Clusterfuck Nation by Jim Kunstler

Blind Spot

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

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     I happened to be flying into Minneapolis the very day that Northwest Airlines announced its merger with Delta --Delta to be the more senior (more equal) partner -- in effect, to absorb Northwest and run its operations. Many observers are not optimistic that the merger will rescue these companies in any case, since both airlines are financial basket-cases, but it's a sort of last-ditch effort to save them both.

    It was less than great news up around Minneapolis, Northwest's corporate headquarters. A lot of people I talked to were anxious that Delta would cut service to a lot of little cities in the upper Great Lakes and northern prairie region, places like Duluth, Grand Forks, Green Bay, Traverse City and many other towns. Instead of one or two flights a day, they may end up with one or two a week, or none at all, they feared.

     The Northwest pilots were none too pleased, either, because Delta was making noises about their own pilots seniority counting for more than Northwest's pilot's seniority in terms of preferred assignments and scheduling. In fact, the Northwest pilots were so pissed off they threatened to scuttle the merger.

     That part of the country is a big region of wide open spaces Things are very far apart. You wouldn't want to drive a car from Des Moines to Rapid City, even if gasoline was a good bit less than the $3.50 a gallon it is now. Driving around the prairie is especially tedious -- and dangerous because of the tedium. The landscape is boring. The roads are dead straight and mostly dead flat.

     It happened, also, that I got a little guided tour of Minneapolis from the author-shlepping service that my publisher engaged. We rode past the old Minneapolis central train station. He said no trains stop there anymore (there's a dinky afterthought of a station next door in St. Paul). Anyway, the only train that comes through the Twin Cities is the pokey once-a-day Amtrak to Seattle.

     In other words, this region of the country has next-to-zero railroad service. Can we pause a moment here to ask: exactly how far does America have its head up its ass? Do you get the picture? Can you connect the dots? The airline industry is dying and absolutely no thought is being given to how people will get around this big country -- except to make the stupid assumption that we can just drive our cars instead. Even during the several days I was around Minneapolis, no news media or politician raised the subject of reviving passenger railroad service.

      In point of fact, these are exactly the kind of trips that would be better served by rail, anyway -- the towns that are less than five hundred miles apart. The travel time between trains and planes would be comparable, considering the two hours or so that you have to add to every airplane trip because of all the security crap, not to mention the delays. As a matter of fact, USA today ran a front page story two days after the Delta / Northwest announcement saying "Air Trips Slowest [now than] in Past 20 Years." Subhead: "Trend likely to persist as congestion worsens."

     One big reason for the airport congestion, of course, is that the runways are cluttered up with planes making trips of only a few hundred miles. This has been a problem for quite a while. Periodically, it gets so bad that the media gets all excited and sometimes (last summer, for instance) the President makes a statement deploring it. Since the current president is a knucklehead, it apparently hasn't occurred to him to get behind a revival of the passenger rail system. But Mr. Bush is apparently not the only elected knucklehead in this country, because absolutely nobody is talking about this.

     Now get this: we are sleepwalking into a transportation crisis. As I already said, the airline industry is dying. The price of petroleum-based aviation fuel is killing it. And forget the fantasies about running it on bio-diesel or used french-fry oil. Driving cars will not be an adequate substitute, either. It's imperative that this country gets serious about restoring the passenger rail system. We can't not talk about it for another year. We must demand that the candidates for president speak to this issue. If you who are reading this are active reporters or editors in the news media, you've got to raise your voices behind this issue.

Slip of the Tongue

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

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   Barack Obama caught hell last week for daring to tell the truth about the ragged thing that the American spirit has become. He said that small-town Pennsylvania voters, bitter over their economic circumstances, “cling to guns or religion or antipathy to people who aren’t like them” to work out their negative emotions. He might have added that the Pope wears a funny hat (see for yourself this week), and that bears shit in the woods (something rural Pennsylvanians probably know). Nevertheless, in the manner lately prescribed for those who slip up and speak truthfully in public (and in contradiction to the reigning delusions), Obama was pressured to apologize for his statements.

      The evermore loathsome and odious Hillary Clinton, co-owner of a $100 million personal wealth portfolio, seized the moment to remind voters what a normal, everyday gal she is -- who would never look down on the small-town folk of Pennsylvania the way her "elitist" opponent had -- forgetting, apparently, that the Clinton family's consigliere, James Carville, famously described the Keystone State as a kind of redneck sandwich with Pittsburgh and Philadelphia as the bread, and Alabama as the lunch meat in between.

      As I mull over all this, I begin to think that Hillary is exactly what the USA deserves and, that should she manage to winkle away the nomination and get elected president, the outcome would be instructive and salutary. For one thing, she will be buried under an avalanche of political woe, beginning with the basic financial insolvency of everything in the nation except the Clinton family. Then she would proceed straight into an oil-and-gas clusterfuck that could take this society back to the eighteenth century economically.

      This would have the positive effect of forcing the American public to look elsewhere for governance than the usual parties in Washington, D.C. It's time for a national purgative, anyway. In fact, it's way overdue. Are the Democratic and Republican parties anymore necessary than the Whigs? Neither of them can really articulate the problems we face (and when their honchos slip up and come close to the truth, they're persecuted for it).

      A President Hillary will also go a long way to defeating the popular delusion that a world ruled by female humans would be heaven-on-earth. (It would be more like one of those chaotic single-parent households in Section-8 housing, ruled by a harried and distracted mom, with a shadowy man in the background molesting the little ones while she was off working at the WalMart.)

