[R-G] [BillTottenWeblog] Forecast for 2009

[Bill Totten]

Clusterfuck Nation

by Jim Kunstler

Comment on current events by the author of
The Long Emergency (2005)

www.kunstler.com (December 28 2008)


Introduction

There are two realities "out there" now competing for verification among
those who think about national affairs and make things happen. The
dominant one (let's call it the Status Quo) is that our problems of
finance and economy will self-correct and allow the project of a
"consumer" economy to resume in "growth" mode. This view includes the
idea that technology will rescue us from our fossil fuel predicament -
through "innovation", through the discovery of new techno rescue remedy
fuels, and via "drill, baby, drill" policy. This view assumes an orderly
transition through the current "rough patch" into a vibrant re-energized
era of "green" Happy Motoring and resumed Blue Light Special shopping.

The minority reality (let's call it The Long Emergency) says that it is
necessary to make radically new arrangements for daily life and rather
soon. It says that a campaign to sustain the unsustainable will amount
to a tragic squandering of our dwindling resources. It says that the
"consumer" era of economics is over, that suburbia will lose its value,
that the automobile will be a diminishing presence in daily life, that
the major systems we've come to rely on will founder, and that the
transition between where we are now and where we are going is apt to be
tumultuous.

My own view is obviously the one called The Long Emergency.

Since the change it proposes is so severe, it naturally generates
exactly the kind of cognitive dissonance that paradoxically reinforces
the Status Quo view, especially the deep wishes associated with saving
all the familiar, comfortable trappings of life as we have known it. The
dialectic between the two realities can't be sorted out between the
stupid and the bright, or even the altruistic and the selfish. The
various tech industries are full of MIT-certified, high-achiever Status
Quo techno-triumphalists who are convinced that electric cars or
diesel-flavored algae excreta will save suburbia, the three thousand
mile Caesar salad, and the theme park vacation. The environmental
movement, especially at the elite levels found in places like Aspen, is
full of Harvard graduates who believe that all the drive-in espresso
stations in America can be run on a combination of solar and wind power.
I quarrel with these people incessantly. It seems especially tragic to
me that some of the brightest people I meet are bent on mounting the
tragic campaign to sustain the unsustainable in one way or another. But
I have long maintained that life is essentially tragic in the sense that
history won't care if we succeed or fail at carrying on the project of
civilization.

While the public supposedly voted for "change" this fall, I maintain
that they underestimate the changes really at hand. I voted for "change"
myself in pulling the lever for Barack Obama. I regard him as a figure
of intelligence and sensibility, but I'm far from convinced that he
really sees the kind of change we are in for, and I fret about the
measures he'll promote to rescue the Status Quo when he moves into the
White House a few weeks from now.

Where We Are Now

Without reviewing all the vertiginous particulars of the year now
ending, suffice it to say that the US economy fell on its ass and that
the "global economy" did a face-plant as well. The American banking
sector imploded spectacularly to the degree that investment banking
actually went extinct - as if a meteor landed on the corner of Madison
Avenue and 51st Street. The response by our government was to shovel
"loans" onto the loading dock of every organization that pretended to be
something like a bank, while "bailing out" an ever-longer line of
corporate claimants with a pitiable song-and-dance. The oil markets went
on a roller coaster ride. The housing bubble collapse grew to avalanche
velocity (taking out whole colonies of realtors, mortgage brokers, and
construction contractors in its path), the commercial real estate sector
developed hemorrhagic fever, retail drove off a cliff on Christmas Eve,
the stock market fell in the toilet, jobs and incomes went up in a
vapor, and tens of millions of ordinary citizens addicted to revolving
credit found themselves in a life-and-death struggle for the means of
existence. None of this is over yet.

The Year Ahead

Much of what has been lost in 2008 will not be recovered: enterprises,
personal fortunes, chattels, reputations.

I expect a period of euphoria to mark the early weeks, perhaps months,
of the Obama team. It will be a relief to have a president who speaks
English correctly and has experienced something like real life prior to
politics. Restoring credibility and legitimacy in leadership will be a
big deal. If nothing else, we may recover a collective sense of
consequence from a president who tells the truth, even the harsh truth.
The age when it was enough to claim that "mistakes were made" might be
over. A sign of this sort of change may be the commencement of
prosecutions for misdeeds in banking and securities that are now
destroying the entire system of deployable capital. A good place to
start will be an investigation of Henry Paulson for insider trading
stemming from Goldman Sachs's shorting of its own issued mortgage-backed
securities when Mr Paulson was the company's CEO. Beyond his case, there
should be enough work at Attorney General Eric Holder's office to employ
a line of law school graduates stretching from Brattle Street to the
planet Mars. It will be salutary for the nation to see those who
engineered the banking collapse come to greater grief than the mere
surrender of their Gulfstream jets and Hamptons villas. By the way,
being allergic to conspiracy theories, I don't believe for a minute that
there is some kind of shadow elite of "Bilderburgers" standing in the
background to protect these grifters - and I also believe the reason
these paranoid notions persist is because it is otherwise hard to
account for the extravagant irresponsibility of the Bush circle and its
servelings.

