Gary’s Note:
The economy as we’ve known it simply can’t go on, which James
Howard Kunstler has been saying all along. The shenanigans with
stimulus and bailouts will just compound the central problem
with debt. There’s not much longer to go before the whole thing
collapses and dies.
By James Howard Kunstler
January 12, 2010
Saratoga Springs, New York, U.S.A.
The
economy that is. Especially the part that consists of swapping
paper certificates. That’s the buzz I’ve gotten the first two
weeks of 2010, and forgive me for not presenting a sheaf of
charts and graphs to make the case. Just about everybody else
yakking about these thing on the Web provides plenty of
statistical analysis: Mish, The Automatic Earth, Chris Martenson,
Zero Hedge, The Baseline Scenario…They’re all well worth
visiting.
Bank bonus numbers are due out any day now. The revolt that I
expected around the release of these numbers may come from a
different place than I had imagined earlier — not from whatever
remains of “normal” working people, but from the thought leaders
and middling agents in administration (including the
prosecutors) who, for one reason or another, have been diverting
their attention, or watching and waiting, or making excuses for
a couple of years now. When Frank Rich of The New York Times
starts calling for Robert Rubin’s head, then maybe the great
groaning tramp steamer of media opinion is turning in the water
and charting a new course for the port of reality.
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Anyway, the grotesque carnival of rackets and lies that the US
economy has become — held together with the duct tape of
stimulus cash, gamed accounting, mortgage subsidies, carry
trades, TBTF bailouts, TARPS, TALFS, shell-game BLS reports, and
MSNBC “green shoots” cheerleading — gives every sign of tipping
into collapse at a moment’s notice. There are just too many
obvious things that can go wrong, and that means there are many
less obvious, hidden things that can go wrong, and isn’t it
tragically foolish to tempt Murphy’s Law, since it operates so
well without any help from us? The call is even going out lately
for criminal prosecution of the current Treasury Secretary, Mr.
Geithner, for engineering AIG’s $14 billion credit default swap
payoff to Goldman Sachs as part of the AIG bailout. Okay then,
why not Paulson, Bernanke, Blankfein...?
But the other rings of the circus are fully occupied by clowns
and dancing bears, too. Even with sketchy-looking stock market
prospects for 2010, it’s hard to explain why the world would run
into US treasury bonds, especially a few months from now, after
the initial rush-to-safety — that is, when you could just as
easily buy Canadian or Swiss franc denominated short-term bills.
And then what happens when the Federal Reserve has to eat all
the uneaten treasuries, while it’s already choking to death on
collateralized debt obligations and related worthless toxic
trash securities? After all, the greenbacks we swap around are
called Federal Reserve Notes.
Why would anybody think that the housing market is going to keep
levitating? A big fat “pig” of adjustable rate mortgages (i.e.
mortgages that will never be “serviced”) is about to move
through the “python” of the housing scene, shoving millions more
households into default and foreclosure. Meanwhile, local and
regional banks are choking on real estate already in default
that they are afraid to foreclose on and have been keeping off
the market through 2009 in order to not send the price of houses
down further and put even more households “under water” for
houses worth much less than the face value of their mortgage. I
doubt that the banks are doing this out of the goodness of their
hearts, but whatever the motive, this racket of just sucking up
bad loans can’t go on forever. At some point, a banking system
has to be based on credibility, on loans actually being paid
back, or it will break, and we are close to the breaking point.
The pathetic truth at the center of the housing fiasco is that
prices have to come down further if any normal wage-earner will
ever afford to buy a house again in America on anything like
normal terms. Anyway, sooner or later the banking system is
going to have to upchuck the “phantom inventory” of
un-foreclosed-on houses, and sell them off for whatever they can
get, or else a lot of banks are going to go out of business.
They may go down anyway, because the catastrophe of commercial
real estate is following right on the heels of the fiasco in
residential real estate. The vast oversupply of malls, strip
malls, office parks, and other furnishings of the expiring
“consumer” economy is about to become the biggest liability that
any economy in world history has ever seen. Who will even want
to buy these absurd properties cheaply, when they will never
find any retail tenants for the badly-built structures, nor be
able to keep up with the maintenance (think: leaking flat
roofs), or retrofit them for anything? In a really sane world, a
lot of these buildings would go straight to
demolition-and-salvage — except that it costs money to do that,
and who exactly right now will make a market for used cinder
blocks and aluminum window sashes? I expect these places to
become squats for the desperate homeless.
Then there are the bankrupt states, led by the biggest, of
course — California and New York — but with plenty more right
behind, whirling around the same drain (probably forty-nine of
them with the exception of that fiscal Nirvana, North Dakota!).
