[R-G] [BillTottenWeblog] Still Pretending

[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 25 2008)


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.

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


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