      I'm very sorry that Barack Obama apologized for his remarks. It compromised his authority. They were truthful and correct. He might have added that the anxious and bitter lower classes were also neurotically hung-up on cars, and that his first act as president would be to shut down the Nascar tracks by executive order in the interest of national energy security.

     It's been illuminating to see how almost nobody has come to Obama's defense in this matter -- hardly anyone in the press, anyway. It shows what the mainstream media's interest in the truth is (close to zero).

     In the background of these sad and sordid campaign doings, the financial sector -- and the dog's-body economy that the wagging financial tail used to be attached to -- is whirling steadily down a big wide culvert, along with the rest of the debris shaken loose by the spring rains. Congressman Barney Frank and Senator Chris Dodd have been putting together mortgage rescue schemes that are gut-bustingly hilarious because they don't seem to take into account the basic fact that nobody knows who the lending parties to all those distressed mortgages really are. (Hint: they're not the "servicing" companies who send out the default notices.) So when they say that the government will "negotiate down" the principal owed on a house hemorrhaging dollar value, who exactly did they have in mind as the negotiating partner?

      These are issues that would, in a more mentally-healthy republic, occupy center stage of the political conversation -- not whether a cohort of Cheez Doodle addicted rural Pennsylvania morons prays out loud for God to shoot all the Mexicans.
 

 

Rust and Sun

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

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     Last week I sojourned in two parts of the country that might have been separate nations: Wilkes Barre, Pennsylvania, and Austin, Texas.

     Misfortune hit Wilkes Barre hard twice in recent history. The first time was one day in 1959 when coal miners working a vein under the Susquehanna River made an error in judgment and poked a hole up through the river bed, flooding miles of interconnected mineshafts under half the county. For days after that, workers threw in every kind of material at hand to close up the hole in the river bottom -- gravel, boulders, parts of old buildings, whole trucks -- but nothing availed until the mines drank up all the river water they could hold. That was the end of the anthracite industry in Wilkes Barre. More than 30,000 miners lost their paychecks forever.

     The second calamity was Hurricane Agnes in 1972, which strayed inland and lingered viciously in the folded hills of the Susquehanna watershed. This time the river flowed over its banks and drowned the city center. Something like 60 percent of the pre-WW2 architectural fabric went for a swim, a lot of it very grand stuff. Federal disaster aid completed the job. It paid to bulldoze the flood damaged buildings and replace them with the sort of awful concrete boxes (and lollipop street lamps) that expressed perfectly the bureaucratic loathing for the very idea of city life and almost guaranteed a failure to recover both economically and psychologically.

      The city remains in poor shape, with those bad newer buildings (now aging badly), and the "missing teeth" of more recent demolitions, and a sagging population base. But I liked the young professionals I met there who are working to revive this very damaged place. They were intelligent, and cheerful despite the difficulty of their task. They clearly loved their town. They were free to move elsewhere, had even been to college elsewhere, but had returned to their old city in the valley to make a stand. And they had worked tirelessly to actually get a few good new things built.

     A few days later, I flew off to Austin, Texas, to check in on the annual meeting of the Congress for the New Urbanism (the CNU) an organization of architects, town planners, and developers who have been working heroically for two decades to counter the death spiral of suburbia with a more sustainable vision of the human habitat. Each year the CNU moves its national meet-up to a different city so the members can see what's really going on around the country.

     For all of its reputation as a lively place, Austin's city center didn't add up to much. Of course, there was the famous Sixth Street strip of music joints, which in recent years has morphed into a perpetual party scene in the mold of Bourbon Street in New Orleans -- except in the case of Austin, the buildings themselves are little more than packing crates with bars and bandstands, while the side streets are adorned with rows of port-a-johns reeking in the impressive heat of the Texas spring.

     The rest of the city center is emblematic of all the blunders that poorly-trained municipal planners have imposed all over America -- overscaled office towers set back from the street behind meaningless landscaping fantasias, blocks of buildings that present blank walls to streets, and along one weird block, an extremely narrow sidewalk with new street trees planted right in the center, making it impossible for two people to walk together side-by-side. Here and there new condominium towers stood, with cafes on the ground floor, and a number of additional ones were under construction, which was well and good -- except they were gigantic towers. I'm not keen on towers. They deform the urban fabric and they will certainly lose functionality as we leave behind the fossil fuel age. There were plenty of vacant lots, too, between the state capitol dome and Lake Austin. The downtown streets were all six-laners, of course, many of them one-way, which prompted the motorists to drive as if they were on an expressway.

      The convention center itself was a thing built to such a pharoanic scale that Rameses the Great might have commissioned it for his villa in Easthampton. It was a quarter-mile walk from the front of the ballroom to the coffee set-up in the rear -- and this was one of the smaller ballrooms. The larger ones were occupied by some kind of intramural sports association convention full of people wearing sideways hats and weird, calf-length athletic shorts. The Sunbelt is all about sports, where the social aggression seething below the surface has been channeled.

     All this was hardly the fault of the New Urbanists, who came there mostly to look and learn, and continue the process of refining their agenda for the years ahead. More and more they are coming to recognize the discontinuities we face in the form of peak oil and climate change. On these points, the leadership may be even more radically active than the membership. The ideas from meetings they held in Austin about how to meet these problems will continue to radiate through the country. They are probably the only group of professionals in America that I know of -- including the professional environmentalists -- who have a coherent vision of how America might physically arrange daily life in the terrible aftermath of the fossil fuel fiasco. Their ideas have the power to galvanize our otherwise lame political debates of the season. Nobody else in America is really thinking about what we'll do when the cardboard signs appear on the convenience store pump racks saying "out of gas...."