Apart from "cleaning up Dodge", so to speak, and from issues of
collective character-and conscience-in-office, I worry that the
avalanche of troubles already ongoing will overwhelm Mr Obama and his
people. It's also well worth worrying whether they will pursue policies
similar in kind to the ones pursued by Bush, namely throwing money at
everything and anything, and it sure looks like they are planning to do
just that. I am especially concerned about an "infrastructure stimulus"
project aimed at highway improvement at the expense of public transit.
This would be the epitome of a campaign to sustain the unsustainable. We
need to begin planning right away for a transition away from
automobiles, not in order to be good socialists but because Happy
Motoring is at the core of our unsustainability trap. The car system is
going to fail in manifold ways whether we like it or not, and it will
fail due to circumstances already underway. For one thing, it will cease
to be democratic as the remnants of the middle class find it impossible
to get car loans, or pay for fuel, or insurance, and that will set in
motion a very impressive politics-of-grievance setting apart those who
are still able to enjoy motoring and those who have been foreclosed from
it. Contrary to what you might make of the the current situation in the
oil markets, we are in for a heap of trouble with both the price and
supply of petroleum (more on this below). And there is no chance in hell
that any techno rescue remedy to keep all the cars running by other
means will materialize.

A consensus in the blogoshpere says that the stock markets will rebound
strongly during the first Obama months. This is possible just on the
basis of pure "animal spirits", but the Obama Bounce will occur against
a background of continued dismal business and financial news. It will
appear to defy that news. By May of 2009, the stock markets will resume
crashing with the ultimate destination of a Dow 4000 before the end of
the year. Meanwhile, jobs will vanish by the millions and companies will
go bankrupt by the thousands, especially in the so-called service
sector, and in all the suppliers of such, along with the landlords in
all the malls and strip malls. The desolation will mount quickly and
will be obvious in the empty storefronts and trash-filled parking
lagoons. In the event, two things will become increasingly clear to the
nation: that the consumer economy is dead, and that there is no more
available credit of the kind that Americans are in the habit of enjoying.

We'll turn around early in 2009 and discover that we are a much poorer
nation than we thought because from now on credit will be extremely hard
to get for anyone for anything. The businesses that survive will have to
keep going on the basis of accounts receivable. This is the area where
the crash of giants will be heard. I've been saying since publication of
The Long Emergency that comprehensive downscaling in all our activities,
from farming to business to schooling to governance, will be the
categorical imperative of the years ahead. Giant enterprises requiring
giant loans to get from quarter to quarter will tend to not make it.
Borrowing from the future will become a practical impossibility as past
bad debts from previous borrowings continue to unwind, cease performing,
and get written off. This argument implies that the federal government
will tend to flounder just as General Motors, Citicorp, Target Stores
and other gigantic enterprises will tend to flounder. It would be sad to
see a President Obama so hamstrung and helpless, and it is largely why I
see his role as largely symbolic - as a reassuring presence encouraging
the distressed public to bravely bear their hardships, and to be kind
and helpful among their neighbors.

Households, like businesses, will have to pay as they go from earned
income. The house as ATM is over. Credit cards are maxed out and credit
ceilings are lowering like the ceiling in "The Pit and the Pendulum",
preparing to slice-and-dice the old "normal" of family life in America.
Bankruptcy will be the new Nascar. A lot of families will lose
everything. They will sift and disperse into the housing owned by other
family members - parents, siblings - and a strange new not-altogether
comfortable kind of togetherness will become common. Over time, a lot of
people will go looking for casual work "under-the-table" (and probably
low-paying). To some degree, these workers will begin to look and act
like a new servant class, and before too long they may be absorbed into
the households of people who employ them. There will be plenty of room
for them there.