Even if they manage to con bailouts from the bailout-weary
federal government, the states are still going to have to winnow
down the ranks of their public employees (throwing more
middle-class households into foreclosure and penury), while they
hugely reduce public services, especially to the poor, the
unwell, and the unable. That alone will redound into very
visible realms of daily life from public safety (rising crime)
to the decay of roads and bridges.
Perhaps the most troubling buzz in the air this first month of
2010 are rumors of coming food shortages due to widespread crop
failures around the world in the harvest seasons of 2009. If the
US Department of Agriculture hasn’t flat-out lied about crop
numbers in 2009, the signs are that their statistical reports
are at least inconsistent with real grain storage numbers and
commodities prices. And why would the USDA tell the truth if
every other federal agency is reporting gamed numbers? Given the
crisis in capital and lending, one also has to wonder how
farmers will be able to borrow money to get their crops in this
year.
~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~
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is headed higher.
If
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If
gold hits $1,500, this “slingshot option” could jump 440%.
Gold
at $1,750 could send this “slingshot option” up from 530%.
If gold tops $2,000, you’re looking at a potential “slingshot
options” gain of 620%.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Finally there’s the global energy scene. The price of oil starts
this week over $83 a barrel. That puts it about $1.50 from the
price “danger zone” where it begins to kill economic activity in
the USA. Things and procedures just start to cost too much.
Gasoline. Deisel fuel (and, by the way, that means another
problem for food production going into the 2010 planting
season). One especially eerie situation the past few weeks has
been the de-coupling of moves upward in oil from moves in the
value of the dollar. Lately, oil has been going up whether or
not the dollar has gone up or down. Two weeks ago the dollar
went below 1.42 against the Euro and today it’s above 1.45, and
oil has been rising steadily from the mid $70 range all the
while. 2010 may be the year that we conclusively realize that
world oil demand exceeds world oil supply — and that global oil
production cannot hold above 85 million barrels-a-day no matter
what we do.
These are the things that trouble my mind at three o’clock in
the morning when the wind rises and things bang around spookily.
Gird your loins out there for a savage season or two.
Regards,
James Howard Kunstler
|
 |
Heh.
Looming food shortages…oil back in the price “danger zone”. We
are still on track to the End of the World as We Have Know It.
And I feel just fine.
I
don’t mean to make too light of the situation, good patrons.
It’s just that my philosophy accepts wrenching, violent change
as the norm.
Also, I know that crisis has its rewards. Change means
opportunity. So you can cry about it…or you can prepare and come
out on top.
Resources prices are going to be going a bit haywire as they
make their way to some frightening highs. You know this…and it
would be an awful shame if you didn’t profit from what you know
is coming. But how? Glad you asked…
Alan
Knuckman has already made his subscribers sixteen times
their money in 2009 in the commodity market. And he’s poised to
do it again. You can click here to learn more, but just keep in
mind that you have to
act before tomorrow at midnight.
When
I report Alan’s gains next year after commodity prices do what
we know they’re going to do, you can’t say I didn’t try to help.
Oh,
that Nancy Pelosi is at it again…
DETROIT (AP) — House Speaker Nancy Pelosi and top Obama
administration officials on Monday defended last year’s
federal bailout of the auto industry, citing optimism that
General Motors and Chrysler had made strides only months after
exiting bankruptcy.
“What we see here today is a renaissance,” Pelosi said. “A
renaissance, a phoenix — a rebirth.”
And
what I see is a cackling harpy riding atop Leviathan.
Transportation Secretary Ray LaHood also toured the show. He
said the administration made the right decision to save GM,
Chrysler and auto lender GMAC Financial Services with about
$80 billion in aid, along with a separate $3 billion Cash for
Clunkers program that boosted auto sales during last summer’s
doldrums.
“This was a good investment of taxpayer dollars in an industry
that needed a little bit of an infusion of resources,” LaHood
said. He noted that GM, which received about $50 billion in
aid, had recently repaid the government $1 billion in loans
and was showing signs of recovery.
Was
it, Mr. LaHood?
That’s the great conceit of Keynesianism…that the government has
every right — and the very duty — to step in and decide when the
market is wrong.
Sure, GM and their ilk have been ravaged by the downturn…but the
downturn itself is the inevitable result of the decidedly
unnatural upturn caused by the government manipulation of
interest rates and credit supply via the central bank.
Hell, it could be argued that the last fifty years of
auto-dependence that has been such a boon to car manufacturers
have been the result of the credit expansion and auto-suburban-favored
zoning regulation!
