[R-G] [BillTottenWeblog] Shoulder Season

[Bill Totten]

Clusterfuck Nation

by Jim Kunstler

Comment on current events by the author of
The Long Emergency (Atlantic Monthly Press, 2005)

www.kunstler.com (August 11 2008)


America is on vacation from its financial, fiscal, and economic
problems, having left the centers of power in Wall Street and Washington
for a Nantucket-of-the-mind, where, in a haze of artisanal vodka and
bong smoke, it's out in the cool dune grass watching imaginary
whalefishes blow, leaving only the TV Bubbleheads behind back home.
Larry Kudlow of CNBC was practically drooling into his cufflinks on
screen last week when the dollar popped against the Euro, and crude oil
slumped, and the equity markets climbed up a flagpole.

This sort of euphoria is actually an alarming pre-crash symptom, in this
case of a patient (the US) entering the terminal phase of sclerosis. Our
society and all its playerz - especially the appointed communicators -
just can't fathom the reality of the threats we face, which are (1) the
loss of primary energy resources, (2) the loss of technological potency,
and (3) the loss of a comfortable standard of living.

As the boys over at the Financial Sense News Hour {1} podcast have been
saying for months, we're caught in a paradigm shift and we're trying
desperately to prove (to ourselves) that we can get back to the way
things used to be. This is a broad cultural phenomenon and helps to
explain why even the greenest captains of environmentalism strive to
find groovy new ways to run all our cars, while their counterparts on
Wall Street strive desperately to salvage a set of "innovative"
financial rackets based on getting something for nothing. It also
explains the foolishness of the "drill drill drill" crowd, which
believes we could be back to 99-cent gasoline if only Exxon-Mobil were
allowed to prospect offshore where the codfish used to swim. (By the
way, I'm in in full favor of granting them permission to do so, if only
to put an end to this foolish debate.)

Reality, meanwhile, strives to take us in another direction. Our
destination is a far less complex society in a larger, rounder, and less
economically-integrated world. We will be leaving a lot of our
technological comforts behind, staying closer to home, living in smaller
cities and reactivated small towns, working the land more intensively to
produce the food we need, and possibly organizing our governance at
something less than the continental scale our dwindling riches used to
afford. That is, if we're lucky enough to avoid the real possibility of
social disorder and violence that would attend a fullblown economic
collapse scenario.

August is historically a quiet time for oil, the so-called "shoulder
season" when vacationing climaxes, but before deliveries of heating oil
get underway in earnest. We have no real prospects of overcoming any of
the structural problems now built-in to our oil supply, starting with
the grim central fact that we import at least seventy percent of the oil
we use. Add to this the fact that world production of conventional crude
has not exceeded the 2005 rates; that export rates from our Number Three
and Four sources of oil, Mexico and Venezuela, are down a combined
thirty percent this year; that discoveries of new oil are meager to the
degree that they fail by a long shot to offset current world-wide
depletion; that the oil available on global markets is proportionately
more sour and heavy crude than the light and sweet our refineries are
designed for. And so on ...

These geological matters form the base on which the geopolitical issues
work their hoodoo. For instance, the war currently underway in former
Soviet Georgia (I say this in case the folks in Atlanta wonder why Stone
Mountain is not being bombed) will at least end up with Russia in
control of the major oil pipeline that runs from the Caspian region
across Georgia, through Turkey, to Europe - even while parts of that
pipeline get blown up. The net effect will be of Russia will taking
control of even more of the oil now flowing to Europe. The whole point
of building that pipeline was to bypass Russia, which was crippled by
its own paradigm shift in the years when the pipeline was built.

The US might talk tough about this threat to the status quo, but what is
it going to do? Pull troops out of Iraq and Afghanistan to mount a land
war against Russia in a landlocked region of its own neighborhood?
Fuggeddabowdit. Notice, the Europeans are not making so much as a peep -
because when the time comes that Russia does control that pipeline, the
Europeans will do anything to keep the contents flowing toward them.
Europe may be organized as a trade and currency confederation, but not
as a military power. NATO is strictly a US auxiliary, not a power unto
itself. The result of all this will be that Russia, already the world's
leading oil producer, even as it has entered depletion, will now possess
a potent geopolitical and financial weapon with control of that
pipeline. A collateral effect will be Europe's inclination to bid more
desperately for Middle East oil - the oil that comes via the Suez Canal
- which can't help but boost the price-per-barrel that the US is forced
to pay.

