soft-landed (or Hudson River landed) without loss of life...

And sleepwalkers regularly wake up...

We are not is such bad shape it seems.

[moghii]

Hmmm, no mention of Obama, giver of rain and drought.
The business community and superwealth will rapidly jump off the Obama bandwagon in the near future. If what Jim says is true, businesses of all sizes and types will soon be gasping for their dying breaths. The White House is just a Dead Man Walking, in other words. Politics is getting vicious and nasty as never before and all Americans will soon see that the light at the end of the tunnel is a bunch of Loco Motives.
I wonder if we can blame W for the fact college grads won't find jobs after graduation. Might as well.
Our Saturday morning discussion at the garage was brutal a couple days ago, a sign of things to come. Things are heating up rapidly.
Be afraid, be very afraid.

[asoka]

"The business community and superwealth will rapidly jump off the Obama bandwagon in the near future. If what Jim says is true, businesses of all sizes and types will soon be gasping for their dying breaths."

Just the opposite is happening. Big Pharma and Big Medicine is joining with Obama to reform health care because health costs are killing business.

[free_way_4_life]

Liked that "unintended" bank pun this week, but that cappuccino machine gag is sure getting old.

Still, though, good commentary on the collective desire to keep the same system going. I buffer myself from this somewhat by surrounding myself with friends and media that are forward looking, but the sad fact is that the get rich/thin/beautiful/smart with no upfront effort mentality is still alive and kicking. You can see it in all those sick banner ads with dancing ladies that read "Obama does this" or "working mom does that."

The informed minority is already aware of the nature of these problems, so it is vital that we stop complaining (although JHK's weekly rants are an entertaining service that I don't want to see him give up anytime soon) and start focusing on solutions.

We need to start working hard at future oriented projects that don't pay off right away. Eventually this will set a good example for the masses (verses the bad example that the Treasury, the banks and the Fed are setting now). Charles Hugh Smith does a good job explaining this in terms of the Pareto Principle in his Survival+ posts:

http://www.oftwominds.com/blogmar09/survival1-03-09.html

If you are looking for a more allegorical explanation of the right way to rebuild our economy, check out my recent post that links spring gardening to the early stages of freelancing and website building.

http://fairyheart-movement.blogspot.com

yeah, its tough, but the new (old?) economic lifestyle is certainly more satisfying than charming my way into some cubicle job where I get paid symbolic money to push around arbitrary pixels that represent real, but highly unsustainable, export based production in China.

[moghii]

Big Pharma wants to stay Big Pharma, asoka. Reform is great as long as you can keep making the obscenely big money. The Pharm and Med industries will soon have great disdain for the Divisive One. It's like me working with Obama to get my salary lower. It ain't gonna happen.

[timetobike]

For those who also read the WSJ, take a look at the chart today on Page B2. The number of autos sold (monthly) in China is now greater than the those sold in the USA. Four years ago it was around three in the US for one in China.

As the amount of oil is declining at the same time cars are getting more fuel efficient, the amount of happy motoring will likely stay about the same -- just it's location will shift. So the comment Jim has made that for many people the car they now own will be their last is undoubtedly true. It will be interesting to know what day this year (or next) the number of working motor vehicles in the USA actually starts to decline.

[umass82]

Obama runs for office as the candidate of the people he takes in millions of small donations gets elected and then he gives Billions to bankers and auto Execs, then he discovers the deficit so he cuts funds for the children and widows of slain police officers, programs for students in DC and early start programs,

As bad as GW was he was a GOP so his support of the merchant clas was expected, but Obama's is total hypocrisy, he is going to be a one term loser, Obama is going to be irrelevant within a year.

[asoka]

Certain groups are now benefiting from national health care: seniors (Medicare), soldiers (VA), congress (their own plan), so Obama just wants to extend what already exists as an OPTION to everyone.

Obama is not proposing to do away with private health insurance. That is why Big Pharma and Big Medicine will go along with Obama... or they will be left behind. It is going to happen with or without them.

[FARfetched]

Some ol' same ol' from JHK, but I did enjoy the fly fishing metaphor. My dad is into it; he's been tying his own flies ever since I can remember. The 8-piece jig he built with industrial-size pieces of scrap iron is a testimony to overkill, a true work of art that could last for centuries. It helps to have access to machine tools. ;-)

The crack about renaming constellations for Atlanta real estate brokers reminded me of a billboard — "Mark Spain sells a house every 50 minutes" — that I drove by every day. That particular message hasn't been there in months. Gosh, I wonder why?

