[R-G] [BillTottenWeblog] "Far From Normal"

[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 (May 19 2008)


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


Those were the words that Fed chairman Ben Bernanke used to describe the
financial markets (and by extension the economy) these heady spring days
when everybody else with a rostrum, it seems, has pronounced the
so-called liquidity crisis contained. There's a great wish for American
finance to return to business-as-usual - raking in fantastic fees for
innovating new modes of tradable paper, and engineering mergers and
buy-outs that generate huge fees plus $100 million kiss-offs for
corporate CEOs in the noble struggle to dismantle America's productive
capacity - but apparently events are still out of hand.

The Federal Reserve itself has been instrumental in promoting
abnormality by doing everything possible to prevent the work-out of bad
debts in the system. Since money is loaned into existence, and loans are
debts, the work-out of bad debt suggests the discovery that a lot of
money has disappeared - which is exactly the case. The Fed has postponed
the work-out by sucking up truckloads of impaired, untradable securities
in exchange for loans to giant banks who don't have enough cash on hand
to pay their janitors.

Personally, my theory has been that the specter of peak oil pretty
clearly implies the inability of industrial economies to continue
producing real wealth in the customary way. In the face of this, either
consciously or at a more mystical level, the worker bees in banking
recognize that, in order to maintain their villas in the Hamptons, money
has to be loaned into existence some other way (than in the service of
industrial productivity).

We've tried just about everything else. There was the so-called service
economy, an attempt to replace manufacturing with hamburger sales. Then
there was the information economy, in which work would be replaced with
knowing about stuff. Then there was the tech thing, which was about
bringing internet companies that existed only on the back of cocktail
napkins to the initial public offering stage of capitalization - which
allowed a few hundred or so thirty-year-old smoothies to retire to
vineyards in the Napa Valley, while hundreds of thousands of retirees
lost half the value of their investment portfolios. Then there was the
housing boom, which was all about the creation of more suburban sprawl
under the theory that houses (or "homes" in the jargon of the realtors)
represent an obvious sort of wealth, and therefore that using houses as
collateral would allow humongous sums of money to be loaned into
existence - along with massive fees for structuring the loans into
bundles of bond-like thingies.

This has all failed now because the racket went too far. Every possible
candidate for a snookering got snookered. Too much collateral for which
there were no takers went into the ground. The insane run-up in house
values made a downward price movement inevitable, and as soon as the
turnaround happened, it fell into the remorseless algebra of a
deflationary death spiral. More importantly, however, this society ran
out of tricks for loaning money into existence and instead began to
experience the pain of money thought to be in existence being defaulted
into a vapor - and worse, these defaults led to logarithmic chains of
money destruction in its places of origin, the investment banks that had
created the racket.

The important part of this is that the money is gone. What makes matters
truly eerie is that the "bubble" in suburban houses has occurred at
exactly the moment in history when the chief enabling resource for
suburban life - oil - has entered its scarcity stage.

The logical conclusion of all this is not what the American public wants
to hear: we have become a much poorer society and are now faced with the
unavoidable task of making major changes in how we live. All the
three-card-monte moves at the highest level of finance lately amount to
an effort to avoid the unavoidable, acknowledging our losses. Certainly
the political fallout of all this will be awesome. But it's not about
politics, really. It's about the entire society's inability to form a
workable new consensus of reality.

It's hard to predict how long these institutions at the heart of our
economic system can linger in the "far from normal" limbo of pretending
that money has not been defaulted out of existence. Since the same
process is underway in Great Britain and Spain, places beyond the
control of Bernanke, Secretary Paulson, and the Boyz on Wall Street, and
since actions and reactions there will affect the destiny of money here,
its hard to escape the conclusion that we're at most months away from
the brutal recognition that Wall Street has managed to bankrupt itself
(and, by extension, the United States). This is dark heart of the matter
of which no one dares speak.

Meantime, on the ground, every mook and minion in the land sees the gas
pumps levitate beyond the $4 hash mark, and notes with bugged-out eyes
the double-digit price stickers on common supermarket items, and feels
the rush of blood from the extremities when some check-out clerk at the
WalMart declares that a certain proffered credit card is maxed out, and
some strangers in overalls - the neighbors say - managed to hot-wire the
GMC Sierra in the driveway, and took it away ...

The candidates for president will have a lot to talk about. I wonder if
they'll dare to.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2008/05/far-from-normal.html


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/