[R-G] [BillTottenWeblog] What Next?

[Bill Totten]

Clusterfuck Nation

by Jim Kunstler

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

www.kunstler.com (March 02 2009)


Isn't that a question, though ...

The Peak Oil story was never about running out of oil. It was about the
collapse of complex systems in a world economy faced by the prospect of
no further oil-fueled growth. It was something of a shock to many that
the first complex system to fail would be banking, but the process is
obvious: no more growth means no more ability to pay interest on credit
... end of story, as Tony Soprano used to say.

There was a popular theory among Peak Oilers the last decade that the
world would enter a "bumpy plateau" period when the global economy would
get beaten down by peak oil, would then revive as "demand destruction"
drove down oil prices, and would be beaten down again as oil prices shot
up in response - with serial repetitions of the cycle, each beat-down
taking economies lower - the only imaginable outcome being some sort of
quiet homeostasis. This scenario did not play out as expected. It was
predicated on a mistaken assumption that all systems would retain some
kind of operational resilience while ratcheting down. Anyway, the
banking system was mortally wounded in the first go-round and the
behemoth is dying hard.

The last desperate act of the banking system in the face of Peak Oil's
no-more-growth equation was to engineer species of tradable securities
that could produce wealth out of thin air rather than productive
activity. This was the alphabet soup of algorithm-derived frauds with
vague and confounding names such as credit default swaps (CDSs),
collateralized debt obligations (CDOs), structured investment vehicles
(SIVs), and, of course, the basic filler, mortgage backed securities.
The banking system is now choking to death on these delicacies.

The trouble is that the EMT squad brought in to rescue the banking
system - that is, governments - can't remove these obstructions from the
patient's craw. They don't want to drown in a mighty upchuck of the
alphabet soup.

The collapse of complex systems is actually predicated on the idea that
the systems would mutually reinforce each other's failures. This is now
plain to see as the collapse of banking (that is, of both lending and
debt service), has led to the collapse of commerce and manufacturing.
The next systems to go will probably be farming, transportation, and the
oil markets themselves (which constitute the system for allocating and
distributing world energy resources). As these things seize up, the
final system to go will be governance, at least at the highest levels.

If we're really lucky, human affairs will eventually reorganize at a
lower scale of activity, governance, civility, and economy. Every week,
the failure to recognize the nature of our predicament thrusts us
further into the uncharted territory of hardship. The task of government
right now is not to prop up doomed systems at their current scales of
failure, but to prepare the public to rebuild our systems at smaller scales.

The net effect of the failures in banking is that a lot of people have
less money than they expected they would have a year ago. This is bad
enough, given our habits and practices of modern life. But what happens
when farming collapses? The prospect for that is closer than most of us
might realize. The way we produce our food has been organized at a scale
that has ruinous consequences, not least its addiction to capital. Now
that banking is in collapse, capital will be extremely scarce. Nobody in
the cities reads farm news, or listens to farm reports on the radio.
Guess what, though: we are entering the planting season. It will be
interesting to learn how many farmers "out there" in the Cheez Doodle
belt are not able to secure loans for this year's crop.

My guess is that the disorder in agriculture will be pretty severe this
year, especially since some of the world's most productive places -
California, northern China, Argentina, the Australian grain belt - are
caught in extremes of drought on top of capital shortages. If the US
government is going to try to make remedial policy for anything, it
better start with agriculture, to promote local, smaller-scaled farming
using methods that are much less dependent on oil byproducts and capital
injections.

This will, of course, require a re-allocation of lands suitable for
growing food. Our real estate market mechanisms could conceivably enable
this to happen, but not without a coherent consensus that it is
imperative to do so. If agri-business as currently practiced doesn't
founder on capital shortages, it will surely collapse on disruptions in
the oil markets. President Obama at least made a start in the right
direction by proposing to eliminate further subsidies to farmers above
the $250,000 level. But the situation is really more acute. Surely the
US Department of Agriculture already knows about it, but the public may
not be interested until the shelves in the Piggly-Wiggly are bare - and
then, of course, they'll go apeshit.

The recent huge drop in oil prices has left the public once again
convinced that the world is drowning in oil - if only the scoundrelly
oil companies were forced to deliver it at reasonable prices. The public
has been consistently deluded about this for decades. What's missing so
far is for the president of the US to lay out the reality of the
situation in a dedicated TV address. I know a lot of you think that
Jimmy Carter already tried this and failed to make an impression (and
ruined his presidency in the process). I guarantee you that Mr Obama
will have to do this sometime in the next few years whether he likes or
not, and he'd be well-advised to get it done sooner rather than later.
And by this I don't mean just vague allusions to "energy independence"
or "renewables" in speeches devoted to many other issues. I mean telling
the public the plain truth that we'll never offset oil depletion and the
intelligent response is to do everything possible to transition to
walkable towns and public transit, not to sustain the unsustainable.

The alternatives - that is, what we're trying now - is to further delude
ourselves into thinking that we can run WalMart and the suburbs by some
other means than oil. Despite all our investments in these things, we
won't be able to run them by other means, and the news about this had
better get out before enormous disappointment turns into titanic rage.
If Americans think they've been grifted by Goldman Sachs and Bernie
Madoff, wait until they find out what a swindle the so-called "American
Dream" of suburban life turns out to be.

On this blizzardy Monday in the power centers of America, attention is
fixed on the never-ending fiasco of AIG - a company whose main product
turned out to be credit default swaps, and is now choking on them.
Kibitzers on the sidelines of finance are forecasting a king-hell bear
market suckers' rally in the stock markets followed by a belly flop to
Dow 4000 or lower. I myself called for Dow 4000 two years ago - and was
obviously a bit off on my timing. All this is surely trouble enough. But
while your attention is focused on Rick Santelli in the Chicago trader's
pit, or Larry Kudlow desperately seeking "mustard seeds" of new growth
in financials, try to let one eye stray to the horizon where these other
complex systems are working out their next moves. Farming. The oil
markets. These are the coming theaters of alarm and distress.

_____

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

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2009/03/what-next.html


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