     Austin is exactly the kind of place in America that will get into trouble when that happens. It'll have to find something else to do with itself besides hosting drinking contests on Sixth Street every weekend night for visiting motorists. Much smaller Wilkes Barre, too, will struggle to find its way, but the one thing it surely isn't burdened with is an outsized sense of its own wonderfulness. How will these different regions of the nation find a common purpose as we slide into the long emergency? How will our political candidates find the language to articulate our predicament? They might start by listening to the New Urbanists.

Upscale

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

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     Things continue to slip, slide, and shift strangely Out There.
     Last Wednesday, a bunch of peeved mortgagees protesting government favoritism in the Bear Stearns case entered the lobby of the company's (soon-to-be-former) headquarters building in midtown Manhattan. While it might not seem like much, I view the symbolic "penetration" of this corporate stronghold as the very first sign of a much broader citizen revolt against the extraordinary protections being shown to crapped-out investment banker boyz -- at the expense of millions of equally crapped-out poor shlubs facing the default and re-po of their McDwelling places.

     Occupying an office building lobby peacefully in broad daylight is one thing. Wait until summer gets underway and The New York Post gossip page resumes its coverage of hijinks in the Hamptons. The executives of Goldman Sachs, J.P. Morgan / Chase, and other dealers in fraudulent securities, plus the art world and show biz glitteratti who party together out there, might all find themselves the object of considerable grievance and resentment as the beaching season ramps up, and the limos roll around the charity lobster roasts, and the guests stray down the lawns, chardonays in hand, to plot divorce from their over-leveraged husbands.... God knows what seekers-of-vengence will be creepy-crawling the privet plantings along Gin Lane in the crepuscular gloom, searching for trophy wives to garrote.

     Perhaps a bankrupt landscaping contractor from Lake Ronkonkoma, recently stiffed by a hedge fund manager over the installation of a half acre of pachysandra, will be arrested on the Wantagh Highway with blood on his sleeves and a high-C piano wire in his pocket. The non-Hampton precincts of Long Island, which make up more than 90 percent of the fish-shaped appendage to New York State, will be full of angry re-po victims, and the Hamptons lie at the very dead-end tail of the geographical fish. Will the banker boyz attempt to flee by yacht? And where might they escape to? Newport, Rhode Island? Labrador. . . ?

      I maintain, of course, that the media (and the public itself) has no idea how quickly things might get weird in this country -- or how weird they might get.

      Now bear with me while I shift gears. The past five days I went to a pretty major environmental conference put on by the Aspen Institute in their odd little mountain town -- and nobody needs to tell me how un-correct it was that I flew all the way out to Denver and then drove a rent-a-car the size of a humpback whale deep into the heart of the Rocky Mountains to attend this thing. (I assure you, I wasn't paid to go.) The Institute grounds -- which looked like the set of a 1950s Raymond Massey movie about the future -- were thick with many eminentissimos of Climate Change (minus Al Gore) and activists in "green" politics, more generally. The latest frightful measurements of retreating glaciers, vanishing species, and creeping deserts were proffered and everybody was suitably impressed by the acceleration of scary conditions facing the human race.

        Being such a formal conference, though, with the putative mission to advance understanding and set agendas-for-action, a great effort was made through the medium of panel discussions to set forth various "initiatives" to deal with all the scariness, especially by enlisting the agencies of the US Government -- and most especially with the prospect of a new administration sweeping out the detritus of Bush-dom next January.

      I confess I found most of these well-intentioned proposals utterly implausible, along with their trains of hopes, wishes, and fantasies. The main conceit is that we can keep all the normal operations of the American Dream humming by some "non-carbon" related energy source -- in other words, run WalMart without oil, methane gas, or coal -- and that all the forces of government and capital can be marshaled to make that happen. The secondary conceit is that they would accomplish these things in an orderly process, harnessing "new technology," as though it were a higher sort of school science fair.

      My own opinion is that these birds have the scale issue wrong. The exigencies of the Long Emergency imply that virtually everything organized at the grand scale will tend to wobble and fail as the problems of energy scarcity and climate change converge. Institutions from the federal government to WalMart to the University of Arizona will face increasing impotence, incompetence, and bankruptcy. Vesting our hopes in propping up activities run at that scale is bound to be disappointing, to say the least, and the precursor to social upheaval to go a bit further. There's probably a lot we can do at the finer and more modest scale, but that is not the scale that conferences like this focus on-- in particular because so many of the participants are current or former high-up government wonks themselves. Anyway, the scale of global distress tends, by plain inference, to invoke the wish for global "solutions," however detached from reality they may be.

      At the center of all this conferencing was the movement's lead eco-guru, Amory Lovins of the Rocky Mountain Institute (RMI), located just up Highway 82 from Aspen. Lovins's long-running emblematic project with that outfit is something they call the "hyper-car," a car that gets such supernaturally great mileage that it will save the human race's threatened Happy Motoring program from extinction. The hyper-car program, which RMI still trumpets to this day, has, of course, the unintended consequence of promoting future car dependency -- which is about the last thing that America needs -- but that hasn't prevented RMI from pushing it. Beyond that, Lovins's RMI program-for-America resembles an actuarial exercise in "carbon credits" and other statistics-based fantasies aimed at inducing theoretically rational behavior among the WalMart executives (and "greening" up WalMart has been another of RMI's consulting projects -- I'm not kidding).