One part of the oil equation we haven't seen yet this year - the prelude
to the heating season which could be just as spectacular as the opening
of the Beijing Olympics - is the hurricane season. This will be an
interesting week for that, as two tropical depressions have now formed
off West Africa and begun their grinding progress into our part of the
world. Stay tuned to that - National Hurricane Center {2}.

With Wall Street on vacation at its various beaches, the idea has taken
hold that the so-called credit crisis is mostly over. In fact, we're
still in the first quarter of that classic. The big move before the
investment bankers packed their snorkels and baggies was Merrill Lynch
selling off a batch of its fraudulent securitized debt bundles for
roughly five cents on the dollar. That pretty much marked to market the
similar garbage that every other big bank or pension fund or hedge fund
has hidden in its closet. My guess is that some of them will just
declare "game over" without even bothering to haul their garbage out and
hang a "for sale" sign on it. Fannie Mae and Freddie Mac are essentially
there now.

The Federal Reserve will be in the awkward position of having to make
more loans (that will never be paid back) to many of these companies and
entities, and in the process will fork over their remaining treasuries
in exchange for garbage collateral that they will never get rid of. I
don't see how the Federal Reserve survives this process. It will not
have any reserves left. The collapse of the Federal Reserve would take
America into an outer space version of uncharted territory, really into
a whole other dimension of distress.

While Europe faces its problems on Russia and energy and its own
economic performance, it has more probability of staying afloat than the
US in this upcoming period. I would look for the dollar to make a new
big "leg" down against the Euro.

It was fascinating to watch a CNBC report Sunday night about the
progress of General Motors and McDonalds Hamburgers in China. It sure
makes one wonder about the current mood of Sino-triumphalism - the
favorite car of the Chinese elite is ... the Buick, a product that even
demented old ladies in Columbus, Ohio, will not touch with a stick. It
appears that China has succeeded in turning Peking and Shanghai into
simulacrums of Atlanta and Dallas, complete with glass office towers and
all the on-and-off-ramps they'll ever need - a pretty stupid project
when you consider how little oil of its own China actually has. One can
only say, with a shudder, that they got into the Happy Motoring game a
bit late, and wish them "good luck".

The Mickey-D phenomenon appears to be a mere fad, a toy that Chinese
trade officials tossed to its people in the euphoria of ramping up the
world's last manufacturing economy. For starters, China doesn't have
enough groundwater or grain to feed the necessary steers (and hogs) that
McDonald's uses for it's "meat products" there.

The most amusing part of the CNBC segment was the deportment of the
smarmy American executives representing those companies: Rick Waggoner
of GM, who was depicted in the full flower of a campaign to hose his
Chinese "partners", blowing smoke up their asses as if he were some kind
of a human walking-talking bong, and the two necktied creeps from
McDonalds' Asian office scheming on camera about opening tens of
thousands of so-called "restaurants" across the ancient kingdom. These
were all perfect representatives of people stuck in a paradigm already
bygone. When the Olympic mania ends, China will find itself in a new
reality, too. Its single advantage, as far as I can see, is that it
holds a lot of US dollars in various formats, and I don't know that this
is much of an advantage given the imminent tanking of American finance.
Yes, China has become the world's factory. But if the world's leading
shopper is shopped-out and busted, this might not be much of an
advantage. Beyond that, as suggested above, they face huge problems with
oil, water, and food, not to mention over-population and environmental
degradation at a scale we can barely imagine here.

The slide toward Labor Day will remain interesting, even with all the
Boyz off at the beach. Notice we haven't even touched on the upcoming
political theater of presidential politics, a show that I'm inclined to
call "The Party That Wrecked America".

Links:

{1} http://www.financialsense.com/fsn/main.html

{2} http://www.nhc.noaa.gov/

____________________________________

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

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2008/08/shoulder-season.html


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