OK, time to get into the meat of the matter. An "austere kind of future life" (paraphrase) is, I suppose, in the eye of the beholder. Can we have an enjoyable life without McMansions, salad shooters, SUVs, and 50" plasma TVs? Personally, I think I'd enjoy life better where those things aren't requirements for a particular "standard of living" (a concept invented by the Hoover administration, if I remember correctly, to blunt the requests for a 4-day, 32-hour work week). Frankly, I think the primary requirement for a majority of people to have a fulfilling life is a lack of corruption in our corporate/government masters. Yeah, yeah, Utopian. Moving on.

Everything I've heard from snatches of TV/radio news says that half the big banks failed the stress test. Maybe JHK's locale is reporting from a decoupled reality, but from here it sounds like there's some serious trouble ahead for the Boyz. The "stress" was, from the way things are going, a pretty realistic assessment… most everyone I talk to, even in this NASCAR-addled and delusional sector of Planet Georgia, has little optimism with regard to the financial health of the country. (As usual, when they reach the right conclusion here, it's for the wrong reason, but whatever.)

Given the rather low expectations of those I know, the months ahead might have its horrors… but the horrified will be in the Hamptons and Buckhead, not the rural and erstwhile manufacturing areas. For the majority of Americans, the horrors — job loss, foreclosure, and so on — have been upon us for a while now.

In the FAR Future, there's a lull in the action as well. http://is.gd/yOLd A third generation steps up to describe life in the manor.

BTW, free_way, good response.

[Joe]

I'm not sure what is wrong with the train system in place already. It transports products and that is all that needs to travel over long distances, except a few people here or there. If a person has to travel more than a few miles on a regular basis, they are living life inefficiently. If teleportation is developed personal travel might make sense.

[moghii]

I want to see Big Medicine left behind. What does this mean, Obama cuts out their scalpels, rubber gloves, AIDS cocktails, no more X-Ray machines? If Obama leaves behind any industry due to pique, unemployment will go up drastically and this boy is headed out the...back door. I rather think that big business will control Obama rather than the other way around. Of course, the Chicago Hammer is a very vindictive character and he could send the Capo out to strong-arm non-conforming businessmen. They say Rahm Emanuel is tough in the clinches, too.
Obama tends to forget who supported him and this will be his undoing. He'll do some cutesy things before mid-term to try and keep some Dems in their seats and watch for his crew including Carville to start lambasting prospective Repubicans. Only the citizenry can head off this frontal attack of Obama's. 2 bullet Pelosi, or is it Lugosi?, will keep making bloopers just like Joe "Chief Flapping Tongue" Biden. Once Obama turns off his support system with his special brand of absurd legislation, we will see a revolt.
In tribute, we all ought to wear bare arms and have Victory Gardens. All Hail Obama!

[Natural_Wealth]

Don't mind that man behind the Obama curtain, for the Wall Street engineers are still at work. See, we could have just as easily used that $700 billion loan to cover the expected budget gap that needs to be filled to make health care for all a reality in the next decade. Yes, it could have been, but they instead loaned the money to wall street, where it is being used to further all sorts of schemes, smoke and mirrors.

One silver lining that Jim mentions here (although he doesn't point it out) is that rising oil prices will again make private investment in alternative attractive again. However, if oil in dollar terms goes up to quickly it will crash the system even harder, and go even lower than it was in December. If you think $145 oil leading to $35 oil was bad for solar and biofuel startups, just wait until $200 oil that is quickly followed by $15 oil.

These gyrating markets should be waking us up to the flaws of using fiat currency to value real goods. While tomorrows money may not quite mimic the gold standards of yesterday, it will be based on the same concept of using tangible assets, rather than promises of future growth, as a unit of account. The Wall Street engineers and paper money power brokers, of course, work against this because they fear what is beyond their control.

If you want to measure their fear, as well as peoples mistrust in them, simply compare the free market price of physical gold and silver to the brokered price of paper gold and silver futures contracts. There are many new sites that allow one to do this daily - one such site can be found at www.newgoldenmean.com

There are, of course, many variables that affect price differences between physical and spot gold and silver. In general, though, rising premiums for physical are a sign that the fiat money masters are so scared of change that they're flooding the COMEX exchange with short sales that deal with fantasy bullion that only exists on paper.

Premiums have been falling lately. This could either mean that people are starting to see through the bankster's tricks, or that the bankster's are confident that people have bought into their claims to have fixed the system. Things should become clearer over the next few months, so this is definitely a good time to be watching those gold and silver premium spreads.