        Here lies my third dissent from what I heard at the conference: since America is bankrupting itself so comprehensively at every level, the wished-for "funding" for the green rescue program will not be there in any case.  Capital itself, as represented by Wall Street, is flying to pieces this year as its stock-in-trade of paper certificates loses legitimacy in the face of the overwhelming fact that the society behind that paper will be decreasingly capable of producing surplus wealth -- which is what capital is. The unwind of "positions" now underway among the big bankz is the process of previously anticipated capital accumulation vanishing down a black hole. It will be gone forever.

      This is the year we find that out. Bear Stearns was not the only sick puppy in the kennel. When another one wobbles and crashes, will the Federal Reserve step in again and accept its worthless CDO paper as collateral on another $30 billion loan, and another, and another, and so on? And will the individual mortgage default homeowner shlubs just watch all this go down on CNBC without any action beyond "penetrating" the lobby of a Manhattan skyscraper? I don't think so. What goes down in the Hamptons will go down in Aspen, too.

Black SwaNS Everywhere

     After a one-day reprieve from total meltdown in the financial markets, news media cheerleaders for the most reckless gang of bankers in world history declared the crisis over on Good Friday (with the markets safely closed). Whew, that's a relief. Problem solved. And just in time for baseball season, too, so none of the Banker Boyz have to sell their sky box leases.  

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke

 

      What is meant by "meltdown," by the way, since the word is used so promiscuously by myself and others. I'd define it as the shock of recognition that many big institutions are worse than flat broke and are therefore powerless to conduct normal operations. By "worse than flat broke" I mean they are so deep in hock that all the accountants who ever lived, in the life of this universe and several others like it, using the fastest parallel processing computers ever built, could not keep up with their compounding accelerating losses (now approaching the speed of light).

      The current vacation from reality on Wall Street may last a few more days, or even a couple weeks, but it seems as though a whole flock of black swan events is circling the sky over Financial-land and is about to blot out the sun. By black swan, I refer to the concept popularized by Nassim Nicholas Taleb in his recent book of that name, namely unexpected events of  great power that tend to change the course of history.
     For the moment, with the crisis "contained," and the Boyz getting ready to air out their Hampton villas for the coming season, we are once again primed to be blindsided by potent random events that nobody saw coming. The trouble is, there are enough potent potential fiascos already visible on the horizon.

      The mortgage fiasco is still just gathering steam as it moves from the non-payment stage to the default and repossession level on the grand scale. Even the political wish to bail out feckless mortgage holders will stumble on the mammoth clerical task of administrating the process, especially since we've barely begun to sort out who actually holds the mortgages after they've been minced into a fine mirepoix of securities off-loaded onto countless dupe "investors" ranging from municipal funds in obscure corners of foreign nations to countless public employee retirement plans.

     No matter how the authorities try to "nationalize" the sucking chest wound of bad mortgages, the body of finance will flat-line -- and the American public will get stuck with the bill from the intensive care unit. Those who, for some weird reason, continue to pay their way and meet their obligations, will be none too pleased to pay for misdeeds of the deadbeats and their banker-lenders. This portends a taxpayer rebellion, which may translate into a voter rebellion.

      It's too bad the current presidential candidates have been unable to address the unfolding economic nightmare. Their collective silence on the matter suggests that they don't have a clue what to say about it. As the nightmare plays out and black swans flock in to blot out the sun, and the hedge funds come a'tumbling down, and more big banks blunder into black holes, and businesses big and small across the land shutter up their operations, and the unemployment rolls swell, and families are thrown out of their houses even when bailouts are supposed to be saving them (but the bureaucracy can't get the paperwork done in time) -- well now, they are going to be one pissed off bunch of people. What will they do at the conventions? Our outside the conventions?

      In the deeper background of all this is the all-important oil story that nobody in politics or the media wants to pay attention to. Notice that in the fervid unloading of assets this past week, as investors dumped their positions in the commodities markets, the price of oil remained stubbornly above $100-a-barrel when it was all over on Thursday afternoon. Well, maybe they'll ratchet down a little further this week, but the trend line will prove to continue remorselessly upward in the months ahead.

      Peak oil is for real. The supply can't keep up with global demand, even if it dips in the USA. And more portentous sub-plots develop in the story every month. Export rates are falling at a steeper rate than depletion rates. The exporting nations are not only buying more cars and running more air-conditioners, they also need to use more energy to lift the oil they've got out of the ground.

      Another sub-plot is the fact that the equipment used world-wide to drill for oil and recover oil and move oil around the planet -- all that equipment is now so old and rusty that it can barely do the job, and it is going to start failing altogether unless investments are made to replace it, which nobody is making.

   By the way, Americans blame the familiar private oil companies for all the trouble with oil in their lives -- Exxon-Mobil, Shell, et al -- but they don't seem to know that oil nationalism is in the driver's seat now. The old private "majors" are only producing five percent of the world's oil. The rest is coming from the national companies -- Aramco, Petrobras, Pemex, et blah blah -- and the very operations of the oil markets are entering a phase of radical instability as they move away from auctioning their stuff on the futures markets and start making long-term favored customer contracts instead.

      The bottom line is that high prices for oil is hardly the only thing America has to worry about. Pretty soon the US will have to worry about getting the oil at any price -- meaning, we're in for shortages and supply disruptions sooner rather than later.

