[R-G] [BillTottenWeblog] Burning Down the House

[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 (February 11 2008)


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 (that is, 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 ninety 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 {1}. 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.

{1}: http://www.rgemonitor.com/blog/roubini/242906/

http://jameshowardkunstler.typepad.com/clusterfuck_nation/


TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/