[LaughingAsRomeWasBurningDown]

Why the annoyance with granite? Out here in Planet Tennessee, where the average house is like 46.2 years old, it was nice to find some houses with 20 year old granite countertops that were still perfectly servicable. As opposed to 20 year old disintergrating particle board and formica that was due for replacement 10 years ago...

[AndrewRyan]

Let us not forget, James' Memorial day blowout prediction has only a few weeks to materialize. "Everything under the North American sun" will be liquidated by Memorial Day, according to ol' Jimmy. What better credentials than a liberal arts degree in theatre to make such a dire, financial prediction?

[Tenth Jager]

"What better credentials than a liberal arts degree in theatre to make such a dire, financial prediction?"

A regular gig on CNBC's Squawk Box, for one.

[LaughingAsRomeWasBurningDown]

Speaking of Planet TN, this front page of the local paper probably tells you all you need to know, hysterical swine flu, a giant hamburger, and "Thunder Valley" race track whatever.

http://media.mgnetwork.com/tri/images/BHC/bhcpdf/BHCfront.pdf

[free_way_4_life]

@ FARfetched - Thanks. A lot of what I write is still in the idea stage, and much of it is rooted in a philosophical fusion (Wu-Tang Clan, Lao Tzu, Kropotkin, Thoreau and many more) that only a Baltimore bohemian labor coop could come up with. That's why I come here to dig links, for works like FAR Future, along with the other good stuff that proactive commenters post here, helps me to refine my ideas.

Good point about the consumerism dream versus the 32 hour work week. I've already cut my freelancing and site building back to that level after feeling the initial stages of carpel tunnel this week.

@ Joe - I personally think teleportation would be cool, as long as it is run by renewable electricity and, more importantly, all the bugs are beta tested out before humans start using it. Seriously, though, I'll admit to enjoying the rush I get from traveling through space, watching everything go by as I take in the interconnectedness of the systems operating on the landscape. Fortunately, I'm able to get this thrill just as easily on a bike as I am in a car.

@Laughing - very valid point in regards to granite. I think JHK's issue with them is the fact that, durable as they are, they became a hyped up suburban status symbol during the last boom.

[zsazsa]

"Can we have an enjoyable life without McMansions, salad shooters, SUVs, and 50" plasma TVs?"

Enough of fucking salad shooters, ok? The new replacement is the "Slap-Chop." Got it? Fuckin' Slap-Chop rules!

https://www.slapchop.com/index.asp

[zsazsa]

Holy-canoli, this is even cooler that Slap Chop:

www.tuffduds.com

[zsazsa]

I'll make it even easier:

http://www.tuffduds.com

[zsazsa]

You know the Slap Chop is powered by hand so it is a very "green" kitchen aid. Buy one today. Get one for a friend. Take back that piece of junk you got Mom for Mother's Day, get your money and buy her a fucking Slap Chop. Do it now. Right now!

[zsazsa]

Could it be said that one man's Slap Chop is another man's "World Made By Hand". Just wondering.

[Babystepper]

This website can get really technical and hard to follow at times, but this one is the latest and greatest if you want to follow the doings of the stock market.

http://zerohedge.blogspot.com/

This blogger, who posts as Tyler Durdan (recognize that moniker? First rule of Fight Club, no one talks about Fight Club) is relentless. There are some who say he is inside Goldman Sachs, that he has to be to be reporting the kind of stuff he reports. We also know that both Goldman and Morgan Stanley have come after him trying to find out who he really is. They have even answered Zerohedges charges in Bloomberg Press.

The short version of what it all means IMO: Goldman Sachs is the trading arm of the US government OR The US Government IS GS and the rest of the financials. I don't think there is any other conclusion to reach.

He follows charts. Even though financial stocks are up, trading volume has been low, most of it is the quants in computer trading. There are about 5 companies trading with each other jacking up the prices of stocks, waiting for you to buy them (worried you will be left out of the recovery), so that they can leave you holding the bags and short themselves on the way down when they decide to take their profits and quit holding the bag. It is all seeable in the charts. Guess which of your favorite companies has 5X more of the trading volume than anyone else in this "game?" Goldman Sachs. Guess who has over levered over 1000% against the assets they have on hand (derivatives)? Goldman Sachs. Guess where many of Obama's financial and government picks come from? Not his nose...Goldman Sachs.

Tyler's Posts do an awesome job of exploring the ugly details of how it is done. When I first encountered these materials I was blown away. Some of you will yawn I am sure. As bad as we knew it to be, I fear it is way worse.