      Also unbeknownst to most of America, the financial markets reflect all this instability around the basic resource of oil because industrial economies like ours are set up in such a way that they can't run without cheap and reliable supplies of the stuff. So the least little twitter in the reality-based world of peak oil means that everything to do with money and capital investment will naturally go batshit, since our expectations for increased wealth -- i.e. "growth" -- are predicated on the activities driven by oil.

     It will be interesting to see what new machinations are unveiled this week. Whatever else this catastrophe is, it's a good show from the cheap seats.

A Real Freak Out

   

Note: This is the official publication week of my new 'post-oil' novel, "World Made By Hand," a vivid depiction of life in The Long Emergency.  Visit the book's website:

     Things are getting very weird very fast -- and will probably get even weirder, faster, as the train wreck of bad debt meets the Saint Paddy's Day Parade of bacchanalian excess at the grade-crossing of destiny. The train is carrying America's financial system, but the engine driving it is peak oil, because declining energy resources necessarily means declining capital wealth -- and declining value of all the institutions, instruments, and markers that denote that wealth or hope to profit by trading in it. The fiasco leads straight to the necessary reinvention of American life on other terms and by other means.
      I've maintained for a long time that, even among those who recognize we have a big problem, there are many impediments to imagining a credible outcome. One thing I've noticed is that in any given public meeting (or lecture hall) you can divide participants into two groups: those who believe we will 'high-tech' our way out of this predicament; and those who believe we'll organize our way out.
     I don't subscribe to either point of view, strictly speaking. Both POV's assume that there will be an orderly transition between where we're at now and where we're headed. They're tainted by the kindergarten ethos of entitled happy endings and outcomes, which has been the chief operating system for the Baby Boomers, a therapeutic bias for placing 'good feelings' ahead of reality -- which also has obliterated the tragic sense of life that acts as the only brake on humanity's inherent hubris.
     Ultimately, in my view, the issue of what happens next will be settled not by the fantasies of the algae-biodiesel geeks or the wishful thinking of the sustainable futures organizers, but by the natural, self-organizing properties of a society responding 'emergently' to new circumstances. One of the implications of destiny-as-emergence is the probability that we will try any damn fool thing besides the right things to keep the old game going for a while -- even in the face of obvious failure.
     I'm sure our political leaders will mount a campaign to rescue the futureless infrastructure of suburbia. It will necessarily be an exercise in futility. But it has already started. That's what the swindle of ethanol has been all about. And the touting of hybrid cars, and the flimflam of "energy independence." Even the "environmental" crowd" squanders most of its attention these days on how to keep all the cars running on something other than gasoline. They don't question the assumption that we will remain a car-dependent society.
      As much as I loathe the suburbs in their grotesque late-stage efflorescence, I can understand why those stuck in them would wish to defend their misinvestments. I just hate to think of the political consequences when their disappointment catches up to the reality that the suburbs will not be rescued. And by that I mean not just the houses but the way-of-life associated with them and all its accessories, furnishings, and activities. Bewilderment will soon turn to rage out in the highway-strip-and-cul-de-sac empire.
     Now, apparently, we'll also opt for a bail-out of all those who tried to become rich by getting something for nothing at both ends of the Ponzi scheme called the housing bubble -- the "little guys" who signed mortgage contracts they could never hope to pay off, and the Wall Street playerz who bundled these hopeless contracts into fraudulent securities (and their enablers in the ratings agencies, plus the hedge fund smoothies who tried to cash in by using recondite algorithms to dissolve the risk associated with imprudent lending.) The bail-out is likely to accomplish nothing except the more rapid bankruptcy of government at all levels and a second Great Depression at ground level (worse than the first one).
     Over the weekend, the Federal Reserve engineered a $30-billion dollar Saint Paddy's day present for the JP Morgan bank by handing them the corpse of Bear Stearns. The object of the game is to prevent the "assets" of Bear Stearns from going to the auction block, on which they would be discovered to be nearly worthless, which would instantly render all similar assets held by the other big banks to be similarly worthless, and would result in a universal margin call that would pretty much unwind the hallucinated "wealth" acquired the past ten years.
      Despite the heroics around the fate of Bear Stearns, it looks like the financial system is tottering anyway. Perhaps the last trick left in the rescue bag will be the 100-basis-point drop in the Fed rate rumored to be announced tomorrow. It won't help any of the big banks, since their problem is holding liabilities in excess of assets. Almost certainly it would crater the US Dollar.
     The next thing in store for America, in my opinion, will be a rather new surprise: oil-and-gasoline shortages. While frightened money pours into the oil futures markets, driving the price up, strange behavior will start brewing in the actual physical allocation process. Imports of oil and gas to the US may not be as reliable as it had been when America seemed to be a solvent nation. The exporters may be changing their terms of doing business with us -- and that's nearly two-thirds of all the oil we need. The public would probably suck up oil price increases indefinitely, but shortages are going to be something else. A real freak out.

   

Going Going. . . .

      The feigned cluelessness in Paul Krugman's Sunday New York Times column ("The Face-Slap Theory") about the meltdown in finance is a good index of the cringing mendacity now emanating from those in service to the centers of power. I doubt an editor, or the publisher, Mr. Sulzberger, had to whisper in his ear to soft-pedal the situation. I don't even believe anything like his job depends on it. Krugman's glossing-over the truth is just social cowardice. He doesn't want to be called out dissing fellow members of his club.