Counties, municipalities, and states will join in the bankruptcy fiesta.
It would be reasonable to expect collapsing services as a result. This
would be a situation fraught with danger - of rising crime, of public
health emergencies as water systems are not kept up and sewage treatment
becomes unaffordable. I don't imagine the federal government stepping
into every Podunk or Metropolis from sea to shining sea and propping up
these services. People will have to cope with danger and deprivation.

2009 may be the point where we begin to understand what kinds of places
will be more hospitable to human society further ahead. I maintain that
our giant urban metroplexes have way overshot their sustainable scale
and will contract severely. With all the economic hardship, we ought to
expect a lot of demographic churning, people leaving hopeless places and
moving on to something more promising. I believe we will see them move
to smaller towns and smaller cities. The reorganization of the rural
landscape into smaller-scaled farms has not begun to occur - though 2009
might be very hard on agribusiness, given the shortage of capital and if
oil begins to march up in price by late winter. Eventually, the rural
landscape will require the labor of many more people than is currently
the case. Whatever else happens, 2009 will surely see a massive return
to home gardening as budgets become strained to the extreme. As the New
Urbanist Andres Duany said recently, "Gardening is the new Golf!"


The Oil Scene

Many were stunned this year to witness the parabolic rise and fall of
oil prices up to nearly $150 and then back around $36 by Christmas time.
Quite a ride. I said in The Long Emergency that volatility would be the
hallmark of post peak oil because it was obvious that advanced economies
could not absorb super high prices and would crash in response; that at
some point after crashing, these economies would respond to the new
lower oil price, resume their cheap oil habits, and build to another
price rise ... and crash again ... in a declension of ever-lower
industrial activity.

What I probably didn't realize at the time was how destructive this
cycling between low-high-and-low oil prices would actually be in the
first instance of it, and what a toll it would take right off the bat.
We can see now that our first journey through the cycle took out the
most fragile of the complex systems we depend on: capital finance. As a
result, a huge amount of capital (say $14 trillion) has evaporated out
of the system, never to be seen again (and never to be deployed for
productive purposes). It will be harder for the USA to rebound from the
grievous injury to this crucial part of the overall system, and Europe
has foundered similarly - though the European nations are not burdened
to the same degree by the awful liabilities of suburbia.

Even if these advanced economies - throw in Japan too - remain moribund,
the price and supply prospects for oil look ominous. My own guess is
that the price of oil has overshot on the low end just as it overshot on
the high end, and that, when all is said and done, we'll still see an
upwardly trending price line over the long haul. The plunge, which began
right after the $147 peak in July 2008, was as much the result of banks,
hedge funds, and individuals dumping oil investments and positions to
raise cash as it was a matter of the markets predicting a sharp fall-off
in economic activity (and supposedly oil consumption). The truth is that
demand destruction for oil in the USA has been surprising mild compared
to the drop in price. Jim Hansen's Master Resource Report {1} says that
gasoline consumption dropped from 9.29 million barrels a day in 2007 to
8.99 million barrels a day for 2008. That's not much of a fall-off,
especially compared to the price drop.

As Julian Darley of the Post Carbon Institute put it recently: "There
won't be any energy bail-out". And, as many other people have noted, the
recent plunge in oil prices strongly implies future supply destruction,
since so many planned oil projects have been suspended or cancelled
because they are economic losers at $40-a-barrel (or even $70). Even
projects well underway, such as Canadian tar sand production, have been
scaled back or shut down because they don't make sense at current
prices. Some of these other newer projects will now never get underway -
they have missed their window of opportunity with so much capital
leaving the system - and so the hope of offsetting very-near-future
depletions in old giant oil fields looks dimmer and dimmer.

Those depletions are very serious. For instance, Mexico's super-giant
Cantarell oil field, the second-largest ever discovered after Saudi
Arabia's Ghawar field, has shown a thirty percent depletion rate in the
past year alone. (Pemex had forecast a fifteen percent rate entering the
year.) Cantarell provides over sixty percent of Mexico's total
production, and Mexico is America's third largest source of imports -
just after Saudi Arabia (#2) and Canada (#1). Obviously, Mexico soon
will lose its ability to export oil, and as that occurs, America is
going to feel more than pinch - more like a two-by-four upside the head.
In short, remorseless depletion is underway and we are less likely now
than even a year ago, to make up for it.

At some point, then, demand, even if slightly lower, will catch up with
declining supply. My prediction for 2009 is that we will see two things
occur, possibly at the same time: a resumption of rising prices, and
spot shortages. I say this because the global economic fiasco is sure to
produce geopolitical friction, and inasmuch as America has to import
almost three-quarters of the oil we use, the prospect for trouble is great.