Government is like a self-licking ice cream cone; it creates its
own demand. It causes the problems it claims can only be fixed
by (wait for it)…bigger government!
It’s
like a firefighter setting fires so the town will increase the
budget for the fire department.
I
was very impressed with Mr. Carkuff’s essay, and generally in
agreement with him every step of the way. However, I would
love to see a discussion of the gray areas, where true
libertarians could honestly differ. For example, what about
someone who claims the right to inflict extreme forms of
physical punishment on his family? There must be some point at
which a member of a society, who benefits from the common
defense against external aggression provided by the society,
must modify his behavior to conform to social norms, if he
expects to remain a member of that society. It would seem
unworkable to me, for a society to allow thousands of little
carve-outs from its territory, for those individuals who
choose to opt out. Wouldn’t any society, even a libertarian
one, be forced to require that individuals who chose to reside
within its designated boundaries be required to cede at least
some of their individual liberty? I would be interested in
hearing where a true libertarian like Mr. Carkuff would draw
those lines.
I’ve
covered this before. “Unworkable…for a society to allow
thousands of little carve-outs from its territory.” This is
exactly my problem with the nation-state. They claim as much
land as they can then insist that everyone follow their rules
and their customs…just like empires of the past. There’s nowhere
at all to go if you don’t agree.
If I
had my druthers, states wouldn’t get any bigger than cities…very
small cities. States the size of continents are no better than
the city-states that become empires; they are bad things.
I’m
just advocating smallness and plurality. You will have to cede
some things to get along with others, but you ought to be able
to choose what and how much you’re willing to cede — and how you
want to live — by voting with your feet. Without the mega-state,
there would be myriad mini-states and they’d all cater to
different tastes. And no one would have to worry about the votes
of other people thousands of miles away forcing them to do
things they’d rather not.
I am
an admirer of Objectivism - the philosophy of Ayn Rand – and
studied it extensively during and for some time after my years
in college. Objectivism holds that government is necessary and
that its proper role is to have a monopoly on the use of
force. Otherwise you would have Anarchy, an untenable state of
affairs in her philosophy.
In Rand’s view the Constitutional Republic of the United
States is the best form of government yet devised by man, but
there are only three proper functions of Government, and
nothing more:
1.
A military, to protect the individual rights of the
citizens of the country from outside aggressors.
2. A
police force, to protect the individual rights of citizens of
the country from criminals.
3. A
legal system, so disputes that arise in the normal course of
trade and human affairs can be resolved in an objective
manner.
Government should not be involved in Commerce – there should
be a separation between Commerce and State that is equal to
the separation between Church and State. Government should not
be involved in education, building roads, banking and the
myriad things we see today. Nation-building would be out, free
trade would be in. Laissez-faire capitalism would be the
economic system.
There are many other issues that evolve from this – it is a
complex subject – and lots of great ideas to be explored in
her prolific writings for fellow patrons who might be
philosophically inclined.
A Patron
Anarchy is often conflated with chaos…but they are not the same
thing. Anarchy literally means that there is no ruler, a state
of affairs that most are conditioned to think will lead to
non-stop murder and rape. In order to protect us from the
gangsters, goes the argument, there must be a biggest but most
benevolent gang.
I’m
an anarcho-capitalist at heart, but I am willing to
make concessions for a little bit of the state. Like I said
above, however, I’d keep the states in varying degrees of small
and very local and thus force them to compete for
citizen-inhabitants just like businesses compete for consumer
dollars. (Small and local are what states remain in the absence
of imperial overreach and force.)
So
if you want to live in a jurisdiction where they have cameras on
every corner and in your bedroom and in which they cut off
pinkies for spitting on the sidewalk, fine. Go ahead. Similarly
if you want to live in a city where they take 80% of everyone’s
income off the top for infrastructure costs and to help house
and feed the less fortunate, that’s equally fine. But others
should have the choice to live where they want and under
different rules.
There is very little choice to be had when you have centralized
governments lording it over every single scrap up earth and
practicing various degrees of collectivism and Nanny Statism.
Notice that with very few exceptions, no matter where you tread
upon this planet, there is someone telling you that you cannot
carry a weapon to defend yourself, telling you what you can put
in your body, dictating which version of history your children
are taught, and how much of the fruits of your honest toil you
may keep.
I
don’t know about you, but this does not sit well with me. Let me
know how it sits with you:
gary@whiskeyandgunpowder.com.
I
look forward to your responses. Till tomorrow.
Regards,
Gary Gibson
Managing Editor,
Whiskey & Gunpowder