      Krugman avers to the Federal Reserve's two previous big efforts since August to bail out the insolvent banks, insurers, and hedge funds with cheap loans as "slaps in the faces" of these wobbling corporations -- "yo, wake the fuck up!" -- as if narcolepsy was their only problem. (Try that with a wino on the sidewalk outside the Port Authority bus terminal and see if he immediately signs up for rehab and a high school equivalency program.) Krugman calls the club's latest plan -- for the Fed to just suck up their impaired and worthless collateral in exchange for more cheap loans -- as a "third slap," saying, with all the panache of a midwestern Rotary Club secretary, that "the third time could be the charm." Had the monkeys already flown out of his butt as he wrote that, I wonder.

     The line in Krugman's column I love best, though is this one: "Last month another market you’ve never heard of, the $300 billion market for auction-rate securities (don’t ask), suffered the equivalent of a bank run." He presumes that his readers go along with his pretense of innocence. We've never heard of the municipal bond market and it's too complicated to explain so "don't ask." Is he writing for the "newspaper of record" or Highlights For Children? Maybe it would be a good thing if readers of The New York Times asked what the fuck was going on in these markets so they could yank their depreciating dollars out and deploy them elsewhere or convert them into something of value.

     Well it was a bad week on the money scene in what is sure to be a worsening year. Paul Krugman and his fellow club members can pretend that the hallucinated finance economy is not really flying to pieces. After all, he / they are trying to avert panic. But, as noted previously in this space, the only thing we have to fear is not fear itself. We have to fear the consequences of actions by a banking leadership that has shown the grossest irresponsibility (and an American public that has been conditioned to expect a steady diet of getting something for nothing).

      The US faces a pretty stark choice right now: it can let the losers take their losses -- both the big institutions who created and traded in fraudulent securities, and all the "little guys" who borrowed too much money trying to get rich quick, or trying to live like the millionaires they see on TV. We can let them go down, and suffer the consequences of their bad choices (and maybe prosecute some of the culpable bankers and corporate executives), OR, in an effort to let these losers off the hook we can wreck the whole machinery of capital by making our medium-of-exchange worthless.

     The people in charge -- both in and out of government -- can't face the losses, so for now they've apparently decided to wreck the currency. The dollar has lost two percent of its value against the Euro just in recent weeks, as cheap loans from the Fed pour into the black hole on Wall Street (never to be seen again). Other soft-pedalers in the media claim that the financial markets have "already priced in" yet another expected .75-point interest rate drop by the Fed this week, but I'm confident that such a move will only accelerate the dollar's vanishing act.

     I'll admit, it's hard to believe what's going on in the American finance sector. But incredulity in the face of a rare catastrophe isn't the same as pretending that it's not happening. A whole flock of black swans is flying in front of the sun. Don't expect to work on your tan this month.

Still Pretending

     The maneuvers that the big banks are making nowadays, along with their enablers at the Federal Reserve and elsewhere in Washington, really amount to little more than the old Polish blanket joke -- in which (excuse my concision) the proverbial Polack wants to make his blanket longer, so he scissors twelve inches off the top and sews it onto the bottom. Only in this case, the banks are shearing x-billions of losses off the top of their blankets and re-attaching x-billions of new debt onto the bottom. This new debt, of course, goes to cover the old losses and only represents further losses-to-be-reported-later, since the banks are basically insolvent. Borrowing more money when you're broke doesn't make you less insolvent.

      The banks can probably keep this gag running a little longer, but not without consequences. My guess is that it spins out of control in March sometime when some more hedge funds blow up and at least one big bank, perhaps Citi, rolls belly up like a harpooned whale. The game is really over, and all the playerz know it. The consequence of continuing to pretend the meta-fiasco of Ponzi endgame is fixable will be an even more shattering depression than the one we're already in for.

     We are a much poorer nation than we thought we were and the reality is just too hard to face. Nobody from the most august banker (Treasury Secretary Hank Paulson) to the lowliest wanker (the WalMart inventory clerk who "bought" a house outside Phoenix with a no-money-down, payment-option, adjustable rate mortgage) can believe that this is happening. The candidates for president are pretty much assuming that vast financial resources will exist to be deployed against a range of problems. Everybody is going to be hugely disappointed.

    When you introduce perversities into an economic system, they invariably end up expressing themselves as distortions. The economy that evolved the past two decades, driven by the perverse securitization of wishes and frauds, will now express itself in a stark cratering of American living standards. Incomes and jobs will vanish, massive quantities of stuff will collect dust on the WalMart shelves, the fragile infrastructures of daily life will go to shit, and there will be political hell to pay. Every attempt to avoid a straight-up workout of our massive losses, will represent another layer of perversity and more consequent destructive distortions.

     I feel sorry for the next president. Even as he takes his oath of office, the nation will be flying apart like a seized-up engine. Since the fiasco in finance is happening in lock-step with Peak Oil (and very likely because of it at a fundamental level) we can expect one of the distortions to take the form of oil shortages. These shortages will come not just from demand bottlenecks in a stressed-out world oil allocation system, but because exporting nations will start demanding payment in Euros or something besides the depreciating currency that reflects our disintegration, and we'll have a problem coming up with payments that amount to at least fifty percent more than we're used to shelling out.

     Once the US gets into serious difficulties with our oil supplies. every other sector of the economy wobbles, including especially the food-growing sector, which cannot function without copious amounts of diesel fuel and hydrocarbon-based soil "inputs." Americans will go hungry, and not just the "underclasses."