The tragic part of all this, of course, is that the temporary plunge in
oil prices has prompted an incurious American public to assume, once
again, that the global oil predicament is some kind of a fraud. Given
the flood tide of fraud they have been subject to in banking and
investment matters, I suppose you can't blame them from thinking that
everything is some kind of a scam. Given feeble car sales this season,
there are reports that an increasing percentage of those sold now are
are trucks and SUVs.

Though I give Boone Pickens high marks for stepping up to the leadership
plate, I'm not altogether on board with his energy proposal for swapping
natural gas for gasoline in motor fuels while we swap out wind power for
natural gas in electric power generation. I don't believe that the
ballyhooed shale-gas-plays of the last few years will prove-out
long-term, as some huckster's claim. They are expensive to drill and
run, and they all tend to deplete very quickly - around one year. I'm
not convinced we have the capital or the resources even to come up with
the steel necessary to drill for it. Anyway, the last thing we need is a
way to prolong our car-dependency.

In the meantime, there are still those who hope (as described above)
that various alt.energy systems will insure the continuation of Happy
Motoring. This is an idle hope, and 2009 will be very sobering for those
who imagine that hybrid cars, or electric cars, or "air" cars, or
natural gas cars,  or any other kind of car technology will save the
day. Even if President Obama mounts an "infrastructure stimulus"
program, it will not keep up with all the necessary routine road repair
that our highway system requires. The extreme financial hardship faced
by localities and states insures that they will have to postpone a lot
of expensive highway maintenance - even if the federal government fixes
a big bunch of bridges and tunnels - and so we face the interesting
prospect that our roadway systems will enter their own deadly zone of
systemic failure even before the whole car issue is settled.

I am waiting to see whether Mr Obama will undertake a restoration of
passenger railroad service. I've said enough about this in the past, but
it's worth reiterating that a failure to get comprehensive passenger
rail service going will be a sign of how fundamentally unserious we are
as a nation.

The Specter of Inflation

This is the "other shoe" that a lot of people are waiting to drop. Right
now we are caught up in a compressive debt deflation as mortgages stop
"performing" and loans of all kinds are welshed on. Since money is
loaned into existence, and a great many loans are not being repaid, then
a lot of money is going out of existence. That's what I mean when I say
that capital is leaving the system. At the same time, the Federal
Reserve has made good on its promise to drop money from helicopters if
necessary to prevent an implosion of the banking system (as all that
older money goes out of existence), and so it's now a question as to
when the amount of new money will exceed the disappeared old money. (Of
course when I say money, I mean "money", because we are dealing here in
a shadow realm of assumed value.) In any case, there is bound to be a
lag period between the time that the Fed's money is dropped from the
choppers and the time it actually filters through the banks and other
recipients to the so-called "real economy" of people who buy and sell
real things. The credible estimates I hear run between six and eighteen
months.

I'll only venture to guess that we could see the start of serious
inflation sometime in 2009. To some extent, all currencies are now
free-falling together, some at slightly faster rates than others, but
the situation of the US dollar is so grotesquely dire, and our
structural imbalances so monumental, that it is hard to imagine that our
currency will not win the international race to the bottom. Gold resumed
its movement upward against the dollar a week before Christmas, and that
may be an early sign. The government - and anyone badly in debt -
benefits much more from inflation than deflation, so every effort will
be made to avert the latter. The trouble lies in the government's dumb
incapacity to control dangerous things that it sets in motion, so that
an inflationary campaign to avoid compressive deflation can so easily
lead to a fiasco of super or hyper inflation - the kind that kills
governments and turns societies into murderous monsters. I'll forecast
the that the US dollar is worth forty percent of its current value by
next Christmas.

Geopolitics

Well, now, who the hell knows what's in store. Aside from a few bombs
here and there, and pirates skulking around the horn of Africa, the
world scene was miraculously free of major incidents in 2008 - perhaps
the worst being a toss up between the September Mumbai bombings and the
fiasco in Georgia, where the US prompted Georgia President Mikheil
Saakashvili to send troops into the South Ossetia region and the move
was answered by overwhelming force from neighboring Russia, leaving the
US looking feckless and retarded for our troubles. But otherwise, there
wasn't a whole lot of action out there.