     Along in this process somewhere, there is huge potential for armed conflict with other nations. If the unraveling gets traction while George W. Bush remains in charge, the US may answer bellicosity from oil-exporting nations, or energy-hungry rivals, with truculence of our own. Things can get out of control very fast in such a situation. Nations that were happily selling us salad shooters six months earlier may be targeting our naval vessels with a different sort of shooter, say a Sunburn missile. In any case, we will be acting with a bankrupt, exhausted, and over-extended military, and the best case outcome would leave us merely isolated and marooned geopolitically on our own continent, with dwindling energy and mineral resources and an angry, demoralized population.

      This time around we have more to fear than fear itself. The banking executives, government officials, and candidates for president are not doing the nation a service by concealing and ignoring our losses. Finance, as the driver of an economy, is finished, but the deployment of capital is still an indispensable arm of a real economy. Sooner or later we'll get back to money that stands for something and banks that function as credible repositories of wealth. But we haven't even started down the path to that place, and the longer we pretend that we don't have to go there, the worse the journey will be.

Shoes Dropping

      The fall of Britain's Northern Rock bank may be the first dropped shoe in a chorus line of big banks tap-dancing into oblivion. The British government's move yesterday to nationalize the insolvent mortgage lender's remaining operations leaves shareholders holding an empty bag. Their only resort now will be to call their lawyers. What we may be witnessing, in a movement that will surely spread to the US, is a changing of the guard at the top of the financial food-chain between bankers and lawyers.
      Shoes may have begun to drop in the US last week with Citigroup halting redemptions for its $500-million CSO mini hedge fund -- half a billion dollars being something less than walking-around-money in the Hamptons these days. Halting redemptions means that investors in the fund cannot withdraw their money -- the same as going to the bank and being told your account is frozen. Hedge funds can play rough with their investors because they are unregulated. The reason they remain unregulated is the presumption that anybody rich enough to "play" in a hedge fund can afford to lose (or be swindled) with no protection on the sidelines from government busybodies. What's more, the hedge fund managers do not have to make any of their operations open to public view, so that neither the investors nor any regulating authority knows what they are actually doing.
     What the big banks who run many hedge funds are doing is going broke. They are pretending to be solvent by borrowing money from the Federal Reserve, the nation's alleged superbank. But borrowed money is not capital, i.e. surplus wealth wholly owned. Borrowed money is an obligation, a liability, a negative on the balance sheet. You can't have an entire financial system based on nothing more than a giant daisy-chain of liabilities. Somewhere there has to be a "reserve" of assets, items of value owned by somebody.
      Through most of modern times, assets have been denoted by cash money. A given bank will hold in "reserve" say $10 billion in money that is not owed to anybody, allowing them to do things like pay depositors who show up at the window needing money for groceries. Up until a few decades ago, nations held an ultimate reserve of actual gold in a vault (Fort Knox, Kentucky, in the case of the USA) and the physical possession of this gold was said to "back up" the value of the certificates that circulated as a "medium-of-exchange" or currency.
      But that system was considered too awkward and "reserves" were then denoted in just currencies themselves, or certificates that represented the existence of currencies held elsewhere, or pixels on a screen representing the movement of alleged piles of currency from one place to another, or the intention to move a notional pile of currency to a theoretical destination, and then that became an algorithm purporting to represent the future arrival of a notional pile of money at theoretical destination to-be-named-later, and so on.... And after another while, the nature of money became so detached from anything real, so abstract, that its very existence became hypothetical. Even this "worked" for a while, in terms of the managers of this money being able to "cream" substantial amounts of this hypothetical money off the top of their notional operations and translate that hypothetical cream into Tribeca lofts, Gulfstream jets, and other real luxuries.
     The rest of the economic food chain -- and the social order that represented it -- got stripped of remaining asset value (and social value) until they had nothing left to trade with except debt, in one form or another, and this phase of the game turned out to have a short lifetime when the the only debts remaining to be monetized were the contracts on houses occupied by people with no hope of ever meeting their obligations -- and then the whole sorry racket started to go up in a vapor.
     This is roughly where we are, and where the banks stand today. They are pretending to have money and desperately cadging loans from all comers to keep appearances up, but the loans can't come in fast enough. The appearance of confidence is crucial (as it is, of course, in any "con" game) to keep the investors (depositors) at bay. If a bunch of investors (depositors) all got nervous about the solvency of a given bank, they might try to slip in there during business hours and withdraw or redeem their "money" and perhaps translate it into items of value like gold coins, bottles of vodka, or cases of 9 millimeter pistol ammunition. And if enough of this bunch showed up at the same time, we would see a phenomenon called a "run" on a bank. And after that started at one bank, the thing Franklin Roosevelt called "fear itself" could easily spread to depositors in other banks pretending to be okay... and that would be the magic moment that the USA discovered it was no longer a rich nation.
     That would be a very rude awakening. The whole world would know about it in about thirty seconds, and the rest of the world would be in a lot of trouble, too, since so much of its notional wealth is represented by piles of US dollars (or certificates denoting them). Then what you could see is a run by other nations (investor-depositors) on the United States of America as a whole, or an awkward global receivership process, in which all remaining assets were stripped -- including maybe even some of those Tribeca lofts and Gulfstream jets.
     Of course, the rest of the world would have a hard time getting any of this stuff out, or fencing it off at a discount. Rather, they'd probably just eat their losses and quarantine themselves off from the world's new financial-and-economic leper. They'd stop sending us Toyota Highlanders, plastic salad shooters, and, oh yes, oil. We'd be left with a lot of empty big box stores, vacant highways, and houses inconveniently deployed too far from any place of utility. One thing we'd have plenty of, though, is home-grown pissed-off people. Some of them may even be lawyers.