Until the last few days of the year, that is. I'm sure the ever-growing
cohort of American anti-semites who send me emails will be tickled when
I assert that the Hamas rocket attacks against Israel of recent days
guaranteed a sharp response from Israel - and now, of course, Hamas is
playing the crybaby card: "... what'd we do to deserve this...?" Well,
you fucking fired a bunch rockets into Israel. Did you ever hear of
cause-and-effect? This matter requires no further elucidation, except
that it seems to suggest a ramping back up of hostilities. I wonder if
it is the beginning of a new coordinated offensive by Islamic extremism
aimed at taking advantage of the West's current economic plight (and the
West's probable aversion to anything that will complicate its desired
recovery). We'll know in a month or so, I think, since any coordinated
campaign (if such a thing were possible) might well be aimed at
confounding the new American president.

The other hot corner of the world right now is the India-Pakistan border
where the sixty-year-old rivalry, which has already produced three wars,
looks to be gearing up for yet another round. I'm not the first one to
say that Pakistan is an extremely dangerous regional player, being an
economic basket case, possessing a score or so of nuclear bombs,
harboring more Islamic fundamentalist maniacs than any other place in
the world, and having a government held together with duct tape and
twine. The caper in Mumbai last September could well have been construed
as an act of war, but somehow India kept its head. Who knows where this
is going ...

So far I have only described what is already obviously going on. Add to
this the likelihood that Iran is closer to achieving membership in the
atomic weapon club. They've been spinning their centrifuges all year and
nobody has done anything about it. My guess is that neither the US nor
Israel will attempt to take out their facilities in the year ahead. If
Iran used a nuclear device against Israel, or anybody else, they would
be asking to become, in turn, the world's largest ashtray. End of story.
A different story, though, is how Iran might behave if and when the US
Military presence in Iraq is reduced. I can imagine Iran doing anything
possible surreptitiously to gain control over Iraq's southern oil
regions around Basra, but even the Iraqi Shia don't like the Iranian
Shia that much. Anyway, iran's economy has suffered hugely from the fall
in oil prices. That nation may be in for more internal trouble than they
have seen in thirty years since the Shah was tossed out by the minions
of Ayatollah Khomeini.

There's been a lot of sentiment the past year that as the US and the
Europe fall into economic disarray, China would emerge as the great new
hegemonic superpower. While it's come a long way in a quarter-century,
China's internal problems are still enormous and worsening. They're in
trouble with water, food imports, mass unemployment, and energy. They
have locked in some oil contracts around the world, but they are still
susceptible to vagaries in the oil markets and Black Swan events. As the
US consumer economy falls into a coma, and the shipping containers from
China to WalMart get sparser, the Chinese government will face the wrath
of millions of unemployed workers. I believe they will struggle through
2009, perhaps growing more surly as the US dollar inflates and their
holdings of treasury bills begins to look more like a swindle.

Russia may be suffering economically for the moment due to the crash of
oil prices, but they are energy resource-rich - at least for the next
couple of decades - and if they don't like the current price, they can
keep more of their oil in the ground until the price looks more
attractive. I think Mr Putin has the confidence of the Russian people
and will survive the current malaise.

Japan remains a riddle wrapped in toasted nori. They're beggaring their
own factory workers to stay solvent. Their banking sector has been
zombified for a generation. They import 95 percent of the energy they
use. Do they have a plan? One can imagine them sliding in resignation
back to something like the sixteenth century, giving up the whole
industrial circus as more trouble than it's worth, just as they once
gave up on firearms.

The over-arching geopolitical theme of 2009 will be the end of robust
globalism as we've known it for some time. Reduced trade, competition
for energy resources, sore feelings over debts and currencies will drive
the nations inward or, at least, direct their energies toward their own
regions. Note to Tom Friedman: the world turned out to be round after all.

Conclusion

The big theme for 2009 economically will be contraction. The end of the
cheap energy era will announce itself as the end of conventional
"growth" and the shrinking back of activity, wealth, and populations.
Contraction will come as a great shock to a world of conventionally
programmed economists. They will toil and sweat to account for it, and
they will probably be wrong. Unfortunately, this contraction will do its
work in unpleasant ways, driving down standards of living, shearing away
hopes and expectations for a particular life of comfort, and introducing
disorder to so many of the systems we have depended on for so long.
People will starve, lose their homes, lose incomes and status, and lose
the security of living in peaceful societies. It will become clear that
the Long Emergency is underway.

My hope for the year, at least for my own society, is that we will
transition away from being a nation of complacent, distracted, over-fed
clowns, to become a purposeful and responsible people willing to put
their shoulders to the wheel to get some things done. My motto for the
new year: "no more crybabies!"

Link {1}: http://masterresourcereport.spaces.live.com/
_____

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

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