 

Note: my novel about America's post-oil future, World Made By Hand, is now shipping to booksellers everywhere.  Get one. You'll like it.

Burning Down the House

     Behind all the blather and bullshit about the Federal Reserve's rescue gambits and the machinations of the ratings agencies, and the wiles of foreign sovereign wealth, and the incomprehensible mysteries of markets, and the various weather forecasts of a gathering "recession" is the simple fact that the USA is a way poorer nation than we imagined ourselves to be six months ago. The American economy has been running on the fumes of "creatively engineered" finance (i.e. new-and-improved swindling) for years, and now these swindles are unraveling. In their aftermath, they leave empty wallets, drained bank accounts, plundered retirements funds, boiled away capital reserves, worthless stocks, bankrupt companies, vandalized housing tracts, ruined families, and Wall Street executives who are still pulling down multimillion-dollar pay packages despite running their companies into the ground.

     We're burning down the house and kidding ourselves that there is a remedy for it. All the rate cuts and loans to big banks and bank-like corporate organisms, and "monoline" bond insurers, and mortgage mills amount to little more than a final desperate shell game to conceal the radioactive pea of aggregate loss. The losses are everywhere, and when you add up seven billion here and eleven billion there they probably amount to something like a trillion dollars in sheer capital evaporation -- not counting the abstract "positions" that the capital was leveraged onto by the playerz and boyz who mistook algorithms for productive activity.

     The shell game may run a few more weeks but personally I believe the timbers are burning. The losses are no longer "contained" or concealable. A consensus has now formed that we're in for a "recession." The idea is that, yes, this seems to be the low arc of the business cycle. Fewer Hamptons villas will be redecorated in the interim. We'll gird our loins and get through the bad weather and when the sun shines again, we'll be ready with new algorithms for new sport-with-capital.

     Uh-uh. Think again. This is not so much financial bad weather as financial climate change. Something is happenin' Mr Jones, and you don't know what it is, do ya? There has been too much misbehavior and it can no longer be mitigated. We're not heading into a recession but a major depression, worse than the fabled trauma of the 1930s. That one occurred against the background of a society that had plenty of everything except money. Back then, we had plenty of mineral resources, lots of trained-and-regimented manpower, millions of productive family farms, factories that were practically new, and more than 90 percent left of the greatest petroleum reserve anywhere in the world. It took a world war to get all that stuff humming cooperatively again, and once it did, we devoted its productive capacity to building an empire of happy motoring leisure. (Tragic choice there.)

       This new depression, which I call The Long Emergency, will play out against the background of a society that has pissed away its oil endowment, bulldozed its factories, arbitraged its productive labor, destroyed both family farms and the commercial infrastructure of main street, and trained its population to become overfed diabetic TV zombie "consumers" of other peoples' productivity, paid for by "money" they haven't earned.

        There is a theory (see Nouriel Roubini's blog) that a reform process will now ensue in the financial realm, new regulation and oversight of the same old familiar activities. This too, I'm afraid, will prove to be wishful thinking. The financial system will not be reformed until it lies in smoking wreckage, and when that "re-form" happens the armature of the re-organizing society will barely resemble the one that the previous burnt-down-house was designed to dwell in. Among other things, it will not support capital enterprise at anything like the scale that we became accustomed to lately. Globalism will be over. The great nations of the world will be scrambling desperately for the world's remaining oil supplies. It will not be a friendly contest, and anyone who thinks that current trade relations and capital flows will continue despite that is liable to be disappointed. (Are you reading this Tom Friedman?)

      Long before the mathematical projections of oil depletion play out, the oil markets themselves -- and all the complex operations that they comprise, such as drilling and exploration, and the movement of tankers around the planet -- will destabilize and seize up. We will no longer be any oil exporter's "favored customer." Many of the exporters will enjoy watching us suffer. Contrary to the political platitude-du-jour, the USA will never become "energy independent" in the way we currently imagine. Rather we'll become energy independent by being deprived of imported oil, and we'll be thrown back on our own dwindling supplies -- which means that we're not going to run our system of daily life the way it has been set up to run. When Americans can no longer run their cars on a whim, they will simply go apeshit and you can kiss normal politics goodbye.

     The financial system that emerges from this cataclysm, and the economy it serves (which is supposed to be the master of its capital deployment "arm," not its servant) will likely be modest to a degree that will shock and embarrass everyone currently connected with what we have lately called finance. If it even trades in paper, that paper will have to stand for something based in reality, either a productive activity or a genuine asset. It may take decades for this society to even regain the confidence necessary to operate such an elementary system -- or it may not come back at all, at least as far as the horizon lies before us. That's how bad the mischief and the damage has been.

      It's not hard to understand why the Bernankes, Paulsons, Lawrence Kudlows and other public representatives of capital keep pretending that everything is under control. On the other side of their pretenses lies disorder and hardship. One wonders, of course, what they really see in their private minds' eyes. Do they actually believe that the statistics issued by their serveling agencies amount to a plausible picture of reality? Are they so lost in their fantasies of "management" that they think they're controlling events?

     My guess is that their credibility is spent. In the weeks ahead, nobody will know who or what to believe. We may even run out of questions to ask as we just all collectively stand there in a thrall of wonder and nausea, watching the nation's financial house burn down.